(Reuters) - Russia has threatened to ignore a Georgian veto on its entry into the World Trade Organization (WTO), Georgia's ambassador in Geneva said on Friday, in an unprecedented move that would challenge the way the WTO works.

Although the WTO rules say decisions can be reached by a two-thirds majority, in practice that has never happened and so far all decisions have been unanimous.

That means that despite its small size, Georgia has the right to demand assurances on its own trade requests before letting Russia into the world trading body.

Diplomats say there is huge political pressure for Russia's 18-year quest to join the WTO to end this year, but Georgia is still unhappy about a thorny border issue and says Russia's negotiating position has hardened.

Without Georgian consent, the WTO's working party on Russian accession cannot formally meet to approve the draft accession document, a 700-page tome spelling out the conditions and guarantees agreed for Russia's entry.

But Russian negotiators have said they could by-pass the working party and get a majority decision at a trade ministers' meeting in December instead, Georgian Ambassador Zurab Tchiaberashvili told Reuters.

"In the last meeting, Russia openly threatened that," he said. "They are setting an impression in the international community that 'We talked to the Georgians but really it doesn't mean anything.'"

In an emailed reply to Reuters, WTO spokesman Keith Rockwell said "consensus" was the established method of decision-making.

"Without referring to this case or any other specific case, governments have made absolutely clear that the consensus system is the way decisions are to be taken in the WTO. Each and every member government holds this view," Rockwell said.

However, a Russian source close to the negotiations denied that Russia had made a threat to short-circuit the WTO.

Georgia has previously taken the unusual step of sending a letter to other WTO members to warn them that it won't be bullied into letting Russia in if the terms are not fair.

It also rejects any suggestion that it is being cajoled into letting Russia in or being offered sweeteners. The European Union is offering Georgia a separate free trade deal, but that is unconnected with Russia's WTO entry, Tchiaberashvili said.

"From our side we don't see a direct link between the two. If somebody thinks there might be a link, it's their business."

CUTTING THE GEORGIAN KNOT

Russia and Georgia fought a border war just three years ago, the low point in the fall-out between the two countries and a dispute which has caused a deadlock in the WTO talks. Georgia says Russia won't accept international monitors in two Georgian regions that are loyal to Russia.

Under a compromise suggested in Swiss-brokered mediation talks, Russia would notify details of its exports to the two regions to the proposed monitors. Tchiaberashvili said Georgia wasn't asking to tax the imports, but wanted to prevent illegal traffic in weapons and drugs.

"For Georgia, ... allowing Russia to join could be an excuse for it to restore trade with Russia while continuing to challenge Russia politically," Ovanes Oganisian, a strategist at Moscow-based Renaissance Capital, said in a note to clients.

"We think Russia would quickly become Georgia's largest trading partner, as it was before August 2008."

He said Georgia could quickly become an international hub for cross-border business in the Caucasus, a volatile region after the 2008 Russia-Georgia conflict.

Russia is by far the largest economy still outside the WTO. But the attractions of joining are less evident than they would be for some other countries, at least in the short term, since Russia's energy exports aren't at risk of trade sanctions while its own economy may suddenly feel the biggest gust of outside competition since the fall of Communism.

On the other hand, supporters of membership say joining the 153-member club would force Russia to modernise and ensure a level playing field for foreign business. It could also be good for Russia's gas producers, Oganisian said.

"While export duties are allowed, export quotas are not, which would potentially allow domestic gas producers - such as Novatek, Rosneft and LUKOIL - to supply gas for export, and would raise domestic prices," he wrote. "Accession to the WTO could also stimulate the reform of Gazprom."

Before that can happen, Georgia and Russia must bury the hatchet. The timetable is tight, with the ministerial conference in December widely seen as a "now or never" opportunity for Russia to get approval.

September 30, 2011

Source: Reuters

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