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# 52011SC0649

**JOINT STAFF WORKING PAPER Implementation of the European Neighbourhood Policy in 2010Country report: Georgia JOINT STAFF WORKING PAPER Implementation of the European Neighbourhood Policy in 2010Country report: Georgia /\* SEC/2011/0649 final \*/**

  

JOINT STAFF WORKING PAPER

Implementation of the European
Neighbourhood Policy in 2010
Country report: Georgia

1.
Overall assessment

Georgia and the EU first established
contractual relations in 1996 through a Partnership and Cooperation Agreement
which entered into force in 1999. On this basis, the EU-Georgia European Neighbourhood
Policy Action Plan (ENP AP) was approved in November 2006 for a period of five
years.

In 2010, the EU
and Georgia held meetings of the Cooperation Council, the Cooperation Committee,
and subcommittees on trade, economic and related legal
issues and on justice, liberty and security
issues, plus one round of the EU-Georgia dialogue on Human Rights.

This document reports on progress made in
the implementation of the EU-Georgia ENP Action Plan between 1 January and 31
December 2010 although developments outside this period are also taken into
consideration where relevant. It is not a general review of the
political and economic situation in Georgia. For information on regional and multilateral
sector processes, please refer to the sectoral report.

The EU and Georgia
agreed to move forward with deepening and broadening EU-Georgia relations
within the Eastern Partnership (EaP) framework. Negotiations on an EU-Georgia
Association Agreement (AA) were launched in July 2010. The negotiations
progressed at a good pace in the second half of 2010.

This Agreement is conceived by both Parties
as illustrating the most advance and ambitious approach to the Eastern
Partnership vision of association, including a Deep and Comprehensive Free
Trade Area (DCFTA) and a comprehensive programme of approximation to EU acquis.
Negotiations on a DCFTA will start, in the same
framework, once the necessary conditions have been met. Georgia made progress
in implementing key recommendations in areas of technical barriers to trade,
food safety, competition and intellectual property rights.  Georgia also
initiated work to build the necessary institutional capacity for the trade
negotiation process.

Overall, Georgia made progress in the
implementation of the ENP AP priorities throughout 2010, especially in reforming
the justice system, improving the conduct of elections, increasing women’s
rights, carrying out constitutional reform, reforms in trade and business related
areas, and regional development, as well as substantially curbing
administrative corruption. One of the major achievements was the entry into
force of the new criminal procedure code in October 2010. Georgian authorities
worked intensively to ensure the new code was successfully implemented. Continuing
these efforts and effectively implementing the legislation will be key to ensuring
its long-term success.

At the same time, Georgia needs to
accelerate its efforts to consolidate democracy, especially as regards political
and media pluralism. The rights and integration of minorities and corruption
among high-ranking officials remain areas where more efforts are needed. Other
major challenges include freedom of association, labour rights, employment and
social policies, poverty reduction and agricultural development. In the field
of labour rights and core labour standards, ILO expressed concerns with the
lack of compliance, by Georgia, with core labour conventions. If unaddressed,
these concerns put at risk Georgia’s continuing inclusion in the EU’s General
System of Preferences (GSP+) which allows Georgia to benefit from trade
preferences from the EU.

After the double shock of military conflict
with Russia in August 2008 and the global economic crisis, in 2010 the Georgian
economy showed signs of recovery. In line with its commitments in the ENP AP and
with the International Monetary Fund (IMF) Stand-By Arrangement, the country
preserved a prudent fiscal and monetary policy stance and made progress in
increasing exchange rate flexibility. Limited recovery in Foreign Direct
Investment (FDI) inflows, however, meant Georgia’s external position remained
vulnerable given the need to finance the large current account deficit. The
country is still dependent on external official financing.

The EU continued to lend full support to
Georgia’s territorial integrity and sovereignty and to a peaceful resolution of
the existing conflicts.  The EU continued to fully implements its post-war
assistance pledge of up to EUR 500 million as announced n the October 2008
donors’ conference.  The Geneva International Discussion continued as
the single forum for structured dialogue between the parties to the conflict. 
The EU Monitoring Mission (EUMM), as the only agree international presence on
the ground, continued its efforts in support of a stabilisation of the security
situation.  However, it was unable to carry out its mandate in the whole
territory of Georgia given that it was prevented from getting access to the
breakaway regions of Abkhazia and South Ossetia.  The start of the
implementation of the Government of Georgia’s “State Strategy on Occupied
Territories: Engagement through Cooperation” did not lead to a fundamental
change of the situation.  Throughout 2010 the EU continued to remind Russia of
its commitments under the EU-mediated ceasefire agreement with Georgia on 12
August 2008 and the implementation plan of 8 September, which have not yet been
fulfilled.

2.
Political dialogue and reform

Democracy and the Rule of Law, Human
Rights and Fundamental Freedoms

Local elections, in which the
Tbilisi Mayor was directly elected for the first time, took place in May 2010
in a calm atmosphere. The Election Code was amended in advance of the local
elections, including changes in the procedure for electing the Chairman of the
Central Election Commission. International observers reported that the
elections marked evident progress towards meeting international standards;
however, shortcomings continued to be observed in the pre-election and post-election
periods, mainly with regard to abuse of administrative resources and the functioning
of the complaints resolution mechanism. The Election Code Working Group resumed
its work in November 2010, in order to further amend the code by autumn 2011,
to allow a full year of implementation before the next scheduled elections.

Amendments to the Georgian constitution
were drafted by the Constitutional Commission and adopted by the parliament in
October 2010. Most amendments will enter into force in 2013, after the presidential
elections. The constitutional reform aimed at ensuring a more balanced
separation of powers, reducing the powers of the president so as to strengthen
the parliament’s role, improving the system of checks and balances and reinforcing
the independence of the judiciary. However, the new amendments do not guarantee
parliament’s oversight function as they make it very difficult for parliament
to mount a vote of no confidence in the government. The process and pace of the
constitutional reform were also criticised, as the constitution was adopted by
the parliament on the same day that the final opinion of the Council of Europe (CoE)
Venice Commission was published.

There was continued progress in 2010 on the
reform of the criminal justice system. The new Criminal Procedure Code
entered into force in October 2010, introducing a number of substantial changes
to the current system of criminal proceedings in Georgia, notably the introduction
of jury trials in criminal cases. Throughout 2010, Georgian authorities worked
intensively to ensure the successful implementation of the new code through
various training programmes for justice sector professionals, public awareness
campaign and the introduction of the new Integrated Criminal Case Management
System.

Progress was also noted on strengthening
the independence of the judiciary, as the new constitution provides for judges
to be appointed for life. However, the CoE Venice Commission and the civil
society expressed concern over the long probation periods before appointment.
Judges on probation are more exposed to political influence. The ‘Law on Rules
of Communication with Judges in Common Courts’ was amended in February 2010. It
does not prohibit correspondence with a judge, but increases the fine for all
illegal correspondence and extends the law to officials serving in political
positions. Amendments were also made to the ‘Law on Disciplinary Responsibility
and Disciplinary Proceedings of Judges’, changing the procedure for the election
of the chairman of the disciplinary board, in order to minimise the possibility
of political influence over disciplinary procedures against judges.

As for access to justice, the free
Legal Aid Service of the Ministry of Corrections and Legal Assistance continues
to provide legal assistance to citizens throughout the country, including to
vulnerable groups. However, a set-back was reported in 2010.  The Government of
Georgia decided that the Legal Aid Service will start providing legal
representation to citizens in civil and administrative cases in January 2013,
and not as initially planned for January 2011, due to the lack of capacity
within the service.

No progress was noted on civil
service reform in 2010. There are no laws or legal provisions regulating
salaries or training of civil servants in Georgia. A
new Civil Service Code was drafted, but is not in line with the principles and
standards outlined by the OECD (SIGMA). The Civil Service Bureau (CSB) mainly
concentrates on fighting petty corruption in the public service and not on its
overall reform. In line with this, an online system of asset declaration for
civil servants was established by the CSB.

Limited progress was made in 2010 regarding
decentralisation and development of a national strategy for local
self-government reform. The Action Plan on Regional Development, adopted in
November 2010, provides for a new ‘Law on Regional Development’ to be drafted in
2011, which will include various legislative steps to increase local
self-governments’ competences. The new Constitution also contains a chapter on
local self-government, but the provisions remain vague and in need for
clarification with regard to the definition and organisation of local powers.

In the field of Regional Policy dialogue
the city of Tbilisi organised a seminar together with TAIEX to which
representatives of the European Commission and of a number of European Regions
were invited. Following the meeting, the Georgian minister of regional
development and infrastructure with a group of officials was invited to the
2010 REGIO Open Days-European Week of Cities and Regions in Brussels, during
which discussions were held with Commissioner for Regional Policy J. Hahn. As a
result a joint declaration on Regional Policy Dialogue was signed in February
2011 and an agreed work programme is being implemented.

Since the ‘Rose Revolution’, Georgia was
relatively successful in curbing administrative corruption. Progress was
noted in criminalising corruption, avoiding conflicts of interest and protecting
whistleblowers. A new Anti-Corruption Strategy and Action Plan drafted by the
Anti-corruption Interagency Coordinating Council was adopted in 2010. There
were a number of corruption-related investigations and charges brought against
public officials. However, concerns remain on corruption at political level, not
least because of weak control over political party financing, the lack of
transparency in procurement and privatisation processes, weak accountability of
high-ranking officials for reserve funds, insufficient protection of property
rights and a lack of transparency in media financing and ownership.

Human rights and fundamental freedoms

Georgia is party to the main international
and regional human rights instruments, and to most of their
optional protocols. Georgia has been party to the Rome Statute of the
International Criminal Court since 2003. A meeting of the Human Rights Dialogue
between the EU and Georgia was held in 2010. It provided for a good general
exchange of views on human rights and fundamental freedoms in Georgia.

The Public Defender (Ombudsman) continues
his independent monitoring of human rights violations in Georgia. The powers of
the Public Defender were increased in 2010. The government supported the role
of the Public Defender’s Office (PDO), through increased budgetary allocations,
inviting it to participate in the EU-Georgia human rights dialogue and by
including the Office as a beneficiary of the Comprehensive Institution Building
Programme.

Throughout 2010, the PDO carried out its
first year of monitoring as National Preventive Mechanism under the Optional
Protocol of the UN Convention against Torture (OPCAT). In September
2010, the Council of Europe Committee for the Prevention of Torture (CPT)
issued its report on a visit to Georgia in February 2010. It reported several
prisoners’ complaints of ill-treatment and abuse of authority by prison staff,
which have not been thoroughly investigated by the Georgian authorities.

Inhuman and degrading detention
conditions, often caused by overcrowding in prisons, remain a major area of
concern, together with inadequate healthcare in prisons, as was also reported
by the CPT. The treatment and situation of psychiatric patients is also of
concern. Limited progress was noted in the improvement of material conditions
in prisons and in police detention establishments, and in the provision of
legal aid to persons in police custody. Amendments made to the Criminal Code of
Georgia in February and July 2010 represented a positive step towards the liberalisation
of criminal policies in Georgia. The implementation of these amendments and a
more substantial revision of the criminal legislation and sentencing policies are
important to address the problems caused by increasing prison population.

The lack of transparency of media
ownership and the difficulty of access to public information continues to pose
serious problems for the independent media in
Georgia. The Parliament is scheduled to discuss a package of measures to
guarantee transparency of media ownership, by amending all related legislation,
including the Law on Broadcasting.
The Georgian Public Broadcaster’s coverage of the period before and during the
local elections of May 2010 was reported to be more balanced compared to
previous election periods, albeit still polarised.

There has been no progress reported on the
integration and the rights of ethnic, religious and sexual minorities in
Georgia. The ‘National Integration Strategy: National Concept for Tolerance and
Civic Integration’ was adopted in May 2009 but there is no follow-up report on
the state of the implementation of the action plan for 2010. The CoE Framework
Convention for the Protection of National Minorities has not been fully
transposed into domestic legislation and the European Charter for Regional and
Minority Languages has still not been signed by Georgia. On the repatriation
and integration of the Meskhetian population to Georgia, the period for
applications to return ended at the end of 2009 with more than 6000 people
seeking repatriation. The Georgian government set up a database for these
applications and started assessing them, but the process has been very slow. A
specific action plan to effectively ensure the repatriation, resettlement and
integration of Meskhetians has still not been developed and the government’s capacity
to deal efficiently with the applications remains a subject of concern.

In March 2010, parliament adopted the Law
on Gender Equality drafted in consultation with local NGOs,
international organisations and government bodies. The Advisory Council on
Gender Equality Issues in the parliamentary Speaker’s office is active on
women’s rights, gender equality and domestic violence and contributed to the
adoption of the new law. The law provides for the strengthening of women’s
political participation and gender-responsive planning and budgeting by the
government. Women continue to suffer from a gender pay gap: the average monthly
salary of formally employed women remained, on average, 43 % less than men
in the third quarter of 2010.

Progress was noted in the reform of the juvenile
justice system where the amendments to the Criminal Code lifting the age of
criminal responsibility from 12 to 14 years of age entered into force in
February 2010. The amendments also granted the
prosecutor discretionary power to divert juveniles from criminal prosecution in
order to encourage alternatives to criminal prosecution. Progress was also made on the specialisation of staff within the
criminal justice system and in setting up a separate juvenile parole board to
consider applications for early conditional release.

Cooperation on Foreign and Security
Policy

Since June 2007, Georgia has been invited
to align with CFSP declarations on a case by case basis. In 2010, Georgia
aligned with 28 out of 44 CFSP declarations which they were invited to support.
There was intense political dialogue with the Georgia in 2010, including
through two Political and Security Committee Political Dialogues in June and
September 2010, and visits by the Commissioner for Enlargement and
Neighbourhood Policy and the High Representative of the European Union for
Foreign Affairs and Security Policy to Georgia in April and July 2010
respectively.

Strengthening regional cooperation

Southern Caucasus Integrated Border
Management (SCIBM), promoted by the EU between Georgia, Armenia and Azerbaijan,
started in March 2010 (see chapter on cooperation on justice, freedom and
security). The Regional Environmental Centre (REC) for the Caucasus worked on information
and public participation, environmental policy and local environmental action
plans (see chapter 6, part on environment).

Cooperation on settling conflicts
within Georgia’s internationally recognised borders

Georgia continued to implement the internally
displaced persons (IDPs) Action Plan, which was reviewed in May 2010. In tandem
with the review, a new ‘IDP Housing Strategy and Working Plan’ was drafted. The
latter outlines the remaining needs and challenges in providing durable housing
solutions for all remaining IDP families due to limited availability of
funding. From June to August 2010 and in January 2011, thousands of IDPs
illegally occupying idle buildings in Tbilisi were forcefully evicted.
Although, according to the Georgian government, most of the evicted people had
already received durable housing or were not in need of them, many were offered
relocation to far-away rural areas, with limited prospects of earning a living.
Many international human rights associations, the international donor community
in Georgia and local NGOs criticised the process and the manner in which these
evictions were carried out. With the support of UNHCR and other donors, the
Government developed Standard Operating Procedures for evictions. However,
implementation of these procedures is inconsistent, which often creates unmet
expectations in IDPs. Also, more efforts are needed to help with socio-economic
reintegration and to give IDPs a means of earning a living. A number of
projects exist, including some financed by the EU, but a comprehensive socio-economic
State strategy for IDPs is not in place.

The EU remains committed to respect for Georgia’s
territorial integrity and sovereignty and peaceful conflict resolution. The EU
continues to fully implement its post-war assistance pledge of up to EUR 500
million as announced in the October 2008 donors’ conference. Through this
support, tens of thousands of IDPs have received durable housing and some
limited efforts were made to integrate them socially and economically in the
host communities. Other conflict-affected people have also received assistance,
and a constructive dialogue between communities living across the conflict
divide has been fostered through civil society. (See
chapter on financial cooperation.)

The EU has been taking an active role as a
co-chair, together with the UN and the OSCE, of the ‘Geneva International
Discussions’, set up in 2008 as a forum for dialogue and the only platform
allowing an ongoing political conflict resolution process. In the course of
2010, six rounds of ‘Geneva Discussions’ took place.

Throughout 2010, the EU continued to remind
Russia of its commitments under the EU-mediated ceasefire agreement with
Georgia of 12 August 2008, which have not yet been fulfilled. In October 2010,
Russia pulled out of Perevi village adjacent to the administrative boundary
line with the Georgian region of South Ossetia.

An EU civilian monitoring mission (EUMM)
with 340 observers was set up in October 2008 to monitor and analyse the
stabilisation process. In September 2010, the EUMM’s mandate was extended for
another year. However, continued refusal of access to the breakaway regions for
the EUMM results in asymmetrical implementation of the Mission’s mandate.

In July 2010, the Government of Georgia
approved an Action Plan to implement the ‘Strategy on Occupied Territories:
Engagement through Cooperation’. The Action Plan is to provide a ‘human-centred
approach’ designed to ‘reduce isolation and improve welfare’ for people living
in Abkhazia and the South Ossetia regions of Georgia. The ‘Modalities for
Engagement of Organisations Conducting Activities in the Occupied Territories
of Georgia’, which are the implementing modalities for the Action Plan and the
Law on Occupied Territories, were adopted in October 2010. These regulate the
actions of donors and their implementing partners in carrying out international
assistance projects in the breakaway regions. The international community has
expressed concerns about these regulations and the restrictions imposed,
recommending changes; however, only a few of these changes were accepted by the
Georgian government. Successful implementation of the Georgian Strategy and
Action Plan, and the continuation of international assistance projects for
peaceful conflict resolution, will depend on the implementation of the ‘modalities’
in a practical and enabling manner.

On 23 November 2010, President Saakashvili
made a unilateral ‘non-use of force’ pledge at the European Parliament,
stating that Georgia would only use peaceful means to restore control over
Abkhazia and South Ossetia.

Georgia continued to implement the IDP
(internally displaced persons) Action Plan, which was reviewed in May 2010.  In
tandem with the review, a new ‘IDP Jousing Strategy and Working Plan’ was
drafted.  The latter plan outlines the remaining needs and challenges in
providing durable jousing solutions for all remaining IDP families due to
limited availability of funding.  From June to August 2010 and in January 2011,
thousands of IDPs illegally occupying idle buildings in Tbilisi were forcefully
evicted.  Although, according to the Georgian government, most of the evicted
people had already received durable housing or were not in need of them, many
were offered relocation to far-away rural areas, with limited prospects of
earning a living.  Many international human rights associations, the
international donor community in Georgia and local NGOs criticised the process
and the manner in which these evictions were carried out.  With the support of
UNHCR and other donors, the government developed Standard Operating Procedures
(SOPs) for evictions. However, implementation of these procedures is
inconsistent, which often creates unmet expectation in IDPs.  Also, more
efforts are needed to help with socio-economic reintegration and to give IDPs a
means of earning a living.  A number of projects exist, including some financed
by the EU, but a comprehensive socio-economic state strategy for IDPs is not in
place.

3.
economic and social reform

Macroeconomic framework and functioning
market economy

In the aftermath of the double shock of the
military conflict with Russia of August 2008 and the global crisis, the
Georgian economy is showing signs of recovery. Following two years of low or
negative growth, 2010 saw a revival of economic activity. After a contraction
of activity by 3.8 % in 2009, in 2010 real GDP grew by 6.3 %.

On the back of the economic recovery, the government
decided to tighten its budgetary and monetary policies. In line with its commitment
under the IMF Stand-By Arrangement, the fiscal deficit was reduced from 9.2 %
of GDP in 2009 to 6.6 % in 2010. Expenditure containment was the main
strategy behind this fiscal consolidation, although recovering tax revenues
were also an important factor. Tax revenue increased by almost 10 % in
comparison to 2009 and thus more than compensated the falls from the previous
year caused by the global crisis. The tightening of monetary policy began in
the summer, with the key policy interest rate being moderately increased, to
keep inflation under control. However, while CPI inflation in 2010 was 7.1 %
on average, it picked up at the end of the year, reaching 10.2 %. In late
2010, to bring down inflation pressures, the monetary authorities further
increased the base interest rate and introduced higher reserve requirements
acting in line with their commitment to macro-economic stability under the ENP
AP and the IMF Stand-By Arrangement. The authorities also reviewed agricultural
policy, announcing greater political commitment to promoting growth and jobs in
the agricultural sector.

While the economic recovery seems to be
taking hold, the external economic situation remains vulnerable as the
financing of the large current account deficit remains uncertain. By weakening
domestic demand, the crisis contributed to a halving of the current account
deficit in 2009. However, the deficit remains very large, at 9.9 % of GDP
in 2010, and it is expected to increase further in 2011. The trade deficit,
which reached 22.2 % of GDP in 2010, has been the main driver of the large
current account deficit. Georgia’s exports continue to suffer from the trade
embargo imposed by Russia in 2006 and extended in 2008. Georgia’s exports to
the EU countries have remained low and the opportunities offered by the GSP+
remain under-exploited. While a certain shift in trade and changes in its export
profile have recently taken place, Georgia’s exports continue to need diversification.
Overall, the Georgian export performance remains far below its potential.

FDI inflows were adversely affected by the
crisis and declined to USD 550 million (ar. EUR 415 million) in 2010 in thus
remaining significantly below their 2009 level when they reached USD 750
million (EUR 566 million). This disappointing performance puts at risk the
financing of the current account and the build up of international currency
reserves and shows that foreign investor confidence, which was hard hit by the
conflict with Russia in 2008, has still not returned. It also reflects the loss
of steam of the privatisation process, as many of the most attractive state
companies and assets have already been sold.

Consistent with the monetary authorities’ commitment
within the IMF Stand-By Arrangement to increasing exchange rate flexibility,
the National Bank of Georgia (NBG) continued its less interventionist exchange
rate policy. The depreciation against the USD during the first half of the year
reversed in June 2010, with the appreciation allowing a slight recovery in
foreign reserves. However, although gross international reserves have recovered
from a trough of USD 1.5 billion (EUR 1.13 billion) reached during the crisis
to USD 2.3 billion (EUR 1.73 billion) at the end of 2010, net international
reserves remained low, at USD 825 million (EUR 622 Million). A further
vulnerability in the balance of payments relates to the fast increasing
external public debt, up from 16.8 % of GDP in 2007 to 34.1 % of GDP
in 2010, and a significant need for a debt roll-over in the next few years.

In September 2008, the IMF approved an
18-month Stand-By Arrangement for Georgia, worth USD 750 million (EUR 566
million). During the third programme review, approved by the IMF Executive
Board in August 2009, the Stand-By Arrangement was extended until 14 June 2011
and the financing package increased, bringing total access to IMF resources
under the arrangement to USD 1.17 billion (EUR 883 million). On 12 January
2011, the IMF Board completed the 7th and the 8th reviews, concluding that
performance under the programme has been broadly satisfactory. However, the
authorities indicated that they did not intend to draw on the instalment of
around USD 153 million (EUR 115 million) that became available.

Employment and social policy

The labour
market has benefited only marginally from the economic recovery, with the
unemployment rate decreasing only moderately from its 2009 height of almost 17 %
to around 15 %. There is a need to thoroughly address the mismatch between
skills and labour market needs, but Georgia has no specific employment strategy
in place and no employment implementing agency. More generally, there is no
overall social sector strategy, although there are several medium-term action
plans to address particular policy areas, covering social exclusion and
protection issues for children at risk, the disabled, those with learning
difficulties, IDP families, and trafficking.

In the field of labour
rights and core labour standards, the March 2010 report of the ILO
Committee on Freedom of Association repeats the ILO's concern on the implementation
of two key conventions, on Freedom of Association and Protection of the Right
to Organise, and on Right to Organise and Collective Bargaining. The Labour
Code and the Law on Trade Unions need to be amended in order to comply with
core labour standards, notably regarding the criteria for establishing trade
unions, protection against anti-union discrimination, the right to strike. In
addition, the Committee re-stated ILO continued concerns as regards the
implementation of the Conventions on Equal Remuneration, on Discrimination, and
on Holidays with Pay.

In the area of social dialogue, the
tripartite constituents reached an agreement, in May 2010, on the minimum
changes to be introduced to the labour code, particularly with regard to
anti-union discrimination. However, these changes have not yet been introduced.
Moreover, the Georgian Trade Union Conference has made allegations of
anti-union discrimination and government interference in the check-off system,
which suggests persisting interference by the government in social dialogue.As
regards social assistance, the government continued to implement the
2009 Children Action Plan and in November 2010 approved an action plan for the
Major Areas of Child Care System Reform for 2011-12. The child welfare reform process continued in the
reporting period. The government supports the development of children’s homes
for small groups and plans to close down all the 31 big institutions by the end
of 2013.

In June 2010, the system of means testing
for targeted social assistance was revised and new criteria adopted to define
households whose socio-economic conditions are below the poverty line. The government
also adopted rules on setting up a unified database of socially vulnerable
families, evaluation of their social-economic conditions and their
registration.

In 2010, agricultural
production continued to decline. All the major constraints (e.g. lack of
consistent sector strategy, weak public services, fragmented supply chains,
limited access to credit, outdated production techniques, etc.) remain so far
unaddressed. In particular, the government has not taken any significant
measure to improve access to credit facilities for farmers yet. However, some
positive signals came in 2010 from the ministry of agriculture, which has
drafted a comprehensive national strategy for the sector, for approval beyond
the reference period. Limited availability of funding reduced the ministry’s
ability to implement traditional support measures such as funding for
mechanisation programmes, free distribution of fertilisers and subsidies for grape
production.

In February 2010 the government created the Georgian Agriculture
Corporation, a state-owned company aiming to become the operational arm of the ministry
of agriculture. The process of privatisation of state-owned land continued steadily
during the year.

Overall, most of the public efforts in the sector follow top-down
approaches, with limited engagement of civil society and with a focus on
attracting big investors, rather than on promoting rural initiatives that could
benefit farmers more directly.

In the reporting period there was no progress regarding sustainable
development. The ministry of environment and management
of natural resources has not yet started to draft the relevant strategy.

4.
trade-related issues, market and regulatory
reform

After a decline in 2009, bilateral trade
grew during the reporting period; EU exports to Georgia increased by
31.6 % compared to the previous year, while exports of Georgian products
to the EU increased by 7.1 %. However, there is a need for further
diversification of Georgian exports, which remain concentrated in a few
commodities of low value added (in particular, mineral products formed 71.8% of
Georgia's exports to the EU in 2010.

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
enhanced preferences should help to diversify Georgia’s export structure and
improve its export performance. However, the above-mentioned, if unaddressed,
put at risk Georgia’s inclusion in the GSP+ given that it is conditional on the
country’s compliance with the core ILO and UN conventions.

At the beginning of 2010, Georgia increased
above the rates bound in its WTO schedules the customs duties applied to imports
of some industrial and agricultural products. In March 2010 Georgia ended this
breach of WTO rules. In the course of 2010, Georgia rectified other breaches in
WTO rules: it lowered the tariff rates applied to imports of spirits to the
levels bound in its WTO schedules and it equalised excise taxes on imported and
domestically produced tobacco products.

Intensive dialogue was
held on preparations for the start of negotiations on a DCFTA with the EU based
on the EU key recommendations. Good progress was made in drafting and adopting
strategies and preparing the necessary legislation in the key regulatory areas
as reported below in the sections on sanitary and phytosanitary measures, free
movement of goods and technical regulations, intellectual property rights and competition.
However, in order to become ready for DCFTA negotiations, Georgia will need to
accomplish additional work, in particular as regards practical implementation
of reforms in the key regulatory areas and building adequate institutional
structures and administrative capacity for the negotiating process.

In January 2010, the Georgian National
Investment Agency (GNIA) established an Export Promotion Department. The GNIA
launched in September 2010 a new export web portal focussing on the needs and
interests of Georgian exporters, including facilitating partner searches for
foreign companies. In 2010, the GNIA also held events to promote export and to ensure
the trade community was regularly consulted on and informed of export
procedures.

In July 2010, the EU and Georgia concluded
negotiations on a bilateral agreement for the protection of their respective ‘geographical
indications’. The agreement, which is the first of this kind with an ENP
partner, will foster trade in agricultural products and foodstuffs originating
in the territories of both Georgia and the EU.

Georgia made progress on revenue
management. The Revenue Service, the agency responsible for customs and
taxation issues under the ministry of finance, was transformed into a legal
entity under public law from April 2010 with a view to making it more business
oriented. In September 2010, Parliament approved a new Tax Code which entered
into force in January 2011. The existing Customs Code provisions were reduced
from 250 articles to 36 articles and included in the new Tax Code. The impact
of these changes will have to be evaluated in the light of the implementing
regulations, which have yet to be adopted. The Georgian customs continued
upgrading its risk-analysis system. It set up an Operational Management
Division in the Customs Control Department, which operates as a central unit
with specially trained officials. Mobile x-ray screening systems are used to control
vehicles and a database is now in place. A tracking system for vehicles in
transit is also operational and scanned images are attached to the transit
documents via the Automated System of Customs Data (ASYCUDA). The Georgian
customs drafted standard procedural manuals for customs officials on customs
infringement, definition of sanctions and border customs procedures in Tbilisi
International Airport, Poti Sea Port and the Kutaisi Free Industrial Zone.
Concerning ethics and human resources, the ministry of finance adopted two
orders which regulate recruitment and training of probationers in the Customs
Service. A comprehensive human resources strategy is being drafted. Georgia now
applies the updated version of the Harmonised Commodity Description and Coding
System (HS 2007). The ministry of finance prepared a draft amendment to the Law
on Customs Fees aiming to abolish customs administrative fees. Georgia amended
the Valuation chapter of the Customs Code and enacted the relevant implementing
provisions with a view to clearly defining procedures for determining the customs
value according to WTO principles. Georgia should continue to ensure that
measures are taken to align the policy on customs administrative fees, to
simplify and coordinate post clearance controls, to improve the uniformity of
customs controls and decisions across the administration and to upgrade customs
capacity for checking cross-border movement of counterfeit and pirated
products. Additional acts, for example on integrated tariff and advance customs
rulings (BTI and BOI), need to be adopted.

Georgia made some progress on the free movement of goods and
technical regulations. Government adopted a Strategy on Standardisation,
Accreditation, Conformity Assessment, Technical Regulation and Metrology
together with a Programme on Legislative Reform and Adoption of Technical
Regulations in respectively July and August 2010. The drafting of a Code on
Safety and Free Movement of Products started and is to be finalised and adopted
in 2011. A new single agency in charge of market surveillance - Technical and
Construction Inspection Agency -  was set up through merging of the two
existing agencies in this field and development of a market surveillance
strategy is planned for 2011.

In the area of sanitary
and phytosanitary (SPS) issues, in December 2010 Georgia adopted a food
safety strategy aiming at aligning this sector with EU and international standards. Georgia plans the approximation
with key EU ‘horizontal’ legislation by 2014. In 2010, Georgia drafted and
adopted several implementing acts such as the hygiene rules for food and feed
business operators, including simplified rules for smaller operators. It also
adopted rules on inspections and traceability. Georgia prepared draft laws on
food safety, hygiene, registration of food establishments and labelling of food
products. In 2010, Georgia started implementing food safety provisions that had
been suspended since 2006. As a result, registration of food business operators
started in February 2010. Georgia also initiated compulsory inspections of
traceability requirements, however only for food business operators exporting
to the EU, in July 2010. The Food Safety Law
was amended to extend inspections and traceability to
all food and feed operators starting January 2011. In
September 2010, Georgia adopted the Annual State Control Programme of Food
Business Operators. In December 2010, the Government adopted the General Plan
for Food and Feed Crisis Management. Georgia further upgraded laboratories and
opened new slaughterhouses. Georgia developed an SPS training programme and worked on training of experts. The National
Service for food safety, veterinary and plant protection prepared an
institutional gap assessment. In October 2010, the European Commission’s Food
and Veterinary Office carried out a mission to Georgia on the control of fishery
products and a follow-up
process is ongoing to help Georgia to meet the requirements for exporting these
goods to the EU. Georgia continued to monitor animal diseases such as African
swine fever and foot and mouth disease. Overall, nevertheless, Georgia will
need to make further significant progress in the SPS sector in order to align
it with the EU and international standards. In particular, legislation including
its implementation and enforcement, institutional development and animal disease surveillance need continued attention.

In the area of business
climate, establishment and company law, Georgia
implemented a very efficient registration system for new enterprises through
one-stop offices, whereby a company can be registered and necessary permits be
given in half a day. It rose to 12th place overall in the 2011 World Bank
‘Doing Business’ study, in particular thanks to improvements in access to
credit and investor protection. Changes made to the Law on Entrepreneurs in
April 2010 reaffirmed the requirement to register a company charter in the
Registry, specifying the minimum content of the charter. This minimum content
includes information on the shareholders, the director(s), the managing bodies
of the company and the decision making rules, restrictions on the
representation power of director(s), and information
on any insolvency, bankruptcy or rehabilitation of the company. The
further amendments made in October 2010 set a time limit of four months for the
liquidation of a company.

2010 was also the first full year when the new provisions on audit
applied to the following entities: (a) accountable companies (as defined by the
Law on Securities Market), the securities which are admitted to the stock
exchange, (b) companies licensed by the National Bank of Georgia (such as
banks, insurance companies, brokerage companies, etc.); and (c) companies with
more than 100 shareholders. Audits are to be conducted by an auditor who is legally
and economically independent from the company, its directors and shareholders.

On financial services, since
December 2009 the NBG has acted as the single regulator of financial services,
including supervision of commercial banks, insurance companies and the securities
market. In 2010, it focused on a gradual transition towards a risk based
supervision system. The banking sector’s high levels of capital and
provisioning provided adequate buffers against adverse shocks, but continued close
supervision of banks remains critical. In 2010, the NBG introduced new measures
and policy instruments designed to increase the effectiveness of monetary
policy.

Other
key areas

In September 2010,
Parliament approved a new Tax Code which entered into force in January
2011. The new code introduced the concept of ‘micro’ and ‘small’ businesses. A
different tax regime will be applied to individuals and companies involved in
small businesses. Under the new code, companies will submit tax declarations on
a quarterly basis. The new tax code also reduces the duration of legal
proceedings for tax appeals from a maximum of 125 days to 65 days. The Revenue
Service introduced e-filing of tax-returns, that enables taxpayers to file
declarations electronically, directly or through their representatives.
Negotiations on avoidance of double taxation are still ongoing with Spain,
Cyprus, Slovenia, Hungary, Slovakia and Sweden. Georgia continues to apply an
excise tax on the export of scrap metals.

With regard to competition
policy, progress was made. The Comprehensive Strategy in Competition Policy was adopted in
December 2010. In line with the Strategy, the Georgian Government is currently
drafting a general framework competition law (covering antitrust, including
abuse of dominant position, merger control and state aid rules). The
Presidential Resolution issued in February 2010 set up an Agency for Free Trade
and Competition, which is an independent entity under public law, no longer
under the ministry of economic and sustainable development. The Agency is in
the process of recruiting new staff. It still needs to be given adequate powers
and resources.

Georgia continued in 2010 to align its
legislative framework on intellectual property rights with EU standards,
which is of particular importance in the DCFTA process. In this context, 3 TAIEX-funded study missions to MS IP Offices took place.

A new Law on Design (separate from the Patent
Law) was drafted and subsequently adopted in June 2010. The amended Patent Law introducing the
supplementary protection certificate entered into force in June 2010. A Government decree was
adopted in July 2010 to bring the system of fees into compliance with
international requirements (the Trade-Related Aspects of Intellectual Property
Rights — TRIPS — agreement). Under this Decree, IPR registration fees are now
equal for local and foreign persons, and so comply with the WTO requirement on
non-discrimination. The Trademark Law was amended, introducing an accelerated
procedure for trademark registration (at the applicant’s request, subject to an
additional charge).

The criminal procedural code that entered
into force in October 2010 authorises the prosecutor to act ex officio
in cases involving IPR. According to an independent expert organisation,
Georgia has the highest prevalence of pirated software (95 %) of any
country. Overall, IPR protection and enforcement will require additional
efforts.

The new law on statistics
entered into force in February 2010. The new set up increased the independence
of the National Statistical Office, formerly a department of the ministry of economic
and sustainable development, and now a legal entity under public law (‘Geostat’).
However, the Geostat budget is still set by the ministry and is not sufficient
to improve the quality of statistics.

On enterprise policy, some progress
was made. The Bank of Georgia promoted access to finance through a ‘Small and
Medium Enterprise (SME) Lending’ credit line, approved in July 2010. It allows
the Bank to develop its lending programmes countrywide in the relevant business
segments, providing essential support for longer-term financing of micro, small
and medium sized enterprises.

With regard to
the management of public finances, the ministry of finance continued to
implement its reform plan 2009-2011 including measures improving oversight and
regulation of public procurement. Reform of public finance management,
consistent with the objectives of the Action Plan, is one of the conditions of EU
macro-financial assistance.

Based on the October 2010 amendments to the Law on State Procurement, in December 2010
Georgia introduced a new, electronic procurement system for all types of
contract, irrespective of size and nature. There is no other public procurement
system in Europe that would allow such extensive use of e-auctions. For the
first time, all procurement records and data will be stored electronically,
and, according to the State Procurement Agency (SPA), much of this information
will be accessible to the public. Price will be used as the main criterion to
determine the winner of a contract and a technical evaluation and qualification
compliance check is done with the winning tenderer only. Georgia has applied
the Common Procurement Vocabulary since 2010. To prepare for the implementation
of the new legislation, the SPA has adopted an E-procurement Implementation
Action Plan that provides for training in the new procedures for procuring
entities and bidders, as well as the purchase of IT equipment and software for the
E-platform. The SPA also intends to conduct awareness raising campaigns for the
wider public.

A newly established council that includes
representatives of the State Procurement Agency and several representatives of
NGOs will address complaints of irregularities and shortcomings in the
procurement process.

In terms of public
internal financial control, in March 2010 parliament approved the law on
State Internal Financial Control and Audit, which will gradually establish
internal audit units within all ministries. The law is not in line with
international standards on managerial accountability and separation of audit
from inspection. The ministry of finance decision to abolish its Central
Harmonisation Unit for financial management and control in September 2010 and
to dismiss its staff raises questions about the overall commitment to reform in
terms of investment of staff resources and internal enforcement.

In the area of external
audit, the Chamber of Control adopted its 2010–2011 Capacity Development
Plan and in November 2010 updated the ‘Strategic Development Plan for 2010-2012’.
The documents provide for the approval of compliance audit manuals, the introduction
of a quality control system, staff recruitment and targeted training.

5.
Cooperation on justice, freedom and security

The third
meeting of the EU-Georgia Subcommittee on Justice, Freedom and Security took
place in Tbilisi in July 2010.

In the area of border
management, Georgia continued to implement the Action Plan on
integrated border management adopted in 2009 while participating actively in
the Southern Caucasus Integrated Border Management (SCIBM) regional programme,
which was launched in March 2010. Border crossing points with Azerbaijan were
fully equipped and refurbished with state funds.

In addition, in October 2010 the ministry
of internal affairs signed a two-year Operational Agreement with FRONTEX on
cooperation to counter irregular migration and cross-border crime and on
strengthening working relations with EU member states. In August, the ministry
also drafted Joint Standard Operational Procedures with the Revenue Service of
the ministry of finance, with the support of the Border Support Team of the EU
Special Representative.

In the field of
migration, the EU and Georgia signed visa facilitation and readmission
agreements, which entered into force in March 2011. The EU-Georgia Mobility
Partnership entered the implementation phase, with the start of a three-year
project on the reintegration of returning migrants and a number of bilateral
activities with EU member states. Georgia started issuing only biometric
passports as of April 2010.

On the fight
against organised crime, the ministry of internal affairs continued to
prepare for accession to the Third Protocol to the UN Convention on
Transnational Organised Crime on the Illicit Manufacturing of and Trafficking
in Firearms, Their Parts and Components and Ammunition. Georgia ratified the
European Convention on Cybercrime in October 2010. It did not ratify the 2007 CoE
Convention on the Protection of Children against Sexual Exploitation and Sexual
Abuse, which it signed in 2009.

With regard to
the fight against trafficking in human beings, the ministry of internal affairs
continued to implement the National Anti-Trafficking Action Plan 2009–10 while
drafting the successor plan in October 2010 for the period 2011–12 in
consultation with civil society organisations. Moreover, Georgia hosted
regional cooperation meetings with law enforcement agencies (police, border
guards, and judiciary) from the Republic of Moldova and Turkey in July and
September 2010 respectively, with a focus on experience-sharing and improving
cooperation.

Regarding the fight
against drugs, Georgia has not yet adopted a National Drugs Strategy
incorporating both demand and supply reduction actions. However, the substance
of international legal instruments on prevention and enforcement is
incorporated into national legislation. The ministry of health hosts the
National Focal Point since 2009 but, as yet, the latter has no drugs monitoring
system. There are various reports on the drug situation and drug treatment
projects are implemented in cooperation with civil society. However, the
negative social attitude towards drug addicts does act
as an obstacle.

In the field of money laundering,
Georgia actively continued cooperation in the context of the Egmont and
Eurasian FATF groups and Moneyval. The 2005 CoE Convention on the Laundering,
Search, Seizure and Confiscation of the Proceeds from Crime and the Financing
of Terrorism remains unsigned. The 2003 Additional Protocol to the CoE Criminal
Law on Corruption aiming to protect arbitrators and jurors from bribery also
remains unsigned.

A draft law on data protection was
presented to Parliament in September with a view to signature of the Additional
Protocol to the 1981 CoE Convention for the Protection of Individual with
regard to the Automatic Processing of Personal Data regarding supervisory
authorities and trans-border data flows. To give the former practical effect,
an independent national data protection supervisory authority needs to be set
up.

In the area of international and regional judicial
cooperation, in November 2010, CEPOL (External Working Group) approved a
proposal for conclusion of a cooperation agreement with the Georgian Police
Academy and the ministry of internal affairs. Georgia did not sign the Second
Additional Protocol to the CoE Convention on Mutual Assistance in Criminal
Matters to protect individual rights in the processing of personal data. As
pointed out in 2009, a solid system for the protection of personal data is
essential to advance cooperation with the EU member states, with Europol and with
EUROJUST. Georgia also did not sign the European Convention on the Transfer of
Proceedings in Criminal Matters. 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). The implementation in Georgia of the 1980
Hague Convention on International Child Abduction is also a matter of interest
for the EU

6.
transport, energy, environment, the information
society, research and development

In July 2010 the United
Transport Administration, established in 2009, came under the umbrella
of the ministry of economy and sustainable development. In the road sector,
Georgia adopted a detailed
action plan in 2010 to implement the 2009 Road Safety Strategy. Georgia intends
to introduce road worthiness testing for all vehicles only in 2013. During the
reporting period, Georgia pursued investment in the railway sector, which
included preparing for the Tbilisi railway bypass.

In December 2010 the EU
and Georgia signed a comprehensive air services agreement. The agreement will allow Georgia to become a full partner of the EU
in aviation and will open the respective markets and
integrate Georgia into a wider European Common Aviation Area. As a result of
the agreement, Georgia will harmonise its legislation with European standards
and implement EU aviation rules in areas such as aviation safety, security, the
environment, consumer protection, air traffic management, economic regulation,
competition issues and social matters.

In the field of
maritime transport, Georgia is committed to regaining the EU recognition of
certificates from Georgian sea farers that was revoked in late 2010. Georgia started work on a new Flag State Annual Inspection
Policy, underlining its will to remove its flag from the ‘High Risk’ category on
the black list of the Paris Memorandum of Understanding on port state control.

Georgia and the EU stepped up energy dialogue,
inter alia, through the first ever energy subcommittee, held in Tbilisi in
October 2010. In November 2010, the Georgian Prime Minister and the Energy
Commissioner co-chaired a Georgia energy investment conference in Brussels. In
2010, Georgia ensured oil and gas transit through the Baku-Tbilisi-Ceyhan and the
Baku-Tbilisi-Erzurum pipelines. Georgia puts great emphasis on the development
of the Southern Gas Corridor including Nabucco and White Stream (gas pipeline
crossing the Black Sea). In September 2010, the Heads of State of Georgia,
Azerbaijan and Romania and the Hungarian Prime Minister endorsed the AGRI
(Azerbaijan-Georgia-Romania Interconnection) project. This aims to export
liquefied natural gas from Azerbaijan, through a Georgian Black Sea terminal,
to Romania and beyond. Azerbaijani, Bulgarian and Georgian companies further
studied possibilities to develop compressed natural gas supply to the EU across
the Black Sea from the Georgian coast. Georgia, Azerbaijan, Lithuania, Poland
and Ukraine continued work towards a Euro-Asian Oil Transportation Corridor.

An observer to the Energy Community,
Georgia initiated studies on possible membership. Georgia amended the law on
electricity and natural gas, with regard to third party access to the grid and
reserve capacity rules among other issues. Georgia continued to develop a new
electricity tariff methodology; it increased electricity tariffs in July 2010.
Georgia implemented its large-scale investment programme for constructing and
rehabilitating small and large hydro power plants and gas and electricity
networks. It further worked on the construction of the Black Sea Electricity
Transmission Line (Azerbaijan-Georgia-Turkey). Georgia and Armenia started
constructing an electricity interconnection. In October 2010, Tbilisi hosted a
major conference of the EU-supported Covenant of Mayors, aiming at promoting
energy efficiency and the use of renewables at local level.

In the field of climate change, the second
National Environmental Action Plan for 2011–2014, currently under preparation,
identifies climate change as a priority issue. A second Climate Week took place,
during which more than 100 climate-related awareness raising events were
carried out. Georgia plans to draft an overall climate change strategy, taking
into account the findings of the Second National Communication to the UN
Framework Convention on Climate Change, submitted in 2009. Two adaptation
programmes developed under the Second National Communication are under
implementation and preparations for a Nationally Appropriate Mitigation Action
strategy have started. Georgia took steps to prepare and approve further Clean
Development Mechanism (CDM) projects even if no new projects were registered at
the UN level, leaving the overall number of registered projects at two. The EU
continued to support Georgia in implementing the Kyoto Protocol. Georgia is
also encouraged to fully implement the Cancun agreement and in particular
devise a low carbon development strategy including update information on target
or actions that it will implement.

With regard to the environment, the ministry
of environment and natural resources protection continued to draft the second
National Environmental Action Plan for 2011–2014, which identifies as priority the
following environment sectors: waste management, water
resources, air quality, land resources, nuclear and radiation safety,
biodiversity, disaster management, mineral resources, forestry and the Black
Sea. Limited progress was made in developing the legislative framework including
an environmental code and the related implementing legislation. The legislative
framework continues to require further development. Continued attention is
required to implement existing strategies and plans and to further enhance
monitoring and enforcement. Georgia took some steps to promote the integration
of environmental considerations into other policy sectors, such as energy and
regional development. A state-of-the-environment report was drafted but has not
yet been published.

Georgia has not
yet ratified the Protocols under the UN Economic Commission for Europe (UNECE)
Convention on Long-Range Trans-boundary Air Pollution, nor signed the UNECE
Convention on the Protection and Use of Trans-boundary Watercourses and
International Lakes. It has not become a party to the UNECE Convention on the
Trans-boundary Effects of Industrial Accidents or the UNECE Convention on
Environmental Impact Assessment in a Trans-boundary Context. Furthermore, the
implementation of several agreements already ratified requires particular
attention. Georgia participated in the EU Water Initiative, including a
national policy dialogue, and in the Commission on the Protection of the Black
Sea against Pollution.

The REC for the Caucasus carried
out regional activities in 2010 mainly in the fields of information and public
participation, environmental policy and local environmental action plans. REC
also further improved its internal management, fund-raising and visibility in
2010. Nevertheless, it carries over a deficit from previous years which impedes
its activities.

Concerning developments in the field of civil
protection, there are activities under the EaP framework (please see the
sectoral report).

In the information
society sector the Georgian telecoms regulator, the Georgian National
Communications Commission (GNCC), is working towards approximation with the EU
regulatory framework for electronic communications and ensured greater market
opening. In 2010, the GNCC completed the review of both mobile and fixed call
termination markets, reducing termination rates by approximately 50 % via
the imposition of cost accounting methods.

In March 2010 Georgia
decided to introduce fixed and mobile number portability from 2011. Georgia
also drafted a new numbering plan to be introduced in 2011, which will rationalise
the national numbering space and provide for more efficient management.

In the area of research Georgia increased
its level of participation in the 7th Framework Programme (FP7). As of November 2010, 24 research groups had successfully applied, receiving some EUR
1.7 million of EU funding. The highest level of successful participation was in
the research infrastructure, international cooperation and health parts of the
programme. Georgia continued
to participate actively in the International Science and Technology Cooperation
Network for Eastern European and Central Asian (EECA) countries (FP7 IncoNet
EECA project), which aims to support bi-regional EU-EECA dialogue and to
increase EECA participation in FP7. A workshop on EU-EECA collaboration in
energy research was held in Tbilisi in October 2010, scientific areas of mutual
for the EU and EECA interest were identified for potential inclusion in future
FP7 calls for research proposals. Georgia is a target country under the
new FP7 International Cooperation Network for Central Asia and South Caucasus
countries (FP7 IncoNet CA/SC) which was launched in April 2010 and aims to
strengthen and deepen the EU S&T cooperation with the CA/SC countries, as
well as with the Republic of Moldova.

Georgia is also taking an active part on the Black Sea ERA-NET
project, which aims to contribute to the coordination of EU Member States’ and
partner countries’ research programmes targeting the extended Black Sea region.

7.         people-to-people
contacts, education and health

In January 2010
the ministry of education and science announced further education reforms
for 2010–15 including higher and secondary vocational education with a focus on
structures, quality assurance and the role of executive institutions. A new law
on the Development of Quality Assurance of Education was adopted in September
2010 transferring regulation of accreditation to the National Centre for
Quality Enhancement. New rules on admission to higher education institutions
based on unified national exams were adopted in July 2010 with amendments to
the charter of the Teachers’ Professional Development Centre from June 2010.
Greater clarity is required on retraining incentives and efficient use of
resources if promised school reforms are to be realised. Georgia pursued its
approximation and alignment with European standards, benefiting from an ongoing
twinning project in support of the Bologna Process.

Concerning vocational education and training, in September 2010
parliament adopted substantial amendments to the law on vocational education
ensuring a clear link between vocational and higher education, increasing
flexibility and aligning provision with lifelong learning principles. However,
there was limited consultation by the government on the amendments in the law
and over 14 VET centres were closed.. The government adopted a National
Qualifications Framework in December 2010 broadly in line with the European
Qualifications Framework, covering the whole education and training continuum.
The new Centre for Education Quality Enhancement coordinated intensive
cooperation with employers on occupational standards and adopted over 100 new
standards by the end of 2010. The Adult Education Association developed a
National Lifelong Learning Strategy. Through a large programme of
voucher-financing, the National Teacher Professional Development Centre oversaw
the professional development of some 20 000 primary and secondary
education teachers through subject and professional in-service training, an
essential premise for implementation of the new teacher certification process
which started in 2010 and which will become mandatory as from 2014.. An
assessment of vocational training and education-business cooperation was
carried out by the European Training Foundation under the Torino Process.

Higher
education reform in Georgia continued to benefit from participation in Tempus,
with five projects selected under the third Call for Proposals for Tempus
IV including one led by a Georgian university. Georgia also continued its
active participation in Erasmus Mundus in the academic year 2010-11 with
the expected award of seven scholarships for Erasmus Mundus Master’s Courses
under Action 1 and a further 56 mobility grants for students and academics
under Action 2. Tbilisi State University received continuing support for its
Jean Monnet chair in European law.

Georgian young
people and youth organisations continued to benefit from the Youth in
Action Programme through exchanges, voluntary service and youth cooperation
activities in non-formal education. A national Youth Information Centre in
Tbilisi, with branches in several regions, opened in 2010.

In the field of
culture Georgian cultural organisations participated in four projects
under the 2010 Special Action for ENP countries under the Culture Programme. A
first twinning project on cultural heritage conservation started in June 2010
between the Georgian National Museum and the Foundation of Prussian Cultural
Heritage (Stiftung Preussischer Kulturbesitz). To advance regional
cooperation as part of the EaP and the Kyiv Initiative, Georgia is urged to
ratify the 2005 CoE Framework Convention on the Value of Cultural Heritage for
Society.

Georgia pursued reform of its health sector. Household health expenditure remains high and coverage by
health insurance low. In February 2010, in the context of last year’s influenza
A(H1N1) epidemic, the EU and Georgia established communication channels for
exchanging epidemiological information in the event of a public health
emergency of international concern. In 2010,
Georgia adopted a national HIV/AIDS strategic plan for 2011–2016. In October
2010, Georgia published a draft national HIV/AIDS monitoring and evaluation framework.

8.         financial cooperation — 2010 key
facts and figures

Cooperation
framework

The Mid-Term Review of
the programming document confirmed that the Country Strategy Paper adopted in
2007 remains a valid framework for cooperation with Georgia. The new National
Indicative Programme (NIP) 2011–13 for Georgia was adopted in May 2010 and has
a budget of EUR 180.3 million. The
programme is geared to supporting the achievement of key policy objectives
as outlined in the EU-Georgia ENP AP
and pursues four priorities: (1) support for democratic development, the rule
of law and governance; (2) support for economic development and ENP AP
implementation; (3) poverty reduction and social reforms and (4) support for
peaceful settlement of Georgia’s internal conflicts.

The NIP 2011–13
includes a specific appropriation to finance new actions under the EaP, notably
a Comprehensive Institution Building Programme (CIB) (with a minimum allocation
of EUR 30.9 million) and Cohesion Policy (a minimum of EUR 7.4 million). The
CIB Framework Document was signed in October 2010 and identified three areas of
key priorities including: support for government structures for coordination of
enhanced agreement negotiations; support for trade policy reform; and
consolidation of democratic reforms through the strengthening of oversight
institutions.

Implementation

Implementation
of measures covered by the Annual Action Programmes (AAPs) 2007, 2008 and 2009
is under way. The first Sector Budget Support (SBS) Programme in Public Finance
Management (PFM), financed under AAP
2007, has been completed.

Under the AAP 2008, an SBS on Justice has
been implemented with major results achieved by the government in areas such as
probation, legal aid, juvenile justice and support for Georgia’s Public
Defender. The AAP 2009 for Georgia focused on Vocational Education and
Training and on the implementation of Technical Assistance and Twinning
Programmes.

In 2010 a total of EUR 37.2
million was committed to Georgia under the bilateral envelope of the European
Neighbourhood and Partnership Instrument (ENPI). The AAP 2010 was approved in
June 2010 and includes an SBS for PFM reforms aiming at: improving government capacity to manage, coordinate and monitor the
reform of the PFM system; further improving budget preparation, execution and
monitoring; enhancing the capacity of the Chamber of Control; and harmonising
procurement systems in line with EU best practice. The same AAP earmarked EUR
7.2 million for a Technical Assistance Facility for EU-Georgia ENP AP
implementation and a further EUR 19 million for a Sector Policy
Support Programme for Regional Development. The latter will contribute to: (a)
enhancing the capacity of central and local authorities; (b) streamlining
institutional, legislative and territorial arrangements; (c) improving
legislation and regulations to reduce local self-government dependency on the
central level; (d) improving statistical instruments; and (e) improving civil
society participation at local level.

In the aftermath of the August 2008
conflict and after some EUR 8 million were provided in direct humanitarian
assistance, the EU has granted some additional funding to Georgia, largely
through three Special Measures (adding up to EUR 105 million) in
support of IDPs. The first two programmes have already been completed providing
decent living conditions (by means of durable housing) and livelihoods to IDPs
who lost their homes as a result of the conflict. In 2010, the third programme
(EUR 43.5 million) was launched and will provide accommodation and
socio-economic integration for all Georgian IDPs (including those from the
conflict in the early 1990s) and to their host communities.

In addition to the bilateral allocation,
Georgia also benefited from cooperation activities financed under the ENPI
cross-border, inter-regional and regional programmes. Georgia takes part in the
ENPI Cross-Border Cooperation (CBC) programme Black Sea Basin (EUR 21.3 million for the programme in the
period 2007–13; the overall allocation was planned to be increased). The main
priorities of this programme are to support cross-border partnerships for
economic and social development based on combined resources, to share resources
and competencies for environmental protection and conservation, and to support
cultural and educational initiatives for the establishment of a common cultural
environment in the Basin.

Under the ENPI-financed Neighbourhood
Investment Facility (NIF), three projects were approved in the water sector in
2010, committing EUR 15 million in grants, expected to leverage EUR 167 million
in loans from European Finance Institutions.

Other EU instruments supplement the ENPI
assistance package. Georgia benefited from cooperation activities financed
under horizontal instruments such as the European Instrument for Democracy and
Human Rights (EIDHR) and the Development Cooperation Instrument (DCI) thematic
programmes Non-State Actors and Local Authorities in Development (NSA-LA) and
Food Security.

Georgia also continued to benefit
from the Instrument for Stability to: (1) support a more balanced coverage of
political parties; (2) contribute to the repatriation/integration of the
Meskhetians; (3) support confidence building measures along and across the
Administrative Boundary Line between Georgia and South Ossetia and Abkhazia, (4)
advise Georgia on its policy towards the breakaway regions and (5) introduce
the concept of transitional justice.

Moreover, as part of the October
2008 European Union pledge to Georgia, a second instalment of Macro-Financial
Assistance has been prepared. It amounts to a maximum of EUR 46 million, half
to be made available in the form of grants, the remainder in loans. A first
tranche shall be disbursed in 2011.

Donor coordination

The EU Delegation has continued to actively promote coordination of
assistance activities in the country, especially among EU donors. The
government should play a stronger role in donor coordination in the future.

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