Russia's Accession to the WTO: the perspective from Tbilisi

Vladimer Papava

Senior Fellow at the Georgian Foundation for International and Strategic Studies, Doctor of Economic Sciences, Professor

Current situation

In Geneva on 9th November 2011, Georgia and Russia ended years of talks by signing an agreement on Russia’s accession to the World Trade Organisation (WTO).

Georgia, a WTO member, had been willing from the outset to agree to Russia’s accession, provided that customs checkpoints could be opened on the Abkhaz and South Ossetian sections of the border with Russia. This condition was based on the principle that movement of goods on the borders of two neighbouring states must be subject to national customs legislations. At that point, the Kremlin had not yet recognised Abkhazia and South Ossetia as independent states. Thus, the Abkhaz and South Ossetian sections of the borders with Russia were recognised by Moscow as forming part of the Russian-Georgian border.

The situation was further complicated following the five-day war between Russia and Georgia in August 2008 and Moscow’s subsequent de facto unilateral recognition of Abkhazia and South Ossetia as independent states. In Moscow’s view, economic (and not only economic) relations between Russia on the one hand and Abkhazia and South Ossetia on the other are seen as international relations between two states. This view has been maintained regardless of the reaction from Tbilisi, international organisations and most countries around the world.

The Georgian administration has not, on the whole, changed its pre-war position on Russian accession to the WTO. Moscow treats Tbilisi’s conditions on this issue as purely politically motivated, although the Georgian side has emphasised that these requirements fall squarely under the heading of trade relations which require cross-border trade between the trading states.

The agreement reached in Geneva has not gone down well in Abkhazia and South Ossetia. This is because it involves locating international observers on the border with Russia to monitor cross-border trade. Abkhazia and South Ossetia have viewed this as impinging on their sovereignty [1].[1] However, Moscow has officially stated [2] that this agreement between Georgia and Russia does not impinge on the independence of Abkhazia and South Ossetia.[2]

Significance of WTO membership

An important point to make here is that Russia has been trying to become a WTO member since 1993. Although the average length of time needed to become a member of the WTO is six years, it has taken Russia three times as long. This is mostly due to inconsistencies [3] in the government’s actions on WTO membership.[3] These inconsistencies were probably also fuelled by economic scepticism over Russia’s accession to the WTO based on a rough cost/benefit analysis. This analysis [4] suggested that the benefit to Russian companies of WTO accession would be a maximum of US$23 billion versus potential losses of up to US$90 billion once foreign companies enter the Russian domestic market.[4]

On the other hand, a significant argument for Moscow in favour of WTO membership was that Russia, as a G8 country, should be a member since the WTO is a major international organisation whose member countries together account for over 95 percent of global trade. Russia was also the only remaining G20 country not to be a WTO member. In other words, it was politically unacceptable for Russia, which justifiably sees itself as a global leader, to be outside a global organisation that directly sets the rules on global trade. Even from an economic perspective, Moscow is clearly keen to be involved in setting international trade rules, given that WTO member countries account for 92 percent of Russia’s trade. This is a further motivation behind Russia’s special interest in WTO membership. Finally, another serious consideration for Moscow is the high probability that accession to the WTO would lead to the United States repealing [5] its Jackson-Vanik amendment, which Moscow finds humiliating.[5]

The crucial issue

The talks process on Russia’s accession to the WTO – and to an even greater extent the agreement reached with Georgia – once again confirm the reality that Russian interests may not always and in every detail coincide with the interests of Abkhazia and South Ossetia. This is entirely natural given the difference in size of the countries as well as Russia’s international significance [6].[6] At the same time, however, Moscow is keen to defend the independence of Abkhazia and South Ossetia now that it has recognised them.

Switzerland’s mediation in the talks process between Georgia and Russia was an opportunity for both countries to reach agreement. It provided a chance to discuss and reach an agreement on proposals by a third party – Switzerland – which proposed a compromise solution. This solution involves locating monitors from a private certified company specialising in customs operations, to be recommended by the Swiss side. The monitors are to be located on the Russian side of the de facto border with Abkhazia along the Psou River and of the de facto border with South Ossetia on the Northern point of the Roki Tunnel, as well as at the ‘Kazbegi-Upper Lars’ checkpoint on the Georgian Military Highway (which connects Georgia and Russia through North Ossetia without entering South Ossetia).

Under this solution, the disputing parties are each free to put their own construction on the situation according to their interest in Abkhazia and South Ossetia. It allows Tbilisi to take the view that setting up a standardised monitoring procedure at customs points along the Abkhaz and South Ossetian borders with Russia and also at the Kazbegi-Upper Lars checkpoint represents indirect recognition by Moscow that the border between Georgia and Russia coincides with Russia’s borders with Abkhazia and South Ossetia. On the other hand, since the monitoring procedure at the customs points along the border between Russia and Abkhazia and South Ossetia and at the Kazbegi-Upper Lars checkpoint is also standardised, Russia can take this to mean that there is a standardised procedure covering all three of its equally independent (in its view) neighbours (Abkhazia, Georgia and South Ossetia).

One distinction should also be made between Abkhazia and South Ossetia. This relates to the fact that the agreement reached between Georgia and Russia relates solely to land borders, even though trade between Russia and Abkhazia also goes by sea. Maritime borders between Russia and Abkhazia are not subject to monitoring by international observers. This is an option that is not open to inland South Ossetia. Air borders between Russia and Abkhazia will also not be monitored. However, Abkhazia’s airports are only designed to receive passenger and military transport flights.

Although monitoring of cross-border trade is an additional barrier to international trade, it is important to note that this barrier applies not just to Abkhazia and South Ossetia, but equally to all three of the checkpoints.

However, following the import ban introduced by Moscow in 2006 on Georgian agricultural products, and the relative diversification of Georgia’s external trade links (for example, recently created new export markets for Georgian wine), this new barrier is not likely to be the cause of any particular additional difficulties for Tbilisi.

South Ossetia is set to be the greatest loser, since all of its external trade is with the Russian Federation and this is conducted solely by land.

Abkhazia is in a slightly better position, partly because the barrier does not cover its maritime trade with Russia, but also because Russia accounts for just two-thirds of Abkhazia’s external trade. Its second largest trading partner is Turkey, with which it trades by maritime routes.

In our view, the introduction of a customs monitoring mechanism may well bring significant benefits for the entire region. This would be mainly due to the significant curtailing of contraband flows, although at this stage this cannot be quantified.

An important consideration is that following Russia’s accession, WTO rules will apply to the majority of countries in the region, since Armenia and Turkey are members as well as Georgia. This will create a sound legal basis for the development of regional trade based on WTO trade conflict resolution mechanisms. The WTO will provide the institutional framework necessary for growth in trade, although membership in itself is not a sufficient condition for increasing trade.

Conclusion

The agreement between Georgia and Russia to install international monitors at checkpoints does not extend to the maritime and air borders of Abkhazia and Russia. These checks on overland trade in goods will create an additional barrier to trading with Russia for all of the entities they cover. This will affect Abkhazia to a lesser extent than South Ossetia, since it trades with Russia by land and sea and Abkhazia has a further trading partner in Turkey. At the same time, the talks process between Georgia and Russia on Russia’s accession to the WTO has once again been a lesson to the Abkhaz and South Ossetians, demonstrating that they must learn to live with the hard fact that Moscow is not always and in every detail able or willing to consider their interests. This is something not yet realised by those involved, whether in Sukhumi and Tskhinvali on the one hand or in Tbilisi on the other.

One undisputed positive aspect of employing international observers to monitor cross-border trade could be the significant curtailment of contraband flows in the region.

Moreover, trade relations in the region are likely to be boosted, once the majority of countries in the region (Armenia, Georgia, Turkey and soon Russia too) are members of the WTO. This will also indirectly benefit Abkhazia, whose maritime and air borders with Russia are not subject to international monitoring.

Vladimer Papava

The Abkhaz perspective [7] on the same issue from Beslan Baratelia,, from the Abkhazian State University (Faculty of Economics)