Economic Engagement Benefits Both Russia and US

The countries are working to multiply investment by 15 to 20 times

The recent drama of presidential elections in Russia has obscured an important new development. Prospects for trade and investment have never been better since communist economies collapsed in 1991.

Under a joint commission chaired by United States Vice President Al Gore and Russian Prime Minister Viktor Chernomyrdin, which convened its seventh session in Moscow in July, the two countries have significantly expanded access into each other's markets. US-Russian trade has tripled since 1991, rising to nearly $7 billion in '95; at this month's joint commission meetings, the Russian government agreed to roll back new excise taxes against six US-Russian joint oil ventures.

The message is clear: Economic engagement is in Russia's best interest and it is also in ours. The prospects for both countries are greater exports, more jobs, and increased stability.

Earlier this year, Russian farm interests were poised to block more than $600 million in US poultry exports - more than one-third of our global exports of chicken and more than one-fifth of our exports to Russia. Despite renewed protectionist pressures, Mr. Chernomyrdin reaffirmed the decision reached last May: There will be no barriers or quotas, and tariffs will be reduced from a prohibitive 98 percent to 30 percent - a "win" for US producers and workers, Russian consumers, and US-Russian trade.

US goods to Russia

The Clinton administration is working to increase access to Russia's market for manufactured goods, including US autos, pharmaceuticals, and semiconductors. Last January the two countries agreed to work together to expand US aircraft sales and leases under Russian tariff waivers, and the Export-Import Bank gave preliminary approval for financing US exports of up to $1 billion in engines and avionics for a Russian-American, state-of-the-art jet aircraft - the Ilyushin-96. US and Russian experts are meeting to ensure that important agreement is implemented.

The US is the largest foreign investor in Russia, with $2.3 billion, representing close to one-third of all direct and portfolio investment in that country. Yet this is a relatively small sum compared with investment in Central Europe or with Russia's own huge investment potential. With the prospect of new investments paving the way for further export growth, we are now working together to put the necessary legislation and regulations in place to multiply this investment by 15 to 20 times over the next 10 years.

Initiatives for commercial tax reform, reliable energy-production-sharing agreements, and effective protection of intellectual property rights will make it possible to carry out tens of billions of dollars in planned new projects involving trade as well as investment - by Russian as well as American companies.

Signs of this huge upward potential abound. In energy, the multibillion-dollar Sakhalin II project, including US companies Marathon and McDermott, received the first licenses under Russia's production-sharing law. At last month's Gore-Chernomyrdin Commission meeting, the two sides decided to conclude production-sharing agreements by year's end on two major multibillion-dollar oil projects in the Russian Far North and western Siberia. Similar regional projects involve US and Russian transnational investment - notably the huge Tengiz and offshore Karabakh oil fields in Kazakstan and Azerbaijan, and multinational pipelines in the Caspian region.

Big investments and other projects are now materializing in nonenergy sectors as well, from Mars' confectionery exports and a $150 million food production plant near Moscow, to General Motors' exports of cars at a 50,000 vehicle-per-year capacity plant in Russia's Tatarstan region.

In each case, energy and commercial ombudsmen in the US and many of the post-Soviet republics pursue the necessary approvals. Significant tax, tariff, and regulatory changes are negotiated, which make easier this still- arduous task of systemic reform.

A Business Information Service for the New Independent States, located in the US Commerce Department, disseminates commercial information to more than 20,000 US companies. Fourteen American Business Centers, established with the help of the US private sector, help our companies to expand their operations into untapped markets in Russian regions beyond Moscow and St. Petersburg - Ukraine, Kazakstan, and Uzbekistan.

Stumbling blocks

There have been setbacks. One company must withdraw from a computer assembly plant because of excessive tariffs over imported components. Another must scale back operations because tax exemption and export guarantees are not maintained. An inexperienced judiciary fails to enforce laws or to resolve business disputes. But these setbacks also intensify efforts to correct the underlying problems, notably through new interagency working groups under the US-Russia Business Development Committee.

The two governments have an intensive trade and investment agenda they plan to pursue in the coming months. An energy taxation group has been launched, an interregional group between the US West Coast and the Russian Far East will meet in September, and bilateral commercial tax discussions are scheduled for the fall. Leaders from the US and Russian private sectors are now engaged in this work at all levels.

The consequence of this strategy of commercial engagement is steady progress in trade, investment, and economic opportunity, which in turn reinforces security and stability. Yes, the outcome of the presidential contest in Russia does make this endeavor easier. But commercial engagement helps to insulate our economic relationship from swings in the political pendulum.

The strategy is now in place and depends neither on personalities nor government alone, and it can be pursued systemically with benefits for Americans and Eurasians alike.

*Jan H. Kalicki is United States ombudsman for Energy and Commercial Relations with the New Independent States and counselor to the US Department of Commerce.

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