Citing Western sanctions, Georgia is banning the re-export and transit of cars imported from the United States and the European Union to Russia and Belarus. The booming re-export business has been drawing growing scrutiny amid Russia's full-scale invasion of Ukraine.
While the move is supposed to help implement the sanctions, it is unclear whether it will prevent the cars from indirectly reaching Russia.
The restriction on (re-)exporting or allowing the transit of cars imported from the U.S. to the two sanctioned countries took effect on August 1, while the curbs for European cars will enter into force on September 26.
The Georgian authorities made the public announcement on August 3, after first confirming the news about the new restrictions in response to media inquiries.
According to the authorities, the move was necessary in order to comply with the newer packages of Western sanctions. The decision follows the EU's 11th sanctions package with more focus on cooperating with third countries to avert possible circumvention of existing sanctions against Russia, including through re-exports. Georgia has not imposed sanctions against Russia but has pledged not to allow the use of its territory for sanctions evasion.
The re-export of imported cars, including used and renovated ones, has been a rapidly growing business in Georgia for years. The country has become a regional hub of the industry, drawing customers from former Soviet countries and Eastern Europe.
Motorcars were Georgia's top export product in the first half of 2023, with the total export value more than tripling compared to the same period in 2022, and accounting for almost a third of the country's total exports.
But the new restrictions are not expected to significantly affect the trend.
"Currently, the share of cars that go from Georgia to Russia is just under 5.5 percent," Sandro Bitsadze, a representative of Caucasus Auto Import, a Georgian automotive market giant, told BMG on August 3. While the new curbs may lead to a price drop on cars in Georgia, Bitsadze says they "cannot strike a big blow to the market."
Earlier restrictions barred the export of expensive Western cars, costing over $50,000, to Russia. The new limits extend to cars with engine sizes of more than 1.9 liters as well as electric and hybrid cars.
In the first six months of 2023, Russia was the fifth-largest importer of motor cars from Georgia after Kyrgyzstan, Kazakhstan, Azerbaijan, and Armenia, buying 3,786 cars from Georgia with a total trade volume of up to $52 million (a surge compared to 1,254 cars worth $14 mln during the same period last year).
In Belarus, on the other hand, only 129 cars worth $2.5 mln were exported in the first six months of this year, compared to 16 cars worth $442,000 during the same period last year.
But observers have been worried about the significant jump elsewhere, including Kazakhstan, Kyrgyzstan, and Armenia. All these countries are members of the Eurasian Economic Union, a Russia-led bloc with a single, integrated customs system. Compared to the same period last year, the number of cars exported to Armenia grew about five times in the first half of 2023, to Kazakhstan - nearly four times, and to Kyrgyzstan - 2.5 times. The growth rate for these countries is even bigger in terms of the total cost of exported cars.
In contrast, the number of exported cars to Azerbaijan, not a member of the Customs Union, slightly dropped, even if the total cost of the cars nearly doubled.
These data have led various analysts to suspect that at least some of these cars end up in Russia. If such further re-exporting does take place, it's unclear whether it will get Georgia in trouble with the West. But so far, no additional restrictions seem to be introduced in that regard.
"Due to the high public interest, we further clarify that the restrictions do not apply to the export/re-export of vehicles imported from the US and the EU to countries that are not listed in the sanctions issued by the US and the EU," the Revenue Service of Georgian Finance Ministry said in the statement.
The new transit regulations imply, however, that Georgia's neighbors, like Armenia, will be also restricted from transiting Western-imported cars to Russia through Georgian territory.
Since the start of Russia's full-scale invasion of Ukraine, Georgia has been in the spotlight as one of the potential routes for Russian evasion of Western sanctions. In June, Russian customs officials claimed that at Upper Lars, the border crossing linking Georgia with Russia, Moscow was "breaking through the economic blockade imposed on us by European countries."
Georgian officials, however, have repeatedly claimed they were working with Western partners to carry out the necessary oversight of exports.
Earlier, Western diplomats said there was no proof of Tbilisi violating sanctions. And in June, U.S., UK, and EU officials arrived in Georgia to make sure the country was not used for sanctions circumvention by Russia, particularly in terms of 38 sensitive products that can be used to make battlefield weapons.
The officials positively assessed Tbilisi's efforts in that regard, despite their general regret that Georgia does not itself implement and align with Western sanctions.
Georgia "is not aligning with our sanctions, is not implementing our sanctions but from what we have been able to see over the last two days Georgia is taking very seriously its commitment not to allow its territory to be used for the circumvention of sanctions whether that is trade in goods particularly the 38 Battlefield products or financial services," David O'Sullivan, EU sanctions envoy said in his Tbilisi press briefing on June 28.
By Nini Gabritchidze via Eurasianet.org
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