#18 - JRL 2006-182 - JRL Home
U.S./Russia: Arms Sanctions Threaten Business Ties
By Heather Maher
Copyright (c) 2006. RFE/RL, Inc. Reprinted with the permission of Radio Free Europe/Radio Liberty, 1201 Connecticut Ave., N.W. Washington DC 20036. www.rferl.org

WASHINGTON, August 11, 2006 (RFE/RL) -- The U.S. State Department's August 4 announcement that it was imposing sanctions on the two Russian defense firms set off a firestorm in Moscow.

It also sent many U.S. enterprises running to review their Russian contracts.

The sanctions were leveled against a total of seven firms -- in Russia, North Korea, India, and Cuba -- for their dealings with Iran.

U.S. government agencies and private firms are facing a two-year block on working with any of the targeted companies on projects that could be interpreted as having a military function.

Partnerships At Risk

Russia has no direct military contracts with the United States. But the sanctions could hit private companies with long-standing business ties in Russia.

The most notable of these is Boeing. It is working with Sukhoi on a Russian civilian regional jet, the SuperJet 100. It is also the main consumer of titanium produced by a Russian firm (VSMPO-Avisma) that is set to be purchased by Rosoboroneksport.

And Boeing hopes to hold on to a $3-billion contract to supply Russia's Aeroflot with Boeing 787 jumbo jets.

"Boeing is still assessing the effect of these sanctions on our business in Russia," Boeing spokesperson Tim Neil said. "However, based on our initial review, we do not believe that the sanctions will affect our commercial relationships with Russian suppliers of titanium, or our work with Sukhoi on the SuperJet 100 program. That said, we are continuing to assess the situation and coordinate with the U.S. government to make sure that we're in full compliance."

Such assessments are meant to ensure that private firms are collaborating with Russia on civilian, not military, projects.

Items like titanium parts do not appear to fall under the current U.S. restrictions, and Boeing officials have said the company's projects in Russia "fully adhere" to both U.S. and Russian export laws.

Under Review

Boeing is one of a number of U.S. firms to review its contracts with Sukhoi and Rosoboroneksport.

Sharon Weinberger, the editor of "Defense Technology International" magazine, says companies are racing to determine how, and if, the sanctions will affect their business dealings.

"When these State Department regulations go out, the first thing that companies will tell you is that it's very, very hard," Weinberger said. "U.S. companies struggle a lot with State Department regulations -- most notably, trying to figure out which items are civil items, and not necessarily controlled by the State Department, and which items are military items."

Spokespeople like Boeing's Tim Neil say it is not the job of private firms to second guess political decisions by the government -- even those that may affect their business.

But Russian officials openly criticized the sanctions as an "unfriendly act" that will only exacerbate existing tensions in the Moscow-Washington relationship.

Sergei Chemezov, the director of Rosoboroneksport and a former KGB colleague of Russian President Vladimir Putin, said this week that the sanctions would hurt "the effectiveness of U.S. contingents in Iraq and Afghanistan."

Chemezov's remarks were an apparent reference to a proposal that would allow U.S. trading firms to sell Russian weapons to those countries, which could be derailed by the U.S. sanctions.

Aiding And Abetting?

The United States says the sanctions were imposed because the seven targeted firms were involved in the sale of materials to Iran that could contribute to the development of weapons of mass destruction.

But, Weinberger notes, many Russian officials are skeptical.

"Of course that's the stated reason," Weinberger said. "People are certainly looking, especially in Russia, for subplots. There's certainly a political motivation to this. One has to look at the timing. There was the recently announced $3 billion in arms sales to Venezuela that the U.S. has protested repeatedly. So yes, that should, by the letter of the law, be separate from the concerns over Iran. But I think you'd have to be very, very optimistic not to think that the two are related, at least in timing."

Venezuelan leader Hugo Chavez, whose relationship with the United States is highly contentious, drew condemnation from Washington for the arms deal with Russia, which was signed on July 27.

The U.S. sanctions were officially registered two days earlier, on July 25.