Caucasus Report

Just three weeks after down-playing the anticipated impact on bilateral relations of Georgia's Deep and Comprehensive Free Trade Agreement (DCFTA) with the European Union, Russia is moving to suspend the Free Trade Agreement it signed with Georgia two decades ago. Senior Georgian officials in turn are now seeking to assure the population that the Russian move does not constitute "a tragedy."

Georgia signed the DCFTA on June 27 as part of its Association Agreement with the EU, which Prime Minister Irakli Gharibashvili described as "a big step towards free Europe."

The Georgian parliament unanimously ratified the Agreement on July 18. The DCFTA takes effect on September 1. An EU study estimated that it will increase Georgian exports to the European Union by 12 percent.

Meanwhile, Russian and Georgian experts met in Prague on July 7 to discuss the anticipated impact of the DCFTA on bilateral trade, which had grown by 35 percent during the first five months of this year.

Two days later, on July 9, Russian Deputy Foreign Minister Grigory Karasin and Georgia's special representative for talks with Moscow, former Ambassador Zurab Abashidze, met, also in Prague on July 9 for the seventh time since relaunching an "informal dialogue" in late 2012 in the wake of the parliamentary election in which then President Mikheil Saakashvili's United National Movement was defeated by the more pragmatic and less overtly anti-Russian Georgian Dream coalition headed by philanthropist and businessman Bidzina Ivanishvili.

Both sides described the two separate meetings as "productive" and "useful." Karasin was quoted as stressing that "concrete and open dialogue is needed about how [the DCFTA] will impact our bilateral trade."

At the same time, he affirmed that "I think that there is no need to threaten neither ourselves nor partners in advance with measures and sanctions; what is needed is to sit down calmly in mutual respect and thoroughly calculate in which areas and to what extent changes may occur in trade and economic ties between our countries following the recent signature by Georgia of the Association Agreement with the EU."

Notwithstanding Karasin's assurances, Russia's Ministry for Economic Development has drafted, without any prior consultations with Tbilisi, a decree on suspending the Russian-Georgian Free-Trade Agreement signed in February 1994.

Abashidze reportedly told Georgia's Maestro TV that there is "a political element" in the Russian move. "Our take has always been that free trade with the EU does not in any way hinder our free trade with Russia, but they [the Russian authorities] as it seems think otherwise," he said.

Abashidze explained that the suspension of the free-trade agreement with Russia will probably make Georgian exports to the Russian Federation more expensive and thus less competitive on the Russian market. In addition, he said, some tariffs will increase and others will be revised.

Georgian Deputy Economy Minister Mikhail Djanelidze said Georgian imports to Russia would be subject to customs tariffs, but at a rate not exceeding 20 percent.

Finance Minister Nodar Khaduri, however, told journalists on August 1 that he does not anticipate either a rise in the price of Georgian products on the Russian market or a fall in exports.

On the contrary, Khaduri said, suspension of the free-trade agreement with Russia means that Russian imports will henceforth be subject to customs duty, which will bring in some 15-20 million laris ($8.6 -- $11.5 million) annually to the state budget.

Like Abashidze, Georgian Prime Minister Gharibashvili said the suspension of the free-trade agreement with Russia "is not a tragedy." He said Abashidze will hold further talks with the Russian side, "and I think we shall reach an agreement."

Whatever the impact on Georgia's economy, the planned suspension of the 1994 free-trade agreement raises the question whether individual Russian agencies or interest groups are again pursuing separate, even diverging policies with regard to Georgia, as this writer posited in 1994 (see "Russian Strategy in the Transcaucasus since the Demise of the U.S.S.R.," Bundesinstitut fuer ostwissenschaftliche und internationale Studien, Cologne, ISIN 0435-7183).

-- Liz Fuller

A new standoff is underway between the Azerbaijanis, one of the largest ethnic groups in south-eastern Daghestan, and the republican leadership.

As part of an ongoing systematic purge of local administrators regarded as inefficient and/or corrupt, Republic head Ramazan Abdulatipov announced last week the imminent dismissal as head of Derbent Raion of Kurban Kurbanov, an Azerbaijani who had held that post since 1998.

On July 30, however, supporters of Kurbanov (their numbers were variously estimated at 300 and 1,000 people), congregated outside the district administration building to protest that decision.

One participant argued that Abdulatipov had no right to sack Kurbanov, who was elected by a popular ballot and whose term does not expire until next year.

A second, smaller protest against Kurbanov's planned dismissal took place on August 1 in the village of Mamedkala.

Kurbanov, who is 58, told his supporters on July 30 that he will not step down voluntarily. He was hospitalized later that day after a meeting with unidentified government officials who pressured him without success to sign a letter of resignation.

According to unconfirmed reports, Abdulatipov intends to appoint as Kurbanov's successor Azadi Ragimov, also an Azerbaijani, who was dismissed last week after serving for 12 years as minister of justice.

Azerbaijanis are the sixth largest of Daghestan's 14 titular ethnic groups, accounting for 4.5 percent of the total population, but the largest in Derbent Raion, where -- according to the 2010 All-Russian census -- they make up 58 percent of the total population of 99,500. The second largest group (18 percent) are the Lezgins. In the city of Derbent, which is celebrating its 2000th anniversary next year, Azerbaijanis and Lezgins each account for 35-36 percent of the total population of 120,000.

The Kurbanov family has long played a prominent role in local politics. Kurbanov's father, Said, served as first secretary of the Derbent Raion committee of the Communist Party of the Soviet Union from 1962 to 1991, and then until 2006 as the Azerbaijani representative on the 14-person collective republican presidency. His brother Magomed was Daghestan's representative in the Azerbaijan Republic until last year, when Abdulatipov dismissed him.

Even though Derbent Raion is not contiguous with Azerbaijan, Azerbaijan has long played a prominent role in the region and seeks to expand it.

In 2010, two Russian analysts went so far as to argue that Azerbaijani President Ilham Aliyev is one of the most influential political figures in southern Daghestan. In the run-up to the October 2013 Azerbaijani presidential ballot in which Aliyev ran for a third term, Abdulatipov officially appealed to Azerbaijani voters who belong to one of Daghestan's ethnic groups (primarily Avars, Tsakhurs and Lezgins) to cast their ballots for Aliyev.

Some Daghestani observers cite Azerbaijani claims that Derbent is historically an Azerbaijani town as evidence that Baku harbors irredentist aspirations.

In particular, the Lezgin population of the town of Derbent appears to resent what it perceives as unwarranted and inappropriate concessions by the municipal council to the leadership of the Azerbaijan Republic, as epitomized by the decision in the spring of 2013 to rename one of the town's streets in honor of Ilham Aliyev's late father, Heydar Aliyev. Many Lezgins similarly regard Kurbanov as too eager to please Baku.

Azerbaijan's expanding economic presence in the region may indeed be intended as a vehicle for political influence.

In the run-up to the Derbent-2000 celebrations, Azerbaijan plans to build in Derbent Raion an Olympic sports complex comprising a soccer stadium, a swimming pool, tennis courts, and hotels.

In addition, Kurbanov informed Republic of Daghestan Prime Minister Abdusamad Gamidov in March that Azerbaijani investors plan to build a canning factory, a factory to manufacture ceramic tiles, a cement plant, and a logistical center. Abdulatipov had criticized Kurbanov in July 2013 for his failure to attract investment in a predominantly agricultural district.

-- Liz Fuller