Russia drops unilateral WTO bid for ex-Soviet pact

Russian Prime Minister Vladimir Putin chairs a meeting in the town of Pikalyovo, in Leningrad region, about 270 kilometres (168 miles) from Russia's northern city of St.Petersburg, June 4, 2009.

MOSCOW (Reuters) - Russia threw its 16-year bid to join the World Trade Organization into jeopardy on Tuesday when Prime Minister Vladimir Putin said Moscow would only join the trade body in partnership with two former Soviet republics.

Putin, announcing plans to form a customs union with Belarus and Kazakhstan, blamed tortuous WTO accession talks for blocking integration with its ex-Soviet neighbors, only days after the European Union said the Kremlin's wait could be over this year.

The surprise move by Russia, the largest country outside the 153-member WTO, implies talks will start afresh on the basis of a new agreement between the three former Soviet states, which intend to form the customs union from January 1, 2010.

Russia has previously accused the United States and the European Union of hindering its WTO bid for political reasons.

Putin, speaking at a joint news conference with the Kazakh and Belarussian prime ministers, Karim Masimov and Sergei Sidorsky, said the three countries would notify the WTO that their separate negotiations will be stopped.

"It's a sign of frustration on the Russian side, but it's also recognition that WTO membership is no longer such a priority," said Roland Nash, chief strategist at investment bank Renaissance Capital.

The International Monetary Fund (IMF) warned this month that Russia's bid to join the WTO was losing momentum.

Five days ago, EU Trade Commissioner Catherine Ashton said she had agreed with Russian Economy Minister Elvira Nabiullina that Moscow's WTO accession should be completed by year-end, saying the two sides had a "common understanding.

But the creation of a customs union with countries whose WTO negotiations are less advanced may force the EU to think again.

"This could create a new situation, which we would first need to carefully analyze to determine the potential impact on Russia's WTO negotiations," said Lutz Guellner, spokesman for Ashton.

The decision is also a slap in face for U.S. President Barack Obama ahead of his visit in Russia next month. Obama and Russia's President Dmitry Medvedev agreed in April to instruct their governments to work on finalizing Russia's accession.

Brazil, Russia, India and China, known as BRIC, will also hold their first summit in Yekaterinburg next week and officials have said the four were willing to look into trade initiatives outside the WTO framework.

Kazakhstan started WTO talks in 1996 but has continuously put off the accession deadline. Russia, still running the world's third-largest gold and forex reserves, has used the economic crisis to increase influence in the post-Soviet space.

"Our priority remains WTO entry, we confirm this, but already as a united customs union and not as separate countries," Putin said. He said trade talks with the European Union would also be held within the framework of the new deal.

PUZZLING MOVE

Russian negotiators had been expected in Geneva next week for a new round of bilateral accession talks. Masimov said the three countries would now create a new group of negotiators.

Trade experts said the timing of the move was puzzling. No group of countries has ever joined the WTO as a single customs union, and the proposal is likely to delay the accession of the former Soviet states even more.

Although Russian Finance Minister Alexei Kudrin flagged the move at the International Monetary Fund conference in April, his statement was not taken seriously at the time. On Monday, Kudrin said new accession talks will start in 2010.

Internal disputes within the proposed customs union could also complicate matters. Russia on Tuesday expanded its ban on dairy products from Belarus, which earns billions of dollars from its milk exports and had a 4 percent share of the Russian market last year.

"The Russian desire to form a customs union with the CIS -- and obviously to become the dominant partner -- is a more important objective in the short term," said Nash.

(Additional reporting by Jonathan Lynn in Geneva, Darren Ennis in Brussels and Robin Paxton in Moscow; Editing by Richard Balmforth)