SECRETARY OF COMMERCE LOCKE'S MEETING WITH RUSSIAN

UNCLAS SECTION 01 OF 04 MOSCOW 001958 SENSITIVE SIPDIS WHITE HOUSE FOR NSC:MMCFAUL/HSOLOMON WHITE HOUSE PASS USTR:CWILSON/MRODHE GENEVA FOR USTR MISSION E.O. 12958: N/A TAGS: ETRD ECON EFIN RS SUBJECT: SECRETARY OF COMMERCE LOCKE'S MEETING WITH RUSSIAN MINISTER OF ECONOMIC DEVELOPMENT NABIULLINA ¶1. (SBU) Summary. During a meeting with Russian Minister of Economic Development Elvira Nabiullina on July 7 in Moscow, Secretary of Commerce Gary Locke stressed U.S. support for continued Russian integration into the world economy, including WTO accession, and raised several trade issues. Minister Nabiullina said that Russia would work in parallel on WTO accession and its customs union with Belarus and Kazakhstan. (Note: Two days later, after Secretary Locke had mentioned her remarks to a reporter, Minister Nabiullina insisted to a reporter that the Russian government's decision was to accede to the WTO in a customs union. However, President Medvedev stated at a press conference at the end of the same week that acceding separately to the WTO would, in his view, be more simple and realistic than seeking to accede as a customs union. End note.) Secretary Locke and Minister Nabiullina looked forward to co-chairing the new U.S.-Russia Presidential Commission's Business Development and Economic Relations Working Group, and they agreed that each would appoint a person to lead this work. End Summary. Summit Opens Doors for Further Trade and Investment -------------- -------------- ¶2. (SBU) Russian Minister of Economic Development Nabiullina welcomed Secretary Locke on his first visit to Moscow as Commerce Secretary and noted their brief conversation the day before at the Kremlin. Minister Nabiullina said that Russia values very highly its economic relations with the United States. She noted that trade and investment had expanded during recent years but both remained far below their full potential. Trade will be lower in 2009 because of the economic crisis and the decline of Russian exports. She expressed the hope that this trend would not continue and said that both governments should use this Presidential Summit opportunity to further economic cooperation. Noting that Russian companies had recently invested in the United States (particularly production ventures),she said that Russia now seeks to expand two-way investment. She admitted that Russian investment in the United States was not on a par with the volume of U.S. investment in Russia. She emphasized that Russia is interested in joint projects, especially in high-tech. Also, Russian policy is to emphasize innovation in technology, and President Medvedev has created a commission for investment in innovation, including in energy efficiency, aerospace technology, medical and biotechnology, information technology and energy--areas in which Russia would be interested in developing cooperation. ¶3. (SBU) Secretary Locke expressed his desire to discuss the expansion of trade and investment, and he added that President Obama and President Medvedev were holding both public and private meetings in support of this objective. The Secretary stressed (1) that President Obama places importance on establishing good relations with Russia and (2) that economic cooperation can create stronger political relations. He remarked that Russian companies have excellent opportunities to invest in the United States, where there are very few restrictions on foreign investment; the United States welcomes increased Russian investment. Many U.S. companies are doing business in Russia, a win-win situation for people and governments on both sides. He explained that U.S. companies are employing tens of thousands of workers in Russia, creating both jobs and a better quality of life. Bringing advanced new technologies to market helps Russian companies, too. He recounted a recent conversation with a representative of U.S. agribusiness company Cargill, who had described the firm's business in processing crops from Russian farms for supply to Russian consumers. Secretary Locke expressed satisfaction with the success of U.S. companies in Russia, but noted that some are encountering tariff, customs and regulatory problems that restrict their ability to expand. He said that to help increase bilateral commercial activity, both Presidents asked him and Minister Nabiullina to co-chair an intergovernmental Working Group on Business Development and Economic Relations that would, in part, examine recommendation from U.S. and Russian business leaders. Locke:"Uncertainty Over Russia's Position on WTO" -------------- --- MOSCOW 00001958 002 OF 004 ¶4. (SBU) Citing President Obama's Kremlin remarks, Secretary Locke said that the United States remains very supportive of Russia's accession to the WTO, and looks forward to Russia joining by the end of the year. Referring to Minister Nabiullina's St. Petersburg meeting with U.S. Trade Representative Kirk, the Secretary expressed the belief that accession could bring substantial benefits to Russia, as well as to its trade partners. However, Prime Minister Putin's June 9 statement had created uncertainty about the path forward. Secretary Locke added that a customs union approach, which Russia has indicated its intention to follow, would very likely delay things. Trade Irritants from the U.S. Side -------------- ¶5. (SBU) Secretary Locke commented on specific market access issues which concern us, including high Russian tariffs on farm equipment and off-highway trucks. He added that a lack of access to subsidized bank financing also is hurting sales of U.S. agricultural equipment. He cited Russian restrictions on U.S. meat that have been imposed in reaction to the H1N1 virus. He also reminded Nabiullina of Russia's commitment to streamline import procedures for information technology products that contain encryption capability, noting that such products are updated so rapidly that they can become outmoded in the time currently required for import approvals. Regarding intellectual property rights (IPR),the Secretary said that data for pharmaceutical products must be protected. In the Secretary's discussions with U.S. companies in Moscow, they had emphasized progress in transparency, but noted that more is needed. These company representatives had expressed their appreciation for Minister Nabiullina's help and that of her ministry. Nabiullina:Parallel Negotiations for WTO and Customs Union -------------- -------------- ¶6. (SBU) Regarding WTO accession, Minister Nabiullina said that Russia's strategic aim had not changed, and that it is a priority for Russia to be within the WTO framework. The accession process had dragged out, however, and in Russian eyes, the reasons for this were "not in the commercial sphere." She contended that Russia had made a "huge" effort to accede, and that its legislation needed for WTO-conformity is complete. She said that it remains Russia's intention to accede as soon as possible, and that formation of a customs union would proceed in parallel. In early June, there had been significant progress on this front, with Russia, Kazakhstan and Belarus agreeing to implement the customs union by January 1, 2010. This task had been established by the Prime Minister working together with the President. Russia wants to integrate these two goals, she explained. President Medvedev had noted during the Kremlin meeting that there were two approaches for WTO negotiations, and a search is underway for the best way. She stated that Russia wants the quickest way into the WTO, and wants to retain agreements already reached with the WTO membership. Although Russia is the only large economy outside the WTO, it si already living by the rules of the WTO, she commented. Economic Crisis Leads to Protectionism Regarding Tariffs -------------- -------------- ¶7. (SBU) Nabiullina remarked that the economic crisis is leading to government steps to support the economy; for example, there are "Buy American" measures in the United States. She characterized Russia's steps as quite moderate, and said that unlike some other countries, Russia has taken no measures regarding investment. (Note: It was not clear what Nabiullina may have been referring to here. End Note.) She also said that Russia has taken only limited steps regarding tariffs, primarily with automobiles. Moreover, she asserted that these measures are temporary (for only nine months) and are justified by the fact that many imports are subsidized. The automobile market in Russia is open, with more than fifty percent of demand satisfied by imports. Regarding agricultural equipment and off-highway trucks, Nabiullina admitted that the GOR is motivated by a desire to establish competitive production in Russia. Many foreign companies enter the Russian market through investment, she MOSCOW 00001958 003 OF 004 said, and Russia is interested in having U.S. firms enter the market in agricultural machinery and road construction equipment production ventures. Agricultural Machinery Financing is for Manufacturers -------------- -------------- ¶8. (SBU) Regarding state-backed loans for agricultural machinery, Minister Nabiullina asserted that the loans in question were not government-guaranteed loans to end-users (such as farmers),but rather, loans extended by Russian banks to Russian equipment manufacturers (who presumably then pass along savings to end-users in the form of a lower purchase price). Russian Position on Plant Certifications -------------- ¶9. (SBU) On the subject of the H1N1 virus, Minister Nabiullina characterized recent GOR bans on U.S. meat as a natural response to protect the health of its citizens. She then called upon Russian veterinary and food surveillance service chief Sergey Dankvert. He noted that Russian food imports had grown from 2006 through 2008, a trend which he argued shows that Russia's market is not becoming more restrictive. He believes results of U.S.-Russian cooperation are smaller than they could be, and cited several reasons. One was a lack of integration of U.S. government services; there are "three or four agencies" involved in food regulation, but an absence of any one person who can be responsible for decisions. He said that he had told the U.S. Ambassador that his (Dankvert's) office had better relations with U.S. industry than with USG agencies. Dankvert pointed out that at a recent roundtable in Paris, Russian government representatives had come to a good understanding with U.S. industry, but U.S. government representatives were less open to discussion. Regarding pork, Dankvert asserted that Russia has made greater efforts to resolve the issue than the United States. Nabiullina:Legislation on Data Exclusivity -------------- ¶10. (SBU) Responding to Secretary Locke's comments on pharmaceutical data protection, Minister Nabiullina said that legislation was being prepared that would be adopted and make protection of data more effective. (Note: this was notwithstanding her previous comment that Russia's WTO-related legislation was complete. End note.) In reference to an earlier mention by the Secretary that imported cellular phones were being held up at customs, Minster Nabiullina said that she had not been aware of the problem but would look into it and consider it in the context of WTO discussions. Irritants from the Russian Side: Anti-Dumping Cases -------------- -------------- ¶11. (SBU) Minister Nabiullina raised two ongoing U.S. anti-dumping cases. First, she said that Russia wanted to amend the ammonium nitrate suspension agreement for which the Russians felt they had an understanding with the previous U.S. administration to resolve this question. Secretary Locke replied that there had been a change in market conditions. Given this, he added, the Commerce Department is reaching out to U.S. industry to look for mutually satisfactory courses of action. ¶12. (SBU) Second, Minister Nabiullina raised the magnesium suspension agreement, noting that the Russian company, VSMPO-AVISMA (known as Avisma) is a partner of Boeing. The Secretary stated that, unfortunately, the Russian respondent Avisma did not submit the necessary information and, in fact, withdrew itself from the case. Accordingly, we are concerned and are at an impasse. Minister Nabiullina replied that, as far as she knew, the information requested of Avisma touched on commercially sensitive information that Avisma felt was "beyond the framework of usual requirements" for transaction-related information. Secretary Locke said that the Commerce Department follows open and transparent procedures, and that if Avisma feels that it is being required to submit sensitive, non-typical information, the MOSCOW 00001958 004 OF 004 Department would be prepared to discuss the concern. Minister Nabiullina requested that a meeting be held before the end of July. (Follow-up: As of July 24, Commerce's Import Administration has tentatively scheduled a meeting with Russian Ministry of Economic Development representatives for August 4 in Washington.) Science Should Determine Food Safety Decisions -------------- - ¶13. (SBU) Secretary Locke returned to the subject of food standards, commenting that, as the parent of three children, he is very concerned about food safety. He recognized the responsibility of each country to have its own food safety rules and regulations. In the case of "swine flu," scientific studies show no connection between H1N1 and eating pork. He added that the United States appreciates Russia's recent removal of restrictions from four U.S. states, and that we would be providing additional documentation. Minister Nabiullina said that she agreed that all decisions should be based on scientific work. She had read carefully international reports, noting that several countries (i.e., not only Russia) still have significant import restrictions in place. Nevertheless, as the process moves forward and more information is made available, Russia will review the restrictions. Director Dankvert added that he had received about eighty pages of information in English and will try to read them, even though a month for translation would normally be required. Next Steps for Working Group -------------- ¶14. (SBU) Secretary Locke sought Minister Nabiullina's ideas about how to move forward after the Business Summit presents recommendations. She expressed hope that the Business Summit would be useful and lead to a business dialogue that will form part of an "integrated framework." Her understanding was that the U.S. side wanted to include the business community in the work of the Business Development and Economic Relations Working Group. Secretary Locke suggested that the Working Group should consider the recommendations of the U.S. and Russian CEOs who were at the Moscow Business Summit. Nabiullina noted that Russia was planning an exhibition in Chicago in the fall, which could serve as an occasion for a business dialogue session. The Secretary asked whether Minister Nabiullina wished to designate a person to lead Russia's work on the Working Group; she suggested Elena Danilova of the Ministry's Department for the Americas. Secretary Locke responded that he was designating Acting Commerce Under Secretary for International Trade Michelle O'Neill as the U.S. contact point. ¶15. (U) This cable has been cleared by Commerce Headquarters. AGNEW