August 13, 2008 / 2:18 PM / 9 years ago

Georgia fighting hurts Russia's WTO bid

By Jonathan Lynn - Analysis

GENEVA (Reuters) - Russia’s struggle to join the World Trade Organisation, already blocked by Georgia because of Moscow’s support for the country’s separatist regions, has been made even harder by this week’s fighting in the Caucasus.

Russia’s defeat of Georgian forces who tried to retake the breakaway region of South Ossetia, and its backing of rebels who pushed Georgian troops out of Abkhazia, makes it even less likely Georgia will lift its opposition to Russian membership in the world trading body.

In practice, Russia’s WTO accession depends on negotiating a number of outstanding commercial issues, such as export duties on timber, farm subsidies, and the role of state-controlled enterprises such as gas producer Gazprom.

U.S. Commerce Secretary Carlos Gutierrez said on Tuesday Russia still had some work to do before it was ready to join the WTO, and played down any connection between its military action in Georgia and its 15-year-old membership bid.

But President George W. Bush said the fighting was hurting Russia’s efforts to join modern global economic and security institutions.

“Now Russia is putting its aspirations at risk by taking actions in Georgia that are inconsistent with the principles of those institutions,” he told reporters at the White House.

The history of trade down the centuries has been a tale of alternating commerce and conflict, and WTO rules give Georgia a weapon to pursue its fight by other means.

Under WTO rules a candidate country must reach agreement with all 153 members, represented by a working party which any existing member can join, as well as agreeing separate bilateral deals with any member that seeks them.

Georgia objects to Russia’s support for rebel regions South Ossetia and Abkhazia, saying among other things that it cannot control customs on Russia’s borders with the regions.

As a result it is blocking formal talks on Russia’s accession while allowing informal negotiations to continue.

How much Russia, the world’s 10th largest economy and by far the biggest country still outside the WTO, would actually benefit economically from joining remains to be seen.

Membership for China and Vietnam provided an enormous boost to their economies in terms of exports and investment.

The biggest blow to Moscow from being kept outside may well be to national pride. Exclusion from the body that umpires world trade does not fit Russia’s image of itself as a great power.

WHO LOSES?

The high proportion of fuel and commodities in Russia’s export profile means WTO membership offers few immediate advantages, said Guy de Jonquieres, senior research fellow at British think-tank Chatham House.

“Economically, Russia would lose little by continuing to stay out of the WTO, because its biggest exports by far are energy and raw materials, which are in strong demand and face low trade barriers in many countries,” he told Reuters.

Russian trading partners eyeing increased access to Russian markets, which they hope to prise open through reforms as the price for WTO membership, have more to lose in the near term, de Jonquieres said.

But in the longer term those reforms could strengthen Russia’s economy by opening it to more international competition and increasing its efficiency, he added.

WTO membership would also help Russia diversify its economy away from oil and gas by allowing it to compete on equal terms with other trade powers, Russia’s chief negotiator Maxim Medvedkov said in June.

While diplomats work quickly to find a settlement of Russia and Georgia’s row, it is possible an eventual resolution would involve Tbilisi lifting its veto on Russia joining the WTO.

But in the meantime Moscow would need to settle its commercial disputes with other WTO members.

The European Union objects to a planned increase in Russian export duties for wood, which would deprive Finnish and Swedish forestry companies of cheap raw materials as Russia builds up its own processing industry.

Olli Rehn, the Finn who is the European Union’s enlargement commissioner, said last month Russia could not join the WTO until the dispute over wood export duties was resolved.

A similar dispute over export duties with the EU held up the accession of Ukraine, which finally joined in May.

(Additional reporting by Doug Palmer in Washington)

Editing by Robert Hart

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