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Adding ballast to the U.S.-Russia relationship

Posted: Tuesday, November 17, 2009

As any old salt knows, too much sail and not enough ballast can lead to big trouble in bad weather. The U.S.-Russia relationship, in this sense, is much like a ship without enough draft to steer its way through political storms. The lack of shared interests between our two countries too often means that, like a top-heavy ship, we have been thrown off course by every ill wind that blows our way. Increasing the stakes we have in each other's economic prosperity would add ballast, giving us the ability to steer a straighter course through squalls and storms.

To the credit of Presidents Obama and Dmitry Medvedev, who on Sunday held their third bilateral meeting in the last four months, the U.S. and Russian governments are taking steps to do just that. The recently announced U.S.-Russia Bilateral Presidential Commission will have to navigate tensions surrounding Iran policy, the stop-and-go nature of WTO accession talks, and other contentious geo-political matters. Even with these headline-grabbing differences between our two nations, the commission has already defined areas of common interest, including building a strong commercial partnership.

To put the economic relationship in perspective, Russia currently accounts for only about 1 percent of America's overall trade, compared to 14 percent for China and 2 percent for the Netherlands. However, the next few years offer our best chance yet to expand two-way trade and create a meaningful commercial partnership. Following the Obama-Medvedev meetings and Secretary of State Hillary Clinton's visit to Moscow last month, both sides seem more willing to engage commercially in a constructive and structured way. And in his State of the Nation address last week, Medvedev called for economic modernization, including easing the barriers that impede foreign investment in Russia

Clinton and Russian Foreign Minister Sergey Lavrov, the commission's coordinators, agreed that the commission will consist of 16 working groups covering such economically vital areas as business development, energy, health and agriculture. Other working groups will deal with topics of at least peripheral interest to business, including space exploration and educational and technological exchanges.

Although the working groups will be government-to-government, the business communities in both countries must play a major role in the process.

The fact is, many American companies have discovered that Russia is open for business - and is an increasingly profitable place to do business. Until the onset of the recession, Russia enjoyed average annual growth of almost 7 percent. Russian industry has been restructured and, to a considerable degree, privatized. A whole new generation of young Russian leaders, economists and professionals has emerged. They are international, savvy and well-versed in market economics - an obshe yazik, or common language, that many of them share with their American counterparts.

They have already demonstrated an ability to achieve results. U.S.-Russia bilateral trade has seen double-digit growth for most of the past decade. In 2001, total trade was nearly $9 billion; by the end of 2008 it had reached $36 billion. This year, that number is likely to be around $22 billion due to the global economic downturn, a roughly 40 percent drop from the previous year but a significant increase since the beginning of the decade.

Significantly, U.S. foreign direct investment in Russia has grown from $6 billion in 2004 to more than $17 billion today. Much of the recent investment has been in sectors outside of oil and gas, formerly the leading area for inbound U.S. investment. This trend reflects growing demand in Russia for U.S.-branded, locally manufactured goods. Even more remarkably, Russian investment into the United States over the last decade has grown from a negligible amount to more than $8 billion. These investments have been largely in steel plants and, thanks to the experience of Russian steel companies in turning around their own troubled plants, a significant number of American jobs have been saved or created.

An important challenge for the commission will be restoring the positive trend in bilateral trade that the global recession abruptly halted, and create a business climate conducive to further investment. In the long run, this will require institutional reforms, such as creating an independent judiciary and combating corruption. However, there are several areas where relatively quick progress could be made, including simplification of visa and work permit procedures in both countries, export control liberalization in the United States, and customs reform in Russia. These fall under the jurisdiction of the executive branch in each country and therefore should be resolvable without legislation.

Increasing the focus on commercial relations may be our best chance of getting the U.S.-Russia relationship, right by putting enough ballast in the keel to ensure that we can steer through the political storms that inevitably occur. The business community stands ready to support this process in the hope of improving the standard of living and quality of life for the people of both countries.

• Edward S. Verona is president and CEO of the U.S.-Russia Business Council, a Washington trade association. Readers may visit his Web site at www.usrbc.org.



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