Deputy Secretary's Speech

Remarks by David A. Sampson Deputy Secretary of Commerce
U.S.-Russian Investment Symposium
Boston, Massachusetts

I’m delighted to be here on behalf of President Bush and Secretary Gutierrez. As many of you know, Secretary Gutierrez has been very engaged expanding commerce between the U.S. and Russia and had wanted to be here, but his schedule did not permit it.

President Bush asked him to meet with his Russian counterparts early this year just days after the Secretary was sworn into office. The purpose was very clear: to follow up on the commitments for greater cooperation that President Putin and President Bush made at their summit in Bratislava in February. He spent the better part of a week in St. Petersburg and Moscow in May, much of it listening to people doing business in Russia. And frequent high-level contact has continued.

Positive Developments & Trade & Investment
There is encouraging news. Russia’s strong economic growth continues. It’s creating a climate of opportunity. Many U.S. companies are reporting consistent growth, often in the double digits. The scope is also impressive: In consumer products, in manufactured components for industry, in franchising, in high-tech.

Overall, U.S. exports to Russia rose more than 20% last year. And through August of 2005, they are 43% above last year’s pace. Major American companies increasingly target Russia as one of their top strategic markets for the future.

And in a new development, we are seeing Russian companies establishing a global presence with direct investments abroad. Clearly, free trade is strengthening the ties between our countries and benefiting our people.

Issues/Problems on Bilateral Commercial Agenda
Our governments are discussing a number of issues that need resolving. The U.S. position reflects our trade policy principles, and input from business groups.

Secretary Gutierrez met in late September with Finance Minister Kudrin. They discussed access to financial services markets, the role of the energy sector in Russia’s economy and other key points. The following week, the Secretary and U.S. Trade Representative Portman had separate talks with Trade Minister Gref, focusing on Russia’s pending membership in the WTO.

During the course of these discussions, we raised a number of concerns. A major problem we want to confront is intellectual property theft, which costs our businesses some $250 billion a year. That weakens our economy and costs 750,000 American jobs.

The World Customs Organization and Interpol estimate that trade in illegitimate goods worldwide increased in 2004 to more than $600 billion.

This is a global problem. It not only hurts the U.S. but it also hurts Russia. And the pain will worsen as Russia gains a larger stake in the world economy.

So we share a common interest in fighting piracy. Russia’s current government has made efforts to come to grips with copyright and trademark lawbreakers. However, there is still a troubling consequences gap. Russia needs to close the gap through tougher enforcement. Large-scale offenders who make careers out of stealing intellectual property should face stiffer fines and real jail time. We’ve told our Russian counterparts that it’s time to do away with slap-on-the-wrist suspended sentences that allow IPR violators to stay business.

WTO Accession
We are encouraging Russia to quickly put the WTO’s trade disciplines in place because doing so will accomplish several things:

• It will raise Russia’s global competitiveness.
• It will grant Russia’s trade partners greater access to this market.
• It will produce greater access for Russian companies around the world.
• And it will expand opportunity for the Russian people. Investment is a critical resource for any growing economy.

Everyone wants to know: When will Russia join the WTO? Some people incorrectly phrase the question as: “When will the United States allow Russia into the WTO?”

Russia has to reach agreements with the overall WTO membership. It has to commit to implementing, and abiding by, WTO disciplines that are observed by members. Minister Gref and his team have been making tremendous efforts on this front.

We have made it clear that we want to see Russia join as soon as possible. When they met in Washington in September, both President Bush and President Putin reaffirmed that every effort should be made to reach a bilateral agreement on conditions for Russia’s accession to WTO. We have agreed on many areas already. But there’s more to be done.

There are several key areas where Russia has important legislation or regulations to complete. We also have well-known concerns about Russia’s tariffs on aircraft, about intellectual property rights as I’ve described, about restrictions in financial services, and about treatment of U.S. agricultural products … to name a few remaining issues. Our negotiators continue to work on these issues, and we hope they can be resolved soon.

Investment Climate Predictability
U.S. companies clearly want Russian laws and regulations on investment to provide the transparency and predictability that foreign investors find in the U.S. market and in major markets around the world.

Russia’s commercial laws have already greatly improved in areas like customs and taxation. A reputation as an economy based upon the rule of law is critical to Russia’s future. Regulations need to be consistently interpreted. And they need to be uniformly applied from year-to-year, and company-to-company.

In broad terms, the Russian officials we have talked with are optimistic about the future of our trading relationship. What is also apparent is a debate within the Russian government about the extent to which free market principles will shape their policies. Specifically, they are struggling to determine the balance between a lighter or heavier hand of state control.

There is tension on this point that extends throughout the Putin Administration. This debate has played out most extensively within the Russian energy sector. Over the last 18 months, the Russian government has fairly systematically asserted tighter and tighter control over the energy sector. And it’s clear that there are some who want to extend this control to other sectors.

This debate will not be decided overnight. But the outcome is critical, and compels all of us to remain active and engaged. I hope that we will continue asserting the virtues of free-market, democratic capitalism to encourage the Russian government to pursue policies that bring the greatest stability and prosperity to the Russian people.

Importance of Democracy to Business
We would like to see our business relations grow to the point where they can be a stabilizing force in our relationship. This does not mean that we are unconcerned about the condition of democracy in Russia … quite the contrary. We strongly believe that for reasons of predictability alone, more democracy would be good for the Russian business environment.

Frankly, we think there are also strong business reasons for wanting decisions affecting the private sector to be made consistently, according to well-established procedures. Russia might be able to prosper because of its abundance of natural resources. But without the strong checks and balances that ensure transparency and the rule of law in commerce, Russia will never be able to leverage the creativity of its people, nor achieve optimal economic results.

When he returned from his trip to Russia this past spring, Secretary Gutierrez remarked about the great strides Russia has taken over the last 15 years in developing a market economy. Our job is to work on developing our partnership. America has learned some hard economic lessons over the years, and we are reaching out to Russia to share that experience.

In all these areas I mentioned, we depend on input from our business community. By working to advance American business interests, I believe we are also promoting policies that are strongly in the interests of Russia’s business community and its economy.

For the Russian companies here today, I think it’s significant that more and more of you are entering the global market. No longer are you confined to energy or other commodities. Increasingly you are in manufacturing, in high-tech, and other areas.

As you seek new business opportunities abroad, I think that the perspective you take home will be important in helping form Russian policies that encourage investment in the U.S. and elsewhere. By adopting more market-oriented and democratic capitalist policies, the size, number and scope of mutually beneficial partnerships between Russian and American companies will grow. And that is a vision for the decades ahead that all of us can share.

Thank you.