Bloomberg News

Russia Billionaires Criticize WTO Delays Hurting Investment

June 17, 2011

(Updates with Swedish, Georgian comments in 24-25th paragraphs. See EXT3 <GO> for more on the St. Petersburg conference.)

June 17 (Bloomberg) -- Billionaires Alexey Mordashov and Viktor Vekselberg criticized the U.S. and European Union for holding up Russia’s bid to join the World Trade Organization, hindering efforts to attract international investment.

Russia has sought to join the WTO since June 1993 and is the largest economy outside the Geneva-based arbiter of free trade. China became a member in 2001.

"It’s time for us to join the WTO, but unfortunately there are permanently some kind of barriers, some kind of obstacles," Mordashov, majority owner of OAO Severstal, Russia’s biggest steelmaker, said yesterday at the St. Petersburg International Economic Forum. "For the long-term development of our country, WTO entry is critically important."

President Dmitry Medvedev, who will address the forum today, has made entering the WTO a key goal in his drive to make Russia more attractive to foreign investors and boost economic growth. Chinese President Hu Jintao said yesterday in Moscow that Russia should become a member this year.

Vekselberg, who’s in charge of Medvedev’s project to create a center for technology development in the Moscow suburb of Skolkovo, said Russia continues to encounter problems “we can’t fully understand” as it seeks to complete WTO talks.

‘Seal of Approval’

WTO membership may help win over foreign investors, said Roland Nash, who helps manage about $150 million of Russian stocks at Moscow hedge fund Verno Investment Management Ltd.

“The practical implications of Russian WTO membership are limited, as it won’t bring down tariffs dramatically,” he said. “But just the seal of approval after 18 years of waiting will be taken very well.”

China saw the level of foreign investment rise dramatically after it joined the WTO, Mordashov said.

“China showed the example of the huge boost to foreign investment you can get from WTO membership because of greater certainty for the business climate,” he said.

The U.S. said last year it had resolved most issues necessary for Russia to join the WTO. The EU said in December it had concluded a deal settling “key questions” that had held up Russian membership. The U.S. and EU continue negotiations with Russia on issues including the country’s investment regime and health rules for food imports.

‘Final Set’

The billionaires’ comments, during a session on U.S.-Russia relations, came after U.S. Ambassador John Beyrle said President Barack Obama’s administration hoped Russia would complete the negotiating process this year.

“We in the Obama administration are committed to seeing Russia in the WTO as soon as possible, hopefully this year,” Beyrle said, adding that the two sides were in the “final set” of WTO talks.

A dispute erupted this month over Russia’s decision to block vegetable imports from the EU, imposed after an E. coli outbreak that has killed 39 people, mainly in Germany.

The EU sought an immediate end to the ban, arguing that Russia should follow the “rules and principles” of the WTO even though it isn’t a member. Russian Prime Minister Vladimir Putin responded by saying his country wouldn’t “poison” its citizens to gain entry to the trade body.

‘Always Supported’

“The European Commission has always supported Russia’s bid,” John Clancy, the commission’s trade spokesman, said yesterday by phone from Brussels. “We hope Russia can meet the very small number of remaining concerns from WTO members in a timely fashion to ensure the process can move forward with the aim for Russia to join the WTO by the end of this year.”

Russian complaints are justified because the U.S. and EU appear to have used the WTO talks to pressure the government on other issues, Nash said.

“The WTO has been used as a political carrot to push Russia in a certain direction,” he said. “Russia has been disappointed for so long now.”

At the same time, there are real hopes for progress because Germany, France, Italy and the U.K., as well as the U.S., now support the Russian bid, Nash said.

The “political window of opportunity” for Russia to enter may “start to close” at the end of this year as the U.S. and Russia enter election years, Russian Deputy Prime Minister Sergei Ivanov said in an April interview in Miami, adding that he is hopeful an agreement will be reached before then.

‘Lot of Goodwill’

One remaining obstacle is Georgia, a U.S. ally and WTO member that Russia defeated in a five-day war over the breakaway Georgian region of South Ossetia.

Georgia has withheld approval of Russia’s bid, saying disputes remain over customs checkpoints in South Ossetia and Abkhazia, another breakaway region.

“From one side we see a lot of goodwill under the ‘reset’ shown by the U.S. leadership,” Mordashov said, referring to Obama’s efforts to revive ties with Russia soured by the war with Georgia. “Despite all these efforts and positive moves, we can’t enter the WTO.”

Switzerland started mediating talks between Russia and Georgia in March. There has been no “substantial” progress, Georgian Prime Minister Nika Gilauri said in a June 9 interview.

Georgia is willing to compromise for a "mutual and acceptable solution," Foreign Minister, Grigol Vashadze, said today after talks in Tbilisi, the capital, with Swedish Foreign Minister Carl Bildt.

"We all are in favor of Russia being in the World Trade Organization," Bildt said, adding that the disagreement with Georgia needs to be resolved.

--With assistance from Helena Bedwell in London and Jennifer M. Freedman in Geneva. Editors: Willy Morris, Willy Morris

To contact the reporter on this story: Henry Meyer in Moscow at hmeyer4@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net


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