Will US companies have problems doing business in Russia?

Russia joins the WTO in August and is primed for growth. But U.S. companies may find it difficult to benefit because of a Cold War- era law restricting American companies from doing business in the U.S.S.R. It looks like the repeal of it will be passed by the Senate in august. But if it contains a reference to the Magnitsky bill US companies may still face difficulties in Russia. Devote 3 minutes to watching Chrystia Freeland talk to Klaus Kleinfeld, Chairman and CEO of Alcoa about Russia joining the WTO: 

As you know, Russia is one of the BRIC countries and the rest of the world is eagerly hoping to benefit from more trade with Russia as soon as it’s WTO membership starts this August .

Russian intelligence establishment still have cold war mentality? 

But even when the US cold war legislation is removed, cold war mentality may still remain an obstacle on the Russian side.

If it’s true that the Siloviki i.e. heads of Russia’s elite security and intelligence establishment, including Vladimir Putin, still remain in the cold war and the Kremlin dictated anti-Americanism continue, maybe the cold war isn’t over? On top of it businessmen are going to jail on a regular basis on charges that have frequently been unjust. The last ten years 3 million, yes you got it right, entrepreneurs have been jailed.

As a WTO member, Moscow will be required to cut import tariffs and open up key sectors of its economy to foreign investment. It took 18 years of negotiations and Moscow will now be required to cut import tariffs and open up key sectors of its economy to foreign investment. But many Russians are afraid their country will not be able to compete in the world economy.

It’s believed US exports to Russia could double as a result of WTO entry. Germany is one of Russia’s top trading partners and their ministry of economy estimates that German businesses doing business with Russia could earn an extra billion euros a year.

Jackson-Vanik repeal with or without reference to the Magnitsky bill?

It hence comes as no surprise that the US Senate Committee of Finance  approved a bill combining a repeal of the Jackson-Vanik Amendment and a measure aiming to punish Russian officials involved in the death of lawyer Sergei Magnitsky. Can’t help wondering how that’s going to go down with the Silovikis? That the White House is pushing for Jackson-Vanik repeal without reference to the Magnitsky bill doesn’t surprise me at all.  The latter seems to be a better bet of avoiding US companies going down the same route as BP in Russia. Would like to point out that what happened to Magnitsky was terrible but is tying the Magnitsky bill to the repeal of the Jackson-Vanik amendment not asking for trouble for US companies in Russia?

Do you believe the Russian Siloviki still have cold war mentality and the Kremlin dictate anti-Americanism? If so is the cold war really over? Is the Cold War-era law restricting American companies from doing business in the U.S.S.R. lamentable or a blessing in disguise for US businesses? Does it benefit companies from other countries?  Are you of the opinion that the Jackson-Vanik repeal should be made with or without reference to the Magnitsky bill? Should the United States and the rest of the world be cautious about doing business in Russia? 

Video: ReutersTV

25 thoughts on “Will US companies have problems doing business in Russia?

  1. I've found that shipping to countries outside of the U.S., Canada, Ireland, France and the UK from the United States to be more trouble than the sales are worth. Granted, the products we deal in are often the very types of items customs like to place restrictions on. However, what I've found is that the amount of fraudulent orders placed using stolen credit cards increases exponentially when shipping anywhere in the world. The aforementioned countries have all been fairly easy to deal with, and none seems to generate an unusually high rate of fraudulent orders.

    We have never tried to ship to Russia, but we're not overly eager to expand beyond our current shipping options anytime in the near future due to past experiences involving fraud and difficulties in communicating with customers.
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  2. I have to admit I am not that too familiar with the bill. But you're right. Even if the bill was dissolved, that does not mean that US businesses will be able to take advantage of Russia's open market because of the Cold War mentality. The Cold War lasted long enough that many of those that lived through it are still alive today, and many of them are in the position of dealing with each other economically. For as long as they don't change their respective mindsets, it might very well end up becoming a stalemate.
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  3. I would be suprised if Russia's WTO membership would cause any problem for US companies… I mean the biggest problem with the american economy is that the american companies have most of their factories in China, or Vietnam. This is what they should afraid of, not from the russian open-market.
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  4. I suspect that Russia has been watching the China boom in recent years with more than a touch of envy, which is one reason they are looking at opening themselves up through the WTO. I think Putin and other top officials will inevitably chase the money but I suspect, this will not happen without a number of incidents and issues as the "Boss" mentality of the Russian political and economic strcuture runs afoul of the WTO and the need for substantive legal and business transparency.

    Corruption and both official and unofficial "mafia" activities permeate so much of the Russian economy, it may be much more difficult for western firms to find equitable ground for doing business within Russia.

  5. Thank you Pat.

    We are back to what Adam Smith, the pioneer of political economy, said in the 18th century when he concluded that the Chinese empire had far too much bureaucracy. To start up a business was a long and complicated business. Smith hence concluded that Europe had the upper hand. Now the shoe is on the other foot. Western countries desparately need to simplify our systems and bureaucracy again to enable entrepreneurs to get the economy growing again.

  6. Hi Catarina,

    As countries like the US and Germany know how Russia operates surely before they start trading they will take measures to reduce the risk of Russia breaking the WTO rules. There will probably still be distrust while Putin is in power but distrust with other countries hasn't stopped trade.
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  7. I think the US is trying very hard to penetrate new markets, in fact Prez Obama recently asked India to open up its foreign direct investment policies in multi brand retail (read Walmart etc should be permitted to enter). This created ripples in both India and USA. It appeared as if Prez Obama viewed himself as a global President.
    Given this determination by the US, I think the US will leave no stone unturned. But, in the end it all depends on whether Moscow is willing to let go of past history.
    What do you think, Catarina? I think the 'thaw' will happen, but not overnight.
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    1. Lubna, honestly believe that not only the US but the majority of countries in the world are of the opinion that India should open up their markets. And, not to forget, get rid of the Soviet style bureaucracy Nero implemented.

      Russia is after 18 years of negotiations finally a member of the WTO and Lamy today annonced that Russia will sit on the table and negotiate next month as a member. Their economy badly needs WTO membership. But if their elite security and intelligence establishment, including Vladimir Putin, still remain in the cold war it may complicate things. Remember what happened to BP in Russia and that's a British company.

      1. India has opened up its markets for most sectors. Even in retail 100% FDI is allowed for single brand retail, it is only multi brand retail where 100% foreign direct investment has still not opened up. Will having Walmarts help our economy? That is what we need to answer, or will it shut down millions of Mum and Pop stores? The criteria which is being set down is that setting up such stores should help the Indian economy, through sale of local produce and usage of local raw material, instead of a huge inflow of foreign goods, which may help the other country but not India. I am sure some balance will be found.
        There is a lot of debate going on about the retail sector.
        The truth is China and India, with its huge population are being banked upon by other countries for being huge consumers.
        Yes, when it comes to doing business in India, things could be made simplier, even as progress has been made, there is lots more to do.
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  8. Old habits die hard and I believe that is the case with Russia and the US. I believe it will take a generation before we see real movement in that area. That does not mean there can't be progress, but the progress would be hampered by old attitudes on both sides.

    Be it a blessing or not, it will happen. The end result will depend on how and what the business ventures will be. It will certainly be interesting to watch.

    As far as mentioning Sergei Magnitsky in the bill? As sad as that was, that needs to be dealt with separately. Combining the two makes no sense to me.

    Just my thoughts on the matter
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    1. True Susan. Maybe even more than one generation. It usually takes several to root out a mentality. Glad you agree with me that Magnitsky has to be a separate bill.

  9. I don't think Russia has distanced itself nearly enough from old-school thinking. The figure that you quote of 3 million entrepeneurs being jailed says it all.Putin seems to have his heel firmly on the neck of the country, and I can't see him abiding by any rules that don't fit into his agenda. That said, the US could hugely benefit by by more trade with Russia. But at what cost is hard to say. Interesting issue Catarina
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  10. I think there are still too many with the cold war era mentality for this to be successful. Businesses will have problems and we will end up with a big mess trying to deal with it all. No laws here or there are going to facilitate this being a good thing. I can only hope that I am wrong.
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    1. Most Likely, Cheryl. Let's see how long it takes for the WTO to have an impact on the way business is done in Russia. Amazing isn't it that cold war mentality lingers on both sides.

  11. Catarina — I'm very dubious about Russia's ability and commitment to WTO rules. The country has an utter disregard for the rights of foreign investors. I don't think any laws passed by the U.S. Congress are going to force Russia to legitimize its legal system so there is recourse when the government or a Russian company breaks the rules. There is a lack of will in Russia's top leadership. Putin is a remnant of the old Russia and still thinks and acts like he's running a dictatorship.
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