Nasty Stuff About Russia by Michael Erbschloe - HTML preview

U.S.-Russia Relations

Russia recognized the United States on October 28, 1803, and diplomatic relations between the United States and Russia were formally established in 1809. Diplomatic relations were interrupted following the 1917 Bolshevik Revolution. On December 6, 1917, President Woodrow Wilson instructed all American diplomatic representatives in Russia to refrain from any direct communication with representatives of the Bolshevik Government. Although diplomatic relations were never formally severed, the United States refused to recognize or have any formal relations with the Bolshevik/Soviet governments until 1933. Normal diplomatic relations were resumed on November 16, 1933, when President Franklin Roosevelt informed Soviet Foreign Minister Maxim Litvinov that the United States recognized the Government of the Union of Soviet Socialist Republics and wished to re-establish normal diplomatic relations. On December 25, 1991, the United States recognized the Russian Federation as the successor to the Soviet Union, when President George H.W. Bush announced the decision in an address to the nation. President Bush also announced that the Embassy in Moscow would remain in place as the American Embassy to the Russian Federation. The United States and the Russian Federation established diplomatic relations on December 31, 1991.

The United States has long sought a full and constructive relationship with Russia. Following the dissolution of the Soviet Union in 1991, the United States adopted a bipartisan strategy to facilitate cooperation on global issues and promote foreign investment and trade. The United States supported Russia’s integration into European and global institutions and a deepened bilateral partnership in security cooperation to reinforce the foundations of stability and predictability. In response to the Russian violation in 2014 of Ukraine's sovereignty and territorial integrity, however, the United States downgraded the bilateral political and military relationship and suspended the Bilateral Presidential Commission, a body jointly founded in 2009 by the United States and Russia to promote cooperation between the two countries. In addition to aggressive acts in Georgia and Ukraine, Russia has also sought to use information operations which appear to be designed to weaken core institutions in the West such as NATO and the EU, and to cast doubt on the integrity of our democratic systems. Russia’s method is not to advance ideas to compete with ours, but to undermine and question all narratives, creating confusion and diverting attention from Moscow’s own actions. The United States has sought to deter further Russian intervention through the projection of strength and unity with U.S. allies, and by building resilience and reducing vulnerability among allies facing Russian pressure and coercion. The United States maintains cooperation with Russia to address pressing global challenges in areas where U.S. core national security interests align, including nonproliferation, nuclear and other weapons of mass destruction (WMD) security, preventing atrocities and humanitarian crises, and combatting violent extremism and terrorism. The long-term goal of the United States is to see Russia become a constructive stakeholder in the global community. The United States seeks to nurture historically strong ties with the Russian people and civil society.

Bilateral Economic Relations

In response to Russia’s ongoing violations of Ukraine's sovereignty and territorial integrity, including Russia’s occupation and attempted annexation of Crimea, the United States has suspended most bilateral engagement with the Russian government on economic issues. The United States continues to investigate allegations of mistreatment of or discrimination against U.S. investors in Russia and to urge Russia to improve its investment climate, adherence to the rule of law, and transparency. In Russia, the U.S. Commercial Service continues to assist U.S. firms interested in developing market opportunities that do not violate sanctions.

In 2014, the United States and our European and G-7 partners imposed sanctions on Russia for its intervention in eastern Ukraine and occupation of Crimea. Sectoral sanctions have reduced Russia’s ability to access financing in the financial, energy, and defense sectors, as well as limited its access to certain technologies in those sectors.

A combination of low oil prices, structural limitations, and sanctions pushed Russia into a deep recession in 2015, with the economy contracting by four percent. The economy was expected to contract by nearly one percent in 2016 as well. In response, Russia has imposed a number of counter sanctions on U.S. and European goods, most notably in the agricultural sector.

Russia’s Membership in International Organizations

Russia is one of five permanent members of the UN Security Council. It lost a re-election bid to the UN Human Rights Council in a competitive race in 2016. Russia’s participation in the G8 (now G-7) was suspended in March 2014 in response to its attempted annexation of Crimea. For the same reason, the Parliamentary Assembly of the Council of Europe (PACE) stripped Russia of its voting rights in that body in April 2014. Since then, Russia has opted not to send Duma delegations to PACE sessions even though it was welcomed to continue to participate in debate. Russia remains a member state in the Council of Europe. Russia is a participating State in the Organization for Security and Cooperation in Europe (OSCE). It is also a member of the Asia-Pacific Economic Cooperation (APEC), the ASEAN Regional Forum (ARF), and East Asia Summit (EAS), and an observer state to the Organization of Islamic Cooperation (OIC). The country participates in the Quartet on the Middle East and the Six-party Talks with North Korea. Russia also takes part in a number of regional organizations including the Commonwealth of Independent States (CIS), the Eurasian Economic Community, the Collective Security Treaty Organization (CSTO), and the Shanghai Cooperation Organization (SCO).

Source: U.S. Department of State

Russia - Market Overview

Discusses key economic indicators and trade statistics, which countries are dominant in the market, the U.S. market share, the political situation if relevant, the top reasons why U.S. companies should consider exporting to this country, and other issues that affect trade, e.g., terrorism, currency devaluations, trade agreements. Last Published: 8/11/2017

Russia presents both significant challenges and opportunities for experienced American exporters. Russia's 2014-2016 economic downturn, driven by low oil prices and the lack of structural economic reform, squeezed both Russian corporations and the average consumer. While targeted American and European economic sanctions remain in place, there is no overall trade embargo on Russia. On the back of a tight fiscal and monetary policy, coupled with higher oil prices, Russia should return to limited economic growth of 1-2% in 2017. Over 1,000 American firms of all sizes continued to do business in Russia, given its 142 million consumers, $27k+ GDP per capita (as measured in purchasing power parity), a growing middle class and highly educated and trained workforce.

There are two broad considerations when considering business prospects in Russia: geopolitics and market dynamics. Russia's continued aggression in Ukraine and Syria and interference in the 2016 U.S. elections have raised tensions with the United States and its allies. Targeted U.S. and European economic sanctions instituted in 2014 remain firmly in place and are not expected to be lifted for the foreseeable future. Restrictions on offshore, Arctic and shale oil and gas, the financial sector and the defense industry continue. For the past three years, U.S. agricultural exporters have been hit with Russian countersanctions. In addition, a number of Russian entities and individuals are also subject to sanctions, requiring American firms to do careful due diligence on potential business. Increasing state dominance of the economy, high costs of borrowing and a lack of broad economic reform constrain growth. Both large, publicly-traded U.S. multinationals and small and medium size enterprises continue to carefully monitor the overall business climate in Russia, balancing opportunity and risk.

As for market-based considerations, both Western and Russian firms approach 2017-8 with cautious optimism. Stable oil prices, a less volatile ruble and a return to growth in some sectors will likely lift the Russian economy in 2017. Indeed, Western and Russian firms report year-on-year growth in large industrial equipment in the mining, energy, and heavy construction sector. The retail and residential construction sectors remain weak. Early in 2017, Standard & Poors and Moody’s upgraded their ratings to BB+, a step below investment grade. A Treaty on the Avoidance of Dual Taxation and Russia's WTO accession in 2012 have helped create new opportunities for American trade and investment through more certain and predictable access to the market across tariff, trade rules, and dispute resolution platforms. Despite the need for deeper economic reform, most analysts doubt any major policy changes prior to the March 2018 Russian presidential elections. For more on U.S.-Russia trade, read Ambassador John Tefft's article on "Why U.S.-Russia Trade Still Matters".

U.S.-Russia trade reached over $20 billion in 2016, well off its peak of $38 billion in 2013. American investment in Russia was about $9 billion in 2015 (latest data available). These figures are low and conservative, as they do not include third country trade and investment flows of U.S. origin and reinvested earnings from subsidiaries of American parent corporations. Numbers aside, American firms view the Russian market as a long-term, strategic play, given its population, natural resources, growing consumer class and access to a low-cost labor force.

Source: Prepared by our U.S. Embassies abroad.

2017 U.S. trade in goods with Russia

NOTE: All figures are in millions of U.S. dollars on a nominal basis, not seasonally adjusted unless otherwise specified. Details may not equal totals due to rounding. Table reflects only those months for which there was trade.

Source: Census.gov › Business & Industry › Foreign Trade › U.S. International Trade Data

The U.S. Federal Aviation Administration (FAA) has assessed the Russia Government as being in compliance with the International Civil Aviation Organization (ICAO) safety standards for oversight of Russia air carriers operations.

The majority of domestic airlines offer on-line ticket sales, which makes it convenient for travelers to order tickets in advance. Some flights can be canceled, if more than 30% of the seats remain unsold. However, this does not happen very often. Travelers should have their passport with them at all times. Air travel within western Russia generally stays on schedule; the quality of service continues to improve. Flights within the Russian Far East are sometimes delayed or cancelled in winter months due to snow or fog. International Russian carriers, such as Aeroflot and S7 Airlines, usually use Western equipment and meet higher customer service standards than other domestic carriers.

Moscow has three major airports (Sheremetyevo, Domodedovo and Vnukovo); the fourth airport Bykovo deals primarily with cargo and emergency flights. The VIP terminals of Sheremetyevo (Terminal A), Domodedovo (Domodedovo Business Aviation Center) and Vnukovo (Vnukovo-3) offer customized service to VIP clients on a regular basis. International flights generally enter Moscow through Sheremetyevo and Domodedovo. Most international flights arrive in Sheremetyevo-2 (renamed SVO-F in December 2009) while Sheremetyevo-1 (renamed SVO-B in March 2010) handles most domestic traffic. With the opening of Terminal C (SVO-C) in March 2007 and the opening of Terminal D (SVO-D) in November 2009, some international and domestic travel has been diverted to these facilities. Terminal E (SVO-E) provides convenient access between SVO-D and SVO-F, offering high speed movement systems (elevators, escalators and moving walkways) and other amenities for travelers.

Travelers may continue to other Russian cities from Sheremetyevo, Vnukovo or Domodedovo airports. However, travel time between airports or to the city center can take as much as three hours, and ample time must be allowed for passport control, customs clearance and baggage retrieval. The introduction of Aeroexpress trains that provide a high-speed direct connection from each of the airports to the city center (35-45 minutes travel time) has greatly alleviated this problem in recent years. St. Petersburg's airport has two terminals: Pulkovo-1 (domestic flights) and Pulkovo-2 (international flights).

Train travel in Russia is generally reliable and convenient as stations are located in the city center. From St. Petersburg to Moscow, travelers often ride overnight trains, although unaccompanied passengers are reminded to keep an eye on their valuables and lock their doors at night (if in a sleeping compartment), as some incidents of pick-pocketing have been reported. For quicker train connections between Moscow and St. Petersburg, travelers can take the high-speed SAPSAN train, which takes approximately four hours.

Inclement weather, erratic maintenance and a culture of aggressive driving make road conditions throughout Russia highly variable. Drivers and pedestrians should exercise extreme caution to avoid accidents. Traffic police sometimes stop motorists to levy cash "fines", but the scope of this problem has declined in recent years. Criminals occasionally prey on travelers, especially in isolated areas. At the same time, the Moscow’s Committee for Tourism and Hotel Industry reported a low crime rate against foreign tourists in 2016.

In Moscow and St. Petersburg, the metro (subway) can be an efficient and inexpensive means of transportation. However, for non-Russian speakers, it can be difficult without researching the route in advance. Be sure to carry a metro map with you and learning the Cyrillic alphabet is useful. The Yandex metro map application is very helpful.

Marked taxis are prevalent in Moscow and St. Petersburg, and as noted online ride hailing applications, such as Uber and GetTaxi, are used widely in major cities. Short-term business travelers may wish to consider renting a car and driver for extensive excursions, or hire taxis through their hotels for shorter trips. Car rentals are another option that has become available recently, although driving in Russia can be difficult for the uninitiated.

The Russian railway complex is of particular strategic importance to the Russian government, contributing about 0.2- 0.3% to the country’s GDP and employing more than 800,000 workers. Third largest in size, after the United States and China, the Russian railway network expands over 85,200 kilometers, of which 43,300 kilometers are electrified. The fleet of the rolling stock comprises 11,100 freight locomotives (diesel and electric), 6,100 diesel switching locomotives and 3,100 passenger locomotives (diesel and electric). The number of freight railcars is estimated at 1,218,169 (2015). A considerable portion of the rolling stock is outdated and is in need of either decommissioning or renewal.

The majority of the country’s rail infrastructure network and the locomotive fleets are owned by OAO Russian Railways (RZD), a state-owned-enterprise, operating freight and passenger railway services. Supported and funded by the Russian government, RZD has been pursuing a comprehensive reform process since 2001, to achieve greater efficiency and competitive advantage in the domestic and global markets.

Besides RZD, the Russian railway complex also comprises operations of private rail companies and industrial enterprises that have their own fleets of locomotives and railcars, and their own networks of rail tracks. Compared to RZD, their share of locomotives is rather insignificant (1,163 versus 20,300), while the share of freight railcars is much greater (1,123,012 versus 95,157). (Analysis was prepared by U.S. Embassies abroad.)