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#10 - RW 263
Rosbalt
June 26, 2003
US Gives Advice to Its Strategic Partner
Recently US Ambassador to Russia Alexander Vershbow had a very lively meeting
with top Russian businessmen from the directorship of the Russian union of
industrialists and entrepreneurs. The bigwigs of Russian business, including
Russian Aluminium Chief Oleg Deripaska, who showed special zeal, asked Vershbow
many tough questions. In fact, the argument in regard to the pace of Russia's
entry into the WTO raged to such heights that Vershbow half-jokingly reminded
Deripaska about the possibility of instigating an anti-dumping investigation in
connection with Russian Aluminium. But there were other really curious theses
that came up in Vershbow's speech.
More than Oil!
'':Energy is one of the more promising areas of cooperation between the US
and Russia with clearly emerging mutual advantages for both sides: development
of new markets for Russian producers and diversification of the energy supply
for the US. However, the US has other primary requirements from energy
producers. Naturally, it is aspiring to find adequate and reliable suppliers of
oil products from different countries. Russia, with its significant reserves of
oil and gas, fits the role of a country which could provide global energy
security. But for that to happen, Russia must increase exports in order to
satisfy the growing demand made on Russian energy supplies.
Over the course of many years, US companies have developed technology for
increasing the effectiveness of extracting oil and gas from fields. Many
companies have made use of significant financial resources. Russia could use
this technology to extract her resources much more effectively for the support
and development of an energy infrastructure field and increase Russian exports
of energy on the international market.
However, one of the factors which seriously limits the increase of Russian
oil exports is an insufficient pipeline capacity. In their November joint
declaration, Presidents Putin and Bush approved of the idea of constructing a
deep water port for the export of energy. The construction of an oil pipeline
from Western Siberia to the non-freezing port of Murmansk would allow for the
serious increase of exports of Russian oil. I am happy that the Russian
government approved the Murmansk project during confirmation of the Russian
energy programme. We also welcome the fact that the Russian government plans to
allow private companies to take part in the financing and construction of oil
pipelines from Western Siberia to Murmansk.
Over the last several years, we have observed an increase in foreign
investment in the Russian energy sector. But to attract even more US investment
in Russian energy the government must take a number of steps.
Firstly, it must provide for the inviolability of commercial contracts and
agreements. Moreover, we propose that special privileges be granted for the
development of 'difficult' oil and gas fields, which creates conditions for
investment. Several of these privileges, including the stability of taxes for
new projects and calling for legal international arbitrage, are key elements.
The main principle is that the tax-licensing regime must be transparent, stable
and guarantee investors the possibility of earning reasonable profits.
Energy will be the cornerstone of our economic relations. Nevertheless, we
also want to increase our cooperation in many other areas and already have
successful examples like the cooperation with companies Ford, General Motors,
Caterpillar, International Paper, Gillette, Wrigley, Proctor and Gamble and
others. I heard that Starbucks could very soon emerge in Russia. I am also
hopeful that Wallmart will join the many European discount centers which abound
in Moscow.
Problems with Russia's Entry in the WTO:
In order for investment to grow the country needs normal and stable trade
relations with well-determined rules of the game. The key element for
strengthening our economic ties is Russia's entry into the World Trade
Organization (WTO). There is no need to explain here all the advantages which
Russia will receive from its membership in the WTO. It will speed up and
strengthen structural reforms in the economy which have begun in Russia.
Moreover, as a member of the WTO, Russia will be able to participate in working
out today's problems and deciding future negotiations on global trade.
Over the course of the last several months negotiations on Russia's entry
into the WTO have gone briskly and though it has been a steady process there
still remain differences on the following questions: the degree of readiness of
Russia to open its economy for serious competition in the sphere of services,
including such important areas as banking, insurance and telecommunications
services, the necessity to lower import tariffs on specified industrial trade
goods like airplanes and automobiles, the installment of acceptable levels of
agricultural subsidies and plans to liberalize the domestic energy market in
Russia.
The meeting between Russian Vice Premier Alexey Kudrin and US Trade
Representative Robert Zoelick, which was held in Paris in April, helped to
improve the mutual understanding between both sides and draw our positions
closer together. We are hopeful that by the beginning of the next round of talks
to be held at the end of June and beginning of July we will be successful in
making even more progress.
Obstacles on the Path to Strategic Partnership
I am confident that we are now on the eve of an increase in mutual trade
investment. Nevertheless, before we smoothly move into trade and investment
prosperity we must resolve many problems in addition to those problems which I
have already listed. The principle of rule of law is first problem on this list.
Direct foreign investment in Russia will remain low as long as investors are not
confident that courts will defend their rights, and will respect the
inviolability of contracts.
Our sad dispute over Russian limits to imports of chicken and turkey and
other meat only underscores the importance of Russia's entry into the WTO for
the development of our trade relations. We need such a trade regime, which will
be founded on clear rules together with resolutions which will simply prosecute
protectionist goals.
The Russian government is now beginning to understand the importance of
Russian business interests and the significance of such key spheres for US
companies as intellectual property. In spite of the fact that the government has
already begun to take measures in the battle with piracy, violations against
intellectual property rights in Russia remain a serious and growing problem
which affect the interests not only of foreigners but Russian holders of
author's rights.
The lack of protection of author's rights is also a factor which seriously
worsens the investment climate. We welcomed the creation of a special commission
last fall, which was headed by Prime Minister Mikhail Kasyanov, the recent raids
against producers of pirated DVD disks and also the passing of legislation on
the protection of intellectual property. The seriousness of this problem is well
illustrated with an event that occurred not long ago: I went to the Moscow
premier of the film The Matrix Reloaded and was told that pirate copies of disks
of the film were already on sale on the streets of Moscow. Please don't buy
them!
Widely distributed excessive bureaucracy and the abundance of different
instructions bring large losses to business activity, and to a larger degree to
Russian business than to US business. The Russian government recognizes the
existence of this problem, but still has not taken decisive steps in this area.
No progress can be made in this area without comprehensive administrative reform
of the government apparatus.
Excessive bureaucratization leads to corruption, which needs to be controlled
if we want to reach economic prosperity especially in the areas of small and
medium-sized business. Your research paints an alarming picture in many regions:
conflict of interests on the city and regional levels which bring about the
removal of competition.
The tendency is aggravated by weak and often corrupt executive power which is
not capable of carrying out judicial decisions. This element has often emerged
in different judicial cases involving foreign investors. Moreover, quite often
politics is conducted on the federal level in favour of specific companies and
causing losses for their competitors.
Another factor which is not always associated with economics is the free
exchange of information and unlimited access to it. A tendency in Russia exists
to put controls on the mass media and limit the access to information which must
be accessible to society. The case in point is projects of resolutions and
details of the government's budget. This negatively influences the economy and
democratic process. Market economics depends on information distribution and
transparency. I welcome the recent efforts of the Ministry of Economic
Development and Trade in advancing the law on freedom of information.
Unfortunately, I must add one more sad problem to this list - HIV infection
and AIDS. If this disease is not stopped, it will drain the economy. As leaders
of the economy you must be particularly worried about the influence of AIDS on
the workforce in the next ten years, if no steps are taken to stop the spread of
this infection in Russia which has the fastest growth rate of AIDS cases in the
world. I was happy that last week President Putin, in his message to the nation,
reminded everyone of the threat of HIV-infection and AIDS and I am hopeful that
this problem will be given the necessary amount of attention in Russia.
I believe that if we devote our efforts to the development of the mutual
economic interests of our countries, then all these problems can be resolved. We
can integrate the economies of the US and Russia in such a way that they
advantageously supplement one and other for the prosperity of both countries. In
this way we can also integrate Russia into the world economy and even more
strongly reinforce the strategic partnership between our countries.'
Prepared for publication by Oksana Chernishyova, Rosbalt
Translated by Richard Sleder
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