- Mr. Grishin, for starters, let us talk about the results of year 2004. Would you highlight major statistical data of U.S.-Russia economic cooperation and trade exchange?

- The volume of trade increased by about 20 % and reached 14.8 billion – almost fifteen billion dollars. In addition to this expansion, Russia’s exports to the United States have been growing at a very rapid pace. These indicators are very much positive. Such trends of intensive growth have been steadily rising for the previous several years. In the last four years alone, our total merchandise exchange was doubled. In the past, the volume of U.S.-Russia trade did not exceed eight billion dollars.

If we were to analyze the situation on a more profound level, unfortunately, mere statistics do not allow us to see issues that present problems for the development of U.S.-Russia economic relations. Where do we see such problems? All issues arise from the simple reality that the model that underlies U.S.-Russia trade is an extensive one. The model was adopted several decades ago and it resource – even though we do have such a high growth – generally speaking, may soon expire. 90 % of Russian exports that are now headed for American markets is comprised of raw materials or materials with a very low degree of refinement. The potential of Russia’s refining industry in preparing exports to the U.S. is not used very actively now. It is precisely here that we see promising avenues for future U.S.-Russia economic relations.

- In what industry sectors, apart from the energy and the natural resource fields, do you see prospects for U.S.-Russia collaboration?

- There is high potential in the development of high technology sectors, information technology in particular. Many U.S.-based companies that have a presence in Russia develop there high-tech components for their principal products, be it aircraft construction, computer assembly, or biotechnology. The rates of development for such businesses exceed average business growth and are frequently as high as 60 % annually. The most vivid example of this positive interaction between Russia and the United States is the work of Boeing’s design-center in Moscow. Some of the developments and research for the construction of Boeing’s new aircraft model are now conducted in Moscow. We believe that, in the future, similar centers will be set up by ALCOA, General Electric, and several other American companies. Apart from this all, in the high technology segment, there are good opportunities for cooperation in the space industry. It could be satellite launches with the use of Russian engines, continued collaboration within the Seawatch program, and, of course, development of the international space station. Here, however, we have certain barriers that arise from the remnants of what was typical during the Cold War. For example, Russia is still not able to buy supercomputers from the United States. We are convinced that such restrictions and limits are totally artificial. The barriers must be lifted, as they restrain the potential of our bilateral collaboration.

- The United States this year is traditionally at the top of the list of Russia’s trade partners. Russia is only number twenty-eight for the United States. In your view, will this situation change in the future?

- There are avenues for reaching a new level of quality in our relations, in the dimension of both, exchange content and trade volume. At present, one of the major items of our cooperation is metallurgy. Previously, Russia exported to the United States only non-refined ore blocks. These raw products were frequently subject to restrictions – quotas, tariffs, etc. Today, we have passed that phase of our relations. After Russia gained market-economy status, the U.S. stopped using these procedures. It is really a big plus. In addition, Russian metallurgical enterprises started to acquire and set up companies in the United States, thereby creating a closed cycle of the production chain. They lead global trade and recognize that it is easier to establish themselves on the American market if they have their own production facilities in the United States. Some of the examples here are Nornikel and Severstal. This is, as it is said, a two-way street. This kind of cooperation is profitable for the Americans and for the business community at large – it creates a new quality of cooperation for Russian entrepreneurs and producers. This practice, already successfully tested by European, Japanese, and Chinese partners of the United States – should now be adopted by Russia.

Another prospect and resource for U.S.-Russia economic relations is the liquefied natural gas sector. Possible cooperation in this field is connected to collaboration in the high technology market segment. Right now, we have virgin soil here. There are promising deposits of natural gas in Russia, in particular the Shtokmanskoe deposit in the Barents Sea, which can well be used for generating exports to the United States. However, in order to materialize these plans, it is first necessary to explore the deposit, build a plant for liquefying natural gas in Russia, construct a deep-water port on the coast of the Barents Sea, build tankers, and gain access to the natural gas market in the United States… The entire chain needs to be set up. This plan would require large investments and many technological projects, which, at the very least, would cost 20-25 billion dollars. This would be a very long-lasting project, implemented over the course of the next 30-40 years. We believe that launching this project would give elements of new quality to our economic cooperation. This project would be strategically important for both, Russia and the United States. .

- In the United States, many assert that the reason Russia was able to recover from the economic crisis of the 1990’s was its natural resource wealth. At the same time, the Americans say that such wealth is unstable, as prices on raw materials and energy change. Do you believe that Russia’s natural resources wealth is not able to guarantee long-term stability? 

- First of all, I would like to challenge this thesis. Experts usually link the beginning stage of Russia’s recovery from the 1990’s crisis with the devaluation of the ruble, not with the natural resource abundance. Everything got so cheap in Russia that domestic industries became competitive, and imports were gradually displaced. The local market began to work. Now, however, this resource, the inexpensive ruble, is about to expire. The dollar is declining now, while the ruble is gaining weight. This trend notwithstanding, the small engine of Russia’s home industry has already been launched. Of course, the structure of our market is a difficult one. However, everyone constantly talks about the growth of Russia’s internal consumption. While previously, one of the major factors for the Russian economy was the export component, including the natural resource and the energy fields, today, Russia’s internal market plays a considerable role.

Second. The prices on fuel and natural resources, in the foreseeable future are not expected to change significantly. The present trend of rising prices for energy, however, should not calm people in Russia. Excessive prices are counterproductive for consumers and for producers alike. Balanced prices are what creates a healthy atmosphere for economic growth. Russia backs this position everywhere. We are against high prices for oil and gas and believe that the prices should reflect the real market situation. The Russian government is taking measures to diversify resources of economic development. Presently, our dependency on natural resources is, indeed, high. We now try to narrow it through economic means.

- Mr. Grishin, could you name several of the major investment projects of American companies in Russia during the past few years?

- Among the major projects is, of course, ALCOA’s purchase of two aluminum plants in Samara and in the Rostov region. The Russian side believes that the coming of American investors will stimulate technological renovation of these industries and their inclusion into the global business cycle. Cooperation with America can also bring opportunities for the development of new materials. These investments are not seen as simple contributions to the raw material sector, but as comprehensive investments in the development of technologies. Other sizeable projects that should be given attention include the partnership between LUKOIL and Conoco. Conoco’s purchasing of LUKOIL’s government stocks in September of 2004 give a new quality to the relationship between those two companies. They are now connected in terms of their assets. They work together actively. LUKOIL purchased gas stations in a number of states in northeastern United States. There are, as far as we know, future plans for collaboration of LUKOIL and Conoco in Russia, in the U.S., and in other countries, including Iraq.

- Of late, the presence of Russian companies in the United States has become more conspicuous. You have already mentioned such companies as LUKOIL, Severstal, and Nornikel. Would you continue this list?

- It is first necessary to mention that a major stimulus to enter the American market is stock market listing. Today, New York’s stock exchange lists five Russian companies. Among them are such companies as GoldenTelecom and a metallurgical holding Metchel… This is a very promising line of work. There are opportunities to increase capital, to attract investment, and to secure a smooth entry for Russian companies into the U.S. market.

Among other sectors, we can name the chemical industry. Russia exports to the U.S. chemicals of various sorts, including plant fertilizers. Another interesting field is Russia’s export of hunting gear to America. Russian diamonds are another area of U.S.-Russia trade cooperation. It is possible that in the near future considerable deals will be made in that field. However, I must say once again that the potential for U.S.-Russia cooperation is much greater. We do not use the resources of our economies to their full capacity.

- What is it then that holds Russian-American relations back? Does the cause lie in restrictive regulations or in the psychological prejudice of some Americans towards Russia?

- In my opinion, both of these have their effects. There are certain problems that arise from the restrictions, of which we had already talked. They are mostly on the normative level of the legislation. I do not even want to talk about the Jackson-Vanick amendment. It does not affect our relations directly, but implicitly… When investors analyze the situation and see that this amendment, passed a long time ago, is still in effect, they loose their interest towards Russia. The presence of these excesses is one of the hindrances to U.S.-Russia trade.

Mentality also plays a role. Business and government circles need to make their psychology different.

- Mr. Grishin, what arguments for working with Russia would you present to an American businessman, who wants to work with Russia, but is a little afraid to do so?

- Now is the best time to enter the Russian market because the level of legal protection for businesses is very high. If one is to look at what has been accomplished during the past ten years, colossal achievements would be visible. There are success stories. There are positive experiences of many foreign companies – from Europe and from the U.S. – in different fields. One tendency that has now become noticeable is that the later a company enters the Russian market, the higher this entry will cost. Right now, in my view, there exists an optimal balance between the risks and the cost of market entry. In the 1990’s the degree of risk associated with working in Russia was very high; now it has been greatly reduced. The capital levels necessary to enter the Russian market, however, still continue to be rather moderate. Today there are good opportunities for conservative companies and investors to establish themselves on the Russia market. Another argument is that the Russian economy is expanding. The pace of its growth is rapid. Annual expansion of Russia’s economy is about 7 %. This type of economic climate allows businesses to develop constructively.