RD Interview: Aleksander Stadnik, Russian Trade Representative in the U.S., discusses the current state of U.S.-Russia economic relations.
Russian President Vladimir Putin and Exxon CEO Rex Tillerson at a signing ceremony of an agreement between Rosneft and Exxon Mobil corporation, June 15, 2012. At left is CEO of Russian oil company Rosneft Igor Sechin. Photo: AP
Amidst ongoing sanctions, economic relations between Russia and the U.S. suffer significantly from the influence of the current political environment, hindering these relations from achieving their full potential. Therefore, it is important to learn how to avoid or reduce this influence and enjoy the advantages of mutually beneficial trade and economic cooperation.
On the sidelines of the panel discussion "Future of Russian Hi-Tech/Science Cities and Innovation” in New York, Russia Direct interviewed the Russian Trade Representative in the U.S., Aleksander Stadnik, about the current state of U.S.-Russia trade and economic relations and the role of bilateral business organizations in boosting economic relations between the two nations.
Russia Direct: How would you characterize the current state of U.S.-Russia trade relations?
Aleksander Stadnik: Well, let me start in a traditional way, with statistics: In 2014, U.S.-Russia trade volume increased by over 5.6 percent. However, the first five months of 2015 demonstrated a serious decline of about 20.9 percent (this statistic is based on the Russian methodology, which is different in its approach to trade calculations). Apparently this is a negative trend. If we are talking about absolute numbers, the trade volume of 2014 was more than $29 billion. When we are looking at this number from the fill potential of the U.S.-Russia trade and economic relations, it is definitely not a big volume. But if we are talking about the importance of U.S-Russia trade relations, then we should understand that economic relations between the U.S. and Russia go far beyond the customs territories of our countries.
Today, unfortunately, these relations are overloaded not only with the trade policy itself but also with geopolitics and politics. On one hand, current issues in the U.S.-Russia relationship negatively affect many other states - primarily European; on the other hand, they give an opposite, positive effect, primarily on Asia, Latin America, our immediate neighbors and partners of the Eurasian Economic Union.
Hence, I think that, even with relatively small values of U.S.-Russia trade relations, they are very significant. That is why the sooner our relations come back to civilized interaction, the better it would be for everyone. Moreover, Russian and American businesses continue to cooperate and the absence of the normal political dialogue only hinders the development of new business projects and partnerships.
RD: Do you think that sanctions are the main reason for the decline in trade volumes between Russia and the U.S.?
A.S.: Naturally sanctions play a certain role. They negatively influence trade and finance flows between our countries. In the U.S. agriculture suffers the most but not as much as in Europe. Russian energy companies certainly felt the impact: Many joint projects had to be stopped like the one between Exxon and Rosneft. But Exxon in this case also experienced quite notable losses because it had to give up certain projects in Russia.
RD: How did the structure of the trade turnover between Russia and the U.S. change recently?
A.S.: We are witnessing a decline preeminently in the supplies of our fuels. In some areas, the situation is the opposite, i.e. the supply of Russian aluminum and chemical industry products. So if we talk about the drop in oil supplies from Russia, it is caused by the increase of the oil output inside the U.S.
Most likely, we will observe a certain continuing decline in the U.S-Russia trade relations by the end of this year. We can only speculate on how big this decline is going to be.
However, I can already see certain issues and they are connected not even with sanctions but with particular decisions made at the end of 2014. For example, last year on December 19 by the request of the U.S. steel industry, tax barriers for Russian steel producing companies were introduced. And I cannot exclude the possibility of further actions in this direction.
RD: How has the amount of U.S. investment in the Russian economy changed?
A.S.: According to the data of the U.S. Department of Commerce, the outflow of American direct investment from Russia in 2014 was $287 million. U.S. direct investments into Russia in 2014 are estimated at a little over $700 million. In comparison, Russian direct investments in the U.S. grew by about $1.7 billion in 2014.
Another numbers provided in the report on the global investment climate released by the U.S. Department of State say that in 2014, the capital outflow from Russia reached a record $150 billion by their estimates. I am not ready to evaluate the reliability of this figure but if we will base on it at the American $287 million as a share of $150 billion, then we can see that the U.S. share in the total capital outflow from Russia is insignificant.
RD: What changes, if they exist, can you see in American businesses’ attitude towards Russia?
A.S.: I would say that undergoing changes are mutual. First of all, businesses in both Russia and the U.S. aspire to work with each other. They understand that business contacts and collaboration are possible and fruitful. In the estimation of a lot of American businessmen, Russia is not a simple market but it is very hard to find another such market where work would be so profitable.
But both American and Russian businesses work in an environment of political and economic uncertainty. Russian business is apparently free of any political trends, but it has to watch closely what is happening with business here in the U.S., to see how political decisions affect business. Russian companies naturally estimate their investments and risks, i.e. connected with projects in high-tech sphere and innovations, and in the first place they think about the prospect of implementation of those projects. They want to know whether economic processes might be affected by a political decision, which has no economic rational, that will hinder pushing the matter through.
That is why Russian businesses unfortunately have to view American companies as unreliable partners. But this is not because American companies are not reliable, they are very responsible, it is because they can be pressured by the political environment.
Last year, Russia made a serious success in increasing its position in the World Bank’s “Doing Business” ranking. Today we hold 62nd place, but moving up in the rating is not an end in itself. The goal is to make conditions for doing business in Russia better; not only for domestic companies but also for foreign businesses. The business climate in Russia is getting better for everyone. And I would like to stress that despite [the fact that] Russia is in 62nd place in the “Doing Business” ranking, in reality, our place is much higher.
RD: What role do bilateral business organizations, like the U.S.-Russia Business Council, play in improving relations between Russia and the U.S. and what influence do they have on our countries’ governments?
A.S.: We have a lot of different organizations and associations that contribute to the formation of the positive bilateral agenda. From our side, there is the Russian Union of Industrialists and Entrepreneurs, Chamber of Commerce and Industry, Delovaya Rossiya (“Business Russia”) etc. From the American side, I would like to emphasize the importance of the U.S.-Russia Business Council (USRBC), Russia Direct, American–Russian Chamber of Commerce and Industry, etc. Almost every state in the U.S. has chambers of commerce and industries that are interested in developing U.S.-Russia cooperation.
I want to recall the recent International Economic Forum in St. Petersburg where USRBC signed a cooperation agreement with Delovaya Rossiya and with the American–Russian Chamber of Commerce and Industry. I believe that such consistent steps help businesses to improve relations with partners. One of the main Russian foreign economic goals is to create better conditions for business, and in order to fulfill this, we need to listen to businesses’ demands. And we should not forget the importance of the influence of all these business structures on governments.
Video interview with Russian Trade Representative in the U.S. Aleksander Stadnik. Video by Uliana Malashenko and Vladimir Stakheev