Russia Uncorks Another Trade Dispute
Wine From Georgia and Moldova Is Banned as Ex-Soviet States Anger Moscow

By Peter Finn
Washington Post Foreign Service
Friday, April 7, 2006

MOSCOW, April 6 -- In major Russian supermarkets, Georgian and Moldovan wine is being pulled from the shelves. At warehouses across the country, millions of bottles from the two countries are in lockdown. And hundreds of train cars and trucks laden with wine are stopped on Russia's borders, blocked from entering by customs officials.

Just a few months ago, Russia settled its war over natural gas prices with Ukraine. Now it has opened another trade battle with two other former Soviet republics that officials here see as recalcitrant for drifting away from Moscow's influence.

Late last month the Russian consumer protection agency banned the import of Georgian and Moldovan wine and ordered a halt to all sales of existing stock, claiming the wines were contaminated with pesticides and heavy metals. Officials in the two countries dismiss the allegation as nonsense.

Together, Georgia and Moldova provide nearly 43 percent of all wine sold in Russia, according to Snezhana Ravlyuk, senior analyst at Business Analytica in Moscow. The ban is having a punishing effect on an industry that stretches from Black Sea vineyards to the Moscow warehouses of Russian wholesalers.

"It's very clear this was a political, illegal and unfriendly decision," said Georgia's prime minister, Zurab Nogaideli, in a telephone interview from Tbilisi, the capital. "It's absolutely absurd and ridiculous. If our wine goes to European Union markets and North America and has no problems, why is it not able to go to the Russian market?"

The Russian action followed suggestions by Georgian and Moldovan officials that they might block Russia's attempt to join the World Trade Organization, a major goal of President Vladimir Putin. He has also complained recently that the United States was holding up Russia's membership.

Both Georgia and Moldova contain breakaway regions that are supported by Russia. The two governments hoped to use Russia's desire to join the WTO as leverage in negotiations with the Kremlin about those regions, analysts here said.

Georgia and Moldova have had strained relations with Moscow since Western-oriented governments came to power. They say the wine ban exemplifies Russia's willingness to use its economic clout for political purposes. Such moves are generally illegal under WTO rules.

A similar accusation was leveled when Russia's state-owned Gazprom switched off the flow of natural gas to Ukraine for a few days at the beginning of January. Russian officials said at the time that the cutoff resulted from a need to charge market prices and end what amounted to a massive subsidy of the Ukrainian government.

This time, the Russians say, it's all about bad wine.

"Our results show that more than 60 percent of wine and wine materials from Moldova and the Republic of Georgia do not comply with sanitation and epidemiological regulations," Russia's Federal Inspectorate for Consumer Protection said in a letter to the Russian Customs Service. Officials at the consumer agency were not available for comment, a spokeswoman said.

The decision followed what the consumer agency said were routine checks of Georgian and Moldovan wines on store shelves. Whether the checked wine was even from Georgia is open to question; in Russia there is large-scale counterfeiting of Georgian wine, which is very popular for both its quality and cost.

In any case, it was a devastating decision for both countries. Russia buys more than 80 percent of all exported Georgian wine, or 9 percent of all exports from the Black Sea country. To Moldova, the trade accounts for nearly 75 percent of total wine exports and 19 percent of all exports.

"Of course we are going to suffer losses, but it's also clear we have to reorient our exports," Valery Lazar, Moldova's economy and trade minister, said in a phone interview from the capital, Chisinau.

Moldovan officials flew to Moscow on March 28, but were forced to cool their heels for a week, the minister said. "They finally met some officials" on Tuesday, Lazar continued, "but the Russian side failed to produce any concrete results. And they can't. The quality of our wine is excellent."

Lazar said he suspects that another factor in the ban may be business figures who for their own interests "are trying to discredit the quality of Moldovan wine."

Kakhetian Traditional Winemaking, a company that owns vineyards in southern Georgia and produces 1 million bottles of wine annually, has lost 70 percent of its sales. "Our business has stopped," Natalia Yanchuk, the company's marketing director, said in a telephone interview. "The situation must be solved."

At the warehouse of Group Dionis on the edge of Moscow, 3 million bottles of wine are gathering dust. The company, which has nearly 1,000 employees in Russia, Georgia and Moldova, has begun laying off workers. The Russian National Alcohol Association estimates potential losses in the hundreds of millions of dollars.

"I don't want to talk about politics, but it's clear this action is punishing Russians," said Sergei Dyuzhinov, development director for Dionis, one of Russia's largest wine importers.

Many Georgian restaurants dot the Russian capital, and managers said they had enough Georgian wine in their cellars for their customers, even if serving it now appears to be illegal. They are dreading a protracted blockade.

"In a month," said Iveri Dzhikiya, manager of the Tiflis restaurant in Moscow, "I may have to serve French wine."