Georgia's trade ties: EU left on sidelines as traditional partners lead Boom powered by neighbours, not Brussels

To understand whether European integration and EU membership hold significant importance for Georgia, one only needs to examine the country's foreign trade statistics. Interestingly, advocates of the "European choice" are often hesitant to address these trade figures. This reluctance is understandable, as the data reveals that trade with EU countries is minimal in comparison to Georgia's trade relations with traditional partners such as Russia, the Eurasian Economic Union (EAEU) countries, Türkiye, Azerbaijan, and China.

Georgia's current economic growth, which far exceeds the economic growth of all EU countries without exception, is directly linked to the growth of foreign trade. According to preliminary data from the National Statistics Service of Georgia, published on January 20, Georgia's foreign trade turnover in goods for 2024 amounted to $23.43 billion, which is an 8% increase compared to the previous year. Exports increased by 7.8% to $6.56 billion, while imports grew by 8.1% to $16.87 billion. The negative trade balance reached $10.31 billion, which accounts for 44% of the foreign trade turnover.

However, such a significant negative trade balance in goods is offset by Georgia's income from services, including transit services, as well as the development of tourism. The increase in tourist flows contributes to the growth of imports, as tourists significantly consume imported goods as well.

In 2024, Georgia's exports were primarily directed to Kyrgyzstan – $1.28 billion, Kazakhstan – $860 million, and Azerbaijan – $720 million. In terms of imports, Georgia's largest trading partners in 2024 were Türkiye– $2.77 billion, the USA – $2.47 billion, Russia – $1.84 billion, and China – $1.61 billion.

In 2024, passenger cars were the largest export category, with a volume of $2.43 billion. This was followed by ferroalloys – $320 million, and alcoholic beverages – $290 million. In terms of imports, passenger cars were also in first place – $3.46 billion, followed by oil and petroleum products – $1.30 billion, and packaged medicines – $620 million.

Among Georgia's largest foreign trade partners, there are no EU countries. Logistically, Georgia is distant from EU countries. Moreover, traditional Georgian export products, such as wine, face stiff competition from locally produced goods supported by European bodies in European markets. This means that Georgia’s EU membership, if it happens, will not provide significant economic benefits, and the free trade agreement with the EU has been in effect for Georgia since 2014.

The significant role of Kyrgyzstan and Kazakhstan in Georgia’s exports, and the United States in Georgia’s imports, can be explained simply: Georgia serves as a re-export hub for cars from the American market (including used cars) to Kyrgyzstan and Kazakhstan. One of the key advantages that facilitates the re-export of cars through Georgia is the country’s customs and pricing policies concerning automobiles. Thanks to the absence of certain taxes and duties on car imports, car prices in Georgia are significantly lower than in many other countries.

Cars passing through Georgia to Kazakhstan, and especially to Kyrgyzstan, rarely remain in Georgia for long—they are often re-exported to Russia. The reason for the flourishing of such schemes is straightforward: the existence of the Eurasian Economic Union (EAEU) with varying customs regulations for importing cars in its member states. Within the EAEU, goods imported to Kyrgyzstan can be re-exported without additional customs duties.

In Kyrgyzstan, the conditions for importing cars are among the most favourable in the post-Soviet space. Moreover, the country's customs authorities often turn a blind eye to the fact that the declared value of a car is 3-4 times lower than its actual value. Additionally, the VAT in Kyrgyzstan is 12%, compared to 20% in Russia. Naturally, Russia has been attempting to combat customs evasion schemes. This also applies to the re-export of cars, as from April 1, 2024, an interstate system within the EAEU came into effect, which compares the total amount of all payments made in EAEU countries. According to this system, if customs duties are paid less in Kyrgyzstan than they would be in Russia, the difference must be compensated. However, in practice, importing cars to Russia through Georgia and Kyrgyzstan remains profitable.

The significant role of re-exporting cars to Kyrgyzstan and Kazakhstan for Georgia has primarily arisen due to the development of the Middle Corridor and the convenience of logistics. Perhaps this "great Kyrgyz car route" will be temporary, but it has already served its purpose in re-exporting vehicles. The logistical capacities linking the Black Sea basin with the Caspian Sea basin and Central Asia have proven to be in high demand, not only in the East-West direction but also in the West-East direction. This has accelerated the return on investment in the construction and modernization of the Middle Corridor's infrastructure.

In 2024, Georgia increased its wine exports to other countries to 95 million litres, setting a new record. According to data from the National Wine Agency, wine exports brought the country $276.1 million. Georgia exported its wine to 72 countries. The main buyer was Russia, which purchased 66.7 million litres of wine ($182.6 million), an increase of 7.1% compared to 2023, accounting for 65% of the country's total wine exports. Russian tourists are also important consumers of Georgian wine sold on the domestic market.

Overall, the foreign trade statistics confirm the correctness of the current Georgian government's policy of multidimensional cooperation with countries that are its main trading partners. This is precisely one of those cases where "economics dictates politics." In contrast, political pressure on Georgia from the EU is practically unsupported by economic and foreign trade levers.

Vladimir Tskhvediani, Georgia, for Caliber.Az