Government’s Export Promotion Policy

Private Sector and Human-resource Development in Georgia

Author: Lasha Martashvili

E-mail: [email protected]

 (18.02.2004)

TABLE OF CONTENTS

 

1. Government Policies.. 5

1.1  Government promotion policies of small and medium size enterprises. 5

1.2  National Investment Agency of Georgia.. 5

1.3  Georgian Investment Center.. 5

1.2.1 Government’s Export Promotion Policy. 6

1.2.2 Georgian Export Promotion Agency (GEPA). 9

1.4  Foreign Investment Promotion.. 14

1.3.1 Government’s Foreign Investment Promotion Policy. 14

1.3.2 Foreign Investment Advisory Council (FIAC). 21

1.5  Tax Regime.. 23

1.3.3 Taxation System and Tax Rates in Georgia.. 23

1.3.4 Existing Taxation Practices. 34

1.3.5 Tax Reform Areas. 38

1.6  Legislative Basis for the Operation of the Private Companies. 44

1.5.1 Law of Georgia on Entrepreneurs (LoE) (Corporate Law). 44

1.5.2 Law of Georgia on Securities Market (SML). 51

1.5.3 Employment Regulations in Georgia.. 57

1.5.4 Regulations about Real Estate in Georgia.. 59

1.7  The Business Environment in Georgia.. 61

1.8  Institutional Arrangements. 64

1.3.1 Securities Industry. 64

2. Society... 65

2.1  Poverty issues. 65

3. Economics.. 70

3.1  Main economic indicators. 70

3.2  Agriculture.. 77

3.3  Trade.. 104

3.4  Construction.. 106

4. Business.. 110

4.1  Company Registration and Licensing System... 110

4.1.1 Company Registration System... 110

4.1.2 Company Licensing System... 117

4.2  Local Enterprises. 119

4.1.3 Joint Stock Companies traded at Georgian Stock Exchange. 120

4.1.4 Joint Stock Companies not traded at Georgian Stock Exchange. 132

4.3  Human-Resource Development in the Private Sector.. 134

5. Other Donors’ Activities.. 138

5.1  The World Bank and IMF.. 138

5.1.1 List of the Active World Bank Projects in Georgia.. 138

S – Satisfactory. 138

U - Unsatisfactory. 138

5.1.2 List of the Closed World Bank Projects in Georgia.. 139

5.1.3 Description of the Closed World Bank Projects in Georgia.. 140

5.1.4 The World Bank and IMF Cooperation in Georgia.. 149

5.1.5 The World Bank Country Assistance Strategy for Georgia.. 154

5.1.6 The World Bank Partners in Georgia.. 161

5.2  USAID... 162

5.3  EBRD... 162

5.4  EU... 162

5.5  GTZ.. 163

5.6  CIDA... 163

5.7  DFID... 163

5.8  The Government of the Netherlands. 163

5.9  IFAD... 164

5.10 UNDP.. 164

5.11 UNICEF.. 164

 

Currency

(Exchange rate as of 01 Feb. 2004)

Currency Unit = Georgian Lari (GEL)

1 USD = 2.11 GEL 1.0 GEL = 0.47 USD

 

Abbreviations and Acronyms

CAS	Country Assistance Strategy of the World Bank
CFAA	Country Financial Accountability Assessment
CIS	Commonwealth of Independent States
CPIA	Country Policy and Institutional Assessment
DFID	Department for International Development, U.K.
EBRD	European Bank for Reconstruction & Development
EDPRP	Economic Dev’t & Poverty Reduction Program
EU	European Union
FAO	Food and Agriculture Organization
FDI	Foreign Direct Investment
FIAS	Foreign Investment Advisory Service
FSAP	Financial Sector Assessment Program
FSU	Former Soviet Union
FY	Fiscal Year
GDP	Gross Domestic Product
GEL	Georgian Lari
GNP	Gross National Product
GoG	Government of Georgia
GSE	Georgian Stock Exchange
GTZ	German Technical Cooperation
IDA	International Development Association
IDF	Institutional Development Fund
IDP	Internally Displaced Persons
IFC	International Finance Corporation
IMF	International Monetary Fund
IOSCO	The International Organization of Securities Commissions
JSC	Joint Stock Company
KfW	German Financial Cooperation

LLC	Limited Liability Company
MDGs	Millennium Development Goals
MoF	Ministry of Finance
NBG	National Bank of Georgia
NGO	Non-Governmental Organization
NBG	National Bank of Georgia
NGO	Non-Governmental Organization
OECD	Organization For Economic Coop’n & Development
PER	Public Expenditure Review
PPP	Purchasing Power Parity
PRGF	Poverty Reduction and Growth Facility
PRSP	Poverty Reduction Strategy Paper
SAC	Structural Adjustment Credit
SATAC	Structural Adjustment Technical Assistance Credit
SEC	Security and Exchange Commission
SIDA	Swedish International Development Agency
SIF	Social Investment Fund
SME	Small and Medium Enterprises
SRS	Structural Reform Support Project
TACIS	Technical Assistance to the CIS (EU)
UNDP	United Nations Development Program
UNHCR	United Nations High Commissioner for Refugees
USAID	United States Agency for International Development
VAT	Value Added Tax
WTO	World Trade Organization

 

Government Policies

 

Government promotion policies of small and medium size enterprises

 

 

[To be described:] "Small and Medium Enterprise State Support Program for 2002 - 2004 in Georgia"

 

[To be described:] Law of Georgia "On Promotion of Small and Medium Enterprises"

 

 

National Investment Agency of Georgia

 

[To be described:] Law of Georgia "On National Investment Agency of Georgia"

 

[To be described:] Activities of the National Investment Agency of Georgia

 

 

Georgian Investment Center

 

[To be described:] Activities of the Georgian Investment Centre

Government’s Export Promotion Policy

Foreign Trade Regimes. Reforms carried out in recent years in Georgia, including serious legal reforms, are working successfully to create a favourable foreign trade regime in the country. Since 1995 the following major reforms have taken place in Georgian legislation:

· The system of quotas has been eliminated.

· Products included in the nation's export embargo policy include only works of art and antiques and items of national historical importance.

· There is no customs duty for exports in Georgia.

· A fiscal policy aimed at stimulating exports has been introduced whereby all export goods are free of VAT and excise duty;

Export of goods requiring an export license have been reduced to the following classes:

Collections and collectors' pieces of zoological, botanical, mineral, anatomical, historical, archaeological, paleonthological, ethnographic or numismatic interest (HS - 9705);

Wood and timber (4401, 4403, 4404, 4406, 4407);

Seeds of Caucasus Pine (120999100);

Ferrous and non-ferrous metal scrap (7204, 7404, 7602).

The system of compulsory registration of foreign trade contracts was eliminated in November 1997.

 

The establishment of favourable trade regimes with partner countries through bilateral and multilateral agreements has commenced. During the period 1992 - 1998, Georgia signed trade agreements with 22 countries. Agreements on free trade have been signed with eight CIS countries and Georgia already has working free trade agreements with Russia, Ukraine, Azerbaijan, Armenia, Kazakhstan and Turkmenistan. Currently a multilateral agreement on CIS free trade zone is being enforced. According to these agreements signatories to the agreement need not use customs duties and taxes for exports or imports of the goods originated in the territory of one party and destined to the territory of the other party.

Furthermore, Georgia has become a part of several international conventions.

On October 6, 1999 Georgia became a member of the World Trade Organization (WTO) which granted Georgia the status of the Most Favoured Nation with 135 WTO member countries. Through the mechanisms of this organisation, Georgia will be protected from discrimination, unfair competition, falsification and unjustified limitations.

In 1996 Georgia signed an agreement on partnership and cooperation with the European Union which deals with economic relations in almost every sector. In fact the agreement covers all sectors of the economy.

In 1999 Georgia became a member of the Council of Europe with full rights, which will further facilitate trade-economic relations between Georgia and member countries of the European Union.

Many countries have granted to Georgia reductions in import customs taxes to their countries, under the General System of Preferences. These include the countries of the European Union, Switzerland, the Czech Republic, Slovakia, Canada and Japan. This is one of the most important influences on the successful growth of exports for Georgia. The effective use of facilities such as GSP will substantially promote Georgian export development.

Law of Georgia "On Technical Barriers to Trade". The law "On Technical Barriers to Trade" lays down the basis for eliminating the technical barriers to trade during the process of the preparation, adoption and application of the technical regulations, standards and the procedures for the assessment of conformity.

 

The national technical regulations and standards should not create unnecessary obstacles to trade, which will put national products in favourable conditions. Therefore, the development of the national technical regulations and standards should be carried out on the basis of a direct use of the international standards.

 

Georgian legislation did not envisage the concept of technical regulations. The concept of technical regulations was defined by Law of Georgia "On Standardization" adopted in 1999. The technical regulations is a legal act, which defines the technical specifications for products or service, which is done directly or by means of referring to Georgian standards and requiring that complying with these standards is compulsory.

 

The principles of the state standards that are effective in Georgia envisage the application of the national standards on a compulsory basis from the moments of its effectiveness. However, based on the principles that define the standards as voluntary, the international practice envisages two-stage approach to making a standard as mandatory requirement: the standard that was adopted by national body is optional and it may be used by any party, however it will become mandatory, if it is defined by:

The legislation;

Such stipulation is indicated in the technical regulations;

A producer or supplier of services assumed such responsibility by the assessment of conformity.

 

The first chapter of the present draft law lays down the legal basis for eliminating the technical barriers to trade during the process of the preparation, adoption and application of the technical regulations, standards and the procedures for the assessment of conformity.

 

It defines the terms, including "Technical barriers to trade", which in fact is the discrepancy in requirements from those used at a national level or in international practice with respect to the technical regulations, standards and the procedures for the assessment of conformity.

 

It defines the different categories of technical regulations, which include:

Legislative acts, the decrees of the President of Georgia, which consist of the product requirements;

The national standards, the application of which is mandatory;

The agency specific normative acts issued by government bodies, the competency of which, according to the legislation of Georgia, includes laying down the mandatory product requirements.

 

The second chapter defines the requirements to the content of technical regulations, preparation of technical regulations and procedures for the assessment of conformity, coordination of the activities related to the development of technical regulations, and recognizing the technical regulations of foreign countries as an equivalent to the national technical regulations.

 

Chapter three defines the procedure of applying technical regulations and standards, which includes making references to standards in technical regulations, fulfillment of standards as a mandatory requirement, fulfillment of standards as a voluntary requirement, and the national arrangements for applying the technical regulations and standards with respect to the national and imported products.

 

Chapter four defines the principles of providing information relating to technical barriers to trade. The main emphasis is placed on the Central Information Center of Standards, the main function of which is the relationship with the World Trade Organization. The Central Information Center of Standards provides information about the technical regulations, standards and the procedures for the assessment of conformity that are already developed or are in the process of development. It should carry out the coordination of activities of the centers set up in this field by other government bodies.

 

Chapter five defines the authority and responsibility of the National Standardizing Body and other government bodies.

 

Chapter six lays down the principles of the state control and supervision on complying with the requirements of technical regulations, as well as the responsibility for violating the requirements of the law.

 

Chapter seven states that the process of developing technical regulations has to be financed by the state on a mandatory basis.

 

Chapter eight contains the provisional clauses, which states that the government bodies should adopt and publish those technical regulations, which envisage complying on a mandatory basis with the standards that ensure the quality of products, processes and service, security, protection of human life, protection of the health, property and environment. With this respect it will be significant to employ, whenever developing the technical regulations, the directives issued by the countries that are members of the European Union.

 

Chapter nine defines the amendments that have to be made into Georgian legislation after this law becomes effective.

 

The Law of Georgia "On Technical Barriers to Trade" should initiate the practical efforts towards the preparation, adoption and application of the technical regulations, which will be step forward towards setting up voluntary standardization system that is one of the attributes of modern market relationships.