Source: EURLEX
Language: en
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# 52012SC0114

**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 /\* SWD/2012/0114 final \*/**

  

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 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 engagement policy towards breakaway
regions 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 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
society to be active on political issues and that funding restrictions will
disproportionally affect the opposition parties, which have less access to
public resources. These concerns are currently being addressed.

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 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.

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 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.

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 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.

Regarding sanitary
and phyto-sanitary (SPS) issues, Georgia 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.

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. 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.

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 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 information
society, research and development

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.

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 study was launched regarding the Azerbaijan-Georgia-Romania
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 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 tri-partite dialogue 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.

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

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