Institution importation in Georgia-EU trade relations

Abstract

The goal of the present paper is to discuss import of trade related institutions from EU into Georgia. The role of EU as an exporter of its policies and norms out of its external borders and, hence, an important source of changes in the trade environment of Georgia is discussed in Europeanization and EU’s external governance context (studied by Schimmelfennig & Sedelmeier (2006), Lavenex (2004), Borzel (2011), etc).The focus is on trade policy reforms and the instruments applied to facillitate Georgia’s institutional harmonization with EU. The reforms are analyzed since the start of bi-lateral cooperation, from PCAs to the conclusion of the Association Agreement. Exported trade-related institutions are based on general EU principles of democracy, peace and stability and aim at greater market integration with Georgia. EU as an external stimulator of changes on the one hand and costly and difficult steps undertaken by Georgia on the other, determine the progress in reforms. The influence of EU can be twofold: harmonization as a reduction of information asymmetries that opens more trade opportunities and reforms as reasons behind greater investment needs and hence, additional costs for business agents. To assess the progress in trade-related institutional reforms we refer to the indicators of Trade Enabling Index by World Economic Forum which measures the extent to which economies have in place institutions, policies, infrastructures and services facilitating the free flow of goods over borders and to their destination. As a composite indicator, the ETI consists of an aggregation of individual indicators measuring various trade-enabling factors organized into seven pillars. Additionally to evaluate the degree of approximation we discuss institutions related to trade in goods. We take goods market efficiency institutions from World Economic Forum and calculate institutional distances between Georgia and EU countries. Georgia’s ETI score has been gradually improved. In addition to it, distance calculated according to goods market efficiency indicators has fallen between Georgia and the majority of EU countries between 2006 and 2016. Evidently, trade policy reforms in Georgia has been part of broader institutional reforms and the EU has had effect on the instruments and agents of trade policy. As a result differences in the regulatory environment of trade between EU and Georgia have been reduced and trade policy instruments harmonized. Implementation of trade policy reforms is still going on through institution importation. It sometimes involves mutual recognition and adoption of international norms (such as incorporation of WTO articles into DCFTA). Other strategies are adoption of similar norms (as it has taken place in customs procedure reforms), direct transfer of rules and requirements and/or step by step harmonization (as it has taken place in services trade). The role of trade policy making agencies should be not only involvement in fulfilment of DCFTA obligations, but also management of the possible risks that arise during institution importation. They involve mistakes made in a attempt to implement changes in a short period of time and dragging on reforms as a result of interest group activities.