No matter what Vladimir Putin and George Bush have decided to discuss at the February 24 summit in Bratislava, they will certainly not be able to ignore bilateral economic cooperation. A new trend, the success of Russian business on the largely uncharted American field, is particularly impressive. Major Russian companies have developed an appetite for enormous American assets. For example, Severstal has acquired Rouge Industries, the fifth largest steel producer in the US, whereas LUKoil has closed a deal with ConocoPhilips on the purchase of gas stations in New Jersey and Pennsylvania.
The presidents will be eager to announce that the economic foundation of the Russian-US partnership is becoming increasingly solid with every passing month largely due to an expansion of bilateral trade.
The overall volume of Russian investment in US economy is nearing the $1 billion mark, which is almost equal to the volume of US investment in Russian economy.
In 2003, trade between Russia and the US was worth $7.1 billion. Today, it has reached almost $14 billion. However, although the figure has doubled, the two countries have only started to explore the available possibilities. Russia is still only somewhere in America's top 40 trade partners, trailing such countries as Nigeria, Venezuela and Sweden. The US is firmly perched in Russia's top ten list at number seven.
Moscow is not satisfied with either the volume of trade or what it encompasses. The majority of imports depressingly are high value-added goods, whereas exports are mainly raw materials and low-tech products. The Russian authorities are seeking to "refine" the content of bilateral trade.
Indeed, America has not been a particularly impressive investor in the Russian economy. Far more could have been expected from a country with such enormous investment potential. In 2004, the United States slipped from second to third placein terms of direct investment in Russia ($4.2 billion), allowing the Netherlands ($7.8 billion) and Cyprus ($5.5 billion) to overtake it. As to the overall volume of investment (including portfolio investments), which currently constitutes $6.7 billion, the US is in a modest sixth place.
What is preventing a decisive breakthrough in bilateral economic cooperation?
Moscow and Washington seem to have contrasting views on the issue. American experts tend to complain about the lack of "a normal economic environment" in Russia, a poorly developed legislative base and insufficient legal protection for business from the arbitrary actions of the authorities. The Yukos saga is frequently cited as an example of the latter.
Moscow is ready to accept some of the criticisms, especially related to problems in legislation and shortcomings in implementing laws. Recent statements made by senior state officials support this assumption, although perhaps more tolerance could be displayed toward a country that has only just completed the leap from a planned economy to the market system. At the same time, it for a country with low household incomes, Russia has recorded some enviable macroeconomic indices.
To the surprise of many, the Yukos case, although it drew the West's ire, did not stop prominent rating agencies from upgrading Russia's investment rating. It seems that neo-conservative circles in America are exploiting Yukos to apply pressure on the Bush administration. Under the false pretences of protecting private business in Russia, they want to force the White House to toughen its policy toward Russia with the ultimate goal of portraying Russia as an enemy, thereby embroiling both countries in confrontation.
While speaking at the recent session of the Russian-US Council for Business Cooperation, Sergei Lavrov, Russia's foreign minister, seemed to be responding to this by expressing the hope that Russia and the US would soon learn how to identify priorities.
From Russia's standpoint, efforts in economic sphere should be focused on the country's prospects of joining the WTO.
Having secured the support from the European Union and China last year, Moscow is now concentrating on reaching a similar agreement with the US. Certain success has been achieved in this area. For example, the sides have reached an agreement on aircraft sales. However, many controversial issues remain, including the liberalization of Russia's services market, primarily banking and insurance, state support for agriculture, and intellectual property rights.
If we combine all these differences in a single formula, then it looks fairly straightforward. Russia wants to join the WTO on standard conditions. Unfortunately, long-term WTO members, including the US, are not ready for this. There have been numerous signs pointing to attempts to assign Russia the role of a second-rate partner.
Other than the WTO issue, there is a notorious Jackson-Vanik amendment. It was initially intended as a measure to support Jewish emigration from the Soviet Union. The USSR is now long gone, as has the problem of Jewish emigration. The amendment, though, is still in force. Washington tries to reassure Moscow by saying that the amendment virtually does not affect bilateral trade relations. This may be the case. However, it certainly continues to irritate Moscow because its mere existence shows that the US administration is hardly ready to use its political capital to neutralize anti-Russian attitudes in Congress, and ultimately ensure the further development of economic cooperation with Russia. The list of similar irritants could go on and on.
It is hard to believe, but it is true - American firms are still not allowed to sell supercomputers to Russia. The ban originates from the notorious COCOM, a special committee established to control the export of "sensitive" technologies from member countries to the Soviet Union and other Warsaw Pact countries. Again, where is the Soviet Union or the Warsaw Pact now? They are gone, but the ban is maintained religiously.
Meanwhile, the United States may be even more interested in economic partnership with Russia than Russia itself. The key word here is energy. In 2002, Mr. Bush and Mr. Putin blessed the development of Russian-US energy ties, considering the large resources in Eastern Siberia and the Russian Far East. Moscow is keen on increasing exports of Russian oil and gas to the United States from current 2% to 10%. The sides have already outlined several projects, including the construction of an oil pipeline Western Siberia to the Barents Sea, direct supplies of oil and liquefied natural gas to the US from Sakhalin scheduled for 2005-2006, the joint exploration of the Kovykta oil and gas field (the world's largest), research into new sources of energy, primarily hydrogen, etc.
In contrast to its role in Europe, Russia has never been considered a large direct supplier for the American energy industry. In Bratislava, Mr. Putin and Mr. Bush can radically change this situation.
