Why Does Everyone Suddenly Want A Free Trade Deal With Georgia?

Why Does Everyone Suddenly Want A Free Trade Deal With Georgia?

Why does everyone suddenly want a Free Trade Agreement (FTA) with the small, Black Sea nation of Georgia?

The idea is that free trade deals with smaller nations don’t really hurt the American blue-collar labor force as they are not going to be ideal places to reallocate corporate resources, such as building new factories. Georgia’s been supportive in Afghanistan, a war Trump finally wants to wind down after more than 18 years there. How about giving them something in return? That’s part of the sales pitch.
In November, former Congressman from Florida, James Bacchus, the ex-Chairman of World Trade Organization’s Tribunal wrote in favor of an FTA with Georgia in the Financial Times.

An FTA with them “would reassure other countries in the region that…the U.S. continues to offer an alternative to acquiescence to the authoritarian regimes that surround and threaten them,” he wrote, an obvious nod to the Russians. Georgia shares a border with Russia. President Trump prefers one-on-one trade deals rather than to follow World Trade Organization norms for tariff rates among member nations. As such, “until we can revive the multilateral negotiating process, we should be negotiating bilateral trade agreements with some of the economically emerging countries that are our friends as well as with our major trading partners,” Bacchus said in an interview. “Georgia should be on this list.”

A month before, James Carafano and Alexis Mrachek from the conservative Heritage Foundation made similar arguments.

Their support centers around Heritage’s popular Economic Freedom Index. It ranks Georgia on par with Luxembourg. Actually, in 2019, it ranked one point ahead of them.

Georgia was invaded and occupied by Soviet Russia in 1921. It became independent during the unwinding of the Soviet Union in 1991. But the Russians came back in 2008 and illegally occupied territory in Georgia’s South Ossetia and Abkhazia regions.

Georgia’s economy is mostly services, tourism, raw materials, wine and light manufacturing. It is ranked 7th in the world in the World Bank’s Ease of Doing Business index, one place behind the U.S., ahead of the U.K., Norway, and Sweden. They have a six-year-old Association Agreement with the European Union, meaning they have free movement of goods and people between the EU and Georgia, and already have FTAs with China and Turkey.

Heritage has been pushing for a U.S.-Georgia FTA for roughly 8 years, citing the China free trade deal with them as another reason why the U.S. should do it.

The idea resurfaced out of the Washington think tanks and into congressional offices in 2015 during the Obama Administration. Timing of the push for a Georgia FTA coincided with Russia’s push to annex parts of Ukraine. A Georgia FTA was viewed as both a shrewd political and commercial move to bolster security and American business opportunities.

“Under President Trump, we saw an opportunity to further align Georgia’s economy with that of our main strategic partner through a trade deal,” says Giorgi Tsikolia, the Deputy Chief of Mission at the Embassy of Georgia and the country’s No. 2 man in Washington. He says the trade deal benefits businesses in both countries and give American companies easier access to 8 landlocked countries in Eurasia with a consumer market of roughly 2 billion people.

A study by PwC published in May 2018 says U.S. exports to Georgia would grow by around 20% over three years if there was such a deal. Total goods traded between the two countries is $515 million higher in 2023 with a free trade deal, with the largest impact being in favor of U.S. exports, according to PwC.

Tsikolia says that over 270 American companies are already in Georgia, across industries, but especially in hospitality, energy and port logistics.

“An FTA might encourage more foreign investors to go there,” says Luke Coffey, a director of foreign policy studies at Heritage Foundation. He thinks a U.S.-Georgia trade deal is a win-win. It strengthens the U.S. position in the region, and helps Georgia develop its economy even more closely aligned to Western capitalist democracies.

Small Country FTAs and the U.S.
Georgia imported $340 million worth of goods from the U.S. in 2015, rising to $768 million in 2019. U.S. imports from Georgia were just $152 million last year, down from $181.1 million in 2015.
The U.S. has FTAs with 11 smaller countries.

Last year, the U.S. exported $14.3 billion worth of goods to Israel, up from $13.7 billion a year before. Most of it was agriculture. The U.S. accounts for roughly 37% of what Israel exports to the world. Israeli also exports more from the U.S. than any other country.

The U.S. sold $3.4 billion to Morocco, another FTA partner, and that’s up from $3 billion in 2018. The U.S. has a trade surplus with them, importing around $1.5 billion worth of goods in 2018 and again in 2019.

Lastly, the FTA with Jordan has the U.S. exported $1.4 billion last year, down from $1.5 billion in 2018. The U.S. has a deficit with them, importing $2.1 billion worth of goods in 2019. The U.S. is Jordan’s number one export market, accounting for 24% of their export value.

All trade data is from the U.S. Census Bureau.

For Georgia, the U.S. accounts for 2.6% of all imports versus 9.4% for China; and 4.5% of its exports (versus 6.5% for China). For the foreign policy watchers in Washington, a Georgia FTA gives the U.S. more soft power in a vitally important geopolitical region.

Over the last few years of the Trump presidency, the European Union and Japan have been pro-actively working to sign new free trade agreements. They know Trump likes tariffs. They know he is disrupting global supply chains. They know he’s no fan of WTO rules.

“We’ve just had revisions of trade deals,” says Tori Smith, a trade economist at the Heritage Foundation. “But in terms of opening up new markets, we haven’t gotten that with Trump yet,” she says. “A lot can be done. Georgia is on our list, but so is a full scale FTA with Japan,” she says, adding the U.K. European Union, Switzerland, Kenya and India to the FTA to-do list should Trump win a second term.

Forbes

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