RBW: Winter 2009/10 by U.S.-Russia Business Council

Russia Business Watch Vol. 17, No. 2

Winter 2009-2010

Washington, DC

The Report of the U.S.-Russia Business Council

USRBC 17TH ANNUAL MEETING

September 24-25, 2009 Marriott Marquis, New York, NY

The United States and Russia: Rebuilding Confidence, Resuming Growth

USRBC Welcomes Its New Chairman Mr. Klaus Kleinfeld, President and CEO, Alcoa Inc. PRESIDENTâ&#x20AC;&#x2122;S MESSAGE SPECIAL REMARKS By Edward S. Verona p.1 E. Neville Isdell p.15 Klaus Kleinfeld p.16

KEYNOTE ADDRESSES Sergey V. Lavrov p.3 John R. Beyrle p.10 Vladimir Golovnev p.18 William R. Rhodes p.6 Dennis F. Hightower p.12 Mary A. Laschinger p.21

Contents/Содержание

Russia Business Watch • Winter 2009-2010

Klaus Kleinfeld Chairman of the Board Edward S. Verona President and Chief Executive Officer Chairmen Emeritus Robert S. Strauss E. Neville Isdell Board of Directors Theodore Austell, III The Boeing Company Sidney W. Bardwell Deere & Company Ozer Baysal Pfizer Inc. Stephen E. Biegun Ford Motor Company Scott M. Blacklin Cisco Systems, Inc. Carolyn L. Brehm Procter & Gamble Peter A. Charow BP America Inc. Jeffrey R. Costello JPMorgan Chase Bank Richard J. Coyle Wal-Mart Stores, Inc. Andrew Cranston KPMG Richard N. Dean Baker & McKenzie Neil W. Duffin Exxon Mobil Corporation Dorothy Dwoskin Microsoft Corporation C. Cato Ealy International Paper Terrence J. English Baring Vostok Capital Partners Mark B. Fuller Monitor Group Toby T. Gati Akin, Gump, Strauss, Hauer & Feld, LLP Herman O. Gref Sberbank Christopher Gubbey General Motors Corporation Drew J. Guff Siguler Guff & Company, LLC Trevor Gunn Medtronic, Inc. Jay M. Haft Renova Group D. Jeffrey Hirschberg Kalorama Partners, LLC Karl Johansson Ernst & Young LLP Alexey Kim Philip Morris Sales and Marketing Ltd. Klaus Kleinfeld Alcoa, Inc. Sergei A. Kuznetsov Severstal North America William C. Lane Caterpillar Inc. Eugene K. Lawson Lawson International, Inc. James J. Mulva ConocoPhillips Peter B. Necarsulmer The PBN Company Richard D. Paterson PricewaterhouseCoopers Peter J. Pettibone Hogan & Hartson LLP Thomas R. Pickering The Eurasia Foundation Jay R. Pryor Chevron Corporation William R. Rhodes Citigroup Daniel W. Riordan Zurich-American Insurance Company Paul Rodzianko Hermitage Museum Foundation Charles E. Ryan Deutsche Bank Ltd. Claudi Santiago General Electric Company Bernard Sucher Merrill Lynch International Maurice Tempelsman Lazare Kaplan International Inc. Peter L. Thoren Access Industries, Inc. Clyde C. Tuggle The Coca-Cola Company Daniel H. Yergin Cambridge Energy Research Associates Honorary Director James F. Collins Carnegie Endowment for International Peace

1/2 nn President’s Message/ Обращение Президента 3 nn Keynote Address: Sergei Lavrov, RF Minister of Foreign Affairs 6 nn Keynote Address: William R. Rhodes, Chairman & President, Citibank; Senior Vice Chairman, Citi 10 nn Keynote Address: John Beyrle, U.S. Ambassador to the Russian Federation 12 nn Keynote Address: Dennis F. Hightower, U.S. Deputy Secretary of Commerce 15 nn Introduction of the New USRBC Chairman by E. Neville Isdell, former Chairman and CEO, The Coca-Cola Company 16 nn Remarks by the New USRBC Chairman, Klaus Kleinfeld, Chairman and CEO, Alcoa, Inc. 18 nn Lead-In Keynote Address: Vladimir Golovnev, First Deputy Chairman, State Duma Committee on Economic Policy nn 21 Lead-In Keynote Address: Mary A. Laschinger, President EMEA, International Paper 24 nn Panel Discussion: Resetting the Relationship 28 nn Panel Discussion: Diversifying the Russian Economy 31 nn Panel Discussion: Identifying Opportunities in Russia’s Regions 33 nn Panel Discussion: The Future of Financial Services in Russia 36 nn Panel Discussion: Coping with the Crisis 38 nn Panel Discussion: Developing an Effective Government Relations Practice in Russia

40 nn Sponsors of the U.S.-Russia Business Council 17th Annual Meeting 44

nn New

Member Profiles

Russia Business Watch The report of the U.S.-Russia Business Council

1110 Vermont Avenue, NW, Suite 350, Washington, DC 20005 Tel: (202) 739-9180 • Fax: (202) 659-5920 • www.usrbc.org Novinskiy Boulevard 8, Office 907, 121099 Moscow, Russian Federation Tel: (7) 495-228-5896 * Fax: (7) 495-228-5897 ditor: Svetlana Minjack • Assistant Editor: Jeff Barnett E Research Assistants: Patrick Connally, Elena Markovich, Natalia Saraeva, David Plotz Design: Maryia Dauhuliova Photography: Yvonne Gunner For additional information or copies of Russia Business Watch, please contact the USRBC at (202) 739-9180 or email RBW@usrbc.org.

trade and create a meaningful commercial partnership. Following the ObamaMedvedev meetings in April and July, and Secretary of State Hillary Clinton’s visit to Moscow in October, both sides seem more willing to engage commercially in a constructive and structured way.

Dear Council Members and Friends: As any old salt knows, too much sail and not enough ballast can lead to capsizing or being driven against the rocks. The U.S.-Russia relationship, in this sense, is much like the ship without enough draft to enable it to steer its way through political storms. The lack of shared interests between our two countries too often means that, like a top-heavy ship, we have been easily thrown off course by every ill wind that blows our way. Increasing the stakes we have in each other’s economic prosperity would be like adding ballast, giving us the ability to steer a straighter course even during squalls and storms. To the credit of Presidents Obama and Medvedev, who in November held their third bilateral meeting in the past four months, the U.S. and Russian governments are taking steps to do just that. The recently announced U.S.-Russia Bilateral Presidential Commission will have to navigate tensions surrounding Iran policy, the stop-and-go nature of WTO accession talks, and other contentious geo-political matters. Even with these headline-grabbing differences between our two nations, the Commission has already defined areas of common interest, including building a strong commercial partnership. To put the economic relationship in perspective, Russia currently accounts for only about 1 percent of America’s overall trade, compared to 14 percent for China and 2 percent for the Netherlands. However, the next few years offer our best chance yet to expand two-way

When Clinton and Russian Foreign Minister Sergey Lavrov, the coCoordinators of the Commission, met in Moscow on October 13, they agreed on the Commission’s basic outline and procedures. It will consist of 16 Working Groups covering such economically vital areas as Business Development, Energy, Health, and Agriculture. Other working groups will deal with topics of at least peripheral interest to business, including space exploration and educational and technological exchanges. Although the working groups will be government-to-government, the business communities in both countries must play a major role in the process. The fact is, many American companies have discovered that Russia is open for business — and is an increasingly profitable place to do business. Until the onset of the recent recession, Russia enjoyed average annual growth of almost seven percent. Russian industry has been restructured and, to a considerable degree, privatized. A whole new generation of young Russian leaders, economists and professionals has emerged. They are international, savvy and well-versed in market economics – a common language, or obshchiy yazik, that many of them share with their American counterparts. They have already demonstrated an ability to achieve results even in the absence of a commission. U.S.-Russia bilateral trade has seen double-digit growth for most of the past decade. In 2001, total trade was just under $9 billion; by the end of 2008 that number had reached $36 billion. This year, that figure is likely to be in the range of $22 billion owing to the global economic downturn, a roughly 40 percent drop from the previous year but a significant increase since the beginning of the decade.

Significantly, U.S. foreign direct investment in Russia has grown from $6 billion in 2004 to more than $17 billion today. Much of the recent investment has been in sectors outside of oil and gas, formerly the leading area for inbound U.S. investment. This trend reflects growing demand in Russia for U.S.branded, locally manufactured goods. Even more remarkably, Russian investment into the United States over the last decade has grown from a negligible amount to more than $8 billion. These investments have been largely in steel plants and, thanks to the experience of Russian steel companies in turning around their own troubled plants, a significant number of American jobs have been saved or created.

The U.S.-Russia Business Council 17th Annual Meeting

PRESIDENT’S MESSAGE

An important challenge for the Commission will be restoring the positive trend in bilateral trade that the global recession abruptly halted, and create a business climate conducive to further investment. In the long run, this will require institutional reforms, such as creating an independent judiciary and combating corruption. However, there are several areas where relatively quick progress could be made, including simplification of visa and work permit procedures in both countries, export control liberalization in the U.S., and customs reform in Russia. These fall under the jurisdiction of the executive branch in each country and therefore should be resolvable without legislation. Increasing the focus on commercial relations may be our best chance of getting the U.S.-Russia relationship right by putting enough ballast in the keel to ensure that we can steer through the storms that inevitably occur. The business community stands ready to support this process in the hope of improving the standard of living and quality of life for the people of both countries. With warm regards,

Edward S. Verona

Russia Business Watch Winter 2009-2010

Американо-Российский Деловой Совет 17-e Ежегодное Заседание

ОБРАЩЕНИЕ ПРЕЗИДЕНТА

Уважаемые члены Совета и друзья! Каждому бывалому моряку известно, что при отсутствии должного балласта парусник может перевернуться или разбиться о скалы. Американо-российские отношения в этом смысле во многом напоминают корабль, недостаточная осадка которого не позволяет ему проложить свой путь в океане политических страстей. Недлинный список общих интересов наших стран зачастую означает, что подобно несбалансированному кораблю, мы легко сбиваемся с курса при любом дуновении сильного ветра. Повышение взаимозависимости экономического процветания наших стран могло бы сыграть роль балласта, который позволил бы нам двигаться верным курсом во время шторма. Следует отдать должное Президентам Обаме и Медведеву, которые в ноябре провели третью двустороннюю встречу за последние четыре месяца и тем самым продемонстрировали, что американское и российское правительства работают именно в этом направлении. Недавно созданная американо-российская двусторонняя президентская комиссия займется урегулированием вопросов, касающихся политики Ирана, неустойчивого прогресса переговоров по вступлению России в ВТО и других спорных геополитических сфер. Несмотря на разногласия между нашими странами, которыми пестрят заголовки в прессе, Комиссия уже определила сферы общих интересов, включая развитие прочных коммерческих связей. Если говорить об экономических отношениях, в настоящий момент на Россию приходится только около 1 % совокупного объема внешней торговли США, в то время как для Китая аналогичный показатель составляет 14%, для Нидерландов — 2%. Тем не менее, в течение следующих нескольких лет может возникнуть реальная возможность расширения двусторонней торговли и создания значимого коммерческого сотрудничества. После апрельской и июльской встреч Обамы и Медведева, а также визита Госсекретаря Хиллари Клинтон в Россию в октябре, обе стороны демонстрируют растующую готовность выстраивать конструктивные и упорядоченные коммерческие отношения.

Russia Business Watch Winter 2009-2010

Госсекретарь Хиллари Клинтон и Министр иностранных дел Сергей Лавров, координаторы Комиссии, во время встречи 13 октября согласовали общую структуру и процедуру работы органа. Комиссия будет состоять из 16 рабочих групп, ответственных за такие напраления, как развитие бизнеса, энергетика, здравоохранение, сельское хозяйство, а также занимающимися такими немаловажными для бизнеса вопросами, как освоение космоса, образование, обмен технологиями и др. Несмотря на то, что рабочие группы будут осуществлять свою деятельность на межправительственном уровне, бизнес сообщества обоих государств должны играть ведущую роль в этом процессе. Многие американские компании на практике убедились в том, что Россия — прибыльный и открытый для бизнеса рынок. До начала экономической рецессии ежегодный экономический рост в России в среднем составлял около 7%. Российская промышленность была реструктуризована и, по большей части, приватизирована. Появилось новое поколение молодых российских лидеров, экономистов и специалистов. Они космополитичны, прагматичны и хорошо подкованы во всех сферах рыночной экономики, что позволяет им говорить на общем языке c американскими партнерами. Они продемонстрировали способность добиваться результатов даже до появления Комиссии. Объем американороссийской двусторонней торговли увеличился в десятки раз за последнее десятилетие. В 2001 году совокупный торговый оборот не превышал $9 млрд.; к концу 2008 года эта цифра достигла уже 36 миллиардов долларов. В этом году в связи с экономическим кризисом, данный показатель вероятно составит порядка 22 миллиардов долларов, что на 40% меньше, чем в предыдущем. Однако даже такой показатель свидетельствует о значительном прогрессе, произошедшем с начала десятилетия. Примечательно и то, что американские прямые инвестиции в Россию возросли с $6 млрд. в 2004 году до $17 млрд. на сегодняшний день. В недавнем прошлом нефтегазовый сектор являлся лидером по привлечению американских инвестиций, но многие инвестиции за

поседнее время были уже осуществлены в неэнергетические сектора. Данная тенденция свидетельствует о возрастающем спросе на американские бренды, произведенные в России. Еще больший повод для оптимизма дает тот факт, что российские инвестиции в США за последние 10 лет возросли с ничтожно малого количества до $8 млрд. Данные инвестиции в основном осуществлялись в сталелитейную промышленность и, благодаря антикризисному опыту российских сталелитейных компаний, российским инвесторам удалось сохранить и создать рабочие места для многих американцев.

Важной задачей для Комиссии станет восстановление позитивных тенденций в двусторонней торговле, внезапно приостановленных глобальным экономическим кризисом, а также создание благоприятного делового климата для дальнейшей инвестиционной деятельности. В долгосрочной перспективе это потребует институциональных реформ, таких как создание независимых судов и борьбы с коррупцией. Однако существует несколько сфер, в которых может быть достигнут прогресс в ближайшее время, среди которых — упрощение визового режима и облегчение выдачи разрешений на работу в обоих странах, либерализация экспортного контроля со стороны США и таможенная реформа в России. Данные вопросы находятся в юрисдикции исполнительных ветвей власти в обоих государствах и могут быть решены без изменения законодательства. Повышение роли коммерческих отношений может стать единственным верным средством успешного развития американо-российских отношений, подобно тому как добавление балласта на киле делает корабль легко управляемым и позволяет не сбиться с намеченного курса в неизбежный сезон штормов. Деловое сообщество готово оказывать поддержку этому процессу, надеясь, что предпринимаемые усилия будут способствовать росту благосостояния и качества жизни народов обеих стран. С уважением,

Эдвард С. Верона

Keynote Sergey V. Lavrov Minister of Foreign Affairs Address of the Russian Federation (Excerpts)

“Dear colleagues and friends, I am delighted to welcome you, members, guests and friends of the U.S.-Russia Business Council. Let me take this opportunity to congratulate the President and CEO of Alcoa, Mr. Klaus Kleinfeld, on his election as Chairman of the Council’s Board of Directors and extend my gratitude to the former CEO of The Coca-Cola Company, Mr. Neville Isdell, for his long years of work at the USRBC. I find it very important that precisely these outstanding and influential representatives of the American business world are part of the Council’s leadership.

The U.S.-Russia Business Council 17th Annual Meeting

September 24-25, 2009 • New York, NY

“Our bilateral trade, economic and investment relations are among the priorities of Russia’s foreign policy. The development of trade and investment certainly represents the interests of both countries, not to mention that it should become a ‘safety cushion’ for the entire complex of our interaction.” who are at the helm of the American For us, the USRBC is a good and long-standing partner. The Council’s events are successfully held in the United States and in Russia. Both the Kremlin and the White House listen to the opinions of Council members,

business community. For many years, the Council has been fruitfully participating in various bilateral initiatives, among them the Chernomyrdin-Gore Commission and the bilateral business dialogue….(continued on next page)

Russia Business Watch Winter 2009-2010

The U.S.-Russia Business Council 17th Annual Meeting

September 24-25, 2009 • New York, NY

“Russia is interested in diversifying investment cooperation as much as possible. We attach great importance to the prospects for development of scientific and technological cooperation with the United States in the field of cuttingedge technologies, including nanotechnologies.” Meetings between Russian politicians and American business circles have become a good tradition. Not so long ago, many of you took part in the St. Petersburg and Sochi Investment Forums, and listened to the statements of President Dmitry Medvedev and President Barack Obama at the Moscow Manezh. I think that these events were very useful for expanding your business interests and new contacts and in generating fresh ideas. I would like to underline that if you have any proposals, ideas or concerns, you can always turn to Ed Verona, who can systematize them and who we trust. …Tomorrow a delegation of representatives of the Russian side of the RussianAmerican Business Dialogue, including the Russian Union of Industrialists and Entrepreneurs (RSPP), is going to Washington for talks on the mechanism of interaction with the Bilateral Presidential Commission, which was established during President Obama’s visit to Russia…. Possible areas for cooperation could include participation of the two countries’ business communities in carrying out major transportation, infrastructure and energy-saving projects. At the moment, the Presidential Commission is being structured, 13 working groups have been created and, perhaps, more will be added. [Ed.’s

note: There are now a total of 16 working groups.] The economic issues will be

dealt with by the groups on business development, trade and economic relations, energy and environment, agriculture, science and technologies, and space cooperation. Our bilateral trade, economic and investment relations are among the priorities of Russia’s foreign policy. The development of trade and investment certainly represents the interests of both countries, not to mention that it should become a ‘safety cushion’ for the entire complex of our interaction.

Russia Business Watch Winter 2009-2010

Unfortunately, statistics show that the potential in this area is not being fully utilized. The ‘reset’ of the relationship could have a more energetic start. Our trade turnover increased by more than a third and reached a record $36 billion at the end of last year, but has lost that third in the first half of 2009. As to investment cooperation indexes, they all show negative dynamics, having dropped by more than $1 billion. The United States, nevertheless, has maintained its position as the eighth-largest investor in Russia. Clearly, this loss of pace in Russia-U.S. cooperation is primarily an outcome of the global financial and economic crisis. This weekend, in Pittsburgh, the G-20 political leaders will discuss economic problems and outline further steps to overcome the crisis. The Russian side is taking an active part in the discussion of three major problems: overcoming crises developments in the economy, reforming the global financial architecture and improving financial sector regulation. It appears that we succeeded in many aspects following the G-20 meetings in Washington and London. Indeed, certain statistical indicators, including those in Russia and the United States, have started to become positive. However, we cannot afford to rest on our laurels — it is necessary to sum up the effectiveness of these efforts and work out new decisions. It is important that the meetings are not in a restricted format, but involve the heads of states and international organizations representing the leading economies and virtually the whole spectrum of the modern world in terms of geography and civilizations. We think that it paves the way toward building the basis for a global governance system that would eventually allow a more effective search of responses to modern challenges.

Evidently, the business communities of Russia and the United States have vast resources to help restore the positive trend in our economic partnership. However, we should take into account that, if we put figures aside, the situation does not appear that depressing. There are good examples of our interaction. In July, Prime Minister Vladimir Putin attended an inauguration ceremony for a new titanium processing plant for aircraft parts established in the framework of the VSMPO-AVISMA/Boeing cooperation program. Agricultural equipment producers, such as John Deere and Case New Holland, work actively on the Russian market. Alcoa and PepsiCo have launched new facilities. General Electric is participating in the establishment of the Power Technology Center in Kaluga. United has launched direct Moscow to Washington flights. There are some positive examples in the banking sector as well. A memorandum of understanding was recently signed between the Association of Regional Banks of Russia and the International Finance Corporation,

with the WTO Secretariat for over a decade. The progress on the Customs Union track was much faster than that on the WTO negotiations. Naturally, Russia’s accrued experience and the legislation that was adopted during the accession process will remain. We still seek WTO accession on a fair, open and equitable basis. So do our Customs Union partners.

From left to right: E. Neville Isdell, Former Chairman of the Board, The Coca-Cola Company; Edward S. Verona, President and CEO, The U.S.-Russia Business Council; Sergey Lavrov, Minister of Foreign Affairs of the Russian Federation; Ambassador John R. Beyrle, U.S. Ambassador to the Russian Federation.

which forms a good basis for the stabilization of the Russian banking system as well as regional credit institutions during a period of economic recovery. A cooperation agreement is being drafted based on this memorandum to provide concrete assistance to finance the real economy. I hope that U.S. financial institutions will support this initiative.... Russia is interested in diversifying investment cooperation as much as possible. We attach great importance to the prospects for development of scientific and technological cooperation with the United States in the field of cutting-edge technologies, including nanotechnologies. Russia has set up the state corporation Rosnano, which is working successfully and whose delegation has recently visited the U.S. As for a venue for the experts to develop particular scientific and technological interaction, it could be provided by the Moscow State Institute of International Relations (MGIMO).

I recommend it not because I am a graduate, but because it has a lot of experience in communication with state-owned, public, educational, and corporate institutions from different countries…. I am sure that many of you would like an update on Russia’s accession to the World Trade Organization. I would like to stress that WTO accession remains our strategic goal. As you know, Russia made the decision this summer to join this organization simultaneously along with Kazakhstan and Belarus, who are our Customs Union partners and have close historical and economic ties with us. [Ed.’s

note: Russia announced on October 15, 2009 that it would again pursue WTO membership individually.] We have set up a joint negotiating team, including experts from all three countries. The first meetings will be held in this new format in the near future in Geneva. This decision was not easy to take, but it was unavoidable — the three countries have been in negotiations on the Customs Union and simultaneously

…I would also like to note the important contribution of the business community to the development of RussianAmerican social and cultural ties that eventually will serve as a foundation for strengthening the friendship and mutual understanding between our peoples. I believe that public-private partnership is a promising form of cooperation in this area. There are many successful examples of such a partnership. In this connection, I would like to bring the following issue to your attention. Due to the acute budget crisis in California, Governor Schwarzenegger has decided to cut funding to the state’s natural and historical parks, which may regretfully include the former Russian fortress and settlement of Fort Ross. This historical landmark today continues to play a major educational role, allowing more than 200,000 Americans annually to experience the history and a way of life of one of the first European settlers in the American West.

The U.S.-Russia Business Council 17th Annual Meeting

September 24-25, 2009 • New York, NY

The California Park Service estimates that keeping Fort Ross operating normally would require $300,000 to $800,000 annually, depending on the services offered. I would like to ask our business community to support this unique monument to Russian participation in early American history and symbol of long-standing RussianAmerican relations. I can assure you that the Russian government is prepared to support this endeavor and President Medvedev, to whom I talked about this issue, supported it strongly. In conclusion, I would like to wish all those participating in today’s event interesting and productive meetings, effective negotiations and hopefully new promising deals. Thank you for your attention.” n

Russia Business Watch Winter 2009-2010

The U.S.-Russia Business Council 17th Annual Meeting

September 24-25, 2009 • New York, NY

Keynote William R. Rhodes Chairman & President, Citibank Address Senior Vice Chairman, Citi (Excerpts)

Citi’s History in Russia “...Both Citi and I have a long history and familiarity with Russia. We first established a presence in Petrograd, now St. Petersburg, in 1917. However, it was closed, obviously, the following year during the Russian Revolution.... In 1993, I officiated the opening of a new representative office and, in 1994, of the branch in Moscow. We have since opened branches throughout the country. During the 1990s,

Russia Business Watch Winter 2009-2010

when I was opening these branches in Russia, I also had the opportunity to serve as a member of Prime Minister Chernomyrdin’s Foreign Investment Advisory Council along with Neville Isdell.

Current Economic & Financial Crisis …I think the type of dialogue that we have seen and the collaboration that is ongoing in the G-20 is very important, because if we look at crises such

as the Latin American debt crisis and the Asian financial crisis, the only way we worked our way out was collaboration between governments, the IMF, the World Bank, and private creditors. So, this type of working together is what is necessary today, even more so than it was then. However, as the crisis continues, I am fearful that the G-20 dialogue will simply focus on the headline-grabbing issues of stimulus and the perception that the worst is behind us.

To a certain extent, we are all suffering from a form of crisis fatigue, and we risk being lulled into complacency by the long-sought time of improvement and the accompanying proclamations that the recession has ended. For example, it is easy to be comforted by central banks turning to the use of standard monetary tools and retiring the use of the extraordinary measures that we have seen around the world. As we see improvement in capital market performance, the world may weaken its resolve to address very important systemic weaknesses that played a central role in creating the worst financial crisis since the Great Depression.

Crisis Prevention Measures So, what remains to be done as we move beyond immediate crisis management and begin to think about crisis prevention? First, there is an urgent need to address the increasingly protectionist measures and countermeasures that we have seen. Indeed, in the weeks following the G-20 meeting in London in April, 17 of the 20 participants of that meeting enacted some form of protectionist measure. We need to recall that, during the economic problems of the 1930s, fear spawned the beggar-thy-neighbor trade protectionist approaches. Not only did these approaches fail to secure economic recovery, but they further cemented the Great Depression and simultaneously created extraordinary tensions in international relations. These lessons of the 1930s led to the establishment of a number of post-World War II institutions like the General Agreement on Tariffs and Trade (which is now the WTO), the IMF, the World Bank, and later the regional development banks. It is imperative that we use these institutions to the fullest with specific steps to contribute to economic recovery, build confidence and strengthen international cooperation. The restoration of trade levels must also be a priority. As an example, trade turnover in Russia with all countries totaled $764 billion in 2008 and fell 44 percent year-on-year to $250 billion in the first seven months

of this year. The World Bank and the regional development banks in partnership with export credit agencies need to offer expanded lines of trade financing. Diminished global demand is not the sole constraint on world trade — a lack of financing is hampering the global engine as well. As part of the recovery effort, the development institutions should also reinstate co-financing with commercial banks and other financial institutions. Restoring other sources of liquidity is desperately needed as well. For example, action is needed to revive the securitization in markets worldwide. We need new capital, and securitization is one way to achieve that. Obviously, there will be constraints on credit generating capability in bank balance sheets and this is one way to help. Caution is needed, though, to ensure that any proposed revisions of capital accounting and reporting rules do not render securitization unnecessarily costly or difficult to do or undermine microeconomic goals. Beyond trade protectionism there is financial isolation or fragmentation. Policies developed with a country focus that largely disregard the dependency of major industrial nations on financial flows will be counterproductive. Policies that ignore the importance of capital flows between the mature and emerging market economies will certainly be harmful. We simply cannot cut out international capital flows. This is our lifeblood in the age of globalization. Many emerging market economies, for example, rely on international credit markets to roll over their debt. Finding capital for this important business is more difficult when mature economies put in place domestic deposit guarantees with the requirement that the capital remain in that market. Without the ability to transfer capital, trade flows are further depressed and limit global growth and recovery…. To be sure, significant actions have been taken this year to support capital flows. For example, last October, I wrote a series of op-eds in the Financial Times highlighting the need for the urgency for swap arrangements for well-performing emerging

market countries. The U.S. Federal Reserve subsequently created swap arrangements with the central banks of South Korea, Brazil, Mexico, and Singapore. In the case of South Korea, the effect was immediate and helped stabilize that market, which had been drifting down very, very rapidly. Additionally, I, along with many others, worked to convince the IMF to provide a short-term credit facility without excessive conditionality to support emerging market countries. The subsequent creation of the IMF’s new flexible credit line, or FCL, was an important step in persuading market participants that emerging economies would have no problems accessing large amounts of liquidity in relatively short order.

The U.S.-Russia Business Council 17th Annual Meeting

September 24-25, 2009 • New York, NY

Perhaps even more importantly, Mexico’s bold request in March for an arrangement with the facility, which was followed by Poland and Columbia, showed that the FCL was helping to restore confidence and could also be tapped very rapidly without the stigma of all sorts of unnecessary conditionality. The IMF has also been lending aggressively under traditional standby arrangements, and the use of the Fund’s credit by countries in Central and Eastern Europe, in particular the Baltic countries, had reached $35 billion in April and has substantially increased since then. The combination of stepped up IMF and other multilateral and bilateral official lending has pushed the official sector back into the most prominent role of providing external financing in over a decade. Whereas official lenders had provided funding equivalent to only 4 percent of all sources in 2007, this ratio is likely to have risen tenfold to some 37 percent this year. Emerging Europe is the most difficult area, where we see that netinflows of $38 billion in 2008 are now net-outflows to the private sector of $33 billion. However, more work remains to be done. The combination of finance and trade protectionist measures poses a grave risk that economic recovery could be slow…. There remains an urgent need to achieve convergence of international accounting standards and regulatory norms in order to strengthen the Russia Business Watch Winter 2009-2010

The U.S.-Russia Business Council 17th Annual Meeting

September 24-25, 2009 • New York, NY

At the table: Edward S. Verona , USRBC (foreground); Vladimir Milov, President, Institute for Energy Policy (left); Valery Zakharov, Access Industries, Inc. (right).

comparability of financial statements for investors and regulars, as well as to prevent what we call accounting arbitrage — finding who your favorite regulator is so you do not have to do what you should be doing. Although mandated at previous G-20 meetings, work currently remains in progress in areas like fair value accounting, and I think it is very important that we get this done as quickly as possible…. These things need to be done now because our experience in the LDC debt crisis of the 1980s and the Asian financial crisis of the late 1990s was that much was promised and nothing was done, which helped to set us up for the present crisis. Additionally, as regulatory reform progresses, it is essential to have close international cooperation consistent with the G-20 commitments. In other words, rather than have every country adhere to their own regulatory standards — which helped to propel this international crisis we are in — we need an international system. You need consistency and the G-20 has the ability to do it if they want to do it.

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The G-20 must continue to work at something that I think interests Russia and certainly interests China, India, Brazil, and other emerging market countries: the governance issues of voting rights. For example, China has the same voting rights as Belgium at the International Monetary Fund, and, as I think we all know, next year China will probably surpass Japan as the world’s second-largest economy. You cannot have that type of relationship and expect international cooperation on crisis prevention.

U.S.-Russia Relations Turning to U.S.-Russia relations, I believe we have seen a number of encouraging signs. I do not think I have seen a speech on Russia that has not talked about ‘resetting’ the relationship…. I think there is a lot of mutual interest between the two countries, certainly from arms reduction to counterterrorism, as well as the stability of the international financial system.

Time of Opportunity for Russia …It looks as though several emerging market countries will come out of

the crisis stronger than the so-called developed countries, but a number of emerging market countries are still having problems attracting investment. I think the things that will be looked at even more strongly going forward are the strength of institutions within a country, transparency, openness, regional stability, and economic diversification. For Russia, to attract its share of foreign investment and also to maintain domestic investment so that funds do not leave the country, I think we need a thorough implementation of the rule of law and the sanctity of contracts. This is critical in building confidence not only in foreign investors, but also in domestic investors…. This is a time of opportunity for Russia, and I hope the government notices this because this is a country with so much talent and creativity. I think one of the opportunities available today is to diversify away from Russia’s dependence on oil and gas…. I also think additional work is needed on the Russian banking sector.

The U.S.-Russia Business Council 17th Annual Meeting

September 24-25, 2009 • New York, NY

Red Cavaney, ConocoPhillips, gives the Gala Dinner Toast.

On my last visit to Russia in March of this year, I spent two hours with Finance Minister Alexei Kudrin and his staff talking about examples of what other countries had done over the years to shore up their banking system in difficult situations. I also spent quite a bit of time with Central Bank Chairman [Sergei] Ignatiev on the same trip. You saw a number of things happen in the banking sector. Capital has been injected directly into a number of large banks and the Central Bank has put forth a number of plans to help the liquidity situation. I think we are going to see another round of consolidation in the banking system as we move forward over the next year…. I was reminded that it has been 17 years since Russia first started talking about the WTO. During that period, dozens of countries were coming into the WTO, most prominently China, and it has made a difference. So, I think it is incumbent on Russia and for us here in the U.S. to work with Russia to become a member of the WTO. The USRBC can be very helpful in that regard.

Year 2010 and Beyond Looking beyond the end of the year into 2010, I think that the recovery is going to be weaker than some people think, because as we go along a lot of the policy support and liquidity arrangements of central banks will be withdrawn. The global leveraging cycle is not going to be a matter of weeks, but a matter of years. Now, I want to say something that will probably surprise you, because it is very positive. I think the forecast of U.S. growth over the next two quarters is probably going to work out a lot more than many of you read. I think we have a chance to be somewhere between three and five percent over the next two quarters. Alan Blinder, who is an economist at Princeton and a former Deputy Head of the Federal Reserve System, is one who feels very strongly about this. There are a number of economists who now feel that, because of inventory replenishment and the stimulus taking effect, we will see the markets coming back. However, having said that was good news, we will see the replenishment of inventory start to phase out in the

first quarter of next year. The stimulus package will probably peak in the first quarter. So, I think we are going to see 2010 being slower than a lot of people think, because housing has still not bottomed out completely. We still have a rising unemployment rate, though it is seems to be stabilizing. I also think the consumer, which drives 70 percent of the U.S. economy, over the last decade basically carried the world on its back. Moreover, I think the U.S. consumer is very cautious, that is why you see the rise of savings rates. The U.S. consumer will continue to be cautious next year. Having said all of that, I think we are struggling out of the worst of it. Things look good the next couple of quarters, but this is the opportunity to make some real changes. I would say when we talk about reset, we should talk about some resets in the international economic arrangements that guide our world economy. If we don not make these changes, we are going to find another crisis on our hands a lot sooner than we think. Thank you very much.” n

Russia Business Watch Winter 2009-2010

The U.S.-Russia Business Council 17th Annual Meeting

September 24-25, 2009 • New York, NY

Keynote John Beyrle U.S. Ambassador Address to the Russian Federation (Excerpts)

“...When I spoke at the USRBC Gala Dinner last year in the Newseum, we were focused on a number of complex issues: negative investment climate, the emerging global financial crisis, the Georgia conflict, an upcoming American election. Not all of these issues are solved, but I think we recognize that we find ourselves in a very different, a very changed, and an improved environment. The U.S. and Russia are now looking at each other in a very different way than a year ago, and in a different global economic context. I think President Obama’s speech in Moscow in July before the graduates of the New Economic School maybe expressed it most trenchantly, when he said, ‘Unfortunately, there is sometimes a sense that old assumptions must

Russia Business Watch Winter 2009-2010

“It is a vital strategic interest of the United States that Russia becomes that strong, prosperous country. We do not need weak partners in the 21st century.” prevail, that old ways of thinking are still strong, a conception that power is still rooted in the past rather than in the future.’ There is a 20th century view, the President said, that the United States and Russia are destined to be antagonists. This assumption is wrong. The pursuit of power is no longer a zerosum game. Progress must be shared. That is why the President called for a reset in relations between the U.S. and Russia. It must be a sustained effort between the American and Russian people to identify mutual interests and expand dialogue and cooperation that can pave the way to progress.

I do not think there is any doubt that a real reset is underway in the U.S.Russia relationship right now, following a very productive, constructive summit in Moscow in July. I would say this is the most constructive moment I have felt in the relationship surely in the last 10 or even 15 years. The summit resulted in a number of important agreements that encompass the global strategic nature of this relationship. Negotiations are proceeding quite well now on the replacement treaty for the expiring START agreement. U.S.-Russia cooperation on nuclear nonproliferation was highlighted only

yesterday by the unanimous adoption of a new Security Council resolution that will make it more difficult to use a peaceful nuclear program as a cover for military ambitions. I think that the news coming out of Iran this morning and the statement that the leaders will issue in Pittsburgh will only underscore the joint nature, the combined cooperative effort of the United States and Russia in addressing that very specific threat. Russian-American cooperation on Afghanistan continues to expand. Within a few weeks, we will see up to 12 American military flights per day crossing Russian airspace, ferrying troops and military equipment to the fight in Afghanistan to support U.S. and NATO troops in that war-torn country. In addition, work is well underway on a number of fronts to launch the Bilateral Presidential Commission that was announced in July, as a way to ensure that the more constructive, productive atmosphere that we feel will be translated into concrete, sustained results. There has been significant progress in defining the membership and the preliminary goals of the different working groups of that Commission. I know the working group of most direct interest to all of us in this room is the Business Development and Economic Relations Working Group, which will be chaired by Minister of Economic Development Elvira Nabiullina and Secretary of Commerce Gary Locke…. I want to stress again, as I have before, how important, how crucial we see the input to that working group from both U.S. and Russian businesspeople. In that respect, I want to thank the U.S.-Russia Business Council, and I want to thank all of you, for the thoughtful recommendations [USRBC’s

Recommendations for the Bilateral Presidential Commission Working Group Agendas] that you sent in August as a way to help get things moving for this working group and the new Commission. I hope the flow of ideas continues, and that we can use them as a basis for productive work. As I reread those recommendations on the plane coming over, I was struck by how often I encountered the following

“We strongly believe the U.S. and Russia can be close business partners whose economies mutually support each other, and lead the world to that better, more prosperous economic future — that is a strategic goal for us.” This is an absolutely essential goal of phrases: Increase transparency.

Avoid protectionism. Investment with rules. Stimulating efficiency. Judicial independence and integrity. Simplified procedures. Legal clarity. Harmonization. Streamlining. None of these are new aspirations. Many of us have been working on their realization for almost a couple of decades. We all saw with dismay this year that Russia dropped 12 places to 63rd out of 133 countries in the World Economic Forum’s Global Competitiveness Report. That report only highlighted many of the same issues that the U.S.-Russia Business Council report did. It emphasized Russia’s need to tackle structural weaknesses, the lack of government efficiency, judicial independence, and property rights, as well as increased government favoritism. It noted corruption, the lack of access to financing, the prevalence of trade barriers, and poor corporate ethics as problems for Russia. So again, we find ourselves at a critical crossroads for supporting Russia’s efforts to become that stronger, more prosperous country that President Obama spoke about in July. It is a vital strategic interest of the United States that Russia becomes that strong, prosperous country. We do not need weak partners in the 21st century. I believe the Business Development and Economic Relations Working Group of the Bilateral Commission is going to be the ideal forum for the discussions to help move some of this forward. By citing specific problems that businesses are encountering and by explaining how they affect the growth in bilateral trade and the willingness of American companies to increase their investments in Russia, we can begin to stop merely listing what the problems are and begin working together toward the real, overdue resolution of those problems. As a result, we will see our economic relationship grow to the benefit of both countries.

that working group, because business and economic ties are perhaps the most enduring and most important element of our bilateral relationships around the world, and in particular this relationship. As you have heard me say many times before, I believe they can provide the stable foundation for U.S.-Russia relations. They can serve as that shock absorber that we need to help us ride out some of the political vicissitudes that we are all witness to and know will come again in this relationship.

The U.S.-Russia Business Council 17th Annual Meeting

September 24-25, 2009 • New York, NY

This is not a one-sided desire now. We are clearly seeing signals from the Russian side that they are ready to tackle these problems for the benefit of future Russian generations. President Medvedev recently stated that economic backwardness and corruption are the key reasons for Russia’s problems. He stated that, ‘Our country has preserved the Soviet Union’s worst flaw: a severe disregard for the peoples’ needs.’ …We have to support Russia in these efforts, both through the Bilateral Presidential Commission, and through the work of the U.S.-Russia Business Council, through our day-to-day working relationships, because the fundamental interests of the United States and Russia continue. We want to work with the Russian leadership to achieve a stable, prosperous world order that promotes the benefits of democracy, free trade and constructive relationships among nations. Your daily work in Russia contributes to that effort. We have seen a marked increase in U.S. investment in Russia in the past year despite the global economic downturn. I personally attended the opening of several major plants: General Motors, Alcoa, PepsiCo, as well as the inauguration of United Airlines’ Washington-Moscow direct flight. In addition, we have seen new U.S.-backed factories in the chemical, railroad, food processing, and construction materials sectors, just to name a few, and we have heard announcements of several more large planned investments in Russia. Russia Business Watch Winter 2009-2010

The U.S.-Russia Business Council 17th Annual Meeting

September 24-25, 2009 • New York, NY I feel comfortable in saying that we all see Russia as a natural partner in the world economic order, because we believe that the vast majority of Russian people share our interests in democracy, free trade and constructive relationships. As I never tire of saying to my Russian audiences, as I travel

We strongly believe the U.S. and Russia can be close business partners whose economies mutually support each other, and lead the world to that better, more

prosperous economic future — that is a strategic goal for us. I look forward to working with all of you in this room to that end in the months and years ahead. Thank you very much.” n

Keynote Dennis F. Hightower Deputy Secretary Address U.S. Department of Commerce (Excerpts)

“...I am very proud to be here today on

behalf of [U.S. Commerce] Secretary Gary Locke and to really have the opportunity to talk with you about the U.S.-Russia commercial relationship. I understand that some of you are new to the emerging market of Russia, while many of your companies have been in Russia for decades. However, all of you are in a sense pioneers, as you look for better ways

across the country and give interviews, much more unites the American and Russian people than divides us.

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“Businesses from both countries are eager to see the U.S. and Russia take a more active role in breaking down obstacles and improving the climate for trade and investment in both directions.” of doing business in an environment where the pace of markets have often outpaced the ability of regulators and governments to adapt. Your Russian

customers, partners and investors are also pioneers in a very real sense, as they remain among the first Russian businesses that have grown up in a global economic context.

For me, there is really a sense of déjà vu as I stand here this morning. Twentytwo years ago exactly, on September 24, 1987, as a Walt Disney Company executive, I left my headquarters in Paris with a team of European country managers and some of my European marketing and publishing staff, and headed to Moscow. There we began discussions with Russian publishers — Fizkul’tura i Sport — that resulted in our introducing Mickey Mouse and his friends to the children of Russia through books in their own language. Over the next eight years, and through many, many trips to Russia, Georgia and Ukraine, we also held European youth tennis championships in Moscow, and brought Disney toys, branded clothing and food products, and film festivals and television programming to the people of Russia…. Those were very, very exciting times, so I understand the excitement that each of you must feel as we begin a new chapter of U.S.Russia economic development. Secretary Locke was indeed honored to be asked by President Obama to accompany him to the July summit. This was the Secretary’s first official foreign trip since being confirmed to office, and it was a sign of the importance that this administration has given to resetting our dialogue with Russia. It is a relationship where we identify mutual interest and expand dialogue and cooperation, but also, we must not shy away from speaking forthrightly on areas where we disagree. While in Moscow in July, the Secretary found U.S. CEOs whose companies were remaining very strongly committed to Russia despite the challenges of the global economic and financial climate that we all find, as well as the specific challenges of Russia’s market. We recognize the opportunities provided by Russia’s increasingly sophisticated consumers and its highly capable workers and managers. Our business leaders want to see Russia’s economy develop further. Many Russian business leaders are also interested in accessing the U.S. market, to the point where they someday will become a familiar presence, rather than a novelty to American

“The United States is the most open market in the world to investment from around the globe. We want to see more companies from Russia and elsewhere invest and work in our country.” consumers. Already, we have an announcement today by Mr. Mikhail Prokhorov expressing his intent to buy the New Jersey Nets. So that is a good start. Businesses from both countries are eager to see the U.S. and Russia take a more active role in breaking down obstacles and improving the climate for trade and investment in both directions. It is not news to most of you in this room that U.S.-Russia trade and investment have suffered, along with the rest of the global economy. In 2008, our two-way trade topped $36 billion, its highest level ever. This year, so far, that combined trade is off about 37 percent. This is not just a bad result for U.S. exports, but it is a clear sign of how much Russian buyers have been impacted by the weaker ruble, by the freeze-up in the financial markets and by the plunge in the commodity revenues on which Russia had come to rely. The weaker cash flow position of most Russian companies has slowed the expansion of Russian businesses into the U.S., which until mid-2008 had been a most noteworthy new trend in our economic relations. Seeing the flattening of demand in Russia, American companies have slowed their investment there as well. This highlights the need for Russia to continue working on its own toward a more competitive investment climate, as we try to do the same in the United States. President Medvedev’s recent call for economic diversification in Russia is a farsighted recognition of the need to build an innovative economy of the future, a future in which the goods and services that Russia creates, and the innovations that they make, will be no less important than the natural resources that they take from the ground or from the forest. From a government standpoint, one key to promoting trade and investment

is to stay on the right side of the line between effectively supporting our domestic economies on one hand, and a shorthanded and counterproductive protectionism on the other. It is a false comfort to think we can cordon off our markets without harming ourselves in the long run. The United States is the most open market in the world to investment from around the globe. We want to see more companies from Russia and elsewhere invest and work in our country. As Secretary Locke remarked during his trip to Moscow, the American companies operating in Russia are creating jobs and opportunities here, at home, and in Russia.

The U.S.-Russia Business Council 17th Annual Meeting

September 24-25, 2009 • New York, NY

We want to see Russia continue its integration into the global economy and its institutions. Let there be no doubt at all that we do want to see Russia in the WTO. We should be asking ourselves, without such institutions and the standards and disciplines that they establish by agreement of their own members, how much worse would the current economic crisis have been? When we look at it from this perspective, I think we should all realize that we need to keep pressing hard to strengthen the WTO and the idea of multilateral economic cooperation that it represents. Seeing this vast array of challenges, Presidents Obama and Medvedev created the U.S.-Russia Bilateral Presidential Commission during the Summit in July. Secretary Locke looks forward to working with Minister of Economic Development Elvira Nabiullina as they co-chair a new Business Development and Economic Relations Working Group under that Commission…. While the Working Group will exist at the government-to-government level from a policy perspective, recommendations from the American business community will be welcome and extremely important. Thanks in

Russia Business Watch Winter 2009-2010

The U.S.-Russia Business Council 17th Annual Meeting

September 24-25, 2009 • New York, NY part to the diligent work of the U.S.Russia Business Council and others in marshaling input, we have already received a wide range of suggestions. The U.S. and Russian coordinators from the Commerce Department and the Ministry of Economic Development will be meeting next month in Washington to begin addressing these ideas. I think that many of your recommendations will find resonance within the government. For example, Secretary Locke has already

been working on two issues that U.S. businesses have singled out for attention: visas and export controls. Where there may be new ways to ensure that customers, investors and business partners can visit our country as openly as possible, without harming our nation’s security, we need to work hard to find those ways and put them in place. Where there may be new ways to ensure that American technology and ideas remain the world’s

best and the world’s choice, without putting ourselves and our troops at risk, we owe it to you to examine those options as well, because our security depends on having the best companies with the best technology and the best innovations. Let me close with these thoughts. We want to make your lives as businesspeople easier. We will not solve every problem and even most problems with one stroke, for this is not the

From left to right: Ambassador John R. Beyrle, U.S. Ambassador to the Russian Federation; Beryl Blecher, Minister Counselor for Commercial Affairs, U.S. and Foreign Commercial Service; Dennis F. Hightower, U.S. Deputy Secretary of Commerce

Russia Business Watch Winter 2009-2010

time to create unrealistic expectations. However, the shared interest of the American and Russian companies here, as well as the workers they represent and the consumers they serve, should remind us that there is a lot we can achieve when we pursue dialogue and do not insist on a zero-sum view of U.S.-Russia relations. We do not intend to allow inertia from past disagreements to prevent us from pursuing mutually

beneficial agreements today, where there exist opportunities for such improvements. Despite the challenges posed by today’s economy, the commercial arena is one in which these opportunities are much greater today than they have ever been before. All of us in the Obama Administration look forward to working with the U.S.-Russia Business Council to realize and seize

as many of those opportunities as possible. I want to thank you for the work that you have done, the work that you continue to do and the work that you will do in the future as part of this very important Council and all of the activities that are associated with it, and for sharing your time this morning with me.

Spasibo.” n

Introduction Introduction by E. Neville Isdell of the New Former Chairman and CEO USRBC Chairman The Coca-Cola Company

The U.S.-Russia Business Council 17th Annual Meeting

September 24-25, 2009 • New York, NY

“Thank you very much, everyone. I am reminded of a former boss of mine who, when he retired, said, ‘There is a time to lead and there is a time to leave.’ I have chosen this time to leave, because I believe that the organization must and should be led by someone who is active in Russia. And as I have stood down at the end of April as Chairman and CEO of the Coca-Cola Company, I felt it appropriate that I pass the baton. It is actually in many ways one of the most difficult decisions…as I have been involved with the Council since its inception 16 years ago. It has been a truly wonderful 16 years. If you think back to 20 years ago, no one had any idea that the Russia that exists today would emerge. Many people would have thought it impossible…. When I first went to Moscow, we had to take our own breakfast, because there were no eggs at the Oktyabrskaya Hotel. And it is that perspective, I think, that we absolutely have to have. …I am thrilled that the person who is going succeed me is my good friend Klaus Kleinfeld. His strategic clarity and his real understanding not just of the business world, but also of Russia, is going to bring real incremental value to the U.S.-Russia Business Council. When we started talking about Klaus succeeding me, he did very significant due diligence, because he wanted to be sure that this was worthwhile doing,

worth applying his time. I know, because I know the man. He only said yes because he is willing to put in the time.

I am very happy to be able to stand here today and say that not only is the USRBC in much better shape, but we now see real growth and real energy back in the U.S.-Russia relationship….”

Russia Business Watch Winter 2009-2010

The U.S.-Russia Business Council 17th Annual Meeting

September 24-25, 2009 • New York, NY

Remarks Klaus Kleinfeld by the New President and CEO, Alcoa USRBC Chairman Chairman, The U.S.-Russia Business Council “Neville, thank you very much…. When you, Neville, talked with me about this for the first time, which was a long conversation, you made it clear to me that you have put a lot of passion into this organization. And it is not only your passion that strikes me, but the foresight of having been one of the founders of this initiative at a time when no one could predict the Russia that we see today…. … I have spent quite a bit of time in Russia and I had the fortune to lead a company that is seen by many in Russia as a Russian company, because it was formed in St. Petersburg more than 150 years ago. Russia has played an enormously important role in the development of that company and that gives you an entirely different perspective on history…. Now, I am running Alcoa, a company that decided 10 years ago to enter Russia and has invested substantially there….

CHALLENGES AND OPPORTUNITIES IN RUSSIA Now, coming to the U.S.-Russia Business Council, I think we will continue to see challenges and we will continue to see opportunities….

Rule of Law There are three important factors that we need to address. The first, and most fundamental one, is that we need to make sure that there is an established rule of law in the country. I was enormously pleased to see that, in his first televised speech in office, President Medvedev made this a priority. I think we are on good footing here going forward.

Development of SMEs The second factor is support for the development of small- and mediumsized companies…. It is interesting to see that President Medvedev even set a quantitative target for their development, noting that today SMEs make up about 15 percent of the GDP and that he wants this figure to grow to 60 percent. I think that this goal is a very good one; it shows a lot of ambition. But I think that this idea is far more important

Russia Business Watch Winter 2009-2010

than it sounds because, when you look at societies and compare them, you see that it is the small- and mediumsized enterprises that bring enormous entrepreneurial spirit and enormous drive for innovation. These small- and middle-sized businesses create a stronger middle class. The stronger middle class can stabilize the political system and create a lot of good ground for the positive development of society. I

very strongly believe that this is on the minds of those who are pushing for SME development….

Education The third point I would mention is education, which goes directly into the point that I mentioned before. You can see again that President Medvedev has set this area as a top priority. I think the business community can

assist on the educational front in order to help people get a better understanding of good business practices. I was impressed when President Obama spoke at the New Economic School this

Teamwork on Bringing the U.S. and Russia Together There is a Russian saying that I like a lot that says, ‘All things are difficult before they are easy.’ I think that truly

in a more sustainable way... I see this as a positive thing and believe that we need to make sure that we do things together. We can not get all of these things done by ourselves. We need to

The U.S.-Russia Business Council 17th Annual Meeting

September 24-25, 2009 • New York, NY

Mr. Kleinfeld presents Mr. Isdell with newly-minted aluminum bottles of Coca-Cola.

year. Before he spoke, every individual that graduated this year was presented. Frankly, I would say that out of the 80 or so people that graduated that day, I would have hired every single one of them. Every single one of them had a CV that would have made it up to the higher ranks, because they all had a combination of some technology education and some business education or other second degree. All had business experience or some practical experience and all showed something that I look at — depth. All were able to show depth in solving huge problems and staying on a topic instead of just having a shallow, manufactured CV that we unfortunately see so often at other places…. Those in my view are three enormous things that we can begin to assist with right away.

describes the situation that we often run into…. Currently, we are in an environment that is more favorable to get things done than it was, as Neville said, half a year ago. I was enormously pleased to see the new tone that was set at the Obama-Medvedev meetings…. Obviously this new tone is important because it sets the foundation for the rest of the work that we have to get done. We can play a really important role.

make sure that everybody who has the same cause, as we do, acts together….

There is a mantra that I want to share with you that I follow in my life: ‘No one is perfect, but a team can be.’ I believe that there are elements of a team that we have to bring in place to really make this relationship successful. We are all a team here…. There are other organizations that follow the same mandate of bringing the U.S. and Russia together

On the other hand, I am optimistic that we will have the support of both administrations. Let us work on that, let us make that happen and let us see if we can continue with the USRBC founders’ vision going forward….” n

Let me close with why I have taken on this assignment. My industry is now experiencing the worst crisis it has ever had in history, with our price dropping by 60 percent in just five months. Certainly, I have more than enough work on my hands. I did it because, on the one hand, I am convinced and passionate that this is the right thing.

Russia Business Watch Winter 2009-2010

The U.S.-Russia Business Council 17th Annual Meeting

September 24-25, 2009 • New York, NY

Lead-in Vladimir Golovnev First Deputy Chairman Keynote Address Committee on Economic Policy and Entrepreneurship (Excerpts) State Duma of the Russian Federation

CURRENT ECONOMIC CRISIS “…A lot has already been said about the crisis but, nevertheless, this topic is still very pressing. Russia was hit twice by the crisis: large investments left the country, and at the same time, revenue-generating sources such as oil and gas have significantly dropped in price. In the summer of 2008, the oil price was $147 per barrel, and it dropped to $35 per barrel in January. For many Russians, this crisis reminds them of the difficulties of 1998. Why am I referring to 1998 when many of today’s speakers have already mentioned that this is not an appropriate parallel? Indeed, because of

Russia Business Watch Winter 2009-2010

“...we think that the experience of our American friends and partners is necessary today. We need long-term investments... We also need new technologies.” Russia’s Stabilization Fund — its level of preparedness and well-organized vertical power structure — this year, it was absolutely another situation compared to the default of 1998. However, I do remember the collapse of the Russian banking system, when no payments were processed for more than two and a half months…. The fact that, in the fall of 2008, we were able to preserve our banking system, in my opinion, is a real breakthrough for the Russian government.

Today, many experts estimate that the federal government spent about $200 billion from the Stabilization Fund and federal budget on anti-crisis measures. Different experts quote different numbers. However, because the banking system is an intermediary for any kind of financial transaction, the fact that we were able to preserve the system is an important achievement.

I was listening to many of my Russian colleagues today, and I have concluded that we do not know how to be happy

regional banks. Let me dig a little bit deeper. Unfortunately, Russian businesses enjoyed extremely favorable

investment, because the real estate market was growing at 20-30 percent or even 50 percent in some regions.

and pay attention to positive trends. We criticize the government, we criticize the bills, and I am sure that some of those bills deserve this criticism. However, since September 15, the government has done a great job in order to ensure that Russia domestically and in the international arena looked authoritative and credible.

That is the problem that affected many other countries, including Spain and the United States…. Many companies today have this kind of a mindset. So, I would say that, for Russian businessmen, this crisis turned out to be a ‘cold shower,’ which is good for one’s health. I think that the companies that are looking toward the future have made the right conclusions.

That is why I find it necessary to highlight all of the measures that we have implemented.

loan conditions where banks provided loans without any collateral. This was a common practice for the last four to five years. Today, nobody pays attention to this fact. Many banks were offering loans to companies that had no collateral and no transparent accounting. The fact that many companies cannot acquire loans today is not due to the fact that there is no money in the economy. This happens because companies are not used to the fact that they need to have collateral to obtain a loan, that they need to risk something.

First of all, we averted the crisis in the banking system. Today my colleague, Mr. [Anatoly] Aksakov, spoke about

In addition, and this is also not being discussed today, many companies started to diversify through real estate

The Russian Government’s Anti-Crisis Measures

The U.S.-Russia Business Council 17th Annual Meeting

September 24-25, 2009 • New York, NY

Our second achievement is that we managed to stop the increase of unemployment throughout the country. This is a big problem for Russia and it was especially pressing in the fall of last year. The government allocated huge amounts of resources to cope with this challenge and make sure that

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The U.S.-Russia Business Council 17th Annual Meeting

September 24-25, 2009 • New York, NY in the monocities — cities dependent on a single industry — the problem would be solved. Through a targeted approach, we were able to transmit this message to the regions…. The governors realized that it was their responsibility to tackle this problem. The next aspect is safeguarding the national currency. We managed to preserve what had been achieved in this respect and also to strengthen our currency. We already have growth in the number of deposits. More importantly, Russian citizens are moving away from hard currency deposits in dollars and euros because it is no longer profitable. In the beginning of 2009, the exchange rate was up to 35 rubles per U.S. dollar. Today, the exchange rate is approximately 30 rubles per U.S. dollar. We have also supported strategically important companies. We have identified 295 such companies and given them government guarantees. For the past few months, we have witnessed the growth of the Russian economy. As some speakers have mentioned, industrial manufacturing in Russia fell by 10 percent in the first half of the year. In general, the trends are positive today. That is why as a representative of the State Duma, I would evaluate the government’s measures as successful. Several speakers mentioned that the crisis is behind us. That is not true. On September 16, First Deputy Prime Minister Igor Shuvalov reported to the Duma on the government’s anticrisis activities and noted that Russia had overcome only the most difficult phase of the crisis. We have hit the bottom and from here, we can start going up. The current forecast is that it will take two to three years to get back to the level of the beginning of 2008….

Lessons Learned and Preventive Measures What conclusions can we draw from this, and what measures will we introduce in the fall?

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First of all, we are going to take care of the real sector of the economy. Currently, the real sector of the economy cannot obtain sufficient funding. The interest rate for Russian industry was already mentioned today — it can be as high as 22-25 percent. I do not know a single company that would be able to sustain growth at such an interest rate. The Central Bank has lowered the interest rate down to 10.25 percent [Ed.’s note: the

Let me say a few words about the innovation economy. The country is addicted to oil. The fact that the oil price is approximately $70 per barrel is a good thing for the budget. Every $10 increase in the oil price brings 600-650 billion rubles ($20.7-22.4 billion) to the budget. That is a lot of money. However, it prevents officials from adopting the right decisions that would allow us to develop valueadded industries and to develop the economy.

banks have not followed suit.

Social Programs in Russia

The second issue is the development of small- and medium-sized enterprises. The Duma is adopting certain bills in this respect. We have increased the amount of gross revenue for companies eligible to use simplified tax forms up to 60 million rubles ($2.1 million). We have reduced the number of inspections for small- and mediumsized businesses — inspections can be conducted not more than once in three years. Of course, we still have a lot to do.

I would like to thank the government for the fact that all social welfare programs that were budgeted in 2008 are being fully funded and implemented. You know that we are conducting pension reform. Russia is one of the few countries in the world that, despite the crisis, was able not only to maintain the amount of pensions, but also to increase them significantly. I am happy to report that, by the end of 2009, pensions will exceed the regional minimum subsistence level in all regions of the Russian Federation.

CBR has subsequently lowered the rate to 9.0 percent.]. However, commercial

The Russian tax system is often said to be suboptimal. According to the law, the average tax burden is about 35 percent for business. In reality, Russian businesses pay approximately 55 percent in taxes. The added 20 percent is due to corruption. This difference is included into the final price of the product…. This is the framework within which the majority party — United Russia — and the Duma are now trying to act. That is not easy, because many problems are long-standing and because of the fact that democracy in Russia is perhaps only 20 years old. Thus, we have a lot of work to do. The next aspect that I would like to discuss is infrastructure development. Let us be honest. We do not even have a road from Vladivostok to Moscow. That is why we need to make major investments into road, airport, seaport, and river port construction. Without this infrastructure, the costs for doing business will be very high for all industries, including mining.

U.S.-Russia Cooperation Certainly, we will not be able to solve all these problems on our own. Thus, we think that the experience of our American friends and partners is necessary today. We need long-term investments at low rates, even though it is first to flee whenever a crisis hits. We also need new technologies. We talked today about Russian citizens wanting to leave the country. I can understand that. Today in Russia, an inventor can not utilize his potential. He can not find money to create a test model and start production. Again, the Russian government and State Duma have a lot to do in this field. However, together with our American partners, we have already launched a number of advanced joint ventures. I hope that our joint efforts will lead to the achievement of these goals. Thank you for your attention.” n

Lead-in Mary A. Laschinger EMEA Keynote Address President International Paper

“Thank you for the opportunity to speak with you today. I am going to share with you some thoughts on investing in the regions outside of St. Petersburg and Moscow, which is the topic of the panel discussion….

investors in Russia’s manufacturing sector, outside of the oil and gas industry. Our first investment was in the Svetogorsk Pulp and Paper Mill in the Leningrad region, and more recently, we invested in a 50/50 joint venture.

managing concessions for more than 5 million hectares of forestland. Our investments span the full range of Russia’s provinces from the Finnish boarder to the White Sea to Central Siberia.

International Paper in Russia

Ilim Group, our joint venture, is the largest pulp and paper manufacturer in Russia, and has facilities located in the Arkhangelsk and Irkutsk regions. Our total investment footprint in Russia is more than $2.5 billion, employing more than 22,000 people and

Our success in Russia demonstrates that each of these regions have opportunities, but also challenges. Global companies, like International Paper, have limited resources and competing opportunities for investment.

International Paper has been actively investing in Russia for over a decade. Since our original investment back in 1998, we have invested over $1.2 billion, making us one of the three largest

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The U.S.-Russia Business Council 17th Annual Meeting

September 24-25, 2009 • New York, NY

The U.S.-Russia Business Council 17th Annual Meeting

September 24-25, 2009 • New York, NY management and professional employees. Russia offers good technical training opportunities, but has not yet developed enough training programs to improve leadership and management capabilities. I mentioned earlier that infrastructure is critical to support manufacturing and to take products to market. Because of the vast distances in Russia, particularly east of the Urals, there is functional but underdeveloped infrastructure with limited flexibility, making logistics costs less competitive globally. The infrastructure development needed is too large for any company to undertake. Therefore, the pace of investment in the regions will be determined by the speed and scope of government-sponsored infrastructure development.

Five Criteria for Successful Investment We have identified five critical factors that are necessary to consider for investment in any region. I would like to share some thoughts on how these factors are being supported in Russia, and where opportunities still exist. The first, and most important, is access to a market, either locally or for export through well-developed infrastructure. Russia’s demographics, with a declining population, have a dampening affect on growth. However, low but increasing rates of per capita consumption will provide growth opportunities well into the future. The Russian Federation is encouraging investment in less-developed regions providing jobs and, ultimately, increasing consumption. Additionally, Russia is well located to export to the high-growth Chinese market. The second key criterion for investment is the availability of low cost raw materials for manufacturing. Russia has an abundant supply of low cost wood, making Russia globally competitive for our industry. The Russian government has issued a new Forestry Code, which encourages investment through longer concessions and provides incentives through a priority investors program to make this wood more available for processing value added products in Russia for domestic use and for export. The code is relatively new, and changes are still being implemented to

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clarify rights and obligations for investors and to strengthen assurances or guarantees with respect to these rights and obligations. This clarity from the government is necessary to encourage investment. Russia also has vast energy resources and is trying to balance the goal of using its resources to encourage investment, while trying to achieve world level energy prices. In Siberia, there is an abundance of low cost hydroelectric power, making that region attractive for electricity intensive investments. However, in Western Russia, electricity prices have increased two and three fold, making the region less competitive. In the manufacturing sector, a transition is underway from older, inefficient facilities to more modern and more efficient facilities. The challenge will be to make investments that keep pace with the liberalization of energy prices in Russia. The third criteria we use to screen global opportunities relates to the availability of human resources. Today, labor rates in Russia are very competitive and there is plentiful labor in the regions. In fact, unemployment issues are becoming acute as companies are trying to increase productivity and modernize. The federal and regional governments are encouraging investments to increase diverse employment opportunities. There is labor available, but there is significant shortage of

The last criterion for encouraging investment is a well-defined and predictable regulatory environment and a coordinated industrial policy. Today, many laws and regulations are in place, but interpretation and implementation is not always transparent or consistent. Building relationships with the regional and federal authorities is essential to deal with this lack of transparency. For example, regular engagement with the regional governor can help resolve issues, as has been the case for us with Governor [Valery] Serdyukov, who is supporting us to resolve issues in the Leningrad region. Additionally, because there is not a coordinated industrial policy, it is important to keep contact with other key officials at multiple levels in both the regional and federal governments. With these interactions, companies are expected to develop a public-private partnership in the region to support the regional social agenda, including medical facilities, education and improving living conditions with apartments and cultural activities. International Paper has a successful business in Russia, and we believe that Russia has the potential to meet all the criteria that I have outlined here to be the first choice for global manufacturing company investments…. Thank you.” n

Save the Date! October 20-21, 2010

USRBC’s 18th Annual Meeting San Francisco, CA

The U.S.-Russia Business Council 17th Annual Meeting

September 24-25, 2009 • New York, NY

Dear Council Members and Friends: We are pleased to announce that the USRBC’s 18th Annual Meeting will take place on October 20-21, 2010, in San Francisco, CA. This Annual Meeting will be the first that we have held on the West Coast of the United States in 13 years. In addition to the scenic and cultural benefits of staging the Annual Meeting in San Francisco, the location has the added advantage of being close to “Silicon Valley,” arguably America’s leading center for high-tech innovative industries. This is of growing interest to Russia as an example of how to promote high-tech industries in that country. San Francisco is also close to Fort Ross, the commercial trading post established by Russia in 1812 and the southernmost outpost of Russian colonization in North America. This highly symbolic site was described by Foreign Minister Sergey Lavrov during his remarks at our 2009 Annual Meeting as an important link between our two countries worthy of preservation and historical research. We will provide more information regarding the site of the Annual Meeting as well as the meeting agenda in the near future. Please visit out website www.usrbc.org for updates.

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The U.S.-Russia Business Council 17th Annual Meeting

September 24-25, 2009 • New York, NY

Panel Resetting Discussion the Relationship

Speaker: Mikhail V. Margelov Chairman, Committee on Foreign Affairs RF Federation Council Moderator: Thomas E. Graham Senior Director Kissinger Associates Ambassador Thomas Pickering opened the discussion by explaining that, while the U.S.-Russia relationship has improved, there are a host of serious continuing problems that must be addressed. He identified three key elements that have contributed to the improving relationship: the financial crisis has brought the two sides together as both have experienced the severe effects of the crisis; the Obama administration has used a “strategic” approach that focuses on common goals; and our common interests have brought negative factors into perspective. He elaborated that the common interests are disarmament, non-proliferation, Iranian nuclear weapons, and missile defense, among others. Ambassador Pickering emphasized that skillful diplomacy will be key to positive forward progress on these issues, but there is real hope for success and increased cooperation.

Mikhail V. Margelov continued the discussion by noting that there is currently more optimism in both governments regarding the reset than there is with U.S. and Russia experts. The fact that

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Speaker: Thomas R. Pickering Member of the Board Eurasia Foundation arms control is back on the agenda is a relief for both governments because they think they know how to tackle those problems, even though many who dealt with those issues are long since retired. Mr. Margelov remarked that one promising sign is that both governments now seem optimistic and willing to work as “whips” to make sure the relationship moves forward. Thomas Graham then turned to Angela Stent to give her view on President Dmitry Medvedev’s recent article decrying the state of the Russian economy. Dr. Stent commented that she read the article as a criticism of Prime Minister Putin’s lack of modernization and action against corruption. She added that President Medvedev’s suggested reforms are exceedingly ambitious and cannot be accomplished in his remaining time as President. However, she noted that when Putin came in as President he leveled the same criticisms against the economy, with little result.

Dr. Stent said that she is skeptical Medvedev will succeed in reforming Russia due to a number of factors, most importantly the entrenched elites with few incentives to change, lack of a free press, bureaucratic corruption, lack of strong and independent institutions, and insufficient rule of law. She finished by saying that President Medvedev’s success at modernizing Russia may depend on what direction domestic pressures push him over the next two and a half years. Mr. Graham then turned to Nikolai Zlobin and asked if Prime Minister Putin supports President Medvedev’s agenda. Mr. Zlobin responded that this would have been an unthinkable question five months ago, but now it is intriguing. He noted that Medvedev is acting more presidential than he was several months ago in response to a perceived lack of legitimacy. This is an effort to gain support for Medvedev, as both he and Prime Minister Putin will look bad if Medvedev fails. Mr. Zlobin expressed his conviction that Putin remains in control and Medvedev is not

yet an independent politician. He also mentioned that, by 2012, the Russian President’s position might be quite weakened as executive responsibilities

or find a way to ask questions in a way that does not aggravate tensions with newfound partners. He observed that he does not see an appetite for

Speaker: Angela Stent Director, Center for Eurasian, Russian and East European Studies Georgetown University

are increasingly moved to the government. Lastly, Mr. Zlobin noted that, if Putin wants to run for President again, he cannot afford to have Medvedev look more successful than him. This puts Medvedev in a difficult position as he must decide whether or not to distance himself from Putin.

Mr. Margelov

responded to Mr. Zlobin’s comments by saying that he thinks Putin and Medvedev are inter-dependent rather than purely cooperative or antagonistic.

QUESTION & ANSWER SESSION Q. So far in U.S.-Russia relations, the agenda has been pragmatic. As so much depends on the political configuration (institutions, corruption, etc.) in Russia, how long will the U.S.’s agenda avoid Russia’s serious internal political problems? How will those subjects be brought up?

Ambassador Pickering responded that proscriptive American answers for how others should conduct their affairs have run their course. He said that the United States can either go back to being “pedantic and professorial”

this kind of interaction in current U.S. foreign policy.

Mr. Margelov also responded, saying that in the past it was easy for the United States to play professor, but as the image of the United States has been tarnished this is harder now. Any U.S. politician raising these issues will cause irritation within the Kremlin. He said the key is for the Russian people to begin playing a role and deciding to be involved.

Dr. Stent added that purely pragmatic relationships will eventually lead to discussion of issues that make the relationship more difficult. Ambassador Pickering agreed, saying that the relationship right now is based on “operationalizing specific tasks” rather than brainstorming solutions to larger problems.

Q. What do you think would be a productive way to discuss the “near abroad” with Russia that does not revert to a zero-sum approach? Do neighboring countries need to be brought into the discussion?

Ambassador Pickering responded that the discussion must bypass the stereotype within Russia of the U.S. as seeking to create a restrictive NATO-led belt

The U.S.-Russia Business Council 17th Annual Meeting

September 24-25, 2009 • New York, NY

Speaker: Nikolai Zlobin Director, Russia and Eurasia Project World Security Institute

around Russia that serves to control and inhibit Russia. He noted that one must acknowledge that proximity makes those states a higher importance to Russia than to the United States. Over the years, situations like these have been handled both well and poorly. If both sides can begin a discussion over general “rules of the road,” that would be useful.

Mr. Margelov added that Russia’s relationship with the EU will do more to influence its interaction with its neighbors than will its relationship with the United States. He gave the example of attempts at EU-Russian energy cooperation, which have already led to dialogues regarding transit countries.

Dr. Stent said that putting NATO enlargement on hold has given the subject a brief rest but the Ukrainian elections threaten to reignite the situation. All sides, including the Europeans, need to be capable of ongoing multi-level dialogue. Currently, no government has the resources or will to sustain the kind of dialogue necessary.

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The U.S.-Russia Business Council 17th Annual Meeting

September 24-25, 2009 • New York, NY

Q. Do you believe a political reset between the United States and Russia is possible? Do you believe it is possible to rebuild confidence and resume growth in our bilateral commercial relations?

Ambassador Pickering said yes to both

always thought “reset” was the wrong word as we cannot forget what happened over the past eight years; the relationship has to be built from where it currently is. He commented that “rebuild” is a better word than “reset”.

resources to resolve, but that she is confident the economic relationship can improve.

questions, but added that the United States and Russia cannot rest and be assured of their success.

Dr. Stent said that both questions Mr. Graham responded that he has would require time, concentration and

Mr. Margelov responded by saying that the questions are interconnected. The more interdependent the U.S.-Russia relationship, the better bilateral relations will be.

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Mr. Zlobin commented that each side seems to list what the other can do to reset the relationship, both countries need to take responsibility for resetting relations. Currently, it seems to be the United States pushing the reset on U.S. terms. He said he felt strongly the two countries could rebuild the commercial relationship by beginning to restore trust.

Q. When we meet again a year from now, how will we know if the U.S.-Russia Bilateral Presidential Commission has done a good job on business or economic issues? What specific factors can we point to as evidence?

Mr. Margelov said the indicators will be an increase in bilateral trade, U.S. support for Russia’s WTO bid and the repeal of the Jackson-Vanik amendment.

Ambassador Pickering cautioned that the work of the Commission will be difficult, and he noted that there several ways to value it: make judgments when its work is done or set specific target numbers and try to meet them. There is more support for letting

the Commission take its course and seeing where it ends up than for setting targets.

Dr. Stent cautioned against using the repeal of Jackson-Vanik as an indication of the efficacy of the Commission as that action depends purely on domestic politics.

Mr. Zlobin added that he will be interested to see how much of the Commission’s work will truly focus on building business relations rather than using that front to pursue political goals.

Q. What role does the middle class play in the economic and political situation in Russia?

Mr. Margelov said that the middle class is the driving force for politics and economics. As the main consumer of imported and high quality domestic goods, the main travelers and the most interested in political outcomes, the middle class needs to be more involved politically.

Dr. Stent agreed that while defining the middle class is difficult, the middle class seems most influential in developing property rights as exhibited by the recent backlash in Vladivostok by car owners.

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September 24-25, 2009 • New York, NY

system. He said that if the middle class can organize itself to affect political and economic decisions, it can be a real force for change.

Mr. Graham concluded the panel by saying that there is a dire need for good news. Toward this end, the Commission’s working groups should have a PR function to let people know the good things that are happening in the U.S.-Russian relationship. The business community should also be looking for ways to emphasize the positive developments, both political and economic. ” n

Mr. Zlobin agreed that the middle class exists, but said there is currently no political space for them — they are not needed in the current Russian

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The U.S.-Russia Business Council 17th Annual Meeting

September 24-25, 2009 • New York, NY

Panel Diversifying Discussion the Russian Economy

Speaker: William Farley Vice President of Business Development ChemDiv, Inc.

Speaker: Oleg Fomichev Director, Department of Strategic Management and Budgeting RF Ministry of Economic Development

Moderator: Dorothy Dwoskin Senior Director Global Trade Policy and Strategy Microsoft Corporation Dorothy Dwoskin introduced the panel session with a discussion of the risks of Russia’s reliance on natural resources and how foreign investment can play a role in the development of a more diverse economic base. She pointed to the work that many technology companies, such as Microsoft, were undertaking in Russia as well as other areas with potential for investment to help decrease the significance of oil and gas in the economy.

Oleg Fomichev started the discussion with an overview of the Russian government’s economic priorities, as well as its main anti-crisis and exit strategy measures. These include the creation of a working group for U.S.-Russian relations, with the goal of attracting more U.S. investment to Russia and applying it to projects that will produce concrete results. In the short term, Mr. Fomichev called for consumption support, restructuring of the “monocities” (cities dependent

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on a single industry), expanding the availability of credit, balance clearance for banks, and restructuring of large companies’ debts. The government’s longer-term goals include the need for a stable and independent banking system, diversification of the economy and export support for non-natural resources.

Sergei Guriev addressed the question of why the Russian government should undertake a costly diversification policy. He argued that the short-term costs of diversification are great, but not as great as the long-term costs of ignoring the issue. Mr. Guriev noted that Russia has spent the past decade trying and failing to diversify according to any quantitative analysis. In fact, Russia has taken all of the recommended steps toward diversification, including both the “vertical industrial policy” of picking winners and betting on investment opportunities, and the “horizontal” approach of creating a business environment that benefits all

sectors through improvements in education, infrastructure, and finance. He stressed that Russia has devoted far more effort to diversification than most hydrocarbon-dependent economies. However, Mr. Guriev concluded, none of these measures have produced results, because Russia is hobbled by poor governance and institutional weakness. The oil and gas sectors are less sensitive to these problems, and thus they have seen far more growth than other sectors. Mr. Guriev warned that a reliance on energy production undermines longterm economic growth, whereas diversification creates incentives to invest in better institutions. He therefore recommended both continuing investment in diversification and a sustained attempt to reform Russia’s underlying institutional structure.

Sergei Kravchenko delivered a more optimistic outlook to Russia’s diversification efforts. He touted Boeing’s

involvement in the International Space Station and other projects in Russia as a major success story, noting that Boeing has taken good advantage of

company’s success at developing a local pharmaceutical industry in Russia. Mr. Farley described what health industry experts call “the valley of

Speaker: Sergei Guriev Morgan Stanley Professor of Economics and Rector New Economic School

local technical expertise, especially with regard to metallurgical alloys. He recalled that China and India developed interdependent relationships with the United States during economic downturns, when American companies turned to outsourcing as a form of badly-needed cost control. Mr. Kravchenko stressed that, during the economic downturn, U.S. companies should look increasingly to Russia to utilize its lower cost, but high quality IT expertise. He also noted that of the $36 billion in trade between the United States and Russia in 2008, only $1 billion consisted of investment in high-tech industry — a paltry figure compared to the investment in natural resource extraction, and an unacceptably low amount. High-tech exchange is therefore an underexploited opportunity between the United States and Russia, and Mr. Kravchenko stressed Boeing as an example of how it can be done profitably for both countries.

William Farley echoed Mr. Kravchenko’s optimism,

pointing

his

own

Speaker: Sergei Kravchenko President Boeing-Russia/CIS

death,” a set of economic pressures brought on by a global health crisis that make it impossible for pharmaceutical companies to efficiently produce drugs at their traditional rates. Companies can no longer support a traditional model that delivers returns on investments within three to five years. Meanwhile, the Russian market is dominated by branded generics, and therefore presents a real opportunity for the development of a local pharmaceutical industry. ChemDiv has opened a center in Russia and partnered with local research institutions and companies to help bring about what will potentially become a self-sustaining sector of the Russian economy, and Mr. Farley called this long-term investment approach a model for other industries to follow.

Vladimir Milov continued the discussion with a more pessimistic look at the economic situation in Russia, regarding both the current state of the Russian business climate and the value of diversification, which he described

as a “convenient phantom” used by the state to “diversify the attention of the public.” Indeed, argued Mr. Milov, diversification is not Russia’s main

The U.S.-Russia Business Council 17th Annual Meeting

September 24-25, 2009 • New York, NY

Speaker: Vladimir Milov President Institute for Energy Policy

problem; Saudi Arabia’s economy is far more dependent on the energy sector, and the Saudis have weathered the global economic crisis far better than Russia. The worst hit sectors of the Russian economy were commercial, residential construction and manufacturing, not oil and gas. The main problem, according to Mr. Milov, is Russia’s extremely low productivity and efficiency, its weak institutions, and its “disastrous” governance. Mr. Milov raised concerns about the brain drain, speculating that anyone with the skills to contribute to a hightech economy in Russia would rather live in California, and that Russia’s high crime rate, underdeveloped infrastructure and poor education and medical care serve as deterrents to talent and innovation. Rather than investing in new industries, therefore, Russia would be better served by trying to attract and retain the most skilled and educated workers. Furthermore, he argued that the oil and gas sectors should not be regarded as evil; both

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The U.S.-Russia Business Council 17th Annual Meeting

September 24-25, 2009 • New York, NY are becoming increasingly high-tech as they expand to new, often previously inaccessible, fields. He called for continuing foreign investment in these sectors, which he described as “a question of survival and successful development.” Although Mr. Milov spoke critically of Vladimir Putin’s legacy after nearly a decade in power, he did credit Putin with recent efforts to gather both foreign and domestic energy companies and encourage them to invest in new development projects, which provided a welcome contrast to the government’s earlier policy of “squeezing out” foreign investors through resource nationalism. In response, Mr. Kravchenko dismissed concerns about a brain drain, pointing out that the energy sector has not witnessed the same exodus as other hightech sectors, as it has proven capable of providing opportunities unmatched in Western countries. Mr. Guriev, on the other hand, seconded Mr. Milov’s fears, describing how the New Economic School actively tries to attract Russians who have earned Ph.D.s in the United States back to Russia, only to find few takers. Mr. Guriev also stressed the need to pay close attention to skilled workers who do choose to return, because Russia needs to take maximum advantage of foreign expertise. He sounded

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a worried note about Sberbank’s recent acquisition of Opel, arguing that Russian automotive engineers may not be at the level where they can effectively improve on such a brand. On the question of what specific industries are open to foreign investment, Mr. Fomichev answered that every industry in Russia is in need of restructuring and greater openness to foreign capital. In response to a question regarding Russia’s steps to address its inadequate infrastructure and high transportation costs, Mr. Milov criticized the government for failing to capitalize on Russia’s potential as a major Eurasian transit hub. He argued

that the obstacle is not geography, as it would be faster to move a container from St. Petersburg to Shanghai by land. Instead, the problem is the Russian Federal Customs Service and Border Patrol, which imposes so many obstacles that shipping goods by sea is more cost-effective. The question of whether Russia’s problem is primarily poor governance or a lack of economic diversification was left unresolved, but every panelist agreed that fundamental institutional reform and greater U.S.-Russian business ties must be a part of any longterm solution to the economic crisis.

Panel Identifying Opportunities Discussion in Russia’s Regions

The U.S.-Russia Business Council 17th Annual Meeting

September 24-25, 2009 • New York, NY

Moderator: Stephen Kehoe, VP for International, Public and Government Affairs PepsiCo, Inc. (far right) From left to right:

Speaker: Maxim Akimov, Deputy Governor, Kaluga Region

Speaker: Anatoly Aksakov, President, Association of Regional Banks of Russia

Speaker: Vadim Ivanov, Director, Department for International, Foreign Economic and Interregional Relations, Nizhny Novgorod Region Speaker: Olga Andreeva, General Manager, Krasnodar Krai Regional Development Agency

Stephen Kehoe opened the panel by briefly summarizing U.S. investment in Russia. He noted that, for investment purposes, Russia’s regions can be separated into three categories: highly profitable large cities; important regions with large cities such as Krasnodar; and regions with negligible investment potential, such as Ingushetia. Mr. Kehoe pointed to seven major impediments to investment in Russia’s regions: lack of a legal basis to protect investments, corruption and opaque bureaucratic procedures, undeveloped infrastructure and transport links, complicated tax and tariff regimes, lack of consistent and concerted

government policy to attract investment to the regions, lack of information about investment opportunities, and the need for personal commitment from top regional authorities in helping to overcome difficulties.

Maxim Akimov began by giving an overview of the Kaluga Region’s geography and economic and social statistics. He noted that the Kaluga region does not have substantial natural resources and that its main economic sector is manufacturing. Kaluga has the most dynamic economy in Russia according to numerous indices and, while the economy has slowed due to the current downturn in Russia, it is still growing. Although the

region has few natural resources and no history of Soviet industrialization, it excels in manufacturing and economic production in general due to its systemic approach to shaping the structure of the economy, which has been attractive to investors. Kaluga was among the first to create industrial parks, which have proved to be successful: the government plans to direct $6.6 billion of direct investment into these industrial parks by 2012. Mr. Akimov noted that many leading global companies are already active in Kaluga, including those with the most demanding regulatory frameworks. He then explained that the Kaluga administration understands where it wants to be over the long-term and has a strong political commitment to realize its strategy. He acknowledged that Kaluga has many reforms left to make and is already looking toward the post-industrial era, hoping to become a center for innovation. In accordance with this strategy of creating strong industrial facilities that will Russia Business Watch Winter 2009-2010

The U.S.-Russia Business Council 17th Annual Meeting

September 24-25, 2009 • New York, NY spur further development, Kaluga is taking several concrete actions.

that will operate in the CIS region and gradually extend to other markets.

The first is a move from original equipment manufacturer (OEM) plants to a real automotive cluster. Mr. Akimov explained that a concentration of OEM does not represent real development and that, in the long run, Kaluga needs more advanced facilities, such as those for research and education. Development of this type would facilitate the expansion of other industries — such as automotive parts — and spur the creation of local businesses. The second step is to create effective urban environments and guest services such as hotels, restaurants and leisure facilities.

Mr. Aksakov stressed the increasing importance of regional banks with regard to a new presidential strategy of innovative development for the Russian economy. Regional banks are especially valuable as they work with small- and medium-sized enterprises and have proven to be extremely flexible. Despite a lack of resource allocation to regional banks during the crisis, they demonstrated outstanding viability and managed to escape bankruptcy. To improve the outlook for these banks, Mr. Aksakov noted that the Association of Regional Banks of Russia and the International Finance Corporation recently signed a memorandum of understanding to create a fund for the recapitalization of Russian regional banks.

Mr. Akimov then said that Kaluga’s industrial and investment policies have achieved positive results and that the region now has ambitious targets for the future. He explained that Kaluga’s strategy is sustainable due to several important factors. It is located near Moscow, has excellent transport infrastructure, an advanced labor market, a regional government that proactively supports investment, a strong scientific center in Obninsk, and a developed network of higher education. Mr. Akimov noted that Kaluga offers investors a clear product: industrial parks with developed infrastructure; access to supplies, logistic connections and a developed transportation network; clear property rights; and preferential tax exemptions.

The drafted program involves foreign investors and consultants — who will help to manage toxic asset problems in the Russian regional banking system — and increases the transparency and quality of the system. Mr. Aksakov invited American investors to take part in the joint program of the Association and the IFC and affirmed that it would be a profitable deal. In conclusion, Mr. Aksakov mentioned that the Russian Bank for Development (Vnesheconombank) would probably allocate resources for small- and medium-sized businesses to ensure the implementation of the new strategy of innovative economic development.

Anatoly Aksakov continued the dis-

Olga Andreeva began her presentation

cussion by explaining that Russia’s regions offer more favorable conditions for business as there is less bureaucracy and corruption and a greater desire for investments compared to the major cities. Mr. Aksakov then addressed the topic of the financial sector in Russia, saying that contemporary financial and banking systems were demonstrating sustainability and consistency even during difficult times. He stated that Russia is planning to develop a modern regulatory framework for the Russian banking system, including the creation of transnational banks

Russia Business Watch Winter 2009-2010

of the Krasnodar Krai with an overview of the natural resources, historical heritage, major industries, and outlook of the region. She emphasized that Krasnodar’s hosting of the 2014 Winter Olympics in Sochi is particularly interesting to investors. She said the region is creating several Special Economic Zones with publicprivate partnerships designed to spur particular industries, and noted that the region also has a developed transportation complex — Krasnodar’s seaports handle over 35 percent of Russia’s foreign trade.

In addition, the oil pipeline transportation industry is growing, with future projects anticipated. Agriculture is also particularly strong in Krasnodar, where 85 percent of Russia’s rice and a substantial percentage of other crops are produced. Food processing is an important industry with a large multinational corporate presence. Ms. Andreeva emphasized that the trade relationship between the U.S. and Krasnodar is developing, but added that there is much room for improvement. Turning to the Sochi Olympics and the related construction and investment opportunities present there, Ms. Andreeva noted that, in addition to creating sports facilities, Sochi is also trying to create world-class tourist facilities. She emphasized that construction contracts and investment opportunities are open to international companies. Finally, Ms. Andreeva discussed Krasnodar Krai’s planning strategy for social and economic development. Saying that Krasnodar was one of the only regions with a master development plan for all urban centers in the region, she explained that planning for the future must take into account multiple domestic and international interests and intentionally incorporate foreign investment, business, NGO’s, and universities in order to establish mutually beneficial relationships.

Vadim Ivanov then presented an assessment of the Nizhny Novgorod regional investment situation, noting that it is a major business center with 3.3 million people. He cited the proximity to Moscow and the region’s position in the middle of important trade routes as reasons why Nizhny Novgorod is attractive to investors. A sophisticated transport network with an international airport creates additional opportunities. As one of the leading education centers in Russia, Nizhny Novgorod is home to 17 institutions of higher education and 300 high tech companies. The region also established several innovative technoparks that large, multi-national corporations utilize. Nizhny Novgorod’s regional

administration has also created a Development Strategy 2020, which focuses on specific priority industries. Mr. Ivanov acknowledged that the region needs investors to meet the goals articulated in the strategy document and that the government knows they need a favorable investment climate to attract investors. To cut down on bureaucratic barriers the government has instituted a “one-stop shopping” principle for governmentbusiness interaction. He explained that businesses and investors will have a single contact point within

the government, thus eliminating the need to talk to many different departments and officials. Mr. Ivanov noted that the review and permit process now takes no longer than 142 days, and the region’s advanced, consistent local regulation should be attractive to foreign investors. He also emphasized that Nizhny Novgorod is an active international player at conferences and trade fairs, and uses such opportunities to attract investors.

In response to Mr. Ivanov’s statement that the review and permitting process would not take longer than 142 days, Mr. Kehoe asked how the government could so confidently assure this timeline. Mr. Ivanov answered that barriers can be high, especially when dealing with property. He reaffirmed that using a “one window” mechanism for business-government interaction will assure investors that they have only one point of contact, and thus can efficiently navigate the approval process. n

The U.S.-Russia Business Council 17th Annual Meeting

September 24-25, 2009 • New York, NY

Panel The Future of Financial Services Discussion in Russia

Moderator: Sergei Kotov, Managing Director, and Head of Eastern Europe, BNY Mellon

(far right)

From left to right:

Speaker: Jeffrey R. Costello, Chief Executive Officer, JP Morgan Bank International

Speaker: Andrey Gribov, Chairman and Chief Executive Officer, CyberPlat Speaker: Maarten van den Belt, General Manager, Russia, VISA International

Speaker: Natalia Orlova, Chief Economist, Alfa Bank

Speaker: Andrew Tiffin, Economist, European Department, International Monetary Fund

Natalia Orlova opened the panel with a review of Russia’s general financial health over the past two years. She reminding the audience that Russia actually weathered the 2007 global mortgage crisis relatively well, as mortgages represented a low proportion of Russia’s GDP compared with more developed countries. Likewise, Russian banks were not deeply involved in investing in domestic financial markets, Russia Business Watch Winter 2009-2010

The U.S.-Russia Business Council 17th Annual Meeting

September 24-25, 2009 • New York, NY

in sharp contrast with U.S. banks. In 2008, though, Russia experienced a serious decrease in global confidence in the ruble, and thus a substantial jump in dollarization in the country. Although the Central Bank of Russia (CBR), like its counterparts around the world, has done a good job of managing the liquidity crisis, Russian banks are now substantially more involved in state assets than they were before. This has adversely affected their profitability, and unless the overall economy recovers, the banks are unlikely to reach their pre-crisis levels. In short, Ms. Orlova predicted weak lending growth in the next few years, which poses an additional obstacle to economic recovery.

Andrew Tiffin continued the discussion with an explanation that Russia has been hit by two shocks: a significant drop in energy prices (which directly or indirectly account for half of Russia’s economy) and a sharp turnaround of capital flows. Both of these shocks reveal the extent to which Russia depends on foreign financial markets. Before the crisis, the Russian government’s policy was to encourage

Russia Business Watch Winter 2009-2010

in-flows to the point where they held the exchange rate down by subsidizing risk. When the crisis hit, there was an unwinding both of these short-term speculative flows as well as of longerterm investment. Mr. Tiffin agreed with Ms. Orlova that the CBR responded well to the liquidity crisis, as well as with its decision to guarantee certain interbank loans. This, he argued, is the first example of the CBR acting as a lender of last resort, and it has been very helpful. However, the exchange rate has risen dramatically, and the authorities’ resistance to this rise has cost them $200 billion in reserves. Whereas most economies have dropped interest rates as close to zero as possible, Russia’s situation has been more complicated because of the government’s fear of further depreciation of the currency. The global financial situation is gradually improving, marked by an increase in risk appetite among global investors and a corresponding return to commodity-based investments. However, while this is good news for Russian giants such as Gazprom, it does not

necessarily help Russia’s broader financial development, and there is no reason to expect bank flows into Russia to increase in the near term. Mr. Tiffin cautioned that oil prices would not rescue Russia, as the current strength of oil prices is highly speculative and volatile. Russia’s next task is to deal with bad loans, and Mr. Tiffin expressed concern that the government’s response has been “ad hoc and reactive.” Moscow should be ordering mandatory stress tests for medium and large banks, and should be planning for future crises rather than just providing long-term financing and hoping banks trade their way out of trouble.

Jeffrey R. Costello, in contrast to the previous speakers, began his presentation with a list of positive developments. He noted that Russia, for the first time since 1998, is reentering the sovereign debt market and will seek about $18 billion in loans next year. Privatization is also back on the table with almost every ministry ordered to create a plan to sell state assets. There is also recognition that the Strategic Sectors Law is too restrictive and needs to be limited. Mr. Costello pointed out

that all of this is good news, but it is all happening because Russia is facing an unprecedented fiscal crisis in the next few years. Assuming oil prices remain in the $70-$90 per barrel range, debt as a percentage of GDP should gradually decline. The larger problem is that foreign capital has largely fueled the Russian economy over the last few years. There is no banking system and no effective intermediation to bring domestic capital into the market to drive economic growth. Mr. Costello noted that Russia is much less attractive to investors than it was a year ago; the problems (political risk, lack of judicial transparency and capricious application of the law) all still exist, while the main attraction (its relative cheapness) is no longer there. Investors can find places just as cheap as Russia and with far fewer headaches today. Russia’s fundamental problem is a lack of long-term money — a fully functioning pension system, insurance companies, banks that can provide capital, and so on. He explained that an emerging market economy needs 6-8 percent annual GDP growth in order to provide social programs and develop infrastructure. However, Russia is unlikely to top three percent growth in the near future, which is not sufficient to accomplish the many social tasks that Moscow has enumerated. Until there is fundamental reform of pensions and the banking system, Mr. Costello warned, all available capital will be utilized to recapitalize the banks.

Andrey Gribov focused on one area where Russia is excelling despite the downturn, even in comparison with the United States: the dissemination of mobile phones, as well as the infrastructure, needed to perform small financial transactions with them. Russia’s traditional banking system is expensive to use and intended for wholesale purchases, not for young or economically disadvantaged people making smallscale purchases. For everyday transactions, most banks would need to take a 20 percent commission to be profitable, which is not attractive to consumers. Mobile phones cut out a lot of waste and hassle, allowing ordinary retailers with a single cashier (and without bulletproof glass) to handle banking transactions.

Furthermore, the presence of infrastructure to support mobile phone banking causes an increase in foot traffic at retail outlets, which translates into more potential customers for other goods and services. The mobile company Evroset, for example, attracted roughly 400 million individual visits to retailers in 2007. Another company, MTS, is assigning every client a barcode, which makes the whole process faster and more efficient; for one thing, it relieves both customers and retailers of the burden of carrying large amounts of change. With barcodes, customers can get change for separate transactions deposited directly onto their mobile account. Mr. Gribov predicted that this sector is going to grow rapidly over the next year. Phones will be used to pay for a variety of small transactions currently covered by banks, pushing banks out of the small-payment processing market as part of a global shift from the banking sphere to the retail sphere.

Maarten van den Belt discussed the development of Moscow as a financial center — a longstanding goal of the Russian government — and what needs to be done to achieve this goal. Although many say this is an ambitious and unrealistic goal, Mr. van den Belt argued that the market fundamentals that made it a priority before the crisis are still in place today. The Kremlin is attempting to make the ruble a global reserve currency, but what it really needs to do is create a market that can function transparently without overt outside influence. The danger is that Russia’s understandable short-term desire to repair its domestic economy will turn into protectionism in the longterm. This would be counterproductive to the goal of becoming a major financial center, and to building a viable financial services market for Russian consumers and industry. Mr. van den Belt identified three main goals for Russia. First, the government needs to increase the public’s financial literacy, without which infrastructure counts for nothing. Nearly 40 percent of the Russian public does not use banking services, 72 percent has never had an insurance policy, and 99.5 percent does not budget more than one year ahead. Second, there needs to be more competition in the

financial sector, although Mr. van den Belt claimed that Russia is already quite strong there. Global institutions do come to Russia, but Russian institutions need to start going abroad, especially larger banks like Sberbank and Vneshtorgbank (VTB). Third, he stressed the importance of non-cash payment systems, such as banking cards, mobile payments, internet retail, ATMs, and payment kiosks. Recent legislation proposed in the Duma could have profound effects, from maintaining competition and promoting transparency, consumer protection and data security to the integration of Russia into global financial and payment systems. Switching from cash to more modern payment systems could save up to one percent of Russia’s GDP.

The U.S.-Russia Business Council 17th Annual Meeting

September 24-25, 2009 • New York, NY

Still, Russia remains largely a cashbased society, with non-cash payments accounting for roughly eight percent of the total, compared to 80 percent in some parts of Europe. To promote non-cash infrastructure, Mr. van den Belt recommended implementing transparent and binding market rules, strong fraud protection, increased emphasis on speed and efficiency, and recognition of the role of all participants in the system.

QUESTION & ANSWER SESSION In response to questions from the audience, the panelists made a number of additional points. Mr. van den Belt further defended Moscow’s goal of becoming an international financial center, pointing out that economic activity is shifting from the developed world to the BRICs and that local financial infrastructure is needed to regulate such growth.

Ms. Orlova spoke about the need for dedollarization and warned that too much money in Russia is being directed toward financing government expenditures.

Mr. Costello argued that private banks need to diversify and play a larger role for the sake of Russia’s long-term economic health. He also noted that political connections often spell the difference between losing all of one’s assets in a financial crisis and preserving one’s equity. n

Russia Business Watch Winter 2009-2010

The U.S.-Russia Business Council 17th Annual Meeting

September 24-25, 2009 • New York, NY

Panel Coping Discussion with the Crisis

Moderator: Toby T. Gati, Senior International Advisor, Akin Gump Strauss Hauer & Feld LLP

(second right)

From left to right:

Speaker: Piotr Galitzine, Chairman, TMK IPSCO Speaker: Evgeny Gontmakher, Member of the Executive Board Institute of Contemporary Development

Speaker: Victor Sedov, Executive Director, The U.S.-Russia Center for Entrepreneurship

Piotr Galitzine opened the panel discussion with brief background remarks on his company’s decision to invest in the United States. He noted that TMK has not undertaken any exotic anti-crisis steps, they have simply tried to limit costs and manage inventory. He mentioned that a positive development is that the crisis has forced his American division into looking at expanding into Central America — times of crisis are opportunities to try new products and markets.

Russia Business Watch Winter 2009-2010

As to government intervention, Mr. Galitzine said that U.S. money has gone primarily to banks and is only very slowly becoming visible on the industrial landscape. In Russia, most of the money went to oligarchic groups and has produced some growth in certain sectors. He noted that the fastest growing economies are the most dirigiste, such as China, France and Germany. Mr. Galitzine then argued that future downturns are guaranteed because

of globalization. He added that globalization is part of the disease but also part of the cure; only with a broad geographic diversification can you stand up to the buffers of the world economy. On a practical level, he noted that the government could look at a more benign treatment of interest income from reserves, so that companies are encouraged to put some aside for a rainy day. Mr. Galitzine concluded that the bilateral business climate has not fundamentally changed. He said American companies originally came to Russia for potential growth and market share, while Russian companies go to the U.S. for the sheer size of the market. As neither of those factors has changed, he foresees a continued healthy business climate.

Victor Sedov spoke next, stating that the crisis hit Russia harder than other emerging markets due to the lack of economic diversification. He noted that small- and medium-sized enterprises (SMEs) can provide great impetus for diversification, but as Russia did not encourage their growth during the boom years, it was vulnerable when oil prices fell and the financial crisis hit. Currently, SMEs contribute only 17-20 percent of Russia’s GDP. The Russian government failed to see that entrepreneurship is the engine that fuels economic growth and only in the midst of crisis has the government begun to understand the crucial role of small businesses. Mr. Sedov explained the steps the Russian government has taken recently to encourage small businesses, saying that $10,000 was offered to anyone with a credible business plan. Although the government expected a flood of requests, it was able to make only 3,000 grants. Mr. Sedov then described a recent poll in which 3 percent of the Russian population said they would like to start their own company, while 33 percent said they would like to work for Gazprom. He explained that these numbers for desired self-employment are far lower than in other developed nations. Compounding this problem is the fact that there is only one program available in Russia that teaches entrepreneurship to students. On a more positive note, he remarked that, several years ago, no one was teaching entrepreneurship at all. Now, thanks to professorial exchanges and other educational programs, there are about 150 professors in Russia capable of teaching entrepreneurship. He then stated that Russia’s youth must be shown that they can control their own future. In a knowledge- and innovation-based economy, entrepreneurship is necessary to drive new investment opportunities.

Evgeny Gontmakher continued the discussion by asserting that the real crisis in Russia has not yet started. He said that a drop in commodity prices would be a small disruption compared to what Russia will experience, if it fails to restructure its economy. About

70 percent of the Russian economy is the old Soviet type — huge industrial companies like Avtovaz that lack efficiency and modern machinery. Mr. Gontmakher emphasized that, if Russia wants to be an advanced economy, it will have to undergo a fundamental restructuring. While it may be easy to say that many companies should close, the more difficult question is deciding who should lead the reorganization of the economy. He argued that offering bad assets to the market would be very difficult, but it is the government’s role to privatize a large part of the 50 percent or more of the economy that it currently controls directly or through stock ownership, calling this the second wave of privatization. Mr. Gontmakher noted that, despite the complications, the state has a central role to play in moving toward a more privatized economy, as there will be significant expenses for items such as retraining, healthcare and for additional reforms. Mr. Gontmakher concluded that Russia is not in a financial crisis; it is in a crisis of bad institutions — ineffective institutions and poor governance are the central problems in Russia. He noted that the country has two options: transform the current industrial economy into a knowledge-, innovation- and entrepreneur-based economy, or be marginalized and backward, relying on the counterproductive practice of tying the economy to oil prices.

QUESTION AND ANSWER SESSION In response to a question regarding the applicability of East German experiences with privatization after the fall of the Berlin Wall for Russia, Mr. Sedov responded that there is no recipe that will clearly work for Russia. In East Germany, the government relied on the West Germans and Americans for reform guidance and money. In contrast, Russia must rely on itself for the needed reform and impetus. He noted that this makes reform harder and easier at the same time. As Russia has no experience to follow, it will have to rely on its own history and people.

One audience member noted that many Russians feel that working for a state-owned company is the best option, and asked what the government can do to change that mindset. Mr. Sedov replied that administrative barriers must be removed, as well as the risk perceptions. He said that government officials, schools, etc., should promote entrepreneurship as a great way to build an independent and bright future. He then noted that the media reports on private businessmen when they are killed or sent to jail dissuade the next generation from being innovative. He also said that building a successful business is hard, because if entrepreneurs are successful and a company becomes large, the government pays attention and tries to get extra taxes out of them. Mr. Sedov said this is a backwards policy: the government should promote people who create jobs and wealth.

The U.S.-Russia Business Council 17th Annual Meeting

September 24-25, 2009 • New York, NY

Mr. Galitzine noted that, in order to boost entrepreneurship, the simplified tax structure ceiling has been lifted, but it is still difficult to start and run a company. Explaining that it takes 13 months to start a business in Russia, he said that he opened one in 35 minutes from his desk in Delaware. Mr. Galitzine also pointed out that one of his cousins has inspectors at his office in Russia every week, because he is a large taxpayer.

Mr. Sedov added that the government is trying to do something about this problem, but has not been effective. He reiterated that education is important, and that the worldwide trend to teach entrepreneurial skills to all students and not just to economics and business students is an encouraging trend.

Mr. Galitzine closed the session by detailing the successes of small businesses, such as a microfinancing firm, with which he once worked. He noted that entrepreneurial spirit is palpable at the small business level, adding that large companies also work well, because they can afford to deal with the bureaucracy. The middle is what is struggling in Russia and that is where the greatest reform effort is needed. n

Russia Business Watch Winter 2009-2010

The U.S.-Russia Business Council 17th Annual Meeting

September 24-25, 2009 â&#x20AC;˘ New York, NY

Panel Developing an Effective Government Discussion Relations Practice in Russia

Moderator: Trevor Gunn, Director, International Relations, Medtronic, Inc.

(far right)

From left to right:

Nataly Y. Nikolaeva then spoke about

Speaker: Mikhail Golovatov, Founder, Consult TP, Ltd.

government relations from the perspective of her company, Citi. She said that the main task of government relations is to advocate priority legislative/regulatory public policy interests with legislators and federal agencies. She emphasized that Citi and other effective lobbyists do not ask for special privileges, but rather changes to the entire industry. In support of the companyâ&#x20AC;&#x2122;s main business objectives, Citiâ&#x20AC;&#x2122;s government relations office seeks to shape the operating environment in which the company works. Ms. Nikolaeva then explained that government affairs is important as industry (especially banking) is highly regulated and compliance is usually difficult; sometimes regulation is harmful to business and there are always interpretation issues. This is especially true from region to region.

Speaker: Pavel Tolstykh, Head, Government Relations Research Center

Speaker: Nataly Y. Nikolaeva, Director, Government Affairs, Citi Russia

Speaker: Viacheslav Tabachnikov, Managing Director, Cassidy & Associates CIS

Mikhail Golovatov opened the panel by acknowledging the importance of the regions and regional governments to the success or failure of businesses and then examined a model of business based on central operations vs. regional operations. He made special note of the reality that some regions have high unemployment and a lack of political responsiveness, while other regions are dealing with crises related to corruption or banditry and do not have the capacity to help businesses.

Russia Business Watch Winter 2009-2010

Mr. Golovatov noted that Russian bureaucrats understand the business environment in some of these regions, but American businessmen typically do not. He explained that one might have the capital and the desire to organize a business, but still find it very difficult to start a company. He concluded that the key to success is advanced planning and a good idea of the operating environment.

Ms. Nikolaeva pointed out that a more recent issue is globalization, explaining that changes in one country affect other countries, and regulators follow new trends around the world. As an example, she cited the recent debates surrounding corporate bonuses. Citi deals with this proactively by making its position known to governments around the globe, perhaps even before a government has considered a particular issue. Ms. Nikolaeva then commented on global trends, saying that policy decisions are no longer taken in isolation. Governments watch each other and copy even harmful policies. She emphasized that while watching global trends, Citi tries to anticipate and affect how governments implement those trends locally. Ms. Nikolaeva explained that the core issues in Russia are those related to government approvals and support for current operations and regional expansion, legislative and regulatory reforms to create a more favorable business climate, and relationship support designed to make Citi a trusted ally of the government and financial institutions.

Viacheslav Tabachnikov continued the discussion by underscoring that many components of government relations have become standard across companies. He explained that his company focuses on lobbying, which they consider part of the broad picture of issues management. Clients must anticipate, adapt to and influence changes that will arise in the future, and government relations is one element of that process. He mentioned that there are already many stakeholders and constituents in Russia, but to a lesser extent than in the United States. However, Mr. Tabachnikov believes that within 10-15 years, Russia’s stakeholder society will look like that of the U.S. instead of the vertical of power and paternalistic society that he believes currently exists. This is a problem for businesses, but an opportunity for lobbyists who can improve relations and build networks. He said that lobbyists must try to understand the agendas of those in decision-making positions — their goals and political aspirations, the pathway of influence and their background.

Mr. Tabachnikov said there are two steps to successful government relations. The first is targeting regulators or legislators in charge of issues important to client companies. The second step is approaching those people to propose ideas, provide information and, most importantly, to be available for help when they need it. He continued that a company must frame each issue or idea submitted to the government, so that it is in line with the strategy and vision set by the federal political leadership. It is also important to engage as many people as possible, so that many only have to do a little instead of asking a few for a lot. Companies should also create a natural environment for the issues to move forward on their own. Mr. Tabachnikov stressed that it is important to try to present ideas in ways in which officials are used to thinking. He added that it works best to let officials take credit for ideas and not bring to attention the lobbyist who may have planted the idea. He noted that it is also important to find Russian stakeholders who will benefit, so that the project will be immune to populist outcries. Many groups have no idea that an issue affects them, but will defend a project once they understand their own interests are at stake. Mr. Tabachnikov concluded that the bottom line is for lobbyists to be available to those who make decisions. He strongly recommended that foreign companies remain in Russia and become proactive in approaching officials, as they are often open to ideas when they understand the benefits the project will bring to the larger community.

Pavel Tolstykh discussed the use of political resources in conflicts with government officials. He began by giving a brief history of property ownership in Russia over the last seven years, from which he concluded that government power over private property has increased greatly. He then asked what hurdles businesses can expect to encounter when operating in Russia and listed many ways the regional and federal governments can gain effective control of private property. For example, officials can bring criminal cases against

any company and seize sensitive documents. Officials also use tax audits and environmental agencies can use confusing laws to force project delays and termination. Migration and labor authorities can force personnel decisions or make employees leave the country. Mr. Tolstykh explained that one of the key issues faced by foreign managers is a basic lack of understanding of the Russian system, saying that many regular business methods do not work in Russia. He concluded that good relationships with officials is not just a competitive advantage, but is also a question of a business’s security in the country. He said that as Russia’s political process is complicated, lobbyists could add significant value to the government relations process. Effective consultants can resolve or even prevent most problems faced by foreign businesses operating in Russia.

The U.S.-Russia Business Council 17th Annual Meeting

September 24-25, 2009 • New York, NY

QUESTION & ANSWER SESSION In response to an audience question regarding the rules governing a lobbyist’s access to State Duma deputies, Mr. Tolstykh responded that, unlike the U.S., lobbyists do not have direct access to the building and so find other ways to interact with members of the Duma. Some find work with the Duma and others meet members outside the building in clubs or restaurants. Asked to describe a substantive achievement through lobbying government officials, Ms. Nikolaeva answered by recounting that credit cards in Russia were not very popular until 2005, when Citi’s government relations team lobbied for changes to the Tax Code. The new code allowed banks to promote credit cards, which dramatically increased the number of credit cards in Russia. Responding to the question of whether it is a liability for U.S. companies to appeal to the U.S. government for assistance in resolving an issue in Russia or if only domestic lobbyists should be used, Mr. Tabachnikov responded that, while each case is unique, in general a company should Russia Business Watch Winter 2009-2010

The U.S.-Russia Business Council 17th Annual Meeting

September 24-25, 2009 â&#x20AC;˘ New York, NY do both. He gave an example of a European client who tendered for an infrastructure project, but lost due to violations of the tendering procedure by the regional government. As there was international financing involved in the project, they were able to appeal to the government of the financing country, who then worked with the Russian federal government to resolve the issue. Mr. Tabachnikov concluded

In response to a question about how corruption affects lobbying efforts in Russia, the panelists agreed that companies need to take preventative

measures and make sure they watch for situations where the potential for corruption is high. The speakers agreed that foreign companies must also firmly adhere to their domestic anti-corruption laws, because once a company has engaged in corrupt practices, they will be forced to do so repeatedly. n

The U.S.-Russia Business Council gratefully acknowledges the generosity of the 2009 Annual Meeting Sponsors

Attorneys at Law

that using domestic lobbyists could give officials positive incentives to work with your company, while cooperation with your government can give those same officials incentive to treat your company fairly.

Russia Business Watch Winter 2009-2010

Sponsor Photos Viewing From left to right

1. Peter L. Thoren, Access Industries, Inc. 2. Valery Zakharov, Access Industries, Inc., and Sergey Lavrov, RF Foreign Minister

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3. Alexey Kim, Philip Morris Sales and Marketing Ltd., and Vladimir Golovnev, Committee on Economic Policy and Entrepreneurship, RF State Duma. 4. Ann Wrobleski, International Paper, Red Cavaney, ConocoPhillips, and Mary Laschinger, International Paper. 5. Klaus Kleinfeld, Alcoa Inc., and E. Neville Isdell, formerly The Coca-Cola Company. 6. Peter A. Charow, BP America Inc. 7. Stephen Kehoe, PepsiCo, Inc. 8. Thomas N. and Susan Trone, Deere & Company. 9. Jay R. Pryor, Chevron Corporation, and Dennis Hightower, U.S. Deputy Secretary of Commerce.

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10. Toby T. Gati, Akin, Gump, Strauss, Hauer & Feld, LLP. 11. Lisa M. Schroeter, The Dow Chemical Company, Kyle Scott, U.S. Department of State, Peter A. Charow, BP America Inc., and Sergei M. Guriev, New Economic School. 12. W. Horton Beebe-Center, Eurasia Foundation, and Steven R. Mann, Exxon Mobil Corporation. 13. Olga Miller, Renova Group, Edward S. Verona, USRBC, and Simonetta B. Verdi, Ford Motor Company. 14. Sergei Kotov, BNY Mellon, Randi Levinas, The USRBC, and Terrence J. English, Baring Vostok Capital Partners. 15. Gregory S. Dole, The Boeing Company, William C. Lane, Caterpillar Inc., and Samir Sahgal, The Boeing Company. 16. Richard J. Coyle, Wal-Mart Stores, Inc. 17. Andrew Cranston, KPMG, and Maarten van den Belt, Visa International. 18. Dorothy Dwoskin, Microsoft Corporation.

17th Annual Meeting Sponsors

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1 Russia Business Watch Winter 2009-2010

Спонсоры 17-го Ежегодного Заседания

September 24-25, 2009 • New York, NY

Sponsor Photos Page 2

Russia Business Watch Winter 2009-2010

Sponsor Photos Page 3

17th Annual Meeting Sponsors

September 24-25, 2009 â&#x20AC;˘ New York, NY

Russia Business Watch Winter 2009-2010

new members

new USRBC members

BALTIA AIR LINES

Baltia Air Lines will soon introduce non-stop service between JFK and St. Petersburg. It will provide a high quality, three-class passenger service and reliable cargo and mail transportation in the trans-Atlantic market between the major U.S. cities and Eastern Europe, including Russia, Latvia, Ukraine, and Belarus.

THE CENTER FOR BUSINESS ETHICS AND CORPORATE GOVERNANCE (CBE)

The Center for Business Ethics and Corporate Governance (CBE) fosters national standards of business conduct in the Russian Federation through innovation and alignment of best practices of ethics, anti-corruption compliance and corporate governance. CBE helps companies apply best practices in a targeted manner that measures improvements in performance and rewards strict compliance. CBE, founded as a Russian non-commercial partnership in 2000, helps Russian government agencies and civil society implement the National Anti-Corruption Action Plan and build the institutional framework of good governance. The CBE record demonstrates know-how and experience in designing and implementing legislative-drafting, ethics training, code-writing, risk-mapping, stakeholder analysis, and other governance projects.

Russia Business Watch Winter 2009-2010

CERTIPORT

Certiport is the world leader in standards-based certifications that enable personal and professional advancement through globally portable credentials. Established in 1997, Certiport is a pioneer in validating fundamental computer skills and knowledge through performance-based testing and certification, and delivers exams in 128 countries and 20 languages at some 12,000 Certiport Centers worldwide. As the creator and worldwide distributor of the Microsoft Office Specialist program, Certiport is responsible for the development, marketing and administration of certification programs for the Microsoft Office suite of products. Certiport also offers Internet and Computing Core Certification (ICÂł), which validates basic knowledge and ability to use computer hardware, software and the Internet.

CONSULT TP, LTD.

Consult TP, Ltd. is a risk management firm dedicated to ensuring the security of its clientsâ&#x20AC;&#x2122; investments through legal means. The firm is a member of the Union of Independent Services for Commercial Security Assistance. Consult TP provides a range of risk-management services, including due diligence investigation, prevention of hostile takeovers, project monitoring and assistance, investment protection, security for operations in Russia and abroad, staffing (including migration issues), legal consulting, and financial consulting.

CyberPlat is the leading provider of payment processing services in Russia, controlling over 25 percent of the payment acceptance market. The company’s proprietary technology ensures highly competitive pricing of transaction processing. More than 1.5 billion payments move through CyberPlat’s network annually. The company’s cash acceptance network consists of more than 400,000 outlets around the world accepting cash payments for leading telecommunication companies, commercial television and numerous service providers, including Beeline, MTS, MegaFon, Tele2, NTV-Plus, and others. CyberPlat is a member of the World GSM Association and the Russian Infocommunication Union. The company’s total turnover was $6.5 billion in 2008.

new members

CYBERPLAT

DECHERT

An international law firm with offices throughout the United States, Europe and Asia, Dechert has top-ranked, world-class practices in corporate and securities, complex litigation, finance and real estate, and financial services and asset management. The lawyers of Dechert’s Russia and CIS practice advise on a wide variety of complex cross-border transactions, encompassing mergers and acquisitions, joint ventures, private equity, and antitrust. The team also advises on banking and finance, including project finance, structured finance and securitization; capital markets; corporate restructuring; taxation; real estate and construction; administrative and customs matters; employment; intellectual property; and Russian and international litigation and arbitration.

EXECUTIVEACTION

ExecutiveAction LLC is a Washington-based international business solutions and risk management firm that has successfully handled difficult and complex problems around the world. Its Chairman and CEO, Neil C. Livingstone, has worked in Russia and the CIS for more than a decade, addressing the problems of U.S. companies there and Russian and CIS companies in the United States and Western Europe. ExecutiveAction’s Senior Advisory Board is chaired by former CIA Director R. James Woolsey, and includes former FBI Director Judge William Sessions (Vice Chairman). The company’s Business Advisory Board is composed of prominent figures from the legal, entertainment, computer, travel, and auto industries.

Feldmans Consulting is a boutique business and public relations consulting firm focused on Russian and other Eastern European markets. Feldmans Consulting was established in 2005 and is headquartered in northern New Jersey. Its founding member, Pavel Ivlev, has practiced Russian and international commercial law since 1990. Feldmans possesses unique expertise in providing strategic advice and developing business/legal solutions for U.S. businesses entering the Russian market. In particular, it serves as, and helps clients maintain, a reliable and sustainable bridge between American and Russian counterparts based on trust, openness and mutual respect.

Russia Business Watch Winter 2009-2010

FELDMANS CONSULTING

new members

• New USRBC Members (continued)

FSVC

The Financial Services Volunteer Corps (FSVC) is a not-for-profit, private-public partnership whose mission is to help build sound banking and financial systems in transition and developing countries. FSVC’s work includes strengthening commercial banking systems, developing central bank capabilities and building capital markets. FSVC structures practical, results-oriented technical assistance and training missions staffed by financial sector practitioners who serve as unpaid volunteers. By recruiting professionals at the peak of their careers to serve as volunteers, FSVC provides technical assistance that is objective, independent and state-of-the-art. FSVC has worked in Russia for 18 years in close partnership with the Central Bank of Russia, other government agencies and banking associations.

INTER-CAPITAL

Inter-Capital, Inc. is a New York-based international executive search consulting firm, which concentrates on a variety of fields including investment banking, private equity, finance, marketing, HR, management, and oil & gas industries in emerging markets. The company has conducted searches in 18 countries and has operated in Russia since 1995 as one of the leading headhunting firms in the region. While Inter-Capital’s candidate base is global, its New York offices give the company an advantage by providing easy access to the largest Russianspeaking professional community outside of Russia.

INTER-CAPITAL, INC.

IRIS CAPITAL PARTNERS

Iris Capital Partners is a boutique, independent advisory firm specializing in merger and acquisition advisory services including valuation, joint-venture creation and due diligence in the Russian Federation and the United States. The firm’s breadth of clients includes both public and privately held companies in numerous industries that are interested in growing, restructuring or valuing their business. Iris Capital Partners believes in creating win-win arrangements that respect both the interests of the investor as well as those of local partners. Such an approach leads to a more effective post-merger integration, higher profitability and lower costs.

Russia Business Watch Winter 2009-2010

MERCK

Merck & Co., Inc., which does business in many countries of the world as Merck Sharp & Dohme (MSD), is a leading research-driven pharmaceutical company dedicated to placing patients first. Established in 1891, Merck discovers, develops, manufactures, and markets vaccines and medicines to address unmet medical needs. In 1993, MSD officially opened its office in Moscow, Russia. Today, Merck Sharp & Dohme carries out significant research work in Russia. The company also devotes extensive efforts to increase access to medicines through far-reaching programs that not only donate Merck medicines but help deliver them to the people who need them.

TD INTERNATIONAL

new members

• New USRBC Members (continued)

TD International (TDI) is a boutique consulting firm that provides strategic advisory and risk management services tailored specifically to meet client objectives. Clients rely on TDI’s services to protect and secure their assets, their reputation and their bottom line. The sensitive nature of each project for which TDI is engaged requires the highest standards of professionalism, confidentiality, accuracy, and responsiveness to client requirements.

TMK IPSCO

OAO TMK (TMK) is Russia’s largest manufacturer and exporter of steel pipes and ranks among the global top three pipe producers. Founded in 2001, TMK includes the Volzhsky, Seversky, Sinarsky, and Taganrog plants along with TMK Oilfield Services in Russia, TMK-Kaztrubprom in Kazakhstan, TMK-Artrom and TMK-Resita in Romania and TMK IPSCO in the U.S. In 2008, consolidated net sales totaled $5.8 billion and EBITDA stood at $1 billion. Products include seamless threaded pipes for oil and gas fields (OCTG), seamless line pipes for infield pipelines, seamless pipes for industrial use, large-diameter welded pipes, energy tubulars (welded OCTG), and welded pipes for industrial use.

UFG ASSET MANAGEMENT

UFG Asset Management (UFG AM) is a leading alternative asset manager in Russia with $1.11 billion in assets and commitments serving onshore and offshore institutional and private investors. The co-founders of Russia’s prominent investment bank UFG, Charles Ryan and the late Boris Fedorov, set up UFG AM in 1996. In 2005, UFG sold its investment banking business to Deutsche Bank (DB), but UFG AM remained independent. In 2008, UFG AM sold 40 percent of its onshore mutual funds business to DB (Deutsche UFG Capital Management) but independently runs offshore hedge funds, private equity and real estate funds, and has a profitable wealth management business.

The Wicks Group, PLLC (TWG) provides specialized legal and consulting services to clients with aviation-related interest. Clients from all aspects of the aviation sector rely on TWG to help them meet their business development, operations improvement and problem resolution needs. Industries served include governments; airlines; airports, airport management firms, and service providers; aircraft manufacturers; corporate and business jets; and research institutes. TWG is committed to providing the expertise and solutions needed to produce exceptional results and value for each client. The company’s depth of aviation experience, commitment to excellence and client satisfaction and global reach place TWG at the forefront of aviation legal and consulting firms.

Russia Business Watch Winter 2009-2010

WICKS GROUP

The U.S.-Russia Business Council (USRBC) The U.S.-Russia Business Council (USRBC), a premier trade association based in Washington, DC with an office in Moscow, represents the trade and investment interests of its U.S. and Russian member companies. The USRBC seeks to expand and enhance the U.S.-Russian commercial relationship by engaging in advocacy efforts with both the U.S. and Russian governments on behalf of its members; assisting member companies with troubleshooting and new business development; providing information and analyses to support business decisions; and facilitating access and networking opportunities, including briefings with government officials and private-sector leaders.

Services Business Development/Access

• The USRBC offers its members frequent opportunities to relay concerns directly to the highest levels of the U.S. and Russian governments. • We facilitate member input on government policies that directly affect business. • Our powerful relationships benefit members facing market access, tax policy, and property rights challenges.

Government Relations

The USRBC engages regularly with the U.S. Executive Branch and Capitol Hill to promote a balanced discussion on U.S. policy towards Russia, advance the bilateral commercial agenda, and voice member concerns. We currently lead the broad business community effort associated with Russia’s WTO accession, The Coalition for U.S.-Russia Trade (www.usrussiatrade.org).

Dispute Resolution

Members caught in commercial disputes with private or government entities benefit from the USRBC’s ability to educate the appropriate decision makers about the issue and

Market Intelligence

• Regular member briefings providing outside expert opinion and experience on industry- specific topics and broader commercial relations. • Regular e-mail alerts on significant political and eco nomic developments in Russia. • Russia Business Watch — a leading publi cation on bilateral trade and investment.

Membership Questions?

Contact Lucy Rojansky Director of Membership Affairs 202-739-9190/ rojansky@usrbc.org

Special Room Rates for USRBC Members at Marriott Hotels in Moscow Marriott is pleased to provide members of the U.S.-Russia Business Council with discounted room rates at Moscow Marriott Royal Aurora, Moscow Marriott Grand and Moscow Marriott Tverskaya hotels. With questions regarding this special room rates offer for members of the U.S.-Russia Business Council, please contact Moscow Marriott Cluster Reservations Department at reservations@marriott-moscow.ru or via phone +7 495 937 00 55.