Why Should the U.S. Care About Russia?

This year is 200th anniversary of diplomatic relations between the United States and Russia. Our two countries are experienced profound changes over the years, but one area has remained of great importance, the commercial sphere of trade and investment. As we look forward to Russia's accession to the World Trade Organization what will that mean for US business and how will Russia's integration into the global trading system potentially affect the broader US-Russian relationship. In the aftermath of the Kennebunkport summit between our two presidents how important are the political and security issues they discussed to our country's future and to the economic relationship between Russia, the US and the rest of the world? Today we are pleased to hear the Russian perspective on these issues from the key legislator and close advisor to President Putin, Mikhail Margelov and a US business perspective from US-Russia Business Counsel President and trade authority Eugene Lawson. We are also pleased to welcome Vladimir Vinokurov who came to San Francisco as Russia's new Consul General just last month. Eugene Lawson, I understand well personally introduced Mikhail in a moment. So despite my desire to go on at great length about Mikhail's background and all the good things that he had have done for Russia. I will just be introducing Eugene we will then do the do the honors for Mikhail. Eugene Lawson has been president of the US Russia business counsel since 1993. He and I happened to co-edit a book entitled 'Russian-Eurasian Renaissance' focusing on the trade and investment relations between the US Russia and the new independent states of the former Soviet Union. Just this past week President Putin awarded Eugene Russia's prestigious order of friendship for his contributions to US- Russian commercial relations. Congratulations to you. Prior to joining in the business council Eugene had a long carrier in government including his service as vice chairman of the US export-import bank where he was point man for president George Bush Senior on negotiations to conclude the $2 billions oil and gas frame agreement with Russia. He also served as Deputy Undersecretary of Labor for international affairs and concurrently US ambassador to the international labor organization in Geneva. He headed the commerce department office of East West Trade and he authored two books previously on China. A man of truly global interests. Please join me and then welcoming Eugene and Eugene in turn will be introducing Mikhail. Eugene Lawson. Well Jan thank you for that wonderful introduction as we say in Washington areas the kind of introduction that my father would have enjoyed and my mother wouldn't have believed. It's wonderful to be here in San Francisco I was here from 1961 to 1963 with the US navy as as an officer and not much of a gentlemen I don't think but in anyway, we want to thank Corney Regal and obviously Jai Pryor to put this thing together they they did it under some time constraint they did a wonderful job and I thank you all for coming. My friend Mikhail and I are here to hopefully get you to rethink the US-Russian relationship, despite the harsh exchanges on the headlines are the two countries share a lot of strategic and political goals and growing commercial ties. Mikhail will address the political strategic areas of our relationship and of course you will answer all the tough questions about that and I would like to talk to you about the about how Russia is a growing important commercial partner partner of the United States. There are many people in our state are caught in a freeze frame, stuck into freeze frame whether they think about Russia where there is a long lives at a state store or the financial crash of the 1990's when Russia divided its currency and defaulted on its on its domestic debt, and the economy at that time in Russia went into a tailspin. In 1998 when the crisis hit many US companies left Russia, vowing never to return. Russia, they felt was a failed state but in global economic affairs never say never. The vast majority of these companies have returned to Russia with a vengeance and many, many more and their wake have returned and in almost and and in almost every case they are enjoying truly tremendous growth. Russia today is a vibrant and robust economy whose economic achievements make it one of two or three of the most dynamic economies in the world and I say this is a straight place, straight face with no hyperbole involved. When we give you a couple of statistics here, in1998 the year crisis the country's economy in Russia was roughly the size of the economy of Los Angeles county in California right towards south. That year Russia's GDP shrink by five percent and inflation was an incredible 84 percent and across the country over 40 percent of Russia's entire population lived below the poverty line. Today Russia has the GDP the tops $1 trillion and makes sure that tenth largest economy in the world. A lot of people who know lots more than I am about Russia and when the numbers think that with in ten years with in a decade, short of the decade it will be the fifth largest economy in the world. Average GDP growth has exceeded seven percent over the last eight years far outpacing growth in the in the G7 countries, but there is another way to look at this growth. That's in Ruble terms and the ruble is really inflated if we put it in dollar terms what is the rate of growth? It's in the lower 20's. This is extraordinary growth here and of course we know disposable incomes have have experienced dynamic growth as well, and the poverty rate has been slashed from that 40 percent where the people lived. In just eight years down to 12 percent. Think of that from 40 percent of the population down to 12 percent living below the poverty line now. Due to sound fiscal policies Russia has reduced inflation to 8.5 percent and it's paid off a tremendous amount probably you know 80-90 percent of it's of its huge foreign debt rate had became you know, the Russian federation. These are extraordinary, extraordinary accomplishments, and they are all under reported by the press. Now as we all know rising oil prices have certainly contributed to Russia's growth, to Russia's economy and that country is simply awash in petrodollars. But and this is very important those petrodollars have trickle down, and they have trickled across to other sectors and they drive consumer spending. There is an emerging middle class in Russia today accounting, as Bill Burns the Ambassador to Russia says repeatedly, accounting for almost 25 percent of the Russian population now, that is the base on the one which this growth coming from. And if you look at the country wide it's a 142 million you know, consumers highly educated consumers that have pent up consumer demand. Russia has 99 percent literacy rate. This is a very erudite type country. To give you a sense, of what this means for the members of the US-Russian Business Council are 300 or so members. I would refer you to one of the most common complaints that the members make to us about doing business in Russia. It's not you know, corruption and bureaucracy but it's not to have the number one complaint is they can't hire fast enough talented personnel because of the rate of growth. What a great problem to have? Almost 80 percent of the all the Russian companies of all I am sorry, almost 80 percent of all the US companies that do business in Russia today, there are 300 members in the US-Russian Business Council and there are 750 members of the Amcham and the American Chamber of Commerce in Russia. Almost 80 percent of those companies report that Russia is the top revenue generating country in their global operations. It's ahead of India, ahead of China, ahead of Brazil. US exports to Russia grew 20 percent in 2006. And we expect that growth now to be in the lower 30s if you straight line the projections from the first few months of this year. And the economy's boom goes beyond the trading commodities, consumer goods companies like Procter & Gamble, 3M, coco cola, Pepsi and Mary Kay and Mars have expanded their operations in Russia. And in fact to get another statistic in, Russia is the world's 12th largest retail market. And some people will say in just a few years, it will be the 9th largest. Four or five I can't remember. By 2010, thank you. By 2010, it will be the 9th largest in the world. And in IT you know, you would naturally think India India well, not so fast here. Russia's IT sector is the fastest growing IT sector in the world. Intel, CISCO and HP, all members of the council, all members I might say of our board too - are leaders in this market. And in financial services, Citibank, Visa and others are benefiting from the huge growth in mortgage lending that's going on in Russia today. Insurance and credit card use. Despite US downturns we are just came from the great city of Detroit. Ford, GM, and Chrysler continue to increase market share in Russia. I am happy to say, the two top selling cars in Russia today are Ford and Chevrolet. Chrysler is coming into the mix. Now, on the Russian side, they help US competitiveness here just to give you, you know, two three examples here. Russian engineering in scientific talent is well known. But it keep the US companies competitive in the global market for instance. Boeing employs, 1300 Russian engineers and scientists at it's R&D facility in Moscow. And I was told by a senior officer at Boeing that listen that 787 Dreamliner here they were hailing all on would not be there if we were not for the contributions of the Russian scientist in Moscow to that plane. Chemdev which is right down the road here in southern California draws on 450 Russian scientists develop and produce new medicines, of course it's well known the market is not without as challenges, bureaucracy and arbitrary regulations are a drag on business and in the energy sector growing state intervention has created some uncertainty and yet because Russia has so much oil, and because Russia has so much natural gas, I know of no US major that has walked away. Now, we are anxious to see what happens here when the laws on the so called the strategic sectors is passed, its been presented to the DUMA the US will have a crack at that. We know from the past actions of the Russian government that you better have, you better have a Russian partner and you probably cannot expect to have a majority you know, participation in equity in any kind of energy deal in Russia today. But I will point out that this is really the standard in the field. This is what happens all over the world and in most respects; Russia's regime is more liberal than say Mexico or many countries in the Middle East and certainly more liberal than Nigeria and of less Indonesia. Now, the biggest news on the commercial horizon is WTO, integrating Russia into the world's global market and it's rules is a top priority for the US business community and the transparency and the certainty WTO membership will bring the Russian market is a huge plus for US companies and Russia. There is a real danger however that the US will be frozen out of the increased opportunities that are part and parcel of Russia's deputy or exception unless unless the US congress repeals the outdated Jackson-Vanik amendment which is been outdated here, they have been in compliance with it for 10 years. And grants, so called PNTR, Permanent Normal Trade Relations with Russia, US companies will be denied the benefits of all this market opening concessions that Russian agreed to with everybody else and us. And in other words, US exporters will suffer. And it's the job, of the coalition for US Russian trade, the NAM the business round table, the US chamber of commerce that we set up in Russia. Now that we set up here in Washington DC to educate the members of the congress that this is not about this is not about Russia joining the WTO, this PNTR is about evening the playing field for US exporters. And you know, we can get that across I think will be in a right in a right the right path. Certainly back to the big picture we are very pleased at the Lobster Summit, that Jan referred to and Maine took place, it was nice to have the - some of the rhetoric shelved, is some of the proposals, that we talked about a Maine succeed, some of this could lead to a sea change in the attitude and policy between our two great countries. The Russians brought with them some very interesting proposals. So in the meantime we are forging ahead on the business realm or business we feel can serve as the foundation for closer political relations and hopefully even as a break on any future fissures of that relationship. Put another way, we feel that the economic trade and investment ties, commercial ties will be in the end the ties that would truly bind our two countries together. Russia matters, so if you are not engaged in Russia commercially today, I encourage you to take a closer look. Chevron, Intel, CISCO, HP will lead the way. Check out the opportunities, there is a lot that there is that this great country can offer us in the commercial field, thank you all very much. Mikhail Margelov is a quite essential Moscow insider. In the best sense of that word, you all have his official bio, let me go beyond that. The last time I saw Mikhail in action was at the Guggenheim Museum in New York City, sometime ago and the museum was presenting the most comprehensive art exhibition ever brought to America. And president Putin was there along with the glittering assortment of US government officials and social and business elites and so forth. And my wife and I lucked out and got an invitation in time to see a master at work. When I say a master, I mean chairman Margelov. It was Mikhail there Mikhail he had first being interviewed by live tv and then talking to the Mayor of New York, then on radio, laughing with Henry Kissinger and then holding an impromptu press conference and he walked a few steps of the spiral stair case towards the Guggenheim and he will be greeted as an old friend by chairman of the Republican party then more friends then the chairman of the Democratic party and all and all and what he knew more on Americans or at least as many of any American there. So what is that make it, just an outstanding lobbyist and just a personality with presence? Mr. Margelov had another career not described in your bio in which the premium is put on very high intellect on precise and reasoned thinking and on an ability to act with decisiveness at the right time. Behind the extraordinary charming demeanor is a man with a strategic vision who is a hard nosed realists and who is a Russian patriot. It's no wonder that people in highest institutions in Moscow trust him with their secrets, ladies and gentle men Mikhail Margelov. Gene thank you for that generous introduction, I hope President Putin heard you, if he did he would order me with the order of friendship but not here. I just want to say that I want to thank World Affairs Counsel for giving that opportunity to talk to you and saying that we came with a short notice so I didn't see my picture there on the entrance and you guys in California have one of the most exciting and an unusual manners to greet the new comers with earthquakes like it was last night, thank you for that. I should say that I was really missing California for the last 15 years I having been to the West Coast for the last 15 years since I was working for an LA based consulting company in '91-'92, I mostly come to Washington DC and to New York and it is real pleasure to be here thank you again. Why did I agree when Gene approached me with his idea to take the opportunity and to do that road show from New York Island to California, not from California to New York Island in the opposite direction, because for me its quite clear that United States of America and the Russian federation need each other, we need each other in global perspective. And I don't think that we need love because love comes and goes, we don't need alliance because when I hear the word alliance it means that its alliance against something or against somebody it's a kind of joint venture aimed at destruction and aiming of destruction for me is not a kind of positive agenda I believe in partnership, we need contract marriage we need to be partners and being partners wel both benefit we benefit from the security point of view and with benefit from commercial point of view. When we were in Detroit and when I saw one of the biggest steel factories which is owned now by Severstal which is a Russian company. I was pleased to see that the Russian business is creating jobs in America, as well as I am pleased when I see lets say Ford motors having a factory not far from St. Petersburg with the Russians working there and earning their living there. And I think that the more interdependent we are the more docking mechanisms we have, the more bridges we have, the more solid is the fabric of our bilateral relations that the better it will be for us. The former US secretary of state Colin Powell when he was addressing the US-Russian Business Council annual meeting about five years ago I guess in Washington DC has said that one of the greatest achievements of the Russian-American relations of the last six, seven years is that very often we agree and more often we disagree but if we disagree we did not become animals, we just have discussions and we understand pretty well that we need each other, and if we know that we need each other we will succeed, we go forward let me say a couple of words about how I see what is happening in Russia now from political perspective, so easy to talk about Russian after Gene's presentation because he has covered all the details very feasible pragmatic if I meant so things which would people really feel and people really see when they come to Moscow. You will more be surprised to hear that we are going to have elections at the end of this year on second of December we are going to have Duma election the elections to the lower chamber of the Russian parliament, and in the beginning of March next year we are going to have presidential elections. The Duma elections to my mind will not bring any great news the United Russia party or the Pro Putin Party that is call sometimes I think will succeed. It is difficult time for the United Russian Party because during the last 70 years most of the legislation which was adopted by the United Russian with the United Russian support was the legislation aimed in the liberalization of the Russian economy and such measures cannot be popular among people because people feel certain difficulties. Definitely the United Russia would be challenged from the left wing, if I may say so but the good thing is that the challenge which comes from the left wing today it looks like more like the challenge which European Social Democratic Parties can present but not in that Bolshevik manner. Frankly speaking our communist have learned something from the capitalist may getting spoiled I think they modify the Lenin's principle which was you all remember "land to the peasants, factories to the workers" they just added Mercedes to the entrance. And I think that for me one of the most exciting things is that of the latest regional elections, the communist party was not getting more than 10-15 percent and it is in the Russian regions in where people are if I may say so, still poisoned by certain remnants of soviet mentality. I will give you one small example. I was accompanying the Governor of the Pskov region and I have the privilege to represent the Pskov region which is in the North West of Russian Latvia and Estonian border in Federation Council. I was accompanying the Governor on his trip around the region and we came to one small town and the whole life on the town was around the factory which was privatized in 1992 and people were working at that factory for about seven years receiving salary and the envelopes and it was okay at that time in Russia, they were not paying taxes, they were thinking about even not thinking about paying taxes, because when the taxes before the year 2000 were up to 65 percent, now its 13 percent flat tax now you can pay taxes. So no one wanted to do that so and in '99 the owner of factory has shut the doors of the factory for the general remodeling and he just fired all the people out, and people started screaming and shouting talking to the Governor and saying that you have to take the factory from the owner and you have to you know, restore an order in the region because we are not getting paid. He said to them okay but you getting paid for seven years under the table and I mean you were not caring about paying taxes, so how can you address the government with your complaints. People started screaming and shouting again they said you are the power, you have to restore the order. Listen, to the order in this country law and order are indivisible. For many people in my country is still not the case because the socialist mentality puts the order over the law and the task of the Russian political class actually one of the main tasks of the Russian political class today is how to educate our people? That law and order are indivisible, that the values which we all share human rights, rule of law, democracy are the same values here and there in all the civilized world. And when you talk to the people directly you feel that people do share these values you have to just package that message to them in the manner which they can understand. As for the presidential elections in March 2008 I have good news and bad news. Bad news is that I do not know the name of Putin successor because there will be no appointed successor, there will be elections, there will be competitions which you have today what but four or five presidential candidates already, I think we have we will have about ten or twelve presidential candidates, we like to joke in Moscow saying that there are so many towers in the Kremlin meaning that there are so many groups of interest and groups of influence that would definitely inspire the real competition and there will be free and fair elections. What will that mean? Will that mean continuity or new crisis? I think I think the fact that people now feel the taste of good life. Will mean that they would not vote for radicals, they will vote for the continuity, they will vote for stability and they will vote for better life and it is quite obvious because if we look back at the Soviet time with all the shortages and total deficit definitely people do not want to turn back and I think it is good news for all the businesses both foreign business and Russian business that means that the economic reforms will go on, that means that the market will be developing and that means that Russia will be an integral part of the world economy being a WTO member being the member of all the international institutions and that will mean that the world will see really predictable transparent and democratic Russia. Its very difficult for my country to fulfill the task which is very new for us to build a sovereign nation state, we have never done that before, we have always being an empire during the czar time during the soviet time and now the task is how to create the sovereign nation state, and its really challenging its really challenging but it is important. And I think that the Russian people deserve that, deserve that because that's the only way to develop and what makes me really optimistic? What makes me really optimistic about the future of my country is the younger generation. My son is 16 years old, when he was younger if I may say so my mother-in-law was reading books to him and the books which she has at her home were Soviet time books for kids with all the stories about the young pioneers and stuff like that, and when she was reading that books to him she could not understand almost 90 percent because that was the realities of the Soviet time, and she had to explain all the realities to him. He was born in October 1991 and he does not believe that my wife and I 17 years ago did not have foreign passports, not having the opportunity to travel abroad. He does not believe in that, he asked me and how you spend your vacations? Why not in turkey? And when I took him in January 2004 for a brief vacation, I took him to Washington DC, I would say it is a strange place to spend your vacation, definitely if you can go to California you shouldn't go to Washington DC. Sorry Gene for that but he want to see Smith- sonian institution and he was crazy about aerospace issues so I took him to Smithsonian Museums and I took him to National Aerospace Museum. We spend there the whole day and it was nice exercise for him to touch everything, he could you know see everything. And at the end of the day we were in the ground floor where they have that exhibition dedicated to cold war era, where the soviet strategic missile and American strategic missile standing side-by-side together. And there were two photos, listen to very attentively now, one is a photo of pentagon made by the Soviet Intelligence Satellite and then the other one is photo of Kremlin made by American Spy Satellite. And I started to explaining to my son the whole story of the cold war and the arms race and the detante and all the good stuff. He was listening to me attentively and at the end of my presentation he looked at me as I am crazy and said why we are spending so much time and money for nothing build photos are of so poor quality. And that really makes me optimistic if the younger generation thinks in you way that means that we all succeed, hope us on the way. Thank you.