Georgia Reverses Position on Russia's WTO Inclusion

2011-10-28 14:04:15

Georgia announced Oct. 27 that it had agreed to let Russia into the World Trade Organization, reversing its longstanding position on the matter. STRATFOR sources say this reversal was the result of U.S. pressure; the United States has been looking for peace offering for Russia in light of increased tensions over ballistic missile defense in Europe. An unexpected development, WTO membership may force Russia to re-evaluate the other economic partnerships it has made with former Soviet states.


Georgian Deputy Foreign Minister Sergi Kananadze said Oct. 27 that his country had accepted a Swiss-brokered proposal to end its block of Russia’s accession into the World Trade Organization (WTO). Earlier in the day, the head of the Russian delegation in Geneva, Maxin Medvedkov, said talks had failed because Georgia was linking Russia’s bid to a “territorial dispute” between the two countries — specifically, Russia’s occupation of the Georgian secessionist regions of Abkhazia and South Ossetia, which together 20 percent of Georgia’s territory. But there seems to have been a last-minute shift in Georgia, which suddenly dropped its demand for Russian forces to leave those regions.

As the largest economy in the world not part of the WTO, Russia has sought membership in the group for nearly two decades, but in recent years Georgia has stood firmly in the way. Blocking Moscow’s WTO bid was one of the few political levers Tbilisi had against its powerful neighbor. According to STRATFOR sources, Georgia’s decision to reverse its position came as a result of pressure from the United States, which has been seeking a political peace offering to Moscow amid heightened tensions over ballistic missile defense in Europe. With the WTO issue, it seems that the United States has found that peace offering. However, Russia had not anticipated this development, instead creating its own economic alliances, the rules of which clash with those of the WTO. Russia may have to adjust policies within its own trade partnerships to acquire full WTO membership — if it still wants full membership.

The issues of Abkhazia and South Ossetia notwithstanding, Georgia had used its power to exclude Russia from the WTO even before the 2008 war that resulted in the Russian occupation. Russia responded by castigating Georgia — and the West — for keeping it out of the grouping. Over the past year, however, the European Union and the United states have become increasingly vocal on the need to include Russia in the WTO. As of 2011, Georgia was the last important roadblock standing in Russia’s way, but it seemed that Tbilisi was intransigent on the issue.

According to STRATFOR sources in Moscow, Tbilisi has been under extraordinary pressure from Washington on conceding the issue, something Tbilisi denies. Those sources have said the United States is struggling with a way to maintain relatively warm relations with Russia, as Moscow is increasingly upset over U.S. plans for ballistic missile defense in Central Europe. Negotiations between the United States and Russia on the BMD issue have been hostile of late, with Moscow accusing Washington of acting aggressively. The United States cannot completely forsake Russia, as it depends on Moscow in some critical areas, such as keeping Iran from escalating its hostilities and aiding transit of supplies into Afghanistan.

STRATFOR sources say that Washington therefore is looking for a way to keep relations with Russia from breaking in the short term. The WTO issue is one of the few cards the U.S. has, but Georgia was standing in the way. Washington reportedly was considering bypassing Georgia’s vote in the WTO and instead electing to push Russia’s membership by majority vote instead of unanimous decision — which would have been unprecedented for any member coming into the WTO. Tbilisi chose to concede, lest it be passed over by Washington.

The issue now rests with Russia, which is not something it anticipated. Over the past few years, Russia has grown to believe it would never gain WTO membership, so it created its own trade unions, including the CIS Free Trade Zone and the Customs Union, with many of its former Soviet states. The two groups remain focused on trade at present, but the Kremlin has plans for them to be the basis of something larger, the so-called Eurasia Union, a way for Moscow to form a union among most of its former Soviet states without recreating the Soviet Union or Russian empire. To Russia, this isn? 7;t about actual trade or being part of a club but about ensuring its influence remains dominant in its former Soviet sphere.

These trade partnerships — particularly the Customs Union — clash with the policies of the WTO. For example, the Customs Union’s average tariff rate is above 10.8 percent, far exceeding the WTO’s rate for many former Soviet states. In the past month, Russia started to revise the details of the Customs Union to ensure their compatibility with WTO standards. But Moscow was not doing this to prepare for its accession into the WTO. Instead, Russia was preparing to for the expansion of the Customs Union to states that were already in the WTO, such as Kyrgyzstan. It is unclear how many more of the Customs Unions’ policies will have to be changed in order for Russia to get into the WTO.

The question then becomes whether Russia will want to change its policies in its own economic alliances — which serve political purposes — in order to get into the WTO. Russian Premier Vladimir Putin started to backtrack on Russia’s bullish stance on WTO accession Oct. 17, saying that Russia may not benefit — and could even be harmed — by WTO membership. Now Moscow must weigh taking this offering from Washington against its desire to control the policies of its own trade clubs.