JOINT STAFF WORKING DOCUMENT Implementation of the European Neighbourhood Policy in Georgia Progress in 2011 and recommendations for action Accompanying the document JOINT COMMUNICATION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS Delivering on a new European Neighbourhood Policy
Date: 2012-05-15
Institutions: European Commission, High Representative of the Union
Subjects: European neighbourhood policy, Georgia, administrative reform, cooperation in the field of education, democratisation, economic reform, environmental cooperation, institutional reform, job creation, judicial cooperation, judicial reform, trade cooperation

EUROPEAN COMMISSION 

HIGH REPRESENTATIVE OF THE
EUROPEAN UNION FOR 
FOREIGN AFFAIRS AND 
SECURITY POLICY

Brussels, 15.5.2012  
SWD(2012) 114 final 

JOINT STAFF WORKING DOCUMENT 

Implementation of the European Neighbourhood Policy in Georgia 
Progress in 2011 and recommendations for action 

Accompanying the document 

JOINT COMMUNICATION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, 
THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE 
COMMITTEE OF THE REGIONS 

Delivering on a new European Neighbourhood Policy 

{JOIN(2012) 14 final} 
{SWD(2012) 110 final} 
{SWD(2012) 111 final} 
{SWD(2012) 112 final} 
{SWD(2012) 113 final} 
{SWD(2012) 115 final} 
{SWD(2012) 116 final} 
{SWD(2012) 117 final} 
{SWD(2012) 118 final} 
{SWD(2012) 119 final} 
{SWD(2012) 120 final} 
{SWD(2012) 121 final} 
{SWD(2012) 122 final} 
{SWD(2012) 123 final} 
{SWD(2012) 124 final} 

EN 

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1. 

OVERALL ASSESSMENT AND RECOMMENDATIONS 

This  document  reports  on  progress  made  in  the  implementation  of  the  EU-Georgia 
ENP Action  Plan  between  1  January  and 31 December 2011. Developments  outside 
this  period  are  also  considered  when  deemed  relevant.  It  is  not  intended  to  be  a 
general review of the political and economic situation in Georgia. For information on 
regional  and  multilateral  sector  processes,  please  refer  to  the  Eastern  Partnership 
report. 

The EU-Georgia ENP Action Plan (ENP AP) expired on 31 December 2011. The EU 
and Georgia jointly agreed at the Cooperation Council on 1 December an extension to 
the  ENP  AP  until  the  negotiations  on  an  Association  Agreement  are  sufficiently 
advanced. 

The  EU  and  Georgia  made  progress  in  deepening  and  broadening  EU-Georgia 
relations  within  the  Eastern  Partnership  framework.  Negotiations  on  the  Association 
Agreement were constructive and made significant headway during the year. 

Georgia made sufficient progress in fulfilling the key recommendations necessary for 
launching negotiations on a Deep and Comprehensive Free Trade Area (DCFTA), as 
an integral part of the future Association Agreement. On that basis the EU agreed, in 
December, to launch the DCFTA negotiations. The first round has taken place. 

Georgia made good progress in implementing the Visa Facilitation and Readmission 
agreements,  which  entered  into  force  in  March  2011.  It  showed  great  interest  in 
launching a visa dialogue as the next step in the process of visa liberalisation. 

Georgia  continued  to  make  progress  in  the  fight  against  corruption.  It  continued  to 
implement political reforms. It passed several amendments to key laws in the political 
and  justice,  freedom  and  security  domains.  At  the  same  time,  questions  remained 
about the fairness of the election environment, including the difference in the number 
of  votes  required  to  elect  a  deputy  in  each  electoral  district,  ambiguities  in  the 
electoral dispute mechanisms, equal access to the media and insufficiently regulated 
use by the ruling party of state resources for political purposes.  

Georgia’s  governance  also  continued  to  be  characterised  by  a  dominant  executive 
branch, weak parliamentary oversight and  an insufficient degree  of independence of 
the  judiciary.  The  performance  and  the  accountability  of  Georgian  law  enforcement 
agencies came under scrutiny after the violent dispersal of protests in May. Cases of 
excessive use of force by law enforcement agencies were not brought to justice. The 
reform and further liberalisation of the criminal justice sector continued in accordance 
with the plans and programmes agreed between the government and the EU, while the 
large prison population remained a concern. 

The  EU  remained  committed  to  and  continued  to  fully  support  Georgia’s  territorial 
integrity and sovereignty and the peaceful resolution of the conflicts in Georgia; the 
EU Special Representative (EUSR) for the South Caucasus and the Crisis in Georgia 
co-chaired  the  Geneva  Discussions  and  took  the  lead  in  other  conflict  resolution 
efforts, and the EU Monitoring Mission played a key role in stabilising the situation 
along  the  Administrative  Boundary  Line  (ABL).  For  its  part,  the  government  of 

2

 
 
Georgia took important steps in implementing its strategy for engagement towards the 
breakaway territories. 

Georgia  took  important  steps  towards  ensuring  freedom  of  religion.  Respect  for 
labour  rights  and  in  particular  Georgia's  non-compliance  with  certain  provisions  of 
international  labour  rights  conventions  continued  to  be  of  concern.  There  were 
increasing concerns that property rights were not sufficiently respected.   

Georgia  consolidated  its  economic  recovery  in  2011  and  broadly  maintained 
macroeconomic stability. Its external position remained fragile, however, and growth 
projections  were  negatively  impacted  by  the  worsening  global  environment.  By 
accelerating  the  fiscal  consolidation  process  and  continuing  reforms  to  improve  the 
economic  and  business  environment,  Georgia  made  further  progress  towards 
achieving the priorities of the Action Plan in this area.  

On the basis of this year’s report, and with a view to sustained implementation of the 
ENP Action Plan in 2012, Georgia is invited to:  

•  Ensure  free  and  fair  parliamentary  elections,  in  line  with  internationally 
recognised  democratic  standards;  address  identified  shortcomings  in  the 
electoral  legislative  framework,  in  a  consultative  and  inclusive  manner,  in 
good time before the elections.  

•  Enhance 

its 

regions 

engagement  policy 

towards  breakaway 

and 
reconciliation/conflict resolution through pragmatic cooperation with de facto 
authorities  and  the  provision  of  financial  resources  for  engagement;  take 
pragmatic  and  constructive  steps  to  encourage  trade,  travel  and  investment 
across  the  ABL;  review  the  law  on  Occupied  Territories;  'Status  Neutral 
Travel Documents', a welcome step towards the de-isolation of inhabitants of 
Abkhazia and South Ossetia, should not be the only means of travel for these 
populations  until  they  are  more  widely  accepted  by  them.  The  provision  of 
health care and other social services to inhabitants of the breakaway regions is 
also  an  important  step  towards  reconciliation:  it  should  be  extended  without 
preconditions, such as acceptance of Georgian ID documents. 

•  Maintain  and  enhance  Georgia’s  constructive  engagement  in  the  Geneva 
International  Discussions,  notably,  working  together  towards  sustainable 
security  arrangements;  in  this  respect,  a  clear  commitment  by  Russia  on  the 
non-use of force would be necessary. 

•  Continue to improve the living conditions of all groups of internally displaced 
persons  (IDPs)  and  enhance  efforts  to  provide  livelihood  options  and 
conditions  to  enable  any  IDPs  who  choose  to  stay  in  Tbilisi  administered 
territory to integrate fully into society. 

•  Continue to strengthen freedom of expression and opinion; implement the law 
on  Transparency  of  Media  Ownership;  ensure  balanced  media  coverage  and 
equal access to the media and advertising in the run-up to the elections. 

•  Continue the reform of the justice system and strengthen the independence and 
efficiency  of  the  judiciary;  ensure  further  liberalisation  of  criminal  justice 
policies  and  practice  in  line  with  Council  of  Europe  standards;  revise 

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• 

• 

regulations  on  administrative  detention  in  compliance  with  fair  trial  norms; 
reflect the recommendations of the Public Defender’s Office in policy making. 

Increase accountability and democratic oversight of law enforcement agencies; 
combat  impunity  and  investigate  fully  any  accusations  of  human  rights 
violations by law enforcement agencies. 

Improve labour rights; fully implement ILO core conventions No 87 Freedom 
of  Association  and  the  right  to  Organize  and  No  98  Right  to  Organize  and 
Collective  Bargaining and  recommendations issued  by ILO in this respect to 
Georgia in 2010; support the creation of a fair and transparent institutionalised 
labour conflict regulation mechanism to prevent the escalation of local labour 
conflicts. 

•  Continue to advance sectoral reforms and regulatory approximation to the EU 
acquis  in  trade  and  trade-related  areas,  based  on  the  ENP  AP  and  all 
recommendations identified in this respect in the preparation for the DCFTA. 

2. 

POLITICAL DIALOGUE AND REFORM  

Towards deep and sustainable democracy  

Throughout the year there were consultations between the ruling party and opposition 
parties,  involving  civil  society,  on  electoral  reform,  with  a  view  to  improving  the 
electoral framework for parliamentary elections in 2012 and presidential elections in 
2013. At the beginning, this process was inclusive and transparent, but by the end of 
the year it became politically charged, and raised some suspicions that changes to the 
legal framework for the elections were politically motivated. Certain changes to legal 
acts were introduced at a late stage in the parliament, with unclear consequences for 
the political system in Georgia.  

Georgia adopted a new Election Code in December 2011, taking on board a number 
of  the  recommendations  of  the  Council  of  Europe  Venice  Commission  and  of  the 
OSCE Office for Democratic Institutions and Human Rights. They included making it 
possible  for  independent  candidates  to  stand  in  elections,  reducing  residency 
requirements  to  stand  as  a  candidate  and  enabling  certain  categories  of  prisoners  to 
vote.  However,  the  electoral  code  fails  to  address  some  key  recommendations,  in 
particular the different number of votes required to elect a deputy in different electoral 
districts, and it does not address ambiguities in the electoral dispute mechanisms. In 
June, the new Commission for the Creation of Voters’ Lists was set up. It is composed 
of  all  parties  and  of  civil  society  organisations  on  a  parity  basis.  Some  leading civil 
society organisations have refused to participate on the grounds that the Commission 
has excessive powers for a non- partisan body.  

The December 2011 amendments to the organic law on Political Unions of Citizens 
restrict the way business and legal entities are allowed to finance political parties and 
provide for more transparency and accountability of party financing. Civil society has 
raised concerns that a number of ambiguities in the law might make it harder for civil 
that  funding  restrictions  will 
society 
disproportionally  affect  the  opposition  parties,  which  have  less  access  to  public 
resources. These concerns are currently being addressed.  

to  be  active  on  political 

issues  and 

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As  regards  media  freedom,  concerns  remain  about  equitable  access  to  distribution 
networks. This may limit the expected positive effects of the law on Transparency of 
Media Ownership (which entered into force on January 2012). The process leading to 
the  new  law  has  been  praised  by  civil  society  as  a  good  example  of  collaborative 
consultation between the government and civil society organisations.  

In January 2011 the break-up of a peaceful protest of war veterans and the subsequent 
violent dispersal of protesters in May raised concerns about the freedom of assembly. 
Although  legally  grounded,  police  intervention  involved  the  excessive  use  of  force 
and unjustified attacks on accredited journalists covering the events. In the aftermath, 
there were abuses of the rights of detainees. The Ministry of Interior blamed some law 
enforcement agents, who were later dismissed on disciplinary grounds, without proper 
legal  proceedings.  The  law  on  Assembly  and  Demonstrations  of  July  2011  was 
praised by the Council of Europe Venice Commission as a significant improvement in 
the possibility to exercise of the freedom of assembly in Georgia. 

Despite marked progress in a number of areas in the justice sector some challenges 
remain,  in  particular  in  ensuring  citizen’s  right  to  a  fair  trial.  The  main  problem 
relates  to  the  strong  position  of  the  prosecutor  and  the  lack  of  independence  of  the 
judiciary. This is evidenced by very high conviction rates (98%), though the number 
of  acquittals  did  increase  slightly  compared  to  2010.  The  high  conviction  rates, 
coupled  with  severe  punishments,  result  in  the  frequent  use  of  plea  bargaining  (in 
87.5%  of  cases),  and  the  resulting  fines  are  channelled  into  the  state  budget.  The 
amendments to the Criminal Procedure Code, which entered into force in November 
2011, enhance judicial control over plea bargaining by explicitly requiring judges to 
assess  not  only  the  legality,  but  also  the  fairness  of  agreements  between  the 
prosecution and the defendant.   

Notable achievements have been made in the area of Juvenile Justice and with regard 
to  more  liberal  approaches  in  the  criminal  justice  sector.  The  EU  supports  the 
Ministry of Justice for reforms in the sector through two consecutive Criminal Justice 
Support Programmes for a total budget of more than EUR 34 million since 2010. The 
Ministry  of  Justice  has  been  placing  the  emphasis  on  promoting  restorative  justice, 
alternatives  to  imprisonment  and  mediation.  This  is  expected  to  cut  the  prison 
population in Georgia, which is one of the highest prison populations per capita in the 
world.   

The  results  of  the  nationwide  Georgian  crime  survey  carried  out  in  2011,  using 
international  standards  and  methodology,  show  that  public  safety  in  the  country  has 
improved significantly in recent years. The survey also confirms a gradual growth in 
public trust towards justice sector institutions.  

Georgia  has  also  made  substantial  progress  in  addressing  corruption.  According  to 
the  Transparency  International  Corruption  Perception  Index  of  December  2011  
Georgia ranks 64th out of the 182 countries, with a score of 4.1 out of 10 (the highest 
in the Eastern Partnership region).  

Further  progress  is  needed  to  increase  the  performance  and  accountability  of  law 
enforcement agencies. Concern over the use of excessive force during apprehension 
and  detention,  mistreatment  by  prison  staff,  and  doubts  over  the  uniformity  of  the 

5

 
 
application  of  the  law  remain.  The  Committee  for  the  Prevention  of  Torture  (CPT) 
and  Public  Defender  Office  (PDO)  have  criticised  protracted  investigations, 
insufficient disciplinary measures, and incorrect qualification of facts leading to less 
severe  punishments,  and  has  recommended  that  the  authorities  deliver  a  strong 
message of ‘zero tolerance against ill-treatment’. The lack of democratic oversight on 
the part of the Constitutional Protection Department of the Ministry of the Interior is 
also a concern.  

Conflict prevention and confidence building 

The  Government  of  Georgia  took  several  steps  to  implement  its  strategy  of  de-
isolation and engagement with the breakaway territories, including stepping up efforts 
to  provide  health  services  to  inhabitants  of  the  breakaway  regions.  Specifically  the 
provision  of  healthcare  services  has  been  a  welcome  constructive  step  towards 
reconciliation;  it  is  important  that  it  continues  without  preconditions,  such  as  an 
insistence on the acceptance of Georgian-issued ID documents by the beneficiaries of 
medical  assistance.  Georgia  also  introduced  'Status  Neutral  Travel  Documents'  for 
travel  by  inhabitants  of  the  breakaway  territories  outside  Georgia.  These  documents 
constitute an important step forward in Georgia's engagement strategy; but given the 
strong  rejection  of  the  documents  by  the  Abkhaz  and  South  Ossetian  de  facto 
authorities thus far, it is important that they exist as an de-isolation option, not as an 
exclusive means for travel of Abkhaz and Ossetians, so that confidence building and 
dialogue  initiatives  are  not  hindered.  The  continued  application  of  the  ‘law  on 
Occupied  Territories’  remained  a  concern  for  the  effectiveness  of  the  engagement 
strategy.  

In 2011, de facto presidential elections were held in Abkhazia and South Ossetia. The 
EU  did  not  recognise  the  constitutional  and  legal  framework  within  which  these 
elections took place.  

The  EU  remains  committed  to  respecting  Georgia’s  territorial  integrity  and 
sovereignty  and  to  the  peaceful  conflict  resolution  of  the  conflicts  in  Georgia.  The 
situation  around  the  Administrative  Boundary  Lines  with  the  breakaway  regions  of 
Abkhazia  and  South  Ossetia  remained  relatively  stable,  but  serious  incidents  were 
regularly  reported.  The  EU  Monitoring  Mission  (EUMM)  remained  the  only 
international presence along the Administrative Boundary Lines. Following a strategic 
review, the mandate of the EUMM was extended in September 2011 for another year. 
The review concluded that the EUMM had performed its stabilisation and confidence 
building tasks well, but that the lack of access to breakaway regions still remained a 
challenge for the full implementation of its mandate. 

Regarding Internally Displaced Persons (IDPs) several major issues still remain to be 
addressed.  The  government's  practice  of  IDP  "resettlements"  has  remained 
problematic,  although  a  steady  improvement  has  nevertheless  been  observed.  
Ongoing concerns include; the notice and information provided to IDPs on upcoming 
evictions;  inconsistent  offers  for  alternative  housing;  and  lack  of  consideration  for 
particular  vulnerabilities.  The  EU  continued  to  provide  support  to  IDPs  through 
budget support and technical assistance which amounted to EUR 43.5 million in the 
period under review. As a result, 860 IDP families received new housing.   

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There  has  also  been  progress  in  addressing  the  overall  concerns  of  IDPs.  After  a 
hotline  for  IDPs  was  set  up  and  Tbilisi's  IDP  reception  centre  upgraded  into  a 
comprehensive service centre, four more regional service centres have been recently 
set up and have significantly improved the quality and efficiency of services provided 
to IDPs. However, structural and human resource shortcomings within the Ministry of 
Reintegration  remain.  Georgia  has,  to  a  large  degree,  respected  the  principles  laid 
down in 2010 to work toward a durable solution to housing problems.  

Other human rights and governance-related issues 

On Human Rights, the work of the Ombudsman (Public Defender’s Office - PDO) 
continued  to  enjoy  high  levels  of  credibility  and  public  trust.  Parliamentary  and 
specific  monitoring  reports  by  the  PDO  have  stirred  public  debates  and  stimulated 
concrete  changes  in  government  policies.  One  example  is  the  complete  overhaul  of 
the  penitentiary  healthcare  strategy  in  the  wake  of  2011  PDO  reports.  Despite 
budgetary constraints, the government’s allocations to the PDO were increased in the 
2011 budget. The PDO is one of the key Georgian institutions receiving support under 
the EU Comprehensive Institution Building (CIB) programme.  

The  Gender  Action  Plan  was  implemented  consistently.  Significant  problems  in 
domestic  violence  remain,  and  the  State  Coordination  Mechanism,  which  was 
established  to  promote  policies  addressing  this  issue,  proved  to  be  dysfunctional. 
Women continue to be under-represented in public office. 

On freedom of religion, one major achievement was the adoption of the amendments 
to the Civil Code, allowing congregations to register as Legal Entities of Public Law, 
paving the way for the ownership of properties to be used for worship and religious 
ceremonies. The property rights and restitution of churches confiscated during Soviet 
times,  however,  has  still  not  been  resolved.  Ethnic  minorities  remain  poorly 
represented in state administration, and Georgia has not signed the European Charter 
for  Regional  or  Minority  Languages.  Discrimination  on  the  grounds  of  sexual 
orientation  remains  an  issue  in  Georgian  society.  Marginalisation  of  persons  with 
disabilities  persists,  and  Georgia  is  not  yet  a  signatory  of  the  relevant  UN 
Convention.  

There is an increasing concern that property rights are not being fully respected in 
Georgia.  Recently,  a  significant  number  of  disputes  surrounding  land  development 
have arisen from the lack of or the lack of clarity of legal titles to land traditionally 
used by local populations. These disputes are compounded by a lack of consultation 
with  the  population  and  inadequate  public  information  on  local  development  plans 
affecting  people’s  lives.  Another  problem  concerns  cases  of  the  opaque  procedures 
associated with the privatisation of state-owned assets. 

Cooperation on Foreign and Security Policy 

In 2011, Georgia aligned with 42 out of 82 CFSP declarations which it was invited to 
support.  There  was  intense  political  dialogue  with  Georgia  in  2011,  including  the 
Political  and  Security  Committee  Political  Dialogues  in  June,  and  visits  by  the 
Commissioner  for  Enlargement  and  Neighbourhood  Policy  in  July  and  of  the  High 

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Representative  of  the  European  Union  for  Foreign  Affairs  and  Security  Policy  in 
November. 

3. 

ECONOMIC AND SOCIAL REFORM 

Macroeconomic framework and functioning market economy  

After  a  strong  recovery  in  2010  (real  GDP  growth  of  6.3%),  economic  growth  is 
estimated  at  6.8%  in  2011.  Inflation  (7.1  %  in  2010)  accelerated  in  2011  due  to 
increased  international  prices  for  food  and  gas  and  reached  8.5%.  The  fiscal  deficit 
was  reduced  from  6.6%  of  GDP  in  2010  to  about  3.6%  of  GDP  in  2011.  A  2012 
budget entailing a deficit of 3.5% of GDP was approved in December 2011.  

Georgia's external economic situation remains fragile due to a large – and widening – 
current  account  deficit:  it  reached  12.7%  of  GDP  in  2011,  against  9.6%  of  GDP  in 
2010. The trade deficit, at 22.9% of GDP in 2010, increased further in 2011 to around 
28.7% of GDP. Georgia's exports continue to suffer from the trade embargo imposed 
by  Russia  in  2006.  The  high  trade  deficit  was  partly  offset  by  growing  tourism 
revenues  and  current  transfers  (remittances).  Recovering  FDI  and  official  assistance 
also  helped  finance  the  current  account  deficit.  In  2011  FDI  was  estimated  to  reach 
EUR 650 million (around 6.3% of GDP), against EUR 440 million (5% of GDP) in 
2010.  

Official reserves increased from USD 2.3 billion (EUR 1.75 billion) at end 2010, to 
USD 2.8 billion (EUR 2.25 Billion) at end 2011 (around 5 months of imports). The 
external  debt  remained  relatively  high  in  2011  (62%  of  GDP).  A  peak  in  the  public 
debt  roll-over  in  the  coming  years  represents  a  concern.  Substantial  external  debt 
repayment  obligations  become  due  in  2013-15,  reflecting  the  repayment  of  the 
Eurobond of USD 500 million issued in 2008 and large repurchases under the IMF’s 
Stand-By Arrangement.  

Georgia is well advanced towards becoming a functioning market economy, with an 
impressive improvement in the business climate. The country is about to adopt a new 
strategy for its future economic development.  

Employment and Social Policy 

Accurate poverty figures are not available, but Social Service Agency figures indicate 
just over a third of the population is below the poverty line. 

The  unemployment  rate,  despite  the  economic  recovery,  remains  the  highest  in  the 
region and is almost unchanged in relation to 2010 levels (16.5% in 2011, 16.3% in 
2010). In 2010 the unemployment rate for women (14.5%) was slightly lower than for 
men (17.9%), though this may reflect lower female participation in the job market. 

The  government  announced  in  October  2011  a  10-point  strategic  of  socio-economic 
policy  plan  to  address  modernisation  and  employment,  including  refining  social 
policies.  As  part  of  the  package,  limited  tax  exemptions  for  companies  employing 
people aged 45-60 were offered to increase employment in this age category. 

8

 
 
In July, the Ministry of Education and the employers' and trade unions' sides signed 
an Agreement on Social Partnership Policy in Vocational Education and Training to 
improve the process of matching skills with the demands of the labour market.  

On social protection, according to the Georgian Insurance Association, the number of 
insured  persons  funded  by  the  State  decreased  by  almost  16%  since  May  2010 
(857,142 people).  

The  issue  of  labour  rights  continues  to  be  a  serious  concern,  including  the 
insufficient implementation of core ILO conventions, in particular No 87 on Freedom 
of association and protection of the right to organise and No 98 Right to organise and 
collective bargaining. The government has continued a dialogue with ILO, but has not 
yet given clear indications of steps made regarding necessary legislative amendments 
that were recommended by ILO in 2010. 

Tripartite social dialogue meetings took place at regular intervals, and the work of the 
Tripartite  Commission  resumed  in  December.  The  process  has  yet  to  deliver  in 
practice a functioning and mutually agreed mediation mechanism between employers 
(including the government as employer) and trade unions.  

In the area of agriculture, the EU and Georgia signed, in July 2011, an agreement on 
the  protection  of  Geographical  Indications.  The  Ministry  of  Agriculture  prepared, 
with  EU  support,  a  long  term  sector  strategy  which  was  approved  by  the  Georgian 
government in March 2012. An Agriculture Support Programme with a total budget of 
EUR 40 million is planned for 2012. 

In the area of fisheries, Georgia needs to strengthen the public control over its fishing 
fleet  as  some  of  the  vessels  operating  under  its  national  flag  are  involved  in  illegal, 
unreported and unregulated fishing activities. 

4. 

TRADE-RELATED ISSUES, MARKET AND REGULATORY REFORM 

Bilateral trade continued to improve in 2011 at a steady pace year-on-year but has 
not yet fully recovered for both imports and exports. Total bilateral trade amounted to 
EUR  2.2  billion  in  2011,  indicating  a  more  dynamic  recovery  of  EU  exports  to 
Georgia as compared to imports from Georgia. Accordingly, EU  exports to Georgia 
increased  by  36.9%,  while  EU  imports  from  Georgia  increased  by  8.2%.  However, 
Georgian exports to the EU are still concentrated in a few commodities of low value 
added  (in  particular,  primary  products  such  as  fuels  and  mining  products  formed 
69.1% of imports from Georgia). 

Georgia  continued  to  benefit  from  the  special  incentive  arrangement  for  sustainable 
development  and  good  governance  —  the  GSP+  —  within  the  EU  Generalised 
System  of  Preferences  (GSP).  These  preferences  aim  to  assist  in  diversifying 
Georgia’s  export  structure  and  improving  its  export  performance.  However, 
benefitting from the above-mentioned is conditional on the country's compliance with 
the  international  conventions  on  human  and  labour  rights,  environmental  protection 
and good governance. Whereas in 2011 progress was made in the dialogue of Georgia 
with  the  ILO  and  certain  recommendations  issued  by  ILO  in  2010  were  taken  on 

9

 
 
board,  Georgia  is  still  expected  to  address  several  of  them,  notably  with  regard  to 
legislative amendments to the Law on Trade Unions and the Labour Code. 

Georgia  persevered  with  implementing  the  remaining  'key  recommendations'  which 
set  out  the  necessary  reforms,  based  on  the  ENP  AP,  in  the  key  trade-related 
regulatory areas prior to the negotiations for a Deep and Comprehensive Free Trade 
Area  (DCFTA).  In  December  2011,  the  EU  concluded  that  the  progress  made  by 
Georgia  was  sufficient  to  launch  DCFTA  negotiations.  However,  the  reforms 
undertaken in the trade-related areas are far from complete and Georgia will need to 
continue them if it is to benefit fully from the future DCFTA, notably by diversifying 
its  export  base  and  attracting  foreign  direct  investment.  Support  to  key  trade-related 
institutions in the fields of standards, metrology, accreditation and food safety will be 
provided through the EU programme on Comprehensive Institution Building. 

A unified Tax Code, with a reduced number of customs code provisions, entered into 
force  in  January  2011.  The  power  of  issuing  certificates  of  origin  should  be 
transferred  to  customs.  A  twinning  project  (EUR  1.800.000),  covering  customs  and 
SPS, started in September. It aims at strengthening the Ministry of Finance’s Revenue 
Service.  

In  July  2011,  the  government  submitted  to  parliament  a  Code  on  Safety  and  free 
movement of goods and informed the Commission about plans for a domestic market 
surveillance system. Georgia organised, for its regulatory bodies, an institutional gap 
assessment that resulted in an Institutional Reform Plan in July 2011. Georgia became 
an  associate  member  in  the  European  Co-operation  in  Accreditation  scheme  in 
November 2011. The Government adopted technical regulations for the safety of lifts 
(July 2011) and cableways (August 2011) as first priority sectors, with the help of an 
EU twinning project. However, accepting that imports from certain OECD countries 
comply with the originating countries' standards is not compatible with EU law.  

sanitary  and  phyto-sanitary 

Regarding 
started 
implementation of its food safety strategy. SPS legislation including a framework law 
(Food  Safety  Code)  is  in  preparation.  Georgia  adopted  the  Food  Safety  Agency’s 
statute  and  trained,  with  EU  support,  its  Agency  staff.  A  twinning  project  on  SPS 
capacity building at borders was launched.  SPS border controls are now being done.  

issues,  Georgia 

(SPS) 

In the area of business climate and establishment,  Georgia’s ranking in the World 
Bank's  'Doing  Business  2012'  annual  report  improved  from  17th  in  2010  to  16th  in 
2011. It made progress in particular in registering property, following the amendments 
to the law on Licences and Permits of October 2011. The simplified taxation regime 
for  SMEs  (see  below)  contributed  to  the  favourable  business  climate.  Although 
corruption decreased, companies still perceive it as an impediment to business.  

In  the  area  of  company  law,  the  law  on  Securities  Market  was  amended  in  March 
2011 to secure the rights of minority shareholders and regulate conflicts of interests. 
No significant developments can be reported in the area of audit.  

The  independence  of  the  National  Bank  of  Georgia  (NBG),  the  sole  regulator  of 
financial  services,  was  established  constitutionally  as  of  1  January  2011.  The  NBG 
tightened  the  reserve  requirements  from  10  to  15%  of  foreign  currency  held  by  the 
bank in February and enacted rules on service information to customers in June 2011. 

10

 
 
In December, parliament amended the law on the NBG giving the Bank the right to 
acquire  any  necessary  information  (including  confidential)  from  the  financial  sector 
that it supervises. 

Other key areas 

The new Tax Code introduced simplified and business-friendly tax procedures as of 
January 2011, including different tax regimes for 'micro' (turnover < 30 000 Georgian 
Lari) and 'small' (< 100 000 Georgian Lari) businesses. Tax on dividends was reduced 
from 10% to 5%, and the duration of proceedings for tax appeals from a maximum of 
125 days to 65 days. VAT reporting was simplified, and electronic filing and payment 
was  introduced.  A  Tax  Ombudsman  was  appointed  to  examine  violations  of 
taxpayers'  rights  and  to  advise  administration.  Georgia  continues  to  apply  an  excise 
tax  on  the  export  of  scrap  metals.  Double  Taxation  Avoidance  Agreements  with 
Spain,  and  amendments  to  such  Agreements  with  the  UK  and  Estonia  entered  into 
force. In April 2011 Georgia joined the Global Forum on Transparency and Exchange 
of Information for Tax Purposes. 

In  July  2011,  the  government  tabled  a  draft  law  on  Free  Trade  and  Competition, 
introducing  rules  for  antitrust,  merger  control  and  state  aid.  The  Commission  has 
expressed  its  reservations  to  the  government  concerning  some  of  the  exceptions 
provided for in the law and the need for legal certainty to be provided to companies in 
the event of ex-post merger control. The Commission also stressed the importance of 
institutional  and  administrative  capacity  building  to  make  it  possible  to  enforce  the 
law. 

With  respect  to  intellectual  property  rights  (IPR),  Georgia  started  acting  on  the 
recommendations  of  the  2010  study  on  piracy  and  counterfeiting,  notably  by 
establishing, in July, an Inter-Agency Coordinating Council on Copyright Protection 
including stakeholders and the EU. Georgia has been working on the establishment of 
a  police  High-Tech  Crime  Unit  and  has  started  to  collect  statistical  information  on 
border seizures of counterfeit goods. The Georgian Copyright Association (collective 
management  society)  changed  its  constitution  and  is  now  also  in  charge  of 
neighbouring rights.  

Georgia developed a mid-term strategy for the development of the national statistical 
system  in  2011  and  implemented  the  Specialised  Data  Dissemination  Standard.  The 
statistical  law  was  also  amended  to  increase  the  alignment  with  international 
standards.  Georgia  needs  to  increase  its  efforts  to  build  up  the  statistical  system  by 
allocating  sufficient  resources 
to  statistics.  A  population  census  should  be 
implemented and appropriate resources allocated for this large operation. 

The high cost of finance or/and collateral requirements remains the major constraint 
on the development of SMEs and one of the main challenges in terms of enterprise 
policy.  The  government  broadened  the  range  of  assets  eligible  as  collateral.  A  new 
portal  was  launched  to  increase  export  potential  and  trade  relations  with  foreign 
companies/investors, and both the Georgian National Investment Agency and Batumi 
Investment Agency offer a one-stop-shop service to potential investors. Privatisation 
sales continue and electronic auctions were introduced in 2011. 

11

 
 
The electronic public procurement system was made bilingual (Georgian/English) as 
of  September  2011.  The  State  Procurement  Agency  (SPA)  reports  considerable 
savings after the introduction of e-procurement (15-20%). 

The Ministry of Finance persevered with the reform of public finance management, 
consistent  with  the  Action  Plan,  a  condition  of  ongoing  EU  macro-financial 
assistance.  Given  the  importance  of  this  reform  for  all  other  sectors,  the  EU  has 
provided  support  to  the  Ministry  of  Finance  since  2007  through  budget  support  and 
technical  assistance.  Under  the  Public  Finance  Management  Programme  which  was 
launched  in  January  2011  for  a  total  budget  of  EUR  11  million,  Georgia  adopted  a 
new law on public internal financial control in December 2011. The Internal Audit 
Council  (with  the  functions  of  the  Central  Harmonization  Unit)  became  operational 
during the second half of 2011, although its capacity remained limited. 

The  Chamber  of  Control  (CCG)  acquired  resources  for  the  2010  capacity 
development  plan  for  external  audit,  recruiting  over  half  of  the  78  additional  staff 
needed  and  purchasing  40%  of  the  required  IT  equipment.  The  CCG  issued  a 
Financial Audit methodology and prepared a policy document for quality assurance. It 
conducted  pilot  audits  in  several  ministries  and  developed  a  performance  audit 
manual. 

5. 

COOPERATION ON JUSTICE, FREEDOM AND SECURITY 

Georgia’s updated Integrated Border Management (IBM) Strategy was submitted to 
the  President  for  signature  in  December  2011.  Cooperation  on  border  management 
with  Armenia  progressed  through  agreement  reached  in  February  2011  on  the  joint 
operation  of  border  crossing  points.  The  project  on  enhancement  of  the  border 
management capabilities at the border between Georgia and Armenia at Ninotsminda-
Bavra  –  under  the  Eastern  Partnership  IBM  Flagship  Initiative  –  will  start 
implementation in October 2012. 

Following  the  creation  of  the  State  Commission  on  Migration  in  2010,  Georgia 
launched  work  to  enhance  migration  management,  addressing  in  particular  the 
development  of  a  comprehensive  migration  strategy  (a  first  draft  of  which  has  been 
prepared and  will  be discussed  soon  in the State Commission) and  the creation of a 
central  database.  The  law  on  Refugee  and  Humanitarian  Status  was  adopted  in 
December 2011. 

Following  their  entry  into  force  in  March  2011,  implementation  of  the  EU-Georgia 
Visa  Facilitation  and  Readmission  Agreements  started  smoothly,  as  assessed  by  the 
first two meetings, in June and November 2011, of the Joint Committees. Additional 
support to implement the Readmission Agreement was provided through new projects 
on  readmission  management  and  capacity-building  on  processing  of  readmission 
requests under the EU-Georgia Mobility Partnership. A Mobility Centre and the local 
Mobility Cooperation Platform were also created in the framework of the EU-Georgia 
Mobility Partnership. 

On the basis of a new 2011-2012 National Action Plan for Combating Trafficking in 
Human Beings, Georgia effectively addressed the fight against trafficking in human 
beings,  including  through  a  broad  range  of  training  events  for  law  enforcement 

12

 
 
agencies and judiciary staff, as well as awareness-raising and prevention programmes 
in schools. Several exchange visits with Turkey and Azerbaijan took place in this field 
in December. 

In  the  area  of  organised  crime,  Georgia  has  not  yet  ratified  several  important 
Conventions,  such  as  the  Third  Protocol  on  the  Illicit  Manufacturing  of  and 
Trafficking in Firearms, Their Parts, and Components and Ammunition, as well as the 
2007  Council  of  Europe  Convention  on  the  protection  of  Children  against  Sexual 
Exploitation and Sexual Abuse and the European Convention on Cybercrime.  

The first EU-Georgia Dialogue on drugs took place in September. Some progress was 
registered on prevention and rehabilitation, notably through the creation of a National 
Centre  on  mental  health  and  drug  addiction.  However,  Georgia  still  lacks  a 
comprehensive national anti-drug control strategy and action plan.     

The Academy of the Ministry of Interior and the European Police College (CEPOL) 
signed in December an agreement as an important step forward in the field of police 
cooperation.  Relevant  international  conventions  in  the  areas  of  judicial  and  law 
enforcement cooperation remained unsigned.  

The  parliament  adopted  the  law  on  Data  protection  in  December  2011.  Effective 
protection of personal data forms a fundamental prerequisite in promoting cooperation 
with EUROJUST, EUROPOL and EU member states. 

With regard to judicial cooperation in civil matters, Georgia has not yet acceded to 
important  conventions  in  the  framework  of    the  Hague  Conference  on  Private 
International Law, e.g. conventions on judicial assistance (1965 Convention on the 
Service  Abroad  of  Judicial  and  Extrajudicial  Documents  in  Civil  or  Commercial 
Matters  and  1970  Convention  on  the  Taking  of  Evidence  Abroad  in  Civil  or 
Commercial  Matters)  and  on  child  protection  (1996  Convention  on  Jurisdiction, 
Applicable  Law,  Recognition,  Enforcement  and  Co-operation  in  respect  of  Parental 
Responsibility and Measures for the Protection of Children).  

6. 

TRANSPORT,  ENERGY,  ENVIRONMENT,  THE 
RESEARCH AND DEVELOPMENT 

INFORMATION  SOCIETY, 

In the area of road transport, Georgia continued the alignment with the international 
regulatory framework by starting an accession process to the Agreement Concerning 
the  Work  of  Crews  of  Vehicles  Engaged  in  the  International  Transport  and  to  the 
Convention  on  International  Carriage  of  Dangerous  Goods  by  Road.  In  the  aviation 
sector,  Georgia  should  implement  the  safety  roadmap  established  by  the  European 
Aviation  Safety  Agency.  In  the  maritime  sector,  the  law  on  the  Education  and 
Certification  of  Seafarers  aligning  with  Standards  of  Training,  Certification  and 
Watchkeeping  convention  entered  into  force  in  January  2012.  This  should  help 
Georgia to regain the EU recognition of certificates from Georgian seafarers that was 
revoked  in  late  2010.  Georgia continued  to  implement  its  strengthened  Flag  State 
Inspection  Policy.  The  number  of  vessels  flying  the  Georgian  detained  in  ports  to 
correct  safety  problems  in  2011  decreased  to  6  %  from  28%  in  2009.  While  the 
Georgian flag remains on the black list of the Paris Memorandum of Understanding 
on Port State Control, it was removed from the ‘High Risk’ category of this black list. 

13

 
 
launched 

study  was 

Georgia  remained,  also  for  the  EU,  a  reliable  energy  transit  country  for  Caspian 
resources. It reconfirmed its full support for developing the Southern Gas Corridor. A 
feasibility 
the  Azerbaijan-Georgia-Romania 
regarding 
Interconnection project, aiming to export liquefied natural gas through the Black Sea. 
Georgia, Azerbaijan, Lithuania, Poland and Ukraine further worked towards a Euro-
Asian  Oil  Transportation  Corridor.  The  rehabilitation  of  gas  networks  continued. 
Georgia completed a feasibility study on underground gas storage; it intends to use the 
storage to increase the country’s and the region’s energy security. Georgia remained 
active observer of the Energy Community. In order to step up the use of and trade of 
electricity from renewables, Georgia continued the construction of (hydro) generation 
capacity  and  the  development  of  the  Black  Sea  Electricity  Transmission  Line 
(Azerbaijan-Georgia-Turkey).  Electricity  interconnections  with  Armenia  and  Turkey 
are being built. More efforts are needed on energy efficiency. 

In the field of climate change, a third climate week took place, aiming to encourage 
public debate on climate issues and improve awareness. No new Clean Development 
Mechanism projects were registered at the UN level, leaving the number of registered 
projects at two. Georgia is encouraged to build capacity and engage in the new carbon 
market mechanism to be developed following the UNFCCC COP 17. Georgia is also 
encouraged  to  fully  implement  the  Cancun  and  Durban  agreement  and  in  particular 
devise a low carbon development strategy including update information on target or 
actions that it will implement. 

The  adoption  of  the  second  National  Environmental  Action  Plan  for  2012–2016  is 
still pending as well as the publication of the new State of the Environment Report. 
Georgia drafted a new Water Management law and adopted a national action plan on 
persistent  organic  pollutants.  Georgia  amended  legislation  on  environmental  impact 
assessment  providing  for  the  exemption  of  projects  of  state  interest.  A  website  on  a 
pilot  pollutant  release  and  transfer  register  was  created,  as  a  tool  to  provide 
information  to  the  general  public  about  substances  of  concern.  The  Ministry  of 
Environment and Natural Resources became the Ministry of Environment Protection. 
Some of its previous responsibilities were transferred to other ministries. There were 
no significant developments with regard to Georgia’s ratification of, or accession to, 
environment related conventions and protocols of the UN Economic Commission for 
Europe.   

The  Regional  Environmental  Center  (REC)  for  the  Caucasus  continued  its 
activities in 2011 inter alia in the fields of information and public participation. The 
REC founders agreed in October 2011 that they want to see it enhance its role in the 
South  Caucasus  Region  in  the  years  to  come.  They  tried  to  find  a  solution  to  the 
REC's debt problem and agreed that it could be beneficial to convert the REC into an 
inter-governmental regional organisation. 

Georgia  started  establishing  a  civil  protection  service  for  mountainous  regions. 
Georgia  also  intensified  the  cooperation  with  the  countries  from  the  region  and  the 
exchange  of  best  practices  with  the  EU  in  the  field  of  disaster  prevention, 
preparedness  and  response  through  its  participation  in  the  EU  Programme  for 
Prevention of, Preparedness for, and Response to natural and man-made disasters. 

In the information society sector the regulator continued with regulatory reform. The 
mobile telephone market continued to grow at moderate pace. The development of the 

14

 
 
fixed-line  network  in  Georgia  has  stalled.  The  system  is  still  short  of  100%  digital 
target.  

Broadband internet expanded rapidly and by late 2011 broadband constitutes the vast 
majority of internet access subscriptions. 

Investment in research and innovation continued to remain at a relatively low level. 
Georgia  continued  to  have  a  good  level  of  participation  in  the  7th  Framework 
Programme  for  Research  and  Technological  Development  (FP7)  with  a  growing 
number  of  successful  applications.  To  date,  36  Georgian  research  organisations  are 
involved in 26 projects, receiving just over EUR 2.54 million. The highest numbers of 
projects  are  in  the  areas  of  research  infrastructures,  the  Marie  Curie  Fellowship 
actions,  health  research  and  the  international  cooperation  actions.  Georgia  is 
encouraged  to  increase  participation  in  the  research  themes  under  the  Cooperation 
programme and to nominate a Legal and Financial Contact Point. 

As regards Regional Policy, and in the context of the agreement with the Commission 
on regional policy dialogue, Georgia has expressed interest in building capacity in the 
field of strategy development. These aspects will be developed in a PRDP which will 
be integrated into the ongoing large programme on Regional Development. 

7. 

PEOPLE-TO PEOPLE CONTACTS, EDUCATION AND HEALTH 

In the area of education, a country-wide teacher certification process started in July 
2011.  Reforms  launched  in  2010  aimed  at  modernising  the  education  system  in  line 
with  the  Bologna  Process  continued  to  be  pursued,  reaching  the  doctoral  level.  A 
National  Framework  for  quality  standards  throughout  the  whole  education  sector 
(involving  VET  degrees  as  well  as  BA  and  MA  degrees)  was  adopted  in  2011.  The 
Twinning project with the Ministry of Education and Science focusing on the higher 
education sector and the Bologna Process was successfully completed in March 2011.   

Higher  education  reform  in  Georgia  continued  to  benefit  from  EU-Georgia 
cooperation and support via the Tempus IV programme, with five additional projects 
selected  in  2011.  Projects  covered  topics  such  as  internationalisation  of  higher 
education, the development of university-enterprise partnerships, the modernisation of 
medical  education,  migration  and  skills  and 
the  development  of  regional 
interdisciplinary  post-graduate  energy  and  environmental  law  studies.  Georgia  also 
continued  its  active  participation  in  exchanges  via  Erasmus  Mundus  in  2011,  with 
the award of a total of 63 scholarships and mobility grants for students and academics. 
Regarding vocational education and training (VET), Georgia continued the reforms 
launched  in  2010  on  the  basis  of  its  Medium-Term  Strategy  2009-2012.  This  effort 
was  supported  by  the  EU  through  a  programme  (EUR  19  million)  which  helped  to 
institutionalise the 
involving  all  social  partners.  Georgia 
progressed  particularly  in  the  promotion  and  quality  enhancement,  as  well  as  in  the 
rehabilitation of the infrastructure. The European Training Foundation supported four 
new  projects:  a  migration  and  skills  survey,  a  Small  Business  Act  assessment,  a 
project  on  linking  VET  programmes  with  labour  market  needs  and  a  peer  learning 
project on lifelong learning policies.  

tri-partite  dialogue 

Preparations  began  for  the  participation  of  Georgia  in  the  eTwinning  component  of 
the Comenius programme, the EU programme for interconnecting schools, foreseen 

15

 
 
for  2012,  with  the  selection  of  the  partner  support  agency  and  an  assessment  of 
potential beneficiaries/schools.  

In April 2011 Georgia hosted a regional seminar on cultural policy in the framework 
of EaP Platform 4 activities. Seven Georgian cultural organisations participated in six 
cooperation projects financed under two calls by the Culture Programme in 2009 and 
2010 dedicated to the ENP-countries who have ratified the ratified the 2005 UNESCO 
Convention on the Protection and Promotion of the Diversity of Cultural Expressions.  

In 2011 under the guidance of the Ministry for Sport and Youth a draft document on 
Youth Policy in Georgia has been elaborated during a consultative process including 
all  major  stakeholders  in  the  field  of  youth.  It  is  scheduled  to  be  adopted  by  the 
government  of  Georgia  in  spring  of  2012.  Very  positively,  the  number  of  young 
Georgians  and  Georgian  youth  workers  benefitting  from  the  exchange  opportunities 
of the Youth in Action programme increased from 405 in 2010 to 469 in 2011.  

Georgia  continued  health  sector  reform.  It  developed  a  health  care  strategy  2011-
2015, which aims to reduce inequalities in access to care; enhance quality of services; 
protect  the  patient’s  rights;  prevent  diseases  and  increase  preparedness  in  case  of 
health  threats;  strengthen  management  of  the  sector  and  increase  sector  efficiency. 
Georgia  introduced  a  financing  system  that  improves  patient’s  coverage.  In  June 
2011,  it  established  a  centre  for  mental  health  and  drug  addiction  with  branches  in 
regions.  

16