Russia: WTO Becomes Long-Term Issue For Relations With U.S.

(RFE/RL) PRAGUE, July 24, 2006 (RFE/RL) -- Observers for the most part considered Russia's hosting of the G8 summit in St. Petersburg on July 15-17 to be a success for Vladimir Putin. For the first time in modern history, a Russian president had chaired the annual summit of the leaders of the Group of Eight industrialized nations. Tasked with formulating and overseeing the summit's agenda, Putin also invited and made time to meet with the leaders of rapidly developing China, Mexico, India, Brazil, South Africa, and Kazakhstan.

Putin was also able to sidestep criticism of his country's retreat from democratic norms, an issue that had gained momentum among U.S. and European politicians, media, and the public ahead of the summit.

But there were also notable shortcomings, particularly Russia's failure to overcome the biggest hurdle to its efforts to join the World Trade Organization (WTO) by signing a bilateral trade agreement with the United States.

Significant Blow

During Putin's talks with U.S. President George W. Bush the day before the summit, the two leaders discussed the full spectrum of bilateral and international relations, including nuclear and energy security, nonproliferation, international terrorism, and developments in the Middle East.

While not the most important issue on the agenda, Russia's effort to join the WTO was seen as a matter of prestige for the Kremlin. Joining the global trade bloc would be seen as a landmarks in Putin's efforts to restore Russia's status as a great power, while also signaling that the recent trend of deteriorating U.S.-Russian relations had come to an end.

On the eve of the summit, Russian media took great pains to present the deal as a fait accompli. The country's major newspapers claimed that Economic Development and Trade Minister German Gref, who heads Russia's WTO talks, had reached a compromise with the United States under which it agreed to open its insurance market while maintaining its defiance of U.S. demands regarding banking reforms.

But when Bush and Putin appeared together during their joint press conference on July 17, they announced that no deal had been reached.

Putin tried to downplay the development, saying that his good personal relations with President Bush allows the two leaders to look out for their nations' interests and to have occasional differences, while still maintaining a constructive dialogue.

The reason for failure to reach an agreement on the WTO, according to sources from both sides, was discord over Russia's scrutiny of U.S. inspections of pork and beef exported to Russia. The United States argued that its stringent inspection methods are proven, and thus Russia's questioning of them is excessive.

The failure to reach an agreement was more of a defeat for Gref, Finance Minister Aleksei Kudrin, and other liberals in the Russian government than for Putin himself. After 13 years of talks, the number of politicians who back Russia's WTO efforts and those who are in no hurry to join the global trade bloc is about equal.

Weighing The Benefits

It is widely believed that WTO membership will mostly benefit Russian consumers, as they stand to gain access to foreign goods and services currently unavailable on the local market. Potential losses to Russian producers in the industrial, agricultural, and financial sectors would be offset by gains by Russian energy and metal exporters.

In recent months, Putin had effectively sided with WTO opponents, saying that "Russia should not join the WTO at any price." He objected to U.S. calls for Russia to open its banking sector, saying in June that such demands cannot be tolerated.

On July 17, the pro-Kremlin daily "Komsomolskaya pravda" deciphered Putin's statement as meaning that "they want us to let their banks in [so that later on they] can control our finances." And at the Shanghai Cooperation Organization meeting in Shanghai on June 18, Putin directly challenged the U.S. position on Russia's WTO entry. He accused Washington of "trying to link Russia joining the WTO to U.S. internal legislation." "We are joining the WTO, not the United States," he commented.

Finally, speaking during a meeting with Marcus Wallenberg, chairman of the International Chamber of Commerce, in Moscow on July 4, Putin said that in the event Russia is not given the green light to join the WTO it would no longer abide by WTO regulations it had agreed to during its accession efforts.

Russia's WTO bid still has obstacles to overcome (AFP)

Meanwhile, the WTO issue took on a clear political dimension after Georgia, the CIS ally of the United States, announced on July 16 that it was backing out of its own bilateral agreement pertaining to Russia's WTO bid.

Georgia's decision provoked serious concern in Moscow because of the far-reaching consequences it could have. Russian diplomats feared that Tbilisi's move could lead other countries with which Russia had inked bilateral agreements necessary for its WTO accession to renegotiate their deals.

On Edge

One country of concern is Moldova, which like Georgia and Ukraine has been subjected to a Russian ban on its agricultural goods, and has endured a gas-export embargo. But of even greater concern to Russia is the possibility of Ukraine joining the WTO before it does. Russia has accused the United States of intentionally holding back its WTO entry in order to make its fears of Ukrainian accession a reality.

Russia is wary of Ukrainian accession because it would add another potential hurdle to its own accession effort, although it is worth noting that Ukraine has the same concerns about Russia regarding its own WTO bid.

Following the WTO fiasco ahead of the G8 summit, Moscow's worst-case scenario is nearer to materialization, considering that the United States signed a bilateral agreement with Ukraine on its WTO effort. Ukraine now has only to sign deals with Taiwan and Kyrgyzstan before its bid is ready for a vote among WTO members.

However, Kyrgyzstan -- whose relations with Russia has grown stronger of late -- is now upping the ante by refusing to sign a deal with Ukraine. According to Ukrainian Economy Minister Arseniy Yatsenyuk, Kyrgyzstan is demanding that Ukraine reduce tariffs on its agricultural production by 40 percent, a condition that is unacceptable to Kyiv.

Despite such setbacks, Ukraine is closer to joining the WTO than ever. Ironically, even a future Ukrainian government headed by pro-Russia Viktor Yanukovych would work against Russia's WTO interests.

If Yanukovych were to become prime minister and form a new government, it could adopt economic legislation that is needed to facilitate Ukraine's WTO bid. A package of such laws is currently at a standstill due to the political turmoil in Ukraine. Moscow also cannot expect too much of a change in Kyiv's attitude toward Moscow, because foreign policy will remain the prerogative of Ukrainian President Viktor Yushchenko.

Trouble Ahead

At any rate, the issue of Russian WTO accession is sure to continue to be a hot topic in U.S.-Russian relations. According to Vladimir Batyuk, the director of the North Atlantic Security Center at the USA and Canada Institute, Russia's WTO membership is the only real leverage the United States has in its relations with Russia and it will thus likely use the issue to its advantage as long as it can, kreml.orgreported on July 18.

Andrei Nechayev, a former Russian finance minister who now serves as president of Russian Financial Corporation, agreed with this assessment, telling TV Tsentr on July 19 that he is sure Russia will not join the WTO in 2006, "and likely not until the end of 2007." He said he, like Putin, supports Russia joining the WTO -- "but not at any price."