Life in Georgia

Georgia’s Candidacy to EU: What will change?

On December 14, 2023 Georgia was granted an EU Candidate status. In this article will review what it means, and the changes that will follow.

Reading time: 4 min

Last update: 

Georgia EU Candidacy

On the verge of 2024, Georgia faced a critical, maybe even historical, event, entering the new year with a completely new status, quite literally. On December 14, 2023, Georgia was granted an EU Candidate status on the terms that the country would take the relevant steps suggested by the EU Commission. But what does it mean in practice? This article will review what becoming an EU Candidate means for Georgia, and how to adapt to this changing environment. 

The Backstory

Georgia’s becoming an EU candidate was not an unforeseen event but rather a result of a long process that started nearly a decade ago. In June 2014, Georgia and the EU signed an Association Agreement, a part of which was the establishment of the Deep and Comprehensive Free Trade Area (DCFTA). 

After entering into force in 2016, the DCFTA reduced the export tariffs for European companies on the Georgian market, simplified the customs processes, and, most importantly, pushed the gradual adaptation of Georgian legislation to reflect European standards. Hence, the changes that may occur legislation-wise further in Georgia’s integration into the EU are not new for the country but rather a logical continuation of Georgia’s political track of the last years. 

Georgia's Roadmap
Georgia’s Roadmap – Source: European Commission

In 2022, Georgia applied for EU membership. After, the European Council suggested several steps Georgia should undergo to be granted the status, and finally, in 2023, Georgia was named the EU Candidate. 

EU Roadmap

After a country is granted the Candidate status, accession negotiations follow. It is the process when a country adapts its national legislation to fit the acquis. The acquis is a set of rights and obligations constituting the body of EU law. It comprises 35 chapters and covers every aspect of legislation, from agriculture to judiciary, health to finances, etc. 

When the renewed legislation meets the EU’s requirements, the accession treaty is signed and needs to be ratified by the Candidate and all the EU member-states. After all the steps are met, the country becomes an official EU member. 

While it seems like Georgia is almost there, the accession negotiations are usually very protracted. Generally, it took other EU member-states 9 years to go through this process and sign the accession treaty. However, the timeline may vary depending on the geopolitical situation in the world and the inner political condition of the Candidate. Cyprus and Malta, for instance, took nearly 14 years to join the EU officially. 

Hence, Georgia is up to another decade of gradual legislative reforms to become an EU member-state finally.

EU accession timeline
EU accession timeline – Source: Pew Research Center

Current situation

Before analyzing the changes the EU integration may bring to Georgia, it is crucial to understand Georgia’s starting point – where Georgia is now regarding foreign and domestic policies. 

Foreign Policy

One of the most relevant issues of foreign policy in the region today is Georgia’s relationships with the neighboring countries and its strategic partners. In the current unstable geopolitical condition, Georgia chooses to stay neutral and take a diplomatic approach to the conflicts around it. Whether it is a Nagorno-Karabakh Conflict that has revived several times in the past years or the current Russian-Ukrainian War, Georgia appears as a neutral side, suggesting a platform for diplomatic negotiations for Armenia and Azerbaijan and welcoming both Russian and Ukrainian immigrants.

Simultaneously, Georgia works on establishing strong and cooperative relations with its partners in the East, working with China in political, economic, and cultural domains, and in the West, with the USA being a vital security partner for Georgia.

Domestic Policy

In terms of domestic policy, Georgia pays specific attention to taxation. Georgia has established a system that controls the taxation formation process by introducing the Law on Economic Freedom. The Law on Economic Freedom protects economic rights and freedoms under the Georgian Constitution, recognizing them as human rights that can only be restricted as prescribed by law. It sets the principles of limited government, prudent macroeconomic policy, and low taxes.

Any changes in tax rates and the introduction of new taxes must be approved by the referendum initiated by the government. The law also establishes maximum thresholds for macroeconomic indicators such as the budget expenditures to GDP ratio, budget deficit to GDP ratio, and government debt to GDP ratio. The government must submit a plan to the Parliament to return to the thresholds within 2 years if the approved budget surpasses these ratios. Moreover, all budget revenues must be used to finance expenditures based on the principle of budget universality. The law also ensures free movement of capital with exceptions only as allowed by Georgian law or international agreements. 

EU Tax Rates
EU Tax Rates

While the change in tax rates after Georgia’s integration into the EU is raising concern, the EU’s legislation does not have  “a direct role in collecting taxes or setting tax rates”. Hence, Georgia’s Law on Economic Freedom prevents any changes taxation-wise unless they reflect the will of the Georgian citizens expressed via the referendum. 

Out of 27 current member-states of the EU, the countries that entered the Union in the last 20 years, the tax systems are rather neutral and flat. In Estonia and Latvia, for instance, the corporate income tax is 0% on the re-invested funds, which encourages businesses and startups to establish and operate in the countries. 

Moreover, although the EU works on joint security and foreign policy, each member-state has a right to a national foreign and domestic policy, and the “European Union can only act in those areas where its member countries have authorised it to do so.” Hence, the future track of Georgia’s general politics is and will be up to the Georgian government.

Main Changes

However, there are changes that will likely occur in Georgia after it enters the EU.

Real Estate

According to the current tendencies on the market, the real estate prices will rise increasingly, both on rent and on purchase. In all EU countries, house prices increased significantly from 2010 to 2023 and continue to grow. In Estonia and Latvia, for example, house prices doubled in this period. And even though there’s evidence of a decline in several countries, such as Italy, Greece, and Cyprus, the overall medium is a 46% increase in purchases and 21% in rent. 

Georgia's property prices
Georgia’s property prices

Hence, it is rational to invest in real estate in Georgia in the next several years before it officially becomes a state member of the EU. Moreover, currently, the process of purchasing real estate in Georgia is quite simple. Property can even be purchased with cryptocurrency. Further, when Georgia becomes a part of the EU, the legal procedure will most probably become more complicated. 

Banking

However, Georgia’s becoming a part of the EU will positively impact the country’s business and banking sector. With tighter financial integration and greater competition from EU banks, domestic interest rates in Georgia may decline over the long run as banks pass on savings from improved access to cheaper capital. Hence, the borrowing costs will decrease gradually. Smaller Georgian firms and entrepreneurs would gain better access to loans as financial inclusion deepens with assistance from the European Central Bank and commercial banks from EU nations. Moreover, adopting EU regulations on credit information sharing, secured transactions, and insolvency streamlines lending practices and encourages more transparent risk assessments, which expands the pool of bankable projects and borrowers.

Wrapping up

Georgia becoming an EU Candidate is a very important step the country has been striving for in the past 10 years that will eventually lead to Georgia becoming an EU member-state shortly. Integration into the EU will come with social, political, and economic changes. However, despite the changes often being uncertain and frightening, Georgia follows the same path it was in the last decade. The extensive cooperation with the EU via DCFTA has stimulated legislative improvement under European standards, and further work with the EU will bring an even bigger and more rapid economic and political boost for Georgia.

Do you need our assistance in Georgia?

Ready for your next journey in Georgia?

Schedule a free consultation


Schedule a first 30-minutes free online consultation

Free Consultation

OR

Get in touch with us Now


We answer usually within one hour

Contact us
We answer usually within one hour
Get in touch
We answer usually within one hour
Get in touch
PB Services Georgia