Russia Business Watch Vol. 17, No. 1
Spring 2009
Washington, DC
The Quarterly Report of the U.S.-Russia Business Council
U.S.-RUSSIA RELATIONS AND THE GLOBAL CRISIS: Choices and Challenges
PRESIDENT’S MESSAGE p.1
ACTIVITIES
U.S. GOVERNMENT
LEGAL UPDATE
Council Calendar
OUTLOOK
USRBC Road Show Map
USRBC Recommendations to the Obama Administration
The Strategic Sectors Law — the First Year of Enforcement
(Another) Year of Living Dangerously: Russia and the Global Crisis
USRBC Legal Conference
U.S.-Russia Relations: Reset, Overload or More of the Same?
pp.3 - 11
Luncheon with Alexander E. Lebedev Briefing with Chief Justice Anton Ivanov
p.12- 22
p.23
SECTOR UPDATE Are Foreign Independent Directors Needed in Russia?
p.24
U.S. Amendments to Buy America: Impact on Russia
pp.30-32
REGIONAL PROFILE Rostov Region
WTO WATCH
p.34
Russian Intellectual Property Laws Meet Essential WTO Standards
NEW USRBC MEMBERS p.37
p.27
Contents
President’s Message
Outlook 3 nn (Another) Year of Living Dangerously: Russia and the Global Crisis 7 nn U.S.-Russia Relations: Reset, Overload or More of the Same?
Russia Business Watch • Spring 2009
Е. Neville Isdell, Chairman of the Board Robert S. Strauss, Chairman Emeritus Edward S. Verona, President and CEO Theodore Austell, III, The Boeing Company Sidney W. Bardwell, Deere & Company Stephen E. Biegun, Ford Motor Company Scott M. Blacklin, Cisco Systems, Inc. Patricia M. Cloherty, Delta Private Equity Partners James F. Collins, Carnegie Endowment for International Peace Jeffrey R. Costello, JPMorgan Chase Bank Richard J. Coyle, Wal-Mart Stores, Inc. Andrew Cranston, KPMG Vinay Dube, Delta Air Lines, Inc. 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 Jay M. Haft, Renova Group Shannon S. Herzfeld, Archer Daniels Midland Company D. Jeffrey Hirschberg, Kalorama Partners, LLC E. Neville Isdell, The Coca-Cola Company Karl Johansson, Ernst & Young LLP Alexey Kim, Philip Morris Sales and Marketing Ltd. David S. King, Halliburton Company William C. Lane, Caterpillar Inc. Eugene K. Lawson, Lawson International, Inc. Gregory Mason, SeverStal Group Lamar McKay, BP America Inc. James J. Mulva, ConocoPhillips Peter B. Necarsulmer, The PBN Company Richard D. Paterson, PricewaterhouseCoopers LLP 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. Kevin Tomlinson, JT International Inc. Clyde C. Tuggle, The Coca-Cola Company Michael D. White, PepsiCo, Inc. Helmut Wieser, Alcoa Daniel H. Yergin, Cambridge Energy Research Associates
Activities nn Council Calendar 12 14 nn USRBC Road Show Map 16 nn Legal Conference “Russia: From Legal Nihilism to Rule of Law” 21 nn Luncheon with Alexander E. Lebedev, Chairman, National Reserve Corporation 22 nn Briefing with Anton Ivanov, Chief Justice, RF Supreme Arbitration Court
U.S. Government 23 nn USRBC Russia Policy Recommendations to the Obama Administration Sector Update 24 nn Are Foreign Independent Directors Needed in Russia? WTO Watch 27 nn Russian Intellectual Property Laws Meet Essential WTO Standards Legal Update 30 nn The Strategic Sectors Law — the First Year of Enforcement 32 nn Buy America Provisions in the American Recovery and Reinvestment Act: Impact on Russia Regional Profile 34 nn Rostov Region 37 nn
New USRBC Members
Russia Business Watch
The quarterly 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 Bulvar 8, Office 907, Business Centre Lotte Plaza, 121099 Moscow Tel: (7) 495-662-6306 • Fax: (7) 495-662-6315 ditor: Svetlana Minjack • Assistant Editor: Jeff Barnett E Research Assistants: Mykyta Baryshev, David Morrow Design: Maryia Dauhuliova For additional information or copies of Russia Business Watch, please contact USRBC at (202) 739-9180 or email RBW@usrbc.org.
PRESIDENT’S MESSAGE president’s message
Dear Council Members and Friends: Amidst the gloom overhanging the world economy and U.S.-Russia relations at least one glimmer of light came out of the G-20 meetings in London on April 2. During an hour-long meeting, Presidents Obama and Medvedev discussed a range of issues of mutual concern. Most of these were of a familiar military/strategic and geopolitical nature, areas where our bilateral relations are often fraught with tension and mutual distrust.
impetus for the hard work that will make it possible to accomplish the longer-term objectives.
The creation of such a commission is broadly supported and encouraged by the U.S. and Russian business communities and by a host of think-tanks and academic institutions that have included such a recommendation to the incoming Obama Administration. Indeed, it was one of the USRBC’s principle recommendations to the Administration, along with the resumption of the U.S.-Russia Energy Dialogue.
Fertile ground for such swift operational results could be the oft-neglected (at least by those in the continental U.S.) maritime border between the United States and Russia. During the third in our series of Road Shows with Russian Senator Mikhail Margelov, we recently traveled to Alaska (see p. 14) and met with state and federal government officials, legislators and representatives of leading associations and nongovernmental organizations.
The announcement in London is a major step forward in fomenting closer trade and investment between the two countries, which we and others believe would alleviate the tensions and asperity resulting from our often conflicting views on major geopolitical matters. We believe that it will also provide some stability during times when political turbulence could threaten to push the relationship off course. The USRBC and other industry groups are prepared to offer any assistance that either government requires to ensure that this initiative moves forward successfully. There will be no shortage of topics to address once the bilateral commission is established. Many of those are technically complex and require a long-term approach, with results measured incrementally, perhaps over a decade or more. Such topics are fundamental and must be an integral part of the dialogue. At the same time, it is important that the commission generate relatively quick successes, providing the
What we discovered was a host of practical issues that would easily lend themselves to discussion under a bilateral commission. Although a majority of these topics deal with social, environmental and law enforcement issues, a number have direct commercial applications. Moreover, they have the potential to generate forward momentum and create a positive atmosphere between the two countries. For example, the U.S. National Parks Service continues to develop the Beringia State Park with its Russian counterparts under the auspices of the Shared Beringian Heritage Program established in 1991 by Soviet President Mikhail Gorbachev and U.S. President George H.W. Bush. This international park would help link the protected lands and the peoples on both sides of the Bering Straits and will facilitate close cooperation on environmental conservation efforts and increased cultural exchanges. (Continued on p.2)
Russia Business Watch Spring 2009
However, the two leaders also announced a desire to re-establish a U.S.-Russia bilateral economic commission reminiscent of the Gore-Chernomyrdin Commission of the 1990s. Unlike the more contentious political topics, the economic ones that this commission would address provide greater prospects of achieving concrete, positive results that improve the material wellbeing of the citizens of both countries. Although details are sparse, we understand that the formation of this commission will
be discussed more extensively at a proposed meeting between the two presidents in Moscow in early July.
PRESIDENT’S MESSAGE
“...one answer to the question of how to build a constructive dialogue between the U.S. and Russia may be found in Alaska. After all, you really can see Russia from there.”
Russia Business Watch Spring 2009
The U.S. Coast Guard 17th District and the Russian Northeast Border Guard Directorate have had cooperative relations since 1995, which continued to function at an operational level even in the aftermath of the Russia-Georgia War when other U.S. military contacts with Russian counterparts were put on hold. This cooperation is focused on search and rescue operations, enforcing fishing regulations and other law enforcement functions, as well as joint training exercises and cooperative fisheries management policies.
Discussions are ongoing both at the federal and state levels pertaining to the indigenous peoples who live on both sides of the Bering Straits and are of the same ethnic background. These discussions have resulted in draft protocols on visa-free travel and the adoption of civil aviation agreements between Chukotka and Alaska. Several native Alaskan groups, such as the Aleut International Association, are strong advocates of increased ties with potential social and commercial benefits to both sides.
leadership, civic consciousness and entrepreneurial skills among young Alaskans, is seeking opportunities for cross-border internships with the Russian Far East focusing on areas such as energy, maritime highways and the environment. Further, the Institute of the North has ongoing discussions in numerous areas related to maritime shipping, remediation of environmental damage in remote settlements and numerous other projects with commercial benefits. The AlaskaKhabarovsk Rule of Law Project is leading efforts to share understanding of the Russian and U.S. legal systems and how both can be used to expand bilateral commercial ties.
might very well focus on the interaction between the Russian Far East and the U.S. northwest. By and large, Americans view Russia through an Atlantic prism, an unfortunate consequence of which is that the more complicated political issues (missile defense, Iran, NATO expansion) and one of the world’s leading markets (the EU) stand between the United States and Russia. Seen from the Pacific point of view, many areas of cooperation become apparent, even in long-term, strategic fields such as joint upstream and downstream oil and gas investment that spans the Pacific basin. Therefore, one answer to the question of how to build a constructive dialogue between the United States and Russia may be found in Alaska. After all, you really can see Russia from there. With warm regards,
In a sign of the importance of increased ties between the Russian Far East and Alaska, the Chukotka Governor’s Office maintains Edward S. Verona a representative in Alaska to further these cultural and commercial exchanges.
These organizations provide a rich source of ideas and proposals for bilateral engagement on issues that can yield results The Conference of Young Alaskans, in a short period of time. One of the an organization dedicated to promoting bilateral commission’s working groups
outlook
outlook (Another) Year of Living Dangerously: Russia and the Global Crisis By Eric Kraus Eric Kraus is Special Advisor for Global Strategy at Otkritie Financial Corporation, a Russian bank and brokerage. were pitched out of windows as financial entities went into survival mode. Then, as the crisis matures, markets begin increasingly to differentiate between those companies or countries faced with the threat of imminent demise, versus those that have become oversold beyond any rational valuation, offering compelling opportunities for the adventurous. The contagion effect in Russia appears to have been front-loaded, i.e. the worst effects were felt in late 2008, and a period of stabilization is now at hand.
For now, all innocent bystanders need beware. As with every financial crisis, the initial disruption was both panicked and non-selective; both babies and bathwater
Three principal mechanisms account for the transmission of the global economic crisis to the Russian economy; in order of decreasing importance, these are the global credit contraction, the collapse in commodities prices and the reversal of investment flows. These shocks have been of a magnitude unprecedented in modern economic history and occurred with extraordinary rapidity, with credit in particular going from bounteous to almost non-existent virtually overnight. For structural reasons, the emerging markets — not excluding Russia — were highly exposed to a sudden failure of global capital markets. Since conditions
Three essential factors driving the crisis, as well as the near-term outlook for each, should be considered before turning to the mitigating factors, i.e. those areas where Russia is relatively immune to contagion effects.
1. Credit While Russia was initially able to shrug off the first phases of the global crisis, following the disastrous decision to allow a disorderly failure of Lehman Bros, global financial markets spun into crisis mode. The desperate rush by banks to repatriate capital led to the sudden withdrawal of all credit — regardless of the ultimate creditworthiness of the borrower. The Russian corporate sector, largely funded in the international capital markets, proved to be dangerously exposed.
Russia Business Watch Spring 2009
While the economic impact of the first phase of the global economic crisis upon Russia exceeded rational expectations formulated based upon the secular shift in economic growth toward the emerging markets, in fairness, the havoc triggered by the collapse of the serial U.S. asset bubbles is of unprecedented magnitude, and, in retrospect, the current crisis will be seen to have represented the fundamental inflection point in secular shift in the global balance of economic power away from the old economies of the West.
The Three Horsemen of the Apocalypse — and the Missing Stallions
will almost certainly continue to worsen during the course of 2009-2010, legitimate questions can be asked regarding the economic survivability of several emerging countries, in particular of Eastern Europe. As regards Russia, on the other hand, it appears that most of the damage has already been felt, and absent a complete collapse in the global trading system or commodities markets, stabilization not far from the current levels can be expected.
outlook
•(Another) Year of Living Dangerously: Russia and the Global Crisis (continued) Fliker.com
Aleksei Kudrin, RF Deputy Prime Minister and Minister of Finance
Russia Business Watch Spring 2009
This fragility was a direct consequence of the “Kudrin System” whereby, so as to forestall the development of “Dutch Disease” and hyperinflation driven by massive commodity export revenues, under Finance Minister Alexei Kudrin Russia moved to capture the windfall profits of the oil producers, accumulating massive ForEx reserves while reducing the sovereign debt load to trivial levels. Given the perceived limits to the ability of the Russian financial system to absorb and allocate investment capital, the administration essentially left it to the global investment banks to intermediate these reserves back into the Russian economy, investing oil export revenues into G-7 assets while leaving the real sector to raise finance wherever they could.
that the Russian private sector would have found itself fatally over-indebted. In the event, whilst the gross indebtedness of the Russian corporate sector has been rather alarmingly estimated at some $500 billion, this ignores the huge offsetting foreign assets held by the corporate sector. Estimated debt service and redemptions for 2009 are approximately $110 billion, the vast majority of which have already been funded by issuers who purchased U.S. dollars on the local market; many of the obligors, in particular the banks, have been actively buying back their outstanding Eurobonds, which have performed very strongly over the past few months.
The crisis was arguably exacerbated by the premature move to integrate Russia fully Deprived of domestic options for into global financial markets, embracing financing business expansion, working total liberalization just as the Western capital or capex, the Russian corporate system spiraled into an asymptotic bubsector by necessity turned to the global ble trajectory. In a politically-motivated banks and capital markets for funding. attempt to assert Russia’s newfound ecoGiven that until October 2008 the inter- nomic stability, all capital controls were national banks were both highly liquid dismantled; whilst controls are relatively and increasingly desperate for credit- ineffective in preventing outflows, at the worthy borrowers, they willingly provided time outflows were not the problem. increasing volumes of finance; the coun- Where controls had been relatively effecterpart to burgeoning sovereign ForEx tive was in discouraging the inflow of reserves was the rapidly-growing indebt- foreign hot money. edness of the Russian corporates. In the event, with the capital account Had the onset of the global crisis been thrown open, the “global carry trade” got delayed by a further 24 months, it is likely underway in earnest; hedge funds piled
into short-term ruble assets, given the perceived one-way ruble exchange rate risk, as well as local interest rates that, while negative in real terms, were well above the cost of dollar funding. These inflows, coupled with a strongly positive trade account, obliged the Russian Central Bank to run an inappropriately easy monetary policy so as to slow ruble appreciation; along with torrential capital inflows, this pushed domestic real interest rates into deeply negative territory — resulting in inflation, excessive currency valuation and a serious misallocation of resources. Furthermore, since virtually all of the currency inflows were short term, they made no useful contribution to much-needed infrastructure investment or capex. Of course, when global risk tolerance collapsed, there was a violent reversal of capital flows, leaving the CBR in a desperate and ultimately unsuccessful attempt to preserve popular confidence in the currency and banking system by seeking to hold the ruble at an unsustainable level. Perspectives: Despite the occasional public call for capital controls by members of the hardline faction, the Central Bank is fully aware that the time for currency controls is when the money is pouring in. When it pours out, controls prove extremely porous, and indeed, by triggering precautionary capital flight, they are generally counterproductive, especially in a country as skilled as Russia in the evasion of administrative controls. For now, the game will continue to be played by the old rules. Perhaps the most successful aspect of the anti-crisis package has been the shoring up of the Russian banking system. There have been no disorderly bank failures; the level of popular and corporate bank deposits has been broadly maintained; and while non-performing loans (NPLs) are rising (and recent changes in reporting regulations certainly do not enhance clarity), their absolute levels do not threaten Russian macroeconomic stability. At present, global credit markets have begun to recover, and indeed, a few
top-rated Russian entities have managed to raise substantial new finance, with a larger number successfully negotiating roll-overs of their existing credit lines.
To date, the most successful attempts at
Industrial Damage: Some Hit More than Others (Source: GS Global ECS Research)
10% 5% 0% -5% -10% -15% -20% -25% -30% -35%
2. Commodities Although the Russian government has long been cognizant of the risk posed by excessive dependency upon the global commodity cycle, in practice this dependency has proved exceedingly difficult to break. Russia is by nature a major exporter of energy and minerals, as well as an increasingly important force in the global agricultural commodities
Taiwan
Japan
Korea
Spain
Sweden
Brazil
Germany
industrial diversification have involved Russian exporters moving up the commodity value-added chain, e.g. from export of iron ore and slab steel to highvalue added specialty steels; from natural gas to fine chemicals; from pulp and lumber to coated paper and furniture. Tacit the occasional nanotechnology fantasy, the development of domestic manufacture has been most successful as regards import substitution — including food products, building supplies and the domestic manufacture of foreign automobile marques. For the latter sector, Russia’s politically-motivated exclusion from the WTO has proved a blessing in disguise, sheltering the domestic market for foreign manufacturers established in Russia. Thus, for the foreseeable future, Russia’s relative correlation with the commodity cycle should be taken a given. Perspectives: There is no clear consensus as regards medium-term price trends in global
commodity markets, although it appears that market participants may have swung from excessive bullishness to unjustified pessimism. While economic activity in the West will almost certainly continue to decline, this will be at least partially offset by resource-intensive, government-mandated infrastructure spending. Nevertheless, the continuation of the Chinese growth miracle now constitutes the sole realistic hope for avoiding a prolonged recession/depression. Quite fortunately, one would do well to discount much of the pessimism in the press as regards the ability of China to re-inflate. While China is faced with the daunting task of reorienting export-driven manufacturing activity toward a huge and deeply undersupplied domestic market, it benefits from a high degree of political centralization and is thus able to rapidly implement radical policy directives; after a decade of counter-cyclical fiscal and monetary policy, China has a huge stock of ammunition — a combination of a deep budget surplus and the world’s largest currency reserves. The first, encouraging signs of resumed Chinese demand include a modest rebound in global iron ore, coke and steel prices. Similarly, having collapsed by an unprecedented 90 percent last year, the Baltic Dry Index — the primary index for global bulk shipping costs — has more than doubled on growing Chinese demand. With agricultural production having collapsed in numerous geographical locales due to accelerating climate change, as well as the drying up of agricultural credit, export grain prices should rebound within the next 18 months. The key question is, of course, the oil price. It seems likely that a bottom was found in late 2008, with Brent repeatedly bouncing off of the $40 level since last December. While the market has focused on demand destruction, destruction of supply has been neglected — at current prices, numerous marginal oil sources (from Canadian oil sands to deep-water offshore drilling, U.S. stripper wells, much Kazakh production, and most alternatives including biofuels) become
Russia Business Watch Spring 2009
continue to seek negotiated arrangements with their foreign creditors — who may find it in their own best interests to maintain a cooperative relationship with their solvent but illiquid borrowers. Given that those companies able to do so took advantage of the stepwise ruble devaluation to purchase foreign currency sufficient to meet their 2009-10 obligations, any defaults on foreign bonded debt will likely be confined to a couple of minor issuers. On the other hand, Russian corporates should not expect to gain meaningful access to global capital markets in the foreseeable future.
Italy
Singapore
France
Russia
UK
US
Poland
-40%
China
Industrial Production,% yoy to Dec 08
By cutting back on the systematic official (non-bank) support for Russian companies faced with foreign debt maturities, the government is encouraging these to
market. Thus, during the commodity up-cycle, cash pours in, driving currency appreciation, inflation and crowding out non-commodity economic activity. The down-cycle, of course, is marked by rapid economic deceleration, credit squeeze and deflation.
outlook
• (Another) Year of Living Dangerously: Russia and the Global Crisis (continued)
outlook
• (Another) Year of Living Dangerously: Russia and the Global Crisis (continued)
“...the vast majority of foreign companies doing business in Russia have been highly profitable and ... confirmed their intention to maintain or increase their investments in what remains a secular growth market.”
Russia Business Watch Spring 2009
economically unsustainable. Meanwhile, the great oil fields are declining at variable rates — Indonesia is now a net importer, Mexican production is rapidly collapsing and while the terminal phase in North Sea production has been delayed, the final slope of this decline will be extremely sharp. While new oil sources will continue to be found, the easy oil has already been drilled, and marginal production will be feasible only at prices closer to the $65-$85 range, where oil prices are likely to be at the end of the year.
in fact, much of this has simply been Russian entities purchasing dollars/euros, either to fund upcoming debt maturities or buy-backs, or simply for wealth preservation. Correspondent accounts with the Central Bank of Russia have surged as the Russian corporate sector has switched reserves into foreign currencies; despite the currency shift, these reserves remain available to their Russian owners.
As regards FDI, at least until recently, the vast majority of foreign companies doing business in Russia have been highly profitable — when polled, the As regards the demand side, although it is a fair bet that the United States majority confirmed their intention to will never again import as much oil maintain or increase their investments as it did in 2007, the U.S. is no longer in what remains a secular growth marthe top source of incremental demand. ket. This contrasts with the situation in Amazingly, in January — for the first China, where, despite a more charitable time in history — Chinese consumers treatment in the press, one would be bought more cars than did Americans hard-pressed to name five Western com(and note that American automobile panies making money on their domestic sales are net-net replacement purchases, operations. while Chinese sales represent new cars Perspectives: on new roads). The best news here is that the situation cannot further deteriorate — capital 3. Capital flows raising simply cannot fall below zero! Foreign investment capital has flowed Indeed, it could be argued that, unlike out of all emerging markets, with global long-term foreign direct investment that capital markets closed to Russian (indeed, has clearly been beneficial, the opening to all EMEA) equity offerings since of the Russian market to speculative October 2008; they look to remain so foreign capital flows has reliably proved for the foreseeable future. As regards disastrous; Russia may well do best when debt markets, only the top-rated bor- forced to rely primarily upon her own rowers can raise new money — and this internal resources. is considerably more expensive than in And the Missing Stallions: the past. While some very alarming numbers have been reported for Russian capital flight,
Unlike many of its emerging market peers, Russia is relatively immune to
miscellaneous scourges facing the developing economies, and which threaten a number of Latin American (Mexico, Argentina), EMEA (Ukraine, Georgia, the Baltics, Hungary) and Asian (Indonesia, Thailand, Philippines, Korea) countries with economic collapse:
Plunging global demand for manufactured goods Russian exports are primarily in the commodities sector, and the main driver here is likely to be Chinese industrial activity. Manufactured exports are limited to military (a growth sector in troubled times), nuclear power generation and relatively cost-effective heavy industrial machinery (turbines, power generation, etc.) suitable for the needs of the developing countries — where at least some infrastructure spending is likely to be maintained.
Inability to fund the current account deficit due to collapse in remittances/ bond markets/exports Russia has no indispensable import requirements, being self-sufficient in all major commodities and basic foodstuffs. In a worst-case scenario, Russia could survive without Mercedes motorcars and French cheese for an unlimited period. Remittances are a negative item on the balance sheet, and the federal government has virtually no foreign debt to refinance.
Political instability With due respects, reports of Russian political unrest are laughable. While a number of EMEA governments are breaking under the stress, Russia remains remarkably quiet. It is important to note that the Western press, always desperate for bad news as regards Russia, has been recycling a single demonstration by Vladivostok used car dealer for nearly three months now….. Those who lived through the 1998 crisis were stuck by the total absence of popular protest — as the crisis worsened, people returned to their dachas to plant potatoes. Perhaps the experience of 70
years of collectivist rule durably chilled the popular enthusiasm for revolution. As regards the international context, the crisis has diminished any Western ardor for confrontational politics, the opening of new military fronts or expensive missile systems; a substantial improvement in U.S.-Russian relations is thus to be expected. Similarly, some of Russia’s neighbors, previously fixated upon comprehensible but perhaps outmoded historical grievances, will now have far more important matters on their minds. Indeed, in the current climate, even modest Russian investment capital flows will likely receive a warm welcome.
Economic fragility Despite claims by the Western kommentariat that the Russian politico-economic system lacks flexibility, in fact, it is far more flexible than that of most developed economies. Downward adjustment of
wages and staffing levels can occur virtually overnight, with production simply halted until inventories are reduced to the desired level — as indeed happened during the January 2009 period (resulting in industrial production numbers that were dramatic but quite misleading.)
banking sector and the recycling of official ForEx reserves into the corporate sector, the increase in non-payments that mushroomed out in Q408 has been almost entirely reabsorbed.
outlook
• (Another) Year of Living Dangerously: Russia and the Global Crisis (continued)
Although this view is temporarily unfashionable, a gradual differentiation between In summary, while many of you are the potentially high-growth BRICs counundoubtedly familiar with the inefficien- tries and the old economies of the West cies of the Russian economy, this does can be expected. Those wishing to have a silver lining: no manufacturer in predict the timing of a Russian rebound his right mind would attempt to set up a would do well to keep a close eye on just-in-time supply chain in Russia! After Chinese growth trends. While the finan20 eventful years, like an old Lada auto- cial disruption in Russia has been severe, mobile, much of the local industrial fab- the financial system has survived the stress test, NOW! and the policy of both the ric is relatively inefficient, but admirably REGISTER Central Bank and the Finance Ministry fault-tolerant, at least. are broadly appropriate. Over the next In brief, although further discouraging couple of years the opportunities in numbers are expected through the first financial markets will likely match those half of 2009, the period of maximal stress enjoyed by investors in the 1998 postwas apparently reached in October- crisis period. n November 2008; after a sharp ruble devaluation, successful support for the The opinions in this article are those of the author and do not necessarily reflect those of the USRBC.
U.S.-Russia Relations: Reset, Overload or More of the Same? By Nikolai Zlobin Nikolai Zlobin is Director of the Russia and Eurasia Project at the World Security Institute.
From Unipolarity Towards Nonpolarity in the Global Arena
Today, the policies of leading nations have taken on a greater degree of improvisation, which has practically replaced an overarching government foreign policy strategy. The world has become much more chaotic and its development has become dangerously unpredictable, and the United States has found itself ill-
Russia Business Watch Spring 2009
Over the last 15 years, the world has entered a new epoch; one where the roles of the United States and Russia have decreased. The bipolar world that these two powers essentially ruled has become history, never to be repeated. The fledgling unipolar world under American influence has shown itself unable to solve effectively the challenges posed by the modern world; yet, all attempts to create an artificial alternative to unipolarity have further hindered efforts to solve global challenges. We are faced with very real
questions about the manageability of the current international system. The global economic crisis has further complicated the world situation, necessitating a critical reexamination of foreign policy on the part of both the United States and Russia.
outlook
• U.S.-Russia Relations: Reset, Overload or More of the Same? (continued) Fliker.com
Russia wants to be recognized as an independent country with an independent foreign and domestic policy that is not subject to external influence. Attempts to establish an effective framework for relations between the two nations have yet to succeed. Policies that tried to mirror Cold War-era relations have all been failures, while a new foundation for U.S.-Russia relations has not been established. Mutual suspicion has not only failed to subside, but has found new stimuli on both sides. In trying to regain its international clout, Russia periodically gives rise to conflicts with the interests or policies of the United States, including inside its traditional spheres of influence.
Russia Business Watch Spring 2009
U.S. Secretary of State Hillary Clinton and Russian Foreign Minister Sergei Lavrov pressing a “reset button” symbolizing a fresh start for bilateral relations.
prepared for the role of the world’s sole superpower. Faced with other nations’ unwillingness to share in global responsibilities, it reduced its world leadership largely to vulgar domination. As a result, the United States quickly started losing its appeal as a model for social development. In this vacuum, a variety of destructive forces and movements — from Islamic extremism to ethno- and governmentdriven nationalism — positioned themselves as alternatives to the American model. Consequently, the foreign policy of large nations, including Russia, became, to a prevailing degree, reactionary, resembling a chain reaction. This greatly decreased avenues for cooperation on even the most pressing global issues. Among the elites of Moscow and Washington, there was even talk of a new Cold War. Concurrently, the traditional regional structure, which for decades served as the foundation for international politics and the international economic market, collapsed. Global processes began to play an incomparably greater role, and the economic crisis only reinforced this tendency. The concept of regional security and, thus, regional military-political blocs lost most of their relevance. The
prevailing opinion is that the current crisis is global in scope and that overcoming it will inevitably require a supernational effort. If globalization, which began several decades ago, indeed began to erode the concept of a “national economy,” then this crisis has certainly expedited its annihilation. The degree of financial and economic interdependence in today’s world is so high that, contrary to predictions of certain experts who rely on the experience of past crises, a world war or a series of armed conflicts is simply inconceivable as a way of dealing with the current crisis. It is entirely unclear how a country can protect its economy if that economy is to a large degree dependent on global economic conditions. In this situation, U.S.-Russia relations have largely reached a dead end, even coming close to renewing militarypolitical competition — something that both sides find disadvantageous. The two nations have, in essence, created mutually-repellent models. Their conflict is caused partly by differing ideological views of their relations: the United States does not leave any hope of Russia integrating into the West and becoming a friendly and democratic ally, whereas
The events in the Caucasus in 2008 demonstrated beyond a doubt the collapse of the global project of integrating Russia and the West that began after the Cold War. We have entered an era of international disintegration, in which the world is moving away from unipolarity (which never came to pass) toward nonpolarity, where dominant centers of power will disappear, while large nations such as Russia and the United States will see their influence greatly diminished. International disintegration is becoming the subject of this epoch and the defining characteristic of the new world order. This, in turn, countervails the necessary efforts to combat jointly the global economic crisis. To be sure, the nonpolar world is dangerous and unpredictable. This is a world in which agreements and long-term promises no longer have any value, where foreign policy is improvisational, guarantees only short-term, and strategy all but impossible. Such a scenario cannot but worry Moscow and Washington.
U.S.-Russia Relations: Reasons for Optimism Russia and the United States have to a large degree ceased trying to formulate a global agenda, becoming prisoners of small nations’ foreign policies and regional con-
Theories about a possible global conflict between Russia and the United States do not stand up to criticism. In today’s world, there is neither basis for such a conflict, nor are there circumstances that might spark it. International politics was and continues to be a competition, but “competition” is not synonymous with “hostility.” Nevertheless, a level of distrust as high as that between Moscow and Washington turns competition into a series of intrigues and confrontations. Russians view any American action as a stab in the back; Americans think in analogous terms. Consequently, any
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flicts. U.S.-Russia relations have long been determined not by bilateral matters, but by external, “third-party” considerations; be it Abkhazia and South Ossetia, Kosovo, Iran, or Ukraine. Moscow and Washington have long ceased to discuss their own needs, instead having to spend all their foreign policy resources on resolving conflicts in which they, for one reason or another, have become entangled. Dmitry Medvedev was right — the current international security framework no longer functions. The wars in Iraq, Afghanistan and the Caucasus have not only shown Russia and the United States as simply unprepared for regional conflict, but also as frequently willing to grit their teeth and bear the load for others. Back in the time of “the two monopolies”, it was easy to make agreements about each other. But now, Russia’s and the West’s adversaries no longer have to confront them directly, since it is sufficient to push the two sides against one another and wait while they wear each other down, to the adversaries’ advantage.
outlook
• U.S.-Russia Relations: Reset, Overload or More of the Same? (continued)
US President Barack Obama, Prime Minister of Italy Silvio Berlusconi and President of the Russian Federation Dmitry Medvedev at the G-20 Summit in London. problem like the one in Georgia grows into a fundamental disagreement. Such behavior is unbecoming of great nations. U.S.-Russia relations have lost all meaning and substance. These two large nuclear powers have gotten into a situation where their foreign policy agenda is dictated by countries of little importance. In order to break this vicious cycle, it is necessary to have both the political will and the intellectual resources, things both Moscow and Washington have yet to demonstrate. This is the very reason why the meeting between Dmitry Medvedev and Barack Obama warrants optimism. It should demonstrate how successfully the United States and Russia are able to begin
Russia Business Watch Spring 2009
“In both Moscow and Washington, there is surprise at how quickly the Obama Administration has been able to create an amicable and well-disposed environment for high-level diplomatic talks with Moscow. ”
“resetting” their bilateral relations. In both Moscow and Washington, there is surprise at how quickly the Obama Administration has been able to create an amicable and well-disposed environment for high-level diplomatic talks with Moscow. This is indeed a major achievement of the new U.S. Administration, especially considering the baggage of mutual resentments, misunderstandings and vexations left over from the preceding administrations; as well as a large number of both American and Russian skeptics or even outright opponents of any actions aimed at improving U.S.-Russia relations. There is widespread opinion that disagreements between the two nations are of a fundamental nature; that one cannot cooperate with a country that conducts an imperialist foreign policy; that Russia is directly endangering the interests of the United States and its allies, and vice versa. These are assertions made by influential American and Russian politicians, which is why credit must be given to the Obama Administration for having the will to defy the opinions of most of its own elite on many issues. Of course, should Obama’s Russia policy fail, he will be swiftly reminded of all the warnings that are being made today.
outlook Russia Business Watch Spring 2009
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• U.S.-Russia Relations: Reset, Overload or More of the Same? (continued) In the view of Obama’s team, the benefit to the United States from a possible improvement of relations with Russia far outweighs any political risks and personal sympathies or antipathies. Good relations with Russia are important to U.S. national strategic interests. It is not so certain, however, whether the converse holds true for Russia. Obama’s basic position is that new relations with Russia should be formed on the foundation of common features, rather than by tackling disputable, contentious or previously unresolved issues. This approach has been met with noticeable resentment on the part of the traditional American foreign policy establishment, which may create problems for Obama later on.
“Obama’s basic position is that new relations with Russia should be formed on the foundation of common features, rather than by tackling disputable, contentious or previously unresolved issues. ”
Nevertheless, one must not underestimate real-world challenges. Moscow and Washington have diverging views on many of the world’s events and processes. They assess the danger posed by the Iranian nuclear program and the threat of nuclear terrorism in different terms. Unlike the previous administration, Evidently, they have not reached agreeObama’s team looks to be much more ment on Eurasia policy, energy security, cohesive and united on all main issues the role of NATO, etc. There are many of U.S. foreign policy, including Russia. other disagreements, including issues of The “Russia team” is comprised of quite democracy and human rights, freedom a few exceptional specialists on Russia, of speech and the development of civil whose perspectives have long had much society in Russia. All of these issues must in common. Most of them think of be discussed in an honest, even if painRussia in positive and respectful terms, ful, way. However, such a discussion is although there are some who sternly impossible without a real restoration of criticize its level of democratization, free- trust between the two nations, their elites dom of speech and human rights record. and their societies. However, the U.S. position is that Russian rapprochement should be conducted on Presidents Obama and Medvedev must the basis of closely-aligned political, eco- give to their countries clear indications nomic and other interests, not on simi- of how they would like to develop bilarity of values, however important those lateral relations from now on; what role may be. On the other hand, the Russian the United States and Russia would like foreign policy team has not undergone for themselves and for each other on the personnel changes for many years. world stage; and their political and economic goals. Right now there is a winThere is no shortage of actors on the dow of opportunity for making fast gains world stage who oppose an improvement in the improvement of bilateral relations. in relations between the two largest nu- However, it may close soon and is unclear powers, since any tension in these likely to reopen for a long time. The two relations affords them considerable room leaders must not miss this window, for to maneuver and creates circumstances that will be a disservice to the national inthat enable international destabilization terests of both countries, as well as to the and lawlessness. For such actors, the lack general interests of global security. Relaof mutual trust between Moscow and tions must be improved because of straWashington continues to create opportu- tegic interests, not because of Obama’s nities for fomenting their mutual suspi- and Medvedev’s personal wishes. cion and dislike, parasitizing on their disagreements and duplicitously changing allegiance when the time is right.
Challenges and Opportunities This is far from a simple task, though. The prevailing opinion in Moscow is that difficulties in bilateral relations have stemmed from the policy mistakes of the U.S. Administration: its dissatisfaction with growing Russian influence around the world; its attempts to hinder this influence; the creation of a network of unfriendly governments around Russia; disregard for Russian interests, etc. In reality, though, the main reason for difficulties in bilateral relations is their extreme asymmetry. The U.S. carries a much greater importance for Russia than vice versa, both politically and economically. For example, the 2001 U.S. recession almost halved the rate of economic growth in Russia and the present crisis (which began in the United States) has brought the quasi-modern Russian economy to its knees. On the other hand, not a single Russian economic crisis, including the default of 1998, has ever had a palpable effect on the American economy. Today, this asymmetry keeps expanding. American and Russian elites have formed a negative overall consensus in relation to one another. Although objectively the two nations are not such bitter enemies that they should put up defenses against one another, they have not yet managed to become close enough allies to commit to improving their bilateral relations at the expense of other issues. Neither the United States nor Russia blames itself exclusively for deteriorating relations. Washington’s list of grievances to Russia is no shorter than Moscow’s list to Washington. Many consider the policies
of Bush and Putin toward each other, with all their mistakes and miscalculations, to have been generally motivated by rational thinking and that, considering Russia’s position in the world and the interests of the United States, it is difficult to envision more effective policies. Yet Barack Obama is a wholly different kind of politician from George W. Bush. Dmitry Medvedev is likewise no carbon copy of Putin. They are more likely to be on the same wavelength when discussing the real challenges of the modern world. However, the improvement of relations with Russia is not in high demand in Washington. There are no powerful groups exerting their influence on the White House vis-à-vis this issue. Russia, in turn, lacks groups interested in improving relations with the United States. This situation is largely a result of an intentional Russian domestic
policy, which for Washington reinforces the apparent futility of channeling energy into this cause. The lack of lobbying efforts on both sides is significant because these efforts play a large role in steering administrations’ priorities. If there is no serious demand for improved bilateral relations, the administrations cannot be expected to provide this improvement.
The two nations still have converging interests in Afghanistan. A very serious discussion about Iran’s nuclear program lies ahead, as well as a renegotiation of the START treaty, which must be completed by the end of this year. Amid the current global crisis, there is significant potential for U.S.-Russia cooperation; whether their leaders will be able to overcome various underlying challenges and Of course, there are certain issues on truly reset their bilateral relations will which the United States and Russia can- become clear in the coming months. If not afford to be uncooperative, from they are unable to do so, both nations will nuclear arms control and technology to have significantly undermined their interinternational security and confronting national opportunities and influence, and terrorism; from the environment and will have created unnecessary problems space to humanitarian projects and Iraq. and hindrances to their domestic growth. Presumably, under the new administra- n tion, cooperation on these issues will become closer, especially in the nuclear The opinions in this article are those of the area. Obama asserted as much in his in- author and do not necessarily reflect those of the augural speech. USRBC.
outlook
• U.S.-Russia Relations: Reset, Overload or More of the Same? (continued)
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.
Russia Business Watch Spring 2009
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.
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activities
activities Council Calendar
April 24
UPCOMING EVENTS September 25: The
Council holds its 17th Annual Members and Directors meeting at the Marriott Marquis in New York City.
May 9
Anatoly Chubais, Chief Executive Officer of Rusnano (Russian Corporation of Nanotechnologies), leads a nanotechnology delegation to the United States and meets with Council members as part of his visit.
Anatoly Chubais
May 7
The Council, in partnership with the World Affairs Council of Northern California and the San Francisco Global Trade Council, hosts a breakfast meeting with Anatoly Chubais, Chief Executive Officer of Rusnano, on “Russia’s Path to Diversification in the Midst of the Economic Crisis.”
Russia Business Watch Spring 2009
April 27
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The Council, in partnership with RusRating and the Association of Regional Banks of Russia, holds an afternoon seminar on “The Economic Crisis and the Financial Sector: Identifying Collaborative Paths Forward in the U.S. and Russia” on Capitol Hill with participation from the U.S. and Russian governments.
USRBC Financial Seminar April 27, 2009, Washington, DC
The USRBC, the Peterson Institute and the Center for Strategic and International Studies co-host a luncheon with Deputy Prime Minister and Minister of Finance Alexei Kudrin, where the three organizations unveil the new Russia Balance Sheet publication.
April 17
The Council holds its monthly members-only meeting with Michael McFaul, Senior Director for Russia and Eurasia at the National Security Council and Special Assistant to President Obama.
April 14:
The USRBC holds a debriefing on the Moscow meeting of the U.S.-Russia Intellectual Property Rights (IPR) Bilateral Working Group with Assistant U.S. Trade Representative for Europe and the Middle East Christopher Wilson and Deputy Assistant USTR for Intellectual Property Kira Alverez. Christopher Wilson
April 7-8
The USRBC holds its Spring Board of Directors meeting in Atlanta, GA.
February 26:
April 3
The Council holds a one-day conference on the development of Russia’s legal system, “Russia: From Legal Nihilism to Rule of Law” at the Constitution Center in Philadelphia, PA.
The Council hosts a breakfast meeting for members with Anton Ivanov, Chief Justice of the Supreme Arbitrazh Court of the Russian Federation.
April 2
The USRBC holds its monthly members-only meeting with U.S. State Department officials.
new members activities
• Council Calendar (continued)
USRBC Legal Conference
Chief Justice Anton Ivanov
February 8-9:
April 2
Council President Ed Verona addresses a meeting of the Hartford World Affairs Council in Connecticut.
March 27
USRBC President Ed Verona speaks on “Innovative approaches to trade and investment issues” at the Carnegie Endowment’s conference, “Designing U.S. Policy Toward Russia.”
Council President Ed Verona and Executive Vice President Randi Levinas join Federation Council Senator Mikhail Margelov in Alaska to discuss U.S.-Russia economic cooperation on a tour of Prudhoe Bay. USRBC Road Show - Alaska
March 26: USRBC President Ed Verona gives an address at a Foreign Service Institute conference on Russia. March 20
Alexander Lebedev
The Council hosts a briefing with Alexander Lebedev, Chairman of National Reserve Corporation, on Russia’s economic policies during the crisis.
February 5
USRBC President Ed Verona hosts a dinner for members with Alexander Torshin, First Deputy Chairman of the Federation Council of the Russian Federation.
The Council holds its monthly members-only meeting with U.S. State Department officials. Alexander Torshin
March 11
USRBC Executive Vice President Randi Levinas speaks on “U.S.-Russia Bilateral Commerce in Life Sciences and Pharmaceuticals” at a Life Sciences and Healthcare Workshop in Moscow sponsored by DHL.
February 4
The Council holds its monthly membersonly meeting with U.S. State Department officials. n
Russia Business Watch Spring 2009
March 16
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USRBC Road Shows 2009 February 7-10
Anchorage and Prudhoe Bay, AK
2007
2008
July 16 — 20
April 21 — 25
Hartford, CT Cincinnati, OH Detroit, MI Minneapolis, MN San Francisco, CA
Atlanta, GA Memphis, TN Jackson, MS Houston, TX Seattle, WA
2009
(l.-r.) Senator Margelov, Bill Brackin of Exxon Mobil Alaska, and Ed Verona at the Exxon Mobil Open Dogsled Competition.
Ed Verona with sponsors of the Anchorage World Affairs Council luncheon: (l.-r.) BP’s Phil Cochrane, Exxon Mobil’s Bill Brackin and BP’s Tom Wilk.
(l.-r.) Senator Margelov; BP’s Mike Utsler, Vladimir Averchev, and Richard Spies; Ed Verona; and Alexander Ivaschenko, Russian Embassy, Washington.
USRBC’s Ed Verona and Randi Levinas in Anchorage with (l.-r.) Patricia Eckert, Alaska Governor’s Office; Dr. John Tichotsky, Advisor to the Governor of Chukotka; and Jim Gamble, Aleut International Association.
2008
Jorge Fernandez of the Metro Atlanta Chamber of Commerce (l.) and Tom Mattia of Coca-Cola (c.) with the delegation at a business luncheon in Atlanta.
Mississippi Lieutenant Governor Phil Bryant (c.) receive Senator Margelov (l.) and Gene Lawson (r.) at the State Capitol in Jackson.
The delegation with senior officials of International Paper (IP) at their headquarters in Memphis. IP officials (l.-r. around Senator Margelov) are Mary Mann, C. Cato Ealy, Tim Nicholls, Thomas Kadien and Maura Abeln Smith.
USRBC’s Gene Lawson (r.) and Randi Levinas (l.) chat with Sigmund Cornelius of ConocoPhillips at the Houston World Affairs Council luncheon.
Microsoft’s Pamela Passman leads a meeting with the delegation at the company’s headquarters in Redmond, Washington.
2007
Connecticut Lieutenant Governor Mike Fedele (c.) with Senator Margelov (l.) and Gene Lawson (r.) in Hartford.
(l.-r.) Randi Levinas and Gene Lawson, P&G’s Carolyn Brehm, Senator Margelov, P&G’s Victor Kramarenko, and USRBC’s Svetlana Minjack at P&G headquarters in Cincinnati.
Gene Lawson and Senator Margelov with 3M’s Inge Thulin (l.) and Tony Stokes (r.) at 3M’s headquarters in Minneapolis.
Senator Margelov and Gene Lawson in San Francisco with (l.-r.) Chevron’s Jay Pryor, World Affairs Council of Northern California staff, Chevron’s Jan Kalicki and RF Consul General Vladimir Vinokurov.
Ford Motor Company’s Steve Biegun and Simonetta Verdi host the delegation in Detroit.
new members activities
Legal Conference “Russia: From Legal Nihilism to Rule of Law” February 26, 2009 • Philadelphia, PA The legal conference was an off-the-record event and comments by participants were not for attribution.
Panel Discussion Litigation and the Courts in Russia Moderator: • Sandy Saunders, Shareholder, Greenberg Traurig, LLP Speakers: • Mark D’Anastasio, President, Emerging Markets Communications, LLC • Alexander Komarov, Chairman, International Arbitration Court, Russian Chamber of Commerce and Industry • Bruce S. Marks, Managing Director, Marks & Sokolov, LLC The first panel of the seminar focused on the state of commercial litigation and dispute resolution in Russia and the development of Russia’s court system. The panelists viewed the journey from legal nihilism to the rule of law in Russia as one of the longest journeys any society will ever have to make. They placed emphasis on how a sound judicial system is the bedrock upon which a productive economy can be built.
Another speaker noted that legal reform is continuing as the courts continuously improve on their ability to protect property rights and free enterprise, while political reform is trending in the opposite direction. The process of legal reform, if only keeping on the pressure for change, could eventually become the driver of political reform in Russia. The panelists stressed that commercial arbitration is the only alternative of commercial dispute settlement in Russia when disputes arise between foreign and Russian companies. The rule of arbitration as a means of business dispute settlement has always been an important aspect of the legal environment of foreign trade activities in the former Soviet Union, and now in Russia.
Russia Business Watch Spring 2009
One speaker described the desire to rebuild the nation’s economy and restore
Russia to great-power status since the fall of communism as a driving force behind legal reform. There is an inner will in Russia to maintain a steady evolutionary course toward a normal legal system for supporting commercial dispute resolution. As a result of growing business activity over the years, dispute mechanisms in Russia have matured tremendously.
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(l.-r.) Sandy Saunders, Mark D'Anastasio, Ed Verona, Alexander Komarov and Bruce Marks
The development and practice of arbitration in Russia has to play an important role in creating favorable legal conditions for international economic cooperation. The panelists also noted that the introduction of a market economy in Russia has led to the extensive development of arbitration and domestic commercial dealings, as there are now several hundred arbitration courts all over Russia. The panelists dedicated a significant portion of their remarks to the issue of corruption in the Russian court system, noting that it seems to be a widespread problem. In particular, cases that involve large commercial disputes are vulnerable to corrupt proceedings as they are subject to political pressure applied at the behest of one or both of the parties. Overall, the panelists agreed that tremendous progress has taken place in Russia’s judicial system. However, the panel concluded that those who do business in Russia or those who advise clients who do business in Russia need to be careful about litigating there and take protection so that they are litigating in a forum that is fair and unbiased. n
Panel Discussion Legal Issues and the Economic Crisis Moderator: • Judge Michael Deasy, United States Bankruptcy Court, District of New Hampshire
new members activities
• URBC Legal Conference “Russia: From Legal Nihilism to Rule of Law” (continued)
Speakers: • Laura Brank, Partner, Chadbourne & Parke • Tim Stubbs, Partner, Salans A pair of legal experts presented information about upcoming changes to Russian corporate law resulting from the economic crisis and their implications for businesses in the country. One panelist spoke primarily about securities and changes to the strategic sectors law, and the other discussed the changes to bankruptcy law and procedures. The first speaker began by addressing the Russian government’s reaction to the economic crisis. They remarked that the government has identified roughly 300 entities that could receive government support; most of which are the sole source of employment or income for entire municipalities. These entities are not guaranteed financial aid, however, and must apply for it. The panelist also recognized that the government has lowered the profit tax rate and quotas on attracting foreign labor to ease the burden of the crisis on businesses and retain native employees.
with direct valuation of assets. The panelist also noted that mandatory tender rules have been waived until January 2010 for non-LLCs. The panelist concluded their remarks by stating that the strategic sectors law is “improving” by allowing some foreign companies to rise above the “cap” levels of ownership, but that procedures whereby one can do so must be simplified. In extensive detail, the second panelist presented information on the bankruptcy laws in Russia and upcoming amendments to these laws. They advised creditors to avoid starting bankruptcy procedures in Russia unless they have lost all faith in the borrower, reasoning that the crystallization of all credits into unstable rubles and the advantage of torte claims over secure creditors’ claims in most cases makes such actions undesirable in comparison to arbitration. Next, they described “major improvements” to Russia’s bankruptcy laws, including the recognition of third party security creditors as bankruptcy creditors of
third party security givers, which avoids the complications of using so-called “Cypriot” structures. The panelist concluded by admitting that Russia is a lender-hostile environment and advised that creditors and borrowers should “work out” disputes rather than pursue bankruptcies, despite the improvements to the bankruptcy laws. Two questions arose from the audience. The first question addressed the implications of the strategic sectors law for Russian investors selling or pledging stocks where transfers would exceed their foreign partners’ limits on ownership. The panelists responded by saying that Russian investors are indeed adversely affected in this regard and must get approvals for such actions. The second question focused on the difficulty of foreclosing on residential real estate in Russia. Panelists admitted that such actions are still difficult in Russia, as laws applying to entrepreneurs do not apply to residents. n
Russia Business Watch Spring 2009
The first panelist continued by discussing the proposed amendments to the Russian Civil code and securities laws. First, these upcoming changes allow for creditors and borrowers to settle defaults outside of court before such events occur. Whereas certain pledged assets in Russia must currently be appraised and assigned set values, upcoming changes to the law allow “outside parties” to value the pledged property. This amendment helps avoid abuses regularly occurring
(l.-r.) Judge Michael Deasy, Laura Brank and Tim Stubbs
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new members activities
• URBC Legal Conference “Russia: From Legal Nihilism to Rule of Law” (continued)
Panel Discussion Taking Your Brand to Russia: IPR Explored Moderator: • Peter B. Maggs, Clifford M. & Bette A. Carney Chair in Law, College of Law of the University of Illinois at Urbana-Champaign Speakers: • Andrey Makarov, Senior Specialist, Trade Representation of the Russian Federation in the USA, New York Office • Eric Schwartz, Counsel, International Intellectual Property Alliance • Tom Thomson, Executive Director, The Coalition for Intellectual Property Rights
Russia Business Watch Spring 2009
An expert panel assembled to discuss the improvements, shortcomings and future development of Russia’s laws protecting intellectual property rights (IPR). Key points covered by the panelists included the latest developments in Russian IPR law, U.S.-Russia cooperation in protecting IPR and Russia’s enforcement of IPR norms.
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The panelists began by recognizing the recent improvements to Russia’s IPR laws. Over the past two years, the State Duma has enacted changes and amendments to the Civil Code intended to strengthen the enforcement and legal protection of IPR. Most notably, the government has implemented a program of software legalization in all school districts that is intended to reduce piracy. Other improvements include tougher jail penalties for IPR violations and the removal of language that once gave domain names preference over trademarks. One panelist remarked that pending changes to the Civil Code may draw Russia into compliance with the TRIPS agreement that is vital to its accession to the WTO. Participants also identified several areas in which IPR could be strengthened, particularly in enforcement. One panelist brought up the need for criminal enforcement of IPR violations in the music industry, which would eradicate piracy syndicates by imposing jail sentences on high-level violators of IPR. Another
(l.-r.) Andrey Makarov, Professor Peter Maggs, Eric Schwartz and Tom Thomson
panelist highlighted deficiencies in the registration process, which they claimed could be solved by opposition procedures, and the lack of data protection for pharmaceuticals. In light of the relatively weak enforcement of IPR, experts urged rights holders entering the Russian market to closely audit their IP holdings so as to develop a plan to protect them. All panelists emphasized the need for U.S.-Russia cooperation in IPR protection. Participation in international organizations, such as the G-8 and the World Intellectual Property Organization, improves Russia’s IPR regime, although bilateral negotiation is equally important. The November 2006 U.S.-Russia Bilateral agreement was singled out for its unprecedented detail. Through this agreement, the U.S. Trade Representative recommends 13 out of the 14 changes to the Civil Code being considered by the Sate Duma. Since this is a bilateral agreement independent of WTO considerations, it is essential for the improvement of U.S.-Russia relations. n
Panel Discussion Shareholder Rights Moderator: • Jamison Firestone, Managing Director, Firestone Duncan, Ltd.
new members activities
• URBC Legal Conference “Russia: From Legal Nihilism to Rule of Law” (continued)
Speakers: • Alexey Navalny, Coordinator, Association of Minority Shareholders • Oleg Shvyrkov, Associate Director, Governance Services, Standard & Poor’s To discuss the realities of shareholder rights in Russia, the Council assembled a panel of legal, political and financial experts. Key points included changes in the legal framework protecting shareholders’ rights; minority shareholders in government-controlled companies; transparency and obstacles to its improvement; defending minority shareholders’ rights in the current legal climate; and the effect on the legal climate of the Russian government’s behavior during the nationalization period.
The panel highlighted several significant impediments to shareholder rights, from the ability of minority shareholders to access rudimentary financial information about their company to the general climate of illegality pervading the legal
system. Panelists portrayed minority and majority shareholders as having vastly different rights, exemplified by the legislation’s high minimum ownership requirements for disclosing financial information, which exclude minority shareholders from decisions-making. The decisions of executives were criticized as often being political, since government influence is many times oriented toward national, rather than economic, interests. The reality of law enforcement and the way legal proceedings are conducted were appraised by the panelists as, at best, having potential for transgression by all involved parties and, at worst, as not according with the most basic idea of a legal system. In the former appraisal, the main distortions to the legal system are the undue influence of majority shareholders and the interference of government with regulatory institutions through ownership channels. In the latter view, the legal system is entirely inadequate for protecting the rights of all investors. Nationalization set a
precedent that effectively destroyed the legal profession: legal knowledge, expertise and all other legal attributes became irrelevant under pressure from the government to produce indictments. Now, legal disputes are often determined by pressure on the lawyers and the judiciary by the counterparties. Moreover, parties in positions of power may at any point attempt to illegally profit from practically any successful enterprise, with complete impunity. The panelists considered it unlikely that this system can improve from within, owing to its convenience as a government tool. However, they all recognized the promise offered by Russia’s continuing need for foreign investment, urging investors and the U.S. Government to take part in rectifying the situation. While it was pointed out that foreign investors should not tell the Russian Government how to structure its legal framework, they could “vote with their money”, by divesting from Russian businesses. n
Russia Business Watch Spring 2009
A common theme running through all panelists’ presentations was the disconnect between the laws “on paper” and their enforcement. The participants offered different explanations for this disconnect, as well as its extent. Only one view held that significant strides in transparency (such as more widespread adherence to international reporting standards) have been made in recent years, yet pointed out that the driving factor behind this progress was not the Russian legislative infrastructure or regulatory environment, but the necessity of satisfying the minimal transparency requirements for securing international capital. As such, the incentive for transparency is almost entirely divorced from the Russian legal system.
(l.-r.) Jamison Firestone, Alexey Navalny and Oleg Shvyrkov
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new members activities
• URBC Legal Conference “Russia: From Legal Nihilism to Rule of Law” (continued)
Panel Discussion: Anti-Corruption Legislation and Risk Management Moderator: • Richard Dean, Partner, Baker & McKenzie Speakers: • Ed Coppola, Senior Vice President and Chief Underwriting Officer, Zurich-American Insurance Company • Chris Crowl, Partner, TD International • Jeremy B. Zucker, Partner, Hogan & Hartson A group of corporate risk management specialists and legal experts discussed the effects of corruption in Russia on U.S. businesses operating in the country. The discussion focused on the consequences of noncompliance with the Foreign Corrupt Practices Act (FCPA) in Russia and how U.S. companies might mitigate this threat. An expert on corporate risk management spoke on the potential threats to foreign investments in Russia. According to the speaker, the greatest concern for risk managers in Russia is the rapid acceleration and scope of change in unpredictability of finances. Resource nationalization, accomplished by gradual state takeovers referred to as “creeping
(l.-r.) Richard Dean, Ed Coppola, Chris Crowl and Jeremy Zucker expropriation,” is becoming a greater threat in Russia due to the financial crisis. On a positive note, the speaker indicated that the state is actively taking steps to ensure its sovereign payment obligations.
strong internal enforcement of zerotolerance policies and high pre-transaction due diligence in questioning/documenting Russian counterparts’ possible FCPA violations.
Legal experts next spoke on the nonRussian enforcement agencies’ perspectives of U.S. business in Russia. These agencies are highly suspicious of Russian business partners and are diverting more attention to industries where corruption is known to exist. The agencies are holding individual U.S. citizens accountable for the actions of their Russian counterparts with skyrocketing fines and heavy jail sentences. To limit U.S. companies’ exposure, the speakers suggested
The panel concluded with remarks on how to prevent corruption in Russia from affecting U.S. businesses. According to one risk management expert, businesses must take a multi-faceted approach that involves enhanced internal auditing, strong accounting functions, and high quality legal counsel. Overall, the panelists suggested that companies take unwavering stances against corruption and emphasize that they are committed not to do “business as usual” in Russia. n
Keynote Addresses
Russia Business Watch Spring 2009
The legal conference also featured off-the-record keynote addresses by Peter B. Maggs, Clifford M. & Bette A. Carney Chair in Law, College of Law of the University of Illinois at Urbana-Champaig; The Honorable James W. Symington, Partner, AmericanRussian Cultural Cooperation Foundation; and Paul Wolfowitz, Visiting Scholar, American Enterprise Institute. n
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Dr. Peter B. Maggs
The Honorable James W. Symington
Mr. Paul Wolfowitz
March 20, 2009 • Washington, DC is very low, they will not be buying the homes being built. Mr. Lebedev spoke at length on the Russian state’s role in the economy beyond investment in construction. He remarked that, since the government is a large proprietor in many industries, it has the temptation to regulate and therefore open up opportunities for bureaucrats to extract rents from the system. State business is a big competitor for most enterprises in this regard, according to Mr. Lebedev. However, he also stated that the Russian government does not have the money or the will to regulate common state matters such as ecology or even traffic.
On March 20, 2009, the USRBC hosted a luncheon with Alexander Lebedev, Chairman of National Reserve Corporation and part owner of Russian newspaper Novaya Gazeta and the British Evening Standard as well as a major shareholder of Russian airline Aeroflot. Mr. Lebedev spoke primarily on the Russian state business sector, political development in Russia and the political effects of the current financial crisis in the country.
Mr. Lebedev took several questions from the audience. The first question asked Mr. Lebedev to describe his experience dealing with the Russian government as a minority investor and a majority shareholder. In reply, Mr. Lebedev described his difficulties with the state, as evidenced by the government’s recent removal of Aeroflot CEO Valery Okulov without any consultations with Mr. Lebedev. However, Mr. Lebedev also emphasized
Another audience member questioned whether the decline of the Russian economy will shift the government toward greater authoritarianism or weaken its resistance to public cries for political openness. Mr. Lebedev replied that the next generation of Russian leaders is moving toward liberalism, especially as they realize that their country’s economic indicators and their leaders’ popularity ratings are inflated by state-run media. Free, open and fair media coverage of political leaders is essential to fostering broader and more intense political participation in Russia, according to Mr. Lebedev. When asked what the United States can do to energize reform in Russia, Mr. Lebedev emphasized the importance of building personal and professional relationships between Americans and Russians. When questioned about the emerging Russian airline Rosavia, Mr. Lebedev admitted that he did not believe that the company would be a good idea. He stated that Aeroflot was already doing well enough, but that the new airliner will probably come into being due to support from the Prime Minister. Mr. Lebedev took a final question about how he viewed the Yeltsin era. He admitted that the level of political competition was much larger during the 1990s and praised Yeltsin as a “real democrat”. Mr. Lebedev closed by questioning the “orderly society” supposedly embodied in modern Russia and contrasted it with the pervasive bribery and corruption in its economy, government and society. n
Russia Business Watch Spring 2009
According to Mr. Lebedev, Russia was not as deeply affected by the crisis as the West or Eastern Europe due to the fact that its economy is based largely on raw material extraction. Only a small fraction of Russians — the stockholders — were heavily hit by the rapid decline of the market. To stimulate the rest of the economy, the government has invested $2.7 billion into construction projects such as prefabricated homes, aircraft production and farming. However, Mr. Lebedev noted that, since the purchasing power of the vast majority of Russians
On the international political scene, Mr. Lebedev highlighted the favorable atmosphere of understanding emerging between the U.S. and Russian presidents. He described the Jackson-Vanik amendment as “having nothing to do with reality” and expressed confidence in Russia’s accession to the WTO. However, he also noted that some Russian citizens may not support WTO accession, as it entails removing protectionist measures. Finally, Mr. Lebedev praised the support of prominent British citizens for helping to foster Russia’s nascent civil society, particularly through the New Yalta Initiative.
that the problem with government regulation is not its instruments, but the absence or abrogation of universal rules followed by regulators. He advocated using the G20 meetings to create a new standard system for regulation.
new members activities
Luncheon with Alexander E. Lebedev Chairman, National Reserve Corporation
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new members activities
Briefing with Anton Ivanov Chief Justice of RF Supreme Arbitration Court April 3, 2009 • Washington, DC Far from advocating an overhaul of the system to guarantee judicial independence, he proposed raising judges’ and attorneys’ pay and allowing the judiciary a greater say in appointing the chairperson of the courts. Citing his previous experiences, Mr. Ivanov said that such changes would improve judicial ethics. However, he also stated that true improvements to the system will occur over time.
Russia Business Watch Spring 2009
On April 3, 2009, the Honorable Anton A. Ivanov spoke to USRBC members about the rule of law and the protection of investor/intellectual property rights (IPR). His presentation highlighted the developing independence of Russian courts, ethics in the Russian judicial system and his views on reforms needed to better protect property rights in Russian courts. While at the same time illustrating his points with specific examples, Mr. Ivanov expressed hope that enough systemic reform will occur to obviate such exceptional examples.
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Mr. Ivanov began by providing a historical background on the Russian experiences with private property and independent courts. His narrative explained that private property laws have not taken root in the Russian mindset because they are a relatively new phenomenon in Russia and have been abrogated and reformed many times by the state. Independent courts in Russia have a similar history with similar results.
To protect IPR and investor rights in Russia, Mr. Ivanov pointed out two necessary factors: uniform application of the law and adherence to a strict judicial procedure. He touted case law and the rule of precedent as the best way to uniformly apply the law, as judges attend to the merits of the case rather than those of the litigants. Furthermore, Mr. Ivanov lamented the lack of attention to international precedents by Russia’s lower courts, compared to the Supreme Arbitration Court’s application of international law. He stated that Russian courts could instill investors with confidence in the predictability of the law by taking international judicial opinions into account and standardizing Russian court procedure. Mr. Ivanov closed by stating that the Russian judicial climate is improving, especially when viewing the successes of cases against the government.
Question & Answer Session The first question asked for Mr. Ivanov’s input on court cases against the Russian government being tried outside of Russia. Citing a recent conference, Mr. Ivanov indicated that Russian judges are not pleased with arbitration trials involving Russian legal entities in foreign jurisdictions. To increase international arbitration trials within Russia, Mr. Ivanov emphasized that lower courts must adhere to and enforce internationally-recognized decisions when dealing with foreigners.
As seen by Mr. Ivanov, Russian courts are as independent as their European and U.S. counterparts, if not more so, on the formal level. This is largely due to judges’ control of the country’s judicial vetting procedures and the weakness of the state in overturning their rulings. However, Mr. Ivanov stressed that such formal principles must be actively implemented Another audience member asked whether to return power to the judicial branch. there is any precedent for the Supreme
Arbitration Court to take a trademark violation case on appeal, when that case has been won in the three lower tiers of courts. While not delving into specific cases, Mr. Ivanov responded that the Supreme Arbitration Court follows procedure strictly, and the three lower opinions stand if they all issue the same ruling. The third question posed to Mr. Ivanov focused on parallel imports and whether Russia is considering expanding the exhaustion of IPR claims. Mr. Ivanov responded by saying that, from a technical standpoint, imported goods on which manufacturers have trademarks should be seized in the case of parallel imports. However, he declined to answer the question from a civil law perspective, as the answer has yet to be found in the Russian legal system and the changes to the Civil Code are ongoing. The next audience member questioned automaker’s IPR protection in regard to parallel imports, remarking that Russia should address the problem to move toward an innovative economy. Mr. Ivanov responded with his general opinion that a balance of interests needs to be reached between the manufacturers and the government to settle the issue of parallel imports. He proposed a European solution, whereby parallel imports are unacceptable under competitive circumstances when manufacturers do not hold a monopoly over dealerships. The final question addressed the issue of transfer prices, and whether there were any plans to improve regulation on this practice in Russia. Regarding the issue as a question of taxes, Mr. Ivanov replied that tax agents cannot often prove the existence of transfer prices and interdependence of company heads. However, he did remark that the problem is serious, and that President Medvedev’s decree on the Civil Code of six months ago is addressing this problem. n
u.s. government
u.s. government USRBC Russia Policy Recommendations to the Obama Administration The Council in February submitted its recommendations to the Obama Administration regarding U.S. policy toward Russia. In an effort to create a more productive and lasting partnership between the two countries, the USRBC’s recommendations focus on the development of the commercial relationship as a foundation for moving forward on the geopolitical agenda.
The commercial agenda offers a solid foundation for moving forward in this cooperative fashion: U.S. companies have been operating successfully in Russia for almost two decades, and are market leaders in many sectors. While bilateral trade is relatively small (growing
For this reason, the bilateral economic relationship — with all of its associated opportunities and challenges — deserves the highest-level attention in U.S. policy toward Russia. The U.S.-Russia Business Council offers the following recommendations: •
The establishment of a bilateral commission to facilitate regular exchanges on commercial issues. Such an interagency commission, led at the highest levels of the U.S. and Russian governments, should have a strong private sector component.
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The revival of a commercial energy dialogue to promote shared objectives in energy security and efficiency.
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The Obama Administration’s support for the repeal of the Jackson-Vanik amendment for Russia. This would recognize actions taken by Russia more than a decade ago and would be a notable symbolic gesture of goodwill. At the same time, the Obama Administration must make it clear that a good faith effort to repeal Jackson-Vanik for Russia will not compromise bilateral and multilateral objectives in negotiating Russia’s accession to the World Trade Organization on commercially meaningful terms.
•
A focus on matters that advance the interests of both countries: support for economic diversification, rule of law and even-handedness in regulation should guide the discussions.
To read the entire report, go to the USRBC website at: www.usrbc.org/pics/File/government/USG/USRBC Transition Paper_ FINAL.pdf
Russia Business Watch Spring 2009
Closer and more fruitful bilateral trade and investment ties can serve as a stabilizing influence on the political relationship and lead to a more constructive partnership. It is clear that Russia “matters,” from issues such as strengthening the nonproliferation regime to supporting NATO’s critical mission in Afghanistan. The political relationship will continue to be fraught with complex issues that require significant attention to achieve meaningful advances. The United States must construct a new partnership with Russia, and the bilateral economic relationship must be a key component.
from $19 billion in 2005 to over $35 billion in 2008), U.S. and Russian companies are eager for deeper contacts. Russia’s market potential has captured the interest of U.S. CEOs from a range of industries and services, and Russia has emerged as a key market, if not the leading one, in their corporate strategies. At the same time, until the advent of the global economic downturn, Russian companies had begun to invest significantly in the United States, creating and saving many high-paying U.S. jobs.
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sector update
sector update Are Foreign Independent Directors Needed in Russia? By Michael A. Tappan Michael A. Tappan is President & CEO of RSR Russia LLC.
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Russia Business Watch Spring 2009
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Even foreign directors possessing excellent credentials have failed in their duties because many have not ade- quately understood the specific require- ments of being directors in closely held companies, which account for the overwhelming majority of Russian com panies inviting foreign directors on their boards.
ment experts who have specialized in taking over failing companies and successfully turning them around. Experts in functional areas such as marketing and finance, with a background of 40 years in highly reputed companies, can bring valuable advice and guidance to Russian companies building their domestic market and looking at the possibility of expanding internationally. These companies will These points seem valid, and yet they are need experienced directors who did not The global economic crisis has revealed that Western directors do not only part of the story. There are good rea- sit by silently while the company headed sons to believe that the current trend away down the primrose path to ruin, but offer the “management magic” they from foreign directors will be reversed. those who spoke up and helped guide the had previously claimed. This reversal will be gradual and will only company away from policies and practices happen when the Russian economy and leading to its self-destruction. It must be Russian directors are clearly better suited than foreigners to the main task Russian companies have stabilized to the added that if there are foreign directors on point where corporate governance issues Russian boards who so badly misread the today of seeking emergency funding can again be seriously confronted. Russian environment as to ignore the realand tax relief from the Russian ity of a company’s ownership structure, government. The Need for Foreign Independent then those directors never should have been there in the first place. The urgent need to restructure existing Directors foreign debt requires financial technicians, not foreign directors. Economic revival will re-establish the Since most Russian companies are curneed for advice and guidance from for- rently preoccupied with more urgent The main reason for having foreign eign business executives with 40+ years issues than corporate governance and directors on the board was to impress of business experience and accomplish- board improvement, a perhaps more foreign investors before an IPO, but ment, a breed of elder business statesman practical approach now would be to gain the raising of equity capital abroad is that does not yet exist in Russia. Russian the benefits of senior advisors through today only a dim and distant hope. companies should seek as board mem- the establishment of international advibers retired senior executives with real sory boards. This can be done relatively Too many foreign directors have per success stories behind them, who built quickly and without the legal implications formed merely as “wedding generals” companies that are surviving the crisis and and delays associated with adding new or “window dressing” and have not that will resume their growth when better members to the main board. Advisory added much value by their actions or days return. They should seek manage- board members can be brought onto the main board later, for example when advice.
A leader in the Russian corporate governance movement in Moscow recently told us that there is little demand today for foreign independent directors (FID’s) on Russian boards. He sits on the boards of several major Russian companies and remarked that this opinion, “…did not fall on me out of the blue.” What he said was this:
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financing in foreign capital markets once again comes under consideration. Access to sources of foreign capital will eventually be restored. Tax breaks and debt rescheduling are clearly only temporary and partial solutions. A company must prepare for the time when it can raise equity and debt. Carefully selected FID’s will still perform the function of providing comfort to prospective foreign investors, but they will do a much better job of it than the Potemkin village directors of the past, because they will be perceived as serious and as having positive and constructive influence on the governance and strategic management of the company. Improved U.S.-Russia relations would create a more positive background, as would a resumption of judicial and economic reforms in Russia.
Obstacles to Optimum Use of FID’s It is clear from the comments cited above that Russian companies have often not taken full advantage of FID’s on their boards, and FID’s have often not taken the initiative to make an adequate contribution to board deliberations. Most Russian majority shareholders did not seek from foreign directors much contribution to the strategy and management of the business, and many of these directors, except perhaps those nominated by private equity investors, were not really committed to do so. This is not a specific Russian story but has been rather typical for other emerging markets as well. As the bankruptcies or near-bankruptcies in the United States and the UK have revealed, even in advanced markets the performance of directors has often left much to be desired. Flawed recruitment practices can start the process off wrong from the beginning. If an owner or chairman of a company seeks
Differences in culture, experience and expectations between the major shareholders, Russian board members and management on the one hand and the FID’s on the other can prevent or at least impede the optimum use of FID’s. Owners and existing board members often resist or ignore the changes that FID-recommended new ideas and altered strategies inevitably bring. There is little doubt that the principal shareholder or the chairman will be able to successfully resist change if he wants, but any worthy FID would immediately zero in on deficient corporate governance practices. On the other hand, failure by FID’s to make the effort to understand the Russian business environment as well as the ownership and management hierarchy of the company will certainly result in misunderstanding and miscues. Open communication between management and the board is essential.
Overcoming the Obstacles The Russian company and its board, including the FID’s, can overcome these obstacles through careful planning and analysis and the will to make the necessary changes. The board can start with a careful definition of its policies on board structure, including the role and leadership of board committees. It should look at the balance between shareholders, executives and independent directors, while precisely defining the “independent” director. The board should consider the introduction of any needed new policies for its decisionmaking process. To be able to attract FID’s and make best use of them, the number of regular board meetings should probably be limited, if possible, to no more than about six per year. The board should perform a board “gap” analysis to determine how closely its cur-
Russia Business Watch Spring 2009
The crisis has made it clear that the days of corporate governance as a veneer are over. We must now address real issues of money, power and relationships. If we are fortunate, we will find that good governance can co-exist with such realities and serve the interests of all shareholders. Corporate governance reform in Russia will lead to improved board composition, including the presence of FID’s. If corporate governance standards had been taken seriously enough by dominant shareholders 5 to 10 years ago, then
perhaps more care would have been taken in the recruitment of foreign directors, in their proportion on the board, in their education in the company’s environment and business, and in their use in the serious business of the company, including roles as board committee chairmen.
only to put a foreign name or two on the board to mollify foreign investors or if recruitment haste prevents a thorough investigation of director possibilities, the choice of candidates is inevitably limited and the likely outcome is the recruitment of an ineffective director.
sector update update
• Are Foreign Independent Directors Needed in Russia? (continued)
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sector update
• Are Foreign Independent Directors Needed in Russia? (continued) rent composition meets both present and future needs. This analysis must start with an articulation of the company strategy and direction and their impact on future board composition requirements. An analysis of the experience and knowledge of the current directors should be undertaken to determine what gaps there may be vs. future needs. For example, under current conditions some of the relevant factors could be specialization in company turnarounds, particular functional or geographical expertise, Russian language or business experience, and, eventually, contacts in foreign capital markets.
Serious consideration should be given to increasing the proportion of independent directors on the board. Some observers say this should be 40 percent or more in order to achieve the necessary critical mass for effective FID participation. Furthermore, management should be given the mandate to take on-going responsibility for educating the FID’s about the Russian business environment and the intricacies of the particular company’s business. The regular practice of providing written board reports in the appropriate foreign language well in advance of any meeting should be instituted. If needed, sequential or simultaneous translation must be provided at meetings.
It is imperative that an all-out effort be made to establish a strong relationship of mutual trust and objectives between the owners and managers and the individual board members. There must be clear understandings on corporate governance standards and on corporate mission and strategy. There must also be a clear statement of the role of the board. The board must establish independent committees, chaired by independent directors including FID’s, with strong mandates in each case. n The opinions in this article are those of the author and do not necessarily reflect those of the USRBC.
FID Qualifications This is a broad list of qualifications. Each company and each board will have their own specific requirements.
Russian Language and Experience
Many Russian companies prefer that the FID speaks Russian or at least has had business experience in Russia. International business experience, ideally in the emerging markets, is usually a minimum requirement. However, the need for extraordinary and highly visible business achievement can trump Russia-specific qualifications.
Career Qualifications
Russia Business Watch Spring 2009
Russian companies need directors of impressive accomplishment, unquestioned expertise and impeccable reputation, who will participate fully in board deliberations, constantly seek ways to add value and remain focused on the best interests of the company and its shareholders. The candidate should ideally have current or recent experience at the board level or at the “C-suite” operating level at international companies that have avoided the mismanagement and scandal that have caused the current breakdown of the international financial markets or have resulted in the failure of the companies themselves. On the other hand, association with a company that has faced severe adversity and has successfully navigated the way to renewed success would clearly be a valuable asset to any Russian company during these difficult times. The candidate should typically bring to the board expertise in the company’s industry or markets as well as entrée into international business circles. In some cases, functional expertise may be the most important qualification. There can also be instances when the need for special financial, accounting, legal, consulting, and other professional skills and experience are required. Some board candidates may in fact come from outside the business world, such as academia or the public sector. A clear and deliberate analysis of the most advantageous balance of attributes among board members needed in each company will dictate these choices.
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Personal Qualifications
Nationality may be a consideration if the company wants particular geographical representation, perhaps because of the location of the company’s share listing or possibly because of plans for expansion into specific foreign markets. Clearly, the candidate must be a strategic thinker of exceptional talent. He/she must possess the tough-mindedness and personal charisma to form and maintain strong opinions and to persuade others. At the same time, however, the FID must be receptive to the views of his/her Russian counterparts, who come from a different culture and background and who often are arguing from a somewhat different agenda. Any candidate must commit to making every effort to understand the Russian business environment and how the company fits into it. The FID must be willing to work hard to provide all possible assistance to the board and to management and must be ready to put his/her views on the line for the company if such action is justified by the facts. The FID candidate must not be so committed elsewhere as to be unable to devote the time and energy required by Russian board membership.
new watch activities WTO members
WTO watch Russian Intellectual Property Laws Meet Essential WTO Standards By Bruce A. McDonald Bruce A. McDonald is a Partner in the trademark practice group of Schnader Harrison Segal & Lewis LLP, in Washington, D.C. Substantive amendments and criminal penalties enacted over the last two years have brought the intellectual property (IP) laws of the Russian Federation into substantial compliance with the standards of the World Trade Organization. Although enforcement continues to be a problem and there is a continued need for the protection of pharmaceutical data, Russia’s WTO accession is currently stalled because of trade issues unrelated to IP enforcement, including export tariffs on lumber, agricultural subsidies, food certification requirements, and the preoccupation of WTO members with an early conclusion to the Doha Round.
two years and related developments outlined below could constitute grounds for the United States and European countries to declare a qualified victory on the intellectual property front and concentrate their efforts on more immediate impediments to Russia’s integration into the global trading system.
IP Protection as Condition to WTO Accession
Recent IP Amendments Effective January 1, 2008, the IP laws of the Russian Federation were overhauled in the form of a new Part IV to the Russian Civil Code.
Copyright Law Part IV of the Civil Code includes a 2004 amendment increasing the term of copyright from 50 to 70 years after the author’s death and a 2006 amendment guaranteeing the exclusive right to transmit works in a digital format. While compensatory damages were already available, punitive damages were introduced as well as statutory damages ranging from 10,000 rubles to 5 million rubles (roughly $350 to $180,000), or twice the value of the goods in the case of a counterfeit seizure. The new law also clarifies the procedure for the seizure of counterfeit art and recordings. On February 5, 2009, Russia’s accession to the 1996 World Intellectual Property Organization (WIPO) Copyright Treaty entered into effect. The treaty enhances the protection of digital works by ensuring
Russia Business Watch Spring 2009
Compliance with the 1995 Agreement on Trade-Related Aspects of Intellectual Property (TRIPS) as a condition of WTO accession has been a driving force in the development of Russian IP legislaObstacles to Russia’s WTO accession tion. In 2006, the United States and Rushave been compounded over the past six sia concluded a bilateral agreement calling months by a groundswell of public senti- for certain measures to facilitate Russia’s ment in Russia against free trade resulting WTO accession, including: from the global economic crisis, along with political estrangement in the wake • amendments to Russian IP legislation; of disputes with Georgia and Ukraine and • criminal penalties for IP piracy and disaffection with American military plans counterfeiting; in Eastern Europe. Forecasts calling for • strengthening of border enforcement; WTO accession in 2009 have been ex- and tended to 2010 and beyond. • protection of pharmaceutical test data submitted during the marketing au- Nonetheless, the United States continues thorization process. to support Russia’s accession to the WTO, perhaps now more strongly than ever. Of these objectives, the first two have While shortfalls persist, amendments to been attained, progress has been made tothe country’s IP legislation over the past ward the third, and the fourth involves an
industry in which manufacturers may possess sufficient leverage to protect their interests in light of Russia’s plan to provide low-cost universal health care by 2020.
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newWTO members watch
• Russian Intellectual Property Laws Meet Essential WTO Standards (continued) protection for computer programs as well as the arrangement and selection of material in databases, and providing that authors retain control over rental and distribution of their works. The treaty also prohibits circumvention of technological measures for the protection of works and the unauthorized modification of rights management information contained in works.
Russia Business Watch Spring 2009
While these developments signify Russian compliance with substantive WTO copyright standards, the Russian marketplace is plagued by a conspicuous lack of enforcement, marked primarily by the absence of surprise inspections at premises where pirated goods are produced. This problem was addressed in the Special 301 Report issued by the U.S. Trade Representative on April 25, 2008, which maintained Russia on the Priority Watch List. The USTR found that Russia had made “some progress,” for example, by moving optical disc factories off government-controlled sites and raiding unlicensed factories, but that “rampant counterfeiting and piracy problems” persist, and that large-scale production and distribution of counterfeit optical media and Internet piracy continue to be major problems.
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Notwithstanding, progress with copyright and other IP enforcement is resulting from actions by Russian plaintiffs in Russian courts. For example, in October 2008, Russia’s state media conglomerate “VGTRK” filed lawsuits against www. mail.ru (one of Russia’s largest internet portals) and the social networking site “Vkontakte” (Russia’s version of Facebook). Intellectual property has become a priority in the Russian judiciary; as of this writing a so-called “Ruling Overview” is expected from a plenary joint session of the Russian Supreme Court and the Russian Supreme Court of Arbitration.
Trademark Law Part IV of the Civil Code strengthens the rights of trademark owners. Punitive damages are now available in an amount of up to twice the value of goods sold under an infringing mark. While the law appears to meet WTO standards, it has
generated controversy over a number of issues, including:
enjoining the defendant against producing a candy called “Waferatto” that allegedly infringed the trade dress of a competing • the enactment of individual standards product named “Rafaello,” although of infringement for different kinds of the common elements of the parties’ marks; trade dress may have been in the public domain. • the absence of a “fair use” defense; • overly broad protection of domain Patent Law names, commercial designations, company names and geographic While the substance of the patent law re indications; • insufficient protection of well-known mains unchanged, the term of protection for utility models is now from 8 to 13 years marks; and industrial designs from 15 to 20 years. • lack of a pre-registration opposition The extension of the patent term for util procedure at the Russian patent and ity models is significant because these “hy trademark office (“Rosspatent”); brid” patents, which are issued without • failure to provide for greater any substantive examination, form the transparency in the trademark basis for a rapidly increasing docket of in application process; and • the categorical imposition of joint and fringement actions in the Russian courts. several liability on trademark licensors in connection with goods and services The courts have been instructed to accord priority to patent infringement cases and of their licensees. adhere to rules of procedure that require The trademark law has been zealously decisions to be issued within three to five administered over the last two years. In months from filing, followed by an expeApril 2008, the Federal Customs Service dited appeal process that lasts only two to reported a three-fold increase in the sei- three months, all with limited hearings and zure of counterfeit and infringing mer- no opportunity for discovery. Moreover, chandise over the previous twelve-month patent invalidity cannot be raised as a deperiod. In fact, the aggressive seizure of fense in an infringement action but must merchandise at the border was itself a instead be adjudicated by the Chamber source of controversy in 2008, with some for Patent Disputes, an adjudicative body commentators arguing that Russian law within the Russian patent office. The provides too much protection for trade- court procedures for infringement claims are therefore relatively inexpensive and mark owners. subject to abuse. Russian courts are ruling in favor of trademark holders in the majority of infringe- The opportunity for abusive prosecution ment instances. In a recent case involving of patent infringement claims has been the trademark “AKAI” for household ap- seized by a growing number of patent pliances, the Supreme Court of Arbitra- “trolls” who fish through the records of tion invalidated the trademark registration the Russian patent office in search of utilof the Russian company, ruling that the ity models and patents to assert against company had “squatted” on the trademark large enterprises as a means to extort royand that the mark legitimately belonged to alties. The ability to exert such pressure is the Chinese company Grande Holdings. enhanced by the possibility of a six-year The case is viewed as an innovative appli- prison sentence for large-scale infringecation of unfair competition law to pre- ment. The problem is exacerbated by unvent the abuse of a trademark registered certainty over the doctrine of equivalence, which is not defined in Russian patent by the owner in bad faith. legislation and has yet to be explicated by Trademark plaintiffs have been success- any Russian court. The latest and most ful in court even where the asserted rights sensational example of vexatious patent are debatable. In August 2008, the Mos- infringement allegations in Russia is a cow Arbitration Court affirmed a ruling $3 billion demand served on Google in
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Moscow Arbitration Court early November 2008 by a Russian company named Era Vodoleya, claiming that Google’s contextual advertising infringes a Russian patent.
in particular find easy passage through customs to export markets.
Summary Amendments to Russian legislation over the last two years have substantially met the requirements for WTO accession. Although border enforcement remains weak and a law protecting pharmaceutical data has yet to be enacted, progress in these areas appears more likely to result from the demands of Russian intellectual property owners and the need for cooperation from pharmaceutical manufacturers than from Russia’s flagging aspirations to WTO accession. With questions arising about which side needs the other more, the amendments to Russia’s IP legislation and improving judicial climate discussed above could constitute a ground to move beyond concerns about intellectual property as a continuing impediment to Russia’s WTO accession. n The opinions in this article are those of the author and do not necessarily reflect those of the USRBC.
Russia Business Watch Spring 2009
At the same time, a controversy over seizures of trademarked goods at the border On balance, however, the court system is has arisen in part from the absence of an working well, especially in the Moscow City “exhaustion” doctrine in Russian law that Court, where a special “Senate” of judges would expressly allow for the parallel imwith expertise in patent law has been des- port of “gray goods,” i.e., the importation ignated to manage the increasing influx of of genuine branded items without the auinfringement claims. For example, a Mos- thorization of the trademark owner. On cow appellate court in April 2008 affirmed September 10, 2008, the Moscow Arbia decision by the patent office in favor of tration Court rejected a demand by the JSC “Motordeal” that invalidated a patent licensee of the Honda and Nissan brands for “checking the authenticity of goods,” for confiscation of branded components which had been asserted against the com- imported without authorization. Two months later, the Supreme Court of Arbipany by a patent troll. tration announced that it would review the case of Porsche Russland, exclusive licensCriminal Penalties ee of the Porsche and Cayenne brands in the Russian Federation. The lower courts On April 12, 2007, Articles 146 and 180 fined the importer of the automobile and of the Russian Criminal Code took effect, authorized the customs service to confisproviding for up to six years imprisonment cate the car, ruling that importation withand doubling the monetary fines for copy- out the consent of the exclusive licensee right and trademark piracy, respectively. constituted trademark piracy. A final deciThe media has reported multiple instances sion is expected as of this writing. of criminal prosecution for intentional copyright and trademark infringement. Presumably, Russia has met the require- Pharmaceutical Data ments for WTO accession in this regard. Russian law currently lacks any provision for the protection of pharmaceutical data Border Enforcement submitted in the course of government approval and clinical trials. This leaves Enforcement of IP rights at the Russian pharmaceutical companies vulnerable to border is weak. Counterfeit optical discs copying by generic drug providers.
In its 2006 bilateral agreement with the United States, Russia undertook to amend its law on medicines to protect such data. A draft law was passed in June 2007 providing for a six-year period of protection, but has yet to be enacted. Whether Russia’s failure to enact that law to date should constitute an impediment to WTO accession is a matter of debate. While protection of pharmaceutical data is warranted, such protection is arguably embraced by a recently enacted law on the protection of commercial secrets as well as an amendment to the Code of Administrative Offenses providing that unfair competition includes the misuse of intellectual property. Moreover, it has been suggested that pharmaceutical companies have the leverage to persuade Russian lawmakers to enact the necessary protections by reason of Russia’s announced intent to provide lowcost universal health care by 2020.
new watch activities WTO members
• Russian Intellectual Property Laws Meet Essential WTO Standards (continued)
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legal update
legal update The Strategic Sectors Law — the First Year of Enforcement By Dmitry Dmitriev and Anna Bogacheva Dmitry Dmitriev is an Associate and Anna Bogacheva is an Analyst with Cassidy & Associates CIS. It has been almost a year since the adoption of Federal law No. 57 of 29th April 2008 entitled “On Foreign Investment in Companies with Strategic Significance for National Security and Defense” (the “Strategic Sectors Law.”)
Russia Business Watch Spring 2009
The law governs relations when foreign companies wish to purchase shares of Russian companies that have a strategic significance for national security in Russia. In addition to economic sectors directly related to national defense and security, the law covers many other strategic sectors, including mining operations, telecommunications and mass media.
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During this past year, the Federal Antimonopoly Service (FAS) accepted several dozens of applications for the purchase of assets in accordance with the law. The FAS has approved only a few of these applications; yet, up until now, only some of them included the imposition of the specific obligations on a foreign investor. Other applications remain pending.
Application of the Law All applicants under the law can be divided into two groups: the first group consists of actual foreign legal persons and organizations; the second group consists of foreign organizations beneficially owned by Russian natural persons.
Disclosure of Information The main procedural problem faced by applicants that wish to purchase Russian assets in accordance with the law consists of the amount of disclosure of information that applicants must make. The first issue relating to the disclosure of information arises from foreign legal persons beneficially owned by Russian natural persons. These applicants do not want to disclose information to the Federal Antimonopoly Service on the real beneficial owners of these companies because of likely problems with the Russian taxation authorities and their general unwillingness to make information on the actual owners of these companies public. In these cases, such applicants often submit to the FAS false or contradictory information about the beneficial owners of foreign companies or on a group of persons who wish to purchase Russian assets. Interestingly, these applicants do not take into account that they previously submitted applications to the Federal Antimonopoly Service for the purchase of some assets within the framework of the Federal Law on the Protection of Competition. At that time, they provided the FAS with different information on the beneficiaries of the foreign company or on the group of persons who own the foreign company.
The information provided by a foreign company to the FAS is often contradictory to the information that the Federal Antimonopoly Service gets from open information sources (such as mass media or press releases) on the foreign company or on the group of persons who own the foreign company. One further and equally important problem arises from such a disclosure: foreign companies do not want to disclose shareholder agreements to the Federal Antimonopoly Service. It is common practice that when a foreign company is owned by several shareholders, the shareholders conclude a shareholder agreement to control the procedures for funding and operating the company, the terms and conditions for distribution of profits and other important matters. The contents of such agreements are usually a commercial secret, therefore foreign companies do not wish to disclose the terms and conditions contained in them. However, the Federal Antimonopoly Service demands that such agreements are taken into account in the process of reviewing applications for the purchase of Russian assets, to avoid any restrictions on competition or threats to national security. In addition, the Federal Antimonopoly Service needs to review these shareholder agreements when making the decision as to whether to require the applicant to
meet other obligations as part of their purchase of Russian assets.
Lack of Understanding by Foreign Investors of the Importance of the Approval of the Transaction Another important problem often not understood by foreign investors is that foreign companies do not always consider it necessary to submit an application to the Federal Antimonopoly Service if the proposed transaction for the purchase of Russian assets takes place within a group of persons that already own the assets. In such case, the actual owner controlling the asset is the same person. However, formally under Russian law, the owner changes, and therefore such a transaction is subject to approval by the Federal Antimonopoly Service, the national security bodies and the Government Commission under the Strategic Sectors Law. Foreign companies also do not often realize that it is necessary to get approval from the Federal Antimonopoly Service for transactions involving the purchase of banking assets that have cryptographic licenses, which are covered by the Strategic Sectors Law.
Formulation of Terms and Conditions of Agreements Imposing Specific Obligations on a Foreign Investor
At a session of the Government Commission for Control over Foreign Investments on October 10, 2008, the Chairman of the Government Commission, Prime Minister Vladimir Putin, said that such conditions could be imposed on each of the following: guaranteeing the security of national secrets, any obligation to process raw
Such conditions might also consist of ensuring the delivery of raw materials to specific consumers connected in the processing chain with the company that is being purchased, the guarantee of nondiscriminatory access by third party customers to the infrastructure of the company, as well as a number of other restrictions that might be defined depending on the nature of the activity of the company and market conditions.
Time Limits Set Forth in the Law There are specified time limits in the law governing the review of applications by the Federal Antimonopoly Service and the Government Commission. In accordance with the law, the FAS must register the application and check to see if all necessary documents have been attached within 14 days of its submission. If some documents are missing or the information is incomplete or insufficient for any reason, the FAS may extend this 14 day period until the information is provided.
Definitions In applying the law, a number of problems have come to light that can only be resolved through further legislation. For example, the law does not provide a clear criterion by which a transaction can be clearly classified as a transaction that may result in a threat to national security and defense. Each time this question is asked, it is resolved on the basis of many factors that have no clear definition. The law sets forth a rather loose definition of “control” and “being controlled” by a company purchased by a foreign investor. Pursuant to the law, “control” is a right of a foreign investor to make or block decisions of a Russian company that is being purchased. At the same time, the law is unclear in differentiating the right to make decisions, so the law even covers those cases where a foreign investor buys an insignificant part of a Russian company. For example, a foreign company — a buyer of a minority stake in a Russian company — is entitled to make decisions about a target company on the approval of auditors’ reports, business plans and decisions on dividends distribution, but is not entitled to decide on the increase of authorized capital or on the approval of large transactions.
The duration for the review of an application in such case therefore depends on how quickly the foreign investor submits the additional information, and thereafter, on the time required for the FAS to review such additional documents.
For purposes of implementation of the law, the question is: which of the abovementioned rights are important to the Federal Antimonopoly Service to fulfill its obligations under the law? Pursuant to the current definitions, the law appears to cover many more transactions than would Beyond the Federal Antimonopoly seem at first sight. Service, the Government Commission holds its sessions once every two or three One of the problems that remain unsettled months. Within the operational processes by the law is whether the law applies when of the Government Commission, to make a company that is purchased by a foreign a decision there must be two sessions for investor starts to become engaged in a each application, one for determining strategic sector after the purchase of the the applicant’s obligations, and the other shares of the company. According to the for making the final decision. For this text of the law, it should not be applied reason, the deadlines set forth in the law to such cases; however, if one goes by for reviewing the applications of foreign the purposes of the law, in fact the law investors by the Federal Antimonopoly should apply to this situation. This is one Service and the Government Commission example of a substantial gap in the law. are impossible to meet.
Russia Business Watch Spring 2009
Some transactions approved by the Federal Antimonopoly Service and the Government Commission will be approved only if the foreign investor will agree to specific conditions governing the purchase of assets that are set forth in a special agreement.
materials extracted on the territory of the Russian Federation, any obligation to hold positions of employment, and any obligation to fully implement the submitted business plan for development of the company.
legal update
• The Strategic Sectors Law — the First Year of Enforcement (continued)
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legal update
• The Strategic Sectors Law — the First Year of Enforcement (continued)
Conclusion This brief overview of the application of the Strategic Sectors Law leads to the conclusion that the law still has too many unclear provisions that will result in subjective judgments about information and the development of subjective conditions for the approval of transactions by the Federal Antimonopoly Service and the Government Commission that are responsible for implementation of the Strategic Sectors Law.
Many foreign companies have not yet fully realized the importance of getting approval of transactions in accordance with the law; they underestimate the requirement of getting all required information together and submitting it to the Federal Antimonopoly Service on a timely basis. A more rational and careful approach by foreign companies, by paying closer attention to the procedures for the review of applications for purchasing Russian
assets, would allow foreign companies to get approvals and close transactions in a more efficient, timely and beneficial way in accordance with the law. As a final note, the law is undergoing a regulatory review and a number of amendments are being prepared. Hopefully, these amendments will settle some of the problematic areas mentioned above and make the process of getting approval more transparent and expeditious. n The opinions in this article are those of the author and do not necessarily reflect those of the USRBC.
Buy America Provisions in the American Recovery and Reinvestment Act: Impact on Russia By Sarah C. Carey and Shanker A. Singham
Sarah C. Carey is Senior Partner and Shanker A. Singham is Partner at Squire, Sanders & Dempsey L.L.P.
Russia Business Watch Spring 2009
On February 17, 2009 President Obama signed into law H.R. 1, the American Recovery and Reinvestment Act (ARRA). The ARRA provides $789 billion in spending and tax cuts and contains several accountability and transparency provisions. In addition, the ARRA includes billions of dollars for information technology (particularly in the health care arena), transportation infrastructure, energy and environmental research and development, and remediation, repair and upgrades to public facilities at the federal, state and local levels — and much more.
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The ARRA includes broad Buy America provisions (at Section 1605) that could seriously impact imports of Russian iron and steel, and of products from many other countries. Section 1605 of the Act requires the use of U.S.-made steel, iron and manufactured goods in construction, alteration, maintenance, and repair projects funded by the ARRA, unless to do so would violate U.S. obligations under international agreements or if other exceptions are in place. Under Section 1605, the Buy American provisions do not apply if the head of the federal department or agency finds that applying the provisions would be against
the public interest, the goods are not produced or available in the United States in sufficient quantities or quality, or if use of U.S.-made goods would increase the project’s cost by more than 25 percent. If the head of an agency conducting a procurement decides to waive the provisions, he must publish an explanation in the Federal Register. In the Joint Explanatory Statement to Section 1605, the conferees state that Section 1605, except in certain circumstances, provides for the use of U.S.-made iron, steel and manufactured goods. The conferees also state that, “Section 1605(d) is not intended to repeal by implication the President’s authority under Title III of the Trade Agreements Act of 1979.” Further, “[t]he conferees anticipate that the Administration will rely on the authority under 19 U.S.C. 2511(b) to the extent necessary to comply with U.S. obligations under the WTO Agreement on Government Procurement (GPA) and under U.S. free trade agreements.” The Buy America provision is being challenged by domestic critics as well as by trading partners. The Peterson Institute for International Economics estimates that, because of the highly
mechanized nature of the steel industry, only around 1,000 jobs will be created in a labor force of 140 million people. On the other hand, America’s exports of 9 million metric tons of steel every year could be impacted by as much as one percent because of retaliation by other countries (and the figure could be much higher). That would result, at a minimum, in 6,500 jobs being lost in the same industry. The EU, many of whose members are signatory to the GPA, has requested the GPA Committee to spell out the specifics as to how the rules will be applied to GPA members. Other countries are equally concerned. Since Russia is neither a member of WTO nor a signatory to a free trade agreement with the United States, its domestic steel producers as well as producers of other base metals will not be in a position to avail themselves directly of treaty protection. However, Russian steel producers with subsidiaries located in the United States, such as Severstal or Evraz, or those located in countries that are signatories to the GPA will have some protection. This is also true of Russian steel producers with subsidiaries located in countries that have free trade agreements with the United
States (Australia, Bahrain, Canada, Chile, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Israel, Mexico, Morocco, Nicaragua, Oman, Peru, and Singapore). The scope and nature of the protection afforded by the relevant treaties will likely be determined by the treaty language as well as by the Office of Management and Budget implementing regulations and by the rules and procedures of individual procurement programs. Given the level of the funding committed to new construction and to maintenance and repair projects and the fact that procurement tenders will occur at the state and local levels as well as the federal level, sorting out the rights of Russian and other importers to compete for such projects will be a complex process.
From 2006 to 2008, the United States imported over 5.4 million metric tons of steel mill products from Russia. Over this time period, Russian steel mill products accounted for roughly 5.4 percent of total U.S. steel mill imports, making Russia the sixth-largest exporter of steel mill products to the United States. Many of the products imported from Russia, such as steel plates, reinforcing bars and structural steel products, can be used in the construction of government procurement projects involving roads, bridges, airports, oil and natural gas pipelines, water piping, and military equipment. Other base metals produced in Russia that are typically used in construction may also be impacted.
At a time of slow or no growth of the private sector, government procurement programs offer a significant market to the producers of construction materials. The United States is leading the way in regards to the levels of funding committed to construction projects. Russian importers who want to participate in this market should pay close attention to the regulations issued to guide the allocation of these funds as well as to the details of procurement programs being launched in local markets where they intend to participate. n
legal update
• Buy America Provisions in the America Recovery and Reinvestment Act: Impact on Russia (continued)
The opinions in this article are those of the author and do not necessarily reflect those of the USRBC.
SAVE THE DATE ! September 25, 2009 New York City
U.S.-Russia Business Council
17th Annual Meeting
Please visit www.usrbc.org for more information and registration options for this event.
Russia Business Watch Spring 2009
Marriott Marquis Times Square 1535 Broadway New York, New York 10036
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regional profile
regional profile Rostov Region Endowed with substantial natural resources and located at the juncture of European Russia/CIS, the Caucasus and the Black Sea area, the Rostov region is rapidly developing as a major trade hub as well as a prominent industrial economy. The provisions of its 2004 investment attraction strategy open the region up to investment in all of its priority industries.
www.rosconcert.com
million people and serves as a large river port. With a population of more than 4.3 million citizens, two-thirds of which reside in urban areas, Rostov is the fifth-most populous region of Russia. The percentage of educated individuals in the labor force in Rostov region is quite high. Per 1,000 people, 300 have specialized secondary education degrees and 400 have general secondary education degrees.
Russia Business Watch Spring 2009
Natural Resources
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Rostov region holds considerable fuel reserves and mineral resources. As of Rostov Region 2004, it is Russia’s second-largest producer of high-quality anthracite coal and produces 2.3 percent of Russian coal outGeography and Population put, holding more than 6.5 billion tons Located in southwestern Russia on the in reserve and exploitable resources of border of Ukraine, the Rostov region more than 1.5 billion tons. The region’s lies at the juncture of Central Russia, proven natural gas reserves stand at Transcaucasia and Eastern Europe. The 36.85 billion cubic meters, with another Don River flows through the region, 22.48 billion cubic meters estimated. Its providing direct access to three seas proven oil reserves total 3.3 million tons — the Caspian, the Sea of Azov and and another 2.3 million tons are estithe Black Sea — as well as the bor- mated to exist. Approximately 20 perdering Mediterranean and Middle East. cent of the region’s hydrocarbons have Rostov-on-Don, the region’s capital and been explored. State-registered resourcthe administrative center of the Southern es ready for exploration are estimated Federal District, is home to over 1 at 13.69 billion cubic meters of gas and
10.96 million tons of oil. Additionally, the region has identified and explored 20 natural gas and gas condensate fields and 2 gas and oil fields with total reserves standing at 21.5 billion cubic meters. Currently, seven fields are in operation. The Rostov region is also a major mining area, producing 16.5 percent of Russia’s ferrous metals. Additionally, the region possesses unique reserves of non-ore materials used in the construction industry. Most significantly, the region’s Millerovskiy District holds 12 billion tons of reserves of carbonate strata: a main component in cement. Arable land is the Rostov region’s richest and most plentiful resource. Over 64.2 percent of the region is covered by ultrafertile chernozem, or black earth. Chestnut soils, noted for their high productivity in semi-arid regions, cover another 20.8 percent of Rostov, and fertile flood-plain meadow soils cover 7.7 percent of the region.
Economy and Industry The machine engineering and metal processing, food and beverage, and energy industries of the Rostov region account
www.rosconcert.com
regional profile
• Regional Profile: Primorsky Krai (continued)
Taganrog Commercial Seaport
As a major hub of trade and transport for Russia, the CIS and Europe, the Rostov region has an extensively developed infrastructure. The region’s 12,000 km of paved roads carry more than 450 million people per year, particularly along the Kritsky corridor that connects St. Petersburg, Moscow and Novorossiysk. Six main railroad routes converge in the region, comprising more
than 3,000 km of track and linking the Caucasus with Moscow. In addition to its capitol’s major river port, the Rostov region features two seaports — Taganrog Commercial Seaport and Azov Seaport — that are capable of servicing river and ocean class vessels with tonnage up to 5,000 tons. Rostov-on-Don international airport conducts five daily flights to Moscow, as well as more than 40 flights to locations in Europe, Asia and Africa.
cal products (5 percent), food and food processing equipment (4 percent), and timber (3 percent).
The Rostov region engages in trade operations with 95 countries and exports to more than 70 countries. Its major foreign trade partners include Ukraine, Turkey, the Republic of Korea, Italy, Germany, China, and Greece. There are 213 joint ventures operating in the region. Due to the region’s location, Kommersant reports that most of the joint ventures’ charter funds originate from Trade and Investment Black Sea countries such as Turkey (56.7 percent of investments), as well as from Owing to its location at the juncture of traditional partners such as Germany Russia, Europe and the CIS, as well as (13.5 percent), the United States (11 perits developed infrastructure, the Rostov cent), and the UK (2.2 percent). region leads the Southern Federal District in foreign trade. Its international Three major investment projects in the trade turnover skyrocketed 57 percent in Rostov region have recently been sub2007, reaching $7.66 billion. Total value mitted for review to the Investment of exports grew to $3.05 billion, and Fund of the Russian Federation. The imports totaled $4.62 billion. The main first of these, “Southern Hub”, intends categories of exports (in approximate to construct a new international airport percentages) included raw foodstuffs that would service 70 thousand tons of (49 percent), metals and metal products cargo annually. The estimated cost of (18 percent), machine-building products the program totals $820 million. The (13 percent), mineral products (12 per- second project, “Rostov Universal Port”, cent), and chemical products (7 percent). proposes to build a container terminal Imports consisted mostly of vehicles and able to process up to 3 million tons of vehicle parts (45.5 percent), metals and cargoes annually. Specifically, the termetal products (34.6 percent), chemi- minal is intended to process general car-
Russia Business Watch Spring 2009
for over two-thirds of the region’s output. Specializing in machine production, Rostov is currently Russia’s only producer of electric locomotives and mainline electronics; it also manufactures more than half of the country’s grain combines. The region is also one of Russia’s leading manufacturers in heavy lift helicopters, ship navigation systems, and thermal boiler and water heating equipment. Several large regional food and beverage companies are based in Rostov, such as beer manufacturer Baltika-Don and the tobacco company Donskoy Tabak, as well as food processor Yug Rossii. The region currently ranks as Russia’s fourth-largest grain-growing region and its second-largest wheat-growing region, as well as its leading producer of sunflower seeds. In 2007, Rostov’s gross regional product amounted to 379 billion rubles ($11.3 billion).
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regional profile
• Regional Profile: Primorsky Krai (continued) palm.rus.newsru.ua
legislation on the “Priority Development of the Mining Territories in Rostov Region,” also in 2004. Under this legislation, developers of small- and mediumsized businesses in targeted economic zones are entitled to certain tax benefits and preferences. Additionally, the region has allocated $114.5 million to its Investment Program, intending to enhance innovation and make effective use of its investment opportunities.
Effects of the Financial Crisis on Rostov Region
Azov Seaport
Russia Business Watch Spring 2009
goes, scrap metal, minerals and construction materials, sulfurs, mineral fertilizers, coal, and industrial raw material. The general investment budget of the project is $280 million. The third project, proposed by OC “EuroDon,” includes the construction of three new factories in Rostov: sandwich-panel manufacturing (1 million square meters per year), hot galvanization (20 thousand tons per year) and metal construction elements (12 thousand tons a year). Their total cost is $87 million.
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With an eye toward diversifying its economy, Rostov has attracted foreign investment to its manufacturing and financial sectors. It has realized projects with U.S. beverage companies PepsiCo and CocaCola, as well as Korean car manufacturer Hyundai. Additionally, both Citibank and Raiffeisen Bank have opened offices Other in Rostov. 31.2
Investment Opportunities and Growth Forecast Transport and communications The Rostov region 21.3 ranks among the
top three regions with minimal investment risk, according to 2008 data from “Expert-RA” provided through the regional administration. Hoping to attract further investment, the regional
government has designated three of its territories as zones of “intensive economic development” and expects to add two more territories to this classification. In 2004, the Rostov region enacted its “Strategy of Investment Attraction to Rostov Region”, which envisions Rostov placing among the 5 fastest-growing regions of the Russian Federation and among the top 10 in terms of living standards by 2010. To reach these goals, the region requires an estimated $14.5 billion to be invested into its fixed capital. In its strategy, the regional government identifies several sectors as open to direct investment: light industry, trade networks, business infrastructure, food and beverage, and automotive assembly and distribution/servicing. The document specifically targets the United States, among a number of countries, as a source of investment for the region’s priority industries: metals, oil refining, agriculture, construction materials, and housing. The Rostov region’s government has enacted additional legislation to attract investment since 2004. To reinvigorate the economies of former mining towns in the region, the Rostov Region adopted
Rostov is weathering the financial crisis largely through its own means. Regional authorities are providing aid to 37 large enterprises in sectors ranging from metallurgy to housing construction to retail sales and food processing. The financial crisis has affected economies worldwide, and that of Rostov region is no exception. However, the region still showed significant growth overall. Regional inflation has risen considerably, although it temporarily stabilized during the year. As a result, regional real incomes grew 7.3 percent in 2008, compared with a growth of 15.2 percent in 2007. While the area has become slightly less attractive to investors, as have most regions, investment is still up in Rostov. While growing 19 percent in 2007, overall investment in Rostov grew 11 percent in 2008. As in the United States, companies have been forced to restructure to cope with the slower economy. Layoffs outstripped vacancies in Rostov, primarily impacting individuals in highly-paid positions and leaving openings in the lower levels. Sources: Russia: All Regions. Trade and Investment Guide, 2006; Reports of DonExport; U.S. Department of Commerce Reports; Kommersant; Russia Profile; Reports of Rostov Regional Administration; Rostov Investment Promotion Agency; RIA Novosti; Russia South. n
new members
new USRBC members ACE GROUP OF INSURANCE COMPANIES is one of the world’s largest providers of commercial property and casualty insurance and reinsurance. Rated A+ for financial strength by Standard & Poor’s and A.M. Best, and with more than $72 billion in assets and $19 billion of gross written premiums in 2008, the ACE Group is distinguished by its underwriting expertise, superior claims handling and a global franchise that includes offices in more than 50 countries and clients in over 140 countries. Through its Moscow-based subsidiary, ACE provides a wide range of insurance coverages to domestic and multinational businesses operating in Russia. These insurance products include broad industrial coverages for property, marine cargo, construction, and energy risks; an array of liability and professional indemnity coverages; as well as accident and health, trade credit and travel insurance. ACE offers commercial customers in Russia high underwriting capacity, tailored by coverage type and the client’s risk class. ACE has also set up a life insurance subsidiary in Russia and is establishing distribution channels for its products.
AMERICAN AIRLINES, INC., one of the world’s largest airlines and a founding member of the oneworld Alliance, recently introduced the only non-stop service from Moscow Domodedovo to Chicago O’Hare. Flights are on the Boeing 767-300 and feature a new Business Class, offering spacious lie-flat seats, on-demand entertainment and a food and wine menu selected by internationally-renowned chefs and sommeliers. Personal media players offer a wide selection of movies, current news, music, games, and television shows, all to be enjoyed using Bose QuietComfort 3 Acoustic Noise Cancelling headphones. American Airlines offers easy connections to more than 100 destinations throughout the U.S., Canada and Mexico from Chicago. The airline serves 250 cities in 40 countries with, on average, more than 3,400 daily flights. For the convenience of Russian travelers, American has opened a Customer Service Center in Moscow, located at Petrovka Street, 15/13, building 5. Members of the AAdvantage travel awards program can earn miles for travel on American and more than 21 other participant airlines when staying at AAdvantage hotel partners or when renting a car from a partner company.
Founded in 1991, B.E.A. ASSOCIATES, INC. provides market-entry services for U.S. companies entering the Russian market and for Russian companies entering the U.S. market. Services include custom market research, channel distribution development, partner search and evaluation, competitor research, in-country logistical support and representation, and advice on all aspects of commercial transactions — contracts, payments and shipping. B.E.A. is affiliated with The York Group for development of software sales channels. B.E.A. provides market entry services in all regions of Russia and has local affiliates in St. Petersburg, Yaroslavl and Izhevsk.
Russia Business Watch Spring 2009
American offers a special program for companies to take immediate advantage of a range of benefits, like substantial discounts on fares to 200 destinations across North America, complimentary AAdvantage Gold membership and more.
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new members
• New USRBC Members (continued)
BOIES, SCHILLER & FLEXNER LLP has grown to over 230 lawyers practicing in offices strategically located throughout the United States and headquartered in New York City. The firm regularly serves as lead counsel on complex, high profile global matters, including the worldwide defense of a major U.S. bank against a $22.5 billion RICO suit brought by the Russian Federal Customs Service in the Moscow State Arbitrazh Court. The firm’s international practice is led by Jonathan Schiller, and its partners have participated in arbitral proceedings for more than twenty-five years representing clients before tribunals in Paris, Geneva, London, Zurich, Stockholm, and Hong Kong. Recently, BS&F won an LCIA award affirming the contractual rights of a major petroleum company in arbitration under a joint bidding agreement for a $7 billion dollar oil field modernization project in North Kuwait. Other prominent wins include a $261 million award in an ICC arbitration in Geneva arising from cancellation of a geothermal power project in Indonesia, an ICC arbitration in London vacating a $1.4 billion default judgment, and a $39.5 million award in London for a leading international travel technology company for fraud and breach of contract. BS&F’s corporate group is recognized for its significant cross-border transactional work, including representing a U.S. financial institution in an investment in one of the largest real estate developers in the Ukraine, the largest supermarket retailers in Central America in the formation of a joint venture with the largest U.S. retailer, the world’s third-largest copper/zinc mine in Peru in an international financing, and an international consortium in an environmental remediation project in the Middle East.
CASSIDY & ASSOCIATES is the largest government relations firm in the U.S., representing clients before the federal government since 1975. Cassidy & Associates offers the comprehensive menu of federal government relations services in public policy, appropriations and federal marketing. The firm’s office in Moscow was established in 2003. Cassidy & Associates CIS helps foreign and Russian companies build relations with various state institutions, overcome administrative barriers and get federal and local support to promote their initiatives in Russia, the U.S. and Europe. The firm’s services cover the whole range of government relations, including comprehensive GR-support of business projects, communications and building relations with executive and legislative bodies, appropriations, marketing with federal bodies, image positioning, assistance in analysis, and related services. Cassidy & Associates CIS’s contacts and experience help clients anticipate and solve problems and create opportunities for the development of their businesses.
Russia Business Watch Spring 2009
Cassidy & Associates CIS can serve as the informed and steady partner needed to ensure success in matters as specific as identifying foreign partners and obtaining licenses, or for long-range planning aid in areas such as shaping legislative and regulatory proceedings and representation in a foreign country.
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DAIMLER AG, STUTTGART — with its businesses Mercedes-Benz Cars, Daimler Trucks, Daimler Financial Services, Mercedes-Benz Vans and Daimler Buses — is a leading producer of premium passenger cars and the largest manufacturer of heavy- and medium-duty trucks in the world. The Daimler Financial Services division has a broad offering of financial services, including vehicle financing, leasing, insurance, and fleet management.
The current brand portfolio includes the world’s most valuable automobile brand, Mercedes-Benz, as well as smart, AMG, Maybach, Freightliner, Western Star, Mitsubishi Fuso, Setra, Orion, and Thomas Built Buses. In Russia, Mercedes-Benz Russia ZAO is engaged in the sales and marketing of a full range of models from the Mercedes-Benz brand (passenger cars, off-road and commercial vehicles). Since 2002, the company has been the exclusive importer of Mercedes-Benz and Maybach in Russia, operating through a highly professional and continuously expanding network of independent dealerships. Together with dealerships, the company has a workforce of 3,500 employees throughout the Russian Federation.
new members
• New USRBC Members (continued)
Daimler made a major investment in 2008 with purchase of a 10 percent stake in the largest Russian truck producer, Kamaz. The company’s plans in Russia include investments of $265 million into retail and $200 million by individual dealers into Mercedes-Benz dealerships. In 2008, the Group sold 2.1 million vehicles and employed a workforce of over 270,000 people; revenue totaled $125 billion. Daimler is an automotive group with a commitment to excellence, and aims to achieve sustainable growth and industry-leading profitability.
I.S. LAW FIRM, PLLC offers integrated legal services to individuals, small businesses and corporations, as well as international organizations. The firm represents both individual and corporate clients across its practice areas, which mainly include immigration law, business law, tax law, contracts, and collection law. I.S. Law Firm strives to build strong long-term relationships with its clients, with an emphasis on individual attention, open dialogue and affordable rates. Individual attention allows the firm to fully understand clients’ legal needs and develop comprehensive solutions across practice areas to address them. I.S. Law Firm’s Washington, DC office is equipped with the latest technologies, enabling the firm to keep close contact with clients, control various databases, generate forms, reports, and other correspondences expeditiously with individual attention to the specific needs of each client at the most economically feasible costs. The firm works closely with experienced support staff to achieve the most favorable outcome for its clients. LAWSON INTERNATIONAL, INC. focuses on investment, trade and commercial issues between Russia and the U.S. The firm’s principal, Eugene K. Lawson, was founder and President of the U.S.-Russia Business Council for 15 years until his retirement in June 2008. MANHEIM EXPORT was established more than 60 years ago as a wholesale vehicle auction operation. Today, with more than 34,000 employees in 145 operating locations worldwide, Manheim is the world’s largest provider of vehicle remarketing services. In 2008, Manheim handled nearly 10 million used vehicles, facilitating transactions representing more than $50 billion in value.
As the world’s leading provider of used vehicle services, Manheim has set the standard for buying and selling vehicles at live auctions and online. Manheim brings together qualified sellers and volume buyers of used vehicles that include automotive dealerships, banks, car rental agencies, car manufacturers, and government agencies. Manheim provides its customers a reliable and safe market to purchase a variety of vehicles and services that no other remarketing provider can match.
Russia Business Watch Spring 2009
A wholly-owned subsidiary of Cox Enterprises, Inc., Manheim is transforming the wholesale vehicle buying and selling experience through investments in technology, global expansion and innovative products and services. Manheim markets Frontline Services, OVE.com, Manheim Simulcast, Manheim Financial Services (MAFS), Total Resource Auctions and other respected brands to the remarketing industry in more than 19 countries, including Australia, China and the United Kingdom.
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new members
• New USRBC Members (continued)
TRAVELPORT, INC. is one of the world’s largest global distribution system providers operating both the Galileo and Worldspan platforms. It provides real-time travel information and booking capabilities to travel agencies in over 145 countries. The company has been offering innovative travel technology solutions and extensive travel content to the Russian travel industry since 1998. With an extensive customer base spanning the whole of the Russian and CIS region, it serves numerous on and offline travel agencies in both the corporate and leisure travel sectors, as well as tour operators, airlines and other important local travel organizations. In 2008, Travelport announced plans to increase investment in Russia and has recently tripled the size of its regional team as well as developed new, market-specific products. It has also successfully signed several high profile strategic partnerships with key Russian travel organizations, including a groundbreaking accreditation deal with TCH, Russia’s settlement services system, which enables users of Galileo to issue TCH e-tickets for the first time in Russia and beyond. A further significant relationship has also been struck with aviation IT specialist, SITA, to provide thousands of agents across the region with access to extensive new airline content using Travelport’s innovative Reservation Sales Solution (RSS).
perspective and consulting support.
WESTNEY CONSULTING GROUP, INC. The high levels of risk and uncertainty associated with major capital projects require correspondingly high levels of due diligence, strategic planning, governance, and organizational effectiveness. It is not easy to achieve the levels of confidence financial stakeholders require for such large investments, so industry leaders often turn to Westney Consulting Group for an independent, expert
Founded in 1978, the mission of Westney Consulting Group is to help the financial stakeholders in a major engineering and construction project understand and control their execution risk exposure. The company’s primary focus is on large projects with significant complexity and risk; the goal is to help projects move fast, cut costs and reduce risks. Westney works on a worldwide basis; clients/sectors include international and national oil companies, power generation and distribution, mining & minerals, chemicals manufacturing, project developers and investors, manufacturers of engineered equipment, and engineering & construction service providers.
Russia Business Watch Spring 2009
Westney’s staff of 30 consultants average over 25 years of engineering and construction experience. The company’s service areas include Risk Framing & Analysis, Strategic Planning, Contractor Due Diligence, and Project Performance Management. n
Interested in Advertising in RBW? Contact Svetlana Minjack Director of Communications and External Affairs Tel: 202-739-9182/sminjack@usrbc.org
Russia Business Watch VOL. 17, NO. 1
SPRING 2009
WASHINGTON, DC
THE QUARTERLY REPORT OF THE U.S.-RUSSIA BUSINESS COUNCIL
U.S.-RUSSIA RELATIONS AND THE GLOBAL CRISIS: Choices and Challenges
ACTIVITIES
PRESIDENT’S MESSAGE p.1
Council Calendar
OUTLOOK
USRBC Road Show Map
(Another) Year of Living Dangerously: Russia and the Global Crisis
USRBC Legal Conference
U.S.-Russia Relations: Reset, Overload or More of the Same
pp.3 - 11
Luncheon with Alexander E. Lebedev Briefing with Chief Justice Anton Ivanov
p.12- 22
U.S. GOVERNMENT
LEGAL UPDATE
USRBC Recommendations to the Obama Administration
The Strategic Sectors Law — the First Year of Enforcement
p.23
SECTOR UPDATE
REGIONAL PROFILE
WTO WATCH
p.34
Russian Intellectual Property Laws Meet Essential WTO Standards
NEW USRBC MEMBERS p.37
p.24
p.27
40
U.S. Amendments to Buy America: Impact on Russia
pp.30-32
Are Foreign Independent Directors Needed in Russia?
Rostov Region
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. WWW.USRBC.ORG
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 quarterly publi cation on bilateral trade and investment.
Membership Questions?
Contact Lucy Rojansky Director of Membership Affairs 202-739-9190/ rojansky@usrbc.org