Wednesday, 19 April 2006


Published in Analytical Articles

By Mamuka Tsereteli (4/19/2006 issue of the CACI Analyst)

BACKGROUND: In late March-early April, Russian authorities banned imports of Georgian and Moldovan wines under the pretext that they do not meet Russian consumer standards. This decision follows a similar demarche in December 2005, when Russia’s Ministry of Agriculture imposed temporary restrictions on imports of agricultural products from Georgia to Russia. At that time, Russia banned Georgia’s citrus products, which indeed caused serous harm to Georgian producers.
BACKGROUND: In late March-early April, Russian authorities banned imports of Georgian and Moldovan wines under the pretext that they do not meet Russian consumer standards. This decision follows a similar demarche in December 2005, when Russia’s Ministry of Agriculture imposed temporary restrictions on imports of agricultural products from Georgia to Russia. At that time, Russia banned Georgia’s citrus products, which indeed caused serous harm to Georgian producers. Next, in January 2006, murky “terrorists”—according to Russian investigators—simultaneously blew up two natural gas pipelines and one high voltage electricity line inside Russian territory that supplied Georgia with significant amounts of energy, leaving Georgia without natural gas and electricity during the coldest winter of the last several decades. Georgians have long had to deal with Russia’s support for separatist movements in their country, which in recent months have moved toward outright annexation of Georgian territory by Russia. Conspiracy theorists might see a pattern in all this. It is no secret that Russia is a primary market for agricultural products from Georgia, Moldova and many other countries. Wine is Georgia’s second largest export product and constitutes up to 10 percent of its total exports. So far this year, approximately 70 percent of all exported Georgian wines were sold in Russia. Dependence is even higher in case of Moldova, where wine production provides 25 percent of GDP. Thus a negative impact on the economies of those states is inevitable. Of course, this is the strategy of Russia’s leaders, who know perfectly well that most counterfeit Georgian wines appearing on the Russian market are produced on the territory of Russian Federation itself. They also know that Georgian producers and farmers use no chemical fertilizers and pesticides, that in fact their quality standards are higher than Russia’s own and those of most other countries. Indeed, among Russian consumers, the broad range of agricultural products from Georgia are known for their natural taste and quality.

IMPLICATIONS: Russia’s wine offensive is both childish and counterproductive. Along with Georgian farmers, those most damaged will undoubtedly be Russian consumers, who over several centuries have cultivated a taste for Georgian wines over all others. Moldova and Georgia in 2005 accounted for 65 percent of Russia’s wine imports – Moldovan wines some 56 percent, providing wines primarily for the low and middle income segment of the market; Georgian wines about 9 percent. Two thirds of the Russian wine market has hence been closed, indicating the Russian government’s lack of concern not only for Georgian and Moldovan producers but for its own consumers, importers, and retailers. If this ban continues, Russian consumers will be forced to switch to higher priced European wines, or to low quality, health-threatening vodka. This does not mean that a “vine revolution” will happen in Russia, but separating Russians from their drink is unlikely to be a winning political strategy. On the larger playing field, the hopes of Russian leaders that embargoing Georgian wines will cause irreparable damage to the Georgian economy—and, consequently, force Georgia to sue for peace on Russia’s terms—are likely to be unfulfilled. The Georgian economy will survive, as it did earlier when marauders far more skilled than the Russians tried to shut it down. And in the longer-term, Russia’s interests in the South Caucasus are likely to be even further damaged. In the short term, Russia’s wine embargo can result in serious economic consequences for Georgia. But Georgia’s wine producers will re-adjust, start aging their wines, find new markets, produce grape alcohol and brandy and thus still survive this hard blow. The broader political consequences for Russia are harder to measure but could be significant. The first arena is likely to be the WTO. Russia’s use of energy as a lever of political pressure against its neighbors – mainly Ukraine – was a wake-up call to both North American and European governments. The wine ban clearly shows that Russia is behaving in a manner inconsistent with the rules of WTO membership. Coming only months after the Ukrainian conflict, Russia’s moves are not likely to improve its prospects. Moldova and Georgia are already members of the WTO, while Russia aspires to membership; irrespective of how larger powers assess this issue, Russia is unlikely to receive the support of these smaller countries’ for its application to the WTO, where decisions are made on the basis of consensus. Russia’s strategists seem to believe that by intimidating Georgia they will make it more cooperative, and by causing internal hardship they will weaken appeal of Georgia’s pro-Western orientation. Apparently, they do not realize that such crude and hostile actions only embolden Georgia’s attitudes. Moreover, Russia will gradually lose the last bastion of its influence on Georgia: the Russian market. Indeed, little wonder that Georgians increasingly question why it should remain in the Russian-dominated Commonwealth of Independent States? The Speaker of Georgia’s Parliament, Nino Burjanadze, recently asked the following rhetorical question: “If we are the only CIS country with whom Russia has visa requirements for travel, a country whose imports of wine, citrus, tea and soon maybe some other products Russia bans, then why should we remain in the CIS?” Russia annexed the Georgian kingdom in the early nineteenth century. At that time, Russia tried the equally crude strategy of whitening Georgian frescos; erasing images of saints, Georgia’s great kings and warriors for independence; and abolishing the independence of Georgian Church. All of these moves, it was hoped, would eliminate the historical memory of the Georgian people. Despite all the hardship Russian politicians imposed on Georgia for more than two centuries, Georgians remain devout, happy, hard working, artistic people. Russia’s politicians appear bent on transforming amicability into open hostility.

CONCLUSIONS: The wine industry is the very symbol of Georgia. By attacking it, Russia will only make Georgia’s resolve stronger. Other markets will gradually emerge to dwarf Russia’s. Wines from Georgia are already taking their first successful steps in the U.S. market to high critical acclaim. The very wines that are banned in Russia are available at upscale food and beverage retailers along America’s eastern seaboard. In this sense, Russia’s boycott of Georgian wine is providing a necessary and overdue correction of Georgia’s strategy for wine production and distribution. It is just a matter of time before this last vestige of Russian economic leverage becomes irrelevant. With the strong vertical of power in Russia, it is hard to imagine that Russian President Vladimir Putin did not approve this decision. This means that anger and desperation in Moscow about Georgian and Moldovan independent and pro-Western policies have reached a high point. Political Freedom is a dangerous concept for the Russian political establishment. But this is unlikely to stop nations in their aspiration to be free. Georgia, Moldova, Ukraine and others will continue to move towards the West, towards integration into European structures.

AUTHOR’S BIO: Dr. Mamuka Tsereteli is the Executive Director of the America-Georgia Business Council .

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