U.S.-Russia Trade Expansion Faces Hurdles

MOSCOW (AP) -- Russia has been buying U.S. soft drinks and farm equipment for decades, but U.S. Secretary of Commerce Gary Locke said Wednesday American investment here is "a fraction of what it could be," citing business concerns about Russia's strong bureaucracy and weak legal system.

Locke told reporters that Russia is fertile ground for U.S. businesses and investors in health care, information technology and energy conservation, and that improved commercial relations could help the U.S. and Russia build political bridges.

But he said a number of Western executives said during the two-day U.S.-Russia summit, which ended Tuesday, that they faced problems with corruption and seemingly arbitrary court decisions.

Some pharmaceutical companies, Locke told reporters, were reluctant to submit applications to sell prescription drugs here because they said proprietary information contained in the applications sometimes leaked out.

Western businesses in Russia have long struggled. Ikea recently announced it would halt expansion in Russia after complaining of red tape. Russian bailiffs seized Norwegian telecom company Telenor's shares in VimpelCom, Russia's No. 2 mobile operator, in an effort to recover $1.7 billion in court-ordered damages.

Despite the hurdles, some foreign companies are thriving. PepsiCo on Wednesday officially opened a new bottling plant south of Moscow, part of a three-year, $1 billion expansion plan in Russia for the Purchase, N.Y., soft drink and snack food company.

The farm equipment manufacturer Deere & Co. of Moline, Illinois, also announced plans to expand operations in Russia, while the Chicago-based Boeing Co. has launched a $60 million joint venture with a Russian company to make titanium parts for Boeing's new 787 Dreamliner jets.

All three American companies have long histories in Russia: Deere & Co. says it has had a presence in Russia for 130 years.

Chris Weafer, chief strategist for UralSib Financial Corp., said companies like PepsiCo have no choice but to do business in Russia, because the country represents a major market for their products.

The same isn't necessarily true, he said, of U.S. high-tech and service companies, which Russia desperately needs to modernize its economy.

U.S. trade with Russia in 2008 totaled just $36 billion, or about 1 percent of all U.S. trade. But Weafer said that figure could easily pass $140 billion if Russia could cut red tape, shrink the bureaucracy and tame corruption.

"These are the issues that are keeping people away," Weafer said.

Locke, meanwhile, said that Moscow should lift its restrictions on U.S. poultry and pork imports to encourage the U.S. Congress to repeal the Jackson-Vanik amendment, a key irritant in relations between Moscow and Washington.

The 1974 law limited trade with Communist nations that restricted the emigration of Soviet Jews, but remains on the books due to lingering post-Cold War disputes on trade and other issues.

Locke also said the U.S. wants "greater clarification" of Russia's bid for membership in the World Trade Organization, which sets the rules on global trade.

Russia and the European Union agreed last month to conclude talks by the end of this year on Russia's joining the WTO. The U.S. and Russia "were on the cusp of reaching an agreement" on Russian accession to the WTO, Locke said.

But Prime Minister Vladimir Putin announced in June that Russia would only join as part of a customs union with Belarus and Kazakhstan, apparently derailing Moscow's WTO bid.

Locke said that most WTO members regarded Putin's plan as "unworkable, unprecedented" and certain to delay Russia's entry.

Economists say Russia's key exports, oil and gas, are generally not subject to tariffs, so the country might not immediately benefit from the lower tariffs that WTO membership brings.

But Locke said it is in Russia's long-term interest to join the organization as its economy diversifies.

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