Institute for War and Peace Reporting | Giving Voice, Driving Change

Georgia's Dodgy Traders

Bureaucratic obstacles and highest taxes are forcing producers into the black market.
By Irakly Chikhladze

Tbilisi's central market near the railway station can lay claim to having the greatest variety of counterfeit products. Periodically, the police raid it and confiscate boxes with fake Borjomi mineral water or lemonade - but the next day the traders are to be found back at their places with the same dubious goods.

"Counterfeiting in Georgia exceeds even smuggling in scale," Georgian president Eduard Shevardnaze told a recent government meeting in Tbilisi.

Indeed, if just official figures are to be believed, around 70 to 80 per cent of the trading outlets in Georgia supply fake products.

Experts say the problem persists because of gaps in the law. "A multitude of bureaucratic obstacles and the highest taxes in the post-Soviet space are forcing producers to go into the black market," said Nino Elieshvili, a lawyer with Tbilisi's Centre of Legal Assistance.

"So if a business has a turnover of 24,000 laris (around 12,000 US dollars), it pays 20 per cent of that in VAT, 20 per cent in profit tax and around another 20 per cent is eaten up by other taxes. So what's left?"

Giorgy Imnadze used to own a small lemonade producing business, but had to close it six months ago. "I thought I would break through into the market by the quality of our product," he said.

"We made it out of natural ingredients. Naturally my lemonade was more expensive than the drinks flooding the shops and being made in basements and kitchens even. I could not cope with the competition and barely earned enough to pay my taxes." Giorgy now works as a taxi-driver in a battered Ford.

Another troubled businessman, Nugzar, as with so many others, became a black market trader and readily admits that he makes false claims on the packaging of his bottles of vinegar and wine and packages of flour and sugar.

"My products are cheaper than a lot of others and my customers have almost no complaints about them. In any case no one has yet been poisoned by my wine," he said.

"By going underground I have to pay bribes to the authorities but the sums are still less than official taxes. And that's how I keep afloat."

Georgians have long experience of paying bribes to inspectors. According to leading Georgian opposition politician and head of the city council Mikhail Saakashvili, "The state control agencies have become state racketeers." Saakashvili has promised he will sort out this problem if he comes to power.

Specialists warn, however, that it is impossible to crack down on bootlegging by punitive measures alone.

One step was taken earlier this year by the state standards and measures agency Sakstandart, when it sent draft amendments to parliament, which would simplify the tortuous procedures currently required for the courts to check up on businesses and punish them.

Another draft bill aimed at protecting consumers has been with parliament since the spring but it seems unlikely that the legislature will get round to debating it before the November 2 parliamentary elections.

Parliament may be well advised to take the matter seriously. The evidence suggests that the biggest losses from this are being suffered not by the consumer but by the state.

"In all fairness I have to say that the quality of the fake products being put out is often very high," Avtantil Nadiradze, head of the Sakstandart standards agency, told IWPR.

Recently, in the Akhmeta region of eastern Georgia a joint raid by the police and intelligence services uncovered an underground plant producing fake Coca Cola and Fanta. They confiscated 1200 bottles and the ingredients - and were very impressed by the quality of the product.

In the Akhmeta case, the counterfeiters ended up paying a fine for using someone else's trademark. The relevant article in the criminal code prescribes a jail sentence of up to two years.

A similar punishment is meted out for the charge of illegal economic activity, when a producer does not have a license. The more serious offence of causing damage to someone's health because of poor quality products carries a five-year sentence. If a person is badly poisoned or killed, the jail term can be six to twelve years.

Every day, a train leaves Borjomi for Tbilisi, the passages and ends of its carriages crammed full. Most of its passengers are traders of the region's famous mineral water - which they get directly from the local springs -

some passing off their merchandise as the well-known Borjomi bottled water brand.

Nanuli Mchedlidze has been ferrying Borjomi to the capital for several years, "Our water is no worse than the factory stuff, but it is much cheaper. That's why people buy it."

She rejects the charge that she is breaking the law and using someone else's trademark, "This water comes from our land and it belongs to everyone and not just big companies."

In Tbilisi, the water traders buy up empty bottles for a tiny sum and take them back to fill up their next consignment.

A central problem of the counterfeit trade is that it is very difficult to monitor product quality. And that can cut both ways for the products.

"Until there are laboratory tests, we can't talk about counterfeiting," said Grigol Kurchulia, president of the organisation Kartuli Khariskhi, which monitors consumer goods. "Now not only in Georgia, but in the whole of the South Caucasus there is not a single laboratory which can measure the quality of additives, preservatives and colours and their acceptable levels in products."

The counterfeit trade also affects Georgia's most treasured product - its wine. Official figures say that 85 per cent of Georgian wine is actually not what it claims to be.

Tbilisi even has shops which sell all the necessary ingredients to produce artificial wines of any aroma, taste and colour. They can then be fortified by adding alcohol.

Khvicha Adamia works in one of these shops next to the station. He said that the most popular artificial flavour was the Izabella grape. "I even know places where they are selling wine made out of my concentrates," he said. "That's why I never buy wine in the town myself. I bring it in from the country."

"Even the big producers are buying sub-standard wine products so as to raise quantities and profits," Otar Gelashsvili, a specialist wine maker, who worked for many years at Tbilisi's wine factory, told IWPR.

Gelashvili said that the official producers and the counterfeiters were tightly linked, "There is practically no genuine wine left in the country."

Trading standards expert Grigol Kurchulia is beginning to train journalists to get acquainted with the specific nature of the counterfeit business. But he believes the problem has wider roots: an oppressive tax system, a poor legislative base and - most importantly perhaps - widespread poverty.

"There is a very hard socio-economic situation in the country and the authorities often choose to ignore the counterfeiting trade, as it is many people's way of surviving," said Kurchulia.

Irakly Chikhladze is a freelance journalist based in Tbilisi

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