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Wednesday, April 6, 2011

With Jackson-Vanik in place, ‘Commercial Reset’ is a target

As talks over Russia’s accession to the WTO are apparently drawing to a successful close and the ‘Commercial Reset’ of the U.S.-Russia relations is seemingly right around the corner, the U.S. House of Representatives predicts an uphill battle the White House will have to face in persuading Congress to approve permanent normal trade relations (PNTR) with Russia “due to concerns over Russia’s trade practices and human rights record.”

I think it’s clear that the House Republicans are playing a high-stakes game with Barack Obama this year. They don’t want the American president to have so many successes, such as the most recent nuclear treaty with Russia. The G.O.P. representatives are nervous that by continuing a string of successes Obama will cement his leadership position to win the next presidential election.

There’s a lot of infighting for who are going to be the ‘serious’ candidates for the American presidency and who are absolutely non-starters. Look at Donald Trump, a Republican Party candidate for the 2012 campaign! A master at PR and promotion, he’s hardly a serious candidate to run the national economy, I’m sure; it’s no fun job.

The reality is that there aren’t enough high-powered candidates that are stepping up to the plate who can really win. So the leadership of the Republican Party is quite scared. To immediately agree, “yes, this is a high priority, we have to get Russia into the WTO and rescind the Jackson-Vanik amendment” would simply play into the hands of President Obama.

A large majority of sizable US businesses that have experience in Russia are quite interested to expand their business relationships. For example, the US-Russia Business Council in Washington recently made a strong appeal to the business community to look at the situation rationally and very carefully.

When Russia is accepted to the WTO (probably before the end of this year), if the U.S. has not rescinded the Jackson-Vanik amendment, it will put all American companies doing business in Russia in jeopardy, as the amendment is not consistent with the WTO membership. The situation will give huge advantage to French, German and other international companies.

There are three other countries that are applying for a special trade status in relations with the U.S. I think in this situation the Republicans are trying to gather some arguments that they can use to make some win over the Obama administration. By threatening to block the repeal of the Jackson-Vanik amendment they are trying to get some concessions from Obama.

Everybody knows Jackson-Vanik has to be rescinded; it is outdated, and Russia no longer restricts people of Jewish heritage to emigrate. But the Republicans want to get something first from Obama.

I don’t know who made this comment, but it seems rather logical: if the administration simply lets Russia join the WTO without Congress repealing the amendment, who’s then going to look stupid are the Republicans. I think the Obama administration is trying to be smart now that the G.O.P. is playing games, saying, “if you refuse to do this, then you’ll be to blame for the entire business community losing out on opportunities for Russia.”

Is Russia a normalized market economy? No, not yet. Is it on the road to becoming a normalized market economy? Yes. Will membership in the WTO encourage the development of Russia as a normal market economy? Absolutely. It’s in everyone’s interest.

There’re some vested interests in Russia that don’t want the country to become a member because they make a lot of money as long as Russia stays out. But the vast majority of companies will gain from the membership.

In my opinion, the Republicans’ “maybe we won’t allow the amendment to be rescinded” makes them look rather childish, and it’s a game they are not going to win because if they fail to extract concessions, the business community will speak up loudly, and every member of the House and the Senate will be receiving letters from American businessmen who are going to lose out by the U.S. kind of ‘withdrawing’ from this trade program with Russia.

Monday, April 4, 2011

On biathlon woes and business competition

The Russian national biathlon squad has failed at all key events of the outgoing season. I couldn’t care less for this in an economic context, I admit, unless we had as the head of Russia’s Biathlon Union one of this country’s most high-profile entrepreneurs, Mikhail Prokhorov—a billionaire who owns Onexim Group and a US basketball team, New Jersey Nets, and is the chairman of Russia’s largest gold producer, Polyus Gold . He is Russia’s second richest man and the 39th ultra high net-worth individual in the world according to the 2010 Forbes list with an estimated fortune of $13.4bn.

I have read perplexed comments from dismayed advocates of a market economy and winter sports: hey, where is the efficient management that we all know should be part of any private endeavor?

I think it is one of the most widespread illusions cherished by Russian society in transition. In fact, managers employed by private businesses are hardly any more efficient than those working for contemporary government corporations or even socialist enterprises in the Soviet times. In fact, it’s not ‘effective managers’ that are an advantage of a modern market economy; it’s competition helping people with good managerial skills surface and prove themselves that is. Outside competition any management system, be it a privately owned business or a government-run project, is doomed to degradation.

We still have hopes that it’s competition with the Norwegian, German, Swedish and other leading biathlon federations that can eventually improve the quality of management at Russia’s Biathlon Union, thus contributing to more medals.

I would recommend another ‘therapy,’ too, which may look a bit eccentric, though. The sport once brought Mr. Prokhorov into it, among other things, for the businessman to pony up funds to develop biathlon. So, why not attempt the reverse: rearrange the system so that the patron could stop spending but rather start gaining from the Union’s proceeds?

Maybe, the situation will be faster improved if the stakeholders start regarding the sport as a business project capable of generating money.

In any actual business, overinvesting may do harm unless applied to a healthy competitive and creative environment.

All that said, we can however be sincerely enthusiastic about the way Mr. Prokhorov’s ‘Yo-mobile’ hybrid car project is progressing. Odd on the face of it, the Yo project is undoubtedly business-oriented and able to ‘gnaw out’ its share of the automotive market.