Daily Archives: February 17, 2010

10TBILISI201, GEORGIA: 2009 WORST FORMS OF CHILD LABOR REPORT

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Reference ID Created Released Classification Origin
10TBILISI201 2010-02-17 11:04 2011-08-30 01:44 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Tbilisi

VZCZCXYZ0020
RR RUEHWEB

DE RUEHSI #0201/01 0481104
ZNR UUUUU ZZH
R 171104Z FEB 10
FM AMEMBASSY TBILISI
TO SECSTATE WASHDC 2876

UNCLAS TBILISI 000201 
 
DEPT FOR EUR/CARC, EEB, DOL/ILAB for TINA MCCARTER and DRL/ILCSR for 
TU DANG 
 
SENSITIVE 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ELAB EIND ETRD PHUM SOCI USAID
SUBJECT: GEORGIA: 2009 WORST FORMS OF CHILD LABOR REPORT 
 
REF 08 STATE 131997 
 
1. Summary: Child labor is uncommon in Georgia because of societal 
norms, legal prohibitions against it and high unemployment has 
resulted in a large pool of adult workers willing to work for low 
wages.  There have been no reported cases of forced child labor or 
exploitive child labor.    While child labor is not considered a 
problem, there is no official source of data on the extent of child 
labor in Georgia.  Georgia does not have a comprehensive policy 
aimed at eliminating the worst forms of child labor, but has legal 
prohibitions against exploitive labor practices and implements a 
number of programs to improve educational opportunities for 
disadvantaged youth and social programs to help street children. 
Russia's August 2008 invasion of Georgia led to both internal and 
external displacement of large numbers of people, including 
children.  Efforts of the Government of Georgia and international 
donor organizations were directed towards reducing the negative 
effect of the war on children, especially Internally Displaced 
Persons (IDP).  End Summary. 
 
 
Prevalence and Sectoral Distribution of Exploitive 
Child Labor: Street Children 
 
 
2. In general, the employment of minors under the age of 16 is not 
considered a problem in Georgia given the high rate of unemployment 
and concurrent availability of an adult labor force willing to work 
in low paying jobs.  The most visible form of child labor is street 
begging in Tbilisi.  Many of these children are ethnic Roma. 
 
3. The number of so-called street children is not considered to be 
high and is decreasing year-by-year.  According to a 1999 UNICEF 
study, there were an estimated 2,500 children living and working in 
the street.  A 2007-2008 study by the NGO Save the Children 
indicates that the number has decreased to around 1,500. 
 
4. In May 2006, at the initiative of the Georgian Parliament, the 
Street Children Working Group (SCWG) was established by Save the 
Children, with the participation of government and non-governmental 
organizations with the aim of studying social conditions that lead 
to street children; collect more accurate data; and develop 
recommendations and appropriate programs to reduce their numbers and 
address their problems. 
 
5. The study reveals that street children in Georgia are a 
manifestation of numerous socio-economic problems vulnerable 
children and their families encounter in the country, rather than a 
stand alone phenomenon.  In general, street children in urban areas 
are primarily boys, 5 to 14 years of age, who mostly sustain 
themselves by begging.  They are on the street mainly during 
daylight hours without an accompanying adult, although most of them 
have at least one parent and other relative(s) with whom they live. 
The majority of street children in Georgia are attempting to make 
money to sustain themselves and their families.  Most of them 
utilize one or two major income generating strategies.  The most 
prevalent are begging, especially among younger children and girls, 
and through menial tasks such as petty trade, carrying goods, 
collecting glass or scrap metal, and car washing.  Cases of 
commercial sex work are rarely reported. 
 
6. School enrollment rate in general is very high in Georgia. 
According to Ministry of Education and Science, it was 95 percent 
for primary/basic and 76 percent for secondary schooling in 2007. 
However, around one-half of the street children in Georgia are 
illiterate.  Begging typically excludes the possibility to go to 
school, while 20 percent of working children still try to combine 
Qschool, while 20 percent of working children still try to combine 
school enrollment with economic activities. 
 
7. Agricultural activities on family farms are common.  Many minors 
under the age of 16 work and perform chores on small family-owned 
farms in rural areas, though this activity is not considered harmful 
and is not governed by labor legislation.  Currently, the GoG lacks 
any mechanism that would allow reasonable assessment of numbers or 
working conditions for these children. 
 
8. In 2007 the Association of Employees of Georgia conducted a 
survey of "Child Labor in the Agricultural Sector" to study the 
effect of employment on the development of working children in 
agriculture, namely, fruit growing.  The survey interviewed 200 
households; both parents and children.  The main employment 
practices included care of sister/brother and other family members, 
cleaning/tidying up the yard, feeding domestic animals, chopping 
wood, soil cultivation and gathering the harvest.  Almost all such 
children worked only in their own households.  The study focused on 
issues such as the effect of employment on children's health and 
education.  Only one in ten children said that employment hinders 
them from studying.  However, the study observed a negative impact 
on children's health.  Adolescents
who are involved in agricultural 
 
sector get sick more often than other children.  The study did not 
confirm a hypothesis that working children are less involved in 
social activities. 
 
Laws Proscribing Child Labor 
 
9. Georgia does not have a separate set of laws governing child 
labor.  Provisions related to child labor are included in the 
general Labor Code, which entered into force in June 2006 and no new 
laws and regulations have been enacted since then. 
 
10. Article 4 of the Labor Code specifies that the minimum age for 
employment in Georgia is 16.  This minimum age is consistent with 
completion of mandatory educational requirements, as both primary 
and basic education in Georgia are compulsory from age 6 or 7 to age 
16.  Minors under 16 are permitted to work only with the consent of 
their parents or guardians and if the employment does not conflict 
with the minor's interests; namely that it does not affect his 
moral, physical, or mental development and does not limit his right 
to mandatory education. 
 
11. Under the Code, it is prohibited to employ a minor under 16 for 
the performance of hard and hazardous work.  It is also prohibited 
to employ a minor under 16 for work related to gambling, night 
entertainment institutions, or for the production, carriage or sale 
of pornographic products, pharmaceutical or toxic substances. 
Employment of children under 14 is allowed only with regard to 
sports, arts and cultural activities, as well as for advertising 
purposes. 
 
12. According to Article 35 of the Code, an employer is required to 
provide all employees with working conditions that are safe for the 
employee's life and health.  To meet the requirements of ILO 
Convention 182, the Healthcare and Social Security Ministry of 
Georgia issued a regulation in May 2007 defining "hard, hazardous 
and worst" forms of labor.  The regulation also contains a 
classification of labor conditions by industry factors and hazardous 
effects.  ILO experts, based on a complaint from Georgia's Trade 
Unions, note a discrepancy between Georgian law and ILO Convention 
138.  The ILO convention mandates that hard, unhealthy and hazardous 
work be prohibited for children below the age of 18, while the Trade 
Unions assert that Georgian law bans it only for children under 
16.The Georgian government's official position is that according to 
the Article 4, paragraph 1, children are able to work at the age 
16,; however, the same article prohibits employment of a minor in 
hard, hazardous, and worst forms of labor.  The article when read in 
conjunction with another Georgian article which defines minors as 
individuals under age 18 effectively prohibits such employment. 
 
 
13. In Article 18 of the Code, employment of a minor during night 
hours, defined as from 10:00 pm to 6:00 am, is prohibited. 
According to Article 39 of the Code, a parent or guardian of a minor 
or a legally authorized state body may demand the termination of a 
labor contract concluded with a minor if continuation of the work 
might damage the life, health and other vital interests of the 
minor. 
 
Regulations for Implementation and Enforcement of Proscriptions 
against Child Labor 
 
 
14. Article 171 of the Criminal Code of Georgia imposes punishment 
for involving a minor in the following activities: 
 
-- Persuading a minor into begging or any other anti-public activity 
is punishable by community service or by imprisonment for up to two 
years in length. 
 
-- Involving a minor in prostitution without violence, threat of 
violence or deception is punishable by imprisonment from two to five 
years in length. 
 
-- involving a minor in abuse of an intoxicant or any other medical 
Q-- involving a minor in abuse of an intoxicant or any other medical 
substance is punishable by probation for up to three years, or by 
imprisonment for up to three years. 
 
15. The criminal code prohibits the employmnt of a minor in 
prostitution, production of pornographic material or presentation. 
Also, according to Article 255 of the Criminal Code, the production, 
sale, distribution or promotion of a pornographic work containing an 
image of a minor is punishable by fine, by community service for up 
to three years, or by imprisonment for up to three years.  Article 
255 also imposes a prison term from 2 to 5 years for involving a 
minor in the production of pornographic material.  If any of the 
above violations are committed by a business or organization, the 
punishment includes fines and removal of operating permits. 
 
16. A legislative initiative that was supposed to be passed by 
Parliament in 2009, was drafted in 2007, by a group composed of 
representatives of international donor organizations, Georgia's 
largest internet providers, the prosecutor's office, parliamentary 
staff, the Georgia National Communication Commission, foreign 
experts and UNICEF.  The legislation is designed to improve the 
ability of the Ministry of Internal Affairs and Prosecutor's office 
to combat child pornography.  The law would complement existing 
legislation and criminalize the possession, distribution, production 
and advertising of child pornography.  It would also provide 
protection for the identity of the victims, witnesses and the 
accused, and would impose punishment on media sources for disclosing 
such information.  The draft provides for removal of the child from 
a harmful situation and his or her placement in the best possible 
environment.  The draft law was submitted for Parliament's approval 
early in 2008; however, because of the Georgia-Russia war of August 
2008 and related political and economic crisis, the hearing of the 
draft law was postponed and remains pending. 
 
Laws Proscribing Trafficking of Minors 
 
 
17. Article 1432 imposes punishment for trafficking minors. 
Purchase or sale of or conducting an illegal transaction in relation 
to a minor as well as winning over, carriage, concealment, hiring, 
transportation, handover, providing shelter or receipt of such minor 
for exploitation shall be punishable by imprisonment from eight to 
twelve years in length, with deprivation of the right to hold office 
or engage in a particular activity for the term of one year.   The 
same action committed by abusing one's official position, or against 
the one being in a helpless condition or the one being dependent on 
the criminal materially or otherwise, knowingly by the criminal 
shall be punishable by imprisonment from eleven to fifteen years in 
length, with deprivation of the right to hold office or engage in a 
particular activity for the term of two years. 
The same action committed a) repeatedly, b) by coercion, blackmail 
or deception, c) against two or more minors, d) by taking the victim 
abroad, e) under violence dangerous for life or health or under 
threa
t of such violence - shall be punishable by imprisonment 
ranging from fourteen to seventeen years in length, with deprivation 
of the right to hold office or engage in a particular activity for 
the term of three years.  The sentence increases to twenty years 
imprisonment if the crime is committed by an organized group. 
 
18. Although Georgian legislation is in compliance with 
international anti-trafficking standards, the Government of Georgia 
continues to adopt further regulations for the effective 
implementation of the existing laws.  Decree of the President of 
Georgia N46 of January 20, 2009, adopted the "2009-2010 Action Plan" 
on the Fight against Trafficking.  The Action Plan underlines the 
necessity of prevention and prosecution of the given crime and 
protection of witnesses.  It envisages a clear monitoring system, 
where each state agency is obliged to report (once in 3 months) to 
the Permanent Interagency Coordination Council on the measures 
undertaken for the implementation of action plan. The Action Plan 
envisages various important measures to be taken for the fight 
against trafficking in minors and prevention of the crime. In 
particular: 
 
--Awareness of minors regarding the risk of trafficking though 
educational programs in public schools. 
 
--If necessary, research on trafficking in minors, particularly 
looking at the reasons of trafficking. 
 
Q 
--Training law-enforcement officials on trafficking in minors; 
 
--Training lawyers/attorneys on the protection of victims of 
trafficking in minor. 
 
19. In 2006, Georgia has ratified the Protocol to Prevent, Suppress 
and Punish Trafficking in Persons, Especially Women and Children 
Supplementing the UN Convention against Transnational Organized 
Crime (Palermo Protocol).  On November 24, 2006, the Georgian 
Parliament ratified the Council of Europe Convention on Fight 
against Trafficking in Human Beings. Georgia was the 5th state to 
ratify the Convention. 
 
Institutions and Mechanisms for Enforcement 
 
A) Hazardous Child Labor / Forced Child Labor 
 
20. The Office of Labor Inspection within the Ministry of Labor, 
Health and Social Security, which was previously charged with 
identifying labor violations, receiving complaints and determining 
compliance with labor laws and regulations, was disbanded in 2006. 
In its place, a Labor Department was created at the Ministry to deal 
with labor violations and define state policy in that regard.  In 
2008 the Labor Department was also eliminated as a consequence of 
restructuring process at the Ministry, as well as Georgian 
government's decision to minimize labor regulations.  There is now a 
Department for Social Protection under the same ministry, which 
includes the sub-department for Child Protection and Social 
Programs, which employs 12 specialists.  The latter is mainly 
concerned with such policy issues as child adoption, foster care, 
rights of children, etc, including child labor.  The given 
sub-department reports that it has not received child-employment 
related complaints in 2009.  The policies that are developed by the 
sub-department are implemented by the Social Service Agency under 
the same ministry through the mechanism of social workers.  In the 
event a violation of child labor laws is found to have occurred, 
Article 42 of the Administrative Violations Code empowers the courts 
to impose sanctions on the employer. 
 
21. At the Ministry of Health and Social Affairs, one deputy 
minister focuses on labor issues; there is also a special advisor to 
the Minister for labor issues.  The Ministry monitors adherence to 
accepted labor standards and drafts proposals for changes it deems 
necessary.  The Parliamentary Committee of Health and Social 
Security has general oversight over labor policy and considers labor 
related proposals submitted by the Ministry. 
 
22. According to the Georgia's Prosecutor's office, there were no 
cases initiated under the articles governing child labor. 
 
Institutions and Mechanisms for Effective Enforcement - 
Child trafficking 
 
 
23. The State Fund for Protection and Assistance of (Statutory) 
Victims of Human Trafficking (VoT) was under the Ministry of Labor, 
Health and Social Protection is intended to protect, assist and 
rehabilitate the victims of human trafficking, including children. 
The State Fund employs 27 persons and receives information on 
trafficking cases from law-enforcement agencies, as well as the 
NGOs, the Public Defender's office and other sources.  The Fund has 
two shelters for VoT. The first shelter started functioning in 
summer of 2006 in the region of Ajara. A second shelter was 
established in September 2007 in Tbilisi. 
 
24. The Shelter provides the following services: 
--A secure place of residence with decent living conditions; 
--Food and clothes; 
--Medical assistance; 
--Psychological counseling; 
--Legal assistance and court representation (including filing 
complaints, appearing in court proceedings as a witness, requesting 
asylum, obtaining documents for returning to the country of 
origin). 
--Providing information in the language the victim understands; 
--Participation in the long-term and short-term programs of 
rehabilitation and reintegration. 
 
25. Each shelter has a social worker that provides relevant services 
to victims of trafficking. 
 
26. According to the Georgian Prosecutor's Office, there was one 
case registered in September 2009 initiated by the Special Operative 
Department of the Ministry of Internal Affairs of Georgian under 
article 143a of the criminal Code of Georgia on child trafficking. 
The investigation is ongoing and therefore no prosecution has been 
initiated.  The State fund confirms that there was only one case of 
child trafficking reported in 2009 (17-year old girl, victim of 
forced labor).  The victim has been placed and still remains in a 
designated shelter while the investigation proceeds. 
 
 
27. Coordination of anti-trafficking activities, including child 
trafficking, is implemented by different agencies and is ensured by 
the Interagency Coordination Council which was established based on 
a statutory mandate as a result of the2006 law on Combating Human 
Qa statutory mandate as a result of the2006 law on Combating Human 
Trafficking.  Apart from the representatives from state agencies, 
the Coordination Council consists of representatives from 
not-for-profit legal entities and international organizations 
working in the field, representatives from mass media and relevant 
specialists and scientists. 
 
28. The Ministry of Justice of Georgia, including the Office of the 
Chief Prosecutor maintains a hotline for reporting on any human 
rights abuses including trafficking cases. Information on the hot 
line and a downloadable anti-traffick
ing banner is available on the 
website of the Ministry of Justice of Georgia: 
(http://www.psg.gov.ge).  In 2009, two trafficking cases have been 
reported to the Office of the Chief Prosecutor of Georgia through 
the hot line. 
 
 
29. The State Fund for Protection of and Assistance to (Statutory) 
Victims of Trafficking in Persons retains the A-TIP hotline and a 
website (http://www.atipfund.gov.ge/). Information in relation to 
the hotline is also publicly available via public posters and social 
advertisements on TV.  In addition, the information regarding the 
A-TIP hotline as well as the assistance provided by the fund is also 
easily accessible on the website of the Ministry of Interior 
(http://www.police.ge/index.php?m=426) 
Law enforcement authorities are trained in human rights related 
issues on a regular basis. The fight against trafficking represents 
one of the main priorities in law enforcement and anti-trafficking 
training which includes training on trafficking in minors, is 
carried out on yearly basis. 
 
30. On March 19-20, 2009, a training session was held at the Chief 
Prosecutor's Office, concerning the investigation and prosecution of 
the crime of trafficking.  The training session was organized by the 
Council of Europe and was attended by thirty prosecutors and 
investigators.  On April 7-8, 2009, a seminar was held on 
inter-agency cooperation among law-enforcement agencies regarding 
the trafficking of human beings.  The training was organized with 
the support of the International Labor Organization (ILO). 
Twenty-four representatives of law enforcement agencies attended the 
seminar. 
 
31. Police officers of the Ministry of Iternal Affairs are trained 
at the Police Academy and all officers undergo intensive training 
and/or retraining courses at the Police Academy. The Basic 
Preparation Course for Patrol Police includes training on 
anti-trafficking activity, which covers general information on the 
given crime, Georgian legislation in the field, information 
regarding the victims of trafficking and measures of protection, 
etc. Furthermore, the Ministry's officials and representatives 
regularly participate in other trafficking related trainings and 
seminars. In 2009 three such trainings and seminars were conducted 
for the employees of the ministry under the umbrella of IOM, BSEC 
(Black Sea Economic Cooperation Organization), UNODC and the Swedish 
Institute. 
 
Government Policies on Child Labor 
 
32. The GoG relies on donor organizations to raise public awareness 
and provide training activities on child labor-related issues.  In 
2005 and 2006, UNICEF sponsored a project, implemented by the NGO 
World Vision, to support integration of street children into 
society.  A series of training sessions were provided to both NGOs 
and government authorities and a public-awareness campaign was 
conducted. 
 
33. ILO does not have a national representative in Georgia, but it 
opened a small office to coordinate its projects that focus on 
anti-trafficking in persons (TIP) activities.  The GoG has agreed 
with the ILO to undertake an assessment of child labor.  A Joint 
Rapid Assessment issued by ILO, Save the Children and UNICEF focused 
on conflict-affected (August war) children rather than on general 
child population and their issues. 
 
34. Between 2004 and 2009, Government funding for alternative child 
care services increased almost 12 fold, from USD 480 thousand to USD 
5.6 million.  Since 2004, the number of state social workers 
providing family support, reintegration and foster care services 
increased from 51 to 193 (including 15 senior social workers), and 
the number of children in state child care institutions decreased by 
73.6 percent (from 5200 to 1370).  Boarding schools have been 
reorganized to give children the opportunity to integrate and study 
at the public schools.  The Government set national minimum 
standards for family support and adopted family substitute services. 
Qstandards for family support and adopted family substitute services. 
 The Government also provided Higher Education Grant programs for 
children who have been deprived of care (full coverage of Tuition 
and a stipend) and provided emergency assistance to families 
(medical or other). 
 
 
35. In 2009 the GoG continued implementing the following programs: 
 
-- A program to support orphans and children deprived of parental 
care that has six subprograms aimed at providing higher and 
professional education to children who are graduates of child care 
institutions, to assist with their socialization and integration 
into society; assisting local government bodies with implementing 
foster care; cash assistance to vulnerable families to prevent 
abandonment of children; and improving equipment at children's homes 
and boarding schools. 
 
-- A Family Support Program aimed at consultation and psychological 
service for socially vulnerable families and their children, and for 
teaching handicrafts to 14-16 year olds; 
 
-- Children's Village and Day Care Centers aimed at improvement of 
conditions, educational opportunities and health care provisions for 
abandoned and disabled children; 
 
-- Reorganization of residential institutions in Tbilisi; 
 
 
-- Government support for USAID, UNICEF and Save the Children's 
Rebuilding Lives Project for street children, to use it for 
designing an appropriate strategy to respond to problems of this 
vulnerable group. 
 
Social Programs to Prevent Involving 
Children in the Worst Forms of Child Labor 
 
36. There are several NGOs that provide social services to street 
children.  NGO - "Child and Environment" specifically focuses on 
creating opportunities for removing these children from the street 
(www.childandenvironment.org.ge).  The NGO was set up in 1994 with 
the assistance of donor funding has provided invaluable support 
during the 15-year of its existence.  Since 2004 "Child and 
Environment" has received funding from the USAID, enabling it to 
open and maintain one Night Shelter and three Day Centers (in 
Tbilisi, Rustavi and Chiatura), which offer not only nutrition, 
clothing and shelter to street children, but healthcare, educational 
and arts programs, vocational training and psychological services. 
In total, the NGO has been providing support to 350 street children 
per day countrywide and can boast of multiple success stories of 
relieving such children from begging and other inappropriate labor 
and reintegrating back into a normal life.  Other NGOs operating in 
the same area are Beliki and Children of Georgia.  World Vision and 
Every Child fund several additional NGOs that also work in this 
area.  The GoG has recently introduced a voucher system through 
which the street children will receive support from the NGOs; 
however, there is a small percentage of street children whose 
unclear legal status or lack of documentation has resulted in them 
n
ot receiving vouchers.  USAID funding and technical assistance 
focuses on working with the GoG and NGOs to fix this gap in voucher 
program. 
 
37. The GoG, through the Ministry of Education and Science, has made 
education reform a priority and has significantly increased 
expenditures for education over the past few years from 13.2 million 
USD in 2003 to 305 million USD budgeted for 2010.  In 2009, 187 
million USD were allocated to support primary and secondary schools 
(compared to 104 million in 2006) and around 210 USD is budgeted for 
2010 for the same purpose.  Reforms in the education sector have 
focused on improving the quality of education, and te creation of 
vocational-professional education opportunities.  The GoG in 2006 
provided funds for the construction of 34 new schools and complete 
rehabilitation of 57 schools, thus improving learning conditions for 
300,000 children.  These programs further continued in 2007, 2008, 
and 2009.  Another GoG program focused on the computerization of 
schools throughout the country, benefiting over 600 schools.  USAID 
has renovated 15 schools in Shida Kartli and is about to launch the 
renovation of another 50 schools in ethnic minority areas in 2010. 
However, hundreds of schools remain in need of repair. 
 
38. Georgian legislation mandates compulsory primary and secondary 
education (nine academic years in total) and provides this school 
for free.   Through various initiatives and programs the GoG has 
started providing free books for new school entrants, as well as 
free transportation for children in rural areas.  However, the high 
price of school books still remains a serious concern.  In 2010 the 
government has earmarked around 5 million USD for providing free 
textbooks to the children of vulnerable families below the poverty 
threshold. 
 
39. In 2006, the Ministry of Education announced it was making 
Q39. In 2006, the Ministry of Education announced it was making 
vocational education a priority.  Twelve centers of vocational 
education were set up in different areas.  Starting in 2006, 
rehabilitation of vocational educational institutions began within 
the framework of a presidential program.  In 2008, the GoG allocated 
5.2 million USD for financing operations vocational schools, in 2009 
increased it to USD 5.8 million and plans to maintain the same level 
in 2010.  Another USD 1.4 million has been earmarked for 
rehabilitating the existing vocational schools in 2010.  The 
vocational schools program aims at attracting students by providing 
a quality education that corresponds to labor market requirements. 
Industry interest and response to this new program has been very 
positive.  In the aftermath of the recent conflict with Russia, more 
than $1.2 billion in reconstruction projects have been pledged by 
the GoG and international donors.  In July 2008, USAID launched a 
$2.4 million vocational training program to link two vocational 
centers in Tbilisi to employers in the tourism and light 
construction sectors.   USAID has increased the funding of its 
current vocational 2-year training program to $4.1 million to train 
approximately 5,000 Georgian workers in five vocational training 
centers located in the three largest cities in Georgia. This will 
help to fill job opportunities created by post-conflict 
reconstruction projects as well as secondary support industries 
through rapid, intensive courses that directly meet the needs of 
employers.  These training courses are open to adults and youths 
above the age of 16 years. 
 
40. As the lead coordination agency in the field of education, 
UNICEF spearheaded an initiative to ensure that all children had 
access to school at the start of the new academic year.  This has 
been done through coordination and oversight of activities in the 
areas of rehabilitation and supplies for schools; registration of 
internally displaced children in local schools; assistance to the 
Ministry of Education and Science in providing alternative schooling 
arrangements for communities where schools are being used as 
collective centers; the provision of Mine Risk Education in schools 
in conflict-affected areas; training and support for teachers and 
staff from Educational Resource Centers and general support to the 
Ministry of Education and Science.  UNICEF and its partner 
organizations are working with schools and municipal authorities to 
ensure that the lack of documentation and undefined status do not 
act as barriers to education for displaced children.  UNICEF is also 
working with the Ministry of Education and Science to deliver day 
care activities and identify alternative preschool facilities where 
local kindergartens are still occupied by IDPs. 
 
BASS

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10TBILISI199, GEORGIA: SENATORS MCCAIN, THUNE AND BARRASSO INVESTIGATE

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If you find meaningful or important information in a cable, please link directly to its unique reference number. Linking to a specific paragraph in the body of a cable is also possible by copying the appropriate link (to be found at theparagraph symbol).Please mark messages for social networking services like Twitter with the hash tags #cablegate and a hash containing the reference ID e.g. #10TBILISI199.
Reference ID Created Released Classification Origin
10TBILISI199 2010-02-17 08:41 2011-08-30 01:44 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Tbilisi

VZCZCXRO5429
RR RUEHIK
DE RUEHSI #0199/01 0480841
ZNR UUUUU ZZH
R 170841Z FEB 10
FM AMEMBASSY TBILISI
TO RUEHC/SECSTATE WASHDC 2874
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE

UNCLAS SECTION 01 OF 02 TBILISI 000199 
 
DEPT FOR EUR/CARC 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PGOV PREL GG
SUBJECT: GEORGIA: SENATORS MCCAIN, THUNE AND BARRASSO INVESTIGATE 
SECURITY SITUATION IN GEORGIA 
 
TBILISI 00000199  001.2 OF 002 
 
 
1.  (SBU) Summary:  Senators John McCain (R-AZ), John Thune (R-SD) 
and John Barrasso (R-WY) met January 10-11 in the Black Sea resort 
city of Batumi with President Saakashvili and other members of the 
GoG as well as opposition representatives.  They also traveled to 
Zugdidi near the administrative boundary line with Abkhazia to meet 
with EUMM representatives and a group of IDPs.  During the visit, 
Senator McCain was awarded the honor of National Hero, the first 
time a non-Georgian has received such an honor.  End Summary. 
 
Codel Visits Batumi 
 
2.  (SBU) Senators McCain, Thune, and Barrasso met with President 
Saakashvili on arrival during their visit on January 10-11.  In 
their several meetings, President Saakashvili stressed his concern 
about Georgia's security situation as a result of Russian occupation 
of the breakaway regions of Abkhazia and South Ossetia.  He 
highlighted the tremendous economic progress that Georgia was making 
in building up the Black Sea resort city of Batumi, contrasting it 
favorably with the difficulties that Russia was having in developing 
Sochi prior to the 2014 Olympic Games.  Senator McCain shared 
President Saakashvili's doubts that Russia intended to comply with 
its obligations under the Sarkozy-Medvedev agreement.  Senator 
McCain thanked the President for Georgia's decision to send troops 
to Afghanistan and reiterated that Georgia enjoyed bi-partisan 
support on the issue of its territorial integrity. 
 
3.  (SBU)  On January 11, Senator McCain was presented the award of 
National Hero by President Saakashvili for Senator McCain's longtime 
support of Georgia's democratic aspirations.  Following the 
ceremony, the delegation had lunch with President Saakashvili, 
Deputy Foreign Minister Giga Bokeria, Deputy Minister of Interior 
Eka Zguladze, National Security Council Secretary Eka 
Tkeshelashvili, and a number of other GoG officials. 
 
Opposition Meeting 
 
4.  (SBU) The delegation met with Giorgi Targamadze (Christian 
Democratic Movement), Levan Gachechiladze (Protect Georgia 
Movement), and David Usupashvili (Republicans/Alliance for Georgia) 
to discuss opposition views of current events.  All three expressed 
their support for Georgia's deployment to Afghanistan, as well as 
their concern about the current security situation and Russian 
intentions towards Georgia in general.  Targamadze and Usupashvili 
questioned President Saakashvili's rhetoric toward Russia and 
whether it has served to raise tensions.  Targamadze and Usupashvili 
highlighted the lack of development of democratic institutions and a 
difficult media environment for the opposition.  All three 
opposition leaders said that upcoming local elections would be a 
significant signal as to how willing the GoG was to hold free 
elections and develop democratic society and institutions. 
 
IDP meeting in Zugdidi 
 
5.  (SBU) A group of 18 IDPs from Sukhumi, Ochamchire and Gali 
districts of Abkhazia met with the delegation in Zugdidi.  The group 
consisted of people from a variety of occupations and included five 
ethnic Abkhaz who came to Zugdidi after the August 2008 conflict. 
Two of the ethnic Abkhaz who took the floor to speak on behalf of 
their families and other Abkhaz who crossed the boundary, expressed 
concern with what they called "the Russian occupation" of Abkhazia. 
They accused Russian forces of imposing Russian citizenship on the 
population, exploiting Abkhaz natural resources, barring 
international humanitarian and human rights organizations and 
election observers from entering Abkhazia. "The Kremlin is trying to 
Qelection observers from entering Abkhazia. "The Kremlin is trying to 
repeat the Mukhajirstvo (practice of expelling Abkhazs into the 
Ottoman Empire during Russia's Caucasus war in 1864), and we are 
appealing to the West to prevent it," said one Abkhaz IDP.  An 
ethnic Georgian IDP stressed that the Russian forces are 
artificially dividing the two peoples, "standing between them like a 
wall." 
 
EUMM briefing 
 
6.  (SBU) The delegation met with EU Monitoring Mission (EUMM) head 
Ambassador Hans-joerg Haber and other staff members at the EUMM 
Zugdidi Field Office.  Haber briefed the delegation on the nature of 
its mandate and organization of the Mission, including EUMM's 
achievements and challenges.  EUMM staff members provided the 
delegation with information on security incidents that have occurred 
along the administrative boundary line and ongoing human rights 
issues.  EUMM also gave an assessment of Georgian and Russian 
compliance with te ceasefire agreements, noting its view that the 
Georgians exercise restraint near the boundaries, but Russia remains 
non-compliant with the ceasefire agreements by maintaining troops, 
FSB Border Guard units, and heavy military equipment in both 
Abkhazia and South Ossetia. 
 
7.  (U)  Senator McCain's office did not have an opportunity to 
clear this cable. 
 
TBILISI 00000199  002.2 OF 002 
 
 
 
BASS

Wikileaks

10TBILISI198, GEORGIA: INVESTMENT CLIMATE STATEMENT FOR 2010

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10TBILISI198 2010-02-17 07:25 2011-08-30 01:44 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Tbilisi

VZCZCXYZ0000
RR RUEHWEB

DE RUEHSI #0198/01 0480725
ZNR UUUUU ZZH
R 170725Z FEB 10
FM AMEMBASSY TBILISI
TO RUEHC/SECSTATE WASHDC 2862
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS TBILISI 000198 
 
DEPT FOR EUR/CARC, EEB/IFD, N. Hatcher, G. Hicks 
PLEASE PASS TO USTR P. Burkhead, J. Kallmer 
 
SIPDIS 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ETRD ELAB KTDB PGOV
 
SUBJECT: GEORGIA: INVESTMENT CLIMATE STATEMENT FOR 2010 
 
REF: 09 STATE 124006 
 
1.  Per reftel, below is Embassy TbilisiQs Investment Climate Statement 
for submission for 2009. 
 
Introduction 
 
Since 2004,, the Georgian Government has undertaken an ambitious 
program to modernize and liberalize its economy.  Institutional reforms 
include restructuring and downsizing government ministries, privatizing 
large state-owned entities, increasing public servant salaries, 
reducing the number and rates of taxes, improving tax and fiscal 
administration, streamlining licensing requirements, simplifying 
customs and border formalities, and generally undertaking efforts to 
make it easier to do business in Georgia.  The current Georgian 
leadership views liberal market economies like Singapore and Dubai as 
models for economic growth.  Prior to the August 2008 war with Russia 
and the global financial crisis, the Georgian economy had experienced 
multiple years of double-digit growth.    Despite the dual shock, the 
Georgian economy grew by 2.1 percent in 2008.  In 2009, the Georgian 
economy contracted by four percent. 
 
In 2009, Georgia moved from 18 to 16 on the World BankQs QDoing 
Business Report.Q  In 2010, Georgia moved from 16 to 11.  The report 
measures business regulations and their enforcement across 183 
economies.  The report states that QGeorgia eased the process for 
dealing with construction permits by introducing simplified, risk-based 
approval processes and new time limits. The documentation requirements 
for import and export were simplified, and there was a significant 
decrease in the cost of trade.Q  Georgia tops the rankings for the 
region. 
 
IFCQs 2009 report singled out the areas of Starting a Business, 
Registering Property, Getting Credit and Paying Taxes as GeorgiaQs 
priority achievements.  In addition, new regulations guarantee the 
right of borrowers to inspect their data at a private credit bureau, 
helping to improve the quality and accuracy of credit information. 
Amendments to the civil code, effective December 2007, address secured 
transactions, allowing parties to a security agreement to agree to 
out-of-court enforcement of the creditorQs security rights at the time 
the parties sign the security agreement.  The corporate income tax rate 
was reduced from 20 percent to 15 percent, and the social tax 
abolished.  A new online business registry makes it easier to register 
property by eliminating the requirement for legal entities to obtain 
several pre-registration documents. This reform reduced the number of 
procedures required to transfer a title from five to two, and the time 
from five days to three. Registration fees were also reduced. Finally, 
amendments to the Law on Entrepreneurs made it easier to start a 
company by eliminating the requirements for minimum capital, a company 
seal and a company charter and by making the use of notaries optional. 
 
In the 2008 Report, The World Bank credited Georgia for strengthening 
investor protections with amendments to its securities law which 
eliminated loopholes allowing corporate insiders to expropriate 
minority investors.  Georgia adopted a new insolvency law shortening 
timelines for reorganization of a distressed company or disposition of 
a debtor's assets.  The law shortened the approval process for 
construction permits and simplified procedures for registering 
property.  It made starting a business easier by eliminating capital 
requirements.  In addition, the country's private credit bureau added 
payment information from retailers, utilities and trade creditors to 
Qpayment information from retailers, utilities and trade creditors to 
the data it collects and distributes. 
 
Georgia scored high in the Heritage Foundation/ Wall Street Journal 
2009 Economic Freedom Report.  This index measures 162 countries across 
ten specific factors: Business Freedom, Trade Freedom, Fiscal Freedom, 
Freedom from Government, Monetary Freedom, Investment Freedom, 
Financial Freedom, Property Rights, Freedom from Corruption, and Labor 
Freedom.  Georgia's economic freedom score is 69.8, making its economy 
the 32nd QfreestQ in the 2009 Index. Its overall score is 0.5 points 
higher than 2008 due to improvements in business freedom, trade freedom 
and freedom from corruption. Georgia's economy is qualified under the 
category of 'moderately free', along with Spain, Austria, Norway, the 
Slovak Republic, and the Czech Republic.  Georgia is ranked 19 out of 
43 countries in the European region, and its overall score is equal to 
the European regional average.  According to the report, Georgia scored 
high in business freedom, fiscal freedom, freedom from government, 
investment freedom, and labor freedom, but scored below the average in 
the areas of property rights protection and corruption. 
Judicial corruption remains a problem despite substantial improvement 
in efficiency and fairness in the courts. Both foreigners and Georgians 
continue to question the judicial system's ability to protect private 
property and contracts. The enforcement of laws protecting intellectual 
property rights is inadequate
.  However, the World BankQs 
QAnti-Corruption in Transition 3Q report places Georgia among the 
countries showing the most dramatic improvement in the fight against 
corruption, due to implementation of a strong program of economic and 
institutional reform. 
Georgia also significantly improved in Transparency International's 
(TI) annual Corruption Perceptions Index.  The index scores countries 
on a scale from zero (perceived to be highly corrupt) to ten (perceived 
to have low levels of corruption). Out of the 180 countries surveyed in 
2009, Georgia ranked 66th, moving from 67 in 2008.  In its 2009 report, 
TI concludes, Qpetty corruption has been reduced significantly in 
Georgia. However, concerns remain regarding high-level corruption and 
on corrupt practices in the judiciary.Q 
The Georgian GovernmentQs fiscal and monetary policies have created a 
relatively stable macro-economic environment.  However, in 2009, the 
realities of the global financial crisis and the aftermath of the 2008 
conflict meant the government had to focus on job creation and 
stimulating the economy.  In 2009 the economy contracted by four 
percent, following growth of 2.1 percent (2008) and 12.4 percent 
(2007).  Estimated growth for 2010 stands at two percent. 
 
Inflation for 2009 totaled three percent, a significant drop from 
inflation of ten percent in 2008.  This decrease was largely due to the 
economic slowdown.  Hoping for economic recovery, the Government has 
projected inflation for 2010 at six percent. 
 
The Georgian lari has remained relatively stable despite multiple 
economic shocks.  Following the August 2008 crisis, the lari moved from 
1.4 lari to the dollar to 1.65 lari to the dollar.  Though it 
fluctuated slightly, the lari remained at approximately 1.67 lari to 
the dollar throughout 2009.  The Georgian Government manages the 
currency, and has intervened, for example after the 2008 conflict, to 
stop the currency from devaluation. 
 
Based on the economyQs overall performance and the Georgian 
governmentQs strong commitment to structural changes, Georgia received 
its first sovereign credit rating in late 2005 from Standard and PoorQs 
(S&P) - a QB+Q long term and a QBQ short term.  In September 2009, the 
S&P long-term/short-term credit rating for the Government of Georgia 
were QB/BQ with a QstableQ ratings forecast. The estimated risk of 
transfer and converting of currency for Georgian non-sovereign 
borrowers is "B/B-".   In its analysis, S&P notes a potential risk to 
the economy once assistance pledged following the 2008 conflict 
(estimated at USD 5.7 billion) has been disbursed.   Fitch currently 
rates Georgia, which launched its debut $500 million Eurobond in spring 
2008, as QB/B-Q with a stable outlook. In August 2009, Fitch Ratings 
affirmed GeorgiaQs Long-Term Foreign Currency (FC) and Local Currency 
(LC) Issuer Default Ratings at QB+Q, removing them from Rating Watch 
Negative and assigning stable outlooks.  At the same time, Fitch 
upgraded GeorgiaQs Country Ceiling to QB/B-Q from QB+Q. In upgrading 
Georgia, Fitch noted GeorgiaQs GDP per capita and level of human 
development is significantly higher than the QBQ range median. It has a 
favorable business climate and record of structural reforms, 
underscored by its ranking in the World BankQs Doing Business Survey. 
Over the medium term, Georgia has a promising growth model in its 
favorable business climate, based on low tax rates, light regulation, 
and low corruption; its investment in infrastructure and transport 
links; and its high human capital-to-wage ratio. 
 
In November 2009, President Saakashvili presented an QAct on Economic 
QIn November 2009, President Saakashvili presented an QAct on Economic 
FreedomQ to the parliament.  The aim of this act is to codify GeorgiaQs 
economic reforms, and the governmentQs commitment to a liberal economy, 
in the countryQs constitution.    The act envisages a minimal state 
role in the economy, creates legislative guarantees for business, and 
bans the introduction of new licenses and permits.  The act also amends 
the constitution to limit the maximum ratio of budgetary expenditures 
to GDP at 30 percent, budget deficit as a percent of GDP at 3 percent, 
and debt-to-GDP ratio at 60 percent.  In addition, taxes will only be 
increased if approved through a public referendum. 
 
Georgia became a member of the World Trade Organization in 2000.  The 
WTOQs first report on the trade policies and practices of Georgia, 
published in December 2009, noted the success of the countryQs economic 
policies.  The WTO particularly highlighted GeorgiaQs pace of reform 
and the countryQs reliance on the private sector to spur development. 
According to the report, continuing structural reforms will be the key 
to strengthening GeorgiaQs resilience to shocks, sustaining growth, 
attracting investment into export activities, and improving 
productivity. 
 
Despite improvements to the economy, Georgia still lags in many areas 
important to investors.  More than 25 percent of the population live 
below the poverty line and many still rely on subsistence agriculture. 
Greater familiarity with western business practices and legal norms is 
required.  While physical infrastructure, such as road networks, 
improved significantly from 2005 to 2009, much remains to be done, 
especially in rural areas.  Most natural gas for heating and 
electricity generation is imported.  In a relatively short period, 
however, Georgia has become a net exporter of electricity, selling 
 
power in Turkey, Russia and throughout the Caucasus.  The 
rehabilitation of existing power plants and the development of new 
ones, together with the costruction of new high voltage electricity 
lines to connected Georgia to Turkey, should ensure Georgia remains a 
key player in the regional electricity trade. 
 
The main source of sustained future economic growth will be private 
investment, both domestic and foreign.  The governmentQs challenge is 
to implement existing legislation, continue the fight against 
corruption, defuse tensions in the separatist regions, and undertake 
new reforms in order to increase investor confidence. 
 
Georgia receives assistance from the United States, the European Union, 
and a range of international institutions.  U.S. assistance has focused 
on promoting democratic development and free media, developing rule of 
law, good governance and the administration of government economic and 
financial institutions, improving critical physical infrastructure, 
enhancing private sector competitiveness, and promoting the growth of a 
free market economy.  In 2006, GeorgiaQs clear-cut commitment to reform 
earned it one of the first compacts with the U.S. Millennium Challenge 
Corporation, which has provided investments in infrastructure, tourism, 
and agriculture. 
 
After the August 2008 conflict with Russia, foreign donors committed 
USD 4.5 billion to help Georgia recover from direct and indirect war 
damage.  According to the World Bank-led international needs assessment 
for Georgia, the major impact of the conflict was on the investment and 
consumer climate, which led to a sharp economic drop in FDI and GDP. 
The United States committed USD 1 billion in assistance to assist in 
repairing damaged infrastructure and
 help the Georgian economy recover 
from the economic shock of the war. 
 
President Saakashvili and his government have strengthened GeorgiaQs 
bilateral relations with many countries, reaching out to Ukraine, 
Turkey, Italy, Poland, Latvia, Lithuania, Estonia, Japan, Kazakhstan, 
the UK, Germany, the Netherlands, and the United States.  Georgia has a 
partnership agreement with the European Union and an action plan for 
reform to allow a closer relationship.  Georgia maintains the goal of 
eventual membership in the European Union.  Georgia is one of only 
fifteen countries in the world that benefit from GSP+ access to the EU 
market, allowing duty-free access for more than 7,000 products.  It is 
making an effort to harmonize its regulatory environment with 
international standards, particularly those established by the EU, and 
is pursuing a free trade agreement with the EU.  Georgia enjoys 
duty-free trade with other former Soviet Union countries.  It benefits 
from preferential trading relationship with the United States, Turkey, 
Canada, Switzerland, and Japan.  In 2007, Georgia signed a free trade 
agreement with Turkey, as well as a Trade and Investment Framework 
Agreement and an Open Skies Agreement with the United States. 
 
Georgia is located at the crossroads between Europe and Asia.  It is 
the shortest route from Central Asia to Europe, and could be a 
north-south bridge between Turkey and the Russian Federation.  Georgia 
has two deep-water ports on its Black Sea coast, Poti and Batumi. 
Labor costs in Georgia are comparable to the Far East, while transit 
time for shipment of goods to Europe is far less.  The government has 
launched an extensive road rehabilitation project aimed at upgrading 
Qlaunched an extensive road rehabilitation project aimed at upgrading 
the road quality and constructing new facilities to improve 
communication infrastructure. The government allocated USD 310 million 
for road rehabilitation projects in 2009 and projected around USD 420 
million in 2010.  The governments of Turkey, Azerbaijan, and Georgia 
have agreed to construct a rail link from Kars, Turkey through Georgia 
to Baku, Azerbaijan.  Freight from Europe will then be transported 
through Turkey to Baku via Tbilisi and then to Central Asia from Baku 
by ferry.  Ongoing construction of a tunnel under the Bosphorus in 
Istanbul will allow  freight to travel from Georgia directly into 
Europe.  In addition, Georgia is improving its network of rail-ferry 
connections with Black Sea countries, including Ukraine, Romania, and 
Turkey, which will further increase transportation and trade turnover 
with these countries. 
 
GeorgiaQs relations with its northern neighbor Russia have been 
problematic.  In 2005 and 2006, Russia banned imports of Georgian 
agricultural products, mineral water, and wine.  At the time, Russia 
was the largest importer of Georgian products.  These restrictions 
continue in 2010.  In September 2006, Russia cut all direct transport 
links with Georgia.  Gazprom, the Russian gas monopoly, quadrupled the 
price of natural gas supplied to Georgia over two years.  Despite these 
actions, the Georgian economy has continued to grow.  Georgian 
businesses have diversified markets and continue to actively seeking 
new markets for Georgian products and new sources of imports, 
especially in Ukraine, the Baltics, and Central Europe.  Georgia has 
diversified its energy supplies, purchasing natural gas from Azerbaijan 
and increasing its own hydroelectric generating capacity. 
 
Openness to Foreign Investment 
 
Georgia is open to foreign investment and is eager to welcome new 
investors.  The country is currently implementing an aggressive 
marketing campaign to encourage foreign investment, and is developing a 
regulatory framework intended to foster competition.  Legislation 
governing foreign investment establishes favorable conditions, but not 
preferential treatment, for foreign investors.  The Law on Promotion 
and Guarantees of Investment Activity protects foreign investors from 
subsequent legislation that alters the condition of their investments 
for a period of ten years. 
 
The U.S.-Georgia Bilateal Investment Treaty, in force since 1994, 
guarantees U.S. investors national treatment or most favored nation 
treatment, whichever is better, in the establishment, operation, and 
sale of their investments.  Exceptions to national treatment may be 
made by Georgia for investments in maritime fisheries; air and maritime 
transport and related activities; ownership of broadcast, common 
carrier, or aeronautical radio stations; communications satellites; 
government-supported loans, guarantees, and insurance; and landing of 
submarine cables. 
 
Legislation governing foreign investment includes the Constitution, the 
Civil Code, the Tax Code, and the Customs Code.  Other relevant 
legislation includes the Law on Entrepreneurs, the Law on Promotion and 
Guarantees of Investment Activity, the Bankruptcy Law, the Law on 
Courts and General Jurisdiction, the Law on Limitation of Monopolistic 
Activity, the Accounting Law, and the Securities Market Law. 
 
Georgia has negotiated 39 agreements for avoidance of double taxation, 
of which 24 have entered into force.  The active agreements are with 
Uzbekistan, Azerbaijan, Ukraine, Romania, Bulgaria, Turkmenistan, 
Armenia, Kazakhstan, Iran, the Netherlands, Greece, Italy, Belgium, 
Lithuania, Latvia, United Kingdom, China, Austria, Poland, Czech 
Republic, Germany, Finland, Denmark, and Estonia.  Until the treaty 
with France enters into force upon ratification by France, a similar 
agreement signed by the USSR governs the issue.  Eight treaties 
(including the aforementioned with France, Ireland, Kuwait, Luxemburg, 
Malta, Russia, Singapore, and Turkey) have been signed and are awaiting 
ratification by the parliaments of the respective countries.  An 
agreement with Russia was signed in 1999 and ratified by the Georgian 
parliament in 2000.  It has not been ratified by the Russian Duma, but 
Russia regards it as an active agreement.  Negotiations are ongoing 
with Hungary, Israel, Slovenia, Spain, Switzerland, Kyrgyzstan and 
Cyprus. Agreements with Israel and Spain are expected to be signed in 
2010. 
 
The legal framework governing the ownership and privatization of 
property is established by the following acts: the Civil Code, the Law 
on Ownership of Agricultural Land, the Law on Private Ownership of 
Non-Agricultural Land, the Law on Management of State-Owned 
Non-Agricultural Land, and the Law on Privatization of State Property. 
Property rights in the extractive industries are governed by the Law on 
Concessions, the Law on Deposits, and the Law on Oil and Gas. 
Intellectual property rights are protected under the Civil Code and by 
the Law on Patents and Trademarks.  Financial sector legislation 
includes the Law on Commercial Banks, the Law on National Banks, and 
the Law on Insurance Activities. 
 
Georgia does not screen foreign investment in the country, other than 
imposing a registration requirement and certain licensing requirements 
Qimposing a registration requirement and certain licensing requirements 
as outlined below.  Foreign investors have participated in most of the 
major privatizatio
ns of state-owned property.  Transparency of such 
privatizations has at times been an issue, however.  No law 
specifically authorizes private firms to adopt articles of 
incorporation which limit or prohibit foreign investment. 
 
In 2005, registration of businesses was simplified.  Paperwork and fees 
were reduced and processing time shortened.  The government proudly 
promotes that an entrepreneur can start a business in three days.  All 
companies are required to register with the Ministry of Finance, 
providing foundersQ and firm principals' names, dates and places of 
birth, occupations, and places of residence; incorporation documents; 
area(s) of activity; and charter capital.  This information is made 
public and any person may request and review such information. 
Business registration and tax registration are separate procedures 
handled by the same department within the Ministry of Finance. 
The Government of Georgia has privatized the majority  of the largest 
formerly state-owned enterprises in the country.  Successful 
privatization projects include major deals in energy generation and 
distribution, telecommunications, water utilities, port facilities, 
real estate assets, etc.  By the end of 2009, the government announced 
a new wave of privatization, which includes railway, telecommunication, 
and utilities.  A list of entities available to be privatized can be 
found on the website www.privatization.ge.  Information on investment 
conditions and opportunities can be obtained from the Georgia National 
Investment and Export Promotion Agency, e-mail: 
info@investingeorgia.org, www.investingeorgia.org.  Further information 
is available at a website maintained by the American Chamber of 
Commerce in Georgia, www.investmentguide.ge. 
In 2005, 84 percent of existing licensing requirements were eliminated 
and a Qone stop shopQ for licenses was created.  By law, the government 
has 30 days to make a decision, and if no reasonable ground for 
rejection is stated by the licensing authority within that time, the 
license or permit is deemed to be issued.  Licenses are only required 
for activities that affect public health, national security, and the 
financial sector.  Licensing currently is required in the following 
areas: weapons and explosives production, narcotics, poisonous and 
pharmaceutical substances, exploration and exploitation of renewable or 
non-renewable substances, exploitation of natural resource deposits, 
establishment of casinos and gambling houses and the organization of 
games and lotteries, banking, insurance, trading in securities, 
wireless communication services, and the establishment of radio and 
television channels.  The law requires the state to retain a 
controlling interest in air traffic control, shipping traffic control, 
railroad control systems, defense and weapons industries, and nuclear 
energy.  Only the state may issue currency, banknotes, and certificates 
for goods made from precious metals, import narcotics for medical 
purposes, and produce control systems for the energy sector. 
 
Conversion and Transfer Policies 
 
Georgian law guarantees the right of an investor to convert and 
repatriate income after payment of all required taxes.  The investor is 
also entitled to convert and repatriate any compensation received for 
expropriated property.  Moreover, Georgia has accepted the obligations 
of Article VIII, Sections 2, 3, and 4 of the IMF Articles of Agreement, 
effective as of December 20, 1996.  IMF members accepting the 
obligations of Article VIII undertake to refrain from imposing 
restrictions on payments and transfers for current international 
transactions and from engaging in discriminatory currency arrangements 
or multiple currency practices without IMF approval.  By accepting the 
obligations of Article VIII, Georgia gives confidence to the 
international community that it will pursue sound economic policies 
that will obviate the need to use restrictions on the making of 
payments and transfers for current international transactions. 
 
Under the U.S.-Georgia Bilateral Investment Treaty, the Georgian 
government guarantees that all transfers relating to a covered 
investment by U.S. investors can be made freely and without delay into 
and out of Georgia. 
 
Foreign investors have the right to hold foreign currency accounts with 
authorized local banks.  The sole legal tender in Georgia is the lari 
(GEL), which is traded on the Tbilisi Interbank Currency Exchange and 
in the foreign exchange bureau market.  There is no difficulty in 
obtaining foreign exchange or significant delays in remitting funds 
overseas through normal channels.  Several Georgian banks participate 
in the SWIFT and Western Union interbank communication networks. 
Businesses report that it takes a maximum of three days to transfer 
money abroad.  There are no known plans to change remittance policies. 
Travelers must declare at the border currency and securities in their 
possession valued at more than GEL 30,000 (USD 17,341). 
 
Expropriation and Compensation 
 
The Georgian Constitution protects ownership rights, including 
QThe Georgian Constitution protects ownership rights, including 
ownership, acquisition, disposal, or inheritance of property.  Foreign 
citizens living in Georgia possess rights and obligations equal to 
those of the citizens of Georgia.  The Constitution allows restriction 
or revocation of property rights only in cases of extreme public 
necessity, and then only as allowed by law. 
 
The Law on Procedures for Forfeiture of Property for Public Needs 
establishes the rules for expropriation domain in Georgia.  The law 
allows expropriation for certain enumerated public needs.  It provides 
a mechanism for valuation and payment of compensation, and for court 
review of the valuation at the option of any party.  The Georgian law 
on investment allows expropriation of foreign investments only with 
appropriate compensation.  Recent amendments to the expropriation law 
allow payment of compensation with property of equal value as well as 
money.  Compensation includes all expenses associated with the 
valuation and delivery of expropriated property.  Compensation must be 
paid without delay and must include both the value of the expropriated 
property as well as the loss suffered by the foreign investor as a 
result of expropriation.  The foreign investor has a right to review an 
expropriation in a Georgian court.  In 2007, Parliament passed a law 
generally prohibiting the government from contesting the privatization 
of real estate sold by the government before August 2007.  The law is 
not applicable to certain enumerated properties. 
 
The U.S.-Georgia Bilateral Investment Treaty permits expropriation of 
covered investments only for a public purpose, in a non-discriminatory 
manner, upon payment of prompt, adequate and effective compensation, 
and in accordance with due process of law and general principles of 
fair treatment. 
 
Dispute Settlement 
 
Georgian investment law allows disputes between a foreign investor and 
a governmental body to be resolved in Georgian courts or at the 
International Center for the Settlement of Investment Disputes (ICSID), 
unless a different method of dispute settlement is agreed upon between 
the
 parties.  If the dispute is not considered at ICSID, the foreign 
investor has the right to submit the dispute to any international 
arbitration body which has been set up by the United Nations Commission 
for International Trade Law (UNCITRAL) to resolve the dispute in 
accordance with the rules established under the arbitration and 
international agreement.  Under the U.S.QGeorgia Bilateral Investment 
Treaty, investors have additional rights. 
 
Georgia is party to the International Convention on the Recognition and 
Enforcement of Foreign Arbitration Awards.  As a result, the Government 
agrees to accept binding international arbitration of investment 
disputes between foreign investors and the state.  The Ministry of 
Justice was designated in December 2005 to oversee the governmentQs 
interests in arbitrations between the state and private investors. 
 
It is recommended that contracts between private parties include a 
provision for international arbitration of disputes because of 
deficiencies in the Georgian court system.  Litigation can take 
excessively long periods of time.  There is a continuing concern about 
the adquacy of training of judges and about their susceptibility to 
pressure from the government or other outside influences. 
 
Performance Requirements and Incentives 
 
Performance requirements are not a condition of establishing, 
maintaining, or expanding an investment, but have been imposed on a 
case-by-case basis in some privatizations, for example, commitments to 
maintain employment levels or to make additional investments within a 
specified period of time.  While many privatizations have proceeded 
smoothly and regularly, the current government has used non-fulfillment 
of performance requirements to justify rescinding privatizations and 
re-selling enterprises, usually for higher prices, sometimes to the 
benefit of other interested parties.  Most types of performance 
requirements are prohibited by the U.S.-Georgia Bilateral Investment 
Treaty. 
 
The Government of Georgia does not offer incentives to foreign 
investors, but relies on the many improvements it has made in the 
overall business climate to attract them to invest in the country. 
 
Right to Private Ownership and Establishment 
 
Foreign and domestic private entities may freely establish, acquire, 
and dispose of interests in companies and business enterprises, and 
engage in all forms of remunerative activity.  Some specific laws 
regulate business activity in the banking, agribusiness, energy, 
transport, and tourism sectors.  To the extent that public enterprises 
compete with private enterprises, they do on the basis of equality. 
 
Foreign individuals and companies may buy non-agricultural land in 
Georgia.  Only Georgian citizens or companies may buy agricultural land 
in their own name, but even agricultural land can be purchased by 
forming a Georgian corporation that may be up to 100 percent 
foreign-owned. 
 
Investors should exercise extreme caution in purchasing property in 
Abkhazia and South Ossetia.  Land for sale rightfully may belong to 
QAbkhazia and South Ossetia.  Land for sale rightfully may belong to 
internally displaced persons forced to leave Abkhazia and South Ossetia 
in the early 1990s or 2008 and may have improperly been placed on the 
market by the de facto authorities of GeorgiaQs breakaway regions.  The 
government of Georgia considers the sale of property in those regions 
illegal under Georgian law and property could be reclaimed by original 
owners at a future date. 
 
Protection of Property Rights 
 
Secured interests in both real and personal property are recognized and 
recorded.  However, deficiencies in the operation of the court system 
can hamper investors from realizing their rights in property offered as 
security.  Foreign investors' interests have sometimes been harmed by 
biased court proceedings and by legislation and decrees that clearly 
favor a Georgian entity or partner involved in the enterprise. 
Judicial reform has been identified as a top priority for the Georgian 
government since late 2005, but it will take some time for court and 
legal reforms to bear fruit.  It is recommended that contracts between 
private parties include a provision for international arbitration of 
disputes. 
 
Disputes over property rights have undermined confidence in the 
impartiality of the Georgian judicial system and rule of law, and, by 
extension, GeorgiaQs investment climate.  Both foreign and Georgian 
investors have expressed reservations about the competence, 
independence and impartiality of court decisions.  In a few cases lower 
court decisions have changed control of property or of entire 
enterprises on questionable legal grounds or on the basis of forged 
documents.  In some cases these decisions have been reversed by higher 
courts or government action, in others not. 
 
Protection of Intellectual Property Rights 
 
Georgia acceded to the WTO and the TRIPS agreement in 2000.  In 2004, 
the Georgian parliament ratified the Rome Convention for Protection of 
the Rights of Performers, Producers of Phonograms and Broadcasting 
Organization, and the Lisbon Agreement on Denomination of Origin.  In 
2005, Georgia joined WIPO International Convention for the Protection 
of New Varieties of Plants.  Georgia is a party to the Bern Convention, 
member of two WIPO digital treaties Q the Copyright Treaty and the 
Performance and Phonograms Treaty, The Hague Agreement and the Budapest 
Treaty Concerning the International Recognition of the Deposit of 
Microorganisms for the Purpose of Patent Procedures. 
 
Six laws regulate intellectual property rights (IPR): the Law on 
Patents, Law on Trademarks, Law on Copyrights and Neighboring Rights, 
Law on Appellation of Origin and Geographic Indication of Goods, Law on 
Topographies of Integrated Circuits, and Law on IP-Related Border 
Measures.  Georgian law now provides retroactive protection for works 
of literature, art and science, or sound recordings for 50 years. 
 
While Georgia has brought its legislation into line with international 
standards, enforcement remains problematic.  Pirated video and audio 
recordings, electronic games, and computer software are freely sold in 
Georgia.  Use of unlicensed software in government offices and 
businesses is common.  Internet service providers host websites loaded 
with unlicensed content.  Responsibility for WTO compliance was 
recently been transferred to the Ministry of Economic Development, 
which still needs to develop its capacity in this regard.  The Customs 
Department is developing a new Intellectual Property Objects Register 
to assist in identification of counterfeit goods at the border. 
Nevertheless, IPR awareness in the Department is low and hampered by 
frequent personnel changes.  Further clarification of responsibilities 
between the Ministry of Internal Affairs and the Ministryof Finance is 
needed, as the MOIA has authority over some types of property rights 
protection and the Ministry of Finance over others.  Judges and lawyers 
lack knowledge of IPR laws and understanding of IPR issues.  GeorgiaQs 
Patent and Trademark Agency needs greater familiarity with emerging 
technologies. 
 
Transparency of Regulatory Sy
stem 
 
The Georgian government has made a commitment to greater transparency 
and simplicity of regulation.  Laws and regulations are published in 
Georgian in the official gazette, the Legislative Messenger.  The 
number of taxes has been reduced from 22 to six. The tax on corporate 
profits is 15 percent. The Value Added Tax is 18 percent.  The tax on 
personal income was set at a flat rate of 25 percent after a 2007 law 
increased the personal income tax and eliminated the employer-paid 
social tax on wages.  In 2008, the Government of Georgia further 
Qsocial tax on wages.  In 2008, the Government of Georgia further 
reduced the personal income tax rate from 25 percent to 20 percent and 
reduced the dividend income tax rate from ten to five percent.  Both 
reductions took effect on January 1, 2009.  This new initiative is an 
acceleration of legally binding commitments, made earlier, to reduce 
the personal income tax rate to 15 percent by 2013 and to further 
reduce the dividend income tax rate to zero by 2012.  Legislation was 
passed in 2008 setting zero dividend and capital gains tax rates with 
respect to publicly traded equities (defined as having free float in 
excess of 25 percent).  There are excise taxes on cigarettes, alcohol, 
and fuel.  Imports are taxes at rates of  zero, five, and 12 percent. 
Nearly all goods, except for some agricultural products, are taxed at 
the zero rate. 
 
The Georgian National Investment and Export Promotion Agency has 
established Business Information Centers in Tbilisi and other Georgian 
cities.  These centers are intended to provide domestic and foreign 
businesses with a standard package of information relevant to doing 
business in Georgia.  They also provide specific information according 
to the needs of individual businesses.  The Business Information 
Centers are also conducting an ongoing public-private dialog to 
facilitate communication between regulators and the business community. 
 
International accounting standards became binding for joint stock 
companies in Georgia as of January 1, 2000.  For other institutions, 
such as banks, insurance companies and companies operating in the field 
of insurance, as well as limited liability companies, limited 
partnerships, joint liability companies, and cooperatives, the 
standards became binding on January 1, 2001.  Private companies 
(excluding sole entrepreneurs, small businesses and non-commercial 
legal entities) are required to perform accounting and financial 
reporting in accordance with international accounting standards.  Sole 
entrepreneurs, small businesses, and non-commercial legal entities 
perform accounting and financial reporting following simplified interim 
standards approved by the Parliamentary Accounting Commission.  Despite 
the legal requirement, the conversion to international accounting 
standards is going slowly, in part because many businesses have 
operated in the shadow economy, or maintained two sets of books. 
Qualified accounting personnel are in short supply. 
 
Efficient Capital Markets and Portfolio Investment 
 
Banking was one of the fastest growing sectors in the Georgian economy 
from 2003-2008.  However, growth slowed during 2008-2009 due to the 
Russia-Georgia conflict and the world financial crisis.  The share of 
banking assets amounted to 42 percent of GDP in 2007 and is expected to 
reach 60 percent by the end of 2009.  Currently, the banking system 
consists of domestically-based small- and medium-sized banks, a handful 
of large banking institutions based in Tbilisi with subsidiaries (HSBC, 
Societe Generale, Vneshtorgbank, Privat Bank, etc), and two foreign 
banks with branches (Turkish Bank Ziraat and the International Bank of 
Azerbaijan).  In 2007, commercial bank assets grew by 70 percent with a 
profit growth of 65 percent.  Total assets of the countryQs 19 
commercial banks (16 of which have foreign capital) were $4.7 billion 
at the end of 3rd quarter of 2009.  As of Q3 2009, commercial bank 
assets decreased by four percent compared to Q3 2008 and the net loss 
of commercial banks has doubled from -37m GEL in Q3 2008 to -82m GEL in 
Q3 2009. 
 
Credit from commercial banks is available to foreign investors as well 
as domestic clients.  Banks continue offering business, consumer, and 
mortgage loans.  By the end of Q3, 2009 loans to individuals (41 
percent) and loans to retailers/services (29 percent) had major shares 
in the total banking sector loan portfolio. In addition, the 
International Finance Corporation (IFC), European Bank for 
Reconstruction and Development (EBRD), U.S. Overseas Private Investment 
Corporation (OPIC), Millennium Challenge Corporation (MCC), and other 
international development agencies have a variety of lending programs 
that make credit available to large and small businesses in Georgia. 
 
The limited number of foreign banks operating in Georgia reflects, in 
part, the small size of GeorgiaQs financial market.  However, foreign 
investment in the sector is significant, accounting for 80 percent of 
total bank capital as of November 2009, per National Bank data.  In 
2005, Russian, Kazakhstani, U.S., and German capital was invested in 
Georgian banks.  In September 2006, the French bank Societe Generale 
acquired 60 percent of one of the leading Georgian banks, Bank 
Republic.  In 2007, British bank HSBC entered the Georgian market.  UAE 
Dhabi Group acquired Standard Bank in 2008. 
 
Georgian banks have remained solvent during the current global credit 
crisis largely due to the mandated 13 percent central bank reserve 
requirement and conservative lending practices.  The Georgian central 
bank relaxed the reserve requirement to five percent in the aftermath 
Qbank relaxed the reserve requirement to five percent in the aftermath 
of the war and in response to the global credit crisis to try to inject 
liquidity into the market and spur new lending.  The reserve 
requirement remains at five percent. 
 
The law on commercial bank activities has been amended to improve the 
transparency of ownership and corporate governance of banks.  In March 
2006, the restriction under which one shareholder or a group of joint 
shareholders could hold no more than 25 percent of voting shares in a 
bank was abolished.  A new law regulating the activity of microfinance 
organizations came into force in August 2006. 
 
The National Securities Commission of Georgia regulates the securities 
market.  All joint stock companies with more than 50 shareholders -- 
currently about 1800 companies in Georgia -- are required to submit 
annual, semi-annual, and current reports prepared in accordance with 
internationally accepted accounting standards. 
 
The Georgian Stock Exchange (GSE) is the only organized securities 
market in Georgia. Designed and established with the help of USAID and 
operating within the legal framework drafted with the assistance of 
American experts, GSE complies with global best practices in securities 
trading and offers an efficient investment facility to both local and 
foreign investors. The GSE automated trading system can accommodate 
thousands of securities that can be traded by brokers from workstations 
on the GSE floor or remotely from their offices.  As of 2009, about 150 
companies have access to GSE.  1887 trades
 (total value of 
approximately USD 58 million) were executed and reported in 2009 
compared to 3180 trades (value of USD 160 million) in 2008. 
 
No law or regulation authorizes private firms to adopt articles of 
incorporation or association that limit or prohibit foreign investment, 
participation, or control. QCross-shareholder" or "stable-shareholder" 
arrangements are not used by private firms in Georgia.  Georgian 
legislation does not protect private firms from takeovers.  There are 
no regulations authorizing private firms to restrict foreign partners' 
investment activity or limit foreign partners' ability to gain control 
over domestic enterprises. 
 
Political Violence 
 
Georgia suffered considerable instability in the immediate post-Soviet 
period.  After independence in 1991, civil war and separatist conflicts 
flared up in the areas of Abkhazia and South Ossetia.  The status of 
each region remains unresolved and the central government does not have 
effective control over these areas.  The United States supports the 
territorial integrity of Georgia within its internationally-recognized 
borders.  In August 2008, tensions boiled over culminating in a brief 
war between Georgia and Russia.  Russia invaded and occupied portions 
of undisputed Georgian territory, destroyed portions of vital 
infrastructure, blocked the main east-west highway, and blockaded the 
Georgian port of Poti.  Nearly all damaged infrastructure has been 
repaired and commerce has mostly returned to normal.  While the 
separatist regions of South Ossetia and Abkhazia have declared 
independence, thus far only Russia, Venezuela, Nicaragua, and the small 
island country of Nauru have recognized them.  Tensions still exist and 
reports of violence both inside the breakaway republics and near the 
administrative boundary lines are common, but other parts of Georgia, 
including Tbilisi, are not directly affected. 
 
Corruption 
 
Under President Saakashvili, Georgia has taken action to reduce 
corruption.  Anti-corruption efforts have resulted in the arrests of 
former officials, the radical downsizing of state bureaucracies, and 
effective crackdowns on smuggling.  Consequently, state revenue 
collections have increased about 50 percent.  The notoriously corrupt 
traffic police were completely disbanded in mid-2004. 
 
Articles 332-342 of the Criminal Code criminalize bribery.  Georgian 
legislation provides for civil forfeiture of undocumented assets from 
public officials who are charged with corruption offenses.  Bribery is 
a criminal act under Georgian law, and Parliament recently accepted a 
package of constitutional amendments that make abuse of public office a 
criminal offense with a maximum penalty of 15 years imprisonment and 
confiscation of property.  Penalties for accepting a bribe start at six 
years in prison and can extend up to 15 years depending on the 
circumstances accompanying the offense.  Penalties for giving a bribe 
can include a fine, a minimum prison sentence of two years, or both. 
In aggravating circumstances, when a bribe is given to commit an 
illegal act, the penalty can be from four to seven years.  The 
definition of a public official includes foreign public officials and 
employees of international organizations and courts for purposes of 
such offenses as accepting a bribe, giving a bribe, and trading in 
influence.  White collar crimes such as bribery fall under the 
investigative jurisdiction of the Prosecutor's Office. 
 
The GovernmentQs Anti-Corruption Strategy calls for an effective state 
management system and legal and public feedback mechanisms to prevent 
corruption.  Among the goals of the strategy are the identification and 
Qcorruption.  Among the goals of the strategy are the identification and 
analysis of conditions conducive to corruption as well as elaboration 
of mechanisms for their eradication,strengthening of principles of 
accountability and public disclosure in the public sector, prosecution 
of lawbreakers, and facilitation of competitive development of the 
business sector. 
Georgia also significantly improved in Transparency International's 
annual Corruption Perceptions Index, ranking 66 in 2009 out of 180 
countries surveyed.  In 2005, Georgia was ranked 130.  The Index ranks 
countries in terms of the degree to which resident and non-resident 
businesspeople and country analysts perceive corruption to exist in the 
public and political sectors.  Since the Rose Revolution, Georgia's 
score has steadily improved. In 2003 GeorgiaQs score in the index was 
1.8, falling in a category of countries where corruption, according to 
TI, was Qperceived to be pervasive.Q In 2009 GeorgiaQs score was 4.1. 
This current score means that Georgia has moved out of the group of 
countries considered to have a "rampant corruption problem" (those 
under 3.0).  In comparison with countries of the former Soviet Union, 
Georgia ranks well ahead of neighboring Armenia (120), Kazakhstan 
(120), Azerbaijan (143), Russia (146), and Ukraine (146). 
 
Georgia reasserted central control over the Black Sea region of Adjara 
in May 2004, reducing illicit economic activity there.  However, the 
lack of central government control and international access to Abkhazia 
and South Ossetia since the 2008 conflict means that smuggling levels 
cannot be monitored or estimated. The Georgian government has raised 
concerns with Russia and with the international community about 
continued high levels of smuggling, money laundering, and even 
counterfeiting of U.S. dollars in the areas outside its control. 
 
Georgia is not a signatory to the Organization for Economic 
Co-operation and Development (OECD) Convention on Combating Bribery of 
Foreign Public Officials in International Business Transactions. 
Georgia has ratified the UN Convention against Corruption, however. 
Georgia cooperates with the Group of States Against Corruption (GRECO) 
and the OECDQs Anti-Corruption Network for Transition Economies (ACN). 
GRECO concluded in 2006 that Georgia had successfully implemented the 
first round of its anti-corruption recommendations.  In 2003, ACN 
proposed an anti-corruption action plan and 21 recommendations for 
Georgia.  In 2006, the OECD positively assessed the progress of 
anti-corruption measures and considered all but four of its 
recommendations implemented. OECD conducted an assessment of Georgia in 
October 2009 and will release the respective report in April 2010. 
 
Bilateral Investment Agreements 
 
Georgia has negotiated bilateral agreements on investment promotion and 
mutual protection with 31 countries, including the U.S., Armenia, 
Austria, Azerbaijan, Belgium, Bulgaria, China, Czech Republic, Estonia, 
Egypt, Finland, France, Germany, Greece, Iran, Israel, Italy, 
Kazakhstan, Kyrgyzstan, Latvia, Lithuania, Luxemburg, Moldova, 
Netherlands, Romania, Sweden, Turkey, Turkmenistan, Uzbekistan, the 
United Kingdom, and Ukraine.  Internal procedures have been completed 
and drafts are being negotiated with the governments of India, 
Bangladesh, Croatia, Denmark, Norway, Philippines, Cyprus, Indonesia, 
Malta, and Iceland.  Negotiations are underway with Belarus, 
Tajikistan, Slovenia, Estonia, Slovakia, Syria, Bosnia-Herzegovina, 
Switzerland, Korea, Kuwait, Lebanon, Portugal, Saudi Arabi
a, and 
Jordan.  In 2007, Georgia signed a Trade and Investment Framework 
Agreement (TIFA) with the United States.  Georgia is currently 
renegotiating its existing Bilateral Investment Treaty with the United 
States. 
 
A free trade agreement is in force with the Commonwealth of Independent 
States, and others exist bilaterally with Ukraine, Russia, Kazakhstan, 
Azerbaijan, Armenia, Moldova, Turkmenistan, and Turkey.  An agreement 
is signed, but not yet ratified, with Uzbekistan.  Ongoing 
consultations on free trade are being held with the European Union, 
Belarus, Kyrgyzstan, Cooperation Council of Gulf Arab States, and 
Tajikistan. 
 
OPIC and Other Investment Insurance Programs 
 
From 1993 through 2007, OPIC has committed over USD 104 million in 
financing and political risk insurance to projects in Georgia.  These 
projects include the development of hotel and office space, production 
of pharmaceuticals, food processing and farming, cold storage, banking, 
mortgage lending, and financial leasing services. In 2008, as part of 
the United StatesQ response to help Georgia recover from the conflict 
with Russia, OPIC committed USD 176 million in financing.  A large 
portion of OPICQs assistance will be used to underwrite mortgages aimed 
at allowing Georgian banks to offer smaller more affordable mortgages 
to the Georgian public.  Other funding will support commercial and 
residential property development projects. 
 
Labor 
 
Georgia offers an abundant supply of skilled and unskilled labor at 
attractive costs compared not only to Western European and American 
Qattractive costs compared not only to Western European and American 
standards, but also to Eastern European standards.  The labor force is 
among the best educated and most highly trained in the former Soviet 
Union.  While some of the best qualified professionals and technicians 
emigrated from Georgia (mostly to Russia, the U.S., and Europe) after 
the Soviet Union's collapse, many have remained in the country or 
returned from abroad and are attempting to find a new role in GeorgiaQs 
market economy.  Unemployment remains high and job creation has been a 
particular challenge. 
 
The labor market in Georgia is one of the world's freest.  Wage 
negotiations take place between employees and employers and trade 
unions are not powerful.  Labor, health, and safety laws are not 
considered an impediment to investment.  A new labor code which entered 
into force in June 2006 considerably liberalized labor regulations. 
The code defines the minimum age for employment (16), work hours (41 
per week), annual leave (24 calendar days) and leaves the rest to be 
regulated by agreement between the employer and employee. 
 
Payment of at least one monthQs salary is required if the employer 
initiates a dismissal.  Employees must give one monthQs notice of 
intention to quit.  No notice requirement is imposed on the employer 
prior to dismissal.  Employees are entitled to up to 126 days (4 
months) of maternity leave and, together with unpaid leave, up to 16 
months.  Under the new Labor Code, a contract of employment may bar an 
employee from using the knowledge and qualifications obtained while 
performing his duties with another employer.  This provision may remain 
in force even after the termination of labor relations. 
 
Since January 2008, employers are not required to pay social security 
contributions for employees.  The former 12 percent income tax paid by 
employees and 20 percent social security tax paid by employers on their 
employees' wages was merged into a unified personal income tax at the 
rate of 25 percent in 2008, shifting the employer's tax burden to the 
employee.  From January 2009, the overall effective tax rate paid by 
both self-employed persons and employees has been further reduced from 
25 to 20 percent. The state social security system provides modest 
pension and maternity benefits.  The minimum monthly pension is USD 44. 
 The average monthly salary across the economy in the second quarter of 
2009 was GEL 560 (USD 333).  The minimum wage for government employees 
is GEL 115 (USD 69) per month.  The minimum wage in the private sector 
has not changed in many years at GEL 20 (USD 12) per month, but few, if 
any, workers earn so little. 
 
Georgia has signed multiple ILO agreements, including the Forced Labor 
Convention of 1930; the Paid Holiday Convention of 1936; the 
Anti-Discrimination (employment and occupation) Convention of 1951; the 
Human Resources Development Convention of 1975; the Right to Organize 
and Collective Bargaining Convention of 1949; the Equal Remuneration 
Convention of 1951; the Abolition of Forced Labor Convention of 1957; 
the Employment Policy Convention of 1964; and the Minimum Age 
Convention of 1973. 
 
Foreign Trade Zones/Free Ports 
In June 2007, the Parliament of Georgia adopted a law on free 
industrial zones, which defined the form and function of free 
industrial/economic zones.   Financial operations in such zones may be 
performed in any currency and foreign companies operating in free 
industrial zones will be exempt from taxes on profit, property, and 
VAT.  GeorgiaQs Ministry of Economic Development has allocated a 400 
hectare area adjacent to the Black Sea Port of Poti for the first such 
zone.  RAK Investment Authority (Rakeen group Q UAE based) purchased 
100 percent of the shares of LLC Poti Sea Port, and pledged to develop 
a free economic zone on 300 hectares of land in Poti and to build a new 
port terminal on a 100 hectare site.  Construction of the new port 
terminal in Poti will start in the second half of 2010 and is expected 
to be finished by 2025. The first phase of construction should be 
finished by 2013, and will turn Poti Seaport into an international 
industrial zone with port, railroad, and other facilities. A second 
free economic zone has begun to function in the western Georgian city 
of Kutaisi.  The Egyptian company Fresh Electric has established a 
factory as a part of the 27 hectare zone in which they are producing 
kitchen appliances.  The company committed to build about one dozen 
textile-, ceramics-, and home appliance-producing factories in the 
zone, and investover USD 2 billion. 
Foreign Direct Investment Statistics 
 
Foreign Direct Investment (FDI) in Georgia dramatically increased 
during the periods of 1997-1998, 2003-2004, and 2006-2008.   The first 
two peaks were related to the construction of the BakuQSupsa and 
Baku-Tbilisi-Ceyhan oil pipelines.   FDI inflows in 2006-2007 hit 
historical highs  due to privatization of state-owned enterprises and 
Qhistorical highs  due to privatization of state-owned enterprises and 
the impact of economic reforms.  FDI totaled USD 1.1 billion (15.3 
percent of GDP) in 2006, more than doubling the 2005 total of USD 0.4 
billion.  FDI inflow in 2007 almost doubled again to USD 2.0 billion. 
Large FDI inflow in the first half of 2008  showed that investor 
interest in Georgia remained high, however, the August 2008 conflict 
with Russia undermined investor confidence and the subsequent global 
financial crisis further restricted FDI. Accordingly, total FDI in 2008 
decreased to USD 1.3 billion. 
 
Official statistics on FDI inflow from 2000-2009 are as follows (USD 
1000): &
#x000A; 
2000  -131,200,000 
2001  -109,800,000 
2002  -167,400,000 
2003  -339,400,000 
2004  -499,100,000 
2005  -449,800,000 
2006  -1,190,400,000 
2007  -2,014,800,000 
2008  -1,293,700,000 
2009* -  505,200,000 
 
Breakdown of FDI by major investor countries (USD 1,000Qs): 
 
                             2007       2008       2009* 
ArmeniaQ                   -4,895    -15,061     -6,432 
Azerbaijan                 41,368     23,943      7,827 
China                       6,877     -2,271       -369 
Cyprus                    148,644     26,166     12,707 
Czech Republic            227,926     34,858     11,431 
Denmark                   158,126        256        -49 
Egypt                           -          -    115,000 
Kazakhstan                 88,486     65,942        912 
Netherlands               299,277    135,870     46,159 
Panama                      6,178     -2,470     61,116 
Russia                     88,997     26,212     13,402 
Turkey                     93,871    164,526     71,542 
United Arab Emirates      130,859    306,576    144,938 
United Kingdom            145,475    148,908     41,474 
USA                        84,412    167,921    -46,272 
Virgin Islands, British   187,816    156,847      1,280 
 
Breakdown of FDI by economic sectors (USD 1,000s): 
 
                                    2007       2008      2009* 
Agriculture                       15,528      7,844     4,940 
Industry                         398,241    207,328   143,886 
Energy sector                    362,581    294,865    30,146 
Construction                     171,892     56,725    65,727 
Transport and communications     416,695    422,690    29,305 
Real estate                       30,544    277,838   103,557 
Other services                   382,807    283,165   117,773 
Banking system                   136,915      8,519     7,555 
 
* - FDI through the first three quarters of 2009 
 
Source: Statistics Department of Georgia 
 
The United Arab Emirates, the United States, and Turkey topped the 
list of foreign investor countries in 2008.  The Virgin Islands, the 
United Kingdom, and the Netherlands ranked next.  For the first three 
quarters of 2009, United Arab Emirates was again the top foreign 
investor in Georgia at USD 145 million, followed by Egypt (USB 115m), 
Turkey (USD 72m), and Panama (USD 61m). 
 
The drop in FDI is tempered by the fact that as of November 2009, 
Georgia received or entered into agreements for USD 2.1bn of the USD 
4.5bn pledged at the Brussels donor conference in October 2008.  The 
pledged or received amount corresponds to approximately 19 percent of 
2009 estimated GDP, according to goverment data.  However, the 
government foresaw yet another upward trend in FDI in 2010, expecting 
foreign invenstments to top the USD 2 billion target due to interest 
expressed by Egyptian and Qatari businesses. 
 
The U.S. has been one of the largest foreign investors in Georgia since 
1999.  U.S. investors accounted for 30 percent of FDI in Georgia in 
2000, 21 percent in 2001, and 49 percent in 2002. In 2003 and 2004, the 
U.S. share decresed to 21 and 16 percent, respectively, and dropped to 
3 percent in 2005. This decline can be attributed to the completion of 
large pipeline projects as well as increased inflow of capital from 
other countries. In 2006, U.S. investment accounted for 15 percent of 
the total, but only 4 percent in 2007 and 11 percent in 2008. 
 
Of note is the United Arab Emirates' increased interest in Georgia, 
evident in the investments of the Rakeen and Dhabi Groups in the port, 
real estate, banking, and other sectors. 
 
The Georgian Government is actively promoting investment in Georgia, 
and has held a series of investment road shows around the world. End 
Text. 
 
BASS

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