Monday, November 27, 2006

This week's Economist

World Trade Organisation

The Georgian knot

Nov 23rd 2006 | TALLINN
From The Economist print edition

Russia's membership of the WTO is not quite a done deal

NOBODY can fault the Georgians' courage. Judgment is another matter. America has dropped its objections to Russia's membership of the World Trade Organisation—seemingly in return for support on Iran and North Korea. But Georgia, an ardently pro-Western ex-Soviet republic, has withdrawn its own agreement with Russia and is blocking the multilateral talks needed to conclude Russia's entry into the WTO. The trade body relies on unanimity, giving vetoes even to pipsqueaks—at least in theory.

Georgia has plenty to complain about: Russia subjected it to trade sanctions and raised its gas prices in protest at the public humiliation of some Russian spies. But the real issue, according to the prime minister, Zurab Nogaideli, is another one: control of commerce into two separatist enclaves that border on Russia, South Ossetia and Abkhazia. Trade (legal and illegal) flows freely.

Georgia wants these borders either sealed or run by its own customs officials. That may be reasonable in theory but it sounds fanciful in practice. The two “frozen conflicts” have remained stubbornly unthawed for a decade, and Georgia's lack of Western support has already been bleakly exposed in recent months. Foreigners are wowed by Georgia's warp-speed economic reform—which has produced double-digit GDP growth—but dismayed by its erratic and hot-headed politics and diplomacy.

America laments Georgia's tactics. It wants Russia in the WTO, which will help speed Ukraine, a country that it is trying to coax back into a pro-Western stance, along the same path. “America and the EU will stamp Georgia into the ground on this,” says a government adviser. “They seem to think that they can provoke us into supporting them,” says a top EU official despairingly.

Mr Nogaideli claims that the Kremlin is backsliding. “If Russia doesn't want to honour this agreement, they shouldn't have signed it,” he says. Georgia hopes that the many loose ends in Russia's WTO application mean that other countries too will welcome a chance to apply a bit more pressure—on pricey rail freight costs, for example.

Perhaps. But the usual outcome in trade talks is that big countries' arm-twisting is effective—and painful.

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