International Black Sea University

World Diplomacy Theory and Practice

Georgias Economic Diplomacy: Small Country Big Ambitions. Analyze diplomacy as a
process of decision making and negotiations in Georgias international economic relations
focused on core issues trade, investment and finance as well as integration into the multilateral
trading system.

2017

Lecturer: Amiran Kavadze

Student: Anano Paghava

Introduction

One cannot say that Georgia has a long history while speaking of diplomacy of it. However, until
today the country in question made a significant changes and breakthroughs towards engagement
into the globalized, multipolar world.

After the independence Georgia have chosen path to the democratic and liberal west rather than
operate under Russian Federation and follow its values. Georgia always preferred to imitate
developed countries and shared the western values. However, until 1994 it was engaged in civil
war, ethnic conflicts and intense, uncontrolled crimes all over the country. Shifts in the government
(from Gamsakhurdia to Shevardnadze) bearded fruits and former soviet republic has become the
member of United Nations (1992), have signed the Partnership and Cooperation Agreement (1994)
the very first steps towards European Union. It became the member of World trade Organization,
World bank and the International monetary Fund (1992) which was the beginning of the new era
for Georgia as an independent state but with no experience in governance or diplomacy at all,
however still, it were the steps towards bright future after the years of the darkness.

By that time countries socio - economic condition was almost in ruins: At the outset of the reforms
the socio- economic situation in the country was extremely difficult. Inflation reached 8,000 %
annually and the Gross Domestic Product (GDP) was 3 times less the index of 1990. 80% of the
population lived beyond the official line of poverty. (BOARDS OF GOVERNORS l 1998
ANNUAL MEETINGS l WASHINGTON, D.C, Press Release No. 64 October 6 - 8, 1998).

It is interesting to see how Georgia has gone the path towards the modern diplomacy and using its
tools of decision making and negotiation process specifically in trade, investment and finance as
well as integration into the multilateral trading systems mentioned above.

The research is more exploratory or qualitative focusing on the main developments in negotiation
process involved in international organizations around the development of economics specifically
trade, finance and investments.
Almost from the early XIX century country was totally swallowed by the Russian empire (if we
do not mention the small period of independence from 1918-1921) leaving it without any
experience of international diplomacy or any other engagement in outside world. Consequently
its economy and the political framework was dictated by Moscow thus having no participation in
global trade, economy or diplomatic relations with other countries like the United States, Great
Britain, France or other developed, democratic and capitalistic states outside of the USSR.
However, after the dissolution of the Soviet Union world met 15 newly emerged, independent
states with the same unexperienced backgrounds.

Georgia, as a new independent state formed the new government under the nationalist Zviad
Gamsakhurdia who failed to develop country with democratic features. Instead, he encouraged the
civil war. However in 1992 Eduard Shevardnadze (then Mikhail Gorbachev's foreign minister),
who was the de facto head of the state in 1992, made a significant moves towards world diplomacy
with the help of his connections and friendship with the foreign ministers and presidents of the
superpowers (like US Secretary of State James Baker). "Civilized person-to-person relations are
above ideology or class or particular interests," "This is what guides me when I talk to James Baker
[the then US Secretary of State], or to Douglas Hurd, or Hans-Dietrich Genscher. They are
partners, people with whom I have been able to establish a good relationship". Shevardnadze told
the Guardian in 1990, during the negotiations on German reunification. Indeed with the help of
the president Shevardnadzes past connections Hans-Dietrich Genscher, the German Foreign
Minister, James Baker, the US Secretary of State, Suleiman Demirel, the Prime-Minister of Turkey
(April-May 1992) visited Georgia thus emphasizing its emergence as an independent state on the
political map. Furthermore, it has to be mentioned that US, Germany, Holy See opened embassies
in Tbilisi, the capital of Georgia. In the same year of 1992, Georgian-Turkish agreement on
Friendship and Cooperation was signed which meant new bonds in the region with powerful
NATO member country. Indeed, through the debts issued by the World Bank and the International
Monetary Fund Georgia declined its inflation rate and stopped the downward inclination of the
GDP. IMF granted to Georgia funds worth of 246$ USD in the framework of Enhanced Structural
Adjustment Facility (ESAF) The International Monetary Fund (IMF) today approved a three-year
loan for the Republic of Georgia totaling the equivalent of SDR 166.5 million (about $246 million)
under the enhanced structural adjustment facility (ESAF). In support of the Government's
economic and structural reform program during the period 1996-98. (Press Release:96/7,
February 28, 1996). However, Russian crisis had a significant impact on countries economic
stability. The ESAFs program target had to be 10% growth of the GDP while the real picture was
only 2.9% of growth of the real GDP in 1998. Among the growth of the Gross Domestic Program,
ESAF included to be focused on other issues as well, like the general support to the economic
growth, improvement of educational and heath care systems as well as the smooth transition
process. However, the results were not promising much. The social condition of the population
and the general picture of the countries economic situation was still stiffed.

Alongside with all the reforms and changes the national currency Lari was created, one of the
key elements of the statehood.

The Technical Assistance to the Commonwealth of Independent States Program that was initiated
by the European Commission in 1991, helped the members of the CIS in the transition period from
socialist to the Democratic market-oriented economies. It provided grant-finances technical
assistance to the twelve countries of Eastern Europe and Central Asia. TACIS is substituted now
in the Europe Aid Program.

One of the crucial for the countrys new path was establishment of good relations with EU from
1994. It worth to mention that Georgia benefits from the GSP - Generalized System of Preferences
Since 1995. This program allows developing countries to benefit from the zero tariff on their
exports to the European Union markets. This great change gives countries to access EU market
and develop and growth their economy according to the EU standards. Under the current GSP
regulation Georgia qualifies for a special incentive rewarding sustainable development and good
governance (GSP+) with better access to the EU market. Georgia continues to benefit from GSP+
until 31 December 2016. (European Commission, Trade, countries and regions Georgia).

It seems that the new government under President Mikhail Saakashvili had more impact on the
developments of the country in western direction; we have to mention that the roots are coming
from the Shevardnadzes period. However, after the Rose Revolution in Georgia country has
undergone profound changes in almost all governmental sectors and implemented reforms. The
new strategic orientation was emphasized towards the Europe, the Transatlantic Alliance and
towards great powers. In September 2001, the then Minister of Justice, Mikhail Saakashvili,
resigned and created the opposition National Movement. Zurab Zhvanias and Nino Burjanadzes
estrangement from the presidents camp was completed in the spring of 2002 when they created
the United Democrats Party. Another important factor was the Labour Party, which attracted the
votes of the poorest electorate and, as such, was a relevant player on the side of the opposition.(
The Political Landscape of Georgia, Nodia, Scholtbach, 2006).

Still, it is obvious that the country, with no significant features useful for the Western world,
neither to the USA, could do much less without the old connections of president Shevardnadze. It
was his position in Soviet Union and good diplomatic tactic used during the transition period in
Georgia that helped country to regain the position in the Caucasus region alongside with the
carbon-producer Azerbaijan while Armenia benefited from a well-organized and politically
influential lobby all over the world, especially in the USA. The least, indeed, has almost no interest
in the country. However, the reach with oil resources, Caspian Basin was attractive to the USA
and oil companies.

While speaking of the Western Direction, we have to highlight the association agreement between
the European Union and Georgia, signed in 2014, 27th of June. Since that, time the package was
very beneficial for Georgia including the DCFTA (Deep and Comprehensive Free Trade
Agreement) to achieve economic adjustment, new preferential trade regime and integration into
the European market. (Official Journal of the European Union, 30.8.2014, 3-6).

The advantages for Georgia can be expressed in numbers: EU imports from Georgia mineral
products, agricultural products, base metals and chemical products. The EU imported goods to the
value of 742 million from Georgia in 2015.

In general, we cannot call The EU Eastern Partnership Initiative (EaP) something very illusory or
the useless initiative rather it could be called new way for deep integration with EU since the
Eap is a joint program involving the EU members countries and 6 eastern European partners like
Armenia, Azerbaijan, Belarus, Georgia, Moldova and Ukraine. It is based on principles of
international law and fundamental values - democracy, the rule of law, human rights and
fundamental freedoms. It also encompasses support for a market economy, sustainable
development and good governance. The EU and partner countries leaders meet every year on
Eastern Partnership Summits.

Meanwhile the war between Georgia and Russia erupted which, I believe, was the provoked by
the inexperienced diplomat and courageous young president of the country. The last events cut all
the possible connections between these two countries while it is obvious that Russia was the
primary exporter country and trade partner for Georgia. For sure, the effects were significant for
Georgian society and economy however with the backup of the Western powers country recovered
soon or later.

While speaking about the Western powers it has to be mentioned the intensified relations and
negotiations between USA, the North Atlantic treat organization NATO, and Georgia. It is
obvious that Foreign policy directions and choices are affected by internal political competition,
ideological contestation, and domestic interest group politics.

Finally, the evolution of the bilateral relationship eloquently displays the significance of
personalities to policy outcomes (Shevardnadzes prior connections to James Baker and George
H. W. Bush in one instance, and Mikheil Saakashvilis connections to George W. Bush and John
McCain in a second. As such, consideration of the perspectives and policies of the two sides
necessitates study not only of strategic perspectives, but also of internal elite dynamics,
bureaucratic and interest group politics, and also public opinion. (Cacachia,Cecire, p.79)

Recently, Ambassador Kelly, at the NATO-Georgia Public Diplomacy Forum, commented on

NATO-Georgian relations from the US perspective - United States firmly supports Georgias
aspirations to join NATO which is backed up by the trainings and security assistance that US is
providing to Georgia. Georgia has all the tools it needs to enter NATO.

Indeed the previous government under Mikhail Saakashvili had rigorously expressed foreign
policy towards Russia while the Georgia has become more softened towards foreign politics, west
and the east, specifically with Russia.

This politics is connected to the former prime minister businessperson Ivanishvili, who had much
historic background connected to Russia than any of the Georgian politician. Moreover, it seems
that the other representatives of the Georgian Dream the party of Ivanshvili had expressed the
same attitude towards Russia and its politics.

The recent developments about energy supplies are still widely discussed among Georgian
society. During his annual speech at Georgian parliament Margvleashvili, the president of Georgia,
highlighted, that and touched the energy sector of the country and mentioned about recent
negotiations with Gazprom: It should be noted that economic and particularly energy cooperation
with the Russian Federation is part of soft power. I would like to reiterate - Gazprom is not just
about energy. We should not forget that Russia wants to use economic levers for political purposes,
therefore negotiations with Gazprom should continue transparently with the supreme political
leadership mandate within the established red lines, (Official web site of the President of Georgia,
2/3/2016 )
Indeed, like many post-Soviet republics, Georgia has been heavily dependent on Gazprom with all
the consequences this entailed. First, the price of Russian gas shot up (in 2005), and then in early
2006 the pipeline from Russia to Georgia was blown up and for some reason it took weeks to
repair while Georgia (and Armenia) was freezing in the dark. Georgia was lucky to rid itself of
this dependence when the Baku-Tbilisi-Erzurum pipeline was launched soon after. Since then, the
country has enjoyed an uninterrupted supply of Azerbaijani gas, which is said to be substantially
cheaper than Gazproms. Since then, quite a few Russian think tanks openly lamented the fact that
Moscow had lost one of its main instruments for putting pressure on Tbilisi.

Of course, civil society reacted very badly to the news of these proposed negotiations with
Gazprom and the comments about keeping economics separate from politics (but only in
Gazproms case) just made it worse. When asked, top officials contradicted each other: some said
that it was about diversification (at least partly replacing Azerbaijani gas).

Ivanishvilis involvement made the Gazprom issue even more controversial. The fact is that he
owned (and may still own) about 1% of Gazprom shares. The deputy Prime Minister tried to
ridicule the journalists who reminded him of this and asked him whether Ivanishvili has alleged
interests were behind the Gazprom talks.

With the 2015 data Azerbaijan remains the main supplier of the Petroleum to Georgia, Latest
figures from Georgias National Statistics Department revealed that Azerbaijani gas import to its
West-North neighbor has increased by 14.1% between January-August 2015.

The table #1 shows the shares of suppliers of refined petroleum to Georgia by 2015. (OEC
Observatory of economic complexity).
Georgia has a huge potential as a regional hub and the transitional country. according to Cacachaia,
The meeting point of the E.U., Turkey, Iran, Russia, the Middle East, and Central Asia, the South
Caucasus should be expected to increase in importance over time and not decline as some
suggest. Though the South Caucasus corridors primary value to the West is in its ability to bring
hydrocarbons to market in Europe, its long-term value lies in its position as connective tissue for
trans-Eurasian trade and as a convener for the major powers and regions that surround it. NATOs
inherent interests in all of these areas make Georgia ideally-situated from a geo-strategic
standpoint. It might need some more time, than expected, however we truly believe that the
changes taking place in the world, and the soft diplomacy that Georgia has chosen towards its
neighbors and western countries, will bear its fruits in the end perspective and make the country
significantly important at least for the region.

Surprisingly, Georgia can become the key actor in the chinas silk roads plans even though it was
left out in the early stages. It is said better later then never indeed, the recent developments and
intense negotiations between Georgia and china made the country more important to the Great
power. Ts important to mention that the two countries are negotiating a free trade agreement and
both sides admit Georgia has a key role to play in the New Silk Road project as a hub between
Asia and Europe. If we review the economic relations, it is obvious that the trade between those
two intensified: Trade between countries was worth over $700 million in 2015, FDI from China
was more than $200 million by 2014, and exports from Georgia to China have increased by around
2000 percent compared to 2009. On December 13, 2015, the first transit train from China arrived
to a station in Georgia, thus marking the opening of the Silk Railroad. The trains arrival was
met with a celebratory ceremony attended by Georgian Prime Minister Irakli Gharibashvili,
Director of Georgian Railways Mamuka Bakhtadze and acting Chinese Ambassador to Georgia.

However, it is still surprising why china has decided to look that far to Georgia. Some experts
assume that China was interested because of the Georgia-EU Deep and Comprehensive Free Trade
Area (DCFTA) and the countrys investment-friendly tax policy. Georgia has a welcoming
investment policy (it is 24th in the World Banks Doing Business 2016 rankings) but the DCFTA
argument falls apart on closer examination.

To sum up, Georgia has gone through the harsh times from the dissolution of the Soviet Union. Its
foreign policies during that time until today has been more or less effective. Country is still
developing and has a vivid course toward euro Atlantic and European directions. Meanwhile it
tries to maintain good relations with the Asia-Pacific countries as well like China, USA, Japan etc.
(Japan and Georgia closely cooperate within the framework of the United Nations and other
various international organizations. Georgia, together with Ukraine, Azerbaijan and Moldova, is a
founding member of GUAM, an international organization aiming at further democratization and
market economy. Japan has been contributing to GUAM in the field of promoting energy
efficiency, trade and investment, as well as tourism. embassy of Japan in Georgia).

The research was focused on the main developments of negotiation process in international
organisations specifically in trade, finance and investments, which are the key factors and elements
for developing of a country and maintaining its wellbeing.

For Georgia, the move reflected a widely held commitment to the West and, ever since the August
2008 war with Russia, represented the country's only strategic option. In addition, with little
advantage, Moscow could do little to halt the process.

The country is maintaining bilateral trade relations with the following countries: Russian
Federation, Azerbaijan, Armenia, Ukraine, Moldova, Kazakhstan, Uzbekistan, Turkmenistan, and
Turkey. In addition, free trade regime with the Russian Federation and Turkey, in contrast to other
countries, envisages exceptions, in particular, the removal of certain goods from free trade regime.

It worth to mention another recent event regarding gaining of Visa-Free travel between Georgia
and Schengen countries. EU-Georgia talks on visa liberalization started in June 2012.

In general, countries foreign policy unfortunately is much depended on regional stability and the
powerful neighbors like Russia who is the hegemon, or the Turkey the NATO member country
giving another advantage to the Georgia.
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