Russia Business Watch

VOL. 21 NO. 2 FALL 2013 WASHINGTON, DC THE JOURNAL OF THE U.S.-RUSSIA BUSINESS COUNCIL
Making Russias Global Integration Work for Business
Presidents Message p. 1
Successfully Structuring a Russian M&A Deal A Lawyers View p. 3
Eurasian Integration Project as Response to Globalization-Era Economic Challenges p. 6
USRBC Events pp. 9-23
New Members Profiles p. 26
IN THIS ISSUE:

CONTENTS
p. 1 PRESIDENTS MESSAGE
OUTLOOK
p. 3 Successfully Structuring a Russian M&A Deal - A Lawyers View
p. 6 The Eurasian Integration Project as a Response to Globalization-Era Economic
Challenges
EVENTS
p. 9 Automotive & Agricultural Machinery Forum
p. 15 Luncheon with G20 Sherpa Dr. Ksenia Yudaeva
p. 16 U.S.-Russia Pacific Aviation Roundtable
p. 17 Breakfast Briefing with Deputy Head of the RF Federal Tax Service Alexei Overchuk
p. 18 Briefing on the BPC Health Working Group
p. 19 Briefing with Natalia Lavrova, Visiting Fellow at the Center for Transatlantic Relations at
Johns Hopkins SAIS
p. 21 Debrief on Federal Highway Administrator Mendez Trip to Russia
p. 22 USRBC Events Calendar
U.S.-RUSSIA RELATIONS
p. 24 USRBC SPIEF Dinner
p. 26 NEW MEMBER PROFILES
USRBC STAFF
Daniel A. Russell
President and CEO
russell@usrbc.org / 202-739-9180
Jeff Barnett
Senior Director of Policy and Programs
barnett@usrbc.org / 202-739-9187
William Beaver
Manager of Membership and Programs
beaver@usrbc.org / 202-739-9190
Jo Bottalico
Vice President of Administration and Finance
bottalico@usrbc.org / 202-739-9188
Keith Bush
Research Director
bush@usrbc.org / 202-739-9186
Maryia Dauhuliova
Head of RF Representation, Moscow Offce
dauhuliova@usrbc.org / [7] 495-228-5896
Julia Fabens
Director of Membership
fabens@usrbc.org / 202-739-9189
Svetlana Minjack
Director of Communications and External Affairs
sminjack@usrbc.org / 202-739-9182
Alina Ruzmetova
Media/Communications Associate
ruzmetova@usrbc.org / 202-739-9184
Randi B. Levinas
Executive Vice President
levinas@usrbc.org / 202-739-9196
RUSSIA BUSINESS WATCH
The report of the U.S.-Russia Business Council
1110 Vermont Avenue, NW, Suite 350, Washington, DC 20005
Tel: (202) 739-9180 Fax: (202) 659-5920 www.usrbc.org
Novinskiy boulevard 8, Office 907, 121099 Moscow, Russia
Tel: 7-495-228-5896 Fax: 7-495-228-5893
Editor: Svetlana Minjack Assistant Editor: Jeff Barnett
Graphics, Design and Production: Alina Ruzmetova
Research Assistants: Katharine Clark, Glyn Cozart, Nikita Ivanov, Bree Swineford
For additional information or copies of Russia Business Watch,
please contact USRBC at (202) 739-9180 or email RBW@usrbc.org.
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Klaus Kleinfeld, Chairman of the Board
Daniel A. Russell, President and CEO

BOARD OF DIRECTORS
Theodore Austell, III, The Boeing Company
Stephen E. Biegun, Ford Motor Company
James P. Bovenzi, General Motors Company
Olivier Brandicourt, Pfizer Inc.
Laura M. Brank, Dechert LLP
Randy Bregman, Dentons
Carolyn L. Brehm, Procter & Gamble
Richard Burt, McLarty Associates
Peter A. Charow, BP America Inc.
James F. Collins, U.S. Russia Foundation for Economic
Advancement and the Rule of Law
Marthin DeBeer, Cisco Systems, Inc.
Richard N. Dean, Baker & McKenzie
Neil W. Duffin, Exxon Mobil Corporation
Dorothy Dwoskin, Microsoft Corporation
C. Cato Ealy, International Paper
Terrence J. English, Baring Vostok Capital Partners
Piotr Galitzine, TMK IPSCO
Toby T. Gati, Akin Gump Strauss Hauer & Feld LLP
Ralph J. Gerson, Guardian Industries Corporation
Oleg Goshchansky, KPMG
David Gray, PwC
Herman O. Gref, Sberbank of Russia
Drew J. Guff, Siguler Guff & Company, LP
Trevor Gunn, Medtronic, Inc.
Jay M. Haft, Renova Group of Companies
D. Jeffrey Hirschberg, Kalorama Partners, LLC
Karl Johansson, EY
Alexey Kim, Philip Morris Sales and Marketing Ltd.
Klaus Kleinfeld, Alcoa.
Ramon Laguarta, PepsiCo, Inc.
William C. Lane, Caterpillar Inc.
Eugene K. Lawson, Lawson International, Inc.
Peter B. Necarsulmer, PBN Hill+Knowlton Strategies
David H. Owen, Deloitte
Alexander Pertsovsky, Bank of America
Thomas R. Pickering, The Eurasia Foundation
Ronald J. Pollett, General Electric Company
Jay R. Pryor, Chevron Corporation
Paul Rodzianko, Hermitage Museum Foundation
Charles E. Ryan, UFG Asset Management
William M. Sheedy, Visa Inc.
Maurice Tempelsman, Lazare Kaplan International Inc.
Peter L. Thoren, Access Industries, Inc.
Clyde C. Tuggle, The Coca-Cola Company
Alberto Verme, Citi
Mark von Pentz, Deere & Company
Daniel H. Yergin, IHS CERA
HONORARY DIRECTOR
Peter J. Pettibone, Pettibone International LLC
CHAIRMEN EMERITUS

Robert S. Strauss
E. Neville Isdell
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PRESIDENTS MESSAGE
PRESIDENTS MESSAGE
Please let me express my appreciation for your warm welcome and support in
my first months at the U.S.-Russia Business Council. I am enthusiastic about the
Councils mission, which, simply put, is to support a strong, mutually beneficial
commercial relationship between Russia and the United States. The relationship
has made landmark progress over the past two decades, thanks to the combined
efforts of the business communities and governments. That said, much remains to
be done, and there are new opportunities created by last years successful
campaign to grant Permanent Normal Trade Relations to Russia and lift application
of the Jackson-Vanik amendment. Russian-American political relations, of course,
will inevitably have ups and downs, but I remain optimistic about the long-term
potential of economic ties to deliver concrete benefits to both nations, particularly
now that Russia has joined the United States as a member of the World Trade
Organization.
The trends are clear despite the state of the global economy. Bilateral trade hit
a record $40 billion in 2012 and is on track to meet that number this year. Just
as importantly, trade and investment are increasingly two way. The exploration
and production deal signed by ExxonMobil and Rosneft provides a clear example.
ExxonMobil will partner with Rosneft to explore offshore oil and gas deposits and
onshore tight oil fields, and Rosneft will take a stake in several Gulf of Mexico and
Alaska exploration projects. Internationally minded Russian companies are taking
a fresh look at opportunities in the U.S. market. TMK IPSCO, the U.S. subsidiary of
the Russian maker of tubulars for the oil and gas sector, opened a new global R&D
facility in Houston last year and EuroChem has announced that it plans to build a $1.3 billion chemical plant in Louisiana. Several
Russian technology firms are making moves into Silicon Valley and the Boston technology corridor, as American companies expand
their investments in Russias regions beyond Moscow and St. Petersburg.
Against this backdrop, the Council is well positioned to help develop a long-term strategic vision of the economic and commercial
relationship and create the conditions for greater two-way trade and investment. With your continued support, I am convinced that
the Council can help our members succeed in the marketplace and make a difference in overall relations. Among my policy priorities
are advocacy for enhanced dialogue between our governments and business communities, open and fair investment environments,
reduced trade barriers and adherence to globally accepted trade rules. Please be assured that I am committed to providing the
highest level of service to each member of the U.S.-Russia Business Council.
I look forward to charting a course for the Council with your input and collaboration, and please do not hesitate to contact me
personally if there is anything I can do for you to advance our shared objectives.
Sincerely,
Dan Russell
n
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PRESIDENTS MESSAGE
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Key Differentiators of the USRBC
Strategic Planning: USRBC works closely with our members global teams
focused on U.S.-Russia commercial relations, providing counsel, guidance
and insights to key corporate stakeholders at a companys U.S. or Russian
headquarters, Russian and European operations and Washington, DC, offces to
advance their goals in the Russian and U.S. markets.

Access: With USRBC offces in Washington, D.C., and in Moscow, Russia, our
excellent relationships with both the U.S. and Russian governments offer
unparalleled and timely access to key policymakers.
Policy Leadership: USRBCs U.S. and Russian policy work refects the priorities
and concerns of our membership. We not only serve as an important amplifer
to members commercial interests, but we also lend the important support of a
cross-sectoral association with a keen sensitivity to broader bilateral concerns.
Diverse, Active Membership: Our membership ranges from senior Global
500 frms to niche experts in the U.S. and Russian marketplace and a growing
number of Russian companies looking to expand their global presence.
The U.S.-Russia Business Council (USRBC), a premier trade association based in Washington,
D.C. with an offce in Moscow, represents the trade and investment interests of its U.S. and
Russian member companies on bilateral commercial issues.
The U.S.-Russia Business Council (USRBC)
The USRBC seeks to expand and enhance the U.S.-Russian commercial relationship by
engaging in advocacy efforts with both the U.S. and Russian governments on behalf
of its members; assisting member companies with troubleshooting and new business
development; providing information and analyses to support business decisions; and
facilitating access and networking opportunities, including briefngs with government
offcials and private-sector leaders.

www.usrbc.org
www.facebook.com/usrbc
Headquarters
The U.S.-Russia Business Council
1110 Vermont Avenue, NW, Suite 350
Washington, DC 20005
+1 (202) 739-9180
Julia Fabens, Director of Membership
fabens@usrbc.org
Representative Offce in Moscow
-
Novinskiy Boulevard 8, Offce 907
121099 Moscow
Offce: +7 (495) 228-5896
Maryia Dauhuliova, Head of RF Representation
dauhuliova@usrbc.org
Contact Us
USRBCPageAd.indd 24 10/16/2013 11:17:44 AM
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outlook
Successfully Structuring a Russian M&A Deal A Lawyers View
Russia, the R in the BRIC group of next
generation emerging economies, remains a
key focus for international investors seek-
ing to participate in its rapidly changing,
exciting economy.
This article shares leading tips to ensure, to
the extent possible, a successful Russian
M&A transaction.
1. Develop a deep knowledge of the
Russian market and your target industry
Knowledge is power: The more you know
about the Russian market, the better the
deals you will make. The more aware you
are of the external and internal value drivers
and the external and internal risk factors,
the better able you will be to pick your tar-
gets. These targets may include attractive
prospects with high growth potential that
rival investors, with less market insight,
have overlooked. The more successful
deals that you are involved in, and the
better the quality of your track record, the
more demonstrable your expertise will be
in your chosen market.
Partners: If you are a domestic Russian
investor, consider attracting international
investors to enhance the target companys
long term prospects globally. If you are an
international investor consider partnering
with domestic players to minimize political
and commercial risk. Domestic investors
may also seek international financial insti-
tutions (IFIs), such as EBRD and IFC,
as partners to provide protection against
political risk and to capitalize on their repu-
tational seal of quality.
If you are an international investor, bear
in mind that the majority of Russian M&A
activity remains domestic and you may
therefore be competing against major
domestic players who have been immersed
in the market for a generation.
In a joint venture or sub-100 percent acqui-
sition scenario, where there will be an ongo-
ing relationship with your counterparty,
they will place a value on your knowledge,
and the ongoing value you will bring to the
business as a result, that will increase the
attraction of your proposal, even in the face
of rival offers at a higher value.
2. Choose the right counsel
Choose an experienced legal counsel at an
early stage before any binding document is
signed. Ensure that your counsel is proac-
tive and can add value to the investment
over its lifespan by:
being available and responsive, whether
to advise on big or small issues, whenever
needed;
having knowledge about the industry,
the Russian market generally, and issues
that will arise for the target company
based on its current maturity and growth
expectations; and
including them at appropriate stages
without draining your resources and
running over budget.
3. Understand the corporate structures
used in Russian deals
The drafting and negotiation of the deal
documents and the discussion of a Russian
M&A deal structure will occupy the vast
majority of your deal timetable and legal
budget.
Typical structure: As a result of various
factors outlined below, the typical structure
for a Russian M&A deal is:
a share, rather than asset, deal (except
pure technology plays, distressed sales
or other situations where an acquisition
of shares in a corporate target is not
attractive due to historical risks);
the Russian target company;
an offshore (for example, Cyprus) holding
company;
offshore special purpose vehicle
companies through which interests in
the offshore holding will be held;
Russian law share transfer and security
documents, where applicable; and
English law over-arching transaction
documents.
Russian target company: The two principal
forms of Russian commercial entities you
will encounter in M&A transactions are the
limited liability company (LLC) and joint
stock company (JSC).
Holding company: Cyprus remains a popu-
lar choice for the jurisdiction of the holding
company of a Russian target. The double
tax treaty between Cyprus and Russia
reduces the withholding tax rate on divi-
dends in respect of qualified investments
to 5 percent. In addition, Cyprus company
law is based on English company law and
therefore the use of a Cyprus holding com-
pany is consistent with the predominant
use of English law transaction documents.
Russian or English law: There are a number
of complexities surrounding Russian law
relevant to M&A so that, notwithstanding
recent improvements and clarifications,
other than in specific instances, it remains
largely unworkable as the governing law
for sophisticated principal documents in
a Russian M&A deal.
English law is established as the most wide-
The following is an excerpted version of a Baker Botts report on structuring M&A
deals for USRBC members. The full report can be read at www.usrbc.org.
Key Differentiators of the USRBC
Strategic Planning: USRBC works closely with our members global teams
focused on U.S.-Russia commercial relations, providing counsel, guidance
and insights to key corporate stakeholders at a companys U.S. or Russian
headquarters, Russian and European operations and Washington, DC, offces to
advance their goals in the Russian and U.S. markets.

Access: With USRBC offces in Washington, D.C., and in Moscow, Russia, our
excellent relationships with both the U.S. and Russian governments offer
unparalleled and timely access to key policymakers.
Policy Leadership: USRBCs U.S. and Russian policy work refects the priorities
and concerns of our membership. We not only serve as an important amplifer
to members commercial interests, but we also lend the important support of a
cross-sectoral association with a keen sensitivity to broader bilateral concerns.
Diverse, Active Membership: Our membership ranges from senior Global
500 frms to niche experts in the U.S. and Russian marketplace and a growing
number of Russian companies looking to expand their global presence.
The U.S.-Russia Business Council (USRBC), a premier trade association based in Washington,
D.C. with an offce in Moscow, represents the trade and investment interests of its U.S. and
Russian member companies on bilateral commercial issues.
The U.S.-Russia Business Council (USRBC)
The USRBC seeks to expand and enhance the U.S.-Russian commercial relationship by
engaging in advocacy efforts with both the U.S. and Russian governments on behalf
of its members; assisting member companies with troubleshooting and new business
development; providing information and analyses to support business decisions; and
facilitating access and networking opportunities, including briefngs with government
offcials and private-sector leaders.

www.usrbc.org
www.facebook.com/usrbc
Headquarters
The U.S.-Russia Business Council
1110 Vermont Avenue, NW, Suite 350
Washington, DC 20005
+1 (202) 739-9180
Julia Fabens, Director of Membership
fabens@usrbc.org
Representative Offce in Moscow
-
Novinskiy Boulevard 8, Offce 907
121099 Moscow
Offce: +7 (495) 228-5896
Maryia Dauhuliova, Head of RF Representation
dauhuliova@usrbc.org
Contact Us
USRBCPageAd.indd 24 10/16/2013 11:17:44 AM
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ly used governing law in Russian interna-
tional M&A due to a number of advantages:
With English laws principle of freedom
of contract, the parties can be confident
that what they have agreed in writing
will be the agreement that binds them.
There are hundreds of years of common
law judgments and an established
system of precedent (unlike the Russian
court system) so there is likely to be an
existing decision based on comparable
circumstances but, even if the
circumstances are new, the courts can
respond and make new law without the
need for a central codified law to be
enacted.
It is also relevant that English remains the
language of international business, with the
result that the participants in the transac-
tion are more likely to be able to follow
and understand the deal as it develops.
Role of Russian law: Exceptions to the
general use of English law transaction docu-
ments include:
Russian law share transfer documents,
especially where, as is the case for LLCs,
these must be notarized before a Russian
notary; and
Russian law pledges over participation
interests in LLCs or the shares in the
Russian target company.
Share Purchase Agreement: Many of the
constituent parts of a typical M&A deal
structure are difficult to replicate under
Russian law. For example:
warranties and indemnities and
restrictive covenants (those are either
not recognized under Russian law or
remain untested); and
certain conditions precedent (Russian
law requires contractual conditions to
be outside the control of the parties).
It is therefore common practice, even in
respect of Russian-level transactions, to
provide for English law share purchase
agreements in respect of shares in JSCs
or, in LLCs, to wrap a Russian law transfer
agreement (which must be notarized) in
an English law share purchase agreement
that sets out the steps to take place before
and on completion and the remedies for
any breach.
Shareholders Agreement: Shareholders
agreements were not recognized by Russian
law until 2009. While such agreements
had never been expressly prohibited, the
approach of Russian company law to regu-
lating the relationship between sharehold-
ers (participants) in a Russian company,
as consistently upheld by Russian courts,
was traditionally restrictive and based on
the idea that such a relationship may only
be governed by Russian company law and
the companys charter. The ability of share-
holders to expand or modify their respective
rights and obligations in the companys
charter was (and remains) rather limited
by Russian company law.
The 2009 amendments to Russian law
introduced the concept of a shareholder/
participant agreement in respect of Russian
companies. The amendments provided
that an agreement between the sharehold-
ers of a Russian company may regulate
matters including:
the exercise of voting rights;
the obligation of a shareholder to sell its
shares at a pre-determined price upon
the occurrence of certain events;
the obligation of a shareholder not to
sell its shares until certain events occur;
and
the taking by the shareholders of other
actions relating to the management,
operation, reorganization and liquidation
of a Russian company.
(Note that, since Russian company law
defines a shareholders agreement as an
agreement between shareholders, we
avoid making the Russian company itself
party to the agreement. Instead any cov-
enants to bind the company post-closing
(see Part 9) will have to be included in a
separate agreement between the company
and the investor(s).) While Russian com-
pany law therefore would seem to provide
the Russian company with the framework
required to govern their relationship, the
2009 amendments were very limited and
rather ambiguously drafted and fail to pro-
vide clarity as to how the shareholders
agreement could operate in the context
of and interact with the mandatory provi-
sions of Russian company law which have
historically been very rigid.
Given the uncertainties described above,
most legal practitioners agree that the
new regime has probably given rise to
more questions than it has answered. It
therefore remains common practice to
regulate shareholders agreements with a
law other than Russian law. The sensible
course of action where using non-Russian
law is to seek to ensure the shareholders
agreement meets mandatory Russian law
requirements where possible, for example:
execution as a single document signed
by all parties to it, and not in counterparts;
and
as to its scope and parties.
As a result of all the above, English law
shareholders agreements are commonly
used at the foreign holding company level,
rather than at the Russian operating com-
pany level.
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4. First, a simple but effective term sheet
It will both simplify and speed up your trans-
action if you agree the overall structure
of your deal upfront with your counter-
party. Your ability to renegotiate your deal
structure after initial closing will be limited
given that your negotiation position, having
already made your initial investment, will
be weak. A post-closing reorganization
will be burdensome, time consuming and
expensive and may impact any financing
arrangements you have put in place.
The term sheet should be based on a pre-
liminary tax analysis of the position of you
as investor, the target company, the other
shareholders and management (if they will
remain involved in the company).
Do not become bogged down in negotiating
extensive detail in the term sheet. It will
be largely non-binding and you will waste
time and expense seeking to finalize all
aspects of the transaction at such an early
stage. A fully fledged term sheet may also
hamper your later ability to renegotiate, as
new matters arise.
The provisions of the term sheet that should
be binding are:
exclusivity (if the counterparty will agree),
typically with a duration of around three
months (Note that under an English law
term sheet, a positive obligation to
negotiate will be unenforceable.);
confidentiality and no announcements;
and
a break fee linked to the exclusivity
provision (Note that under an English
law term sheet, it is not possible to
provide for a break fee to be a penalty
payment on breach. In order to be
enforceable, the break fee should be a
reasonable pre-estimate of your wasted
costs.).
5. Demand and do effective and full
due diligence
Do not rely on the target companys own
valuation of its business or the investment
banks sale memorandum. You need to
kick the tires yourself to the level of your
risk appetite. You will need to work closely
with the target throughout the due diligence
process to understand better any red flag
issues.
Material due diligence issues should be
addressed in the purchase agreement by:
indemnities;
consideration holdbacks or escrows; or
price reductions.
In critical scenarios, walk away from the
deal.
At the same time, accept that most Russian
businesses will not be perfect and due
diligence issues will almost always arise.
6. Develop solid negotiating tactics
Russian language: Since most Russian
M&A is domestic, most Russian M&A deals
are negotiated face to face in the Russian
language. With the involvement of an inter-
national investor or an international law
firm, more negotiation may be in English,
but your negotiation team should include
at least one person with perfect Russian
language skills.
Keep perspective: As in the due diligence
process, dont concentrate excessively or
for any great length of time on issues or
disagreements that are immaterial. Stay
nimble and focus on the issues that truly
matter. Know when to compromise or
concede and focus on getting the deal
done. Know and agree in advance with your
negotiation team what is most important
and agree on your tactics.
Know your counterpart: Identify the issues
that the other side really cares about, so
you can spot when they are posturing. Take
into account the personality of the coun-
terpart lead negotiator. Be flexible: There
is no single best way to handle negotia-
tions. Decide on your negotiation team
based on both their prior experience and
personalities.
7. The importance of management
Exiting management: Will the incumbent
management of the target lose their jobs if
your deal closes? If so, ensuring a smooth
deal process and minimizing value destruc-
tion will depend on the nature of the sever-
ance package being offered to outgoing
management.
Ongoing management: If management is to
continue, or new management is to be put
in place, you will need to craft appropriate
incentives to keep them in place. However,
the transaction documents should ensure
that, following a majority investment, you
have the ability to remove and replace key
management through investor veto rights.
Make sure you assess the managements
capability to grow the business with you
before you invest. This can be achieved
simply by getting to know them during the
course of the transaction, but also by check-
ing references. Are your and their interests
aligned?
Your management representatives: You
will need to decide how involved you wish
to be in the business: do you want to be
involved in operational management (more
likely if you are a strategic buyer) or retain
only strategic supervision (more likely if you
are a financial investor)?
Nominee directors can be appointed at
the operating company level and/or at the
holding company level. If you place them
at the Russian operating company level,
your veto rights will be exercised under the
shareholders agreement predominantly as
Board Reserved Matters, and will have to
be bolstered by appropriate provisions of
the operating companys Charter.
Rights at the operating company level will
give you an ongoing operational input, but
will place your nominees in a position that
may make it difficult to distinguish them
from the management if something goes
wrong with the group.
Bear in mind that the type of Russian oper-
ating company (LLC or JSC) will have a
bearing in the scope of decisions that can
be delegated to the holding company as
shareholder.
Succession: Remember also to look ahead
to the future management of your invest-
ment. Many Russian companies that are
ripe for acquisition or investment were
launched by entrepreneurs who may now
be aging.
8. Lay a good framework of compliance
through the deal documents
Include in your deal documents proper
controls to avoid issues arising post-closing
such as:
issues arising under the Foreign Corrupt
Practices Act of 1977 (FCPA). If you
raise FCPA at the outset, the target will
know that it is an issue and, if the
company is not already clean,
management will likely take steps for it
to become so before closing (Note that
anti-bribery legislation was formally
adopted into Russian law in 2011 and,
with effect from 13 January 2012, the
Russian Federation ratified the OECD
Convention on Combating Bribery.);
financial and tax compliance;
legal and regulatory compliance; and
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information rights and shareholder
disclosure guidelines - establish clear
reporting and inspection rights in the
shareholders agreement or policy
agreement (see footnote 1) with access
to management and inspection rights.
9. Plan your exit
If you are a financial investor you will gen-
erally have different motivations than a
strategic buyer. You will be looking for tar-
gets that offer value that can be unlocked
either through better management and/or
a break-up or by leveraging the asset (in a
low cost debt environment).
Decide on your ideal exit strategy at the
outset and test its viability through the due
diligence process. Your exit strategy and
the steps required to implement it should
be set out in the transaction documenta-
tion. Where management and existing
shareholders will have an ongoing role,
encourage them to buy-in to your exit strat-
egy with value added support by providing
guidance and support on:
financial accounting;
exit strategy and process;
pre-IPO assistance, including in respect
of improving corporate governance and
pre-IPO restructuring; and
investment banking relationships.
With regard to the last bullet point above, be
aware that an IPO of the Russian operating
company will not be possible if it is an LLC
or a CJSC, since participation interests in an
LLC or shares in a CJSC may not be listed.
Conclusion: The British Prime Minister,
Winston Churchill, famously described
Russia as a riddle wrapped in a mystery
inside an enigma. While it is true that
the challenges of Russian M&A are not
insignificant, with the right structure and
the right advisers you can unlock the
right deal and deliver value to both you
and your partners.
Currently, in global trade we face multiple
changes for which it is very important to find
correct responses to. Economic instability
and the Doha Round crisis have forced a
significant number of nations to step up
efforts at establishing regional integration
bodies as alternative tools to export their
goods to desirable markets. That could
radically change the architecture of the
global or multilateral trading system.
In light of those developments, Russias
role and standing in global trade have been
changing. Last year saw the completion
of its lengthy WTO accession history. On
a parallel basis, the regional integration
project in Eurasia is under way and our
trade and economic relations with next
door neighbors and key partners are
undergoing transformation as well.
What is the Customs Union?
As it stands now, the Customs Union
between Belarus, Kazakhstan and Russia
is the next stage of economic integration
based on our nations long-standing
economic, trade and manufacturing
relations, established cooperation and
mutually dependent markets.
Starting in the 1990s, the effort at setting
up and fine-tuning cooperative tools in
the Eurasian economic space has been
undertaken through bilateral free trade
agreements. As a result, in late 2011,
Russia hosted the signing of a CIS Free
Trade Agreement that replaced numerous
bilateral agreements between CIS member
states (Armenia, Belarus, Kazakhstan,
Kyrgyzstan, Moldova, Russia, Tajikistan,
Uzbekistan, and Ukraine).
In the meantime, Belarus, Kazakhstan and
Russia continued to grow even more closely
integrated. In 2010, the three nations
formed a Customs Union, and, on July 1,
2010, they abolished internal customs
borders and started sharing a single
commodities and goods market. In January
2012, 17 international agreements went
into effect, which created a Single Economic
Space (SES), where four freedoms are to
be implemented: freedom of movement of
goods, capital, services, and labor within
a common customs territory.
The next step would be the creation, in
2015, of the Eurasian Economic Union, an
even more advanced economic integration
project.
Over the last few decades specifically,
regional economic integration has been a
response to the challenges posed by global
crises and a way to encourage trade in
many nations in the Asia-Pacific region, as
well as in Central and Latin America. Such
global players as the U.S. and the EU are
now in talks to establish a Transatlantic
Trade and Investment Partnership. The
United States is also coordinating a process
to put in place a Trans-Pacific Partnership
geared to liberalizing trade among 13
nations, including Japan, which at the same
time is negotiating bilaterally with the EU.
Our efforts are intended to create a more
transparent and predictable environment
for trade development, both between our
nations and for our trade partners. The
reference is to creating a market that is
attractive for manufacturers, services
providers and investors; a market that is
vast in size yet subject to unified trade
regulation.
Against the background of declining
global trade growth, the growth of mutual
trade among the Unions member states
significantly exceeds the growth of foreign
trade. In 2010, foreign trade grew
somewhat faster year-on-year: a 33 percent
increase for the CU against a 29.1 percent
growth of mutual trade. However, in 2011
foreign trade growth took a backseat with
32.7 percent growth versus a 33.9 percent
increase in mutual trade. In 2012, mutual
trade grew more than twice as fast, 7.5
percent vs. 2.6 percent.
In the meantime, where foreign trade
growth primarily results from increased
minerals exports and higher prices, mutual
trade is a great deal more diversified as a
consequence of removing administrative,
technical and other non-tariff barriers and
of increased cooperation in creating added
value.
n
The Eurasian Integration Project as a Response
to Globalization-Era Economic Challenges
By Andrey Slepnev, Minister of Trade, Eurasian Economic Commission
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Baker Botts has been involved in the
Russia/CIS region since the mid-1970s
and has extensive experience advising both
Russian and international investors in a
wide range of deals, from relatively simple
M&A transactions to multi-jurisdictional,
multi-level joint ventures. While the firm
specializes in the energy and technology
industries, it also has a thorough knowl-
edge of the Russian financial services, real
estate, aviation and transport industries.
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Decision-Making in the Customs Union
The Customs Unions highest governing
body is the Supreme Eurasian Economic
Council, which is convened either at the
head of state level, or at the level of heads
of governments of the three nations and
that makes strategic decisions to further
develop the CU. For instance, its decisions
concern expanding the authority of the
CU regulators, drafting new treaties and
agreements, and commencing trade
negotiations, etc.
Most of the CU decisions are made
by the Council and the Board of the
Eurasian Economic Commission (EEC).
The Commission creates Customs Union
trade regulations. The responsibility for
establishing trade regimes with other
nations, tariff and non-tariff regulation,
customs administration, technical
regulation, sanitary and phytosanitary
measures, and trade negotiations have
been delegated to the Commission by the
member states.
Following Kazakhstans future WTO
accession, a consolidated Kazakhstan-
Russia position is likely to be devised at
the CU level regarding WTO negotiations.
In addition, effort is already under way to
determine the role of the supranational
entity in the context of negotiations on
The bulk of the Commissions decisions are
direct action decisions. Examples include
setting the import customs rates, the
amount of tariff quotas, applying market
protection measures, creating CU technical
rules, determining the rules of customs
administration, etc.
That nations have delegated authority
does not mean they have removed
themselves from decision-making. The
Commission may make decisions while
taking into consideration the opinions of
relevant national agencies and business
communities, but it proceeds from the
interests of the entire Customs Union
market. Issues are debated in specialized
consultative committees comprising
representatives of the three parties and
also attended, on an invitation basis, by
businessmen. A special consultative board
has been established for interacting with
the business community.
In addition, a judicial appeals authority
the EurAsEC Court has been created with
the authority to handle disputes regarding
application of the Commissions decisions.
The Customs Union, and, subsequently, the
Eurasian Economic Union, is open for new
membership. Clearly, whether or not to join
the Customs Union is the sovereign choice
of the leadership of candidate nations.
Active negotiations are in progress with
the Kyrgyz Republic as part of an effort to
expand the CU membership. In addition,
on September 3, Republic of Armenia
President S. Sargsian stated his nations
intent to join the CU during a Moscow visit.
Customs Union and the WTO
In August 2012, Russia was the first of the
CU members to accede to the WTO, having
completed an almost two decades long
negotiations. At that time, the obligations
recorded in the accession protocol, which
pertain to matters delegated to the CU
level, became part and parcel of the
supranational legal framework. In laymans
terms, obligations assumed by Russia in
joining the WTO began to be incorporated
into the CU/SES international agreements.
De facto Kazakhstan and Belarus, without
accessing the advantages available to WTO
members, are required to pursue a trade
policy that conforms to that organizations
requirements.
The legal framework for such activities
is provided for by the Treaty on the
Functioning of the Customs Union in the
Framework of the Multilateral Trading
System.
The key results of EECs work to honor
Russias obligations as a WTO member
concern tariff regulation and sanitary and
Background: In 2012, mutual
trade broke down as follows:
machines, equipment, and means
of transportation accounted for
21.1 percent, while exports
grew by 14.6 percent. The
physical volume of deliveries
grew: for railway engines, by
140 percent; railway cars and
surface streetcars, by a factor
of 43; computers and parts and
assemblies for them, by 450
percent; agricultural harvesting
and threshing machines, by 950
percent; passenger cars, by 68
percent; electric transformers, by
67 percent; vacuum cleaners, by
140 percent. Foodstuffs and raw
materials to produce them (other
than textiles) accounted for 10.2
percent and grew by 20.3 percent.
In addition, the Commission per-
forms a number of functions in
such areas as macroeconomic
policies; competition policies;
industrial and agricultural sub-
sidies; energy policies; natural
monopolies; government and
municipal procurement; mutual
trade in services, investments;
transportation and freight traffic;
monetary policies; protection of
results of intellectual activities
and means of goods, works, and
services individualization; labor
migration; financial markets
(banking, insurance, currency
markets, securities market).
EEC Structure
The EurAsEC Board comprises
nine international ministerial
level civil servants, three from
each of the CU member nations.
Technically, the Board needs a
qualified majority (2/3) to make
a decision. However, as a rule
decisions are made by consensus.
The EEC Council consists of the
three Parties' representatives
holding deputy PM posts and
makes decisions on sensitive
matters exclusively via consensus.
New Basic Agreements between Russia
and Kazakhstan and the EU. A significant
proportion of the trade sections in those
agreements is subject to the CUs
supranational jurisdiction, which requires
a unified position to be formed with due
account taken of the interests of the entire
Single Economic Space.
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phytosanitary measures. Last year, we
adopted a new version of the Common
Customs Tariff of the Customs Union (CCT
CU). Starting this year, the CCT is going to
be annually amended in accordance with
a schedule to reduce the customs tariff.
Last year, approximately 1,100 items were
revised, and on September 1, 2013 rates
for 5,100 goods items were reduced.
We have also amended the Common
Veteri nary ( veteri nary/sani tary)
Requirements applicable to goods
subject to veterinary control and Common
Veterinary Certificate Forms. Technical
Regulations and regulatory documents in
the sanitary and phytosanitary measures
area are adopted in accordance with WTO
standards and practices; they go through
a lengthy public debate procedure.
The Commissions Department authorized
to conduct investigations into application
of trade protection measures also
operates in strict compliance with the
provisions of the WTOs Anti-Dumping
Agreement, the Agreement on Subsidies
and Countervailing Measures and the
Agreement on Safeguards.
On the whole, the position of the member
nations vis--vis the WTO is fairly
transparent as both Kazakhstan and
Belarus have confirmed their intent to
join the organization and observe its rules.
However, participation in the WTO requires
us not just to formally observe assumed
obligations, but also to contribute to the
development of the trade organization
itself. The EurAsEC is actively involved in
developing Russias position on a number
of WTO matters.
Thus, talks on the Trade Facilitation
Agreement (TFA) are nearing completion,
whose objective is to devise such
universally-recognized rules and provisions
as to significantly accelerate goods
turnover and facilitate the passage of
commercial cargoes through customs
and other accompanying procedures and
formalities.
According to WTO estimates, the TFAs
implementation may generate an additional
$1 trillion for the global economy. Reduced
costs, optimized customs payments
systems, improved access to regulatory
and trade-regulating information, better
cooperation between customs and other
agencies can save roughly 5 percent of
overall trade costs.
We are confident that the Agreement will
be of vast importance for Russia as a WTO
member as well as for Kazakhstan and
Belarus. The CU must take advantage
of a chance to introduce the worlds best
practices at the supranational level.
Simultaneously, we have been monitoring
global trends related to the multilateral
trading system, in particular expansion of
the network of bilateral and multilateral
preferential trade agreements (PTA).
Already over 350 regional trade
agreements are in effect, while the number
of negotiations is constantly growing.
Obviously, in a few years, most of the global
trade will be governed by PTAs.
Modern PTAs do not limit themselves to
the matters of liberalizing trade in goods,
but also cover trade in services, investment
terms, IP rights protection, preferential
government procurement regimes,
cooperation in technical regulation, and
sanitary and phytosanitary measures.
At this point, it is extremely important to
prevent imbalances and distortions caused
by stagnation of unified global standards
and by the development of a multitude of
various bilateral regulations. The existence
of numerous mutually incompatible
agreements would lead to destruction of
established production chains and to a new
wave of regional protectionism.
In our opinion, it is exactly the WTO that
must lead the structuring of that activity and
maximize the impact of the parties interest
on multilateral trade while minimizing the
risks. It could result in the creation of
global standards for PTAs that would make
them mutually compatible. In addition,
the WTO should work to systematize the
experience that is being developed in
regulation of these agreements and to
push for such rules to be transitioned to
the universal level across the organization.
Avenues of Cooperation between the
Customs Union and the USA
The United States is not only a key trading
partner of the Customs Union member
nations but also a potentially important
partner in developing the emerging insti-
tutions and regulatory bodies in Eurasia.
In 2012, the U.S. accounted for 3.4 per-
cent of the foreign trade of CU/SES mem-
ber nations, while the U.S.-Russia trade
was $40 billion. The CUs exports to the
U.S. in 2012 were dominated by mineral
resources (36 percent), chemical prod-
ucts (21 percent), and metals and items
made out of metals (19 percent). The
principal imports from the U.S. in 2012
were vehicles, equipment, and other types
of transportation (54 percent), chemical
products and rubber (15 percent), as well
as foodstuffs and agricultural raw materi-
als (13 percent).
However, our trade and economic relations
are handicapped by the remaining barriers
in mutual trade.
EEC regularly monitors restrictive trade
measures targeting goods from the
Customs Union member nations on
external markets. Regrettably, based on
monitoring results in Q2 2013, the U.S.
applies 19 such restrictive measures, or 19
percent of the total number of restrictive
measures employed by third countries.
Out of those, nine measures are economic
sanctions against the Republic of Belarus
that concern primarily its petrochemical
and metallurgical industries. The U.S.
uses five anti-dumping measures against
Russian-manufactured fertilizer and silicon
metals, Belarus-manufactured rebar and
Kazakhstan-produced silicon manganese.
A measure against Russias urea and metal
silicon is being revised but antidumping
duties remain in effect.
An investigation is also underway into
applying an antidumping measure against
ammonium nitrate to a nitrogen sulfate
mix imported from Russia. In addition,
the United States commenced three
antidumping investigations into steel
and uranium products from the Russian
Federation. Altogether, the United States
applies 8 measures to Russian goods
and commodities, 10 to Belarus and 1 to
Kazakhstans.
The EEC is making progress on certain
matters of trade, such as exports from the
United States of beef and pork contain-
ing ractopamine and tetracycline. We are
confident that building up the practice of
regular consultations on ways of simplify-
ing trade is extremely important and such
opportunities are not to be ignored.
In conclusion, it is worth noting that we pay
special attention to interactions with the
business community in implementing the
WTO agenda. June 2012 saw the signing
of a Memorandum of Cooperation between
the Eurasian Economic Commission and
the Belarus-Kazakhstan-Russia Business
Dialogue. A key area of interactions with
the business community is to monitor infor-
mation on external trade barriers and the
examination of and assistance in removing
barriers preventing goods and services
from accessing third country markets.
Hopefully, the U.S. business community
will soon be able to join this effort. n
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events
The following is an excerpt of Deputy
Minister Rakhmanovs address.
Everybody knows about the multipli-
cation effect of the automotive industry,
when every job can create from 8 to 16
jobs in other sectors. For this reason,
Russia and the Russian government will
continuously support the development of
the automotive industry. Car sales grew
by 11 percent in 2012, contrasted with a
decline in the European market. This is a
good sign that Russia could become the
largest car market in Europe in the next
year or two. However, we estimate that
growth in 2013 will be modest, and I think
we will be lucky if can at least remain at
the 2012 level.
According to our automotive industry devel-
opment strategy, we are planning to pro-
duce 3 million cars annually in Russia by
2020. We believe that using a strategic
approach where Russian companies work
hand-in-hand with their foreign partners is
how we can achieve that goal.
Russian customers like cars. They like to
buy reliable cars, to buy cars that bring
them joy. I dont know how it is in the U.S.,
but in Russia a car purchase has become
an emotional event. If you dont catch your
customer with a flashy design and with
some interesting features, people wont
buy it no matter how economical it is. But
we still see that the major market segment
is occupied by budget cars. However, its
no longer the format of VAZ vehicles.
Now, we are talking about a new portfolio
that actually is appealing to the Russian
customer.
Yes, its a big market, but its never going
to be as big as China. We will never set
that kind of record. But with the car pen-
etration rate still at a level of 250 cars
per 1,000 people, the Russian market
clearly has room to grow. We believe that
by 2020, this penetration rate will increase
to 400 cars per 1,000 people, which basi-
cally gives us confidence that the Russian
automotive industry will be producing 3.5
million to 4 million cars per year.
In December 2012, the Russian gov-
ernment adopted the State Program
to increase the competitiveness of the
Russian economy, and there is a subpro-
gram devoted to the automotive industry.
In order to support the automotive industry
and we are talking about original equip-
ment manufacturers (OEMs) and suppliers
this program will continue to be revised
toward offering a better package to all auto-
motive companies operating in Russia. We
truly treat all the foreign companies who
operate in Russia and have their produc-
tion facilities there as Russian .
What is especially important is the develop-
ment of component manufacturing. You
cannot produce quality and reliable cars
using substandard components. And this is
where I believe OEMs have to set the trend,
because in this chicken-and-egg problem,
we have to somehow make the first step.
And it was absolutely clear for us that the
first step is to be made by OEMs.
Do you know that approximately 300 invest-
ment agreements and memorandums were
signed by the Ministry of Finance last year
in order to allow these component manu-
facturers to come to Russia and develop
their businesses? In addition to that, we
have a strong emphasis on the develop-
ment of special economic zones.
We are ready to create all the necessary
conditions for investors and component
manufacturers and follow them through the
process of doing business in Russia and,
if necessary, to offer our help and support
in any issues that might arise. Investment
support is extremely important, and there
April 3, 2013 Detroit, MI
USRBC Automotive & Agricultural Machinery Forum
Keynote Address:
Alexey Rakhmanov
Deputy Minister of Industry and Trade of
the Russian Federation
Deputy Minister Rakhmanov addresses Forum participants.
outlook
USRBC new members
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are regions that have been competing to
provide better support.
For example, the number of component
manufacturers in Kaluga increased dra-
matically when the local government decid-
ed not only to invest in the infrastructure
for that development, but also to appoint
an official regional representative who
would be responsible for dealing with any
problems that arise throughout the entire
investment process.
Turning to agricultural machinery, here we
have a slightly different situation. Our WTO
accession agreement didnt allow us to
offer a similar regime to what we currently
have in the automotive sector.
In order to become one of the worlds lead-
ing food producers, we need to have mod-
ern equipment and modern technologies.
The fundamental problem is that Russian
agribusiness is still living in the last cen-
tury. Currently, many Russian agricultural
producers barely make money and, as a
consequence, dont have enough money to
buy new machines. At the same time, we
have huge companies that have millions
of hectares and a pretty large margin, but
surprisingly enough when you read newspa-
pers you see that about 50 percent of their
net profit comes from federal subsidies.
To deal with such an imbalance, together
with the Ministry of Agriculture, we have
to come to a clear understanding of whom
we support.
We need to understand their demands and
what they plan to build as a business. I
personally believe that competition is the
only way to improve the current situation,
not only for those companies that produce
agricultural machinery, but also for agricul-
tural companies themselves.
And this is where we have to do some-
thing about establishing fair competition.
Obviously, Russian companies who pro-
duce agricultural machinery have a strong
public image and its impossible not to sup-
port them. But at the same time, if we can
demonstrate that foreign companies will
announce their projects under the slogan
For Better Competition and come with
those projects to Russia in order to get
the place they deserve, I am sure we can
build a reasonable system in which we will
be able to build a strong partnership and
develop the business of American compa-
nies. We basically have less freedom for
maneuver because we are now in the WTO;
but at the same time, I am sure that even
those terms and conditions can help us
build an agribusiness sector that will not
only serve the purposes of the machine-
building industry but also will lead to Russia
becoming one of the top agricultural pro-
ducers.
Keynote Address:
Matthew Edwards
Director, Office of Russia, Ukraine &
Eurasia
U.S. Department of Commerce
The following is an excerpt of Mr. Edwards
address.
I have two audiences here, but I really
have just one message, which is simply
this:
Those of us in the U.S. government who
work every day on the Russian-American
relationship want you to be here, to meet
one another, to explore a full range of
what you will be able to do together from
a commercial stand point. We want you
to succeed in developing the kinds of ties
that lead to mutually-rewarding, win-win
business arrangements.
That message may seem very simple, but
its not trivial in the current environment.
Let me say a little bit more about why I think
its so important. From the companies
with whom I speak and from the visits I
make to Russia several times a year, its
clear to me that, although U.S. and Russian
companies have increased their knowledge
of one another tremendously over the
last two decades, we are still at the very
early stage of learning how to do business
with one another. I think a big reason
for this is, of course, that the Russian
business environment has been changing
so dramatically in terms of the countrys
becoming integrated into global supply
chains. The most significant development
of the last decade has been Russias entry
into the World Trade Organization (WTO),
which puts it on equal footing with all our
other major trade partners, at least in terms
of the principles by which we regulate and
conduct trade relations.
Russias entry into the WTO is often talked
about in terms of being an event, but really
what Id like to encourage people to do is to
think about it more in terms of a process.
And when one thinks of the Russias entry
to the WTO as a process, one gets much
more appreciation for all of the things that
Russia, its legislators, its regulators, and
its business people have accomplished
during the last 18 years. That process has
required a tremendous amount of change
to basic legislation on everything from
financial services to technical standards,
trade remedy laws, intellectual property
rights, and the basic requirements for
transparency that we have long taken for
granted here like having public comment
periods and advance notice when new
rules are introduced, so companies have
an opportunity to take part in the process
and have time to comply.
We are starting to see the fruits of those
changes in our economic relationship. We
see it in a growth of our trade in recent
years. American exports to Russia, as well
as Russian exports to the United States,
are each 4.5 times higher than they were
10 years ago. In 2012, U.S. exports to
Russia were up 29 percent, which was 6
times more than the growth of our overall
exports to the world as a whole.
In fact, in the three years since 2009, the
only major market where we have seen
our exports grow faster has been Turkey.
Matthew Edwards discusses efforts to increase bilateral commercial ties.
USRBC Automotive & Agricultural Machinery Forum
outlook
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I dont expect those huge percentage
jumps to be sustained at that level, but I do
think they speak favorably to the changes
that Russia has already put into place
that even allowed this growth. We have
also seen growth in investment over this
time, whether its investment by Russian
companies in the U.S. steel industry or
many investments by American companies
in Russia.
Overall growth in Russias market
presents tremendous opportunities for
both American exporters and for American
investors. Wed like to encourage U.S.
companies to explore whatever works for
you. This is not to suggest, by any means,
that Russias entry into the WTO solved all
of the difficulties that Russia and America
have doing business with one another, and
it doesnt indicate that our governments
wont continue to have different views or
different disagreements on certain trade
issues and certain trade rules. But one
reason why we pushed very hard to get
Russia into the WTO and why Russia
pushed hard to join was because both
sides recognized the benefits of having a
common framework in which to discuss our
disagreements and in which to discuss the
ways to resolve them.
The U.S. government sees many
opportunities for continuing an open
dialogue with Russia about aspects of its
business environment as more Russian
companies become capable of taking
their presence internationally. Russias
global competitiveness has tended to be
concentrated in industrial inputs. These
products are very important, for example,
to steel finishers here, who buy Russian
inputs; farmers, who buy Russian fertilizer;
aircraft manufacturers, who rely on Russia-
made titanium components. But the in
products that result are not associated in
the public mind with Russias very important
role in producing it. I am confident that
this will change. And I appreciate that
the challenge of figuring out better trade
policies, better investment strategies and
better business plans gets a lot more
complicated when there is uncertainty
about the attitudes on the parts of both
governments toward one another.
And so that brings me back to my central
message: we want our Russian guests
and our American business managers to
continue hold discussions and to launch
new conversations. We think there is a lot
more that can be done to take our economic
relationship to a level more commensurate
with the size of our respective economies
and with the talent, creativity and expertise
that we have in both Russia and the United
States.
James Bovenzi started his presentation
by noting the tremendous need for supply
investments in Russia, as many manufac-
turers have obligations to fill their supply
needs with localized content. He agreed
with Mr. King that Russians, as elsewhere
in the world, consider their cars a source
of emotion and passion, and those in the
industry should remember that their busi-
ness is all about satisfying that passion
with an excellent product.
Mr. Bovenzi noted several reasons why
the Russian market is a promising invest-
ment opportunity. Only about 25 percent
of Russians own a car, versus about 90
percent of Americans, which indicates
high potential for growth. At the same
time, the average age of a vehicle on the
road in Russia is at least five years older
than its American and European coun-
terparts, which suggests there is likely to
be increased demand in the near future.
There is also an established relationship
between average income and car owner-
ship, and as Russias middle class grows,
more consumers will have the means to
purchase cars. Finally, the Russian govern-
ment has chosen the automobile industry
as one of its priorities in an attempt to
diversify away from natural resources and
plans to invest heavily in the development
PANEL: Supply Chains, Manufacturing Localization and
WTO Compliance
Moderator:
William Andrew King, CIS Automotive Leader, Partner, EY
Participants:
James Bovenzi, President & Managing Director, General Motors Russia and CIS
Givi Nadareyshvili, General Director, NTC MSP
Dmitry Osipov, Head, International Cooperation Committee, National Association of
Automotive Component Manufacturers (NAPAK)
William Andrew King introduced the
panel by sharing his impressions of the
Russian governments support for and
interest in protecting investments and
urged attendees not to underestimate
the Russian consumers passion for their
vehicles. All of these factors, he said, make
Russia an opportunity for investment, espe-
cially from the perspective of component
suppliers.
Mr. King outlined the panels four objec-
tives: to share perspectives on the develop-
ment of the Russian automobile industry; to
address the challenges facing the industry;
to outline objectives for the Russian supply
chain and its execution; and to discuss
the positive and negative implications
of Russias entry into the World Trade
Organization (WTO).
The Forums first panel addresses issues related to supply chains and WTO compliance.
William Andrew King, EY
USRBC Automotive & Agricultural Machinery Forum
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of engineering savvy and manufacturing
processes.
Russia is already a major global market,
Mr. Bovenzi said, ranking 4th-largest for
General Motors (behind China, the U.S.
and Brazil) and 12
th
industry-wide. GM
has done well in Russia, with Chevrolet
ranking as the top foreign brand for six con-
secutive years. GM has also entered the
market with German brand Opel and with
Cadillac. Mr. Bovenzi noted that compa-
nies have many choices for their operations
in Russia in terms of type and location. For
example, GM has a wholly-owned facility in
St. Petersburg; contract assembly arrange-
ments in Kaliningrad and Nizhny Novgorod;
and a 50/50 joint venture in Tolyatti.
Mr. Bovenzi suggested that the interest in
investing in suppliers has come from the
presence of many original equipment man-
ufacturers (OEMs) in Russia, who all have
a local content requirement. He argued
that localization, regardless of any official
obligation, is economically sensible for
companies as it allows them to respond
quickly to the market, control quality and
minimize logistics costs. The biggest chal-
lenge moving forward, he said, is properly
training local workers to use those sup-
plies to produce world-class automobiles.
Russian consumers expect no less than
their peers elsewhere in the world, and
companies should invest time in reaching
out to local universities and existing team
members to involve them in growing an
industry that meets high expectations.
Mr. Bovenzi concluded by stressing that
automobile investment in Russia must
be a partnership between industry rep-
resentatives, parts suppliers, OEMs, and
the government. These groups must all
work together to meet consumer demand
while simultaneously giving investors good
returns.
Dmitry Osipov addressed the future of the
Russian components market after WTO
accession. Mr. Osipov pointed out some
synergies between Russian and U.S. auto-
mobile markets that would create similar
areas of overlap in the component parts
market. For example, both countries have
many long, straight roads, especially in
comparison to those in the EU, and have
a preference for durable, comfortable sus-
pensions.
Today in Russia, the strategies and status
of component parts suppliers are depen-
dent on the strategies and status of OEMs,
Mr. Osipov said. There are three major
automotive clusters Samara (the location
of AvtoVAZ), Moscow and St. Petersburg,
each with existing component supply
bases. Traditionally, these suppliers were
80-90 percent vertically-integrated and
tended not to think long-term because of
a lack of relationships with OEMs. Today,
though, the component parts market is
much closer to the international market
as these relationships have developed.
Nonetheless, problems persist, such as an
average industrial productivity 8-10 times
lower than in the U.S. and a continued
resistance to thinking in terms of long-term
strategies.
By 2020, manufacturing is likely to stay
domestic, and many international brands
will have their full range of production in
Russia, Mr. Osipov predicted. He suggest-
ed that international OEMs will play a lead-
ing role in R&D, while domestic engineering
centers will be responsible for adapting
existing international platforms to the
Russian market. Mr. Osipov suggested that
Russia would benefit from the presence of
foreign supplies, as these would create new
relationships with Russian customers and
introduce new technologies, quality and
ecological and safety standards.
Mr. Osipov noted that Russia offers high
growth potential and competition is cur-
rently low, making it a first-come, first-
served market. The Russian model range is
fairly similar to those in other international
markets, and links with local automotive
manufacturers are already well-estab-
lished. Nevertheless, low-priced Russian
components make it difficult to compete
with existing Russian models such as the
Lada, and buses and trucks are often of low
quality. There are also quality assurance
problems in addition to problems in organi-
zation of marketing and sales. Mr. Osipov
suggested that customers should play a
role in shaping the market by pressuring
manufacturers to bring their products up
to certain standards.
Mr. Osipov urged new market entrants to
pursue incremental business development
and to take advantage of the local com-
ponent supply base, materials and labor.
They should also capitalize on the local
aftermarket potential and create a pool
of talented engineers that will help adapt
existing products to Russian markets and
create new ones. Finally, they should seek
to integrate fully into Russian business
procedures and supply chains.
Mr. Osipov next addressed the future of
Russias automotive industry under WTO
membership. From the manufacturers
perspective, the effects are mixed, he
said. There could be an overall increase
in imports of complete vehicles from
abroad, but an increasingly level playing
field between Russian production sites and
those in other countries could cut into the
profits of firms that have already started
production in Russia. Reduced import
duties for components could hurt domestic
manufacturing of components, he added,
as this is governed by economies of scale
and Russia produces smaller volumes
than the European Union and the United
States. On the other hand, reduced bar-
riers to exporting Russian goods could be
advantageous for domestic suppliers of
raw materials in reaching international
markets.
Mr. Osipov argued that the worst-case sce-
nario under the WTO would be an increase
in imports of secondhand cars. The govern-
ment has invested significant resources in
producing locally and would like to keep
that capacity instead of allowing second-
hand imports, he said. He expected that
there would, in fact, be an overall decrease
in the market share of locally-produced
vehicles and components. This could
lead to the failure of industrial assembly
agreements with the Russian govern-
ment, as shrinking local content supplies
James Bovenzi, General Motors
Dmitry Osipov, NAPAK
USRBC Automotive & Agricultural Machinery Forum
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Nadareyshvili said, are low productiv-
ity, problems with quality systems, lack
of research units, and an overall lack of
structure. He noted that foreign partners
could play an important role as organizers
and catalysts of a solution, which would
improve integration and boost specializa-
tion. He suggested the Russian govern-
ment should facilitate wider acceptance
of the concept of industrial assembly and
reduce customs and tax rates in order to
make the sector more attractive to foreign
investors and advised foreign companies
to make use of Special Economic Zones
and to find a strong domestic partner in
Russia to reduce market entry risk.
Questions & Answer Session
Q: What are the main challenges in achiev-
ing localization?
Mr. Bovenzi cited, first, the availability of
suppliers, whether local or global. This
is why increasing knowledge about the
supply opportunities present in Russia
is so important. Second, low unemploy-
ment rates in Moscow and St. Petersburg
mean it is important to train people there
specifically to join the automotive industry
upon entering the workforce. Third, raw
materials need further development to
meet international standards. Mr. Bovenzi
expressed confidence that the industry in
Russia could address these challenges
effectively.
Mr. Osipov added that there is a rela-
tive cost disadvantage to the first step of
localization. Oftentimes, therefore, a more
economically prudent strategy is to import
components first and then gradually shift
to increasing localization of content.
Q: What are the most important capabilities
in the automotive supply chain that need
to be addressed?
Mr. Bovenzi noted that transportation
infrastructure is still developing. Although
it is now possible to transport anything
anywhere in Russia, doing so often comes
with considerable complications and costs.
Therefore, Russia needs to develop its road
and rail infrastructure further. Additionally,
although Mr. Bovenzi acknowledged that
customs processing has improved since
his arrival in Russia, bureaucracy could
be further minimized and Russia needs to
speed up the clearance of imports.
Mr. Osipov stressed the important role
local engineering plays in assisting com-
panies to adapt their products to Russian
needs and market conditions. Production
technology needs local competence, as in
many cases the appropriate technology
increases the risk that companies will be
unable to meet localization requirements,
and decreased demand for local products
makes it difficult for them to reach required
production volumes.
Overall, Mr. Osipov said, investors should
remember that Russia is not a low-cost
country, with a 13 percent cost disadvan-
tage compared to more mature markets.
However, any improvements in Russian
productivity could offset the disadvantages
and increase the appeal of investment in
its automotive sector. Moreover, as Russia
harmonizes its import and export rules
with other WTO members and eliminates
some complications, it could improve the
ease of integrating into the international
automotive market. Mr. Osipov noted that
he and his peers are working together with
the Ministry of Industry and Trade to reap
the benefits of integration.
Givi Nadareyshvili presented on the
exhaust systems market and relationships
between its participants. He noted that,
in a broader sense, the development of
automotive companies in Russia depends
greatly on their relationships with global
economic brands. However, there are sig-
nificant differences between segments of
the automotive market, particularly in the
state of their facilities.
With respect to exhaust systems specifical-
ly, Mr. Nadareyshvili stated that about 50
companies are engaged in their production,
37 of which are large and medium- sized.
They produce a limited range of medium-
quality products and are still in the process
of developing a certified system of quality
assessment. Overall, Russian companies
are predominantly production units, out-
sourcing testing and car assembly, and
often lacking real research units.
The main challenges of the market, Mr.
cannot be assessed from the outside.
Q: What should the Russian government do
differently or more of to be able to support
the continued development of the Russian
automotive industry?
Mr. Bovenzi observed that credit avail-
ability has tightened in recent years and
suggested that the government take steps
to ensure that credit is reasonably acces-
sible. He stressed again the importance of
conducting training to develop the skill sets
necessary for manufacturing processes
and use of technologies, which could be
an area for industry-government partner-
ship. Finally, he noted that the government
should ensure that investors are able to
get a good return.
Mr. Osipov first noted that overall, dia-
logues between government and industry
have been smooth and productive. Moving
forward, he suggested that the government
focus on the areas where it has the biggest
impact setting rules and ensuring com-
pliance and then allowing the invisible
hand of the free market to take care of
the rest.
Q: Why would a company try to localize
even if there is a cost disadvantage to
doing so?
Mr. Bovenzi stressed that in order to
respond to the ups and downs of the mar-
ketplace, it is essential for companies to
maintain a local supply base he sug-
gested that approximately 50 percent local
content is ideal. Additionally, he noted,
GM is very meticulous about the quality
of its products, and a longer supply chain
introduces more risk in terms of potential
damage to products during delivery.
Mr. Osipov pointed out the importance of
following customers with supply bases,
suggesting that local materials could pro-
vide a competitive advantage even in the
face of cost disadvantages because they
minimize the time costs associated with
waiting for delivery.
Q: To what extent are complete knock down
(CKD) kit operations conducted in Russia
and how are they viewed?
Mr. Bovenzi explained that CKD is viewed
as a step along the natural development
of manufacturing processes. First, compa-
nies will generally use components shipped
in CKD kits, and as businesses evolve,
gradually shift toward ordering individual
supplies. For example, he noted that GMs
facilities in St. Petersburg no longer use
CKD kits and order individual supplies
exclusively.
Givi Nadareyshvili, NTC MSP
USRBC Automotive & Agricultural Machinery Forum
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The afternoon panel focused on Russias
Special Economic Zones and the opportu-
nities they present for international busi-
ness cooperation. Stephen Beigun opened
the session by discussing Fords role in
Alabuga, a Special Economic Zone located
in Tatarstan. Fords current business plan
in Alabuga has helped it expand to over
300,000 units per year, utilizing the fully
integrated manufacturing presence it has
developed using the Zones infrastructure.
Mr. Beigun stressed that Ford has been
successful in Russia despite the challeng-
ing business environment. He highlighted
human talent, tactical skills and access to
inexpensive natural resources as critical to
Fords growth. Ford increased its presence
in Russia because of its potential for growth
in auto sales, and because government
policies are encouraging local develop-
ment. The Russian governments policy on
Special Economic Zones has lowered the
costs of entry and has helped create the
scale needed for profitable production. For
those exploring investment opportunities
in Russia today, these regions should be
the primary focus.
Igor Egorov focused on the govern-
ments broad plans to develop the
Special Economic Zones and their impact
on attracting foreign investment. These
zones, with their special legal status and
economic benefits, have successfully
attracted more than 300 residents from
24 countries. Russias 27 SEZs are divided
into five categories: industrial and produc-
tion, technology and innovation, tourist and
recreational, and port zones. The Lipetsk
and Kaluga regions in Central Russia focus
on industrial and production, and neces-
sary infrastructure has been created there
to support manufacturing in the automo-
tive, chemical, aerospace, and machinery
production spheres.
Mr. Egorov explained that resident com-
panies receive special tax preferences,
including lower income taxes and a 10-year
property and transport tax exception. They
also have access to a special customs
regime, where investors do not have to pay
a customs duty when they sell goods within
the SEZ. Companies can file application
paperwork in one step, speeding up the
process of beginning each project. They
also have a simplified migration regime for
qualified foreign staff, helping companies
bring over their best talent to work in the
region.
The residency application process now
takes about one month and offers efficient
access to developing Russian regions.
Igor Marchev noted that his office is
responsible for construction, reconstruc-
tion, infrastructure maintenance, and
project promotion for the SEZs. He out-
lined the development of the industrial
parks in Pskov, Tolyatti, Kaluga, Lipetsk,
the Republic of Tatarstan, and Sverdlovsk,
indicating that several of these offer a com-
petitive advantage for automotive compo-
nents producers due to their infrastructure
advantages and geographic proximity to
ports and other means of transport. He
encouraged investors to view Russia broad-
ly, and not limit their investments solely to
Moscow or St. Petersburg.
Ivan Koshelev offered his perspective on
Lipetsks development and potential for
further growth, highlighting the importance
of collaboration between foreign technol-
ogy and local human capital in the area.
The SEZ is only six years old, but takes
its reputation seriously and is proud of
the success of its local engineers fulfilling
the needs of international firms in their
factories. The region also produces 25
percent of Russian sugar, 14 percent of
Russian steel and several million tons of
grain per year.
So far, the Lipetsk SEZ has 23 residents,
with 9 working in industrial production.
The region is expanding, with three more
international companies moving forward
with business plans and development.
Mr. Koshelev is optimistic for the future
development of the region, and believes
that Lipetsk offers a good place for busi-
nesses to develop while also supporting
the Russian economy.
Aleksei Pakhomenko discussed Samaras
role in integrating global automotive pro-
duction. The home of the Togliatti SEZ,
Samara is one of the most economically
developed regions in Russia, and plays
PANEL: Russian Special Economic Zones Invitation for Business Cooperation
Moderator:
Stephen E. Biegun, Vice President, International Government Affairs, Ford Motor Company
Participants:
Igor Egorov, Head of Section, Department for Regional Development, Ministry of Economic Development of the Russian Federation
Ivan Koshelev, General Director, Special Economic Zone Lipetsk JSC
Igor Marchev, Head of Investor Relations Department, JSC Special Economic Zones
Aleksei Pakhomenko, Head, Special Economic Zone Togliatti JSC
Igor Ryabikov, Deputy Director, Ulyanovsk Region Development Corporation
Rustem Zaripov, Head of Investor Relations Department, Industrial Special Economic Zone Alabuga JSC
Aleksei Pakhomenko (l.) outlines the work of the Togliatti SEZ in Samara.
USRBC Automotive & Agricultural Machinery Forum
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a leading role in the aerospace, energy,
chemicals, and automotive industries.
The auto cluster in Togliatti produces
over 60 percent of Russian auto output
volume, and is strategically located near
major population centers. There is easy
access to international transport corridors,
a highly qualified labor force and strong
logistics infrastructure. Within the region,
GM, Nissan, Renault, and AvtoVAZ have
localized production and act as strong cor-
nerstones of the local automotive industry.
Igor Ryabikov discussed opportunities in
the Ulyanovsk region and specifically in
the Volga District Cluster, where there is
substantial development in the automotive
industry. Last year, Ulyanovsk was the top-
ranked Russian region in the World Banks
Doing Business in Russia report. The
reasons for this success were tied to the
incentives built into the region. The state
and regional governments have been com-
mitted to building industrial infrastructure,
building relationships with large interna-
tional companies operating in the region,
guaranteeing that they respond to local
concerns efficiently, and that tax incentives
and subsidies keep the region economically
accessible.
Rustem Zaripov closed the session with
information about the Alabuga SEZ as a site
for investment. He considers his region a
success story because of the size of the
developments that have been completed
as well as the strong subsidies that have
encouraged investment. Its customs pro-
cedures are efficient, with clearance time
taking only three hours on average. The
region was listed in The Financial Times
fDi Magazine as one of the top 40 global
special economic zones.
The Alabuga SEZ is well-situated for fur-
ther investment. Eight of Russias 14
biggest cities are within 1,000 km, has a
skilled workforce with lower salaries than
in Moscow and St. Petersburg and has
already developed a strong network of utili-
ties and basic infrastructure. It currently
has 37 residents planning to invest $3
billion, with almost $1 billion of that invest-
ment coming from American companies.
The SEZ has future plans to build an indus-
trial park for companies hesitant to start
with big investments, as well as interna-
tional schools for families to make the
adjustment to Russian life more comfort-
able. Mr. Zaripov encouraged investors to
strongly consider investing in the Alabuga
SEZ. n
On April 17, the USRBC held a luncheon
with Dr. Ksenia Yudaeva, Russias G20
Sherpa, on the eve of a series of G20 meet-
ings in Washington. Dr. Yudaeva outlined
Russias priorities for the G20 meeting in
St. Petersburg in September and elicited
feedback from the private sector.
Beginning with an overview of Russias
macro economic outlook, Dr. Yudaeva
noted that amidst the Euro crisis and eco-
nomic slowdowns in the U.S. and China,
Russia has observed its own declining
growth rate over the past three quarters.
She stressed that what Russia is experienc-
ing is a cyclical decline driven by largely
external factors and is not primarily driven
by internal factors.
Russia is currently experiencing its lowest
post-Soviet unemployment rate, which has
been hovering around 6 percent for most
of the previous year. This indicates Russia
needs to change its growth model, putting
a greater emphasis on improving infrastruc-
ture and the investment climate, rather
than relying on consumer demand. Russia
should also continue with a conservative
budget policy and avoid large deficits.
Even though Russia is facing an inflation
rate of 7 percent, Dr. Yudaeva noted that
this was driven largely by non-monetary
factors and an increase in food prices stem-
ming from a poor grain harvest. Base level
inflation remains relatively stable, and the
Central Bank has been implementing con-
servative polices to bring down inflation
expectations.
Dr. Yudaeva stated that 7 percent annual
real GDP growth rates are now a thing of
the past. She put Russias potential growth
rate between 3 and 4 percent, and pos-
sibly 4 to 5 percent if structural reforms
are implemented.
Turning to the G20, Dr. Yudaeva stated
that Russia has chosen economic growth
as the main topic of its presidency. Within
this, the three principle focus areas will be:
supporting investment, increasing trans-
parency and increasing efficiency.
Question & Answer Session
Responding to a question about the impact
of WTO accession, Dr. Yudaeva answered
that Russia had begun to feel the benefits
of membership during the accession
process, as Moscow had implemented a
number of reforms before officially joining.
She noted that domestic discussion of the
WTO tends to revolve around the potential
for negative effects, but that only a handful
of industries have actually been adversely
impacted.
When asked about B20 engagement, Dr.
Yudaeva said that Russias G20 delegation
works closely with the head of its B20
delegation, Alexander Shokhin, President
of the Russian Union of Industrialists and
Entrepreneurs (RSPP). [RSPP coordinated
the B20 agenda for 2013 and held a series
of meetings with businesses from across the
B20 in order to develop recommendations
for the G20 meeting in September. A
finalized list of recommendations for the
G20 were presented at the B20 Summit in
June, on the sidelines of the St. Petersburg
International Economic Forum.]
In answer to a question about the decline
of Russias legacy oil fields, Dr. Yudaeva
noted that BP Americas chief economist,
Christof Ruhl, suggested that hydraulic
fracturing technology used in American
shale and tight oil formations could be
easily adapted for use in Russias brown
fields. This could slow of the decline of
West Siberian fields and delay the need to
invest in more costly offshore and Arctic
reserves. n
April 17, 2013 Washington, DC
USRBC Luncheon with G20 Sherpa
Dr. Ksenia Yudaeva
Ksenia Yudaeva discusses Russias role
in the G20.
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On May 13, the USRBC, in cooperation
with the Embassy of the Russian Federation
in the United States, organized the U.S.-
Russia Pacific Aviation Roundtable, an
effort to initiate a dialogue toward creating
year-round commercial air service between
Russias Far East and the U.S. West Coast.
Roundtable participants included U.S. and
Russian government officials as well as
representatives from U.S. and Russian air-
lines and tourist groups. The event offered
stakeholders in the region an opportunity
to discuss the potential for collaboration,
as well as barriers to investment and devel-
opment.
Ambassador Sergei I. Kislyak, Ambassador
of the Russian Federation to the United
States, opened the roundtable discus-
sion by offering his hopes for a future
of increased engagement between the
Russian Far East and the U.S. West Coast.
He spoke of the immense opportunity in
the region and stressed the importance
of dialogues such as this to the Russian
government. Russia is one of the United
States closest neighbors, with just three
kilometers separating Alaska and Russia.
Despite this proximity, commercial rela-
tions are woefully underdeveloped. There
are no regular direct flights between the
U.S. West Coast and Russian Far East,
and the flights that do exist require stops
in other countries and are prohibitively
expensive.
If both regions work together, they could
strengthen the trans-Pacific partnership to
bring about more interaction, and encour-
age tourism and investment. Amb. Kislyak
noted that some airlines have already
started looking for partners to operate
these routes. Yakutia Airlines, the only
airline right now to offer direct flights from
Petropavlovsk-Kamchatskiy to Anchorage,
wants American air carriers to develop
more regular flights to Alaska to connect
with their international flight offerings.
Without more flights, economic growth in
the Russian Far East will be limited by the
difficulty of access. Currently, there is only
$36 billion of trade between both coun-
tries per year. That figure comprises only
one percent of foreign trade in the United
States, and only 2.5 percent of Russias
foreign trade. Amb. Kislyak called this
situation unacceptable, given the size and
proximity of both countries and the poten-
tial for substantially increased trade and
investment.
With both Russia and the United States
placing a higher priority on the Asian mar-
ket, investment, infrastructure develop-
ment and physical connection are going to
become even more important. The Russian
government has already begun increas-
ing investment in the region, and hopes
that opportunities in the region grow and
expand quickly as a result.
Roundtable Discussion
Deputy Assistant Secretary of the
Department of Transportation Robert
Letteney discussed the value of strength-
ening U.S.-Russian bilateral aviation.
Expanding access to these markets cre-
ates new jobs and economic growth in mul-
tiple industries and builds upon pragmatic
working relationships already established
in the region. Deputy Assistant Secretary
Letteney noted that the regulatory frame-
work for expanding aviation links in the
region already exists. He concluded that
the only limiting factor is the development
of demand for the service.
Mikhail Kalugin, Head of the Russian
Embassys Economic Section, explained
that flights in the region must be driven
by consumer demand, and that the cur-
rent status of air travel between the U.S.
West Coast and Russias Far East is poor-
ly developed. There are no year-round
direct flights, despite the vast potential for
exchanges in the tourism, business, health
technology, and energy spheres.
Mr. Kalugin gave a brief overview of the
commercial potential of the Russian Far
East, and noted that a significant number
of American companies operate there. He
stressed that the Russian government is
focused on investing the infrastructure and
commercial opportunities in the region and
has as a goal creating closer linkages with
the Asia-Pacific region.
Members of the aviation community, includ-
ing Pavel Udod, Deputy General Director
of Air Company Yakutia; Mark Dudley,
Regional Director of InterPacific Aviation;
Zakhar Khudenko, Deputy Director General
of Vladivostok Avia; Ginny Carruthers, Head
of Government Affairs Division for Alaska
Airlines; and Igor Chernyshov, Head of
Licensing and International Affairs for S7
Airlines, all discussed their companies
experiences flying in the region, with many
citing poor infrastructure, low consumer
demand, and logistical concerns as impedi-
ments to their success.
Despite these concerns, several speak-
ers also presented examples of efforts
to make the region more profitable and
accessible. Points of collaboration already
exist, including educational exchanges,
tourism and business ventures. Changes
in the composition of the region, as well as
the Russian governments investment in
large-scale infrastructure projects over the
next several years, could expand consumer
demand by making tourism and business
investment easier. Many expressed opti-
mism that if short-term service could be
maintained, then consumers would prove
in the near-term that there is high enough
demand for year-round flights and connec-
tions to more cities.
The open discussion session focused pri-
marily on the need for further infrastruc-
ture and the limitations of the current visa
policy in encouraging more flights. Several
participants explained that the tourism
Roundtable participants discuss the possibilities for expanding linkages between
the U.S. and Russia.
May 13, 2013 Washington, DC
Joint RF Embassy/USRBC Air Transportation
Conference
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infrastructure in Kamchatka would need
to be greatly improved to increase oppor-
tunities to attract tourists. Currently the
costs of operating in and traveling around
the region are restrictively high. Many also
offered examples of problems with visa
applications making logistics more difficult,
citing difficulty reaching Vladivostok for
in-person interviews, selective visa enforce-
ment at the border, and long wait times to
receive special permission from the Federal
Security Service (FSB) to enter protected
areas of the Far East (such as Chukotka).
Looking forward, those participating in the
discussion agreed that improvements to
infrastructure, simplifying visa policies, and
encouraging multilateral regional projects
were all feasible and critical ways to aid
in development. All of these efforts could
expand the number of passengers and
offer clear demand for direct flights, as
well as make access to the region more
affordable.
Amb. Kislyak wrapped up the roundtable
by noting that he understood the skepti-
cism of the airlines, given the complicated
economic history of the region and the
variable levels of demand for flights in
the past decade. In his view, this panel
was a good first step in understanding the
issues and beginning a long-term strategy
for connecting both regions. Both Alaskans
and Russians want to increase trade, so
the governments should begin to address
this objective in a proactive way.
Amb. Kislyak emphasized that the solutions
to many of the problems raised would have
to be handled bilaterally. Concerns over
visa policies, infrastructure and demand
are best answered by changing the mental-
ity of regional actors and working as part-
ners rather than competitors. The market
is still small, but the future for this region
is strong and diverse. Air carriers, as well
as small- and medium-sized businesses,
should think critically about the potential
for this regions growth and connectivity.
The current way of cooperation without
direct flights limits access to an important
and growing region of Russia.
Amb. Kislyak concluded that the meet-
ing was useful for demonstrating areas
on which both governments can concen-
trate to facilitate regional development.
It also proved that there is room for dia-
logue about collaboration among airlines
to create more routes while still focusing
on safer, lower risk opportunities. It is in
the best interest of private companies,
and the Russian and U.S. governments,
to begin collaborating and discussing long-
term solutions to this gap in the bilateral
relationship.
On June 5, the USRBC hosted a break-
fast briefing with Alexei Overchuk, Head
of the Federal Tax Service of the Russian
Federation and Dmitry Volvach, Head of
the RF Federal Tax Services Transfer
Pricing and International Cooperation
Directorate. The speakers discussed rel-
evant tax reforms intended to advance
Russias efforts to improve its ranking in
the World Banks Doing Business index.
Mr. Overchuk opened the briefing with
a discussion of the many changes that
were implemented at Russias Federal Tax
Service (FTS). The agency has introduced a
user-friendly online portal for citizens to pay
taxes, is implementing a new corporate,
client-oriented style in its regional offices,
and is focused on providing a modern and
convenient process for taxpayers. The
new website and office structure, meant
to offer as much assistance to taxpayers
with as little physical contact as possible,
now offers 35 services and comprehensive
tax policy information for Russian citizens.
One of the most recent additions to the
website that aims to increase efficiency at
FTS is the creation of the Personal Taxpayer
Office, an online system that allows individ-
uals to view their property records, review
what taxes they owe and pay them online.
The system went live in May 2012 and has
2.7 million people registered so far, with
60,000 new registrations per week. One
of the goals of this service is to increase
transparency between government offi-
cials and citizens; viewing their property
records allows citizens to make sure that
the government has accurate, updated
information and that their property rights
are protected.
While the Personal Taxpayer Office is cur-
rently available only for individuals, the FTS
is beginning a pilot project with Russian
companies that it expects to be functional
this year. Mr. Overchuk reported that this
increased information transparency and
online data collection has lowered the num-
ber of field tax audits to one company per
1,000. The FTS has been able to reallocate
its resources to focus on the companies
that provide the most revenue, away from
targeting small- and medium-sized enter-
prises. A list of all of the risk factors that
could lead to an audit are available online,
with the goal of building a transparent ser-
vice that helps keep companies compliant
rather than devoting resources to searching
for noncompliance.
The FTS has also begun a pilot horizon-
tal monitoring program with four Russian
companies and one international firm.
This effort involves developing transpar-
ent working relationships between each
company and the FTS to monitor indirect
tax reporting and fair operation within the
tax control framework. The goal is to have
full compliance with tax policy reported in
advance of tax payments, instead of the
current vertical monitoring system that
requires more audits after taxes have been
filed.
One of the biggest changes in Russias tax
legislation is the implementation of the
Organization for Economic Cooperation and
Development (OECD) guidelines on transfer
pricing. As of January 2012, Russias tax
code is compliant with OECD standards and
meets one of the legislative conditions of
Russias accession to that organization.
So far, around 30 companies have been
approached to enter into an advanced
pricing agreement relationship with the
FTS to begin implementing this legislation.
These advanced pricing agreements are
used to let companies and the FTS set
mutually-agreed upon prices for charges
within their corporate structure, either to
other subsidiaries of the corporation out
of the country or for services rendered to
the parent corporation. Setting a clear
transfer pricing policy helps to guarantee
that companies are paying a fair amount
of taxes to governments in the countries in
which they operate, without paying taxes
on income twice or shifting their profits to
countries with lower tax rates. n
June 5, 2013 Washington, DC
Breakfast Briefing with Deputy Head of
the RF Federal Tax Service Alexei Overchuk
Mr. Overchuk (l.) explains reform efforts
at the Federal Tax Service, with his
colleague Mr. Volvach (r.) to USRBC
members.
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Mr. Overchuk acknowledged that imple-
menting clear policies on transfer pricing
is not an exact science and requires good
management and healthy, transparent rela-
tionships with the corporations involved. If
they are successful, though, the FTS should
see increased compliance with their poli-
cies, a decrease in audit risks to companies
and increased competition in the market
due to stable economic policies that make
investment easier.
Mr. Overchuk confirmed that Russia has
begun negotiations with the United States
on the Foreign Account Tax Compliance Act,
which would require individuals to report
their earnings and accounts held abroad to
the domestic tax service. He also indicated
Russias support for the OECDs initiative to
address Base Erosion and Profit Shifting,
an issue he said Russia shares with other
integrated economies. Discussions on
how to address this issue are in their initial
stages, but progress is being made and will
continue after the FTS can determine the
effectiveness of its implementation of new
transfer pricing policies at the end 2013.
Mr. Volvach clarified that transfer pricing
arrangements and audits are handled on
a case by case basis, and that the FTS
has a staff dedicated to establishing fair
standards for each industry. His office
works with industry members to consider
and measure issues surrounding the liquid
value of materials, especially in raw goods
where value has limited predictability. He
acknowledged that it was difficult to imple-
ment successful transfer pricing policies
for each company because calculating indi-
vidual expenses within a company does
not always come with a clear invoice or
documentation. However, he said that his
office is monitoring implementation very
closely and is working with companies to
produce the right documents and justifica-
tion for internal costs.
Mr. Volvach stressed that transparent
communication and collaboration should
produce results that are economically rea-
sonable, serving both the corporation and
the Russian government. Since these poli-
cies are being implemented by all OECD
countries, he believes that corporations
are also changing their internal structure
to address the changes as well.
Mr. Overchuk and Mr. Volvach also dis-
cussed the goals of these policy changes.
They are most concerned with improving
the overall tax environment, and see these
reforms as part of the larger process to
create a safe investment environment for
international companies. To be success-
ful, they believe that tax intermediaries,
companies and the government must all
work collaboratively to create transparent
and clear policies.
Mr. Overchuk also discussed the impor-
tance of putting data online and what the
government has done to protect user data.
First, allowing citizens to see their official
government records lets them confirm that
their property ownership and documenta-
tion has been correctly registered with dif-
ferent government agencies. They can cor-
rect any errors they find and pay the correct
amount of taxes. Second, the government
tax code prohibits the government from
releasing private taxpayer information to
the public and violations can be punished
with a criminal sentence. So far, there
have not been any information leaks, and
the registration process includes several
safeguards, including the requirement that
each citizen first visit a regional office to
confirm their identity before setting up an
account.
n
June 25, 2013 Washington, DC
USRBC Member Briefing on the BPC
Health Working Group
Samuel J. Watson, Director for Europe and Northern Eurasia, Office of
Global Affairs, U.S. Department of Health and Human Services
Yelena Shnayder, International Health Analyst, Office of Global Affairs,
U.S. Department of Health and Human Services
On June 25, 2013, the USRBC held a
Member Briefing with Samuel J. Watson,
Director for Europe and Northern Eurasia
in the U.S. Department of Health and
Human Services (HHS) Office of Global
Affairs, and Yelena Shnayder, International
Health Analyst in the HHS Office of Global
Affairs, to provide a readout of the bilat-
eral meeting between HHS Secretary
Kathleen Sebelius and RF Minister of
Health Veronika Skvortsova on the mar-
gins of the World Health Organizations
(WHO) World Health Assembly in Geneva
in May. The meeting took place under
the rubric of the Bilateral Presidential
Commissions Health Working Group and
served to advance bilateral cooperation on
a range of health-related issues.
Prior to the Working Group meeting,
Mr. Watson briefed USRBC members in
Washington and via conference call in
Moscow on the meeting agenda and solic-
ited input regarding private sector priorities
in the healthcare sphere.
At the meeting in Geneva, the main topics
of discussion were healthy lifestyles, non-
communicable diseases, maternal and
child health, and scientific collaboration,
but also included global health, a topic
that Mr. Watson noted has been actively
discussed between the two countries for
decades and reflects a strong partnership.
The two sides addressed Arctic health as an
emerging issue of importance, specifically
with respect to flooding and its contribu-
tion to the spread of disease, tuberculosis,
and substance abuse and family violence.
The two sides also discussed the impor-
tance of collaborating on anti-microbial
resistance. This resistance could lead to
the next global pandemic, as reported by
the World Health Organizations Director
General Dr. Margaret Chan. The Working
Group plans to discuss these issues in
greater detail at the working level before
the Health Working Group meets in 2014.
Ms. Shnayder noted that the two sides
agreed to further collaboration on tobacco
control as well as sharing best practices
and programs to address obesity, diabetes
and cardiovascular disease. Both HHS and
the Ministry of Health will undertake more
work on substance and alcohol abuse, as
well as multilateral work with the WHO on
its global adult tobacco survey.
Secretary Sebelius and Minister Skvortsova
signed a protocol on the meeting and the
groups agenda for the next meeting of the
Working Group in 2014. Mr. Watson noted
that the protocol is a diplomatic document
and was not available to the public at the
time of the meeting.
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According to Ms. Shnayder, Minster
Skvortsova suggested adding health issues
to the G8 agenda, and Secretary Sebelius
tentatively agreed to this proposal pending
further review.
Mr. Watson expressed his interest in receiv-
ing suggestions from the private sector
for the Working Group agenda, and he
noted that his office had undertaken new
outreach efforts with the Russian Embassy
in Washington, DC. Briefing participants
asked about collaboration between the U.S.
and Russia on clinical trials and how the
Working Group might address problems
facing the medical technology industry.
Mr. Watson noted that the FDA is not cur-
rently in discussions with Roszdravnadzor
regarding licensure, certification or clinical
trials. Russia, the United States and the EU
are all facing similar problems in sharing
data. In the United States, privately-funded
data is proprietary and is only shared with
the FDA. Because these proprietary issues
are so specific within each industry, Mr.
Watson asked for guidance from industry
experts as to how to proceed.
Mr. Watson acknowledged that one chal-
lenge moving forward is funding for world
health initiatives. The loss of USAID funding
in Russia and sequestration within the U.S.
government have limited the funds avail-
able for NGOs addressing health issues
abroad. For example, the Red Cross will be
ending its tuberculosis programs in Russia
soon because of funding cuts. Despite this
difficulty, the World Health Organization,
a relatively neutral party, is working suc-
cessfully in Russia and will be expanding
its Moscow office. It is focusing much of
its current work on non-communicable dis-
eases and sexually-transmitted diseases.
Mr. Watson provides an overview of
U.S.-Russia cooperation in healthcare.
n
July 2, 2013 Washington, DC
USRBC Briefing with Natalia Lavrova, Visiting
Fellow at the Center for Transatlantic Relations
at Johns Hopkins SAIS
On July 2, 2013, the USRBC hosted a
briefing by Natalia Lavrova, Visiting Fellow
at the Center for Transatlantic Relations
at Johns Hopkins SAIS. Her presentation,
entitled Sources of Growth, Innovation,
and Productivity in the Euro Area, Russia,
and the United States touched upon
various means of stimulating economic
growth, including the untapped potential of
in Russias burgeoning innovation sector.
Ms. Lavrova started her briefing with an
overview of the significant challenges
posed by the 2008 financial crisis to
the euro zone countries, Russia and the
United States. She noted that across all
three markets slow economic growth and
general uncertainty continued to threaten
a sustained recovery. Concerning Russia,
Lavrova pointed out that despite signs
of recovery, such as a strong real wage
and growth in consumption, the Russian
economy still faced challenges. She
asserted that identifying fundamental
causes of economic growth and prioritizing
issues for policy makers were key steps to
ensuring long-term stability.
One of the policy measures Ms. Lavrova
cautioned against was sharp fiscal
consolidations, citing their negative
impact on the U.S. economy and in the
euro area. Turning her attention to Russian
labor productivity, Lavrova noted that
sharp drops tend to occur during periods
of extreme downward wage flexibility
and reductions in working hours. The
implementation of protectionist measures
also play a part. She also briefly discussed
the positive role of total factor productivty
(TFP) in the European recovery. TFP fuelled
Russias pre-crisis growth. According to
some estimates, it accounted for more
than 50 percent of GDP growth in 2007.
Next, Ms. Lavrova turned to a familiar topic:
the important role of commodity prices in
the rapid expansion of Russias economy.
Referencing recent analyses of oil and
gas price dependency, she underscored
the significance of the positive impact of
rising oil prices on Russias pre-crisis GDP
growth. (The World Bank estimates that the
effect of oil and gas prices on GDP growth
is about 14 percent.) In contrast, in the
current climate of declining oil and gas
prices, economic growth is more prudent.
Although crises can spur opportunities
to foster long-term productivity, at the
present time, advanced and emerging
economies continue to experience low
levels of investment. According to Ms.
Lavrova, policy priorities should be oriented
toward improving productivity and focusing
resources on profitable companies. In
addition, companies must focus their
attention on increasing the value of
outputs to improve the quality of goods
and services, rather than reducing inputs.
Ms. Lavrova cited the results of a study
comparing industry productivity in Russia
and the United States, which demonstrated
that in 2009 the largest productivity gains
came from sectors that experienced
USRBC Executive VP Randi Levinas (l.) with Natalia Lavrova.
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substantial employment reductions.
Certain sectors (finance, mining, and
construction) contributed to about 40
percent of overall productivity growth,
despite decreasing employment by almost
1.5 million people. With the exception of
the federal government, sectors that added
employees during that period experienced
negative productivity. Perhaps a declining
employment rate (more than 4 percent) in
Russias agricultural sector explains that
areas growth.
In 2011, the leading contributors to
U.S. economic growth included services
(professional, scientific, technical,
and information) and manufacturing.
By comparison, in Russia, declining
employment fueled growth in the areas
of real estate and government (Figure 1).
In 2009, in the Euro areas social services
market, productivity growth was positive but
relatively low. In 2011, when the impact
of the crisis on productivity had partially
subsided, the mining, manufacturing, and
trade sectors experienced employment
growth (Figure 2).
Turning to the topic of innovation, Ms.
Lavrova highlighted the United States
islands of excellence, and their high
contributions to productivity growth.
The most successful model of this type
is, of course, Silicon Valley. According
to her research, in the United States a
company in the top 10 percent, in terms
of productivity, produces almost twice
as much as a company in the bottom
10 percent. This partly explains why
the level of R&D expenditures serves
as an important indicator of a countrys
innovative capacity and a harbinger of
future growth and productivity. Stressing
that long-term productivity must come
from highly-skilled workers and from better
technology, Lavrova praised innovation as
the primary source of long-term increases
in production.
Ms. Lavrova continued to emphasize the
importance of R&D, noting that on the micro
level, the most productive companies invest
heavily in up-to-date leading technologies.
An analysis of more than 900 top R&D
investors showed that high-performance
companies are concentrated in the IT and
health (pharmaceuticals, biotech) sectors.
1

Volkswagen is the largest EU firm in terms
of R&D investment. The United States
top three performers Microsoft, Pfizer
and General Motors operate in high and
medium-high R&D intensity sectors.
The potential for R&D in the Russian IT
sector is considerable in Ms. Lavrovas
opinion. According to the OECD list of top
emerging-country R&D investors, Gazprom
is the most efficient. While agreeing that
the commodity industry may possess
some innovation potential, Natalia Lavrova
emphasized that it is limited in relation to
the electronic equipment and IT sectors.
She pointed out that the latest data on
overall business enterprise expenditures
on R&D and government spending are
substantially higher in the United States
than in the Euro zone and Russia.
Expenditures are now about 1.2 percent
of GDP, the highest in the OECD.
1 The 2012 EU Industrial R&D Scoreboard
Ms. Lavrova concluded her presentation
by underscoring that in formulating and
implementing policies to induce greater
productivity improvements, policy makers
should strengthen international openness.
Greater transparancy is a powerful
resource for getting access to foreign
know-how, technologies, and financial
assets. One of the benefits of innovative
development in the Euro zone and the
United States is intensive bilateral flows
of R&D. To underscore her point, Ms.
Lavrova noted that [in] 2010, American
affiliates invested $24.4 billion in research
and development in Europe, or roughly 62
percent of total global R&D expenditures by
U.S. foreign affiliates of $39.5 billion. R&D
spending by European affiliates totaled
roughly $31.3 billion, up from $30 billion
the prior year.
2

Ending on an optimistic note, Ms. Lavrova
emphasized that the circulation of foreign
and national researchers, trade openness
and liberalization are all-important to
enhancing productivity growth. She
recommended that governments focus
on encouraging harmonious economic
relations, based on the facilitation of
knowledge transfers. She also suggested
setting up new R&D centers with specialists
from different countries and developing
joint projects. These innovation-related
reforms can boost productivity by
advancing technologies, speeding up the
adoption of existing ones, and creating
frameworks and incentives for fostering
business expenditures on innovation.
2 The Transatlantic Economy 2013. Available
from: www.transatlantic.sais-jhu.edu (accessed
on August 7, 2013)
Figure 1. U.S. and Russia: Industry productivity comparisons (2009 and 2011)
Source: Rosstat, Bureau of Economic Analysis, author estimations
Figure 2. U.S. and Euro Area: Industry productivity comparisons (2009 and 2011)
Source: Bureau of Economic Analysis, Eurostat, author estimations
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July 25, 2013 Washington, DC
USRBC Debrief on Federal Highway Administrator Mendez
Trip to Russia
On July 25, the USRBC held a debriefing
with Ian Saunders, the Federal Highway
Administrations (FHWA) Director of the
Office of International Programs. In
late June, Mr. Saunders accompanied
Administrator Victor Mendez and an FHWA
team to Russia to discuss information
sharing, technology and best practices
with their counterparts at Russias federal
highway agency, RosAvtodor.
The purpose of the trip was in part to
commemorate the 20
th
anniversary of
Russias association of regional highway
authorities, RADOR, which FHWA was
instrumental in helping to establish in
1993. FHWA also hoped during the trip to
formalize its relationship with RosAvtodor
through a memorandum of cooperation
(MOC) while also gaining insights from
private sector companies active in the
Russian road construction market.
Mr. Saunders noted that in the meeting with
the private sector, the companies present
were optimistic about the market for road
construction services. However, the
realities of the large, upfront investments
they must make in order to effectively
project themselves in the large Russian
market made doing business difficult.
Companies and contractors operating in
Russia also face challenges related to
transparency and predictability in public
procurement, as well as efficiency in
business practices. Parking and traffic
congestion in Moscow were identified as
areas of major concern, as was freight
efficiency and the cost of moving goods
across the country. Mr. Saunders related
that one company the team met with found
it more cost effective to ship a container
from Vladivostok to the European side of
Russia via the Arctic than to send it via
the highway system during the spring and
summer months.
Mr. Saunders noted that RosAvtodor
has an ambitious goal of improving and
expanding Russias road network by 2019.
This has been made all the more pressing
as the number of cars on Russias roads
has doubled over the past 10 years and
continues to grow. In the meeting, Roman
Starovoit, Head of RosAvtodor, expressed
optimism that this goal could be met as
RosAvtodor recently had its dedicated road
funding restored after being forced to rely
on the general fund for the last several
years. The new system will function in a
way similar to the U.S. Highway Trust Fund.
RosAvtodor also hopes to increase road
safety through the improvement of the
road infrastructure. Raising awareness
about distracted driving, a U.S. priority,
was of less interest to the Russian side.
Mr. Starovoit also expressed interest in
improving Russias emergency response
coordination, particularly to prevent large
traffic jams on Moscows main arteries.
Mr. Saunders noted that Mr. Mendez
personally invited Mr. Starovoit to the
USRBC Annual Meeting in October, where
FHWA and RosAvtodor hope to sign their
MOC on the Meetings sidelines.
Question & Answer Session
In answer to a question about the degree
of cooperation between U.S. states and
Russias regions on highway issues,
Mr. Saunders identified three active
partnerships: Maine is working with
Arkhangelsk, Minnesota with the Republic
of Mari El and Tennessee with Karelia.
These partners share information and
coordinate travel for briefings and site
visits. Despite budget constraints, Mr.
Saunders noted that the willingness for
cooperation among these partners has
not diminished.
When asked if there was any discussion
of seasonal road use issues, Mr. Saunders
said that RosAvtodor was studying the
current limitations on some highways
during the spring thaw. Truck weight
and future expectations of demands on
the highways were discussed along with
the best road designs to overcome these
issues.
In response to a question about the
harmonization of standards, Mr. Saunders
said that, generally, FHWA shares U.S.
standards but allows its partners to
decide how best to adapt those to their
particular situation. The FHWA has not
historically engaged in the harmonization
of standards. Mr. Saunders also noted
that Administrator Mendez discussed
his Every Day Counts initiative with Mr.
Starovoit, which focuses on best practices
and technological innovation to accelerate
the completion of infrastructure projects.
Mr. Starovoit took a keen interest in this
program as a way to help RosAvtodor meet
its road building goal by 2019.
The number of cars on Russias roads has doubled over the last 10 years and
continues to grow.
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USRBC Events Calendar
April 3, 2013
USRBC Automotive & Agricultural Machinery Forum with RF Deputy Minister of Industry and Trade Alexei
Rakhmanov and representatives of Russian special economic zones to discuss the Russian governments
investment policies. (Detroit)
April 10, 2013
USRBC-hosted meeting of the Innovation Working Group of the U.S.-Russia Bilateral Presidential Commission
to discuss a proposed legal framework for innovation cooperation. (Washington, D.C.)
April 17, 2013
USRBC Luncheon with Dr. Ksenia Yudaeva, Russias Sherpa for the G20. (Washington, D.C.)
April 17, 2013
USRBC Intellectual Property Rights Roundtables/Debrief on the March U.S.-Russia IPR Working Group
Meeting with Donald Townsend, Intellectual Property Rights Attache, US Embassy in Moscow. (Moscow)
April 18, 2013
USRBC Breakfast Seminar on WTO Compliance: Localization, Investment and Competition Policy with FAS
Vladimir Kachalin and Squire Sanders Shanker Singham. (Moscow)
April 19, 2013
Members Briefing with Samuel Watson, Director for Europe and Northern Eurasia at the U.S. Department
of Health and Human Services Office of Global Affairs, to discuss the activities of the Health Working Group
of the U.S.-Russia Bilateral Presidential Commission. (Moscow/Washington, D.C.)
April 24, 2013
Spring 2013 Board of Directors Meeting. (Moscow)
May 28, 2013
USRBC/Marriott forum in Moscow organized to introduce Marriotts Global Sales Team
to the Russian market. (Moscow)
May 13, 2013
Joint RF Embassy/ USRBC Air Transportation Conference on creating year-round commercial air service
between Russias Far East and the United States. (Washington, D.C.)
April 24, 2013
USRBC Members Cocktail Reception with the Innovation Working Group of the U.S.-
Russia Bilateral Presidential Commission. (Washington, D.C.)
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USRBC VIP dinner on the margins of the U.S.-Russia Standards & Conformity
Assessment Forum, a U.S.-Russia government seminar on best practices in
industry standards in the aftermath of Russias WTO accession. (Moscow)
May 30, 2013
USRBC Executive Vice President Randi Levinas speaks at the U.S.-Russia Standards
& Conformity Assessment Forum, a U.S.-Russia government seminar on best prac-
tices in product standards and technical regulations in the aftermath of Russias WTO
accession. (Moscow)
June 5, 2013
USRBC Breakfast Briefing with Deputy Head of the RF Federal Tax Service Alexei Overchuk.
(Washington, D.C.)
June 20, 2013
USRBC SPIEF Dinner (St. Petersburg)
June 25, 2013
USRBC Debrief with Samuel Watson, Director for Europe and Northern Eurasia at the
U.S. Department of Health and Human Services Office of Global Affairs, to discuss
the recent meeting in Geneva of the U.S.-Russia Bilateral Presidential Commissions
Health Working Group. (Moscow/Washington, D.C.)
June 25, 2013
USRBC-supported meeting of the U.S.-Russia Bilateral Presidential Commissions Environmental Working
Group to discuss cooperation in waste disposal and environmental remediation projects. (Washington, D.C.)
June 27, 2013
USRBC-supported webinar discussion with U.S. Ambassador to Russia Michael McFaul, organized as part
of the State Departments Direct Line Program, which connects businesses with ambassadors around the
world to discuss investment opportunities in specific countries. (Moscow/Washington, D.C.)
July 2, 2013
USRBC Briefing on Sources of Growth, Innovation, and Productivity in the Euro area, Russia and the United
States, by Natalia Lavrova, Visiting Fellow at Johns Hopkins SAIS. (Washington, D.C.)
July 25, 2013
USRBC Debrief with FHWAs Ian Sanders on Federal Highway Administrator Mendez Trip to Russia. (Moscow/
Washington, D.C.)
August 6, 2013
USRBC-supported Information and Communication Technology Roundtable with U.S. and Russian government
representatives, including RF Minister of Communications and Mass Media Nikolai Nikiforov. (Washington, D.C.)
May 29, 2013
August 14, 2013
USRBC-supported Webinar on Opportunities for Website Optimization and Acceleration in Russia.
(Webinar)
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USRBC new members
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u.s.-russia relations
June 20, 2013 St. Petersburg, Russian Federation
USRBC SPIEF Dinner
At this years St. Petersburg International
Economic Forum (SPIEF), USRBC held a
high-level dinner with candid discussions
between U.S. and Russian representatives
of the private sector and government. The
dinner, moderated by USRBC Chairman
and Chairman and CEO of Alcoa Klaus
Kleinfeld, opened with comments from
U.S. and Russian government officials
reaffirming the importance of commercial
ties in U.S.-Russia relations.
Russias First Deputy Prime Minister Igor
Shuvalov, a proponent of strengthening
commercial ties and a key figure in Russian
economic and fiscal issues, then moved
on to discuss Russian economic policy.
Shuvalov noted that to spark economic
growth, Russia intends to expand and
modernize its infrastructure, especially
roads, widen the tax base, and develop
and utilize its highly-educated population.
Representatives of USRBC member
companies at the dinner were glad to hear
that infrastructure and human resources
are priorities, because better infrastructure
will help the agricultural sector and a highly-
skilled workforce is attractive for innovative
companies. Other topics broached
include issues with Russian government
investment and the unconventional energy
sector, which, according to First Deputy
Prime Minister Shuvalov, will not receive
tax breaks in the near future.
In addition to First Deputy Prime Minister
Shuvalov, Deputy Ministers of Economic
Development of the Russian Federation
Sergei Belyakov and Aleksei Likhachev,
U.S. Under Secretary of Commerce for
International Trade Francisco J. Snchez,
U.S. Deputy Assistant Secretary of
Commerce for Europe and Eurasia Matthew
Murray, and CEOs of some of the largest
companies in Russia attended the dinner.
U.S. Under Secretary of Commerce Francisco Sanchez offers a toast to dinner
participants.
RF First Deputy Prime Minister Igor Shuvalov (3
rd
from left) discusses the future
of Russian economic policy.
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For more information, please contact us:
Email: alfa@culturalvistas.org | Tel: 212 497 3510
Alfa-Bank and Cultural Vistas are pleased to announce a call for applications for the
Alfa Fellowship Program. Now celebrating its tenth year, the program is an 11-MONTH
PROFESSIONAL-LEVEL initiative designed to create a new generation of American and
British leaders with meaningful professional experience in Russia.
The program begins with LANGUAGE TRAINING in the U.S. or the U.K., followed by a language
course in Moscow starting in mid-June. Throughout the summer, Alfa Fellows attend a
SEMINAR PROGRAM with key public and private sector of cials to discuss current issues
facing Russia. Fellows then WORK AT PROMINENT ORGANIZATIONS IN RUSSIA including
private companies, media outlets, think tanks, and foundations.
Eligible candidates must have a graduate degree and professional experience in business,
economics, journalism, law, public policy, or a related feld. Russian language profciency
is preferred, though not required, at the time of application. The Fellowship includes a
GENEROUS MONTHLY STIPEND, LANGUAGE TRAINING, PROGRAM-RELATED TRAVEL COSTS,
HOUSING, AND INSURANCE.
Deadline to apply for the 2014-2015 program year: December 1
Additional details and the online application can be found at: culturalvistas.org/alfa
OJSC Alfa-Bank is incorporated, focused and based in Russia, and is not af liated with U.S.-based Alfa Insurance.
Promoting Understanding of Russia
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USRBC new members
AbbVie
www.abbvie.com
AbbVie is a global, research-based biopharmaceutical company formed in 2013 following separation
from Abbott. The company's mission is to use its expertise, dedicated people and unique approach to
innovation to develop and market advanced therapies that address some of the world's most complex
and serious diseases. In 2013, AbbVie employs approximately 21,000 people worldwide and markets medicines in more than 170
countries.
American Superconductor Corp
www.amsc.com
AMSC (American Superconductor) generates the ideas, technologies and solutions that meet the worlds
demand for smarter, cleaner, better energy. Through its Windtec Solutions, AMSC provides wind turbine
electronic controls and systems, designs and engineering services that reduce the cost of wind energy.
Through its Gridtec Solutions, AMSC provides the engineering planning services and advanced grid systems
that optimize network reliability, efficiency and performance. The companys solutions are now powering
gigawatts of renewable energy globally and enhancing the performance and reliability of power networks in
more than a dozen countries. Founded in 1987, AMSC is headquartered near Boston, Massachusetts with
operations in Asia, Australia, Europe, and North America.
Edelman
www.edelman.com
Edelman is the worlds largest independent public relations firm, with over 3,200 employees in 51
offices worldwide. The firm was named PRWeeks Agency of the Year in 2009, Large Agency of
the Year for three of the past four years, and the 2009 Best Large Agency to Work For by Holmes
Report. Advertising Age named Edelman as one of its A-List agencies for the past three years.
With fully-owned offices in Moscow, Russia, and in major markets around the world, Edelman
offers clients a full array of PR and investor relations services both in Russia and worldwide.
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USRBC new members
Avon Products, Inc.
www.avoncompany.com
Avon, the company for women, is a leading global beauty company with nearly $11 billion in annual
revenue. As one of the world's largest direct sellers, Avon is sold through more than 6 million active inde-
pendent Avon Sales Representatives. Avon products are available in more than 100 countries, and the
product line includes color cosmetics, skincare, fragrance, fashion, and home products, featuring such
well-recognized brand names as Avon Color, ANEW, Skin-So-Soft, Advance Techniques, and mark.
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EMC Corporation
www.emc.com
EMC is a global leader in enabling businesses and service providers to transform their operations and deliver
information technology as a service (ITaaS). Fundamental to this transformation is cloud computing. Through
innovative products and services, EMC accelerates the journey to cloud computing, helping IT departments
to store, manage, protect and analyze their most valuable asset information in a more agile, trusted and
cost-efficient way. EMC works with organizations around the world, in every industry, in the public and private sectors, and of every
size, from startups to the Fortune Global 500.
Hill+Knowlton Strategies
www.hkstrategies.com
H+K Strategies offers senior counsel, insightful research and strategic communications planning
from 90 offices in 52 countries. H+K clients represent 46 of Interbrand's Top 100 Global Brands
and 50 percent of global Fortune 500 companies. The firm's relationship with WPP, one of the
world's largest communications groups, gives H+K Strategies an unmatched global presence. H+K
Strategies has been in the wisdom business for more than 80 years, with world-class teams of trusted advisors and creative experts
and a wealth of experience collaborating across time zones, languages and cultures to strengthen brands, reputations and bottom
lines. H+K Strategies was formed by the 2011 merger of Hill+Knowlton and Public Strategies, and the firm strengthened its com-
munications and advisory offering with the 2012 acquisitions of The PBN Company and Dewey Square Group.
Integrum World Wide
www.integrumworld.com
Integrum, one of the largest database services focused on Russia, has three primary products:
Integrum Profi boasts a Russian electronic archive with more than 500 million documents in more
than 8000 databases, including thousands of Moscow and regional publications, news wires, TV
and radio monitoring, information from Moscow and regional governments, and 2 million blogs.
Integrum Companies offers official information on more than 8 million Russian and foreign companies and private entrepreneurs.
Company profiles, contact information, investments, and even government contracts are just a sample of the resources available. My
Integrum automatically monitors people and companies relevant to customers interest in mass-media and social networks. There is
individual customization, including personal news and RSS feeds and also analytical reports and a media analysis tool.
Kimberly-Clark Corporation
www.kimberly-clark.com
Kimberly-Clark and its well-known global brands are an indispensable part of life for people in more than 175
countries. Every day, nearly a quarter of the world's population trust K-C brands and the solutions they provide
to enhance their health, hygiene and well-being. With brands such as Kleenex, Scott, Huggies, Pull-Ups, Kotex
and Depend, Kimberly-Clark holds the No.1 or No. 2 share position in more than 80 countries.
King & Spalding LLP
www.kslaw.com
Celebrating more than 128 years of service, King & Spalding is an international law firm that
represents a broad array of clients, including half of the Fortune Global 100, with more than 800
lawyers in 17 offices in the United States, Europe, the Middle East and Asia. The firm has handled matters in over 160 countries
on six continents and is consistently recognized for the results it obtains, uncompromising commitment to quality and dedication
to understanding the business and culture of its clients.
Mid-Atlantic - Russia Business Council
www.ma-rbc.org
Since 1994, Mid-Atlantic - Russia Business Council (MARBC) has worked to foster business relations between
Russia and the U.S. Mid-Atlantic region. The goal of MARBC is to enable companies based in the U.S. Mid-
Atlantic region to enhance their positions in Russia and to attract Russian businesses to the U.S. Mid-Atlantic
region. MARBC organizes nearly 30 events annually in the United States and in Russia. The most prominent
of the events organized by the MARBC are the annual Russian-American Innovation Technology Week and
Days of Russian-American Innovation Entrepreneurship Cooperation. A major focus of MARBCs efforts in
recent years has been the establishment of the Mid-Atlantic region as a leading partner for Russian-American
innovative technology and entrepreneurial cooperation.
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Progresstech Group of Companies
www.progresstech.ru
Progresstech Group of Companies is the leading provider in Eastern Europe of intellectual services
to the aerospace and aviation transport industries. The company provides engineering services for
aerospace; airports and infrastructures design; research, certification and consulting in the airport
technology sphere; and business consulting. Progresstechs engineering team of highly experienced
professionals from various cities in Russia and CIS countries successfully support multiple large-scale international engineering
projects. Progresstech companies include: Progresstech (Moscow), Progresstech-Dubna (Moscow Region, Russia), Ukr-Progresstech
(Kiev, Ukraine), Spirit-Progresstech (Wichita, Kansas, U.S.), MIKA-Progresstech (Yerevan, Armenia) and Center of Technical Publication
(Moscow, Russia), Progresstech RC (Moscow, Skolkovo), and PT-Americas (Houston, Texas, U.S.).
Law Office of Daniel J. Rothstein, P.C.
www.danielrothstein.com
The Law Office of Daniel J. Rothstein, P.C., focuses on international commercial litigation and transactions, in particular matters
related to Russia.The firm's principal, Daniel Rothstein, graduated from Cornell Law School in 1985, was a law clerk in the U.S.
federal courts (trial and appellate), and practiced law in Moscow from 1990 to 2000, including with Coudert Brothers and in-house
at the Russian Privatization Agency (GKI). Mr. Rothstein has been based in New York since 2000.
Saint-Petersburg Electrotechnical Company
www.spbec.ru
Saint-Petersburg Electrotechnical Company (SPbEC) is a leading, dynamically developing engineering
enterprise, which specializes in solving problems in the area of industrial automation, energy-saving
technologies, and heat engineering, including elaboration of projects, introduction of integrated
solutions, and services in metals & mining, oil & gas, refinery, energy and machinery construction,
chemicals, cement & glass, water & utility, and food & beverage industries. The company has been operating successfully in the
industrial automation market since 1995.
Trident Group, LLC
www.tridentgroup-global.com
Trident Group, L.L.C. is a highly-specialized, well-established corporate risk management company with
offices in Arlington, Virginia; Moscow, Russia; and Kiev, Ukraine. The firm has provided high-quality
business intelligence consulting services for American, European and multi-national businesses since
its inception in 1996, concentrating on Russia and the Former Soviet Union (FSU). To support its global
outreach in todays interdependent world, Trident relies on a widespread network of strategic partners in Europe, the United States,
Latin America, Asia, and Africa.
Moscow State Mining University
www.msmu.ru
Founded in 1918, Moscow State Mining University (MSMU) is one of Russias leading universities in mining educa-
tion and research and has ranked among the top ten technical and technological universities in Russia for several
years. MSMU is home to 7,000 undergraduates and more than 500 doctoral candidates.
The university trains students for a range of specializations in the mining, metals and energy sectors, including
Physical Processes of Mining and Oil and Gas Production, Mine Surveying, Open Pit Mining, Underground Mining,
Rock Blasting, Electrical Engineering, Environmental Protection, Informatics and Computer Engineering (Cam/
Cad), Information Systems, and many more. MSMU has agreements with more than 30 leading educational and scientific institu-
tions in the U.S., Europe, Asia, and Africa. The Honorary Doctors of MSMU are distinguished scientists, academicians, directors, and
presidents of well-known global mining companies.
Special Room Rates for USRBC Members
at Marriott Hotels in Moscow
Marriott is pleased to provide members of the U.S.-Russia Business
Council with favourable room rates at Marriott Moscow Royal Aurora,
Marriott Moscow Grand and Marriott Moscow Tverskaya hotels.
With questions regarding this special room rates offer for
members of the U.S.-Russia Business Council, please contact
Marriott Moscow Cluster Reservations Department
at reservation@marriott-moscow.ru
or via phone +7 495 937 00 55.
MARRIOTT MOSCOW
ROYAL AURORA
11 Petrovka str.
Moscow, 107031, Russia
Tel.: +7 (495) 937 1000
Fax: +7 (495) 937 1001
MARRIOTT MOSCOW
GRAND HOTEL
26/1 Tverskaya str.
Moscow, 125009, Russia
Tel.: +7 (495) 937 0000
Fax: +7 (495) 937 0001
MARRIOTT MOSCOW
TVERSKAYA HOTEL
34 1-st Tverskaya-Yamskaya str.
Moscow, 125047, Russia
Tel.: +7 (495) 258 3000
Fax: +7 (495) 258 3099
Marriott2:Marriott 07.12.2010 17:17 1
Special Room Rates for USRBC Members
at Marriott Hotels in Moscow
Marriott is pleased to provide members of the U.S.-Russia Business
Council with favourable room rates at Marriott Moscow Royal Aurora,
Marriott Moscow Grand and Marriott Moscow Tverskaya hotels.
With questions regarding this special room rates offer for
members of the U.S.-Russia Business Council, please contact
Marriott Moscow Cluster Reservations Department
at reservation@marriott-moscow.ru
or via phone +7 495 937 00 55.
MARRIOTT MOSCOW
ROYAL AURORA
11 Petrovka str.
Moscow, 107031, Russia
Tel.: +7 (495) 937 1000
Fax: +7 (495) 937 1001
MARRIOTT MOSCOW
GRAND HOTEL
26/1 Tverskaya str.
Moscow, 125009, Russia
Tel.: +7 (495) 937 0000
Fax: +7 (495) 937 0001
MARRIOTT MOSCOW
TVERSKAYA HOTEL
34 1-st Tverskaya-Yamskaya str.
Moscow, 125047, Russia
Tel.: +7 (495) 258 3000
Fax: +7 (495) 258 3099
Marriott2:Marriott 07.12.2010 17:17 1
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