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European Commission

[Check Against Delivery]

José Manuel Durão Barroso

President of the European Commission

Speech by President Barroso at the Georgia Investment Conference

Georgia Investment Conference

Tbilisi, 13 June 2014

Dear Prime Minister,

Madame Minister,

Ministers,

Dear Commissioner Štefan Füle,

Excellencies,

Distinguished guests,

Ladies and gentlemen,

These are very exciting times for the relationship between Georgia and the European Union.

With the signature of the Association Agreement and the Deep and Comprehensive Free Trade Area just in two weeks' time, we will take a huge, I would even say historic step forward. And I'm measuring the word historic. I really believe it's an historic change for Georgia and that this has also has a very important meaning for Europe.

But more than for our bilateral relations, because bilateral relations are important, this will be also a landmark for our history and specifically for Georgia's recent history. A history marked by turns and twists and huge challenges coming from inside and outside. But also a history that showed well the resilience and the determination of Georgia to withstand external pressures and consolidate its independence and democracy.

The comprehensive and genuine partnership we are fleshing out through this agreement between Georgia and the European Union is part of the answer to historic challenges for this country.

It is above all a constructive partnership – not aimed against anyone or precluding other ambitions but promoting a positive agenda based on common values, on democracy and the rule of law, on respect of fundamental rights and freedoms. These constitute the basic elements necessary for any reforms to be fully implemented. These values are important by themselves, for what they mean for people, for every man, woman and child, but they are also important from an economic point of view, because they are a prerequisite in terms of the confidence investors can have in the rule of law. And I'm sure this is well understood by the Georgian authorities, as we just heard from the Prime Minister.

This represents a major opportunity for the modernisation of Georgia's economy, and will be a huge stimulus to reform. Of course, we know that Georgia has already undertaken many important reforms in recent years. Indeed, we can say that Georgia has been a frontrunner in the Eastern Partnership launched by the European Union but I think we all agree more will be needed, so that our jointly agreed Association Agenda provides a glimpse of what we have identified as key areas to address over the next three years. A concrete programme that has been established jointly in full respect, of course, of the independent choices of Georgia.

Let me underline here that the goal of our partnership is to help you to deliver on your own ambitions. Ownership of the reforms matters. I want to make this point clear. I know that Georgia is making this reforms not just because it wants to become closer to the EU but for the sake of Georgia itself. Even if having this agreement was not the goal I'm sure that those democratic reforms, those programmes of modernisation will be important by themselves as a contribution to the progress and wellbeing of the Georgian citizens.

I really believe that these choices cannot be imposed from the outside. Only when a country, its people and its leadership have the courage to make difficult, necessary changes in their political system, their rules, sometimes also contributing to progressive change in their mindsets, in the political civic culture, only when there is that courage and determination in the country itself can true democracy take root and change happen. The European Union offers tools and expertise. We are there to help, but we cannot replace our own efforts. We are not exporting ready-made solutions. This indeed cannot be exported. What we are doing is offering a helping hand.

And we know – because we have seen it happen within the European Union time and again – that political stability and economic reform, societal openness and international integration are the right recipe for countries that are eager and ambitious to take the future into their own hands.

We have now a very good experience. Let me tell you, when I started as President of the European Commission ten years ago, in 2004, the European Union only had 15 members. Now we are 28. So in these ten years we almost doubled the membership. Something that sometimes people take for granted but it was not evident at that time. And we in the European Union as a whole and in the European Commission more specifically, we have seen how important it was the progress of some countries, even before they became members, to sign the association agreement.

Look at Poland. How was Poland before starting the accession process? They had a level of GDP below Ukraine. The Baltic countries as well. But the simple fact that those countries started the association process gave assurances to investors. They were committed to the rule of law. And that attracts investment, which attracts confidence. And I believe the most important issue here is confidence. And so we could see, through the years, countries that were not even at that point joining the European Union yet, how much they could benefit, and also how they could benefit together, because it was a win-win situation. When the European Union establishes this programme of association, we are helping, we are showing our solidarity, it's true, but we are also working for our own interest, the strategic interest of having stability in our borders.

We don't have an hidden agenda. Our agenda is to have stability, to have of course stability for more trade, for more investment, for growth, for jobs, for prosperity. So this is the right choice to make from a strategic point of view, for the neighbour countries of the European Union and for the European Union itself. And we have been enlarging. Now we are 28, in spite of all of the criticism. And, you know, in the recent years there has been so many criticism, so many "Cassandras", so many prophets of doom saying that even the euro area could implode, that Greece would exit. In fact what we have been doing is exactly the opposite. Now we have more countries in the euro area. Latvia joined. Lithuania is expecting to join on the 1 January next year. More countries joined the European Union: Croatia joined just recently.

So you see, in spite of all the problems - and we certainly have problems in the European Union, I'm not pretending we don't have problems, and we need more reforms in the European Union as well -, in spite of all the pessimism, the glamorous pessimism of the public, the commentators and analysts, the reality is that the European Union is making progress and is showing its resilience. So we are a reliable partner.

And indeed the European Union, if you look at the GDP of our members, it's the biggest economy in the world, bigger than any other great economy. Not only the biggest trade block but also the biggest economy in the world.

This is the message I want to bring to Georgia, to the government and the authorities, but also to the people: you can trust us as partner and we will do whatever we can to support the choices made by the Georgian people and the Georgian society.

Ladies and gentlemen,

Allow me a few reflections on the nature of the agreement we are about to sign on 27 June in Brussels:

It's important to note that with the signature of the agreement comes greater responsibility. All sectors of society must be mobilised in this effort. Cooperation and joint ownership of the process will create confidence, providing stronger foundations for democracy to flourish, but no agreement can ever replace the momentum and political leadership within your own country.

In particular, it should add predictability and consistency to public life, not only in the rules and regulations that govern economic activity, but also in the services and rights which citizens can expect from their authorities.

When accompanied by comprehensive reforms, the Deep and Comprehensive Free Trade Area (DCFTA), which is part of our Agreement, will bring benefits for the country's future growth, opening up new markets and creating job opportunities. Thanks to the creation of a free trade area, adoption of selected European legislation, and the drive towards internationally recognised quality of goods, more potential for growth, through increased exports and additional investment are expected over the medium term.

But the Association Agreement it is much more than a trade agreement. It will introduce reforms that will progressively bring Georgia in line with the European Union culture and standards, economically, socially, and politically, and it will embed core values of mutual respect, and the rule of law into all aspects of Georgian public life.

In short: this agreement is an investment in the future, an investment that we believe will yield high returns.

And investment is something all of us at this conference know the true value of.

The European Union has worked closely with both the previous government and with the current one in arriving at this important moment – they too have invested successfully in this relationship - and I would like to congratulate very sincerely both governments, all the Georgian citizens and especially those that have been so working hard these years in the public administration to defend Georgian's interests. I believe that even the dialogue we had, not only at the level of government, but at the level of experts, has been extremely important. We have learned from this dialogue.

We are also looking forward to the continuation of the trend and the consolidation of Georgia's democracy. I now you are going to have multi-party elections in Georgia. I see posters all over the city from the campaigns. I hope that these elections take place in a respectful, peaceful, and pluralist environment, free and fair elections. This election is another important step for the consolidation of democracy in your country.

Let me now expand on the benefits of the Agreement from the investors' point of view. I think it's important to know the political framework, but now it's more important to know the specific economic advantages.

Free trade in goods is clearly a large part of it, with a complete elimination of all import duties and a prohibition of export duties on all goods from day one, from the first day of implementation. This is one of the most ambitious offers in trade liberalisation that Europe has ever concluded with any partner. Savings to importers on both sides are expected to amount to around €90 million annually. This liberalisation, together with reforms (in particular to boost trade in agricultural products) should deliver an increase in Georgia’s exports by 12%. This is not only our estimate; it's also the estimate of independent studies. A total increase of GDP of no less than 4.3% is expected for Georgia, according to the same studies. Compared to last year growth rate of 2.5% or this year's forecast of 6.3% - a very encouraging figure -, this will represent a very substantial boost for Georgian economy.

Freedom of establishment is another key element. Georgian entrepreneurs will be able to set up a company or a branch of a company in any European country and bring qualified Georgian staff for a limited amount of time to work in the European Union. So it's more than trade in goods, it's freedom of establishment.

It will benefit from open access to the European services market. This means that service providers – within the limits of the Agreement – can provide their services across the European Union. Furthermore, many independent service providers, including individuals in certain professions (such as consultants, managers, or translators) can provide their services in the EU for a limited period.

But opening markets and lowering barriers is only one part of it. Implementation of the DCFTA will bring major benefits to the regulatory environment as well.

By meeting new food standards, Georgia will be able to export animal and plant products which it previously could not sell in the European Union. Similarly, in the production and trade of industrial goods, new regulatory standards will lead to improvements in the safety and quality of products available on the market. This is good news for Georgian consumers and workers, and also good news for Georgian business.

Modernisation of domestic procurement practices will give access to EU procurement market, which is a vital and growing sector. And indeed one of the biggest procurement markets in the world. This will provide business opportunities for Georgian companies and lower costs to the Georgian treasury as procurement rules become more transparent, leaner and more efficient. As reforms progress, Georgia will have access to different types of procurement bids in the European Union, which could eventually lead to a complete opening of the EU market.

Further reforms in customs and trade facilitation will align Georgian practices more closely with European procedures, lowering costs for business.

All of these developments should attract foreign direct investment, eager to invest in a stable country where procedures are transparent and in line with the rule of law. The very important presence of so many people form the European Union and from Georgia in this conference confirms the great interest that this agreement is raising.

Ladies and gentlemen,

Once the Association Agreement with the DCFTA is signed, it is crucial that Georgian businesses seize the opportunities.

Only you can breathe life into this partnership.

Only you can reap the full potential it offers.

But we can help you do this.

The EU has been the single most important provider of assistance to Georgia in recent times: €452 million in the period 2007 to 2013. We will continue to support Georgia in the coming years. Together with the Government of Georgia we are looking for the best ways to obtain maximum benefit from this trade agreement.

The European Union is preparing a programme worth €51 million to assist specifically in DCFTA implementation and to support Small and Medium-sized Enterprises. This programme will facilitate Georgia's integration into the European market. We will focus in particular on helping SMEs adjust to a new regulatory environment.

In order to bring European investors to Georgia and for Georgian companies to access the EU market, businesses from both sides have to get to know each other better. Business Support Organisations can play a key role in this respect. That is why I am particularly happy that the EU-funded regional programme ‘East Invest’ played an important role in supporting the organisation of today's event that is also, I am sure, a networking opportunity for some of you.

Finally, through the Neighbourhood Investment Facility we can use European Union grants to unlock loans from development banks. The ratio is quite impressive: 1 euro of a European grant can unlock 13 euros from the European financial institutions to facilitate access to credit and provide expertise to the private sector. So I believe this is a really important leverage to our sources of investment.

To respond to the needs of Small and Medium Enterprises we have designed a special facility focused exclusively on supporting the modernisation of SMEs and to help them seize the opportunities offered by DCFTAs. Over the next 3 years, by mobilising up to €150m of grants, the DCFTA Facility will make up to €1 billion of credit available to SMEs in countries that have DCFTAs. And, as you know, we are now also preparing to sign, I just came from Moldova and we are going to sign on the 27th a similar agreement with Moldova and with Ukraine which I believe it is also important for you because there are the synergies of all the regions. So you are coming to the European Union market but also this market will be extended to these regions and to some of also other important partners that we have.

The Facility I mentioned just now will help Georgian SMEs to access finance by removing the three main bottlenecks: improving credit conditions by sharing risks with local banks, making loans in local currency affordable by cushioning part of the currency risk, and improving the competitiveness of SMEs by providing advisory services.

The programmes which will be part of this facility will be managed by the European Investment Bank, an institution of the European Union, and by our partner institution the European Bank for Reconstruction and Development, EBRD. And I am very happy that both Vice-Presidents of the EIB and the EBRD could come with me in this visit and I inform that they will speak later today to you and they will give you further information on this facility and other ideas the EIB and the EBRD are developing for your country and for the region. And I am very grateful for their work.

I am also very pleased to be signing today a Financing Agreement for a programme on water infrastructure, financed from the Neighbourhood Investment Facility.

So you see: we too are ready to invest heavily in this partnership. It is afterwards mainly for the private companies to make it happen for the people on the ground but at public level from the European level and from the Georgian authorities there will be the necessary support. I would like to underline also the role of the private companies because we have seen in the past also in many other countries that part of the transfer of know-how, part of the real value added of these agreements come precisely from those contacts. When one company comes here or when a company from your country goes to the European Union. All these relations that are established, all the transfer of know-how that is done it is indeed a great impulse for further modernization and prosperity in this matter.

The Association Agreement we are about to sign is designed in a way which allows Georgia to come closer to the European Union, but I want to make it absolutely clear it does not prevent it from developing good relations with all its neighbours, including Russia. This is a choice for the country to make. We believe in open societies, open economies and open regionalism. We are not seeking an exclusive relationship. We see trade as a win-win, we are very sincere in this matter.

I want to say very clearly that this agreement is perfectly compatible, with any free trade agreement Georgia currently has or may wish to have in the future. We have this kind of free trade agreement with many countries in the world and those countries are also having free trade agreements with other areas and we are not opposing to that. Why should we? Provided that these agreements are compatible with WTO, of course we are in favour of this even if they go further.

So I call also upon Russia to take advantage of the new opportunities and not to take so-called negative measures to the upcoming signature and implementation of the Agreement with Georgia or with any country in the region. There would no economic reason, nor legal justification for such behaviour. Indeed, I believe that all the entire region stands to gain from a more stable, secure and prosperous Georgia. Once again, it can be a win-win.

Let me also state that this Agreement applies to the whole Georgian territory as we recognise it. We are very much attached to the principal of Georgian sovereignty and Georgia territorial integrity. As soon as the right conditions are fulfilled, Abkhazia and South Ossetia may benefit also from this advantageous Agreement.

With the Association Agreement, Georgia will not relinquish an inch of its sovereignty. I am saying it because sometimes we listen to propaganda that makes that point. There is no imposition or anything. What we have to manage afterwards in this relationship is an Association Council where European Union and Georgia are present, that will be the simple successor to our existing Cooperation Council. So that Association Council will not be able to make any decision without Georgia's agreement. So, you see. It is completely baseless the idea that we are trying to impose whatever methods.

Georgia has chosen. And Georgia has chosen the European way. The European way is one of accountability, rule of law and a functioning independent judiciary. The way of Europe is the way of states which works in the interests of all its citizens. In short, it is the way for good governance. Georgia has made this sovereign choice. I think it made the right choice and I am glad that we in the European Union can walk alongside Georgia as it proceeds further on its chosen path.

We know that Georgia is a European Country. We know that Georgia wants to be further embedded in the European family of nations and I believe that this association agreement is not the end of the road, it is another step forward. I am confident and I am sure that it will not be the last one.

Thank you for your attention.


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