RESTRICTED  WORLD  TRADE  
ORGANIZATION  WT/TPR/S/224 
3 November 2009  
 
(09-5396) 
Trade Policy Review Body  
   
 
  
 
TRADE POLICY REVIEW 
 
Report by the Secretariat 
 
GEORGIA 
 
  
 
This report, prepared for the first Trade Policy Review of Georgia, has been 
drawn up by the WTO Secretariat on its own responsibility.  The Secretariat has, 
as required by the Agreement establishing the Trade Policy Review Mechanism 
(Annex 3 of the Marrakesh Agreement Establishing the World Trade 
Organization), sought clarification from Georgia on its trade policies and 
practices. 
 
Any technical questions arising from this report may be addressed to 
Mario Kakabadse (Tel:  022 739 5172). 
 
Document WT/TPR/G/224 contains the policy statement submitted by Georgia. 
 
 
 
Note: This report is subject to restricted ci rculation and press embargo until the end of the 
first session of the meeting of the Trade Policy Review Body on Georgia. Georgia WT/TPR/S/224 
 Page iii 
 
 
 CONTENTS 
  Page 
SUMMARY OBSERVATIONS vii 
 (1) E CONOMIC ENVIRONMENT  vii 
 (2) T RADE AND INVESTMENT POLICY FRAMEWORK  viii 
 (3) T RADE POLICIES AND PRACTICES  ix 
 (4) S ECTORAL POLICIES  xi 
 (5) O UTLOOK  xiii 
I. ECONOMIC ENVIRONMENT 1 
 (1) I NTRODUCTION  1 
 (2) M AIN FEATURES OF THE GEORGIAN ECONOMY  2 
 (i) 1991 to 2003:  from independence to the Rose Revolution 2 
 (ii) Structure of the economy 3  (iii) The shadow economy 5 
 (3) M
AIN ECONOMIC DEVELOPMENTS  5 
 (i) Macroeconomic performance 5  (ii) Monetary and exchange rate policies 8 
 (iii) Fiscal policy 9 
 (iv) Structural reforms and private-sector development 10 
 (4) D
EVELOPMENTS IN TRADE AND INVESTMENT  12 
 (i) Merchandise trade 12  (ii) Services trade 14 
 (iii) Trends in foreign direct investment (FDI) 17 
 (5) O
UTLOOK  18 
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES 20 
 (1) I NTRODUCTION  20 
 (2) I NSTITUTIONAL FRAMEWORK  20 
 (i) Branches of government 20 
 (ii) Regional issues 21 
 (iii) Institutional reforms:  transparen cy, the anti-corruption agenda, and customs 
reform 22 
 (3) T RADE POLICY AND IMPLEMENTATION  23 
 (i) Trade laws:  key developments 23  (ii) Main institutions 24 
 (iii) Trade policy objectives 26 
 (4) M
AIN TRADE AGREEMENTS AND ARRANGEMENTS  26 
 (i) World Trade Organization 26 
 (ii) Commonwealth of Independent States (CIS) 27 
 (iii) European Union (EU) 28 
 (iv) Turkey 29 
 (v) United States 29  (vi) Other agreements 30 
 (5) T
RADE DISPUTES AND CONSULTATIONS  30 
 (6) F OREIGN INVESTMENT REGIME  30 WT/TPR/S/224 Trade Policy Review 
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  Page 
 (7) T ECHNICAL ASSISTANCE  31 
 (i) Assistance provided 31 
 (ii) Technical assistance needs 33 
III. TRADE POLICIES AND PRACTICES BY MEASURE 34 
 (1) I NTRODUCTION  34 
 (2) M EASURES DIRECTLY AFFECTING IMPORTS  35 
 (i) Customs documentation and administration 35 
 (ii) Tariffs and other charges affecting imports 37 
 (iii) Customs valuation, rules of origin and preshipment inspection 42 
 (iv) Import prohibitions, restrictions and licensing 42 
 (v) Contingency measures 43 
 (vi) Government procurement 43  (vii) State trading and other measures 44 
 (3) M
EASURES DIRECTLY AFFECTING EXPORTS  44 
 (i) Documentation 44  (ii) Export taxes, charges and levies 45 
 (iii) Export prohibitions, restrictions and licensing 45 
 (iv) Export subsidies, export promotion and export finance 45 
 (v) Free industrial zones 45 
 (4) M
EASURES AFFECTING PRODUCTION AND TRADE  46 
 (i) Legal framework for businesses 46 
 (ii) Incentives 47 
 (iii) State-owned enterprises and privatization 48  (iv) Competition policy 50 
 (v) Standards and SPS requirements 51 
 (vi) Intellectual property rights 55 
IV. TRADE POLICIES BY SECTOR 60 
 (1) S
ECTOR OVERVIEW  60 
 (2) A GRICULTURE  61 
 (i) Sector developments 61 
 (ii) Main structural features 62 
 (iii) Government policies 63 
 (3) I NDUSTRY  65 
 (i) Manufacturing 65 
 (ii) Energy sector 66  (iii) Construction 68 
 (4) S
ERVICES  69 
 (i) General Agreement on Trade in Services (GATS) 69 
 (ii) Financial services 70 
 (iii) Telecommunications 75  (iv) Transit and transport 77 
 (v) Tourism 80 
REFERENCES   83 
APPENDIX TABLES  87 
 
 Georgia WT/TPR/S/224 
 Page v 
 
 
   Page 
CHARTS 
 
I. ECONOMIC ENVIRONMENT 
 
I.1 Product composition of merchandise trade, 2002 and 2008 13 
I.2 Direction of merchandise trade, 2002 and 2008 15 I.3 Trade in services, 2002 and 2008 16 
 
III. TRADE POLICIES AND PRACTICES BY MEASURE  
III.1 Distribution of MFN tariff rates, 2005 and 2009 39 
III.2 Average applied MFN and bound rates, by HS section, 2005 and 2009 41 III.3 Privatized units and income from privatization, 1995-2008 49 
 
TABLES 
 
I. ECONOMIC ENVIRONMENT 
 
I.1 Basic economic indicators, 2002-08 3 
I.2 Selected macroeconomi c indicators, 2002-08 6 
I.3 Ease of doing business, 2005 and 2010 11 
I.4 Main taxes and tax rates, 2005-08 11 
I.5 Inflows of foreign direct investment, 2002-08 17 
 
III. TRADE POLICIES AND PRACTICES BY MEASURE 
 
III.1 Taxation of imports, 1998, 2001, 2004 and 2008 37 
III.2 Georgia tariff bands of ad valorem rates,  2005 and 2009 38 
III.3 Georgia's tariff structure, 2005 and 2009 39 III.4 Overview of the import licensing system, 2009 43 
III.5 Special taxation regimes, 2009 48 
III.6 Georgian standards, 2006-09 52 
 
IV. TRADE POLICIES BY SECTOR 
 IV.1 Real value added per employee, 1998 and 2003-07 60 
IV.2 Trends in agricultural performance, selected indicators, 2003-08 62 
IV.3 Trends in perennial crop production, 1990, 1997, 2000, 2003, 2007 62 
IV.4 Tariffs by agricultural product groups, 2009 65 
IV.5 Performance indicators of commercial banks, 2004-09 71 IV.6 Electronic communications sector, 2001-08 76 
IV.7 Transported cargo by mode, 2006-08 78 
IV.8 International tourist arrivals and estimate share of GDP, 2000 and 2004-09 80 
 
APPENDIX TABLES 
 
I. ECONOMIC ENVIRONMENT 
 
AI.1 Merchandise exports by product group, 2002-08 89 AI.2 Merchandise imports by product group, 2002-08 90 
AI.3 Merchandise exports by destination, 2002-08 91 
AI.4 Merchandise imports by origin, 2002-08 92 AI.5 Trade in services, 2002-08 93 
 WT/TPR/S/224 Trade Policy Review 
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    Page 
 
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES 
 AII.1 Heritage Foundation 2009 Index of Economic Freedom 94 
AII.2 Selected notifications to the WTO, 2002-09 95 
 III. TRADE POLICIES AND PRACTICES BY MEASURE 
 
AIII.1 Key problems and recommendations af ter three years of licensing reform 97 
 Georgia WT/TPR/S/224 
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 SUMMARY OBSERVATIONS 
 
(1) ECONOMIC ENVIRONMENT  
1. Georgia, a small, strategically located 
middle-income country of 4.5 million people 
in the South Caucasus, had an estimated per capita income of US$2,900 in 2008, over three times its level at the beginning of the review period in 2003, when sustained growth 
resumed following many years of economic 
decline.  After independence in 1991, the Georgian economy collapsed under the impact of civil war and the loss of preferential access to Former Soviet Union (FSU) markets, output falling by 70% and exports by 90% in  the 
worst decline suffered by any transition 
economy.  
2. Since 2003, economic policies have 
met with considerable success, guided by reliance on the private sector for growth in a 
liberalized trade, investment, and business 
environment;  the World Bank recognizes Georgia as one of the world's fastest reforming economies.  Prior to the armed conflict with Russia of August 2008, the economy was growing strongly, with real GDP rising by 
nearly 10% per annum on average.  
Underlying this has been a substantial increase in the tax to GDP ratio, a rapidly improving business climate and increasing inflows of foreign direct investment (FDI),  which more 
than doubled from 8.4% of GDP in 2003 to an 
estimated 17.2% in 2007.  FDI inflows rose strongly at first due to the construction of oil and gas pipelines and since  2005 investment 
has flowed into infrastructure, construction, 
retail services and real estate, causing 
domestic demand for construction materials, food and consumer goods to boom  although domestic production of these inputs has not kept pace.   
3. The rapid economic growth since 
2003 has not been associated with growth of 
exports relative to GDP.  The share of exports remained  moderately low at about 20%, less than half the share of imports, which reached 49% of GDP in 2008, in part reflecting relatively limited investment in export-
oriented agri-business and manufacturing industries. Although there has been some diversification, Georgia's export structure 
remains quite concentrated in traditional 
products such as base metals, prepared foodstuffs, mineral products, chemical 
products, machinery and cement.  Furthermore, the recent economic growth has 
largely been job neutral in net terms, as high 
quality private-sector job created have just about compensated for job cuts resulting from public-sector reforms.  The unemployment rate rose from 12.6% in 2002 to 16.5% in 2008. Poverty remains widespread, at an estimated 
22.1% in 2008, most of the poor are in rural 
areas where livelihoods continue to rely on low-productivity subsistence agriculture. 
4. In 2008, the economy was hit by the 
twin shocks of the brief but disastrous armed 
conflict with the Russian Federation in August 
and the global financial crisis in September, which brought about a collapse in export demand, a reduction in FDI and worker remittances, and a sharp contraction in bank lending.  With the sudden drop in capital 
inflows and the onset of a credit drought, the 
economy contracted in the second half of the year with GDP growth for the full year of only 2.1%.  In the first quarter of 2009, the downturn continued as the economy 
contracted by 5.9%.  Damage from the conflict  
to infrastructure, and disruption to activity in several sectors – including construction, trade, and tourism – severely dampened economic growth. 
5. Inflation was maintained in single 
digits through most of the review period but crept into double digits late in 2007 largely due to rising energy and food prices. Inflation slowed considerably in 2008 as global commodity prices receded and domestic 
demand contracted, given the central bank's 
focus on tightening monetary policy to contain inflation pressures in the first half of 2008.  End-period inflation was 5.5% for 2008 and, according to the authorities, 12-month 
inflation was only 2.3% at end-June 2009.   WT/TPR/S/224 Trade Policy Review 
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 6. Georgia's large current account deficit, 
which reflects high gross domestic investment relative to national savings, expanded as a percentage of GDP from 6.9% in 2004 to 
22.8% in 2008. The deficit has been covered 
by the surpluses in the capital and financial accounts, mainly due to large FDI inflows.  Current account developments have been dominated by rapid import growth due to 
growing domestic demand, FDI-related 
imports, and rising energy and commodity prices.  The merchandise trade deficit nearly doubled during the review period, from 16% of GDP in 2003 to 30% by 2008.  Balance-of-payments data for the first half of 2009 show 
that exports and imports of goods declined by 
35% and 38% respectively (compared with the first six months of 2008), which reflects a fall in commodity prices as well as reduced domestic demand.    
(2) T
RADE AND INVESTMENT POLICY 
FRAMEWORK  
7. By the time of its accession to the 
WTO in 2000, Georgia had established the legislative basis for competitive markets by liberalizing its trade and investment regimes, 
freeing prices, rescinding exclusive rights 
granted to certain economic agents, abolishing restrictions on competition, privatizing state-owned enterprises, and cutting subsidized credits to state-owned enterprises.  Policies 
pursued during the review period have built on 
these achievements in particular in the trade area:  in tariff reform, combating corruption in Customs, reform of the business licensing sector, regulatory reform of the financial 
sector, and the continuing adoption of trade-
related legislation compatible with European and international standards, including in the area of standards and technical regulations, food safety, and competition.  These, together with the Law on Investment Activity 
Promotion and Guarantees, and  the Law on 
State Promotion of Investments, have helped open the economy and create a business environment favourable to foreign investment.  8. Trade policy formulation and 
evaluation are under the overall responsibility of a governmental commission headed by the Prime Minister.  The PM's office is also in 
charge of the negotiatio ns and matters relating 
to the WTO and the EU-Georgia FTA process, Georgia's main bilateral trade relationship.  Foreign trade and related issues fall largely under the  purview of the Ministry of 
Economic Development (MoED).  Other line 
ministries and agencies such as the Ministry of Agriculture, the Ministry of Finance (including Customs) also play an important role in trade policy formulation and implementation.   
9. Georgia has MFN trading 
relationships with all WTO Members and has 
GSP arrangements with Japan, Canada, Norway, the United States, and Switzerland.  In 2008, GSP-plus privileges granted by Turkey were replaced by a Georgia-Turkey 
FTA, under which customs tariffs on industrial 
products have been fully eliminated, although a number of agricultural products are excluded by both parties.  In 2007, Georgia and the United States signed a Trade and Investment Framework Agreement, and in January 2009 
Georgia signed the Georgia-U.S. Charter on 
Strategic Partnership, which, inter alia  updates 
the bilateral investment treaty, expands Georgian access to the GSP, and explores the possibility of a free-trade agreement.   
10. Georgia has a free-trade regime with 
the (other eleven) members of the Commonwealth of Independent States, which have traditionally been Georgia's largest trade partners, and although their share of trade with 
Georgia has declined, they still accounted for 
36% of exports and 33% of imports in 2008.  In August 2009, Georgia terminated its membership of the CIS organization while maintaining its right to remain a member the CIS free-trade area arrangements and the 
bilateral agreements with CIS members.  In 
2005 and 2006, Russia banned imports of Georgian agricultural pr oducts, mineral water, 
and wine, for which Russia was Georgia's largest market.  In September 2006, Russia cut 
all direct transport links with Georgia and Georgia WT/TPR/S/224 
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 doubled the price of natural gas supplied to 
Georgia.  Since the August 2008 armed conflict, Russia has consolidated its position in Abkhazia and South Ossetia, confirming the 
de facto removal of about one fifth of 
Georgia's customs territory from central control.  
11. Georgia enjoys GSP-plus status with 
the European Communities,  enabling it to 
export about 7,200 items to the EC market 
with zero tariff rates.  Previously Georgia was 
allowed to export only 3,300 products without any customs duty and 6,900 products under certain preferences.  In December 2008, the 
EC announced plans to enhance its 
relationship with Georgia (as well as Armenia, Azerbaijan, Moldova, and Ukraine) as part of a new Eastern Partnership, which will involve gradual integration into the EC economy for 
countries that are willing and able to enter into 
a deeper engagement.  The new partnership builds on the European Neighbourhood Policy framework, which has heavily influenced Georgian trade policy since 2006 and envisages progressive regulatory 
approximation of Georgia's legislation and 
practises to the most important EC trade-related regulatory policy acquis, as well as the 
negotiation of a deep and comprehensive free-trade agreement .  In many areas, Georgian 
legislation is already close to that of the EC. 
(3) T
RADE POLICIES AND PRACTICES  
12. Regarding measures affecting imports, 
Georgia has streamlined and liberalized its tax, customs, and  tariff regimes.  A new customs code entered into force in 2007, aimed at 
simplifying customs procedures and 
harmonizing both customs legislation and procedures with the European Community Customs Code and the revised Kyoto Convention.  The current average applied 
MFN tariff rate is 1.5%, down from 7.2% in 
2005, making it one of the lowest worldwide.  The number of tariff bands was reduced from sixteen to three (0%, 5%, and 12%) with a maximum tariff of 12%.  Nearly 86% of  
imported goods enter duty-free compared with 26% in 2005;  agricultural goods and 
construction  materials  are the main items taxed at the higher rates. Over 98% of tariff lines are ad valorem  rates, and 183 lines are 
subject to specific duties, mainly comprising 
alcoholic beverages, excluding beer.  Georgia has bound all its tariffs.  The average bound MFN rate is 7.5%, which affords only limited latitude to Georgia to raise its tariffs within 
existing bindings, and the authorities state that 
applied rates have not been raised during the review period. The majority of tariff lines at the 12% applied rate are bound at 12% (although tobacco is bound at 30%, the highest rate).  There is effectively no tariff escalation 
nor any evident international tariff peaks. 
13. In addition to the customs tariff, the 
Georgian authorities apply VAT of 18% and excise taxes on imported goods;  in principle these apply equally to domestically produced 
and imported goods.  Higher excise duties on 
imported tobacco are the exception, although the Government notes that it intends to equalize the rates on tobacco products.  
14. The contribution of tariffs to overall 
tax revenue  has decreased, in relative terms, 
in line with the decline in the effective import 
tariff rate, falling from 32% to under 3% between 1998 and 2008.  However, excise taxes and VAT collected on imports have ensured that taxes affecting trade have 
maintained their significant share, of around 
one third of total tax revenue.  Excise taxes on imports have maintained a relatively constant share of around 22% whereas VAT collected on imports now accounts for the lion's share of 
taxes on imports.  A fixed customs fee also 
applies to imports. 
15. Customs valuation for imports is 
administered in accordance with the revised customs code on the c.i.f. value of the goods.  The authorities note that over 90% of all goods 
(except cars, which are cleared according to 
fixed rates) are cleared using the transaction value method. The origin of goods may be non-preferential (where Georgia adheres to WTO rules related to the determination of WT/TPR/S/224 Trade Policy Review 
Page x 
 
 
 country of origin) or preferential (where 
Georgia differentiates between CIS countries, GSP preferences, and rules of origin under the FTA with Turkey).  In accordance with the 
revised customs rules, pre-shipment inspection 
has been abolished.   
16. Georgia does not apply contingency 
measures and has not elaborated the relevant legislative basis for such measures.  Georgia 
has no quantitative restrictions on trade.  The 
import licensing system was simplified in 2005 when the number of licences required for import and export was reduced from 14 main groups to 8, with licensing objectives limited to protecting public health, the environment, 
and national security.  
17. Georgia is an observer to the WTO 
Agreement on Government Procurement and in principle welcomes membership.  The 2005 Law on State Procurement applies to the 
procurement of all goods, works, and services 
funded from state and local budgetary resources by about 3,500 procuring entities.  Under the law, government procurement, which accounts for about one sixth of GDP, has been liberalized with the phasing out of 
preferences for domestic bidders, granted to 
promote the development of domestic contracting and manufacturing industries. Legislative amendments currently under parliamentary consideration aim to increase 
transparency (and thus reduce discretion and 
corruption) through the introduction of electronic procurement.  
18. There are minimal export restrictions 
in terms of export taxes or licensing, no export 
subsidies nor any government financing for 
exporters other than bank loans at market interest rates.  
19. On acceding to the WTO Georgia 
committed itself to adopting a new standards system comprising voluntary standards and 
mandatory international technical regulations 
to  replace the Soviet system of mandatory standards.  Under 2005 reforms, in order to meet the requirements of the WTO and align the system to international practice, legislative 
changes were made to, inter alia,  facilitate the 
transposition from a mandatory to a voluntary standardization system, the introduction of 
technical regulations, and the establishment of 
a standards agency.  Adoption of new national standards, based on international (mainly ISO) and European standards, has made significant progress over the past two years.  Regarding 
SPS requirements, Georgia has made major 
legislative and institutional changes in its transition from a centrally planned to a market economy, and although it has adopted a number of new laws covering food safety, veterinary, and plant protection issues, 
minimum international standards for food 
safety have not yet been achieved and the sector lacks funding to ensure adequate nationwide food-safety structures.  For example, the 2005 law on Food Safety and 
Quality has been amended twice, resulting in 
the suspension of the law’s core articles, due to insufficient institutional capacity and fear of factory closures in the food industry because of financial inability to meet the legal requirements.   
20. The business environment has 
undergone a sea change in recent years with the number of business activities subject to licences and permits reduced by over 80% since 2005;  this has been important in 
attracting foreign investment.  In addition, 
special taxation regimes for international financial companies, international companies operating in free industrial zones, and free warehouse companies, exempt them from 
profit and property tax.  Significant 
privatization of state-owned enterprises has occurred in recent years with the government receiving over US$1.4 billion in revenue between 2005 and 2008 from the telecommunications, energy, and health 
sectors, and large-scale real estate.  
Competition law was overhauled in 2005 with the focus on the prohibition of state aids and subsidies although, in the view of some observers, the law does not apply sufficiently 
to agreements restricting competition, 
concerted practices,  abuse of dominant Georgia WT/TPR/S/224 
 Page xi 
 
 
 position in the market, takeovers and mergers, 
and state enterprises.  Some sector-specific anti-monopoly regulations are enforced through independent national regulatory 
commissions in key sectors, including energy, 
water supply, communications, transport, and financial services. 
21. Intellectual property legislation covers 
several IP areas including patents, trade marks, 
copyright, and geographical indications, but 
continuing resource and capacity constraints appear to be the main hindrances to effective implementation.  There is a generally acknowledged lack of capacity in law-enforcement bodies and the judiciary system to 
deal with IPR infringements, which is not 
uncommon for post-Soviet countries.  There is no special IPR unit in the police and there is a lack of coordination among the different enforcement agencies.  Currently,  the 
authorities in Georgia do not have ex officio 
powers to enforce IPR protection, except for Customs regarding IP objects listed in the Customs Register.  A lack of data makes it difficult to estimate the extent of pirated and counterfeit products in  Georgia, although the 
Government, with the assistance of UNDP is 
carrying out a study to better assess the volume of pirated and c ounterfeit products in 
circulation 
(4) S
ECTORAL POLICIES  
22. Georgia's economy has undergone 
significant structural change since Independence, when  shares of agriculture, industry, and services in GDP were more or less evenly split.  The share of agriculture has 
since declined significantly to an estimated 
10.3% of GDP in 2008 although the sector remains critical for the economy:  53% of the labour force continues to rely on (subsistence) agriculture and the sector accounts  for 18% of exports, although Georgia's net trade in 
agriculture and food products remains 
negative.  Labour productivity in agriculture is barely one tenth of that in the rest of the economy, generating low incomes and thus poverty with rural areas accounting for 59% of the total poor in the country and 62% of the 
extreme poor.  Among the reasons for agriculture's decline, are a shortage of credit, which has prevented farmers from purchasing 
high-quality seeds and fertilizers, and the 
small size of land plots, which prevents economies of scale and discourages mechanization.    
23. Key agricultural policies carried out in 
recent years include land reform, privatization 
of farms and agri-industry, facilitating access to finance, attracting investment, and use of open trade policies.  Imports of agricultural products are subject only to tariffs (0%, 5% or 12%) and sanitary and phytosanitary measures.  
The binding coverage for agricultural products 
is 100%, and Georgia has rather low tariff rates on most agricultural products with the exceptions of sugars and confectionary, beverages, and tobacco.  There is no special 
export regime applicable to agricultural goods, 
no export credits other than those available from commercial banks, and no system of export credit guarantees or insurance cover arranged by the Government.  Georgia bound its agricultural export subsidies at zero when it 
acceded to the WTO and there are no export 
subsidies in place. 
24. Georgia has adopted a number of laws 
covering food safety, veterinary, and plant protection matters.  The authorities maintain 
that minimum international standards for food 
safety have been satisfied at the legislative level, and that the Government is in the process of elaborating a comprehensive food safety strategy, which is being drawn up in 
line with EC standards.  Challenges that need 
to be met include the gap between the quality of inspection and testing and the requirements of international standards, the organization and responsibilities of inspection bodies and laboratories, the risks for consumers due to 
food-borne diseases, and the lack of 
slaughterhouses, which undermines food safety and meat production. 
25. Industry, comprising mining, 
manufacturing, utilities and construction, WT/TPR/S/224 Trade Policy Review 
Page xii 
 
 
 contributed 21.7% of GDP in 2008 and 
provided employment to 10.5% of the total employed labour force in 2007, making labour productivity more than twice the level in the 
rest of the economy.  The most significant 
parts of the sector are the agri-processing and energy industries.  During most of the review period, the performance of manufacturing industry has shown double-digit growth, 
driven both by external demand for certain 
goods, mainly metals, cement, and fertilizers, and by increased domestic demand for processed foods, soft drinks, building materials, and timber.  The Government has not prioritized any sectors with regard to 
industrial policy;  its overall policy is to 
minimize state intervention in the market and to promote a business-friendly environment through economic and in stitutional reforms, 
which  have helped to create a favourable 
investment climate.  To enhance productivity 
growth and competitiveness, the authorities have pursued structural reforms on several fronts, including trade liberalization, privatization, enterprise, business regulatory and institutional reforms, and in the area of 
standardization and in labour regulations.    
26. During the review period, Georgia, a 
net energy and fuel importer, made good progress in energy sector reforms to address chronic power shortages and the poor financial 
state of electricity and gas companies.  The 
electricity and gas markets for industrial users were liberalized in 2006 and 2008 respectively.  The Government has completed the privatization of assets in power generation 
and distribution. The main objectives of 
energy policy are diversification of supply sources (to include harnessing the full potential of domestic hydropower resources), liberalization and deregulation of the market to attract competitive private investment, and the 
maximization of Georgia's benefits as an 
energy transit corridor.  Moving towards more energy independence is critical given that energy imports, mainly oil and gas, accounted annually for nearly one fifth of the total import 
bill during the review period,  a significant contributory factor to the country's large trade 
deficit. 
27. Services accounted for approximately 
69% of Georgia's current GDP in 2008, up 
from 56% in 2002 and around 32% in 1998.  
Employment in the services sector remained more or less constant at about 37% of total employment during the period under review, indicating a marked improvement in labour 
productivity.  Georgia has a small surplus on 
the balance of services within the current account, mainly reflecting income relating to oil and gas pipelines. Georgia's position in the services negotiations in the Doha Round is that it has unilaterally liberalized the services 
sector and therefore it has not made an initial 
offer.  
28. The financial sector is growing rapidly 
but is still among the smallest relative to GDP in the Europe and Central Asia region, and 
remains dominated by banks.  Virtually all 
financial intermediation takes place through the banking system, meaning that the mobilization and transformation of financial resources into investment is carried out by banking institutions rather than the 
underdeveloped capital market. Georgia 
completed the privatization of its banking sector in 1995 and since then has maintained no restrictions on foreign ownership of banks. Foreign investment in the sector is significant, 
accounting for 75% of total bank capital in 
2009, up from 36% in 2005.  Effective prudential regulation of the banking sector has contributed significantly to its rapid growth.  For a decade or more, Georgia has maintained 
a simple bank licensing regime, under which 
only one type of bank licence exists, allowing licensed banks to engage in all banking activities and preventing excessive fragmentation of the sector, which may happen with several types of banking licences.  
Georgian banks were allowed to pursue a 
universal banking model with the leading banks becoming involved, through acquisitions, in insurance, broker-dealer activities, wealth management, pensions, card 
processing, and related activities. Georgia WT/TPR/S/224 
 Page xiii 
 
 
 29. In March 2008, Parliament approved 
the Global Competitiveness of the Financial Services Sector Act to modernize the financial sector including:  establishing a single 
Financial Supervision Agency (FSA) for the 
banking and non-banking sectors, although this is currently under review;  strengthening the independence of the Central Bank, which will focus more on inflation targeting;  
demutualizing  the stock exchange;  and 
developing an internatio nal financial centre to 
attract foreign funding by offering tax exemptions to large international financial companies whose activity in Georgia does not exceed 10% of their financial turnover.  
30. In the telecommunications sector, all 
market segments including local, domestic long-distance, international long-distance, mobile, data, and internet are formally liberalized.  However, there appears to be little 
competition, with fixed-line services 
dominated by the incumbent operators.  The mobile telephone industry has been growing rapidly:  in 2008, three mobile telephony operators provided services for over 2.7 million subscribers, up from 
430,000 subscribers in 2002.  Competition 
between these operators has stimulated considerable growth in the market and the authorities state that there are no legislative or financial entry barriers for companies to enter 
the market.  Georgia's communications sector 
is currently regulated by the Georgian National Communications Commission (GNCC) and governed by the Law on Electronic Communications.  The law was adopted in 
2005 and, according to the authorities, is in 
compliance with the five EU communications directives. 
31. As a strategic transit corridor for 
pipelines carrying Caspian oil and natural gas to world markets,  Georgia has an important 
role in existing and planned projects for the 
transportation of oil and natural gas along the South Caucasus transit system outside the territory of the Russian Federation and Iran.  While this yields only modest revenue in 
transit fees, its main importance is in  helping Georgia to establish itself as a guarantor of 
western energy security. Georgia’s non-oil-transit potential remains largely untapped;  it accounts for a relatively small share of the 
non-oil trade of the Central Asian republics 
and of Armenia and Azerbaijan.  Factors that contribute to underperformance include poor road conditions and high transit times.  Road infrastructure improvement is one of the 
Government's stated priorities and several 
projects are under way in conjunction with several donors and international institutions.   
32. During the Soviet period, mass 
tourism was a major industry for Georgia with around 5 million visitors a year mostly from 
various parts of the FSU.  Tourist numbers are 
now only a fraction of what they were but nevertheless expanded more than three-fold during 2000-08 from 387,000 to nearly 1.3 million.  Around 60% of Georgia's foreign 
tourists still come from the CIS, and tourists 
coming from Turkey now account for more than a quarter of total arrivals.  However, the share of higher-spending tourists from OECD countries have seen their share of arrivals decline to almost insignificant levels. Tourism-
related investments have seen impressive 
growth in recent years, reaching over US$1 billion in 2008.  In terms of policies to encourage and develop tourism, procedures for issuing visas to visitors have been  simplified 
and the tax code adjusted so that tour 
operators' incoming tourist revenue from the beginning of 2006 has been exempted from VAT.  However, a recent wide-ranging review of tourism policies, institutions, and 
infrastructure found substantial tourism 
potential but also serious impediments in terms of room stock, access to sights and attractions, and infrastructure.  
(5) O
UTLOOK  
33. The on-going global economic crisis 
continues to threaten Georgia's growth 
prospects;  lower commodity prices (in particular for fertilizers and metals), a drop in demand for Georgian exports, and  a significant decline in private capital inflows WT/TPR/S/224 Trade Policy Review 
Page xiv 
 
 
 from abroad, which have been the main driver 
of growth, all negatively affect the economy.  The Georgian authorities forecast a contraction for 2009 of at least 1.5%, and the IMF has 
revised its 2009 growth projections for 
Georgia downwards and anticipates a contraction in real GDP for the year of around 4%, taking into account the declines in private capital inflows, exports and remittances, as 
well as delays in official assistance and 
possibly prolonged regional political tensions. 
34. Exports and imports of goods and 
services are projected to decline by 20% and 27% respectively,  reflecting flat import volumes, and lower world oil prices, which 
will bring down the oil import bill.  In 
addition, exchange rate depreciation is likely to discourage growth in consumer imports.  On the other hand, the slowdown in trading partners is likely to keep exports subdued in 
2009, neutralizing the potential boost from a 
lower exchange rate.  In particular, lower world demand for key commodity exports, such as copper and other metals, will dampen export earnings.  FDI inflows, hitherto the main source of financing for the current 
account deficit and a principal driver of 
economic growth, are projected to be in the region of US$900 million for 2009, 40% lower than in 2008, depriving the economy of a significant source of growth. Flows of 
workers' remittances have  also decreased as 
Russia (where the majority of Georgians working abroad are based) experiences a recession.  35. Provided that some regional stability 
is restored, the Georgian economy should experience higher growth rates from 2010, based on an expected recovery in exports and a 
significant recovery in FDI.  The IMF  
forecasts real GDP growth at 2% in 2010, with the level of potential growth in the medium term remaining uncertain. Inflation is expected to remain moderate at 3-5% in the medium 
term due to declines in credit from the banking 
sector and world commodity prices. The large amount of external aid granted to Georgia in the aftermath of the armed conflict could stimulate higher rates of consumption and investment, bringing about higher GDP 
growth.  However, should a protracted period 
of political uncertainty (extending to the conduct of economic policy) ensue, foreign investors may shun Georgia for a longer period. 
36. Continuing structural reforms will be 
key to strengthening Georgia’s resilience to shocks, sustaining growth, attracting investment into export activities, and improving productivity; in short, in developing 
an enabling environment for export 
diversification in terms of both composition 
and direction.