Russia looks to EU for help in its WTO quest

By bne IntelliNews March 29, 2007

Ivor Crotty in Moscow -

Fatigue was discussed, but certainly did not set in, when EU Trade Commissioner Peter Mandelson and Severstal Vice President Alexei Mordashov, a delegate in Russia's WTO negotiation team, traded arguments at an Association of European Business seminar in Moscow Tuesday.

The signing of the Russia-US Market Access Protocol in Hanoi in November was expected to render all of the obstacles to Russia's WTO membership as mere formalities, but this of course ignored the position of the EU, whose relations with Russia have deteriorated somewhat.

Mordashov listen intently

Mandelson and Mordashov addressed a packed room of press, business people and bureaucrats at a seminar titled "EU-Russia: A Growing Economic Partnership – How to Develop it Further." Each man discussed the problems with Russia' accession to WTO membership, resulting in a rally where a range of shots were traded before the adversaries found common ground.

In his comments, Mandelson seemed to draw no distinction between EU-Russia relations and Russia's WTO accession. Delivering a prepared speech, Mandelson immediately discarded the prevalent stereotype of ongoing Russia-EU relations.

"I reject the caricature that says that the EU-Russia relationship is driven by pragmatism on the Russian side and idealism on the European – that Europe wants a relationship driven by values and Russia wants one driven by interests. Both sides want a partnership of values," he explained. "Russia's economic performance masks a significant vulnerability, and the diversification and integration of Russia's economy is, in fact, in Russia's national interest."

There were few in the room who needed persuading about that.

In outlining areas where he felt Russia "could advance," Mandelson did not hold back, highlighting the role of the state ("either a guiding or a dead hand"); the judiciary; investment in education; business and legal regulatory systems, particularly the protection of physical and intellectual property rights; and the role of state-controlled companies leading strategic projects and the need for clearer rules for investment in these projects.

He encouraged the state to combine with the private sector in developing quality R&D institutions, and he argued that the role of trade and WTO membership can be "an anchor for domestic reforms and the transparent regulation of trade."

In reply

Mordashov offered his comments on the basis that he was convinced of the "comprehensive benefits" offered by WTO membership. Yet he opened his response to Mandelson with "but," outlining his frustration with the slow rate of progress in negotiating Russia's WTO accession.

"The outstanding problems are unclear to us, almost nothing remains unsolved. What should we do to facilitate this process?" he asked.

Mordashov explained how Russia has taken on a number of obligations without yet attaining the promised WTO status, and that such instances of excessive "flexibility" were having a demoralizing effect on Russia's negotiation team.

"Fatigue," he explained, is creeping into Russia's ability in "clarifying and consistently applying Russia's various undertakings."

Mandelson responded in kind to Mordashov's exasperation. "Let me give two examples: export duties on timber, where we reached an agreement in 2004, but new circumstances prompted a re-visit," he said, referring to environmental protection and illegal logging as reasons behind the re-negotiation.

"Secondly, Russian Railway fees to foreign entities. We are entitled to expect that foreign commercial entities will not be discriminated against and that realistic costs to any organization will be applied universally, but now there are questions," he said.

Dmitry Lyukachov, Deputy Head of the Committee on Economic Policy of the State Duma, added that, "While there is political will, we are dealing with unbalanced equilibrium. I can't understand which way the rock will roll from the top of this hill."

Some common ground

Mordashov and Mandelson were able to find common ground, however, agreeing that the completion of negotiations was imperative for both the WTO and Russia, though the difference of opinions persisted.

"We must not elevate false principals into obstacles," Mandelson opined, "so that the bigger prize is not lost."

Both men agreed that both sides apply double standards in some situations, with Mandelson perhaps belying his New Labour background with the phrase: "selling goods or selling policies, what's the difference, you can't have one without the other."

The discussion became far more amicable when a question on how shared values could help overcome opposing interests. Mandelson first outlined how "interests are not necessarily opposites," and that the spirit of competition should encourage each WTO partner to outbid the other. "It is right to have high expectations of Russia," he said. "Russia should enjoy the high expectations others have of her and apply them, and reciprocate! Russia has a European outlook and vocation."

It was Mordashov, however, who warmed most impressively to the task. "I know this from my business life, values is one of the most productive areas we can discuss. Negotiators are still looking for the key, and it is now getting critical, they should not get stuck on technicalities but remember the common values we share," he said.

Mordashov's point was emphatically driven home when, not for the first time, he turned to Mandelson and thanked him for raising a point he wanted to make. "You mentioned double standards and reciprocity, but sometimes negotiators go too far, pushing for benefits, on both sides, and we focus on the negative. But this reciprocity could be extremely helpful, we're forgetting the values of our WTO accession."

Ivor Crotty is Resources Editor at Russia Profile

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