Russia's WTO bid delayed over finer points

A top economic official conceded that Russia's accession to the World Trade Organization could be delayed until 2007 because fierce pressure from local business barons has forced Moscow to take a tougher negotiating line.

Russian Deputy Economy, Trade and Development Minister Maxim Medvedkov said Aug. 16 that Moscow and the WTO disagreed on "about 5 percent" of the outstanding trade issues and had made only limited progress in negotiations over the past year.

He added that several Russian business leaders - led by aluminum, auto and timber magnate Oleg Deripaska - were mounting furious campaigns to protect their industries from direct global competition.

"We have reached a point where all of our negotiating resources, established by the government, have been used up. And any serious movements forward are no longer possible," Medvedkov told the Gazeta daily.

"The government will not be moving toward the set goal of 2003 membership like a tank. If we are not able to agree on favorable terms, we will conduct negotiations for as long as they take," he added.

Medvedkov outlined a scenario in which legislative and presidential elections in Russia as well as the WTO's own expansion schedule will not see serious negotiations resume until 2005.

"Most analysts agree that this date is too late for Russia," he noted.

Medvedko added that one of the main stumbling blocks remained the WTO's insistence that Russia, still a key Baltic trade partner particularly in energy, end its subsidies for local energy consumers and introduce electricity tariffs that correspond to European prices.

"This is not a standard requirement. We cannot commit ourselves to this."

Russia is also strict on defending its goods and services market, said the minister.

His comments came only a few weeks after Prime Minister Mikhail Kasyanov announced that Russia's accession to the WTO had hit "the home stretch" despite some outstanding trade and investment disputes.

The two sides remain at loggerheads on several key issues.

These include Russia's unwillingness to open up access to services, banking, insurance and securities and telecommunications, as well as markets for some agricultural and industrial products.

While rooting for WTO membership for Russia, Western financial analysts agree that Kasyanov has a delicate role to play because accession is likely to hurt the economy in the short term as quality foreign goods muscle out local production.

A recent report published by the Russian Academy of Science concluded the country's gross domestic product would drop 1 percent even if Moscow was allowed to keep its current import tariffs.

Meanwhile economists speculated that a serious delay in WTO accession could hurt the standing of President Vladimir Putin, who is lobbying heavily in favor of fast-track membership.

"Any such delay would entail dangers and disappointments that create a leadership challenge to Putin," Christopher Granville, chief strategist at the United Financial Group, wrote in a recent report on the talks.

"There is a sense that the political will necessary to make a decisive push on the WTO front this autumn may no longer be there," wrote Granville.

"Given the importance of WTO-related measures for overall domestic structural reform, any such delay would be at least marginally negative for investor perception of country risk."

Russia first sought membership in the global free trade system under the WTO's predecessor organization, the General Agreement on Tariffs and Trade, in 1993.