UPDATE 4-Russia set to end 18-year wait to join WTO

Thu Nov 3, 2011 2:18pm EDT

Related Topics

* Kremlin chief says Moscow has accepted Georgian deal

* Georgia wants deal wrapped up by Nov. 10

* Deal with Georgia is last big obstacle to WTO entry

By Timothy Heritage and Guy Faulconbridge

MOSCOW, Nov 3 (Reuters) - Russia is on the verge of ending its 18-year wait to join the World Trade Organization after accepting a trade deal with Georgia, the last big obstacle to membership of a club that will seal its integration into the global economy.

Russia's accession will be the biggest step in world trade liberalisation since China joined a decade ago, making its $1.9 trillion economy more attractive to investors 20 years after the collapse of the Soviet Union.

After nearly two decades of tortuous negotiations with the 153-member club, Russia's last challenge was to reach a deal with Georgia to stop its entry being blocked by the former Soviet republic with which it fought a short war in 2008.

President Dmitry Medvedev said Russia had accepted the terms of a compromise deal proposed by Tbilisi via Swiss mediators on monitoring mutual trade, and Georgian President Mikheil Saakashvili hailed the deal as a "diplomatic victory".

"We are ready to accept certain compromise ideas that have been recently worked out with the participation of Switzerland," Medvedev told reporters after the G20 summit in Cannes, France.

Medvedev said he hoped to have the "good news" of Russia's WTO membership tied up by the end of the year. Georgia, which does not have diplomatic relations with Moscow, said the agreements for Russia's bid should be all ready by Nov. 10.

This is the date for a meeting of a WTO working group which can then draw up a final document for approval by WTO trade ministers in Geneva on Dec. 15.

Entry also needs the approval of Russian parliament, which is likely before an election next March that is expected to return Prime Minister Vladimir Putin to the presidency.

PUTIN SEES ECONOMIC GAINS

Russia's entry will secure membership of the biggest economy still outside the WTO and send a signal to companies and investors that Russia is starting to move closer to a rule-based system of doing business.

Putin can expect little in the way of electoral gains from an issue that analysts say does not interest voters.

But although he has shown signs of frustration with the long accession process, Putin has made clear he regards WTO entry as vital to fostering economic growth and development by attracting foreign investors and lowering trade barriers.

The World Bank says WTO entry could increase the size of the Russian economy by 3.3 percent in the medium term and 11 percent in the long term.

"WTO membership will have no immediate impact on economic growth, the day-to-day operations of Russia's corporations or on the risk premium investors apply to investment in the country," said Chris Weafer of Troika Dialog investment bank.

"However, membership does establish a powerful catalyst for a more serious approach to creating economic reform and industry efficiency."

Traders say a clear indication of a deal for entry could boost Russian stock markets by more than 5 percent, offering some potentially positive news for investors worried by volatility linked to the euro zone debt crisis.

NEGATIVE IMPACT FOR SOME FIRMS

The WTO, which sets out to supervise and liberalise trade between its members and solve trade disputes between them, was once viewed by Moscow as an instrument of capitalist hegemony.

Opponents in Russia now say international companies will use their clout to stifle domestic producers although Russia says it has fended off attempts to split up gas monopoly Gazprom , the world's largest natural gas company.

Firms in aerospace, the auto industry and local manufacturers of tradable goods could suffer, analysts say.

"Concerns span fears about domestic industries losing against more competitive foreign counterparts, households finding it more challenging to adjust to the new environment, and Russia standing little to gain quantitatively," said Ivan Tchakarov of Renaissance Capital investment bank.

He dismissed the concerns as showing a lack of understanding of the size of the potential gains.

Georgia, which had been under pressure from its Western allies to reach a deal with Russia, offered what it called a final compromise trade agreement last week.

"We are happy that Georgia supported the draft agreement and that finally an agreement has been reached," Russia's WTO accession negotiator Maxim Medvedkov told Reuters by telephone.

Under a proposal worked out with Swiss mediation, Medvedkov said Russia had accepted the use of an independent company to audit data on trade between Russia, two rebel regions backed by Moscow, and Georgia.

"Russia and Georgia, as members of the WTO, would have to pass this data to an integrated database," Medvedkov said.

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