Old Saint Basil's Cathedral in MoscowJohnson's Russia List title and scenes of Saint Petersburg
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New York Times
November 14, 2001
Russia Seeks Belated Peace Dividend

MOSCOW, Nov. 13 -- The people who run Russia's companies and oversee its economy did not draft a formal wish list of economic measures for President Vladimir V. Putin to raise with George Bush as they meet this week. That is because what they want from the United States can be boiled down to one point: stop treating Russia like an enemy economy.

As Russia moves to integrate its economy with the rest of the world's, business leaders and government officials here say that more support is needed from America to smooth the way. American officials say that they are doing what they can, but that they cannot move faster than Congress and other countries' governments will allow.

"Russia wants to become a part of the international community and global economy," said Alexei Mordashov, general director of Severstal, one of Russia's biggest steel plants. "It would be right for all Western countries — the U.S. and Europe — not to push us away, but to help us in this process."

In the tumult of the first decade after Communism, Russian economic relations with the West mainly took the form of emergency loans from the International Monetary Fund. Now that Russia's economy has three steady years of growth under its belt and investment is beginning to flow on a large scale, more normal relations are possible, and Russian companies are eager to gain greater access to Western markets.

But laws and regulations unchanged since cold war days stand in the way, officials and businesses here say, especially in the United States.

"There are some remnants, some heritage from the past that should be corrected," said Andrei Illarionov, Mr. Putin's economic adviser, in an interview last week. "Russia should be considered an equal partner. We cannot be equal by economic size, demographics, or geographical location. But in commercial relations, in all these rules of behavior, it should be very normal good relations among neighbors."

One problem area is Russia's status under American antidumping laws, which are meant to protect American industries from unfair competition. The laws penalize countries that are deemed to have tried to increase their market share in the United States by selling goods below the cost of production.

In antidumping suits, which hinge upon production costs, Russia is treated as a "nonmarket" economy. For purposes of calculating production costs, the law calls for a "surrogate" market-economy country to be used for comparisons with the United States. But such countries often have little in common with Russia, and as one Western embassy's trade issues specialist acknowledged, the practice is "usually disadvantageous to the party charged with dumping."

The Russian government has applied to the Commerce Department to change its status and begin using actual cost figures from Russia, rather than from any surrogate, in antidumping calculations.

Russia's steel industry has suffered since 1998, when the United States accused it of dumping hot- rolled steel, its main export. At the time, the Russian government agreed to accept quotas to avoid punitive duties. Since then, Severstal's exports to the United States have fallen by three-quarters.

Another roadblock is the Jackson-Vanik Amendment, a 1974 sanction intended to press Communist-bloc nations to permit free emigration, particularly of Jews, from the Soviet Union.

The law has not been invoked against Russia in years, but the fact that it remains on the books would block Russia from obtaining trade privileges from the United States once Russia joins the World Trade Organization. Other former Soviet republics, like Georgia, which has already joined the trade organization, are similarly restricted by the law.

The Bush administration has asked Congress to scrap the Jackson-Vanik law. When that might happen is unclear, but its repeal is not expected to be controversial.

Russia wants to join the World Trade Organization as soon as it can, both to gain easier access to foreign markets and to gain the tools to defend its manufactured products there. Half of Russia's exports today are basic commodities — chiefly oil and gas — that need no protection. But goods like steel and fertilizer now face restrictions on imports to the United States that Russians say are unfair; as long as Russia is outside the W.T.O., it has no avenue to appeal them.

Membership "is the most important issue for us," said Alexei Kudrin, Russia's finance minister, in an interview last month.

Even with American support, Russia still faces arduous negotiations over membership. China's recently completed membership talks started in the 1980's. But Washington can help grease the skids.

Above all, Russia wants more private investment by American companies. A recent tax ruling opened the way for a consortium led by Exxon Mobil (news/quote) to start on a $12 billion oil and gas development in Russia's Far East. More such projects could bind Russia more closely to the United States, businesses argue.

"Russia can be a very useful part of the world, economically and politically," Mr. Mordashev said. "This is a chance for getting closer, for getting more Russian goods into the American market and more American goods into the Russian market. This is a chance for more integration."

And Russia is now a better place to invest than it was in the early 1990's, companies say.

"In 1991 there was nothing — just euphoria," said Anatoly Karachinsky, founder and chief executive of IBS, a Russian computer services conglomerate. "When the East saw how the West lived, we thought that soon we would be able to live like that. But then it turned out we had to build an economy. And we have been building it. It wasn't all successes, but we've made the first steps — the foundation."

Ultimately, investors will want to see more than warm words between governments before they open businesses here. A stable government, a reasonable tax system and a legal system that protects property rights are essential prerequisites, and Russia is still in the process of putting them in place.

"Our decisions about investing in Russia are made on the merits of how we see the market developing," said John Stevenson, president of Frito-Lay's operations in Central and Eastern Europe. Frito, a unit of PepsiCo (news/quote), said last month that it would build a $40 million snack food factory in Russia. "There isn't very much of a connection between the events of September and the decision to invest."

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