EurasiaNet, NY
Jan 7 2010

GEORGIA: ARMENIAN-TURKISH RAPPROCHEMENT COULD HAVE SIGNIFICANT
ECONOMIC IMPACT ON TBILISI
Nino Patsuria 1/07/10

Print this article Email this article

As prospects dim for a quick reopening of the Turkish-Armenian border,
Georgian business executives remain quietly content. Trouble with the
Turkish-Armenian reconciliation process can mean continued economic
benefits for Georgian traders.

Turkey and Armenia signed reconciliation protocols last October that
specified that their mutual border would be reopened to trade upon
ratification by both countries’ parliaments. [For background see the
Eurasia Insight archive]. Strong domestic opposition, however, has
delayed the ratification process, and some experts now question
whether the protocol provisions will ever be implemented. [For
background see the Eurasia Insight archive].

For the past 16 years, since Azerbaijan and Turkey closed their
borders with Armenia during the Nagorno-Karabakh conflict, Georgia has
been Armenia’s sole route for exports to both the West and Russia.
Cargo bound for Armenia enters Georgia at the Black Sea ports of Poti
and Batumi and then travels south several hundred kilometers to
Yerevan via road or rail. A shorter overland route from Russia via a
border-crossing point in the Georgian highland region of Upper Larsi
has been closed since 2006. In December, Georgian and Russian
officials agreed to reopen the Upper Larsi crossing, pending the
resolution of technical details. Georgian diplomats hinted that the
transit route could be operating again in March.

The reopening of the Armenia-Turkey border could diminish Georgia’s
status as a transit hub. A spokesperson for the Association of
Armenian Freight Forwarders, Diana Sarkisian, indicated that the
Turkish Black Sea port of Trabzon or the Mediterranean Sea port of
Mersin are more attractive shipping points for Armenian
exporter/importers because of significantly lower transit fees and
costs.

Data from the Georgian Ministry of Economic Development shows that
Armenia-bound cargo accounted for 13 percent of Georgia’s overall
transit traffic for the first nine months of 2009. The ministry could
not, however, put a monetary figure on the value of that traffic.
Georgian regulations exempt transit traffic from taxes and fees;
economic benefits come via related jobs and demand for improved
infrastructure, claimed Maumuka Vatsadze, head of the ministry’s
Transportation Department.

Gia Tsipuria, general secretary of the Georgian International Road
Carriers Association, estimated that cargo traffic bound for Armenia
might drop by 40 percent if the Turkish-Armenian border reopened.

But Georgia plays a greater role than just a transit corridor. Despite
the 1993 Turkish embargo on trade with Armenia, Turkish products
abound in Armenian stores. The key to their access lies in Georgia,
where Armenian entrepreneurs regularly register trading companies that
import goods from Turkey and then re-export them to Armenia, Georgian
shipping company executives say.

The Georgian Ministry of Economic Development’s Vatsadze acknowledged
that the practice exists. Turkey, Vatsadze said, chooses to turn a
blind eye to the practice. The Georgian government, in turn, maintains
that it cannot restrict transit via Georgia to other countries.

Giorgi Tsomaia, general director of CaucasTrans Expeditor, a private
shipping company, agreed. "Business is business," commented Tsomaia,
whose firm once handled an Armenian order for Turkish tractors. "It
always finds routes and ways to contact people who need a product."

No data exists about the extent of re-exports to Armenia since Turkish
products bound for Armenia name Georgia as their final official
destination.

This Georgian competitive advantage of sorts would lose its value if
the Turkish-Armenian border reopens. But some in Georgia are banking
on Georgia’s railway system to make up the difference. One senior
executive at Georgian Railway Ltd, the state company that runs
Georgia’s railway network, believes that the system could help Georgia
fend off Turkish competition over trade routes.

Like Georgia, Armenia uses Soviet-style railroad tracks that would
require trains to adjust wheels when moving between Turkey and Armenia
— a factor that would add cost and time to trade, noted Georgian
Railways Freight Transportation Director Davit Jinjolia.

"Turkey has an underdeveloped railway infrastructure. Its key transit
tool is road transportation, which is twice as expensive as the
railway. . . . [This factor makes] railway transportation cheaper and
more convenient between Georgia and Armenia," Jinjolia said. "No
direct railway connection exists between Trabzon and Yerevan."

A representative of the Turkish Embassy in Tbilisi did not respond to
a request for information about railway or port tariffs in time for
publication.

If the Turkish border re-opens, Jinjolia predicted a drop of no more
than 2 percent in Georgia’s Armenia-bound railway cargo traffic.

Sarkisian, the Association of Armenian Freight Forwarders
spokesperson, also indicated that exporters would not be inclined to
make any drastic changes, given that Turkish railway tariffs make this
option not attractive for Armenia.

"Of course, the situation may change if the Turkish Railways changes
its tariff policy," she added. She also downplayed the difficulty
posed by different rail gauges in Armenia and Turkey. A depot in the
western Armenian town of Akhuryan is capable of expediting wheel
alignments for rolling stock, she asserted.

Editor’s Note: Nino Patsuria is a freelance reporter based in Tbilisi.