CDI Russia Weekly-#211 21 June 2002 Edited by David Johnson Center for Defense Information 1779 Massachusetts Ave. NW Washington DC 20036 phone: 202-797-5277; fax: 202-462-4559 djohnson@cdi.org The CDI Russia Weekly is an e-mail newsletter that carries news and analysis on all aspects of today's Russia, including political, economic, social, military, and foreign policy issues. With support from the Carnegie Corporation of New York and the MacArthur Foundation, CDI Russia Weekly is a project of the Washington-based Center for Defense Information (CDI), a nonprofit research and education organization. CDI Russia Weekly web page (with archive): http://www.cdi.org/russia/ Visit CDI's web site: http://www.cdi.org Contents: 1. CNN television broadcast: Deadlock: Russia's Forgotten War. 2. AP: U.S.-Russia Defense Cooperation Seen. 3. Izvestiya Views US Skepticism About 'Symbolic' Start of NMD Work. 4. Moscow Times: Pavel Felgenhauer, Dirty Bomb Threat Is Real. 5. gazeta.ru: Capital coaxed back to Russia. 6. Christian Science Monitor: Scott Peterson, Russian nuclear know-how pours into Iran. 7. Yezhenedelny Zhurnal: Alexander Golts, HIDE-AND-SEEK IN THE MANNER OF GENERALS. The Defense Ministry will have to account for defense spending after all. 8. Moskovsky Komsomolets: MILITARY SALARIES. 9. Izvestia: NIKOLAI ZLOBIN: “A TREMENDOUS PSYCHOLOGICAL TRIAL IS IN STORE FOR RUSSIA” 10. Moscow News: Sergei Karaganpov, Needed: an International Security Alliance. The past month has been remarkably successful and productive for Russia's foreign policy and diplomacy. 11. Komsomolskaya Pravda: Viktor Baranets, NO MORE MYSTERY ABOUT KURSK SUBMARINE SINKING. 12. RFE/RL: Michael Lelyveld, Russia: Moscow Seeks Balanced Tariff Policy. 13. Jamestown Foundation Russia and Eurasia Review: Harry Kopp, BE CAREFUL WHAT YOU WISH FOR. (re market economy status) ******* #1 CNN television broadcast http://www.cnn.com/CNN/Programs/presents/ Deadlock: Russia's Forgotten War Saturday, June 22, 8 p.m. Sunday, June 23, 7 p.m., 11 p.m. Monday, June 24, 2 a.m. All times EDT Deadlock: Russia's Forgotten War In Chechnya, a war without winners has no end in sight In the breakaway Russian republic of Chechnya, Russia says it is fighting against terrorism. Chechen rebels say they are fighting for independence. The outcome seems to be ongoing misery for the war-ravaged region -- a cycle of violence where brutality seems to have no limit, and surrender is not an option. In "Deadlock: Russia's Forgotten War," CNN Presents looks at the conflict based on the reporting of Michael Gordon, a New York Times journalist who has covered the Chechen conflict extensively and gained extraordinary access to the Chechen battlefields. The second Chechen war Russia lost the first Chechen war. The Russians withdrew in 1996 after Chechen rebels fought the Russian military to a draw. But the military returned in October 1999, after Chechen rebels invaded the neighboring Russian republic of Dagestan in 1999. Since then, almost 3,800 Russian soldiers have died and nearly 14,000 have been wounded in Chechnya. The rebel casualties are higher, and both sides have been accused of atrocities. Nobody knows for sure how many civilians have been killed. But more Russian recruits like Timofei, an 18-year-old from a small town on the Volga River, are being drafted to continue the fight. On CNN Michael Gordon of the New York Times will discuss Chechnya on CNN on Saturday, June 22, at 12:30 p.m. EDT. 'Deadlock: Russia's Forgotten War' is a co-production of CNN Productions and Azimuth Media ******* #2 U.S.-Russia Defense Cooperation Seen June 20, 2002 By GEORGE GEDDA WASHINGTON (AP) - A top Defense Department official said Thursday he sees great potential for the United States and Russia to cooperate in the missile defense area despite broad differences on that issue. Air Force Lt. Gen. Ronald Kadish, director of the Pentagon's Missile Defense Agency, said one potential area of cooperation is a decade-old joint effort to permit early detection of missile launches. It is known as the Russian-American Observation Satellite (RAMOS) program, which was begun as a confidence building measure under President George H.W. Bush not long after the collapse of the Soviet Union. Satellites and other means of detecting and tracking missiles in flight are crucial to defending against attack. Interceptor rockets cannot work properly if they aren't cued to their target in time. Russian President Vladimir Putin and President Bush agreed last month at their summit meeting in Moscow to explore possibilities for cooperation in missile defense despite Russia's well known reservations about the concept. The Russians have long opposed U.S. plans to erect defenses against long-range missiles, asserting that it would lead to a renewed arms race and potentially undermine the deterrent effect of Russia's offensive nuclear force. Speaking to a gathering at the Heritage Foundation, a conservative research group, Kadish said, ``I think that there is a great potential for us to move forward in the relationship with Russia, specifically in the missile defense area.'' The experience with the RAMOS program has been good and bad, he said, adding that the historic rivalry between the two countries could impede cooperation on RAMOS and perhaps other areas. Wade Boese, research director at the Arms Control Association, said he doubts the stated willingness of Moscow and Washington to cooperate will lead to much, saying there has been very little progress on the RAMOS program and he sees little hope for change. ``Military technology is one of the hardest areas to begin cooperation with a former adversary,'' he said. He added that Pentagon officials are worried about what the Russians will do with sensitive information the American side may pass on during their cooperative effort. Kadish, commenting on the overall missile defense program, said he is optimistic that the administration goals can be achieved, noting that the success rate of recent tests has been increasing. ``Have there been a lot of failures?'' he asked. ``Yes, but we have learned from those failures. ... Our challenges are great but we are poised to march into those challenges.'' ******* #3 Izvestiya Views US Skepticism About 'Symbolic' Start of NMD Work Izvestiya 18 June 2002 [translation for personal use only] Report by Yevgeniy Bay: "Missile Defense Zero Cycle" Washington -- Construction of the first launch positions within the framework of President Bush's missile defense project has begun in Alaska. Military contractors have begun earthworks on the territory of Fort Greely, 160 km southeast of the city of Fairbanks. The Pentagon hopes to complete construction of six missile silos, each 35 meters deep. They could hold up to 100 interceptors -- by September 2004. Time is at a premium, since all work under Arctic conditions can only be carried out during the brief summer period. As is well-known, the antimissile system proposed by the Republican administration is aimed against possible nuclear attack using ballistic missiles by so-called "rogue states" -- primarily North Korea and Iran. Alaska has been chosen because, from there, interceptors would have the shortest trajectory to shoot down missiles if they were launched, for instance, from the Korean Peninsula. Many experts doubt that the Pentagon will succeed in creating an effective antimissile system within such a short space of time. Philip Coyle, the former head of missile testing programs in the Clinton administration, is convinced that a land-based antimissile system in Alaska will not have been completed not only by fall 2004, but even by the end of the decade. Coyle believes that the Pentagon has been unable to elaborate an effective plan to develop other very important components of the system -- namely, a modern radar on the Aleutian Islands and a new satellite guidance system for interceptor missiles. It has become known that "only" $325 million is to be spent on building the six silos -- whereas the entire system will cost the Pentagon $64 billion. Another expert -- Daryl Kimball, who heads the Arms Control Association -- is even more skeptical. "This is a symbolic deployment," he said. "At best it will provide protection for President Bush personally against attacks by the right wing of the Republican Party." At the same time, experts admit that the administration is very serious and is unlikely to revise its plans. The White House has only just warned Congress that it will veto the $393-billion military budget approved by both houses unless the Capitol returns the $814 million that was removed from the estimates for the development of the antimissile program. The House of Representatives obediently approved the $7.8 billion requested by the Pentagon for next year to create an antimissile shield. The Senate Armed Services Committee, which is dominated by Democrats, has insisted on cuts -- it has decided that the program's goals have not been spelled out sufficiently clearly. Nonetheless, Congress intends to reach agreement with the administration on all parameters of the military budget before the summer recess, which begins 4 July. A tough confrontation with the White House is not part of its plans. Supporters of the antimissile program say that it would be completely absurd to provoke confrontation between the two branches of power for no reason at a time when America has managed to persuade even Russia not to oppose the Bush initiative. Deputy Defense Secretary Paul Wolfowitz wrote a rather unusual article in the latest issue of the conservative Wall Street Journal. Considered the leader of the political group that used to call for Russia to be treated in the toughest tone possible, Wolfowitz has suddenly turned into a dove, billing and cooing about "fruitful strategic relations" with "new friends such as Russia." In Wolfowitz's opinion, now that the ABM Treaty that had shackled the two countries is a thing of the past, nothing prevents America and Russia from "building a relationship aimed not at mutual destruction but at developing cooperation in the sphere of the economy, politics, and security." ******* #4 Moscow Times June 20, 2002 Dirty Bomb Threat Is Real By Pavel Felgenhauer Last week, while in Moscow, U.S. Attorney General John Ashcroft announced that U.S. security services succeeded in foiling an attempt by al-Qaida terrorists to detonate a "dirty" radioactive bomb in Washington. Later it emerged that the U.S. authorities had only arrested a suspect and had not seized any radioactive materials. The story may turn out to be a false alarm. It also may be that the radioactive material to make a dirty bomb is already stashed away somewhere in the United States waiting to be used. Since Sept. 11, the U.S. authorities have been scrambling to deploy radioactivity detecting devices at all ports, passenger and freight border crossings, etc. But establishing a reliable network of detectors to control all possible illicit transport of radioactive materials throughout the United States is a serious challenge. It will take years, billions of dollars and still may not be fully effective. Plutonium and MOX-fuel -- a mixture of uranium and plutonium oxide, used as fuel in nuclear power plants -- emit heavy particles that can be stopped by a sheet of paper. It's easy to make a dirty bomb using plutonium or MOX-fuel powder. Makers should be relatively safe, if they use a respirator, wash before eating and bury their contaminated clothing. Plutonium is not easy to detect during transportation and is virtually harmless if not ingested. But even minute amounts of plutonium powder are totally deadly when inhaled or swallowed. Most scientists agree there is no such thing as a "safe" dose of radioactive exposure, especially if relatively long-living isotopes like plutonium or cesium penetrate and lodge in body tissues. The higher the dose, the higher the risk of sickness or death. But there is no lower limit at which the risk is zero. Some individuals are more resistant than others. It does not take large clouds of radioactivity to disrupt the life of a big city permanently and cause evacuation of the contaminated area for an indefinite period. It is possible, at least in theory, to get hold of the material to make a dirty bomb inside the United States. Over half a century of nuclear production in the United States has produced thousands of tons of highly radioactive waste. Not all of it is adequately stored or fully accounted for. Former Soviet republics may also be a source of radioactive danger. Efforts have been made to try to guard weapons-grade nuclear material in Russia, but radioactive waste is often dumped and not guarded at all. In Chechnya, a Soviet-era nuclear burial ground of the Moscow-based state-run Radon company has been in the middle of the protracted war, and for years it was not controlled by anyone. It is believed some radioactive substances were removed by Chechen militants, but no one knows for sure how much, since accurate logs are absent and no one is keen to volunteer to dig up the radioactive burial ground to see what's missing. Russian-Iranian nuclear cooperation is another source of concern. Russian diplomats say Washington has recently been ratcheting up pressure on Moscow to sever links with Iran. Russia is building a 1,000-megawatt nuclear reactor in Iran that will produce non-weapons-grade plutonium. But it will produce unlimited quantities of radioactive waste, plutonium good for dirty bombs and other dangerous radioactive compounds -- sufficient to load onto ballistic missiles targeted at Israel instead of the nukes that Iran does not have; or maybe provide terrorists with radioactive powder to add to suicide bombs instead of nails. In a year or two the Iranian reactor will be operational, and the United States seems ready to prevent this at all costs. At present, U.S. diplomats say they are offering Moscow different goodies: Pentagon procurement of Russian-made helicopters specifically modified to fly in the mountains of Afghanistan, NASA buying more Russian-made space equipment, and so on. But Moscow is resisting the mounting pressure and offers of compensation. Opaque barter deals with Iran often bring much more personal wealth to specific influential individuals in Russia than do contracts with the U.S. government. The Iranian nuclear connection is increasingly the main stumbling block in U.S.-Russian relations. If no compromise is found in the coming months, the United States may use its new strategy of preventive nonproliferation and hit the Russian-built reactor, even if Russian technicians are still there. Pavel Felgenhauer is an independent defense analyst. ******* #5 gazeta.ru June 20, 2002 Capital coaxed back to Russia By Olga Proskurnina President Vladimir Putin has called on Russian businessmen to return funds hidden in offshore accounts throughout the last decade of political instability and excessive taxes. The idea to repatriate Russian capital invested abroad has become very popular of late, with ministers and now the president making proposals for the creation of favourable conditions for the return of capital. The president, speaking on Wednesday at the congress of the Russian Chamber of Industry and Commerce, urged businesses to contribute to the repatriation of capital. Although, it seems that this call is addressed not only to businessmen. Debates on the repatriation of capital through a tax amnesty to Russian entrepreneurs who have deposited their huge revenues in offshore banks have been held in Russia for many years now, but until recently, they were mostly of a hypothetical nature. But things are beginning to change since the International Bank for Reconstruction and Development in Moscow published a report on the situation of the Russian economy. The authors of the report cited that GDP growth is directly linked to the repatriation of fugitive capitals. A couple of weeks later the First Deputy Chairman of the Central Bank Andrei Kozlov, speaking at the International Banking Congress in St. Petersburg said that presently some $5 billion is being held in the foreign accounts of 7 major Russian banks affiliated with the companies producing raw materials. ''This money should work for the Russian economy, in particular, to give credit to small and medium-sized businesses,'' Kozlov concluded convincingly. On Tuesday, June 18, the deputy chief of the governmental administrative apparatus Alexei Volin told the press that the Russian government had been receiving proposals concerning the legalization of incomes of Russian citizens, currently in foreign accounts. According to Volin those proposals are being thoroughly studied, ''although presently one cannot speak of a single, final project for the liberalization of legislation in that sphere''. At the same time, the government’s envoy to the Supreme, Arbitration and the Constitutional Courts Mikhail Barshchevskiy readily revealed the details of the project to the press. Presumably, Russian citizens who reveal their foreign possessions will be liable to 13 per cent income tax on the whole amount. Of the remaining amount, 25 per cent will be transferred to a Russian bank, whereupon it will be for the account holder to decide whether to transfer the remaining 75 per cent to Russia, or to leave it in a foreign bank. Barshchevskiy added that at present the funds of Russians stored abroad, are estimated at some $300 billion (approximately the same sum is cited by IBRD experts). Yet, it is no longer profitable for Russians to continue holding their money abroad - even in Sberbank of Russia (a major savings bank) the interest rates on currency deposits are several times higher than in foreign banks. Besides, in the wake of the fight against international terrorism, the world community has focused more on offshore banks, seeking to unveil the shady sources of financing of the new universal evil. And, what is most important, unlike amnesty, which is offered to those whose guilt has been established in court, legalization of repatriated capital does not imply the person is guilty of some criminal offence. This is a fundamentally important point. The definition of amnesty in Russian law presumes that it was preceded by some criminally punishable act. Proceeding from that definition, it appears that those who had taken their capital abroad and did not pay taxes on those amounts are automatically considered to be criminals. Given these circumstances, it seems somewhat unlikely that they would readily return their capital, because no one is willing to be called a criminal, whether they are punished or not. Therefore, it appears that the term 'legalization' is more appropriate than 'amnesty'. Speaking at the Congress of the Chamber of Industry and Commerce on Wednesday, President Putin paid special attention to the problem of repatriation of Russian capital. ''As of today,'' Putin told entrepreneurs, ''huge resources of Russian origin are held in offshore zones in the West. At the same time, Western economies have no interest in that money being returned to Russia. Here, Western economies operate according to the old Russian saying 'don't let friendship interfere with business'.'' Putin also reminded the audience that the international community would continue to apply efforts aimed at tightening up the use of funds in offshore zones in connection with the stepping up of the fight against terrorism. ''I am not telling you that these accounts will be frozen tomorrow, but if that happens… you will wear yourselves out in court trying to unblock your accounts in offshore zones.'' It would be much more sensible, and not only from a patriotic, but from an economic standpoint for the business community together with the government to think about creating favourable conditions for investing Russian resources, including those placed in the West, in the Russian economy, he said. It is a well-known fact, that the president’s economic adviser Andrei Illarionov treats the idea of repatriation of those resources quite negatively. Not long ago, when Gazeta.Ru asked him to comment on the provisions of the IBRD report on the correlation between economic growth and the return of capital, he said that there is nothing good about tax amnesties for the economy. The capital goes back when there are favourable conditions for it, and then there is no need for any amnesties. ******* #6 Christian Science Monitor June 21, 2002 Russian nuclear know-how pours into Iran A civilian power reactor being built in Bushehr triggers fears that Russian scientists are secretly sharing missile technology. By Scott Peterson | Staff writer of The Christian Science Monitor MOSCOW – As Aeroflot Flight 515 from Moscow begins its predawn descent into Tehran, the group of middle-aged Russian experts on board begins to fill out landing cards for Iran. Pulling out dog-eared, still-valid Soviet passports, the men write down their profession – engineer – and their destination: Bushehr, the city on the Persian Gulf that is home to Iran's nuclear-power project – and to 1,000 Russian engineers and technicians. Russia sees the Bushehr reactor as a mammoth civilian venture, an $800 million nuclear power project that adheres to international norms, brings home cash, and ensures close relations with the Islamic regime in Tehran. But from the United States' perspective, oil- and gas-rich Iran doesn't need nuclear power. And so the reactor is an indication that Iran – using the civilian project as a cover, the US alleges – is gaining sensitive Russian technology that will help Tehran's hard-line mullahs acquire nuclear weapons and delivery systems. Curbing such proliferation is a key strategy of the US-declared "war on terror." Despite top-level denials of wrongdoing from Moscow and Tehran, and piecemeal indications that Russia has refused several questionable Iranian requests in recent years, US officials say that illicit technology and know-how transfers from Russian entities to Iran are continuing, and could spoil rapidly warming US-Russia relations. "The quality of the relationship with Russia really depends fundamentally on how they address this question in the future," John Bolton, the US undersecretary of state in charge of arms control, warned last week. Russia says it is playing by the rules, and that it has an even greater interest than the US in preventing nearby Tehran from acquiring nuclear capability. Officially, the United Nations International Atomic Energy Agency (IAEA) says that both Russia and Iran – for their declared nuclear projects – are adhering to all guidelines. Russia notes that, under a nonproliferation agreement, the US is building a similar reactor in North Korea – another country labeled by Washington as part of an "axis of evil." Loose scientists But the secretive world of nuclear and missile exports; the murky role of Russia's security services, often vulnerable to bribery; and the desperation of Russia's nuclear scientists, impoverished since the USSR's fall, have created new risks. US concerns focus not on mishandling of nuclear materials at Bushehr – which are to remain under internationally monitored Russian control – but on the possibility that Russian know-how will create a nucleus of Iranian experts who could apply new knowledge to a weapons program. "The new generation [of nuclear experts] may work in Iran, and may work on nuclear weapons, because their lives are too hard and they want money, money, money," says Valentin Tikhonov, a Russian Academy of Sciences expert who authored a report last year on the "human factor" of Russian proliferation, for the Carnegie Endowment for International Peace. "Most can't see the difference between working on civilian or war production – for them it doesn't matter," Mr. Tikhonov says. "In these conditions it is difficult to speak about human values, about the dangers of their work. They only want to survive. It is a catastrophic situation." Most Russian nuclear scientists make less than $50 per month, according to the report. Under US pressure, three key missile technology deals to Iran were stopped by Russian authorities in the late 1990s. And the sale of critical laser information that could help Iran make fuel for nuclear weapons was suspended in 2000. Still, US sources say such cooperation continues. "[Russia] is giving meaningful help [to Iran] in mastering the nuclear-fuel cycle, and some critical technologies like sophisticated metal alloys [and for] laser isotope separation techniques ... that are involved in building the bomb," says a senior US official, who asked not to be further identified. "There's enough to see a pattern of a determined Iranian effort that has unfortunately struck positive responses from some Russian entities." While Russia calls for evidence of US claims, however, passing on such intelligence is "tricky" because of Clinton-era cases that went awry, the US official says: "When some sensitive information was passed to the Russians, they didn't stop the activity, but they stopped the leak. That leads to great reticence to blow any more sources." Russian analysts argue that Moscow's concerns about Iran precisely mirror Washington's, and that it also wants to stop "freelance" technology transfers. "There is practically zero risk that Iran will use the Bushehr power plant for nuclear proliferation," says Vladimir Orlov, head of the PIR Center, a Moscow think tank, echoing some American analysts. He notes that Russia will cut Iran out of the nuclear-fuel cycle by supplying all such fuel itself and immediately taking spent fuel back to Russia. "Russia doesn't want – and will not support – any ambitions of Iran which may be interpreted as nuclear weapons ambitions," Mr. Orlov says, adding that the US "exaggerates the situation." Moscow has sometimes defied Iran's wishes, Orlov says. In the 1990s it refused Tehran's request to build a more robust heavy-water reactor. And Russia turned down a request for gas centrifuges, which could have led to production of homegrown- weapons-grade material. Moscow's caution was illustrated earlier this year, Orlov says, when Iran asked to buy the Russian version of the shoulder- held US Stinger missile – the Igla, or "needle" – designed to shoot down aircraft. Angering Tehran, Russia said no – because Iran's contacts with anti-Israel Hizbullah guerrillas in Lebanon meant Moscow was "not certain that Igla would stay in Iran." Still, Moscow is a key factor in any Iranian nuclear aspirations. "Russian technology is unique to the Iranian program, because it is the only game in town," says Rose Gottemoeller, a former Deputy Undersecretary of Energy responsible for nonproliferation programs, who is now at the Carnegie Endowment in Washington. "Everyone else has cut off cooperation with Iran on nuclear technology, including the Chinese." While US officials worry that Bushehr will create a nuclear knowledge base in Iran that could be applied to a weapons program, Ms. Gottemoeller says the real risk comes from a "handful" of "bottom feeders – small Russian industrial or research institutions that are desperate, or they wouldn't be trying to take extreme measures, such as false invoices ... to mask their sales." Keeping control The majority of nuclear-related entities here have decided to "stay on the straight and narrow," Gottemoeller says. Recent leadership changes at the top of the Ministry of Atomic Energy are likely to tighten controls further. Still, says Gottemoeller, "the Russian system being what it is, I'm sure there are others [desperate institutions] who could pop out of the mud at any time." Keeping that from happening has been the aim of US pressure on Russia for a decade, since some analysts say that any new nuclear power in the Mideast would almost certainly spark other nuclear weapons programs, and cause global nonproliferation accords – signed by both Russia and Iran – to collapse. Already, the Bushehr project is subject to regular IAEA inspection. Noting that until now Russian controls on sensitive technology have been "half-hearted and incomplete," Gary Samore, a special adviser to Clinton on nonproliferation who is now at the International Institute of Strategic Studies in London, says: "There may be a real opportunity now, post-Sept. 11, for the US and Russia to work out an agreement that would give the Russians a strong incentive to go all the way in enforcing what they say is their policy." Mr. Samore says the US should recognize that the Bushehr project is too advanced to stop, and offer to "grandfather" the deal. Russia would receive a variety of incentives, Samore suggests, for explicitly limiting the Bushehr deal to power needs, handling all fuel supplies, and for insisting on public commitments from Iran to swear off fuel-cycle ambitions and comply with tougher IAEA "go anywhere" inspections. Samore says such a deal would test Iran's declarations of peaceful intentions, while relieving it of waste-disposal problems. Tehran's rejection of such a plan would lead to the "obvious conclusion" about Iran's nuclear plans, he adds. "The sooner you can step in to slow down or stop [Iran's] program, the better," says Samore. "If we just let the situation drift and don't do anything, they will get closer and closer, and will eventually reach the technical point of no return." As the Bushehr project continues, Russian law enforcement will be critical in guarding against dangerous transfers of technology, experts say. "If their security is as effective as they claim it to be, and we think it is, they should be able to track these things down," says the US official who requested anonymity. "They know who is flying on Aeroflot to Tehran." ******* #7 Yezhenedelny Zhurnal No. 23 June 18, 2002 HIDE-AND-SEEK IN THE MANNER OF GENERALS The Defense Ministry will have to account for defense spending after all Author: Alexander Golts [from WPS Monitoring Agency, www.wps.ru/e_index.html] THE MILITARY'S WISH TO CONCEAL ALL INFORMATION ABOUT HOW IT SPENDS ITS MONEY SEEMS TO BE ANNOYING THE KREMLIN AND THE DUMA. THE CHIEF OF THE GENERAL STAFF RECENTLY FAILED TO TURN UP WHEN THE DUMA ASKED HIM TO REPORT ON THE SITUATION IN THE ARMED FORCES; BUT HE WILL HAVE TO ANSWER TO THE PRESIDENT. On June 13, Chief of the General Staff Anatoly Kvashnin failed to attend the "Cabinet hour" at the Duma, even though a week earlier 230 deputies had voted in favor of an immediate report from the nation's top military officer on the situation in the Armed Forces. Instead of Kvashnin, the Duma received a memorandum signed by Defense Minister Sergei Ivanov, saying the chief of the General Staff was too busy to spend any time on the Duma. The deputies had no choice but to complain to the president that the Defense Ministry was apparently ignoring the Parliament. In fact, Kvashnin has substantial reasons to avoid meeting with the deputies. He was invited to address the Duma after his sensational statement on May 30, at a conference on crime in the Armed Forces. Kvashnin said that the Russian Armed Forces are bogged down in embezzlement and corruption. He also said that the situation in the military was "beyond critical", and the decline in combat readiness "could become irreversible." Kvashnin said the cause of the problems lies in the state's inability to ensure "a guaranteed living wage for officers". According to Kvashnin, "unless we can at least double their salaries, we shall simply the officers". Given that General Kvashnin has been personally responsible for the level of combat readiness and the situation within the Armed Forces over the past five years, his latest statements are very strange, to put it mildly. So the Duma members were expressing their concern by resolving to clarify why communiques about the success of reforms had been suddenly replaced by hysterical complaints in the style of former Defense Minister Rodionov, who was dismissed five years ago for his wailing. Actually, in his typical style, Kvashnin has taken the Defense Ministry's recent guidelines to the point of absurdity. It seems that the president, thanks to whose efforts defense spending has been almost tripled over the past two years, is demanding explanations of why the spending increase has not resulted in some real improvements. The Defense Ministry cannot admit that the plan which is described as a military reform is not actually a reform at all. Thus, Defense Minister Sergei Ivanov, who had previously declared his pride in Russian officers, suddenly said during an inspection tour of Voronezh in April that the 20th Army stationed there "had simply bogged down in embezzlement". Three weeks later, speaking to senior officers, Ivanov accused Russian generals of having "an insufficient level of professional skills, lacking initiative and goals." In this manner, Ivanov and Kvashnin have been deliberately humiliating their subordinates in order to convince the president that the money is being wasted due to embezzlement and incompetence among the officers. However, the defense minister has been rather skillful in stressing each time that the matter concerns "individual faults", and it is hard to find flaws in his speeches. Kvashnin is quite a different matter - he is not very good at nuances. The whole problem is whether the president will believe such explanations. Undoubtedly, there is a tremendous level of corruption in the Russian Armed Forces. However, the point is that this has been a direct effect of the policy the Defense Ministry has been carrying out; its hopes are still tied to the concept of a large army. But in market economy conditions, such an army is doomed to be poor. In order for it to function at all, officers are forced to break the law almost on an daily basis. Moreover, the Defense Ministry has been creating almost perfect conditions for ubiquitous embezzlement. Even though a fifth of state spending goes to the military, the public has no opportunity to monitor defense spending. Even Duma deputies, apart from Defense Committee members, do not know the purposes for which the Defense Ministry appropriates money. Meanwhile, the defense minister and chief of the General Staff continue making great efforts to classify all information related to the Armed Forces as secret. Their attitude toward public supervision is also evident in their unwillingness to provide even the slightest explanation for their statements and actions. But apparently they will soon have to provide explanations: if not to the Duma, for which they care not at all, then to the supreme commander-in-chief. Speaking at a recent Security Council meeting, President Putin once again confirmed the need for a transition from conscription to contract service, and directly demanded that state funding should be spent more efficiently. It is much harder to hide from the president than from the Duma. (Translated by Andrei Ryabochkin) ******** #8 Moskovsky Komsomolets June 20, 2002 MILITARY SALARIES [from WPS Monitoring Agency, www.wps.ru/e_index.html] What is the core of the Russian Armed Forces today? Strangely enough, it is officers of pre-retirement age and young lieutenants. The former have already devoted all their lives to military service, and now it is too late to change their way of living. All they need from the state is accommodation and the promise of pensions. The latter go into the service straight out of military institutes. As a result of "unnatural selection" during the first year of service, half of them resign; and a further 30% leave during the second year. As a result, the succession of generations is broken; the experience of older officers is not handed down; and several years from now, the Armed Forces could simply die out. Yet we cannot accuse those who are resigning from the military of being mercenary or unpatriotic. For example, take the salary of a senior lieutenant: 480 rubles a month for military rank, plus 770 rubles for duties, 250 rubles long service bonus, and a bonus for complexity and intensity of work (70% of the duties salary) - 540 rubles. This totals 2,040 rubles a month. Plus meals allowance of 2,600 rubles. Even a cleaner earns more in Moscow! To be honest, we did not manage to find out the true amount by which military wages are set to rise (the duties salary will be raised from July 1, and the rank salary will be raised from January 1, 2003). We tried to clarify this by inquiring at the accounts departments of several military units, we asked officers, and even tried the president's official website. Even if we believe the promises of the government (and Vladimir Putin), military salaries will be increased twice by the end of the year, and a senior lieutenant will get 3,900 rubles a month, minus income tax and benefits. As a result, officers will be no better off - maybe even worse. Around 50,000 officers whose contract terms are expiring are waiting impatiently for July 1, to decide whether they will stay in the military or become civilians. ******* #9 Izvestia May 26, 2002 NIKOLAI ZLOBIN: “A TREMENDOUS PSYCHOLOGICAL TRIAL IS IN STORE FOR RUSSIA” The results of the Russian-American summit are being discussed from all angles -- military, geopolitical, economic, humanitarian. Izvestia’s Georgiy Bovt decided to talk about the philosophical aspects of the results of the presidential summit with Nikolai Zlobin, the director of the Russian and Asian programs at the influential, Washington-based Center for Defense Information. GB: There are certain stereotypes concerning the image of the US in “Russia.” Here we have President Bush coming for a visit, and, in the meanwhile, the Senate does something low: instead of canceling the Jackson-Vanik Agreement, it is tying it to the export of chicken thighs from the US to Russia. Well -- the American Congress is independent. But the stereotype remains: the Americans don’t like us. They couldn’t even bring us a little present. NZ: Yes, the Senate really doesn’t make any presents; it’s guided by the interests of its electorate regardless of the effect that has on foreign policy. Plus, no one has worked with the US Senate. Not the Duma, not the Russian politicians. One sees the absence of a Russian lobby in America, unlike the colossal Chinese lobby that works in Washington. Russia doesn’t understand that American policy is shaped not by the president, and not even by the congress, but by a compromise or consensus of various groups -- lobbyists, politicians, experts, the media. Russia has yet to gain influence over this totality of factors that determine American policy. In Russia, if someone gets to Putin, the question is solved. That’s not the way the system works there. GB: I will agree about the importance of parliamentary ties. But it seems to me that this moment was lost back in the early 90s, when it became fashionable to travel at the expense of the host -- and when the host stops paying for your visit to Washington, the appeal is lost. I noticed one such delegation in action -- the Supreme Council. It was a complete nightmare. No one knows what would have happened if our parliamentarians had begun actively traveling to the Senate. Maybe they would have scared everyone in Washington. Maybe, to paraphrase Churchill, (“one shouldn’t show a Russian soldier to Europe”) one shouldn’t show a Russian parliamentarian to America? NZ: Russians and Americans have good relations with each other specifically because they don’t know each other well. When people who know and love each other begin to live together, they find out how differently they think, get into conflicts, get in each other’s way, annoy each other. The better we get to know each other, the more the incompatibility of out mentalities, psychologies, habits, lifestyles and value systems will clinch in. A tremendous psychological trial is in store for Russia along the path of integration with the West. Right now, no one can appreciate the price Russia will pay for this integration -- not from the military, economic, or political point of view, but from the point of view of adapting its culture, its mentality. As for the Russian deputies, the politicians who travel to America -- every day I witness the extent to which they have no idea how to behave themselves. Not just in America. They make such mistakes that they even lose the sympathy of people who were originally very well disposed towards them. GB: Who is worse or better -- the businessmen or the politicians? NZ: The businessmen are better. Lately, young, aggressive, serious businessmen are coming; they speak like professionals. Friedman, Khodorovsky, Chubais, for example, are very free, very relaxed, they behave themselves right. GB: Maybe the businessmen should communicate more? But here’s the standard complaint of the Russian businessmen: they were traveling to some Russian-American forum, but a few of them didn’t get visas. Or another example: On the eve of the summit, where the question of oil deliveries to the US was discussed, an article appears in the New York Times railing out Alekperov and LUKOIL -- an obviously ordered piece that encourages the odious behavior of Russian businessmen. NZ: In part, this should be taken as a compliment. When you make it big -- people take hits at you. One has to get used to that. Plus, American oil companies and many others feel that if Russian companies want to go to the West, they should open themselves up more to Western companies, including oil companies. GB: What should we do? Create a council to be chaired by Pepsi-Cola or Occidental Petroleum, like under Brezhnev? The Gore-Chernomyrdin Commission II? That’s not likely to work. NZ: It would be much more important to solidify the connections among the small and medium-sized businesses of the two countries. Here we need political will, a field of operation, certain state guarantees. Right now, only the big companies communicate. That’s good, but it won’t change Russia’s image in the eyes of the average American, who doesn’t believe his own big companies, especially not after the Enron scandal. A huge number of Americans work in small and medium-sized business. It’s at that level that the opinion of the business elite is formed. There are no such ties with Russia. Communication between the two societies is highly important -- no just communication between the presidents, between the Congress and the Duma, or between a dozen of major companies. Such communication is completely absent. And here, once again, everything rests on visas. The situation with visas is completely insulting to Russia, but I hope that this will change now. GB: Are there signals for that? NZ: Some political pressure on the government has begun to form because business, political, scientific, and cultural exchanges are suffering more and more from this. There is a drive to give Russians the same rights as the citizens of Eastern Europe; the same standard set of documents and requirements. GB: Another sore point -- Iran. I remember Clinton once said: “We know about your ties with Iran.” And gave specific examples. Bush says: “We know about your ties with Iran, but we won’t tell you what we know.” Does that mean that Bush will put more pressure on the Russian-Iranian partnership while the Americans themselves are looking for ways to make some confidential contacts with the regime? NZ: For the older generation of American politicians, Iran is a nightmare, a failure, a misfortune. With new people come new attitudes. But the Americans genuinely believe that Russian cooperation with Iran speeds up Iranian nuclear military development. They think that Russia is digging its own grave. The Americans would certainly like to eventually establish normal relations with Iran. Here, Russia could be a key element. I think that the US would be grateful for its help. In any case, when Americans offer relations based on a common understanding of values rather than on an agreement, Russia could develop a very strong position in its relations with America. GB: But right now we are working from a position of weakness... NZ: From a global point of view, everyone’s relationship with America is from a position of weakness. But the Americans say that our opposition was generally based on the opposition of ideologies. But now that this isn’t the case, let’s create the kind of union America has with Western Europe. It is based on a unity of world views. GB: Russia and America do not have a unity of world views. NZ: It needs to be formed. GB: I’m afraid that Russia and America still have opposing ideologies; except Russia’s ideology is not complete. It generally consists of the concept that we are “against.” In part, against America. What’s good for America is bad for Russia, and vice versa. Anti-American sentiments in Russia are fairly strong. An orthodox clericalism is becoming fashionable. It also includes this sentiment. Sooner or later, Putin will have to show something to these skeptics (in reality, these aren’t skeptics, but “soft,” or maybe not even “soft,” chauvinists). He needs to say: Look, life is changing for the better because of the course we are taking. Considering the fact that our Duma is filled with people who aren’t exactly intellectually prepared for developing such arguments. Considering the fact that the Foreign Ministry is overloaded with day-to-day work, and isn’t prepared for making such arguments, which are adapted for society. Considering the fact that, within the presidential administration, there is only one foreign policy advisor who is not very involved in public policy or in the development of a new strategic thinking. NZ: President Putin’s move in this direction was an act of political heroism. Bush now has to follow. Everything he did, including this three-day journey to Moscow despite his busy schedule, has been an attempt to reach Putin in Russian-American relations. But the problem of the summit is the fact that the elites of the two countries aren’t prepared to do what the presidents are prepared to do. The American elite was in the wrong because, until recently, it has been underestimating Russia. But many Americans feel that, in 10-15 years, the US will ask for Russia’s help in dealing with a number of global issues. As for the Russian elite, there are several factors that prevent the elite from becoming engaged in the process. These include egocentrism , isolation, wasting energy on minor questions, on survival, on petty ambitions. In Russia, one can still make money proving that America is the enemy. There are many organizations in Russia that base their existence on the idea of being “against.” Another factor is jealousy. Not materialistic jealousy -- some members of the Russian elite are way ahead of any American millionaire, but jealousy of political capabilities. And, I think, the Russian elite does not comprehend that, in today’s world, no one can be strong and influential acting against America. But one can become strong and influential acting with America. What happened to that same Putin? He was changed from a president of an economically decaying country to a man with whom Bush spent three days and signed an agreement, a man whom Bush described to the whole world as his friend. And the signed agreement on the reduction of nuclear potential -- that was an agreement with the whole world, not just with America. GB: How does one “sell” this agreement to the Russian society? We’re reducing and they are storing the warheads. NZ: Russia is currently storing warheads and no one is preventing it from doing that in the future. No one even knows how many thousands of warheads Russia has; this is still a secret. There are also technical aspects. The Americans think that Russian warhead production capabilities are immeasurably higher than their own. Russia has a different technology and a different philosophy regarding changing the warheads. I feel that the question of warheads was played up by the Russian side to be used as a bargaining chip. As a result, Russia got an official government document, not just an agreement between the presidents. But there is no real significance to the issue of destroying the warheads. What we need to formulate first of all is a foundation of common values. This is a painful, lengthy and difficult process; there is still a high level of distrust. The Americans have abandoned Russia many times, Russia has abandoned America. But I don’t believe that Russian people are anti-American. The elite -- yes, including the media. Today we need to openly admit that the improvement of Russian-American relations depends on domestic changes in Russia. New Russian priorities will not be based on the number of rockets owned. US National Security Advisor Condoleezza Rice compares today’s situation with the period of 1945-1947. There is a chance to form something new. The only thing that worries the Americans is the fact that they don’t want another Peter The Great in Russia -- someone who would cut a window to Europe, and come back to hang his men. Such things no longer work. (translated by Luba Schwartzman) ******* #10 Moscow News June 19-25, 2002 Needed: an International Security Alliance The past month has been remarkably successful and productive for Russia's foreign policy and diplomacy By Sergei Karaganov The U.S. president's visit has produced concrete and tangible results - a much needed, above all for Russia, treaty on strategic arms reduction and a market-economy status granted to this country. Consolidating the spirit of cooperation with Washington greatly facilitated the Russia-EU dialogue in May. Russia has not caved in on the issue of Kaliningrad, nor, I believe, will do so in the future. The Brussels bureaucrats will hardly want to become a laughing stock for the whole world and set up, 15 years after the end of the Cold War, a new West Berlin in the center of Europe. The Russia/NATO summit in Rome likewise proved more successful than could have been expected. A mechanism was put in place which, with appropriate will and persistence, could be useful in tucking in the loose ends and putting interaction and cooperation on a regular basis. Subsequent contacts with the Chinese leadership within the framework of the Shanghai Group of Six, among others, helped preserve and consolidate the main component of our foreign policy -- the Chinese one. These success stories are a product of several factors. The first one is of course the Putin factor. Sensible, flexible, apparently friendly but not over-familiar, he inspires trust. Through him, trust is extended to Russia. In addition to all that, Russia has been extraordinarily lucky. The long-running exacerbation of the Arab-Israeli conflict sustains reasonably high oil prices, undermining the positions of pro-U.S. Arab regimes. This postpones a prospective clash over a U.S. strike against Iraq. The Indo-Pakistani conflict has made the need for joint nuclear nonproliferation strategy even more pressing. Trade and economic contradictions between the Western allies are more acute than ever before. Unsettled, Europe has lost a sense of purpose, a sense of direction. All of this makes Russia a considerably more important and influential state than would be commensurate with its weight in the global economy. It will be difficult and time-consuming to join the ranks of advanced world powers through the economic-social opening -- far easier to do this through a security opening, especially given that the new circumstances create prerequisites for security, formerly a divisive problem, to emerge as an instrument of cooperation and rapprochement. In this context, the achievements scored over the past month can be seen only as a step toward a greater objective, namely, putting in place a full-fledged security alliance with the leading countries - to meet new threats and deal with growing instability. In late June, a G-8 summit will take place in Canaskis, Canada. Its agenda, as always, has already been drawn up by the corresponding bureaucracies. Even so, state leaders have the privilege to deviate from the agenda. In this connection I am inclined to endorse the proposals by the G-8 preparatory conference - a group of former secretaries of state, ministers, chairmen of central banks, and prominent experts of which I have the honor to be a member. They must, above all, pressure the United States and other countries to desist from putting up protection barriers which seriously undermine the increasingly fragile world order. Second, a shift is needed toward formulation of joint policy in the sphere of security and the safety of nuclear materials and substances that can be used to produce chemical and bacteriological materials. Nuclear materials alone are scattered around many hundreds of laboratories in more than 100 countries, quite a few of which are unstable. Third, cooperation must proceed apace between civil defense services and emergency situations ministries in standing up to global terrorism. Fourth, a uniform definition of terrorism must be worked out in order to create a legal framework for combating it. To date there is no generally accepted definition. Finally, I would like to put forward my own pet proposal. It is necessary to move the G-8 toward institutionalization, at least in the security sphere, and use it as a base, some time in the future, for a new security alliance, including other major, responsible states, above all China. This alliance is necessary for Russia. But at the same time it is necessary for all other countries, for more effective ways of meeting new threats and preventing the United States from again slipping into the mindset of a world hegemony. ****** #11 Komsomolskaya Pravda June 20, 2002 NO MORE MYSTERY ABOUT KURSK SUBMARINE SINKING Author: Viktor Baranets Source: Komsomolskaya Pravda, June 20, 2002, p. 3 [from WPS Monitoring Agency, www.wps.ru/e_index.html] THE KURSK MYSTERY HAS BEEN SOLVED. ON JUNE 29, THE GOVERNMENT COMMISSION INTO THE SUBMARINE SINKING WILL PRESENT A REPORT ON THE EXAMINATION AND ITS RESULTS. HOWEVER, IT IS ALREADY KNOWN THAT THE SUBMARINE WAS DESTROYED BY THE DETONATION OF A 650-MILLIMETER TORPEDO ON BOARD. There is no longer any Kursk mystery - and there never was There is no more mystery about the Kursk submarine sinking. Because there never was. Yesterday, the governmental commission confirmed the conclusions of our investigation: the submarine sank due to the explosion of a large torpedo on board. Despite the fact that the official conclusion will be ready only by June 29, Ilia Klebanov, minister for industry, science, and technology, who chairs the commission, said yesterday in St. Petersburg that specialists have rejected two of the three original theories about the submarine's sinking - a collision wiht a World War II mine or some more contemporary vessel. "Thus," emphasized Klebanov, "the commission settled on the theory which is presently the only valid one - explosion of a 650- millimeter torpedo." The operation for raising the remaining fragments of the Kursk submarine from the bottom of the Barents Sea has been underway for nearly a month. Almost 40 tons of distorted metal has already been lifted to the surface. The rest is assumed to be destroyed with the help of precision underwater blasting. However, at the very end of the job, a media debate has suddenly arisen: they say "someone is hurrying to cover up the tracks". The statements of the Northern Fleet command that blowing up the submarine's last fragments is necessary for the safety of fishing vessels in the area was called "evasive". So what is really happening? ADMIRAL EDUARD BALTIN "The decision to destroy the rest of the Kursk submarine with blats is absolutely right. According to international standards, we must clear the territory and open it for shipping even if there is no explosive. But there is plenty of it from damaged torpedoes left at the bottom. As for the first compartment, there is actually nothing left of it. Only fragments which are not going to yield any evidence for the investigation of the causes of explosion on board the submarine. Therefore, exploding them is by no means hiding evidence. Exploding the Kursk remnants must naturally be controlled and precision-targeted. As for "clearing" afterwards, it must be with bombs or string loads. Old 135-kg bombs efficient within 25 meters are thrown from a minesweeper at certain interval. At the bottom, they detonate destroying what might have remained. And only then, after a meticulous investigation of the ground, the area is opened to shipping. This is usual, longstanding practice". LEONID TROSHIN, SPOKESMAN FOR THE PROSECUTOR GENERAL'S OFFICE: Troshin: Conditions were created to ensure that all requirements of investigators would be fulfilled without any hesitation. If there is a decision that the fragments already raised are sufficient, this means it is primarily the investigators' decision. Question: Was the view of the investigators taken into account when developing the plan for raising fragments of the first compartment? Troshin: First and foremost. The investigators have all necessary information. And only a specialist can determine for most complex technical examinations what must be raised and what is unnecessary. Question: Is it true that there was a dent found on one of the fragments of the submarine's bow, which pointed to its damage from one of Russia's own missiles? Troshin: Absolute nonsense. Commander-in-Chief Admiral Kuroyedov gave an exhaustive answer to this question last year, and I would not like to repeat what he said. Question: Will some evidence remain on the bottom that could tell something new about the sinking of the submarine? Troshin: I don't think so. What was raised from the bottom? At first, five fragments were to be raised: 1. A fragment of the torpedo tube weighing about a ton (in order to ascertain whether the impact hit it from inside or outside). 2. A high-pressure air (HPA) cylinder weighing about 500 kg (the goal of raising is the same). 3-4. A fragment of the cylindrical part of the hard frame and the left part of the forward spherical partition. Their study was to reveal the mystery of the fire in the compartment and determine its intensity and temperature. 5. A fragment of the sonar system dome (SSD). For now, the following fragments have been raised from the deep: part of the torpedo tube, the HPA cylinder, and the SSD. According to expert views, this is quite enough to determine he causes of the disaster. It has been decided to use explosives to destroy the remaining parts of the Kursk. (Translated by P. Pikhnovsky) ******* #12 Russia: Moscow Seeks Balanced Tariff Policy By Michael Lelyveld President Vladimir Putin warned the government this week about tariff increases for Russia's natural monopolies as it faces decisions about price hikes for the second half of the year. Former Finance Minister Boris Federov has also recognized the "painful" effects of higher tariffs but has urged reform to create a competitive Gazprom. Boston, 19 June 2002 (RFE/RL) -- Russian President Vladimir Putin has again ordered caution in raising utility tariffs, prompting doubts about the pace of monopoly and market reforms. Speaking at a cabinet meeting on 17 June, Putin stressed restraint in allowing tariff hikes, according to an RIA-Novosti report. Putin said the government had pursued a "balanced" policy earlier this year under which "tariffs will be increased moderately, if at all." Officials should continue the approach, Putin said, calling tariffs "a highly delicate issue of the modern economy." The remarks conveyed Putin's sensitivity to both the economic and political effects of the tariff problem. Writing Tuesday in the London-based "Financial Times," former Finance Minister Boris Federov sounded the same themes. Federov, who represents minority shareholders on the Gazprom board of directors, called the tariff question one of the three major challenges facing Putin, along with reform of the civil service and the military. Like the other two issues, the effort to end energy subsidies represents a difficult break with the past. Federov said that liberalization of energy tariffs "would probably be painful economically and therefore also politically." But he added that "reform would also enable companies such as Gazprom to compete effectively in Western Europe." Gazprom has lagged in investment and market value in part because only about one-fourth of its gas is exported and sold at market rates. The Unified Energy Systems power monopoly has faced similar problems. Its chief executive, Anatolii Chubais, has claimed that the network needs $50 billion of investment in this decade to avert a collapse. Higher tariffs are seen as the only way out. But the government has repeatedly stepped back from its own plans in dealing with the tariff problem. The 2002 budget initially provided for 35 percent increases this year in charges by natural monopolies for gas, electricity, and railways. The goal was to decrease subsidies and narrow the gap with European prices, which are often 10 times as high. But almost immediately in January, surging monthly inflation drove Putin to order a cut in the tariff target. Gazprom received a 20 percent increase in wholesale prices with the possibility that they might be raised again in the summer. In February, Deputy Economic Development and Trade Minister Andrei Sharonov told Reuters that the government had agreed to a 30 percent increase for 2002. But Putin's caution has made it unclear that there will be any further hikes. On Monday, Deputy Energy Minister Vladimir Milov said the matter could be decided at a government meeting as soon as Thursday, RBC News said. But again, Putin's warning may have set limits for the decision. The government has been struggling to keep annual inflation within the budgetary bounds of 12 to 14 percent, although some economists believe it will be higher. In March, Sharonov estimated that higher gas prices would contribute 0.6 percent to the inflation total, while electricity increases would add 1.5 to 1.7 percent. Last week, Gazprom chief executive Aleksei Miller said the company will seek a long-term commitment to annual 25 percent tariff adjustments from 2003 to 2006. The comments suggested that he may have little hope for this summer and is already focusing on next year. The Economic Development and Trade Ministry has recommended annual increases of 20 to 25 percent. Miller has outlined steps toward the start of a deregulated gas market next year. So far, all of the tariff figures are far less than the ambitious goals laid out last year by some officials. Speaking last November, Energy Minister Igor Yusufov said: "Calculations show that a 30 percent rise in gas prices twice a year is practically painless for industry. It will not have a big impact on Russian household budgets." Yusufov added, "Price changes should be carried out simultaneously and no less than twice a year," "The Russia Journal" reported. But over-budget inflation persuaded Putin to freeze tariff increases in the second half of last year. It is not clear whether this year will follow the same course. But Putin has made it plain that he sees inflation as the primary problem, and monopoly reform must come second. There has also been a high cost to the process that the government tried to establish last year to regulate tariffs. It was supposed to be managed by an expanded Federal Energy Commission, which would set tariffs and coordinate them to keep inflation in check. But Putin and government ministries continually stepped in to control the decisions, which seem to have been negotiated with the monopolies much as before. Long-range planning now seems likely to be subject to continual adjustments or freezes in response to monthly inflation figures. Although share prices in Gazprom have risen sharply this year, there may be less investor confidence in how the tariff problem has been managed at a time when Putin has called for more management, not less. ****** #13 Jamestown Foundation Russia and Eurasia Review Volume 1, Issue 2 June 18, 2002 BE CAREFUL WHAT YOU WISH FOR By Harry Kopp Russians who sought and won U.S. recognition as a market-economy country are in for a shock. Acting on a request filed last year by two Russian steel companies, the U.S. Department of Commerce declared Russia a market economy on June 6. The decision followed a nine-month investigation into Russian policies and practices in five areas: currency convertibility, negotiation of wage rates, foreign investment, government control of production and government control of resource allocation. The Commerce Department's decision is retroactive to April 1. The department said it deliberately withheld the announcement beyond the May Bush-Putin summit, to make clear that its decision was taken purely on the merits and was not politically motivated. Nevertheless, press reports say President Bush called President Putin with the news. Readers are forgiven if they chalk this action up as a late "deliverable." Economy Minister German Gref hailed the news. Prime Minister Mikhail Kasyanov said he was "deeply satisfied." What's it all about? United States and international trade law protects domestic producers against cheap imports dumped by foreign exporters or subsidized by foreign governments. Goods are considered "dumped" when the price for export to the United States is below the price at which they sell in their home market, or when the export price is below the cost of production. Goods are subsidized when government benefits, direct or indirect, bring their prices down. When dumped or subsidized imports injure American producers, the U.S. government can impose penalty tariffs equal to the margin of dumping or the size of the subsidy. But the United States does not apply these rules to exports from nonmarket economies, where domestic costs and prices do not reflect relative scarcities or supply and demand. Instead, the United States considers a product from a nonmarket economy "dumped" if its price is below the cost of production in some third country. If Belarusan widgets, for example, are sold to the United States for less than the cost of making widgets in Spain, the United States might slap antidumping tariffs on the Belarusan widgets to raise their prices. And recognizing the impossibility of calculating subsidies in state-controlled economies, the United States does not apply its antisubsidy trade laws to nonmarket imports at all. As a market-economy country, Russian goods will now face the same generous treatment that U.S. import-administration authorities apply to goods from Korea, or Brazil, or India. In particular, imports from Russia that entered the United States after April 1, 2002, the effective date of the Commerce ruling, will for the first time be vulnerable to challenge as subsidized products. And in Russia many basic inputs--electric power, fuel, transportation, workers' benefits--are heavily subsidized, as is much of the industrial infrastructure acquired by its present owners at a tiny fraction of its real value. It is safe to say that Russian imports into the United States are far more open to attack now than before. Attorneys for import-competing American industries are no doubt preparing their briefs. Although American authorities may find from time to time that Russian imports do not injure U.S. producers, and so cannot be penalized, for many years to come they will rarely if ever find that Russian imports are not subsidized. Welcome, Russia, to the marketplace. Bring your lawyers. Harry Kopp is executive editor of Russia and Eurasia Review. ********