Georgia – digital logistics and the impact of China's Belt and Road ambitions

Mikheil Khmaladze, Director of Ministry of Economy and Sustainable Development of Georgia, Land Transport Agency, talks to IRU.

Insight into the impact of TIR on trade with China, coordination of transport sectors, modernisation of transport infrastructure and the use of digital TIR capabilities.

Can you tell us about current trade agreements in Georgia?

"One of the top priorities for Georgia is the coordination of transport sectors and the modernisation/construction of transport infrastructure."

The majority of Georgia’s trading partners are members of the World Trade Organization (WTO). So among the WTO member states, trade relations are regulated on the basis of “most favoured nation” principles. Georgia has a free trade regime with all Commonwealth of Independent States countries, as well as Turkey and the European Union.

Therefore, one of the top priorities for Georgia is the coordination of transport sectors, the modernisation/construction of transport infrastructure in accordance with bilateral and multilateral international agreements, the harmonisation of the country’s legislation with international law and its integration into the Trans-European Transport Network.

What about trade corridors and infrastructure?

"Caucasus and Central Asia have significant transit potential as they not only connect Europe with China and other Asian countries, but the developing Asian markets among themselves, so the transport corridor may become the shortest and most competitive trade route in the region."

The strategic location of Georgia in the South Caucasus offers huge potential for the Caucasus Transit Corridor. However, there are numerous bottlenecks that reduce competitiveness. Unreliable border crossing procedures are a problem. For example, the border crossing time on the Georgia/Azerbaijan border ranges from half a day, to a full day. Formalities for truck drivers' on the Georgian/Azerbaijan or Georgia/Turkey borders and limitations of border control point infrastructure contribute to increasing border-crossing time.

Overcoming these challenges will improve trade flow and lead to further regional growth. Central Asian countries have recently tried to address the challenges along the Caucasus Transit Corridor route, with the reduction in global oil prices prompting these countries to consider further economic diversification. There is therefore rising incentive for these countries to cooperate with each other to stimulate commerce and spur the flow of cargo.

With the increase of the volumes of Euro-Asian and intra-regional trade, alternative transport routes – sea and more direct overland routes – will be sought after. In this regard, Caucasus and Central Asia have significant transit potential as they not only connect Europe with China and other Asian countries, but the developing Asian markets among themselves, so the transport corridor may become the shortest and most competitive trade route in the region.

Can you give us your view on the likely impact of the Belt and Road Initiative and trade prospects with China?

"The implementation of TIR in China will definitely be a key boost to export/import turnover for both countries."

As China’s One Belt One Road (OBOR) initiative gains momentum, Europe’s special place within the strategy is ever significant. Europe features as the end point for both OBOR’s sea (Belt) and land (Road) routes as the ultimate market for Chinese goods.

The interest in OBOR is also being fuelled and shaped by competing political interests. National interest, sanctions, conflicts and instability have always influenced cargo flows, and OBOR is no different. The competing interests of the actors, large and small, are impacting development efforts in multiple countries.

The implementation of TIR in China will definitely be a key boost to export/import turnover for both countries.

How does TIR function in Georgia?

"With international trade a key priority, the need for tools to simplify customs transit operations is highly pertinent."

As customs charges requiring guarantee coverage increases, the most efficient instrument of such guarantees is the TIR system, which integrates customs, transport and information technologies.

Georgian transport operators are active users of the TIR system. Practically, all transport operations to Europe are performed with the use of TIR carnets with an average of 8-10,000 TIR carnets used each year.

Foreign transport operators use about 70,000 TIR carnets per year when crossing the territory of Georgia.

With international trade a key priority, the need for tools to simplify customs transit operations is highly pertinent. Therefore, the application of mechanisms to improve the processes at borders, is necessary. The use of TIR Carnets is primarily directed towards the simplification of international trade, and, meanwhile, reliably guarantees the reimbursement of possible damage to the state budget, caused by transport.

Are there specific trade agreements between Georgia and China?

"Georgia is the first country in the region to have a free trade agreement with China."

Right now we are in the process of finalising an agreement between the Government of Georgia and the Government of the People’s Republic of China on the International Road Transport of Passengers and Goods.

Free trade negotiations between Georgia and China were launched in 2015. The Memorandum of Free Trade Agreement was signed in October 2016 and after seven months the deal was finalised, which makes Georgia the first country in the region to have such an agreement with China.

The agreement has made high-quality market liberalisation commitments to the service departments, optimised trade rules and strengthened cooperation. A 9% increase of Georgian exports to China is predicted, the most important of which will be the increase of wine exports by 28.5%.

The implementation of TIR in China will definitely boost the increase of export/import turnover for both countries. As Georgia is on a major crossroads between Asia and Europe, we are looking forward to increasing our potential as a transit country through the use of regional and universal transit systems. As the TIR system is unique in its global application, we trust that it will further facilitate trade movements between our region and China and contribute positively in the implementation of FTA.

At a recent workshop in Batumi, there was support for using digital TIR capabilities. Can you tell us about that?

"We are keen to participate in a new generation TIR system between east and west."

Georgia is supporting the introduction of a TIR information exchange system between Georgia, Ukraine, Azerbaijan and Kazakhstan and we have pledged to establish an e-TIR corridor. We are champions in the Caucasus region, and indeed the whole Post Soviet area, of the modernisation of the public sector, business and trade facilitation mechanisms.

Georgia is one of the leading countries in the effective use of information technology systems in the field of customs management. Therefore, we would like to make our contribution towards current TIR digitalisation projects carried out in the region and we are keen to participate in a new generation TIR system between east and west.

This intermodal, digital TIR project would showcase the swift solutions already available within TIR systems and IT tools, which will allow for a move towards paperless TIR solutions between the Black and Caspian seas towards the East