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Feb 1, 2013 | 11:04 GMT

Georgia and Russia Work to Improve Economic Ties

Georgia and Russia Work to Improve Economic Ties
IBRAGIM CHKADUA/AFP/Getty Images
Summary

A Georgian economic delegation will travel to Moscow on Feb. 4 to discuss restoring trade between the two countries, a move that suggests a broader shift in bilateral relations. The delegation includes several officials from Georgian industries that make wine, mineral water and food — key products that previously made up a significant portion of Georgian exports to Russia.

This visit is the first official meeting in the larger plan to normalize economic ties between Russia and Georgia. While the process will likely be gradual and face some obstacles, an opening of economic ties between Moscow and Tbilisi could lead to closer cooperation in the political and security realms as well.

Since the Rose Revolution of 2003 that ushered Western-oriented Georgian President Mikhail Saakashvili into power, Russia and Georgia have had a tense and adversarial relationship. These tensions culminated in the Russia-Georgia War in August 2008, which led to a complete break of diplomatic and economic ties between the two countries. Economic relations had been strained since late 2005, when Moscow began banning imports of Georgian wine, mineral water and agricultural products in response to Georgia's warming ties with the West, particularly with NATO (though Russia officially cited health and safety reasons as the cause).

Map of Russia and Georgia

Map of Russia and Georgia

This trade ban significantly hurt Georgia's economy, which before 2006 depended on Russia for around 18 percent of its total exports (about $150 million). Some sectors, such as wine, were overwhelmingly dependent on Russia, which accounted for almost 90 percent of these sectors' exports. While Georgia has been able to find other export markets, particularly in Europe, it has not been able to completely compensate for the lack of trade with Russia. After the war, Russia isolated Georgia even further by cutting postal and transport links, though some commercial flights resumed on a limited basis in 2010.

Now, with the election of Prime Minister Bidzina Ivanishvili, Georgia's prospects for resuming trade with Russia have improved. As a tycoon who made his fortune doing business in Russia, Ivanishvili has prioritized improving ties — particularly economic ties — with Russia, though the official focus of the Ivanishvili government is expanding trade and economic ties with the European Union and the United States.

Ivanishvili has expressed measured interest in holding talks with Moscow to resume rail traffic between Georgia and Russia via Abkhazia, and Russian-based Alfa Group recently purchased a controlling stake of Georgian mineral water company Borjomi for $500 million. At the recent World Economic Forum gathering in Davos, Switzerland, Ivanishvili, along with a number of Russian businessmen, attended an event dedicated to discussing the attraction of new Russian investment into Georgia. Russia has meanwhile indicated it may not be as concerned with the safety of Georgian products as it previously suggested. Russia's chief public health official Gennady Onishchenko said at a Jan. 29 news conference that Georgian wine, water and food products "may return to the Russian market shortly." Onishchenko's remark is significant because he is the head of the agency that decides which products are able to enter the Russian market.

But Georgia and Russia will not necessarily restore economic ties fully or immediately. The Feb. 4 meeting will be the first of several rounds of technical discussions over several months, and there will likely be follow-up visits of Russian delegations to Georgia.  Furthermore, some Georgian elements (particularly those loyal to Saakashvili) oppose the rail resumption via Abkhazia, as long as Russia's military remains present in the breakaway territory. Azerbaijan is also concerned about the railway because it would compete with a rail project under construction from Baku to Turkey, which goes through Georgia. Given that Georgia now is nearly fully dependent on Azerbaijan for its energy supplies, Tbilisi will have to take Baku's position into consideration when re-examining ties with Russia.

Still, in light of the poor state of relations between Georgia and Russia over the past several years, a resumption of trade even at a small level would mark a significant change in the relationship between the two countries. And as Ivanishvili continues his attempts to consolidate power — a process that is far from complete and subject to its own complications — these economic changes could point to improved political and security ties between Moscow and Tbilisi in the future.

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