VZCZCXYZ0000
PP RUEHWEB

DE RUEHMO #5310/01 3111427
ZNR UUUUU ZZH
P 071427Z NOV 07
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 5107
INFO RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY

UNCLAS MOSCOW 005310 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
EUR/RUS, EB/IFD/OIA 
NSC DPRICE, WARLICK 
STATE PASS TO USTR FOR VERONEAU AND HAFNER 
 
E.O. 12958: N/A 
TAGS: EINV ETRD ECON WTO RS
SUBJECT: D/USTR JOHN VERONEAU IN MOSCOW 
 
REF: MOSCOW 5210 
 
 This cable is sensitive but unclassified, not for internet 
distribution. 
 
¶1. (U)  Summary:  While in Moscow to attend the U.S.-Russia 
Business Council Annual Meeting, D/USTR John Veroneau met 
with industry leaders, engaged with experts at the Carnegie 
Center and had discussion with counterparts at the Ministry 
of Economic Development and Trade (MEDT) and the Finance 
Ministry (MinFin) on topics ranging from WTO to a Bilateral 
Investment Treaty.  End Summary. 
 
¶2. (U)  Deputy U.S. Trade Representative Ambassador John K. 
Veroneau visited Moscow October 22-24 to participate in the 
15th Annual Meeting of the U.S.-Russia Business Council 
(USRBC) and deliver the keynote closing address.  Betsy 
Hafner, director of the office for Europe and Eurasia at 
USTR, accompanied him.  In his speech to the Council on 
October 24, D/USTR Veroneau addressed the importance of 
economic openness, rule of law, and transparency in fostering 
long-term economic growth.  He also underlined U.S. support 
for Russia's WTO accession and the importance of the 
U.S.-Russia trade and investment agenda.  Toward that end, 
D/USTR Veroneau suggested that the United States and Russia 
consider negotiating a Bilateral Investment Treaty (BIT). 
 
----------------------- 
Taking Industry's Pulse 
----------------------- 
 
¶3.  (SBU)  During pull asides at the two day USRBC meeting 
and at official representational events, D/USTR Veroneau 
heard from industry leaders about the rewards and challenges 
of doing business in Russia and discussed specific concerns 
companies face.  Separately, the American Chamber of Commerce 
hosted a roundtable breakfast that provided an opportunity 
for a wide-ranging discussion on the business climate in 
Russia.  Executives from the software, pharmaceutical and 
insurance sectors briefed the D/USTR on company plans and 
shared their viewpoints on how to achieve success here.  They 
supported WTO accession, citing the benefits of membership in 
a rules-based organization for international firms trading 
and investing in Russia.  They candidly described the 
problems the face dealing with corruption and excessive 
bureaucracy. 
 
--------------------------------- 
Whither Russia - Think Tank Views 
--------------------------------- 
 
¶4.  (SBU)  The Carnegie Moscow Center (Carnegie Endowment for 
International Peace) also hosted an in-house roundtable 
discussion organized and moderated by Senior Associate Dmitri 
Tenin.  Discussion ranged across the broad expanse of Russian 
history, language, culture economic, social, and political 
issues.  In line with business viewpoints, participants 
identified corruption and related bureaucratic red-tape as 
the most serious problems.  On the political front, they 
agreed that President Putin is determined not to be a lame 
duck and delights in keeping people guessing what his next 
move may be.  Overall, they expressed optimism about Russia's 
future, pointing to a gradually emerging middle class with 
its ability to travel outside the country and the power of 
global communication to keep information flowing. 
 
--------------------------- 
Bilateral Investment Treaty 
--------------------------- 
 
¶5.  (U)  Speaking at the USRBC on October 23, Trade Minister 
Elvira Nabiullina told U.S. and Russian companies that she 
supported negotiating a BIT, noting that the United States 
was one of the few major economies with which Russia does not 
have such an agreement and expressing hope that one would be 
completed soon. 
 
¶6.  (SBU)  In meetings with Deputy Finance Minister Sergey 
Shatalov and Deputy Trade Minister Kirill Androsov, D/USTR 
Veroneau raised the U.S. interest in negotiating a BIT with 
Russia (RefTel).  (Note:  a previous BIT was signed in 1993, 
but never ratified by the Duma.)  Shatalov and Androsov 
indicated that a BIT would be attractive to investors from 
both countries.  Shatalov said that the old model BITS were 
no longer applicable since they did not reflect changes in 
the Russian economy over the past decade.  MEDT, not MinFin 
would be the lead negotiator on a BIT, he said, but MinFin 
would also participate.  Shatalov predicted that other 
ministries would support BIT negotiations, but also 
underscored that concluding the WTO accession was the top 
priority. 
 
---------------------------------------- 
CIFUS and Russia's Strategic Sectors Law 
---------------------------------------- 
 
¶7.  (SBU)  Meeting with MEDT Deputy Minister Androsov, D/USTR 
Veroneau described the Committee on Foreign Investments in 
the United States (CFIUS) as legislation intended to protect 
national security interests while ensuring that the United 
States remained open to foreign investors.  He stressed that 
it was not a protectionist economic measure and explained the 
law was designed to make the process more formal and 
transparent.  He added that only a small percentage of 
foreign investment were ever reviewed on national security 
grounds and few were actually rejected. 
 
¶8.  (SBU)  Androsov responded that the draft Strategic 
Sectors Law is intended to fulfill the same function.  It 
would clarify for foreign investors those areas where GOR 
permission would be required to establish majority control of 
a Russian company.  He stressed that Russia would remain open 
to foreign investors needed to help the country diversity its 
economy.  He noted that 60 percent of the GOR's budget was 
the result of taxes on the oil and gas sectors and said that 
reducing this dependency would be the new government's number 
one economic objective. 
 
--------------------------------------------- -------- 
Concerns about Russia's Accounting and Control System 
--------------------------------------------- -------- 
 
¶9.  (SBU)  D/USTR Veroneau raised in the meeting with Deputy 
Finance Minister Shatalov U.S. business concerns at the 
possible expansion of Russia's accounting and control system 
(EGAIS/UFAIS) -- covering import, export and distribution of 
products -- to other products in addition to alcoholic 
beverages.  According to Shatalov, the introduction of 
customs stamps on alcohol was flawed:  measures were not 
completely considered and implementation was mismanaged, as 
evidenced by the inadequate supply of stamps.  He said that 
domestic producers were particularly affected by the changes 
and that production fell dramatically and still remains below 
late 2005 levels.  He assured Veroneau that should the system 
be extended to other products, implementation would be much 
smoother and non-discriminatory. 
 
¶10.  (SBU)  Following up on this issue, Director Hafner held 
separate meetings with GOR officials and raised concerns 
about the discriminatory application of the EGAIS/UFAIS 
system to imported spirits as well as its expansion to new 
products.  She also raised concerns about the GOR's continued 
unwillingness to share draft orders implementing our 
bilateral agreement on the importation of products with 
encryption technology. MEDT advisor Yuriy Lyubimov expressed 
his optimism about WTO accession and described on-going 
discussions with the drafters of Part IV of the Russian Civil 
Code.  Vladimir Loginov, MEDT's head of the Department of 
Non-Tariff Regulations, said the GOR would resolve remaining 
issues related to encryption and alcohol.  Hafner also met 
with local representatives of the spirits, cosmetics and 
technology industries who raised their specific, detailed 
concerns with her. 
 
¶11.  (U)  D/USTR Ambassador John K. Veroneau has cleared this 
cable. 
BURNS