By Amanda Lahan, The PBN Company, Washington, DC

The Customs Union between Russia, Belarus and Kazakhstan has been officially established. The leaders of the three countries signed a formal agreement creating a unified customs union at a November 27 meeting of the Eurasian Economic Community (EurAsEC) in Minsk. A unified system of external tariffs will be put in place by January 1, 2010, while the unified Customs Code, still in the draft stage, will take effect on July 1, 2010.

Approximately 92% of the new tariffs are identical to Russia’s existing tariff system, meaning that Russia won’t have to change much. Considering that Russia has a larger number of tariffs than either Belarus or Kazakhstan, these two countries will have to increase their duties on some goods or put brand new duties into place. Kazakhstan alone will have to raise tariffs on more than 5,000 goods. Once the tariffs are in place, any increase or decrease will have to be negotiated by the governments of all three countries, making any changes a complicated process.

Other tariffs are yet to be determined. Russia currently has much higher import duties on cars - especially used cars - than Belarus or Kazakhstan, and is concerned that lowering these duties will result in a flood of imported used cars from these two countries, especially Belarus. While Russia has export duties on oil in place, Kazakhstan does not. Both of these thorny issues are not expected to be resolved any time soon.

Read more »

By Martina Bozadzhieva, The PBN Company, Washington, DC

On September 10th President Medvedev surprised both Russian and international observers with an unexpectedly honest and critical article about Russia’s strategic challenges. Medvedev decried Russia’s “primitive raw materials economy, chronic corruption,” “inefficient economy…weak democracy,” and “negative demographic trends,” causing a flurry of comment and speculation. The fact that the article appeared in Gazeta.ru, an online news source often critical of the Russian government, only made it more unusual.

The initial reaction was one of skepticism, especially among Russians who were asking why he published such a scathing commentary now. Having been president of the country for a year and a half, critics charge that Medvedev hasn’t done anything to solve the problems he identified. A common criticism by both journalists and readers who posted comments on the Gazeta website was that Medvedev’s ambitious agenda for turning Russia into a high-tech, knowledge-based economy was impossible without true political liberalization. Very few seemed to buy Medvedev’s argument that “the more intelligent, smarter and efficient our economy is…[the more] our political system and society as a whole will also be freer, fairer and more humane.”

Many observers considered the article’s message to be yet another example of Medvedev’s tendency to speak eloquently about democracy and liberalism without doing enough to turn his words into reality. Others , however, have started to see “Go, Russia!” as a part of a larger attempt by Medvedev to separate himself politically from Prime Minister Putin. Medvedev’s statement before the Valdai forum that he might run for a second term has been interpreted as a part of an emerging pattern.

Read more »

By Amanda Lahan, Account Manager, The PBN Company, Washington DC

After a summer of uncertainty, Russia’s World Trade Organization (WTO) accession process seems to be back on track - but the Russian government seems also be looking to get the best of both worlds. While it is voicing support for a timely accession to the WTO, it still supports the creation of a Customs Union with Belarus and Kazakhstan and simultaneous WTO entry for all three countries, despite the fact that Kazakhstan and Belarus are far behind Russia in terms of their accession negotiations.

In mid-September Prime Minister Putin again voiced his support for the three countries joining the WTO as a group, while at the same time asking the US to drop restrictions on trade with Russia.  Several days later, First Deputy Prime Minister Igor Shuvalov stated that Russia aimed to finish its WTO negotiations in 2010, and that WTO negotiations for Kazakhstan and Belarus should be conducted simultaneously. However, he also cautioned that the leaders of the three countries could change their plans if Kazakhstan and Belarus slowed Russia’s accession process. Shuvalov then reiterated his support for the countries’ accession as a group at a meeting of Customs Union members in Almaty on September 25th.

Read more »

Last week Russia’s Cabinet approved the draft 2010 budget. Prime Minister Putin promised to cut spending by government departments while also stressing social provisions, including “maternity capital.” Galina Khatiashvili, Intern, The PBN Company, Moscow, examines how the scheme to boost Russia’s population is being received.

When Russian parents have a second child, they are eligible for what is know as “maternity capital” - a benefit currently worth 312,162.50 rubles, or just under $10,000. Prime Minister Putin recently said that an estimated 300,000 families will receive 102 billion rubles next year as part of the scheme. But although it looks good at face value, its actual usefulness is limited, making it difficult for families to take advantage of the income boost.

Maternity capital can be claimed for three different purposes: to improve living conditions, to pay for education and to supplement a mother’s pension. To draw the benefit, families must justify the purpose through a complex and lengthy administrative process designed to help prevent fraud. And it can only be claimed as a credit to pay, for example, a building contractor, rather than be withdrawn as cash to use directly.

Read more »

by Jonti Small, Senior Account Manager, The PBN Company

“A year after Russia fought a war with its former-Soviet neighbor Georgia…” begins the Wall Street Journal’s report on the fractious relations between the two countries. Why does this description sound off-key?

Putting aside questions regarding who fought with whom, it is the short phase ‘former-Soviet neighbor’ that makes a clanging sound. The more often one reads this clunky piece of journalistic shorthand, the more discordant it is. Hyphens are invaluable in heading off ambiguity, particularly in adjectival phrases – “a man-eating shark” is different to “a man eating shark” – but the WSJ’s phrase is so peculiar that it actually creates ambiguity.

Geographically Russia and Georgia are neighbors. And Georgia can be accurately, if unhelpfully, labelled a “former-Soviet country”. What I quibble with is the elision – the definition of Georgia as Russia’s “former-Soviet neighbor”. Georgia was part of the Soviet Union, and not its neighbor. (Except from 1917 to 1921 when Georgia technically was a neighbor to the Soviet Union, but this distant period is not what the WSJ is alluding to.) Newspapers aim to provide facts and context in as brief and accurate way as possible. In this case, the phrase is concise but the context is muddied and the accuracy lost, which is unhelpful in an article that meditates on which country was the aggressor in a recent war.

Read more »

By Yekaterina Syrtsova, Associate Account Manager, The PBN Company, Almaty

The proposed Customs Union between Russia, Kazakhstan, Belarus - and now possibly Kyrgyzstan - has received extensive coverage, with much attention focused on the impact on Russia’s accession to the World Trade Organization. However, while there are many potential benefits for Russia in terms greater access to Kazakh markets, what is in the Customs Union for Kazakhstan? A lively debated has been prompted about the economic and the political merits of going along with Russia’s proposal.

The Union is an obvious win for Kazakh industries that supply the Russian market, such as metallurgy, coal and chemicals. It will stimulate development of Kazakhstan’s Russian exports in these sectors by eliminating the customs duties they currently pay, making them more competitive. The Union will also simplify on-going issues relating to transit of Kazakhstan’s oil through Russian pipeline systems. For many years transit routes in general - and the expansion of the Caspian Pipeline Consortium in particular - have been a matter of political dispute with Moscow. That situation may now change.

Read more »

By Amanda Lahan, Account Manager, The PBN Company, Washington, DC

The history of Russia’s application for World Trade Organization (WTO) membership was already long and complicated when, in June this year, Russia announced it would withdraw from WTO negotiations and focus on first forming a Customs Union with Belarus and Kazakhstan. However, after five weeks in which Russia sought to convince the international community that they had no intention of joining the WTO independently, the leadership seems to have reversed course again. In President Dmitry Medvedev’s words, joining the WTO as a Customs Union would be “nice, but rather problematic.”

So why the 180-degree turn so soon after the first reversal? It seems that U.S. and EU officials – intentionally or otherwise – called their bluff. The Russians stated that once the Customs Union was in place, expected to happen by January 1, 2010, they would immediately begin WTO negotiations to enter as a union. Previous WTO negotiation agreements would, they claimed, stand for the Customs Union as a whole. U.S. and EU officials, however, pointed out that joining the WTO as a Customs Union would not be nearly as easy as the Russians thought it would be. U.S. Commerce Secretary Gary Locke stated that the joint bid would be “unworkable, unprecedented and would only delay matters.” Pascal Lamy, head of the WTO, suggested that the Customs Union may not have the “competence to negotiate these issues.”

Read more »

By Roman Kolosovskiy, Intern, The PBN Company, Moscow

President Obama’s trip to Moscow was billed as a milestone in US-Russia relations - there would be none of the Bush-era soul searching, but rather a chance to find pragmatic, common ground on pressing global issues like nuclear arms and Iran. Meetings were held and hands were shaken, but what is clear now that the dust has settled is that the US president has not aroused the same level of “Obamania” behind him in Moscow as he has elsewhere in the world.

As the Russian Foreign Ministry spokesman Andrei Nesterenko said in a television interview, the summit was “groundbreaking” in that the United States and Russia “managed to stop the degradation of our relations,” which is a subtle, but key distinction from a wholesale “reset.”

Nevertheless, Presidents Obama and Medvedev had a constructive meeting. The leaders seem to have hit it off in a way that bodes well for a positive working relationship, with Medvedev telling Interfax that he “like[s] talking with Barack.” The tone of the conversation was honest and went beyond exchanging pleasantries, which shows that the two leaders, who share a strong legal background, are serious about establishing a constructive bilateral relationship.

Read more »

By Brandon Zack, Intern, The PBN Company, Washington, DC

President Obama’s visit to Moscow was billed as a “resetting” of diplomatic relations between the US and Russia, however his visit also provided a shot in the arm to economic relations which have flat-lined in recent years.

Before the trip, Obama highlighted that annual trade between the two countries totals $36 billion - about one percent of US trade with the rest of the world and equivalent to the US’s trade with Thailand, a country with less than half of Russia’s population. “Surely we can do better,” the President said. And back came the familiar refrain “Yes we can” from the CEOs of America companies who accompanied Obama to Moscow.

A number of US companies that are existing investors in Russia reaffirmed their commitment and announced extra funding for significant expansion plans. PepsiCo’s deal was the largest - a $1 billion investment over the next three years as well as the opening of a bottling plant outside Moscow, which will be its largest plant worldwide. Pepsi is a veteran of the Russian market. Soviet Premier Nikita Khrushchev tried Pepsi for the first time in his 1959 Moscow “kitchen debate” with then Vice President Richard Nixon. Later, in 1973, Pepsi was named the official soft drink supplier to the Soviet Union in a détente agreement that enabled the USSR to export Stolichnaya vodka to the US. Pepsi currently has seven plants operating in Russia and has invested some $3 billion over the last ten years, including the acquisition of leading Russian juice maker Lebedyansky in 2008.

Read more »

By Blake Marshall, Senior Vice President & Managing Director - Government Relations, The PBN Company, Washington DC

Prime Minister Vladimir Putin’s June 9 announcement that Russia will discontinue its World Trade Organization (WTO) negotiations in favor of a new Customs Union with Belarus and Kazakhstan took many by surprise, including high-ranking officials in Russia and trade negotiators in Europe and the United States.

Despite the fact that Putin’s decision appears to many to have come out of the blue, the notion of a three-country Customs Union has been under discussion for several years. While the withdrawal from WTO negotiations in favor of reapplication as a bloc is unconventional, it is consistent with Russia’s political and economic strategies on both a geopolitical and a regional level.  Several objectives seem to emerge from this stance:

Read more »

By Tom Blackwell, Senior Vice President & Managing Director, The PBN Company, Moscow

In the autumn of 2007, when the west was reeling with the effects of the financial crisis, Russia seemed to be an ostrov stabilnosti - a safe haven - from the doom and gloom. Now nearly two years have passed, and the crisis is definitely everywhere in Moscow.  Wherever you go, whomever you talk to, it is obviously that the impact of the economic downturn is crippling.  And what’s worse, the financial crisis has without a doubt led to a crisis of confidence in society - confidence in government, confidence in business and confidence in the economy as a whole.

So you can imagine my relief when I discovered a place to hide, a place where confidence remains sky high.  Just walk into any Azbuka Vkusa, an upscale supermarket chain - particularly the one on Moscow’s Kutuzovsky Prospekt - and you find that the wonderful ostrov stabilnosti that we used to talk so much about is still going strong.  Only now its clear that the haven is not Russia as a country, but rather a small chain of sickly green grocery stores dotted about town.

Read more »