LEGISLATING GEORGIA’S WAY INTO THE EUROPEAN COMMUNITY – LESSONS FROM RECENT HISTORY

On September 1, 2014, the Georgian society woke up to a very unpleasant reality – after years of extremely welcoming visa regime which put the country on the map as an attractive tourist and foreign direct investment destination, a new migration law regulating foreigners admission and stay in Georgia came into effect. Business owners, foreign students, employees of large and small companies, and even residents of Georgia’s border areas found themselves in a very uncertain situation, dealing with a small, often anonymous army of bureaucrats charged with interpreting and implementing the new law.

According to government officials, the hasty adoption of the new regulations was driven by the desire to quickly fulfill the requirements of the new Georgia-EU Visa Liberalization plan, which prescribed improvements in migration management. In the rush to tick off this box, the new law was drafted by the Ministry of Justice and passed by the Georgian Parliament without any consultations with Georgian businesses, the Georgian expatriate community, or civil society. Moreover, subsequent clarifications issued by EU officials and analysis by Transparency International, suggest that the new law went above and beyond what was implied by the Visa Liberalization plan with the EU.

Understandably, the new legislation was met with public uproar. People soon found out that not only a small bunch of foreigners had been affected. The law imposed a heavy burden on Georgian businesses and NGOs that rely on expatriate staff for leadership and professional knowhow, as well as universities serving thousands of international students. Design faults and numerous implementation disasters (such as the appearance of racial profiling) created a strong popular backlash, prompting PM Gharibashvili to step in on October 8, issuing an apology and vowing to rectify the situation.

Needless to say, much of the pain and embarrassment could have been spared, had Georgian government officials consulted other key stakeholders while drafting the law. Such consultations – a standard practice in many EU nations – are not yet part of Georgia’s legislative culture. And, sadly, they were NOT mandated by the EU as part of its Association Agreement (AA) with Georgia. This omission seems like a great opportunity missed to create the space for Georgia’s civil society organizations – the mainstays of grassroots democracy in EU’s lingo – to participate in, and contribute to, the complicated and potentially painful process of implementing the AA.

ANOTHER LEGISLATIVE TIME BOMB ABOUT TO GO OFF?

Unfortunately, the legislative saga is far from over. Only last week, the Georgian business community learned that a new law on labor migration, drafted by the Georgian Ministry of Labor, Health and Social Assistance (MOLHSA), is being considered by the Georgian Parliament.

One part of this law addresses very legitimate and important concerns about labor trafficking and proposes measures to regulate companies purporting to ‘help’ Georgians obtain work abroad.

However, another part of the proposed law (Chapter IV) raises a big red flag for Georgian businesses. This part aims to protect the Georgian labor market from the threat of non-qualified foreign labor invading the country and displacing Georgian workers.

Specifically, Chapter IV of the draft labor migration law includes the following provisions:

• Employers willing to hire an “alien” (i.e. a foreigner holding no permanent residency permit) for more than 90 days are required to register their requests with MoLHSA. (Exemptions are granted for certain occupations, such as teachers, trainers, doctors, and technical personnel performing installation works.)

• Employment requests shall be registered if: i) MoLHSA fails within seven days to provide a list of suitable job candidates registered in the MoLHSA jobseekers’ database, and/or if ii) employers provide a “well-grounded written rejection of the proposed persons” (Article 16, #5).

Several questions must be asked:

To what extent, if at all, is this protectionist measure required by the EU Visa Liberalization plan? What are the practical implications of the proposed registration procedure for Georgia’s businesses? Is it likely to achieve its stated objectives? And, finally, what are its implications for the country’s competitiveness and investment climate?

LABOR MARKET PROTECTIONS: HOMEMADE OR EXPORTED BY THE EU?

To address the first question, we reviewed publically available documents and made inquiries with the EU delegation. To the best of our understanding, the Visa Liberalization plan places no specific requirements on Georgia’s internal labor market regulations. According to a senior official with the EU delegation in Georgia, “as far as the EU is concerned, Member States are allowed to regulate access to employment of foreigners from third countries as they see fit”.

What is required under the Visa Liberalization plan is a labor migration law, which adheres to the principles of labor mobility in Europe. These principles are outlined in the European Social Charter and advocate safe working conditions, fair pay, right to organize, right for protection and assistance to migrant workers, in particular, to prevent cases of human trafficking and abuse, etc.

Thus, claims that Chapter IV of the draft labor migration law is driven by the AA or the Visa Liberalisation plan are simply not founded in reality. This matter is left for Georgia’s internal policy debate, a debate that should begin with a review of the available evidence, involving all key stakeholders: investors and business community, civil society leaders, think tanks, relevant governmental organizations, and ministries.

PROPOSED PROCEDURES: IMPLICATIONS FOR GEORGIAN EMPLOYERS

The 7-day procedure proposed by Chapter IV – and the list of exemptions provided by the law – reflects an effort by MoHLSA policymakers to water down the law, or at least make its application as painless as possible for Georgian employers. Nevertheless, once signed into law and taken up by (over)zealous bureaucratic personnel, the procedure of registering requests with MoHLSA carries very significant risks of mis- and over-interpretation.

In particular, we are worried by the lack of specificity concerning the number of supposedly suitable candidates to be proposed by MoHLSA. Reviewing 100 “suitable candidates” from the MoHLSA database of jobseekers may be quite burdensome, particularly if for the purpose of receiving permission to hire a foreigner, businesses would have to furnish “well-grounded written rejection” letters for each candidate.

The law does not specify how employers are supposed to review MoHLSA-proposed job candidates. For instance, would it be sufficient to review their files? Would an interview be mandatory? Should candidates be offered practical or theoretical tests? In the absence of clear guidance, businesses may face the risk of having their requests unjustly denied, not to mention the prospect of fines and lawsuits.

WILL THE LAW ACHIEVE ITS STATED OBJECTIVES?

Judging by the “explanatory note” attached by MoHLSA to the draft, the proposed labor migration law is conceived as a barrier for the entry of low-paid, unqualified foreign workers who would “unfairly” compete with Georgians, depressing wages and increasing unemployment.

We don’t know – and MoHLSA has furnished no evidence – whether or not low-skill labor migration to Georgia is indeed a “problem” in the sense of exacerbating Georgian unemployment. There is no doubt on anybody’s mind, however, that qualified Georgian workers are hardly in need of any protection. Driven by the selfish profit motive, private businesses would resort to hiring more expensive foreign specialists only in the absence of reasonably qualified Georgian workers.

Unfortunately, contrary to its intention, the law does not target the low-skill segment of the labor market. Instead, it creates unnecessary red tape for the employment of foreign CEOs and CFOs, IT engineers and agronomists, architects and corporate lawyers, banking and business development specialists whose professional qualifications and experience are no match for those of Georgian unemployed registered in the MoHLSA database of jobseekers.

Thus, instead of welcoming international professionals willing to contribute to Georgia’s future, the new labor migration law proposes a ridiculous procedure that cannot and will not promote employment. Instead of generating employment and economic growth, the new law will merely add a layer of bureaucracy “protecting” jobs from being created!

WHAT DOES THE LAW DO TO GEORGIA’S ATTRACTIVENESS AS AN INVESTMENT DESTINATION?

Something must also be said about the timing of the proposed new legislation. With consumer and business confidence at record low levels, foreign investment and expertise are a crucial lifeline for the Georgian economy. The fall in remittances from Russia, Ukraine and Greece, and the collapse of low-skill car re-export activities raise the stakes for Georgian policymakers. Evidently, the country must go through a process of technological upgrading, and for that, it needs as much foreign capital and know-how as it can attract.

Rustavi Metallurgical Plant (RMP), to take one example, has recently undertaken a major investment to restore and modernize its technological base. By investing more than $15million in a systematic modernization and re-equipment program, RMP added 450 jobs, bringing the plant’s total local employment to 2,100 workers. Key technological functions at RMP are performed by 25 foreigners (mostly Ukrainian metallurgy experts) who also build the capacity of local staff. The new migration law, coming into effect on 1 September 2014, presented the plant’s management with unprecedented challenges of arranging visas and residency permits for its 25 Ukrainian staff and their family members. The new labor migration law will likely bring even more pain and no gain for RMP management, its investors, or Rustavi’s unemployed.

This is not what Georgia needs at this juncture…

GEORGIA NEEDS MORE AND BETTER ECONOMISTS!

Georgia can do much better by inviting Georgian (and international!) economists to lend their opinions and inform the labor market debate. A failure to review factual evidence and consider viable policy alternatives will result in very serious repercussions at a time when Georgia can ill afford an economic slowdown.

First, MoLHSA has so far failed to furnish any evidence concerning its assertion that low-skilled foreign workers are displacing Georgian workers. This or any other factual assertion should be backed by empirical evidence.

Second, any draft law should undergo a rigorous Regulatory Impact Assessment (RIA), taking stock of each alternative from the point of view of its costs and perceived benefits.

Third, economists could also help generate unorthodox policy solutions. One alternative scenario might involve the introduction of a “light” registration procedure only for jobs paying below a certain threshold level (say, 1000GEL/month), thus exempting foreign professionals from excessive red tape. Yet another possibility would be to maintain the current (liberal) rules for employing foreigners, regardless of their qualifications, while creating a mechanism to monitor the labor market situation and help inform education policy decisions and occupational choices (see box). 

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Further analysis would serve as a good starting point for a serious public discussion on the future of the Georgian labor market, investment, and business climate. Such discussion is indispensable. If there is one lesson learned from the rushed attempts to legislate Georgia’s way into the EU, it is that the Georgian civil society and business community have proven to be strong, organized, and ready to speak out in defense of their views and interests. And this time it looks like the government may be willing to listen.