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Analysis & Opinion
22.09.10 Membership Blues
By Tom Balmforth

Negotiators for Russia’s accession to the World Trade Organization (WTO) finally returned to the table yesterday after talks were thrown into confusion over a year ago, when Moscow said it would join as part of a Customs Union. Nonetheless, substantial developments in Russia’s tired 17-year-old WTO bid look unlikely, say analysts, and not only because of sticking points such as veto-wielding Georgia’s objection to the bid. Russia’s own interest has also now waned, since the economic crisis made membership less attractive. Moscow would rather focus on strengthening domestic economic recovery than pursuing further integration with the international economy.

Russia’s first WTO accession talks in over a year yesterday brought a string of obstacles to light, and Prime Minister Vladimir Putin warned against optimism about rapid accession. "We want to join the WTO and are doing everything we can to achieve this. But, in all honesty, I do not believe it will happen by January 1 of next year. So far it doesn’t look like that. But we of course will do everything we can," RIA Novosti quoted Putin as saying.

Russia’s troubled WTO bid now trundles into its 17th year of talks, and the negotiating committee is sizing up a new hurdle to accession – how Russia can join the global trade club as a three-country Customs Union, a process for which there is no WTO charter. In June last year Moscow threw accession talks into confusion when it announced its desire to accede jointly with Kazakhstan and Belarus.

Various countries raised objections to Moscow’s bid on Tuesday, partly because of fears about Russian protectionism. Washington criticized trade barriers imposed on certain American exports, the EU regretted higher tariffs on European cars, while Japan decried wheat trade restrictions, Associated Press reported. Nonetheless, Moscow never agreed to freeze its trade policies during the negotiation process, and pledged to fall into line only after accession, Reuters cited Russia’s head WTO negotiator Maxim Medvedkov as saying.

In January this year Moscow imposed a ban on American poultry – an ongoing trade disagreement which has won the U.S. export the nickname of “Bush legs” in Russia – but the ban has now been revoked.

But some countries are obstructing Russian accession to the trade club on principle. WTO member and Russia foe Georgia on September 13 said that it would exercise its right to veto Russia’s WTO membership. "Our position on this issue has not changed. We and Russia have many unsolved issues, including Russia's entrance into the WTO," RIA Novosti quoted Sergi Kapanadze, a senior Georgian Foreign Ministry official, as saying.

Nonetheless, analysts play down Tbilisi’s ability to stand alone in foiling Russian accession, should the strongest international economies agree to allow the largest non-member economy to join. “The United States can play a very important role in encouraging countries like Georgia to accept Russia’s accession. I think it is an obstacle, but I do not think it is such an obstacle that it will impede WTO accession if the United States and China push for it,” said Tom Mundy, an analyst for Renaissance Capital.

President Barack Obama has repeatedly urged for the accession process to be accelerated. In June Obama “reaffirmed strong commitment to Russia’s accession.” At the same meeting President Dmitry Medvedev said he hoped that talks on accession could be concluded by September.

Negotiators say they will return to the negotiating table on October 25 and December 6, and they tried to remain upbeat after the Tuesday meeting. "There's momentum in the process, a lot of energy on the part of Russia, a lot of interest on the part of many members," a U.S. official, who asked not be identified, told Reuters after a meeting of Russia's WTO accession working party.

But although Russia undoubtedly seeks eventual WTO membership, Moscow itself now seems to be soft-pedaling, or even stalling accession talks. “Russia’s intentions over the long-term are very clear – it does want to join. It recognizes that it is important for it to do so, but I think there is also an acceptance, particularly from the Putin camp, that more needs to be done for domestic manufacturing, so that WTO accession does not destabilize it,” said Mundy.

Russia’s desire for accession faltered with the onset of the global economic crisis, as the focus of Russian economic strategy has shifted and thus split the interests of business leaders. “There is a lack of consensus among the Russian business elite because of the recent slowdown in economic growth. That has reduced Russia’s appetite for becoming a WTO member simply because the benefits of joining the organization have declined with it,” said Natalia Orlova, the chief economist at Alfa Bank.

Russia’s WTO membership would also put the breaks on protectionism in its beleaguered auto-industry. A major headache for the government during the crisis, the number of large auto plants, which are the major employer in certain one-company towns, or “monogorods,” make these areas very vulnerable.

Today Putin opened Hyundai and Magna auto plants in St. Petersburg. At the opening ceremony, the Russian premier pledged to continue supporting foreign investor activity in Russia, which provides outdated, local Russian manufacturers with the technology to stand on their own feet. “We will create more attractive investment terms in Russia to make it profitable for foreign companies to work here; we will also make sure that production will be of the necessary quality and volume to cover the demand of the internal Russian market and provide good terms for export abroad,” RT quoted Putin as saying today.

“The auto industry provides quite an interesting prism through which to look at [the whole question]. The issue that has been raised quite a lot is that the government has been willing to protect the domestic auto industry. Clearly, if you join the WTO, it’s going to be the Russian car industry that’s going to come under a lot of pressure from the flood of imports,” said Mundy.

Orlova agreed. “Russia is more concerned with how to protect the auto market and how to generate internal growth. Before 2008, Russia’s focus was very much on international development and how to integrate with the world economy. I think right now we are definitely experiencing a shift of focus in favor of local issues and challenges,” she said.

Russia’s protectionism and all-too-regular trade spats with neighboring countries are surmountable obstacles to its accession, as are Tbilisi’s objections. But for the time being Moscow is soft-pedaling its bid until the global economy becomes more attractive and the government deems its vulnerable manufacturing industries capable of withstanding the post- accession lie of the land. “The fact that Russia is not in a rush to close negotiations reflects the change of the economic environment and preferences,” concluded Orlova.
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