The FINANCIAL -- A reduction of the prices of products imported from the EU will be more perceptible at the end of 2014 as a result of the enforcement of the AA and DCFTA. Customers will save when buying European cars, however there will be no price change in oil products, which is the most imported product from the EU.
It is possible to trade between the EU and Georgia without paying import duties. Existing import duties were set to zero after the Association Agreement between the EU and Georgia come into force. Georgian importers and exporters are currently working on switching to the new rules after which the volume of savings will become clearer.
According to the Comext and Comtrade database of the European Commission, businesses on both sides will save about EUR 90 million a year in import duties.
“Duty free trade with the EU will bring our company GEL 25-30,000 in annual savings. The price per vehicle will be reduced by GEL 200 on average,” said Lasha Lomidze, Sales Manager at AKA Mercedes-Benz Georgia.
Meanwhile Lomidze does not think that the DCFTA will have a positive impact on the company’s business or cause an increase in sales.
The potential owner of a Mercedes-Benz E 320 model had to pay GEL 2,512 for customs clearance before 1 September, 2014. Out of this sum GEL 2, 240 was excise-duty, the remaining GEL 272 - customs. Since the DCFTA bilaterally came into force Georgians have to pay GEL 272 less.
During the first nine months of 2014 realization at AKA Mercedes-Benz Georgia reached 107 units. The current year has brought 29% sales growth for the company, in comparison with the same period of the previous year.
According to the economic project The Price of the State, the total receipt of the public sector amounts to GEL 9.77 million for 2014. Out of it, GEL 7.2 million is made up by taxes. With GEL 3.2 million VAT makes up the largest volume. It is followed by income taxes - GEL 1.8 million, profit taxes - GEL 912 million, and excise taxes - GEL 739 million.
Contrary to Lomidze, Mariam Tsereteli, Head of the Import Division at supermarket chain Smart, has more optimistic expectations and said that the new regulations will enhance the sales volume of European products. Smart plans to expand its assortment of imported products from EU member states.
“Duty-free access will bring many benefits for businesses. We contacted our EU partners in order to witch to the new rules. Certificates are being worked on at the moment. Release from import duties will reduce our expenditure and realization prices. We expect a further boost in sales. In general EU products make up a solid part of Smart products,” said Tsereteli.
In her words, the company plans to expand the range of their products. “Since we are in the process of switching to the new rules it will be hard for me to name the exact figure for how many percentages prices will be reduced by. However, the figure will be 5% less at minimum. And the reduced prices will increase the sales volume,” she said.
Products offered in the Smart supermarket chain are mostly imported from Germany, Italy, France, Holland, the Czech Republic, Spain, Latvia, Poland, Switzerland and Austria.
Foreign trade with the EU is valued at USD 1,937 million at present. USD 405 million is made up by export, while import makes up USD 1,533 million.
Rompetrol Georgia, Lukoil Georgia, Sun Oil Georgia, Wissol Petroleum Georgia and PSP Pharma are the top five importers from the EU.
The list of leading exporters to the EU is as follows: Caucasian Metals Terminal, Madneuli, Rustavi’s Azoti, Geo Eks, and Georgian Manganese.
The enforcement of the DCFTA will bring no benefits for oil importer companies or consumers. According to Giorgi Kotrikadze, Head of the Association of Oil Product Importers and Distributors, the measure of customs duties was so insignificant in the total cost of the product, that it will be unnoticeable.
“The fee of customs duties in the total cost of oil is so insignificant that it will have no impact on prices. It amounts to about EUR 60 per batch, which amounts to about 5-10,000 tons of fuel,” said Kotrikadze.
“The simplification of import formalities at customs is the only positive thing that the Agreement will bring for oil importers. During customs clearance procedure companies will not have to waste time on filling out declarations,” Kotrikadze told The FINANCIAL.
According to Kotrikadze, reduction of excise-duties would be more important for oil companies. In his words, excise-duty is calculated per tonne and significantly raises the final cost of the product.
“There were talks about a reduction of excise in Georgia, however no concrete decisions have been reached,” said Kotrikadze.
The DCFTA will bring no benefits for PSP Pharma, the fifth largest importer company from the EU. “Medicaments are free from VAT, accordingly DCFTA will not bring any cost reduction for our company,” said Natia Khabeishvili, official from PSP Pharma.
“Enforcement of the DCFTA will have a positive impact not only on importers and exporters, but also on the economy as a whole. An increase of GDP, employment, investment volume and foreign trade will see a positive impact as a result of the Agreement,” said Zaza Chelidze, Economist at Policy and Management Consulting Group (PMCG).
In his words, the saved sum for importers and exporters will vary due to the trade measure and currently existing customs tariffs. The existing customs duty in Georgia is 5 and 12%. Chelidze said that the relevant calculation should be made in accordance with the cost of the product and tariff rate.
Since 2007 Georgian exporters have been using the Generalized Scheme of Preference (GSP+) which allowed export of 7,200 sorts of goods duty free.
Foreign trade with the EU has been increasing during recent years. In particular, large growth has been shown in 2013. Georgia increased its export volume to the EU by 72%.
“The figure confirms that the demand for Georgian products has grown. It is a strong indication that there will be further growth. Enforcement of the DCFTA will stimulate the further growth of foreign trade. The competitiveness, quality, price and exchange rate of the national currency will contribute to the final amount of trade,” said Chelidze.
“In the short-term, duty-free trade will result in price reduction on imported goods. The final regulation of prices will be determined by the market in a long-term perspective,” Chelidze predicted.
Like Chelidze, Nikoloz Pkhakadze, Research Fellow at ISET Policy Institute, predicts that due to zero tax the EU products will be more competitive in Georgia than before. “The volume of import will increase accordingly,” said Pkhakadze.
“Many Georgian products are exported to the EU with zero tariffs but there are still more potentially exportable goods which were not covered by GSP+. However, few of them will be ready to meet the standards the EU demands. It will take time to catch up with European standards. Only after that will exports grow faster,” said Pkhakadze.
“More realistically, import from the EU will increase in the short term by 4.4% and by 7.5% in the long term,” Pkhakadze told The FINANCIAL.