US-Russia rift widening, despite pact

Bush and Putin finalized a surprise deal Sunday, removing the chief obstacle to Russia's WTO membership.

Divided government in Washington could prove therapeutic for the troubled US-Russia relationship.

So say some Russian experts, who believe that Democrats' victory in midterm elections this month compelled President George W. Bush to draw on the support of Russian leader Vladimir Putin.

The two finalized a surprise deal Sunday that effectively ended 12 years of US objections to Russian membership in the World Trade Organization (WTO), thus removing the chief obstacle to Russia's entrance into the group.

"The only thing that has prevented a full slide into a new cold war was the personal relationship between Bush and Putin," says Viktor Kremeniuk, deputy director of the official Institute of USA-Canada Studies in Moscow. "Now, as a result of an election that has greatly weakened Bush, he is reaching out to Putin for help on foreign policy issues such as Iran, using the only carrot he has: WTO membership."

But despite warm personal relations between Bush and Putin, and a temporary boost in mutual ties following 9/11, Russia and the US have since drifted apart over global security issues such as the war in Iraq and how to handle the challenge of Iran's nuclear program.

Last year, a regional organization led by Russia and China demanded the ouster of US military bases from former Soviet Central Asia, while the Western military alliance, NATO, has stepped up its contacts with Russian neighbors such as Georgia and Ukraine.

In addition, American criticism of Putin's internal policies, and Russia's alleged use of energy blackmail to pressure Westward-leaning neighbors, has grown much sharper over the past year.

Amid growing dissension over these concerns, the 800-page trade pact signed Sunday had appeared headed for permanent back-burner status as recently as July, when Bush and Mr. Putin failed to endorse it at the Group of Eight summit in St. Petersburg.

If ratified by the US Congress – a big if, given Democrats' traditional opposition to free-trade agreements – and accepted by the WTO's 150 members, the deal will herald Russia's arrival as a full-fledged member of the global market after 15 years of being regarded as a stumbling post-Soviet "transitional" economy.

"This will be the most important legacy of Putin's entire presidency," says Yaroslav Lisovolik, chief economist for Deutsche UFG, a member of the Deutsche Bank Group, in Moscow. "It really says that Russia is heading toward a more rational, market-based and competition-oriented policy, no matter what other signals may be in the air."

Under the accord, Russia pledges to pry open formerly protected areas of its economy, such as financial services, automobiles, aviation, and computer technology, in return for greater access for Russian goods to world markets.

Moscow has also committed to a crackdown on corruption, money laundering, and intellectual property theft, which cost US companies an estimated $1.8 billion in 2005.

Though the Kremlin-dominated State Duma is expected to easily ratify the deal, critics are concerned that it will inflict more short-term pain than can be justified by hypothetical long-range gains.

"We could face a severe recession in several branches of industry, including autos, aircraft, and agriculture," says Olga Belenkaya, chief economist of Finam, a Moscow brokerage. "It could lead to a big jump in unemployment, and Russia's dependence on imports will grow."

A bigger worry is that the accord could be held hostage to what many experts perceive as a deepening slump in US-Russian relations.

"The image of Russia in the US today is an authoritarian state with nuclear weapons and an aggressive energy policy that acts in tough ways toward its neighbors," says Mr. Kremeniuk. "And that's mutual. In Russia, the US is widely regarded as an enemy in public opinion, TV news, and the Duma."

A September poll by the independent Public Opinion Foundation in Moscow found that 55 percent of Russians regard the US as a "hostile" power, while just 27 percent saw it as "friendly."

Yet another looming obstacle is the opposition of small post-Soviet states of Georgia and Moldova, who say they'll block Russian WTO ascension until Moscow starts treating them fairly. "Russia cannot become a WTO member without Georgia's approval," Georgia's minister for economic reform, Kakha Bendukidze, was quoted as saying Monday by the official ITAR-Tass agency.

"With Georgia's objections, the political logic seems stronger than economic concerns," says Nikolai Liventsev, a professor at the official Institute of International Relations, which trains Russian diplomats. "Georgia may delay the process for awhile, but it cannot derail it."

As part of the bargain ,the US agreed to lift sanctions imposed on Sukhoi, a leading maker of Russian warplanes, for allegedly selling restricted goods to Iran. Russian officials say they hope similar measures against Russia's state arms exporter, Rosoboronexport, will also be removed.

The trade deal was altogether a stunning triumph for Putin, say Russian experts, and one that adds much to his growing political leverage. Putin, like Bush, is slated to step down in 2008, and he needs to engineer a smooth transition for his hand-picked successor, as yet unnamed.

Putin's personal popularity ratings are soaring after seven years of roaring economic growth in Russia. Thanks to oil-fueled windfall trade surpluses, Russia this year paid off its Paris Club debt of $25 billion, and launched the once-ridiculed ruble as a convertible currency.

"Signing of the WTO deal will be taken by Russian leaders as more evidence that Putin's policies are succeeding and being accepted by the world," says Gennady Chuffrin, deputy director of the official Institute of World Economy and International Relations in Moscow.

"As Russia heads into election season next year, Putin will need to use every possible advantage to prove to the Russian public that his choices and his policies are incontestable," he says.

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