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P 221102Z JAN 10
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 6004
INFO RUCNCIS/CIS COLLECTIVE PRIORITY
RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEHXD/MOSCOW POLITICAL COLLECTIVE PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHINGTON DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 03 MOSCOW 000147 
 
SIPDIS 
 
DEPT FOR EUR/RUS, EEB/ESC/IEC GALLOGLY AND GREENSTEIN, 
S/EEE MORNINGSTAR 
DOE FOR HEGBURG, EKIMOFF 
DOC FOR JBROUGHER 
NSC FOR MMCFAUL 
 
E.O. 12958: DECL: 01/25/2020 
TAGS: ECON PGOV PREL RS
SUBJECT: UNDER SECRETARY BURNS' MEETING WITH FIRST DEPUTY PRIME MINISTER SHUVALOV ON ECONOMIC ISSUES 
 
REF: MOSCOW 53 
 
Classified By: EconMinCouns Matthias Mitman, Reasons 1.4 (b,d) 
 
¶1. (C) Summary:   First DPM Shuvalov briefed visiting U/S 
Burns on Russia's post-crisis economic policy priorities, 
proposed increased engagement with the U.S. to formulate a 
work plan for Russia's WTO accession, and reviewed 
outstanding issues related to the Customs Union with Belarus 
and Kazakhstan.  U/S Burns noted the importance of improving 
the bilateral economic relationship as part of the "reset," 
urged resolution of regulations effectively blocking U.S. 
poultry exports to Russia, and supported Boeing's bid on a 
tender to supply new aircraft to RosAvia.  End Summary. 
 
Russian Economy: From Crisis to Modernization 
 
¶2. (C) Under Secretary for Political Affairs Bill Burns and 
NSC Senior Director for Russia Michael McFaul met with First 
Deputy Prime Minister Igor Shuvalov on January 14.  U/S Burns 
briefly summarized USG goals to expand bilateral trade and 
investment, support Russia's accession to the WTO, and 
improve the overall U.S.-Russia economic relationship. 
Shuvalov conceded that Russia's WTO accession probably would 
be delayed at least a year, because of the recent global 
financial crisis in 2008-2009.  He reviewed Russia's economic 
performance over the past year, emphasizing GOR fulfillment 
of its anti-crisis plan and the objective of achieving 
"social stability." 
 
¶3. (C) In particular, Shuvalov cited GOR support for the 
domestic financial sector, which provided additional 
liquidity without re-igniting inflation (less than 9 percent 
in 2009.) He explained that several "near-bankrupt" banks had 
been rescued, thereby averting what could have been a 
financial panic.  Shuvalov stressed that the GOR had 
prevented a large increase in unemployment during the crisis, 
but that with more than two million workers officially 
jobless, unemployment remains a serious issue.  He admitted 
that total unemployment (including those not registered) was 
probably closer to nine million. 
 
¶4. (C) Shuvalov noted that recent economic indicators, 
including for industrial production, provided assurances that 
the Russian economy had started growing again last fall.  He 
called the current overall economic situation "not bad," but 
reiterated that GDP would not return to pre-crisis levels 
until 2012.  Shuvalov previewed key GOR budgetary priorities 
for 2010, mentioning pension reforms, health reforms and 
increased funding for higher education.  He explained that 
projections for the 2010 deficit had recently been revised 
downward, but that external factors such as growth in the 
U.S. and China, would affect world energy prices and GOR tax 
revenues. 
 
¶5. (C) The GOR's economic policy focus, Shuvalov continued, 
has now moved beyond "anti-crisis" measures to a policy of 
reforms, innovation, and modernization of the economy.  He 
noted that anti-crisis policies were focused on large 
projects, and cited the customs union with Belarus and 
Kazakhstan as an example. 
 
Belarus-Kazakhstan Customs Union and WTO Accession 
 
¶6. (C) Shuvalov candidly admitted that the customs union, 
which went into effect January 1, still had several 
"technical glitches" to overcome:  (a) working out a system 
for collecting and disbursing the customs revenues among the 
three countries;  (b) agreement on a harmonized tariff 
schedule; and (c) addressing economic interests that will be 
adversely affected by the customs union.  Shuvalov noted the 
controversy with Belarus over taxes on Russian crude exports 
to refineries in Belarus (reftel), and noted that discussions 
were continuing on access to energy transport systems such as 
oil and gas pipelines.   Shuvalov expected the customs union 
to reduce corruption and opined that creating a unified 
customs service for the three countries could eventually be 
realized.  He was less optimistic, however, about achieving a 
"unified economic space" with Belarus and Kazakhstan in the 
near future.  (Note:  At the end of the meeting, an aide to 
Shuvalov handed him a note stating that the GOR would provide 
the WTO "next week" an official memorandum addressing the 
reconciliation of its accession negotiations with the customs 
union.) 
 
¶7. (C) Turning to Russia's WTO accession process, Shuvalov 
underlined that PM Putin and President Medvedev recently 
issued a resolution reaffirming that this remains a high GOR 
priority.  Shuvalov acknowledged that  Russia still needs to 
harmonize several bilateral trade issues with the U.S., but 
that he thought this could be done in a relatively "short 
period of time."  U/S Burns noted that WTO accession would 
contribute to the modernization of Russia's economy and noted 
USG willingness to support the process.  He added that Russia 
needs to develop a game plan to address outstanding WTO 
issues.  NSC Senior Director for Russia McFaul recalled that 
USTR Ambassador Kirk last fall had urged Shuvalov to prepare 
a plan for Russia's WTO accession. 
 
¶8. (C) Shuvalov responded that he "is ready" to engage but 
that he does not know which senior  USG and Russian officials 
should start discussions  on how to move forward.  McFaul 
responded that he would consult with senior White House 
officials.  Shuvalov lamented that not much progress has been 
made since he returned from his visit to the U.S. last 
September.  Moreover, he stated some officials in the GOR are 
skeptical that the USG really wants to help Russia accede to 
the WTO.  Shuvalov suggested that both Finance Minister 
Kudrin and Minister for Economic Development Nabiullina would 
be willing to go to the U.S. to engage in negotiations with 
USG officials.  Noting that Nabiullina is co-chair of the 
Bilateral Presidential Commission's (BPC) Business 
Development and Economic Relations Working Group,  Shuvalov 
suggested that Russia's WTO accession be included in  the BPC 
to "catalyze" the process. 
 
Resolving Ban on Chlorine-treated Chicken 
 
¶9. (C) U/S Burns raised serious concerns about the Russian 
ban on poultry treated with a chlorine solution, stressing 
that this effectively closed a major export market to U.S. 
poultry producers.  He explained that a USG delegation would 
be coming to Moscow the week of January 18 for discussions 
with GOR officials and pressed Shuvalov for assistance to 
keep this trade dispute from becoming a complicated political 
issue.  Shuvalov agreed on the need to resolve the problem. 
He stated his belief that the Russian poultry market "will be 
open at the end."  Shuvalov cited the bilateral agreement 
with the U.S. on meat exports to Russia, and added that 
destroying this market would create a larger bilateral 
problem. 
 
¶10. (C) Despite his predictions of resolution, Shuvalov 
offered no specific actions he would take to contribute 
toward resolving the chlorine ban on poultry.  Instead, he 
complained about the difficulty in dealing with the GOR's 
lead negotiator on poultry -- Gennady Onischenko, the head of 
the Federal Consumer Protection Service.  He said that no one 
understands Onischenko, who he called the "most harmful 
bureaucrat" (samiy vredniy chinovnik) he has ever seen in the 
GOR.  He added, with some amusement, that Onischenko once 
accused the Russian Duma of passing legislation Onischenko 
called "criminal." 
 
Boeing and the RosAvia Tender 
 
¶11. (C) To demonstrate progress in the "reset" across all 
areas,   U/S Burns noted the need to see further successes on 
bilateral trade and investment.  As an example, he cited 
Boeing's proposal to sell RosAvia 50 new aircraft with an 
option for an additional 25.  He underlined that Exim had 
already expressed interest in supporting the sale.  Shuvalov 
responded that he had spoken to RosAvia, which "appears to 
favor Boeing."  He cautioned, however, that price remains an 
issue -- with the possibility that Airbus could offer a lower 
price than Boeing (even with Exim financing.) 
 
¶12. (U) Meeting participants: 
 
Russia 
 
First Deputy Prime Minister Igor Shuvalov 
Deputy Minister for Economic Development Andrey Slepnyov 
MFA Deputy Director for North America Nikolay Smirnov 
 
U.S. 
 
Under Secretary for Political Affairs William Burns 
NSC Senior Director for Russia Michael McFaul 
Minister Counselor for Economic Affairs Matthias Mitman 
 
¶13. (U) U/S Burns has cleared this cable. 
Beyrle