Joint Feasibility Study of Possible Outcomes of Georgia-China Free Trade Agreement

Project Description:
The study was prepared by PMC Research Center with the professors of China’s University of International Business and Economics (UIBE) and in collaboration with the Ministry of Economy and Sustainable Development of Georgia and the Ministry of Commerce of the People’s Republic of China.
This report seeks to analyze the potential benefits and challenges of a potential China-Georgia free trade agreement (CGFTA). It involves the study of the economic situation between the two countries, in particular, through analyzing foreign economic policies and bilateral economic and trade relations, investigating issues related to trade in goods, trade in services and investments. Thereafter, solid scientific suggestions will be given to guide the potential free trade agreement negotiations.
The objectives of the study are as follows:

• To provide background information to commence negotiations on the CGFTA
• Identify specific production sectors for expansion and diversification of trade between the parties
• Identify the benefits and challenges that may emerge from the proposed CGFTA
• To make conclusions and recommendations on options for future action including scope, framework and architecture and CGFTA for furthering bilateral trade investment and economic cooperation to expand and enhance the benefits in these areas

The effects of trade policy changes are analyzed based on partial-equilibrium (PE) and general equilibrium (GE) models. The GE approach estimates long-term effects, while the PE model captures short and medium term effects.

The study suggested that a free trade agreement between Georgia and China has great potential. Georgia’s export to China would, the study foresees, increase by 9% approximately, in the short-term period including significant growth of wine exports (28.5%) and non-alcoholic drinks (36.7%). On the other hand, imports from China would increase by 1.7%. The study is of great importance as further negotiations between the two countries about the proposed agreement will be based on its results.

The comparative analysis of Georgia’s foreign trade and trade with China shows that a free trade agreement may increase export of goods and services in new directions as well. It would also provide numerous opportunities to increase the trade flow in services, in terms of transport and logistics, and tourism. Growth in Chinese investments, including in infrastructure projects that will facilitate an increase in Asia-Europe trade flow and in the medical and financial sectors, under the framework of the new policy of the Chinese government would be expected.

“In addition to increased investments, the free trade agreement will enhance investment attractiveness of Georgian general. Considering Georgia’s trade policy liberalization, it will not affect local producers and the growth of import. Taking into account all the effects, we can say that trade liberalization with China will contribute to the development of Georgia’s economy”, explain Lasha Chochua, one of the authors of the study.