COMMERCE SECRETARY GUTIERREZ IN ST. PETERESBURG,

UNCLAS SECTION 01 OF 02 MOSCOW 001894 SENSITIVE SIPDIS STATE FOR EUR/RUS STATE PASS TO USTR STATE PASS TO EXIMBANK COMMERCE FOR 1000/OFFICE OF SECRETARY COMMERCE FOR 4000/MAC AS COMMERCE FOR 420O/MAC FOR EUR DAS DYCK COMMERCE FOR 4231/MAC/ORUE/BROUGHER/EDWARDS NSC FOR MWARLICK E.O. 12958: N/A TAGS: BEXP ETRD RS SUBJECT: COMMERCE SECRETARY GUTIERREZ IN ST. PETERESBURG, RUSSIA, JUNE 5-6, 2008 ¶1. (U) On June 6 and 7 in St. Petersburg, Secretary of Commerce Carlos Gutierrez delivered remarks at the opening plenary session of the annual International Economic Forum as well as a U.S.-Russia CEO roundtable, held talks with Russia's leading economic officials, and led a President's Export Council delegation in a series of meetings to assess the Russian market. ¶2. (U) Responding to the Forum plenary session topic of "National Economic Interests vs. Global Governance Institutions", Secretary Gutierrez commented that the challenge is not globalization vs. national interests. Instead, he asserted, globalization is in national interests. If an economy has sustained growth, then anything is possible. A policy of growth, he said, requires active participation in the global economy, adding that he could not think of a single economy that has been able to grow and create prosperity and jobs through self sufficiency. He cited estimates that a good Doha Round agreement could lift 500 million people out of poverty. Noting President Medvedev's emphasis on innovation, institutions, investment and infrastructure, he agreed that they are key ingredients of a growing economy. In conclusion, the Secretary suggested to the international audience that they have the challenge of creating opportunity and providing education to enable people to compete in the international economy. ¶3. (SBU) In bilateral meetings with First Deputy Prime Minister Igor Shuvalov, Deputy Prime Minister Aleksei Kudrin, Deputy Prime Minister Alexander Zhukov, Minister of Economy Elvira Nabiullina and First Deputy Foreign Minister Andrey Denisov, the Secretary stressed the openness of the U.S. market to Russian investors as well as the significant contributions that American companies are making in the Russian market. He advocated for progress on Russia's WTO accession, including completion of Russian commitments under the bilateral market access agreement regarding data protection and import licensing of products with encryption. The Russian officials participating in the Forum all described plans for completing accession, claiming that all requirements would be met. Several stressed that Russia could not solve its problem with Georgia by itself and would need U.S. support. ¶4. (SBU) During a briefing for the Secretary and the PEC, former economic minister and current Sberbank Chairman German Gref spoke strongly in favor of WTO accession, but also noted the existence of significant opposition in Russia. He said that the Ministries of Industry and Agriculture, which were part of the lobby against WTO accession, had stepped in to grab trade away from the Ministry of Economy and transfer it to the Ministry of Industry. Gref had gone to the Prime Minister and the President, and the decision to move WTO responsibility had been suspended, although only until the end of the year. ¶5. (SBU) Secretary Gutierrez and Minister of Economy Nabiullina discussed and agreed on most aspects of establishment of a business dialogue pursuant to the Sochi Strategic Framework Declaration, including the desirability of having CEOs meet by September and develop recommendations that could be presented to ministers at a first meeting of the Business Dialogue in October in Russia. Assistant Secretary David Bohigian and Deputy Minister Andrey Belousov were assigned to complete a joint statement that could be used to announce the Dialogue during the St. Petersburg Forum. Bohigan conducted extensive consultations on June 6 and 7, but the Russians were not prepared to agree to a designation providing accountability on the part of government officials for hearing and acting upon a business dialogue's recommendations. During a subsequent meeting, First Deputy Prime Minister Shuvalov agreed with the Secretary's position and said he would speak with Minister Nabiullina, the Prime Minister and the President. (Comment: As of July 3, it has not been possible to confirm that a Shuvalov-Nabiullina conversation had taken place, nor had the Russian side agreed to language that would provide for accountability by government officials.) ¶6. (U) Through discussion with Sberbank Chairman Gref, MOSCOW 00001894 002 OF 002 Secretary Gutierrez and the PEC delegation gained insight into prospects for Russia's WTO accession as well as plans for further development of Russia's largest bank. Gref asserted that, while some Russian banks were affected by the financial crisis in the United States and had suffered losses in the first quarter of 2008, Sberbank had earned a profit of 1 billion Euros. He said that Sberbank's capital is now $85 billion, but should reach more than $200 billion by 2014. ¶7. (U) Secretary Gutierrez and the PEC delegation were briefed on the new Russian Government by U.S. Embassy Moscow Charge Dan Russell, and heard St. Petersburg governor Valentina Matvienko describe her plans for further development of Russia's second largest city. The PEC delegation attended the Forum's U.S.-Russia CEO Roundtable hosted by Russian Union of Industrialists and Entrepreneurs President Alexander Shokhin, and attended a reception in their honor with American and Russian CEOs. In a meeting with Deputy Prime Minister Alexander Zhukov, Secretary Gutierrez emphasized the capabilities of U.S. companies for support of preparations for the Sochi Olympics and was assured by Zhukov that Russia was completely open to investment and supply of facilities, including for skating and other events. ¶8. (SBU) In a briefing organized by the American Chamber of Commerce in Russia, more than 25 U.S. company representatives reported impressive growth in the Russian market. For example, Alcoa Chairman Belda said that his company's operation should reach profitability by next year, when sales in Russia would account for 60% of the business. Conoco's Wallette said that his company had $10 billion invested in Russia and revenue of $1.8 billion in 2007, or about 15% of the company's earnings. P&G's Price said that his company's business in Russia is now equivalent to about 90% of its business in China. Microsoft's Steen said that Russia was the fastest growing market globally, increasing by a factor of 9 over 2 years. GM's Gubney reported sales of $3 billion in 2007. Boeing's Kravchenko said that his company had successfully faced the challenge of showing in Russia that interdependence is good by pioneering the export of intellectual property from Russia, including unique software. ¶9. (SBU) In private conversations with Russian officials, Secretary Gutierrez raised issues encountered in Russia by Bank of New York Mellon and TNK-BP. He also met with TNK-BP President Bob Dudley. Amcham President Andrew Somers told the Secretary that he found the TNK-BP dispute "disturbing" and believed that, if the problems were not solved, this would be the biggest blow to the investment environment since the Yukos Affair. Secretary Gutierrez was quoted in Russia media in regards to a solution to the TNK-BP dispute as saying that the "world community is interested in a transparent way, free of violations." The Secretary was accompanied in meetings with Russian officials by Charge Russell and Assistant Secretary Bohigian. ¶10. (U) This cable was cleared by Commerce traveling party. RUSSELL