Russia Direct Exclusive: Daniel Russell of the US-Russian Business Council explains why a bilateral investment deal between the US and Russia would be a win-win for both nations.
U.S. Secretary of Commerce Penny Pritzker. Photo: U.S. Department of Commerce
Alexei Ulyukayev, Russia’s Minister of Economic Development, arrived in Washington on Feb. 24 for a new push to revitalize bilateral trade talks between the U.S. and Russia. Russia’s top-ranking official responsible for economic affairs will be meeting his American counterpart Penny Pritzker, the U.S. Secretary of Commerce, during the week.
Discussions between Minister Ulyukayev and Secretary Pritzker will focus on finalizing a long-discussed bilateral investment treaty as well as harmonizing trade standards and reducing administrative barriers. The main goal for the ministerial level discussions is to boost commercial ties that, according to experts, fall short of the combined economic potential of the U.S. and Russia.
It's worth noting that Vladimir Putin and Barack Obama agreed to prioritize trade and commerce in bilateral relations almost two years ago in Los Cabos, Mexico. Since then, according to Celeste Wallander of The New York Times, the U.S. president's Russia adviser floated new ideas in Moscow in last December. Building on those talks, Igor Shuvalov, First Deputy Prime Minister of the Russian government, visited Washington and had talks with Michael Froman, the president's trade representative.
Meanwhile, the largest American business association with an interest in Russia – the US-Russian Business Council - prepared a white paper with recommendations for promoting the trade agenda between Washington and Moscow. In an extensive interview with Russia Direct, USRBC President and CEO Daniel Russell elaborated on current U.S.-Russia trade talks, the significance of a bilateral investment treaty and the overall prospects for commercial cooperation between the two countries.
Russia Direct: Russian Minister of Economic Development Alexei Ulyukayev will be in Washington for new round of trade talks with his American counterparts. What do you expect from his trip and what does the American business community with interests in Russia have to say regarding U.S.-Russia commercial ties?
Daniel Russell: We warmly welcome Minister Ulyukayev’s visit. It's exactly the right time to build on earlier discussions First Deputy Prime Minister Igor Shuvalov has had in Washington, where he raised the prospect of a bilateral investment treaty and other agreements. This was a very important visit that showed the priority that the Russian government places on this economic and commercial relationship.
From the perspective of the US-Russia Business Council, it should be a priority for both governments. A bilateral investment treaty would close the gap in the overall bilateral economic framework. USRBC firmly supports the finalization of a bilateral investment treaty as soon as possible. It's important because it would send a signal to the respective business communities of each country – our governments are serious about developing two-way trade and investment. This treaty establishes terms and conditions for two-way private investment. It also provides for equitable treatment for investors and their investment and gives then the right to dispute with the government of the other party in international arbitration.
Secondly, Minister Ulyukayev and U.S. Secretary of Commerce Penny Pritzker co-chair the business and economic working group of the US-Russia presidential commission. They are going to meet in that format and I hope that they will develop a common work plan. I think there are issues that the business community would like to be in that plan.
First and foremost, would be making sure that there is business input in the development of new legal and regulatory government initiatives. One of the issues here is transparency of government legislation and rules. Transparency would boost opportunities for business.
Next would be cooperation between governments on regulatory and technical standards. So, it will include technical barriers to trade. The U.S. and Russia have already achieved much in this area. And USRBC would support formation of an expert subgroup on standards.
The third area they should have discussions about would be how governments can support development of human capital and small business development. I know this is a priority for both governments and both would like to have a greater number of smaller investors in the market.
The last area I would mention is greater regional cooperation. There have been some pilot projects, like the innovation corridor between Maryland and Nizhniy Novgorod, and I understand Mr. Ulyukayev’s staff is putting together a group of regional officials and maybe even governors willing to come to DC.
RD: Currently, Russia 's share of U.S. exports is less than one percent while the U.S. share of Russian exports is about three percent. Overall US-Russia trade volume is just about $28 billion. Given these modest figures, should one expect a significant jump in figures in the nearest future?
D. R.: I think the answer is no. It's unrealistic to expect that. But it should be a part of a long-term strategy to develop an economic relationship and it will definitely produce results over the long term.
RD: It was reported that, by using trade talks, Moscow wants to encourage American investors to take part in major infrastructure projects in Russian regions. Do you think that U.S. companies will be interested, for instance, in reconstructing the Trans-Siberian railroad, investing in the Russian Far East or the Russian Arctic?
D. R.: U.S. businesses are already participating in the regions beyond Moscow and St. Petersburg. You can look at U.S. businesses in Tatarstan, Kaluga, Sverdlovsk and other regions and see that they have interests there.
In the Arctic, the biggest US investment has obviously been in Shtokman, where Exxon Mobil and Rosneft are now planning to open a liquefied natural gas plant. Also, the two companies are discussing more joint ventures, so there is clear interest in that region as well.
In the Russian Far East, there are a lot of opportunities for infrastructure development. U.S. companies would be interested in road infrastructure, power generation and energy infrastructure as well as energy efficiency. And USRBC wants to explore more about it and help develop interest in the opportunities that are available.
RD: Despite Russia becoming a full-fledged WTO member last year, trade disputes between Moscow and Washington are still in place. For example, there is a Russian ban on American beef and poultry exports, and an American ban on cheap Russian steel. With a new push in advancing trade ties between the two countries, is it possible to solve all these problems?
D. R.: Trade disputes are an unfortunate mainstay on the international scene. The United States has even had trade disputes with its closest allies in Europe and Asia. Being a realist, I doubt that trade disputes will go away. But being an optimist, I am pretty confident that trade disputes can be resolved and Russia 's WTO accession will help in this regard.
RD: The World Bank's forecast for GDP growth for the Russian economy in 2014 is less than 2 percent. Do you believe that Russia's modest economic outlook could alter foreign investors’ plans regarding their investment opportunities in Russia?
D. R.: This growth projection is realistic. When business takes a look at the Russian government’s projections and compares them to other forecasts from banks and analysts, they are the same. That, in some ways, is an encouraging signal to investors because it shows that the government understands the current challenges.
Interestingly enough, according to a poll conducted last year, despite the downward growth trend that became evident for the Russian economy, two-thirds of US businesses that have invested in Russia plan on expanding their operations in the coming years. That represents a pretty big vote of confidence. Russia is still a very attractive place for investors, because of low unemployment and large foreign, natural and human reserves. I don't think those things will change. The challenge in attracting foreign investment is not low growth projections, but rather, media headlines about corruption, bureaucratic red tape and so on. It will take some time and work to overcome it.
RD: According to the most recent World Bank report "Doing Business 2013," Russia has made significant progress over the last two years in terms of promoting a business-friendly environment. Do you feel that the Russian authorities are on the right track?
D. R.: We applaud the Russian government’s efforts to improve the business climate. The progress made over the last year is commendable. It's not only the World Bank’s rating, either. If you look at Bloomberg's "Best Countries For Doing Business 2014" ranking you would see that Russia rose to #43, up from #56 last year. Russia is also ranked higher on Bloomberg's most innovative countries rating. In other words, the World Bank rating is good but it's only one of several ratings. This is a good effort and one that USRBC fully supports and one I hope Russia will continue to make progress on.
RD: Some Russian companies like Severstal and Eurochem are doing well in the U.S. Should one expect more Russian companies to enter the American market in 2014? If yes, what are the most promising sectors for them?
D. R.: I don't have a crystal ball for 2014, but certainly over time we will see more Russian companies enter the U.S. market. There are many areas that look attractive. Obviously, the first one is natural resources. With the Rosneft-Exxon Mobil deal, this Russian company is now able to acquire minority stakes in Gulf of Mexico oil fields.
In manufacturing, I would look at companies like TMK (and its division TMK IPSCO) that manufactures pipes for the U.S. oil and gas market and also imports Russian pipes. VSMPO-AVISMA is present now in America, and they have a relationship with Boeing: This is a very good example of a two-way street.
I would also mention IT. Kaspersky Labs and Luxoft, both software companies, are doing pretty well in the U.S. We want to have more such examples in the future.
RD: Do you agree with the assumption that geopolitical disagreements between Moscow and Washington could be eased if the U.S. and Russia had stronger commercial ties?
D. R.: Part of the problem with U.S.-Russia political relations is that there aren't enough stakeholders in the relationship. If there were a stronger economic and commercial relationship based on mutual respect - including more trade and investment - that would serve as a balance on the overall relationship and prevent ups and downs. This is a very, very long-term trend and it will take some time. Our governments are right to emphasize economic relationships and that certainly coincides with our business council priorities.
RD: Russia, along with its partners, is steadily pushing forward two major economic projects – the Customs Union and the Eurasian Economic Union. Do they represent a challenge or opportunity for U.S. business?
D. R.: The honest answer is, nobody is sure yet. Business would like more information on what the Customs Union and Eurasian Economic Union mean for them. For now, they are mostly interested in technical issues. For example, the VAT rate in Russia is different than in Kazakhstan. What does that mean for imports? What happens to the Russian anti-monopoly committee when new governing bodies are created by the Eurasian Economic Union? These are the kind of questions that we being asked from business; the Russian government has made a good start in answering these questions.
We have the Eurasian Economic Union that Russia is negotiating with its partners. We also have the Trans-Atlantic Trade and Investment Partnership that the U.S. is negotiating with its European partners and the Trans-Pacific Partnership that Washington is negotiating with its Asian partners. There is a need to have a discussion on all of this, to make sure that they are consistent with improving U.S. and Russia trade and investment. That should definitely be a topic for discussions between our governments.
RD: With Michael McFaul’s upcoming departure from Moscow, the U.S. will be sending its new ambassador to Russia. What should be on his agenda in terms of trade and commercial ties?
D. R.: Economic relations are a growing part of the bilateral agenda. It is something that did not exist in the 1990s. I remember the dialog between our governments during the Bush Administration and the first Obama Administration, and economic discussions played a bigger and bigger role. It will continue and I think whomever is the next US ambassador to Russia should make this a priority.