Interim report: Positive results projected from Free Trade Agreement

The International School of Economics (ISET) hosted a workshop on “Trade Sustainability Impact Assessment of the EU-Georgia Deep and Comprehensive Free Trade Agreement”. In parallel with the DCF TAnegotiation process between the EU and Georgia, the European Commission has contracted an independent study, aimed at the assessment of the potential economic, social and environmental effects of the DCFTA to the consortium of ECORYS (Netherlands) and CASE (Poland), as well as the CASE Georgia and ISET.

The ECORYS-CASE-ISET consortium applied for a variety of tools including economic modeling, literature review, data analysis, as well as an interview with stakeholders in implementing the trade sustainability assessment (TSIA) project.

During the workshop the ECORYS-CASE-ISET consortium presented the findings from the draft interim report. According to the findings of the study, the DCFTA should have positive and significant economic effects for Georgia with GDP increasing by 4% in the long term. Georgian exports are expected to increase by 12% and imports by 7%

As the study reveals, the DCFTA will have an impact on several sectors in Georgia. For example, the chemicals, rubber and plastics, primary metals, construction and trade sectors, are all expected to increase their output significantly. On the other hand, sectors such as food and livestock and meat products might be negatively affected.

“We try to reach regulatory approximation in a certain number of areas, and of course it will be very beneficial for Georgia. We think there will be some economic, social and environmental benefits. But of course you might have some costs. Like any process of reforms it has a cost or compliance cost, but in the long-term we expect it to be beneficial for business operators, as well as for consumers,” said European commission Attache Virginie Cossoul.

She noted that the negotiation process is a long preparatory process, and Georgia should gradually comply with the requirements. “We are not asking Georgia to be ready within couple of days because we know it is quite a painful exercise. There is a long preparatory process that Georgia is able to begin to undertake," she said, adding that the EU is financially assisting Georgia to comply with the requirements.

On average DCFTA is likely to increase the consumption ability of Georgian citizens as wages are projected to increase by 3.7% in the long run, whereas consumer prices are expected to fall by 0.6 percent. Prices for food however are expected to increase and due to this effect there is a risk that the less affluent groups (those who spend more on food) will gain less and a very small fraction of the population will may even see a slight decline in their consumption power. This consequently may lead to a limited increase in income inequality

According to findings, the free trade agreement will bring a combination of positive and negative environmental effects and the overall impacts is difficult to predict. The situation in agriculture, forestry, and the transport sectors may be the key to determining the overall affects on environment.