Commercial Contact and Conflict Prevention: The Georgia-Abkhaz Case David L. Phillips Introduction the World Trade Organization, as well as its location on This article explores opportunities for interaction the Eurasia Silk Road. between Georgians and Abkhaz. Recommendations are Russia resented Saakashvili's pro-Western positions based on the belief that private sector representatives are and launched a propaganda and harassment campaign well suited to take a cooperative approach to engagement aimed at undermining the GoG. It also took steps against and that, even in the most intractable conflicts, the Georgia's statehood by providing Abkhaz separatists with private sector is primarily interested in market access diplomatic and military support. In March 2008, Russia and a stable environment for doing business. The article withdrew from the CIS declaration banning military does not address questions regarding the political status assistance and imposing sanctions on Abkhazia. It also of Abkhazia nor does it explore security arrangements. established legal connections between its ministries Politics and security are considered only to the extent that and their counterparts in Abkhazia, opening fifteen new they impact economic issues. checkpoints along the cease-fire line between Georgia and Abkhazia. History/Context War between Georgia and Russia erupted on August 7, 2008. In response to Russian and South Ossetian Abkhazia, a territory located on the Black Sea in the provocations, Saakashvili ordered the shelling and northwest corner of Georgia, broke away from Tbilisi's deployment of Georgian troops into Tskhinvali, South control after the conflict of 1992-93. More than 250,000 Ossetia's capital. By August 9, Russia's disproportionate ethnic Georgians were driven from their homes in land, air, and sea assault overwhelmed Georgia's armed violence that the international community characterized forces. Operations extended from the port of Poti in the as “ethnic cleansing.” The conflict remained frozen until west to Gori just 40 km from Tbilisi. Russian forces the war between Georgia and Russia in 2008. occupied the Kodori Gorge, to the northeast of Abkhazia. After the 2003 “Revolution of Roses” brought Ossetian militias, often in collusion with the Russian Preident Mikheil Saakashvili to power, the Government of military, burned and looted Georgian villages around Georgia (GoG) initiated dramatic political and economic Tskhinvali.2 Civilian economic costs are estimated at $1.2 reforms. Development and democratization were aimed billion. in part at advancing the reintegration of Abkhazia and Acting on behalf of the EU Presidency, France's South Ossetia. Georgia became an economic success President Nicolas Sarkozy negotiated a ceasefire on story. In 2007, Georgia's economy grew 12% from a August 12, 2008. The agreement required a withdrawal boom in the telecom, construction, transport, financial of forces to pre-war positions and access by humanitarian and tourism sectors. Trade increased 39.9% between and monitoring missions to the conflict areas. Russia 2006 and 2007. Exports increased 32.5% and imports has repeatedly violated the ceasefire by, for example, by 41% during the same period. Georgia saw an overall refusing to withdraw troops or dismantle checkpoints improvement in its GDP, fiscal balance, current account and unilaterally creating a 12 km buffer zone around balance, and real exchange rate. Positive structural South Ossetia. Citing “new realities,” Russia established changes included improvements in the banking system, diplomatic relations with Abkhazia on August 26, 2010. position of the central bank and increasing rates of tax Only Russia, Venezuela, Nicaragua, and Nauru have collection. Foreign direct investment was $1.8 billion in recognized Abkhazia and South Ossetia. Every other 2007, a 40% increase from the previous year and 19.8% of GDP.1 Georgia also benefited from its membership in 2. Tavernise, Sabrina. “Survivors in Georgia Tell of Ethnic Killings,” New York Times. August 19, 2008; C. J. Chivers, “In Battered Vil- 1. Interview by the author with U.S. Ambassador John Tefft in Tbilisi, lages, Georgians Speak, if They Dare.” New York Times. August 18, June 18, 2008. 2008. THE HARRIMAN REVIEW country views Abkhazia and South Ossetia as part of Archil Gegeshidze, Senior Fellow of the Georgian Georgia. Foundation for Strategic and International Studies, More than $4.5 billion over three years was pledged commends the State Strategy for “denying coercion and to the GoG at a conference of donors on October 22, offering opportunities to engage in mutually beneficial 2008. The package consisted of $2 billion in aid and projects.” But he believes “[i]t is badly packaged.” $2.5 billion in loans, including an 18-month stand-by Gegeshidze notes, “The Strategy may impress the outside agreement with the IMF worth $750 million.3 Making world but not the Abkhaz. Georgia needs to openly Georgia one of the largest per capita recipients of foreign refrain from making claims on territory if it wants the aid, the U.S. pledged $1.06 billion. Assistance helped Abkhaz to go along.” The State Strategy and subsequent bolster investor confidence, sustain private capital flows, Action Plan were rolled out with much fanfare.6 and provide sufficient liquidity to the banking system. It also helped the GoG maintain a stable exchange rate and Abkhazia's Economy adequate level of international reserves.4 Abkhazia covers an area of 8,700 square kilometers.2 According to the 1989 census, Abkhazia's population Engagement Strategy was 525,000 people, of which Georgians represented The GoG published its “State Strategy on Occupied 45.7% and ethnic Abkhaz 17.8%. Other groups included Territories” on January 27, 2010. The State Strategy Armenians and Russians. After the 1992-93 conflict, rejects violence as a tool for resolving conflict with however, Abkhazia's current population decreased to Abkhazia and South Ossetia, or addressing status about 180,000.7 issues. It seeks instead to promote interaction aimed at In the 1980s, Abkhazia's economy included 500 improving the socio-economic conditions on all sides. industrial enterprises, primarily power engineering and The State Strategy and Action Plan provide a machine manufacturing.8 Gagra, with its beautiful white roadmap for implementing Georgia's “Law on Occupied sand beaches, was a celebrated tourist destination. Other Territories.” Adopted on October 15, 2008, the Law is tourist spots included Sukhumi, Gudauta, Pitsunda, the primary bulwark supporting the GoG's policy of non- Lake Ritsa, and Novyi Afon, home to one of the world's recognition towards Abkhazia and South Ossetia. The most beautiful and historic monasteries. After the 1992- Law regulates diplomatic contact, commercial activity, 93 conflict, Sukhumi's hospitality industry virtually travel to the territories, and travel by Abkhaz and disappeared. Its storied seaside grew dilapidated, its South Ossetians who do not use Georgian passports. It coastline polluted, and infrastructure neglected. condemns Russia's violation of the ceasefire agreement, Mild and sub-tropical, Abkhazia's economy is its refusal to extend the UN Mission Observer in Georgia, seasonal with more than 200 sunny days each year. These and the deployment of the Federal Security Service along conditions are ideal for citrus, tea, and tobacco, which administrative dividing lines, which prevents the EU occupy 40% of the land under cultivation. After the 1992- Monitoring Mission from fulfilling its mandate. 93 conflict, Abkhazia grew dependent on humanitarian By mentioning “Occupied Territories” in its title, assistance and subsistence farming. Accelerated by the State Strategy gives no ground on recognition. Its the CIS embargo (1996-2008), Abkhazia's productive preamble states that the goal of the State Strategy is capacity collapsed. Industrial production decreased to “reverse the process of annexation by the Russian tenfold; underinvestment and neglect undermined Federation.”5 The State Strategy is a political text Abkhazia's transport and energy infrastructure. The Gali prepared for multiple audiences including hardliners district and other parts of Eastern Abkhazia were deserted in Georgia, directly affected parties in Abkhazia and as ethnic Georgians were driven from their homes. Tea, South Ossetia, and the international community. While citrus and tobacco production plummeted, and poaching text of the State Strategy mirrors the legislative intent depleted Abkhazia's rich forests of its chestnut, oak, of the Law on Occupied Territories, the documents have box, and yew stock.9 *According to Abkhaz authorities, different objectives. The State Strategy seeks to engage Abkhazia lost $13 billion as a result of the conflict. Abkhaz and South Ossetians, while the Law is punitive in seeking to isolate them. 6. Interview by the author with Archil Gegeshidze at the Georgia Foundation for International Studies in Tbilisi, May 11, 2010. 3. “Cheney calls on west to rally behind Georgia,” Financial Times, 7. From War Economies to Peace Economies in the South Caucasus. September 5, 2008. International Alert. 2004. Chapter 4: David Chkhartishvili, Roman 4. “IMF Mission Reaches Agreement in Principle on a US$750 Mil- Gotsiridze and Bessarion Kirsmarishvili, p. 123. lion Stand-By Arrangement with Georgia,” IMF, September 3, 2008. 8. Butuzova, Lyudmila, and Roman Mukhametzhanov, “Abkhazia 5. State Strategy on Occupied Territories: Engagement through Coop- Revisited,” Moscow