ASSISTANT SECRETARY GORDON'S MEETING WITH RUSSIAN

C O N F I D E N T I A L SECTION 01 OF 03 MOSCOW 002372

SIPDIS

WHITE HOUSE FOR NEC, USTR: WILSON, HAFNER
GENEVA FOR WTO REPS

E.O. 12958: DECL: 09/16/2019
TAGS: ECON ETRD PREL RS WTO
SUBJECT: ASSISTANT SECRETARY GORDON'S MEETING WITH RUSSIAN
DEPUTY PRIME MINISTER IGOR SHUVALOV: WTO, G-20

REF: MOSCOW 2204

Classified By: Ambassador John Beyrle, Reasons 1.4 b&d


1. (C) Summary: Deputy Prime Minister Shuvalov met with A/S
Gordon and the Ambassador on September 9 to discuss bilateral
economic cooperation in advance of his trip later this month
to Washington and the Pittsburgh G-20 Summit. Shuvalov
agreed that the July Summit and the Bilateral Presidential
Commission would play an important role in buttressing
economic and business ties. The main stumbling block to the
economic relationship, in Shuvalov's view, was the WTO
accession process. He maintained that to date, the U.S. had
been the main obstacle to Russia's accession and that he
needed to present WTO skeptics in Russia with "concrete
results" from his trip to Washington (i.e. flexibility on
outstanding bilateral trade issues and lifting of
Jackson-Vanik). He acknowledged, however, that GOR's
decision to accede to the WTO as a customs union with Belarus
and Kazakhstan had clouded the issue.


2. (C) A/S Gordon and the Ambassador reiterated U.S. support
at the highest levels for Russia's WTO accession, urging
Russia to proceed as an individual country. Shuvalov
indicated that entry into effect of the customs union could
be delayed up to two years, giving Russia and Kazakhstan
(sans Belarus) time to complete their respective accession.
In turn, Russia would expect flexibility - particularly from
the U.S. - on outstanding differences, such as state
enterprises. On the G-20 process, Shuvalov said Russia sided
with the majority of participant countries on the need to
continue government financial support packages. However, the
Russian economy needed to modernize and diversify so as to
lessen its dependence on volatile oil prices. End Summary.

WTO - A Stumbling Block
--------------


3. (C) Deputy Minister Shuvalov noted that following the July
Summit, President Medvedev instructed his economic team to
intensify cooperation with the U.S. at the highest levels.
Before heading for the G-20 Summit in Pittsburgh, Shuvalov
said he was scheduled to meet in Washington on September 21
with the U.S. Trade Representative, the NEC Directors, and
possibly other senior officials. The main "stumbling block"
in forging stronger economic links was the WTO, Shuvalov
claimed. "We want to be in the WTO," he said, "but cannot
because of the U.S." Shuvalov explained that many Russians
were pessimistic about WTO accession if not outright opposed,
and that he needed to come back from Washington with
"results" (i.e., a strong indication from the U.S. that the
accession process was moving forward).
One such positive signal, Shuvalov suggested, would be
lifting Jackson-Vanik.


4. (C) Shuvalov aknowledged that the GOR's June decision to
enter the WTO as a customs union with Belarus and Kazakhstan
appeared to have "slowed down" Russia's accession process,
particularly after meetings between USTR Kirk and Minister of
Economic Development Nabiullina the previous week in St.
Petersburg had seemed to open a way forward. While WTO
accession was "touched upon at the at the July Summit.
Shuvalov doubted that either President Obama or Medvedev
fully grasped the substance of the issue. Moreover, a
growing number of Russians - frustrated by the lack of
progress in Russia's accession - were declaring the WTO
process was merely a "game", and that Russia would be "let
into the club" if it "behaved" - (i.e., if it backed down on
certain outstanding bilateral trade issues.) In spite of the
domestic WTO skeptics, President Medevdev had made it clear
in at recent G-8 summit in Italy that WTO accession remained
a strategic objective for Russia and that Russia would be
willing to move forward independently on its accession
process, albeit joining at the same time as Belarus and
Kazakhstan.

U.S. Support for Russia's WTO Accession
--------------


5. (C) A/S Gordon remarked that following the momentum of the
July Summit, the U.S. was intent on expanding bilateral
economic relations. The Bilateral Presidential Commission
would play and important role in buttressing those relations.

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Stronger bilateral economic links would contribute to the
prosperity of both countries: it was not a "zero-sum" game.
The U.S. supported Russia's WTO accession and was prepared to
work with Russia to achieve that goal. For that reason, the
U.S. was surprised and concerned by GOR's June announcement
that Russia intended to accede to the WTO as a Customs Union
with Belarus and Kazakhstan Russia's progress toward
accession would only be delayed by going in tandem with
Belarus.


6. (C) A/S Gordon stated that the Obama administration shared
the GOR's view that Jackson-Vanik was an anachronism, and the
President was intent on moving beyond Jackson-Vanik.
However, if would be difficult to persuade Congress to
approve such a measure if other bilateral trade irritants
(i.e. pork and poultry tariffs) persisted.


7. (C) Shuvalov responded that while WTO was a strategic
priority, Russia also had regional trade interests. For 16
years, Russia had been simultaneously pursuing WTO accession
and a customs union with its neighbors. Russia's decision to
enter the WTO as part of a customs union accommodated both
its regional interests and ties to the WTO process. However,
it also reflected Russia's frustration with the lengthy WTO
negotiation process. He maintained that the U.S. held the
key to Russia's accession. A year ago, he alleged, the U.S.
State Department had sent strong signals to the Geneva
Working Group not finalize a deal with Russia, and the
Australian and Canadian delegations complied by refusing to
talk with the Russians. Shuvalov then quipped: "If the U.S.
could persuade the world to recognize Kosovo in two weeks, it
could certainly persuade its WTO partners to get Russia into
the club."


8. (C) A/S Gordon and Ambassador Beyrle reiterated that the
Obama Administration was taking a fresh approach the
relationship and was committed to overcoming past problems.
The impasse could be overcome at the political level. That
is, the President saw the WTO as a means for achieving
mutually beneficial cooperation with Russia. The U.S. was
working towards an agreement on outstanding issues:
phytosanitary, state enterprises, IPR and encryption. The
process would be easier if Russia pursued its accession as an
individual country.

Shuvalov Seeks a More Flexible U.S. Approach
--------------


9. (C) Shuvalov responded that Russia, Belarus and Kazakhstan
planned to finalize the customs union on November 27, but
that the date from which the union would actually take effect
could be postponed for one or two years. This would allow
Kazakhstan enough time to finalize its accession (the same
would not be true for Belarus). In this way, Russia would
also be able to move forward separately from the other two.
Shuvalov said much depended on the U.S. taking a "softer" and
more flexible approach on outstanding bilateral issues, i.e.,
encryption, IPR, state enterprises. He hoped again for
concrete results during his upcoming trip to Washington, but
cautioned that there were certain forces in Russia as well as
the U.S. that were opposed Russia's WTO aspirations.

G-20
--------------


10. (C) Shuvalov and A/S Gordon briefly discussed the
upcoming G-20 Summit. Shuvalov reported that Finance
Minister Kudrin had just returned from the two-day summit of
G-20 Finance Ministers in London, and agreed with most
participants that it was premature to end government stimulus
and financial support packages. Shuvalov said Russia was
beginning to pull out of its recession, but volatility in oil
prices could bring back problems next year. He supported
Kudrin's emphasis on the need to modernize and diversity the
economy.

Comment
--------------


11. (C) Shuvalov confirmed the existence of a struggle within
the GOR leadership between "protectionists" opposed to WTO
and pro-WTO integrationists. He also minced no works in
expressing Russia's frustration over the extended WTO

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negotiating process, implying it had much to do with Russia's
decision to proceed as a customs union with Belarus and
Kazakhstan. While failing to shed light on where Russia is
ultimately headed, Shuvalov signaled that Russia would be
willing to delay the customs union's taking effect if it
could make tangible progress towards WTO accession. End
Comment.


12. (U) This cable was cleared by A/S Gordon.

Beyrle