EU risks Russian backlash over Georgia trade deal

Bid to boost trade with the former Soviet republic likely to be seen as a direct challenge by Moscow

The EU is considering boosting trade with Georgia in an attempt to neutralise Russia’s sanctions against its neighbour, a move that Moscow is likely to view as a direct challenge to its interests.

The European Commission is about to launch a study on a free trade area (FTA) with Georgia, which supporters hope will counterbalance the effect of Moscow’s month-old sanctions.

The Commission will announce the study during a 14 November meeting of EU and Georgian diplomats in Brussels, several EU sources confirmed.

Georgia has long demanded an FTA with the EU, but the Commission has previously argued that it makes little economic sense for either side.

The Commission is now under pressure from EU member states keen to show solidarity with Georgia and has agreed to investigate the idea further, although some diplomats have been critical of what they see as Georgia’s deliberate escalation of the crisis in relations with Russia.

There is widespread concern that Russia’s blockade is part of an attempt to undermine the Georgian government and that military conflict between the two sides may be unavoidable.

In early October, Russia cut air, land and sea traffic between the two countries after Georgia arrested what it said were four Russian military spies on its territory. Money transfers also stopped, freezing remittances from the estimated one million Georgians who live in Russia.

Policymakers in the Commission and the Council of Ministers have in recent weeks been examining ways of assisting Georgia without deploying troops or border monitors, which would be a step too incendiary for Russia.

Diplomats said the creation of the EU-Georgia FTA and approving a FTA between Georgia and Turkey were steps that could be taken unilaterally. "Russia cannot do anything about this," said one diplomat.

Giorgi Baramidze, Georgia’s vice-prime minister, welcomed the Commission’s decision to investigate an FTA and said an agreement could be put in place within a year.

"An FTA with the European Union is a matter of survival for Georgia, it is not just a trade issue," he said. "We hope the assessment will be conducted this year, or at latest the beginning of next year."

He said that the Russia blockade would knock around 1.8% off Georgian gross domestic product this year, but he said establishing direct trade with the EU would offset this. "It will attract direct foreign investment and would create more jobs in Georgia."

But according to one EU trade official such a deal would have an adverse impact on the Georgian economy, leaving it open to a flood of EU products and decimating local firms.

Baramidze rejected this argument: "90% of commodities already have zero tariffs…we have a very liberal approach, we say that the firms that survive after this will get stronger."

Despite this bullishness, some believe that the Commission may decide the FTA is not viable.

One diplomat in favour of pursuing an FTA said that there was still significant opposition to the move among some member states and expressed fears that the move is a stalling tactic. "Too much of the study has already been decided," he said.

Some member states fear Russia will become obstructionist in talks over Iran and North Korea’s nuclear programmes or Kosovo’s final status if the FTA goes ahead.

According to Timofei Bordachev, of the journal Russia in Global Affairs, the Kremlin is likely to react badly to such a move.

He said: "It is obvious that Moscow will not like this because it considers Georgia, Transdniestria and Ukraine as newly established areas of Russian influence."

"Russia is much less concerned by global issues than issues on its periphery or issues of direct economic interest."

• See EU-Russia special report

Bid to boost trade with the former Soviet republic likely to be seen as a direct challenge by Moscow