#24 - JRL 8378 - JRL Home
U.S. Business Relations with the Member Countries of the EuroAsian Economic Community (EurAsEC)
Alexander Vershbow, U.S. Ambassador to Russia
President Hotel, Moscow, September 21, 2004

It is an honor to participate in this international congress of the EuroAsian Economic Community's Business Council. I am delighted that you have chosen "Business with America" as one of the topics of the first investment forum.

As I have often said, and will repeat today -- a stable and prosperous Russia is in the best interests of the United States. And, by extension, I can say with confidence that Russia's prospects are enhanced when her neighbors are stable and prosperous, including those that make up the membership of EurAsEC.

The United States cares about Russia and its economic prosperity, because we believe healthy trade and investment relationships are good for bilateral relations between countries, as well as for the global economy. The greater the trade and investment, the more jobs are created, the more money employees have to spend, the more goods are available to average consumers at reasonable prices, and the better off everyone is -- not just in Russia or in the U.S., but globally.

There are other reasons why we want a stable and prosperous Russia in a stable and prosperous neighborhood. We share self-evident interests in curtailing the spread of weapons of mass destruction and in keeping terrorism from taking root within the region. The tragic events of the past few weeks have unfortunately demonstrated that terrorism has become a global menace that no nation can escape and no nation will be able to solve on its own. To meet this challenge we must do what we can to make each other stronger and more secure in the struggle against an enemy that can be defined neither by territory nor by nationality.

In almost all of the EurAsEC countries, the United States has expanded its cooperation in the fight against terrorism -- ranging from the sharing of information between security services about potential terrorist acts to programs to strengthen the security of international borders. Presidents Putin, Akayev and Karimov have left behind old ways of thinking in offering their support for the temporary basing of U.S. military forces in conjunction with operations in Afghanistan; this has contributed to our common security in the war against terrorism. The United States also appreciates the fact that the Government of Kazakhstan has sent a combat engineering unit to help clear minefields in Iraq in support of coalition efforts.

Central Asian stability is especially vital because the region borders countries that have suffered greatly from terrorism and extremism. There are existing mechanisms -- the OSCE, the Partnership for Peace, the NATO-Russia Council, and others -- for us to turn to as we think of new ways to coordinate our efforts to consolidate peace, stability and prosperity across Eurasia. We watch with interest the progress of groups like yours toward regional economic integration ­ not only through the EuroAsian Economic Community, but also the Single Economic Space and the Shanghai Cooperation Organization.

The United States recognizes Russia's strong interests in this region. They are interests that my Government shares: we both seek to ensure that these countries of Central Asia become stable, prosperous democracies, not failed states that breed terrorism and extremism. We are far more likely to achieve these shared goals if we work together and discard out-dated Cold War-era thinking. Your meeting here today is a clear indication that our business communities already grasp this objective and are motivated by the desire to build stronger economic relations that benefit us all.

Examples of this strengthening cooperation are well known to this group. Less than four months ago, the United States signed a Regional Trade and Investment Framework Agreement with the five countries of Central Asia, including three that are members of EurAsEC. This agreement, known as a "TIFA," affirms the desire of Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan, as well as the United States, to promote an attractive investment climate and to facilitate trade. TIFA's Council on Trade and Investment provides a yearly opportunity for Deputy Prime Ministers or Trade Ministers to meet with each other and the Office of the U.S. Trade Representative. The Council seeks to identify opportunities for expanding trade and investment and to remove impediments to trade and investment flows among the parties.

The United States is engaged now in intensive negotiations with Russia over its proposed accession to the World Trade Organization (WTO). We applaud Kyrgyzstan's accession to the WTO, and we will continue our efforts with the EurAsEC countries toward the pro-growth steps necessary for their accession as well. In this context, we are looking to Russia to take the hard decisions on market access and other issues that are needed to complete its bilateral WTO negotiations with the United States.

Allow me to focus for a moment on Russia, specifically. One of the key issues that requires resolution before Russian WTO accession can take place -- as well as a major bilateral issue between our countries -- is enforcement of greater protection of intellectual property rights (IPR). Inadequate IPR protection strongly discourages foreign investment and penalizes Russia's own creative minds -- its musicians, filmmakers, scientists, programmers and inventors. Russia's highly educated populace afford it a comparative advantage in idea-intensive industries. Inadequate IPR protection handicaps one of Russia's most promising sectors.

Another area that has an impact on Russia's accession to the WTO, as well as more broadly, on the well-being of the Russian people, is agricultural trade policy. Agriculture is a vital sector of the economy in all the EurAsEC countries, but I will speak now to Russia, the case with which I am most familiar. Russian agriculture is split among a small number of well-managed, large farms; millions of private smallholders; and a large number of unprofitable, inefficient former state and collective farms. Paradoxically, Russian agricultural policy puts the majority of its resources into the latter group ­ the one that affords the lowest return on investment -- and seeks as well to protect that sector from foreign competition at a time when markets elsewhere in the world are liberalizing.

By way of contrast, global agricultural policy is moving away from export subsidies and other trade-distorting agricultural supports. However, Russian trade policy today is governed by a concept known as "constructive isolationism" which seeks to protect uncompetitive Russian producers from foreign producers. In other words, protected sectors of the economy hardly ever become competitive. What is startling is how much more productive the unsubsidized farm sector in Russia is over the subsidized sector. This fact cannot have been lost on businessmen such as yourselves.

The countries of EurAsEC have tremendous economic potential -- vast energy reserves, transit links, and educated and creative populations. But economic growth requires EurAsEC governments to demonstrate the political will to open markets, eliminate remaining trade and investment barriers, and create a stable and predictable climate -- based on the rule of law. I speak not only of barriers to western investment, but barriers your countries have erected between and among yourselves. According to consultations with my colleagues in the other EurAsEC countries, this is, for many of you, the greatest impediment standing in the way of increased investment and trade. Foreign direct investment (FDI) flows provides one of the best indicators of a country's openness to business. Kazakhstan is noteworthy for the progress it has made in this regard.

However, the cooperation in the economic and business sphere cannot reach its full potential in the face of pervasive bureaucratic and administrative barriers. Let me give you some examples of the sorts of conditions that deter foreign investors, including American investors, as they balance the risks and returns of doing business abroad. The Government of Belarus, under the so-called Zolotaya Aktsiya law, threatens to nationalize any company in which the Government has ever owned even a one percent share. Elsewhere, Governments have attempted to assert state control over natural resource-based sectors of the economy, in contravention of contracts spelling out the property rights of private investors. It is also true that laws and regulations are not always applied to foreign investors consistently or in the same manner as they are applied to local firms. Often, the fees and requirements to obtain licenses are not published, leaving investors vulnerable to the demands of corrupt officials. All these actions have a chilling effect on business. Unfortunately, the verdict of many investors is that the efforts to eradicate corruption within the bureaucracy still have a long way to go in each of the EurAsEC countries. Impartial, transparent application of the law, along with acceptance of international arbitration procedures and awards, will do much to improve investors' impressions of the countries in which you do business.

There are nevertheless good examples of U.S. investment in the countries of the EurAsEC. The most significant U.S. investments in the region are the Caspian Pipeline Consortium (CPC) and the Tengiz-Chevron oil field which feeds it. This multi-billion dollar complex of investments involves not only the governments of Kazakhstan and Russia, but also the firms ChevronTexaco and ExxonMobil. The CPC and Tengiz deals are far bigger to date than any other U.S. investments in the region. We hope that the partners in the Consortium will soon agree on the expansion of the pipeline, which will further increase its viability and profitability. The Tengiz-Chevroil project and the CPC, we believe, prove that foreign investment in the energy sector of the region offers an unprecedented opportunity for mutual economic benefit and for realizing the potential for a strong economic foundation for our relations. We anticipate further development of the rule of law will strengthen this growth.

In the EurAsEC countries, most other U.S. investment takes place in the mining sector and in the soft drink sector. Untapped potential exists in the food processing industry, in electric power generation, in telecommunications, and in the consumer goods import market for U.S. companies.

As I said at the beginning of my remarks, building closer economic ties is a U.S. priority -- for both practical and strategic reasons. It is important for long-term economic development and growth in the EurAsEC countries; and it is key to building a foundation of shared interest that can make the wider relationships less vulnerable to shocks and crises. It is important to our companies and economic interests, as well as to yours.

If we look to the example of what is called the "West", we see that over the last fifty years the nature of international relations has been redefined. The role of governments as a driving force has been reduced, and increasingly relations are in the hands of the people, civil society and business. How has this been done? By radically reducing barriers to trade, investment and travel; by creating common institutions to harmonize commercial, political and military policies; by introducing common legal norms; and by fostering a sense of community among peoples based on the shared values of individual freedom and economic liberty. One result is $1 billion of two-way trade per day between the United States and the European Union, and $1.5 trillion in two-way investment, with millions of jobs created on both sides. A cooperative relationship and vibrant trade and investment flourish between the United States and the European Union, despite occasional well-publicized disagreements over particular trade issues. We can be partners, both commercially and politically, even though we do not always agree.

And so, in closing, let me express the hope that before too long, our relations with your countries and your relations with each other will begin to take on the quality of relations the United States enjoys with its traditional allies and trading partners, such as the nations of Western Europe, Japan, Canada and Australia -- relations built on mutually-beneficial outcomes and mutual prosperity. To achieve this goal, we will have to rid ourselves of the last vestiges of Cold War suspicion and to think in bold, new ways. Let us commit to expanded cooperation and a fundamental transformation of the relationship between all our countries, and form an enduring partnership based on common interests and common values. I wish all the participants a successful and fruitful forum.