* Russia, Georgia set to resume trade in wine, mineral water
* Relations between ex-Soviet states shattered by 2008 war
* Signs of thaw come after political shift in Georgia
By Steve Gutterman
MOSCOW, Feb 4 (Reuters) - Wine and water from Georgia should soon begin flowing back to Russia, after Moscow agreed in principle on Monday to lift an embargo in a step towards rebuilding relations shattered by their August 2008 war.
Imports of Georgian mineral water and wine could resume this spring, officials from both countries said, seven years after Russia banned two of its small southern neighbour’s prized products as tension mounted before the five-day war.
Prospects of a thaw in ties between the former Soviet republics have improved since Bidzina Ivanishvili, who made his fortune doing business in Russia, became Georgia’s prime minister after a parliamentary election last October.
The tycoon’s rise to power comes at the expense of pro-Western President Mikheil Saakashvili, who lost control of parliament in the vote and is barred from running for a new term later this year in the South Caucasus nation of 4.5 million.
“We have agreed to revive our commercial relations,” Levan Davitashvili, the head of Georgia’s National Wine Agency, told reporters after talks with Gennady Onishchenko, Russia’s consumer protection service chief.
Russian representatives will go to Georgia, possibly as early as next week, to look at the quality control system. They will also begin visiting wine and water producers that have applied for permission to export to Russia, Onishchenko said.
There are still inspections, paperwork and permits to get through, but Onishchenko made clear he expects Georgian wine and water such as Borjomi, the which had been popular in Russia for decades before the ban, would be back soon.
“I think that mineral water - I would first of all name Borjomi and Nabeghlavi - and wines from both eastern and western Georgia will be coming onto our market,” Onishchenko told a joint news conference after the talks.
At times in a long and intertwined history, the relationship between Russia and Georgia has been as much about palates as politics. Georgian wine, water and food were popular in Russia when both were republics of the Soviet Union.
Following the 1991 Soviet collapse, tensions increased after the election in 2004 of Saakashvili, who campaigned to bring the country into NATO - a red line for Russia - and made noises about reining in two rebel regions backed by Moscow.
Former U.S. President George W. Bush was a vocal supporter of Georgia, which straddles the route of Europe-bound oil and gas pipelines that bypass Russia, and a street in the capital now bears his name.
Around the time of the water and wine bans were imposed in 2006, a Russian tabloid printed full-page ads advising Russians to stay away from Georgian wine and food - a pointed play on Soviet anti-Nazi propaganda in World War Two.
The bitter tone was missing on Monday. In a nod to Georgia’s pedigree, Onishchenko said Georgia has made wine for 8,000 years and called the South Caucasus “the cradle of winemaking.”
Kremlin critics say the quality concerns cited for the bans by Onishchenko - an acerbic, crew-cut official who has held his post since the 1990s - were a smokescreen.
“It was purely political,” Russian economist Yevgeny Yasin said on Ekho Moskvy radio on Monday. “They were looking for a way to punish Saakashvili.”
The effects of the bans were severe, although robust foreign investment and state spending helped keep the country’s economy growing.
Georgia’s wine exports plunged from $81.4 million in 2005 to $29.2 million in 2007 and have not fully recovered, reaching $64.9 million last year, according to government statistics.
Mineral water exports suffered less and rebounded robustly, dropping a bit from $32.5 million in 2005 but reaching $59.3 million in 2012 as Borjomi looked further abroad for buyers.
Winemakers did the same, with some success, but they are thirstily eyeing a chance to once again tap the market in Russia, with its population of 142 million.
“Russia remains the main market - Russians know Georgian wines, and hopefully remember them,” said Davitashvili, who estimated that Georgia could export 10 million bottles of wine to Russia every year.
It may not be so easy. Onishchenko said South American wines have captured much of the segment of the market in which Georgian wines were strong before the ban.
He said Borjomi might have an easier return because of its name recognition, despite competition among brands of Russian mineral water from north of the two nations’ Caucasus Mountain border.
Diplomatic ties between Georgia and Russia were severed in 2008. Russian President Vladimir Putin and Prime Minister Dmitry Medvedev refuse to deal with Saakashvili, whom they blame for the war that broke out when Georgia launched an offensive on South Ossetia.
Ivanishvili’s rise has brought signs of a thaw. Russia and Georgia held direct talks about bilateral relations in Geneva in December, and last month the Georgian Orthodox Church leader, Ilia II, met Putin and the head of the Russian Orthodox Church during a visit to Moscow.
But Ivanishvili has promised to leave relations with Europe and the United States in place as priorities, and South Ossetia and Abkhazia present a huge obstacle to a deep reconciliation. Russia recognised the breakaway regions as independent states after war and has made clear it will not reconsider.