Dechert OnPoint: Recent Developments in Relation to Georgia-EU Free Trade

Dechert Georgia, through the contribution of partners Archil Giorgadze and Nicola Mariani, joined by senior associates Ruslan Akhalaia and Irakli Sokolovski, as well as Ana Kostava and Ana Kochiashvili, is partnering with Georgia Today on a regular section of the paper to provide updated information regarding significant legal changes and developments in Georgia. In particular, we will highlight significant issues which may impact businesses operating in Georgia.

Dechert’s Tbilisi office combines local service and full corporate, tax and finance support with the global knowledge that comes with being part of a worldwide legal practice.

Dechert Georgia is the Tbilisi branch of Dechert LLP, an international law firm that focuses on core transactional and litigation practices, providing world-class services to major corporations, financial institutions and private funds worldwide. With more than 900 Lawyers in our global practice groups working in 27 offices across Europe, the CIS, Asia, the Middle East and the United States, Dechert has the resources to deliver seamless, high quality legal services to clients worldwide. For more information, please visit www.dechert.com or contact Nicola Mariani at

nicola.mariani@dechert.com.

GENERAL OVERVIEW

Over the course of the past ten years liberal trade regimes have helped foster growth in the Georgian economy. Following this trend the Agreement on Deep and Comprehensive Free Trade Area (the “DCFTA”) – as part of the Association Agreement signed between the European Union and Georgia (the “AA”) signed on 27 June 2014 – has the potential to increase bilateral trade turnover in a significant fashion. In the first six months following the signing of the DCFTA, Georgian exports to the EU increased by 12% and the export of certain Georgian products doubled or even tripled. This week’s edition of Dechert OnPoint provides an overview of the DCFTA and its implications for Georgian businesses.

The DCFTA introduced a preferential trade regime granting bilateral parties special advantages above those enjoyed by other trade partners. The Free Trade Area (the “FTA”) is expected to decrease trade barriers for Georgian products and augment their competitiveness in the EU market. In contrast to other free trade agreements, the DCFTA envisages liberalization not only of the market for goods but also of the market for services. The DCFTA includes a wide range of spheres (competition policy, intellectual property, financial services and others) and allows Georgia to take advantage of three of the four freedoms of the EU single market: free movement of goods, services and capital (the free movement of persons being excluded but there is a plan for a liberalized visa regime currently being developed).

TARIFF BARRIERS

The DCFTA removes all customs duties on the import and export of goods. Goods originating in Georgia will enter the EU market with a zero customs duty provided that specified non-tariff requirements are met.

The DCFTA envisages limitations on certain types of products:

· Twenty-eight species of agricultural products will remain subject to import duties (the so called “Entry Price”; examples of goods subject to the Entry Price include tomatoes, cucumbers, sweet oranges, tangerines, table grapes and apples, among others) with the exception of the ad valorem component. The exporter will only be responsible to pay the entry price if the invoice price of the exported goods exceeds the price determined by the EU;

· The anti-circumvention mechanism is another restriction set out by the DCFTA for 237 Georgian products (examples include frozen lamb, frozen boneless turkey cuts, egg yolks, meslin flour and maple sugar, among others). The DCFTA provides a fixed quantity of certain products to be exported. The anti-circumvention mechanism is not a quota but a limitation which can be extended based on the Government of Georgia’s prior request; and

· The duty-free tariff rate quota is fully lifted under the DCFTA with the exception of the import of garlic from the EU to Georgia.

PRODUCT ORIGIN

The DCFTA offers Georgian products free trade access to the markets of EU Member States. In order for products to qualify for the favorable free trade regime with the EU they shall be granted a certificate issued by the competent Georgian authorities (the “Certificate of Origin”) to receive the status of a Georgia-originated product.

Protocol 1 of the AA (the “EU Origin Rules”) sets out the relevant provisions concerning the granting of the certificate of origin.

According to the EU Origin Rules the following products are considered to originate in Georgia under the DCFTA:

· Products wholly obtained in Georgia – products obtained in Georgia mean vegetables and fruits harvested in Georgia, live animals born and raised in Georgia and natural minerals mined in Georgia. Any product produced from the above mentioned will be considered to have originated in Georgia.

· Products obtained in Georgia but incorporating materials which have not been wholly obtained in Georgia, provided that such materials have undergone sufficient work or processing. The following criteria are taken into account when determining the product origin:

· Change of Harmonized System Code - processing carried out on the territory of Georgia which changes the first-four digits of the Harmonized System Code compared to the initial product;

· Criterion of ad valorem share - determines the share of imported goods in the final product; and

· Criterion of necessary conditions, manufacture and technological operations – technological operations have to be carried out during the process of reproduction.

In order for the Certificate of Origin to be granted the fulfillment of several criteria might be requested. The Certificate of Origin is issued by the customs department of the Georgian Revenue Service.

NON-TARIFF BARRIERS

The elimination of non-tariff barriers is also an important component of the DCFTA. Examples of non-tariff barriers include the following: technical regulations; standards; conformity assessment procedures; and sanitary and phytosanitary measures, etc.

Under the DCFTA, the parties undertake to avoid unnecessary divergence of technical barriers to trade. Sanitary and phytosanitary measures aim to facilitate bilateral trade in animals and plants as well as products of animal and plant origin, while ensuring that standards for health protection are maintained. Implementation of sanitary and phytosanitary measures will allow Georgia to improve its animal welfare situation as well as protect the country from unhealthy organisms and increase the quality of Georgian products on the European market.

Products imported from Georgia to the EU shall undergo a conformity assessment. The conformity assessment is conducted by specially-accredited agencies in Georgia. The Unified National Body of Accreditation – Accreditation Center carries out accreditation in accordance with the Code on Safety and Free Movement of Products. The product shall fulfill all of the requirements stipulated under the relevant legislation before it enters the market, in particular with regard to the health and safety of consumers.

In order to fully lift non-tariff barriers Georgia must bring its domestic legislation in line with that of the EU. As a result of convergence in regulatory standards the Georgian authorities will ultimately be responsible for authorizing export to the EU. The DCFTA and Georgia’s continued adoption of EU regulatory standards provide more reason to be optimistic about the country’s import and export industries.

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Note: this article does not constitute legal advice. You are responsible for consulting with your own professional legal advisors concerning specific circumstances for your business.