Initial Report of the Russian-American Business Dialogue (RABD) presented to President George W. Bush and President Vladimir V. Putin on the occasion of the Presidential Summit Moscow, Russia May 2002

I. Administrative Obstacles: Visa Issues and Customs

Both the American and Russian Governments should make a special effort to ensure that the tragedy of September 11, 2001 does not lead to additional administrative barriers in visa procedures between our two countries. Understandably both countries are increasing security measures regarding foreign visitors; however, we believe that it is in the long-term interest of both the United States and Russia to increase bilateral travel, business, tourism, student, and cultural exchanges. The development of multifaceted ties between the people of Russia and the United States will enhance Russia's partnership with the United States in meeting the challenges of today's global economy.

We have witnessed some improvements and reductions in administrative barriers since the RABD Interim Report was submitted in late 2001. There remains more to be done.

One of the most significant issues for both sides is that of visa processing. We recommend that both Russia and the United States issue multi-year visas, as such visas greatly improve the ease with which legitimate business people can enter markets. We further recommend that the governments move beyond the complications and constraints imposed by an insistence on pricing parity.

A. U.S. Visas

In the last six months, the processing by U.S. consular posts in Russia of non-immigrant business visas has improved. The new system of filing visa applications with the U.S. Consulate in Moscow via Federal Express has eliminated long lines in front of the American Embassy. However, this system only works for Moscow-based applicants and should be extended to other parts of Russia as well.

The U.S. Consular Service should be commended for issuing multiple-entry visas to Russian citizens once their applications are cleared and approved. This allows for both a reduction of paperwork for the government and a simplification of the process for the applicants. However, some problems remain.

Visa Refusals. In some instances, applicants have been refused a visa when there appeared to be no basis for refusal. Numerous business meetings have been cancelled due to unnecessary visa refusals, including at least one instance in which the head of a large Russian company, which was subject to an antidumping investigation in the U.S., was denied a visa. Visa refusals based on unproven corruption and criminal allegations should be carefully considered. While American consular services are working diligently to identify problem cases, additional resources are needed to devote more attention to each case and lend experienced judgment to each application.

Student Visas. Student visas are an especially important issue for the new generation of young Russians who are internationally oriented. Screening of student visa applicants should be conducted with this priority in mind.

B. Russian Visas

Multiple Entry. The Russian Government should adopt a policy of promoting multiple-entry visas for American citizens. As it stands today, most of the visas issued by the Russian consular service are single- or double-entry visas, with a maximum time frame of one year, despite a reciprocal agreement establishing three-year limits. Both governments should agree to extend maximum multiple-entry visas to five years. This would bring the reciprocal conditions in line with standard visa practices for other countries.

Visa "Invitations." The present Russian system for issuing visas is unduly burdensome for a country that is increasingly connected to the global economy. U.S. applicants have to receive an "invitation," usually on a fee basis, from a Russian company "approved" by the Foreign Ministry, after which they may then apply at a Russian consulate abroad. Thus, American applicants effectively pay twice for the same visa. This system breeds bureaucratic red tape. The requirement of Russian consulates that American applicants provide HIV certification from a medical doctor is also unnecessarily cumbersome.

Visa Fees. Russian visa fees are excessive, particularly for applications filed on short notice, as is often the case for most business travelers. Exorbitant fees of $450 for three-year visas should be reduced by both governments, and pricing parity should not dictate fee structures. Visa fees for students and cultural exchange visitors should be eliminated altogether.

Exit Issues. The Russian Government charges excessive fines in cases of even a minimal overstay in Russia by American visitors. Worse yet, Russia still employs the system of exit visas-essentially a permit to leave the country, the very concept of which is frightening to many American visitors. A foreign visitor who is caught in traffic on the way to the airport and misses his plane will, under the existing rules, have to apply for an extension of his exit visa at the airport consular point and pay a $250 processing fee. Or he may be turned down (as is most often the case) and requested to contact the Russian entity that originally invited him to visit Russia. This entity would, in turn, apply to the Russian Government for an exit visa extension, a process that easily takes one week. This practice is unnecessary and impractical.

Registration of foreigners. Registration of foreigners in Russia is also an antiquated remnant of the Soviet system. This procedure does not comport to internationally accepted norms and practices in civilized countries.

C. Russian Customs and Airport Issues

Airport Problems. Sheremetyevo II airport has been frequently and appropriately called "the main administrative barrier for foreign investment in Russia" and an embarrassment to Russia. A lack of basic airport services, such as orderly and expedient immigration processing and taxi transportation, projects the wrong image to potential investors. A select few travelers pay for expedited VIP treatment, where visitors can be waived through the airport for exorbitant fees. Serious effort should be made to improve the overall airport services and infrastructure so business travelers do not feel compelled to use the VIP service.

Customs Regulations. The new customs regulations require foreign visitors to declare any amount of cash they carry into Russia or face confiscation upon departure. Most foreign visitors are not warned about this rule upon arrival, and many have had their money taken away upon departure without receipt or reasonable recourse. Carrying undeclared amounts in excess of $5,000 is considered a felony and may bring about criminal prosecution. There should be a reasonable limit set for mandatory customs declaration of cash, such as the internationally accepted limit of $10,000. Appropriate public notices through the airlines and other channels, as well as reasonable transition periods, should be implemented when customs regulations change. Furthermore, such customs regulations should promote equality of treatment among Russian citizens and foreign nationals.

II. Market Access

A. Legislative and Regulatory Measures

1. Terminate Jackson-Vanik's application to Russia.

The American business community believes that the time has come to terminate the application of the Jackson-Vanik amendment to Russia and grant Russia PNTR, thereby discarding a vestige of the Cold War that is of no practical consequence. Even prior to the publicly stated intention to do so during the Bush-Putin Summit in November 2001, the business community had begun to voice its support for passing a bill to this effect in the second session of the 107th Congress.

The business community has been actively communicating with congressional officials on this issue, and meetings have been held with key leaders in both the House and the Senate. In addition to a letter-writing campaign by corporate representatives urging Congress to act, the private sector has also voiced its position in testimony at recent congressional hearings before the House Ways and Means and International Relations Committees.

2. Revoke Russia's status as a Non-Market Economy.

Similar to the efforts made with regard to Jackson-Vanik, since the submission of the Dialogue's Interim Report in December, the American business community has taken a number of steps to actively support Russia's application for designation as a market economy under U.S. trade laws.

In response to the Commerce Department's inquiry into the "Status of the Russian Federation as a Non-Market Economy Country Under the Anti-Dumping and Countervailing Duty Laws," a series of rebuttal comments were submitted on behalf of hundreds of private-sector firms operating in Russia in accordance with market economic principles.

These rebuttal briefs offered compelling support for Russia's market economy designation in accordance with six statutory criteria:

• The extent to which the currency of the foreign country is convertible into the currency of other countries.
  
• The extent to which wage rates in the foreign country are determined by free bargaining between labor and management.
  
• The extent to which joint ventures or other investments by firms of other foreign countries are permitted in the foreign country.
  
• The extent of government ownership or control of the means of production.
  
• The extent of government control over allocation of resources and over price and output decisions of enterprises.
  
• Such other factors as the administering authority considers appropriate.

Following those February submissions, representatives of the RABD joined Russian Deputy Minister of Economic Development and Trade Sharonov in testifying at the Commerce Department's March 27th hearing on the subject. Final briefs rebutting points made at the hearing were then filed on April 8th.

While we support Russia's application for designation as a market economy, we also believe that steps should be taken to minimize Russia's vulnerability to potential countervailing duty (CVD) claims. Potential CVD claims could result in erecting even greater barriers for Russian firms seeking access to U.S. markets than currently exist.

In the event of a positive decision by the U.S. Government on Russia's application, a bilateral agreement should be put in place temporarily that would give Russia the injury test until such time that Russia becomes a WTO member (binding themselves to the Subsidies Agreement provision). Without such relief, Russia would be subject to CVD claims by U.S. companies based on allegations of subsidies, without the U.S. claimant needing to prove injury. Since all of Russian industry was government-owned prior to 1990, it would not be difficult for plaintiffs to demonstrate the existence of subsidies. Failure to protect Russia in this context will encourage a proliferation of lawsuits against Russian firms and generate adverse publicity, which could weaken public support in both countries for WTO accession.

3. Promote win-win trading synergies?the case for Russian titanium.

Cooperation between the Russian titanium industry and the American aerospace industry is a prime example of mutual benefit. Shipments of Russian titanium products have helped American aerospace companies successfully address the shortage of domestic titanium and maintain their competitive edge against European competitors, which do not face the same duty burden. On the Russian side, this agreement with American companies has helped to facilitate defense conversion and the transition to a market economy in a significant industrial sector.

This mutually favorable situation warrants continuation and expansion. Under the Generalized System of Preferences (GSP), the U.S. government should maintain the duty-free status accorded Russian wrought titanium and extend it to unwrought titanium. Cooperation on this front represents a win-win situation for both countries and our bilateral aerospace cooperation.

Segments of Russian industry that produce quality products, such as the titanium manufacturers, could also help reduce the cost of U.S. Government procurement at this critical time. In this context, many new aerospace applications require more titanium content. This need can be successfully fulfilled by qualified Russian sub-suppliers if the U.S. Department of Defense grants special waivers available under the "Buy American Act," which would allow Russian suppliers to act as a secondary source for this and other valuable materials. Similar precedents exist in the United States for other U.S. allies.

4. Add Russia to the list of countries exempted from the recent U.S. antidumping action.

Russian metals exporters believe that existing limitations on Russian imports of certain metals guarantee the protection of U.S. producers. As a result, Russia should be exempted from the list of countries subject to additional import sanctions under Chapter 201 of the Trade Act of 1974. This would be a logical step considering that the 1999 U.S.vRussia Agreement Concerning Trade in Certain Steel Products provides for strict limitations in steel exports from Russia, which were observed by Russia through the period covered by the Agreement (i.e., beginning July 12, 1999). Hence there is no "injury" that can result from unregulated imports from Russia.

The antidumping cases against exports of steel products from Russia have recently been employed as a strong tool for the American steel industry to limit exports based on Russia's non-market economy status. Despite numerous U.S. International Trade Commission decisions that failed to establish any injury resulting from these imports, U.S. producers still proceed with antidumping claims. In the recent antidumping case against certain cold-rolled steel products from Russia, the preliminary determination published on May 9, 2002 found all Russian exporters subject to 137.33% margin due to Russia's non-market economy status.

On May 14, 2002, the U.S. Commerce Department announced its final determination on the antidumping case against Structural Steel Beams from Russia, resulting in a final margin of 230.66 percent. Thus, imports of structural steel beams from Russia will now be subject to a cash deposit in that amount?in effect, blocking Russian producers and exporters from the U.S. market. (As of January 31, 2002, based on a preliminary Commerce Department decision, structural steel beams have already been subject to a preliminary margin of 108.37 percent.) Officials from Russia's Ministry of Economic Development and Trade have requested discussions with the U.S. Department of Commerce on the subject of a possible suspension agreement in this case. The statutory deadline for initialing a suspension agreement expired 30 days prior to the final determination in the case; however, the Commerce Department did not take action on such an agreement. This issue warrants the attention of both governments before it escalates into a major trade dispute.

5. Facilitate a fivefold increase in the volume of leased capital equipment imported into Russia.

The Russian State Customs Committee recently adopted a proposal by the business community to permit, in select cases, installment payments for customs duties on leased equipment imported into Russia. While we applaud this constructive step, we believe this should be made a rule rather than an exception. We recommend that the current General Agreement on Trade in Services (GATS) negotiations for the new Doha WTO Round consider leasing as a service, so that no customs duties are levied on equipment that is not actually owned by the parties who lease the equipment.

In the interim, a reduction in the amount of interest attributed to the value of the imported equipment for calculating the duty has likewise been proposed by the business community and accepted in principle by the State Customs Committee. With appropriate and transparent implementation of these positive decisions, we can expect at least a fivefold increase in the volume of imported leased equipment, bringing the leasing component as a share of foreign direct investment in line with the European norm of 25-30 percent. Such significant growth in leasing transactions should in turn attract much-needed capital equipment into key, but cash-strapped, sectors of the Russian economy.

The next steps include supporting tax and customs legislation as well as administrative orders setting forth clear and objective criteria for Customs officials in determining eligible transactions. Only then will a permanent and transparent basis for the payment of duties on cross-border leasing transactions be secured. In order to capitalize on the positive momentum created by these recent decisions, we have submitted draft administrative orders for the State Customs Committee's consideration and action and will also work with the Duma and Investment Department of the Russian Ministry of Economic Development and Trade to facilitate the implementation of business-driven legislation in this area.

B. WTO Accession

The American business community strongly supports Russia's early accession to WTO membership. The WTO negotiation process can serve as a positive framework for engaging both the U.S. and Russian governments on many issues of great importance to the private sector.

1. Private-Sector Initiatives

The RABD is planning a series of WTO seminars addressing specific industry sectors and the potential impact that WTO accession will have on each. These seminars will create a forum for discussion among Russian executive and legislative branch officials, international experts and representatives of the private sector. In addition to the industry-specific topics being considered for these WTO seminars (high-technology, agriculture, telecommunications, etc.), representatives of the Russian business community have expressed interest in a seminar focusing on the experience and mechanism of commercial dispute resolution within the WTO.

The Dialogue's initial seminar, held in Moscow on March 27th, focused on financial services, which is one of the most important sectors for Russia. During the seminar, a presentation on the Russian Government's plan for reform of the banking sector was made by the Central Bank, followed by remarks in response from several Russian bank representatives. The Central Bank raised concerns over the ability of Russian banks to survive in a more competitive environment. Most notably, the point was made that the state treats resident and non-resident banks differently, and that this must change so that all banks are treated equally in the Russian market. American banks are asking for national treatment. It was highly recommended that the Central Bank establish a banking insurance system.

2. Priority Areas

a. Telecommunications: The creation of an investor-friendly infrastructure and legislative environment is critical to the development of the telecommunications sector in Russia and to the accession process. This would include reduction of existing tariff and non-tariff barriers that limit foreign participation by, among other things, harmonizing Russian certification procedures with procedures used by recognized international institutions. Russia should be encouraged to bind pro-competition regulatory disciplines as well as to eliminate tariff and non-tariff barriers in this sector.

b. Financial Services: A viable financial services sector is crucial to the country's economic development. The critical steps to be taken include:

• a reduction in the number of state-owned banks;
  
• increased liberalization to allow mergers and acquisitions;
  
• greater access for foreign banks;
  
• openness to international participation in the Russian insurance industry through new legislation;
  
• development of a legislative framework governing the leasing industry;
  
• improvement in access to capital and credit relationships; and,
  
• full adoption of International Accounting Standards (IAS).

c. Intellectual Property Rights (IPR): Russian officials should push for expedited approval by the State Duma of a legislative package to bring Russia into compliance with the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), because each WTO member is obligated to implement the TRIPS agreement through domestic legislation and incorporate the rights and obligations of an IPR-holder. Similar efforts are required to bolster enforcement of Russian legislation to protect intellectual property rights, which remains a problem.

C. Aerospace Cooperation

The RABD has formed a Commercial Aerospace Working Group, which met for the first time on March 14th. The meeting included officials from the U.S. Commerce Department and the Russian Space Agency, who discussed a number of important issues with representatives of major U.S. and Russian aerospace companies, including:

• Russian plans for aerospace sector restructuring,
  
• joint successes in commercial space launch ventures,
  
• restrictions on foreign investment in aviation enterprises,
  
• tariffs on airplanes and components,
  
• the development of Russian commercial airlines,
  
• expansion of air navigation routes across Russia,
  
• the export control/licensing process, and
  
• other issues that affect U.S.-Russian commercial aerospace projects, such as building on the shadow certification process for the KA-226 helicopter to expand the Bilateral Air Safety Agreement and certify the MI-26 helicopter, which has unique heavy lifting and high-altitude capabilities.

The working group is developing a list of priority issues for quick action, as well as more complex questions that will require further work and discussion. The Working Group will hold its second session on May 23 and issue a joint statement for the Presidential Summit.

III. Investment Policies and Financial Infrastructure

A. Protection of Property Rights

There have been numerous instances of Russian Government abuse of successful Russian businesses that export to the United States. Viewed as lucrative hard-currency exporters, such businesses attract the attention of their less successful competitors who often use corrupt influence with law enforcement and government officials to take over a successful business. The vodka industry, which is the second-largest industry in Russia, offers a prominent example where a government-connected company has usurped valuable trademarks after the private owners had invested tens of millions of dollars to rebuild and support the brand in the United States and other export markets.

Similarly, local officials have colluded in the confiscation of a piezo quartz facility in Vladimir after an American company invested millions of dollars in state-of the-art equipment to make Russia competitive in high-tech export markets. Investor confidence will continue to suffer as long as the Russian Government is used as a tool of unfair competition and fails to protect basic property rights.

B. Financial Services

In addition to property rights issues and export duty disincentives, the RABD's investment policy priorities include banking reform, currency control reform, insurance reform, pension reform, securities reform, and the adoption of international accounting standards (IAS). Members of the business community in both countries have suggested numerous measures to be incorporated into Russian government policy, as outlined below.

1. Banking Reform

We welcome the Russian Government's efforts to initiate the reform of the banking sector, as evidenced by the "Strategy for Development of the Banking Sector for the Period Until 2005", adopted by the Russian Government and the Central Bank on December 30, 2001.

We urge the Russian Government to build on this constructive step by considering the following recommendations:

• Promote transparency and effective regulation.
  
• Establish reasonable minimum capital requirements.
  
• Institute strict Central Bank audits.
  
• Establish guidelines for appropriate credit/capital ratios.
  
• Require banks to have appropriate commercial and/or retail licenses.
  
• Require banks to undertake commercial lending (based on appropriate credit risk analysis) proportional to their capital.
  
• Provide retail deposit insurance for banks that use the highest capital/credit ratio.
  
• Establish mortgage and small business lending programs.
  
• Allow foreign competition to eventually make the market more competitive.
  
• Establish specialty leasing companies and create incentives for financing equipment leases.
  
• Liberalize further foreign exchange and repatriation of foreign exchange.
  
• Establish credit unions.
  
• Institute a viable bankruptcy process and further reform laws governing bankruptcy for large and small enterprises, as well as for individuals.
  
• Promote well-capitalized regional and municipal banks.
  
• Create a level playing field for state and commercial banks.

2. Currency Control Reform

• Abolish compulsory currency sales.
  
• Meanwhile, reinstate the waiver of the compulsory currency sale requirement for servicing U.S. Export-Import Bank financing provided under the bilateral Oil and Gas Framework Agreement; otherwise, major U.S. Ex-Im Bank oil and gas projects in Russia may be derailed and the Russian industry would suffer losses.
  
• Carry out capital operations on the basis of notification and current operations, without limits.
  
• Apply national treatment to currency operations by non-residents.
  
• Limit extraordinary measures in currency regulation, which undermine the national currency.

3. Securities Reform

We welcome the efforts of the Russian business community and the Russian Government to improve corporate governance and encourage the adoption of the Corporate Governance Code. We support several important initiatives to promote the implementation of the Code, and we recommend numerous additional steps to further securities market reforms:

• Harmonize the conceptual framework of Russian securities legislation to eliminate internal inconsistencies.
  
• Strengthen the Federal Commission for the Securities Market's (FCSM) regulating authority.
  
• Establish clear accounting/financial standards for reporting by regulated companies.
  
• Revise anti-fraud/material disclosure regulations and laws (eliminate excessive requirements, improve the timeline, substance, and form of disclosure procedures).
  
• Establish administrative liability for various offenses in the securities market that do not constitute a crime.
  
• Adopt a Federal Law "On Affiliates" that will define the term of an "affiliate" and establish procedures for transactions with affiliates.
  
• Adopt a Federal Law "On Insider Trading" that will clearly define "inside information" in compliance with international standards.
  
• Introduce actual liability for insider transactions.
  
• Promote the use of private rights of action by shareholders for violations of corporate securities rules and regulations.
  
• Create equal access to the legal process by all shareholders in public companies.
  
• Amend Russian corporate and securities legislation to simplify the procedure for issuing convertible bonds.
  
• Eliminate restrictions on transactions with securities before the report on the results of their issuance is registered and eliminate liability for such transactions.
  
• Eliminate the possibility that securities issuance may be declared as failed or invalid if the FCSM refuses to register the report on the results of issuance, at least with respect to a "firm commitment" underwriting.
  
• Promote investment funds as vehicles for pension fund investments and investment by the general public.
  
• Establish strict and transparent requirements for investment funds (financial requirements, rate of return standards, board and management requirements, independence and conflict of interest regulations, liquidity requirements, disclosure and anti-fraud provisions).
  
• Support public interest groups promoting good corporate governance, transparency, financial standards, etc.
  
• Significantly enhance regulatory authority of stock exchanges with respect to their members, listing requirements, member audits, minimum capital requirements, asset/liability management requirements.
  
• Create stricter rules for banks that act as broker-dealers in the securities market.
  
• Increase the role of self-regulatory organizations.
  
• Increase financing of the FCSM, courts, and prosecutors' offices in order to enable them to hire qualified experts.
  
• Improve public education programs pertaining to the financial markets, securities, investments, legal rights, etc.
  
• Create a dual system of regulations where the Central Bank can be involved with the debt-credit capital markets and the FCSM equity markets (similar to the U.S. system).
  
• Establish accounting/financial standards for reporting by regulated companies.
  
• Establish private rights of action by shareholders for violations of FCSM and Central Bank rules and regulations.

4. Pension Reform

• Establish rules and regulations governing investments and quality of investments.
  
• Encourage pension fund investments in appropriate ratios to risk and liquidity.
  
• Manage actuarial liability with appropriate asset/liability ratios.
  
• Establish conflict of interest rules between companies and pension fund mangers, including transparency and disclosure.
  
• Establish a base for pension reform for municipal and federal government employees, eliminating conflicts of interest.
  
• Permit private pension managers to compete for asset management, enhance the transparency of state-run pension activity, and promote investor choice in investable instruments.

5. Insurance Reform

• Assist the development of market competition.
  
• Reduce foreign ownership restrictions and permit foreign insurance companies to compete in the local market either directly or on a joint-venture basis.
  
• Establish appropriate financial ratios and portfolio guidelines for insurance companies.
  
• Establish clear and fundamental regulations governing disclosure and financial viability of insurance companies.
  
• Promote reinsurance pools and local insurance underwriters.

6. International Accounting Standards (IAS)

• Full (not partial) adoption of IAS for Russian enterprises, with an emphasis on instituting IAS in accounting practices and not merely for reporting purposes.
  
• Immediate transition for publicly traded companies, banks and other financial institutions.
  
• Mandatory IAS adoption for state-owned enterprises scheduled for privatization.
  
• Training and certification in IAS for accounting professionals.
  
• Provision of adequate budgetary resources to implement IAS reforms.
  
• Reconciliation forms and tax-neutral changes in converting to IAS.

C. Export Duties as Investment Inhibitors

Russian companies producing high-quality paper must pay a 10 percent duty on finished products, whereas a similar tax has been eliminated for the export of timber. This unbalanced policy forces companies to export timber and manufacture paper in foreign markets (such as Europe and China) in order to be competitive, thereby creating jobs in foreign countries at the expense of Russian jobs. This policy is counterproductive to the Russian Government's strategy of decreasing dependence on exports of raw materials and enhancing domestic production.

This segment of the Russian market had been attractive to foreign investors until June 2001, when the Russian Government eliminated the export duty on pulpwood. As a result, a foreign investor with no interest in exporting timber to its European facilities (because it has made sizable investments into woodworking enterprises in Russia) is less competitive in the international market; its products have to be priced higher in order to accommodate the tax. This situation represents an impediment to foreign investment in this important domestic industry. Therefore, we recommend elimination of the 10 percent export duty on finished paper products to stimulate investment in local production.

In addition to this export duty, another recent development seriously undermines the CIS treaty principle of free trade, thereby jeopardizing the position of foreign investors as well as Russian exporters. Specifically, Russia and Ukraine have implemented a protocol amendment to the 1993 Russian-Ukrainian Free Trade Treaty introducing a set of new tariffs for trade in goods originating in CIS countries, including duties on Russian confectionery and sugar imports into Ukraine. While Russia and Ukraine have agreed in principle to the eventual lifting of these new tariffs, the deadline for doing so is unclear, and this uncertainty damages the business climate for U.S. investors. If these tariffs are not eliminated, companies will likely reassess and possibly re-deploy their foreign investments to lower-risk jurisdictions.

IV. E-Commerce and High-Tech Support

A. Encourage the development of the information technology (IT) sector.

There is a strong link between Russia's prospects for future economic growth and the development of its IT sector. Given Russia's talented pool of technically competent scientists, engineers and mathematicians, continued development of this sector will translate into commercially viable business models, new jobs and increased foreign investment.

Progress on the following initiatives will influence development.

1. Promote the use of IT in all sectors of the Russian economy.

The use of IT within all sectors of the Russian economy is important for Russia's success as a domestic economy and as a trading partner. This means that much of the investment in Russian IT should focus on modernization, productivity and improved business practices by all kinds of Russian companies and organizations. The IT sector, however, will remain an important vehicle for the introduction of these benefits.

The RABD is discussing plans to organize a business development mission to promote technology investment in Russian business. Working with Russian and U.S. systems integrators and suppliers, the RABD would identify the Russian companies that are most in need of IT modernization. Representatives from those companies would then be invited to visit their counterparts in the United States for a demonstration of how U.S. companies apply IT to their business models to improve efficiency and profitability.

2. Facilitate Russian entry to the Information Technology Agreement (ITA).

As a stepping stone en route to WTO accession, joining the WTO Information Technology Agreement (ITA) would speed the development of the Russian IT sector and further integrate Russia into the global digital economy. ITA participation calls for the elimination of all customs duties on IT equipment, thereby providing Russian suppliers of software and other IT goods uninhibited access to world markets. Small and medium-size companies would also benefit from affordable access to the latest technology. In addition to the immediate benefits of becoming a participant, the step-wise approach of joining the ITA would provide a positive example for other Russian industry sectors reluctant to embrace WTO membership.

3. Update and modernize communication infrastructure.

Modernizing communications infrastructure and investing in broadband capacity is a key element of Russia's integration into the global digital economy. Tax incentives for companies that invest in this area could stimulate development and spur competition in the sector, and pro-competitive regulation of basic telecommunications will encourage the introduction of a wide variety of new services. It is important, however, that such policies encourage investment by strong players without discouraging investment into, and by, new players with new technologies.

4. Ease restrictions on encryption software.

Easing restrictions on the import, export and use of data encryption software is important to guarantee the security of online transactions. This will have the effect of both improving access to existing encryption software and encouraging the further development of Russian encryption software for use in e-commerce. In this regard, it is essential that Russian rules and regulations are compliant with accepted international norms.

One possible solution involves splitting jurisdiction on this issue between FAPSI and the Ministry of Economic Development and Trade. Such and arrangement would allow FAPSI to maintain control over the most sensitive technology that has national security implications, while the Ministry would assume responsibility for less sensitive technology that is clearly intended for commercial use.

B. Promote digital skills development and access to the Internet.

We are encouraged by the Telecommunications Ministry's commitment to "democratize" the Internet. Encouraging digital-skills development throughout Russia and creating an e-literate workforce should be a common goal for both government and business. An educated workforce means more foreign investment and, in turn, taxes for governments and increased productivity for business. Progress in this area would include:

• Encouraging "flat rate" or unmetered pricing plans for calls linking consumers to Internet service providers.
  
• Tax benefits for companies who provide computers and Internet access to their employees for home use, as long as all employees are offered the same benefit. (Such a program was key to Sweden's success in getting wired. The "same-offer-to-all" keeps it from being a management perk, like a car, and instead makes it a vehicle for broad spread of Internet use and employee skills upgrading.)
  
• Tax benefits for companies that offer their employees continuing education programs for both business management skills and IT.
  
• Bringing schools, libraries and other public institutions online
  Bringing government offices online and encouraging online government procurement online.

C. Promote private-sector investment and venture capital.

Private-sector investment in the technology sector will help Russia develop a broader-based economy and leverage its strong educational and scientific base. An instructive model for such investment is the recently announced joint venture between Exigen Group Ltd. and Moscow State University to develop and support applied and scientific research in the field of information technology, and to offer software products and solutions to major Russian and international companies. We suggest the following steps to stimulate investor interest in this sector.

1. Domestic Venture Capital and Commercial Credit

It is also important for Russia to develop an entrepreneurial spirit by fostering a venture capital business culture and to provide incentives for the formation of internal venture capital. However, simple commercial credit is also important. Few companies will become Microsoft or IBS, but many will need credit to grow and to take on new projects. Training bankers and other lenders to understand the value and uses of IT in all sectors of the economy (not just in IT companies) would encourage the productive use of IT.

2. A U.S.-Russian Technology Cooperation Agreement

Supporting Memoranda of Understanding (MOUs) from the Overseas Private Investment Corporation (OPIC), Trade and Development Agency (TDA) and U.S. Export-Import Bank (Ex-Im) would include more credit facilities for IT projects, targeting the funds through users of the technology from all sectors.

3. Business Development Missions and Exchange Programs

Comprised of government trade officials, Russian corporate users and vendors, business development missions would help to raise awareness of technology-related investment opportunities in Russia. Similarly, Russian companies should be encouraged to send employees abroad for training and to support them when they return.

D. Streamline the export controls regime and decrease licensing delays.

Existing U.S. export controls directed at Russia and export licensing delays make it increasingly difficult for U.S. and Russian high-technology companies to cooperate on commercial projects. Since late 2000, the licensing waiting period has increased from 60-90 days to up to one year. Such delays increase cost and present non-economic obstacles that impede the evolution of business ties between the two countries.

E. Expand cooperative science ventures and related technology applications.

Russia's high-tech capacity and potential are not exclusively based on IT and computer-programming skills. Life sciences, laser technology, optics, material sciences, and aviation/aerospace, among others, are all part of a growing number of new start-ups. While the quality of the technology is world class, it requires financing and developmental support. In addition to the technology-exchange agreements, venture capital funds and other modes of cooperation mentioned above, we would like to see the establishment of a network through which a quarterly technology dialogue can take place. Promoting linkages on a business-to-business, business-to-capital, and institute-to-university basis will allow both countries to benefit significantly via job creation, intellectual property stimulation, value creation, and breakthrough-technology development.

V. Healthcare Reform

Healthcare in Russia today represents one of the most unreformed sectors of the Russian economy. It is in dire need of comprehensive restructuring in order to:

1. reverse the alarming health and demographic indicators (the Russian population is forecast to decrease from 144 million currently to about 100 million by 2050 if current trends persist);

2. dismantle a multitude of regulatory and administrative barriers faced by providers of pharmaceuticals, medical devices, medical equipment, and healthcare services; and,

3. establish a transparent and efficient system of healthcare governance and financial management based on proven international standards that would facilitate international investment, particularly in the form of R&D, clinical studies, and industry "know-how" or technology transfer.

A coordinated effort at the top level of the Russian Government is vital to achieving these policy goals, and such an effort should concentrate on the following areas:

1. Reform healthcare priorities: change emphasis from hospital care to outpatient care and modern treatments; eliminate expenditures on dated and ineffective medicines that ultimately result in higher patient treatment costs to the budget.

2. Set up transparent and efficient mechanisms for healthcare financing.

3. Eliminate preferential treatment of certain manufacturers.

4. Ensure a unified government approach to IPR protection, and aggressively pursue counterfeiters.

5. Improve the certification system for medicines.

6. Improve customs procedures in general, and with regard to medical goods in particular.

7. Make information concerning new procedures, regulations and rules on pharmaceuticals, medical devices and equipment transparent and accessible.

VI. Growth of Small and Medium-Size Enterprises (SMEs)

Creation of a favorable business climate for small enterprises was one of the major policy recommendations in the RABD Interim Report submitted to Secretary Evans and Minister Gref in December 2001. We commend the action that the Russian Government has taken since that time to respond to those recommendations. The recently proposed law reflects the drastic change in state policy toward encouraging entrepreneurship, improving the possibilities for starting and maintaining small businesses with turnover of approximately 10 million rubles per year ($322,000) and less than 20 employees.

In addition to the positive steps taken thus far to improve the climate for small businesses, we request consideration of the following remaining obstacles to be removed from midsize business (those businesses with turnover greater than 10 million rubles per year ($322,000). All of the following obstacles will be addressed for small businesses under the proposed law, but all of them will remain as hurdles for midsize businesses. These obstacles can be removed without any cost to the government; doing so would drastically improve the business climate and stimulate the growth of the economy, which in turn would lead to increased tax revenue.

A. Taxation of Midsize Business

Profits tax and VAT rates are not the largest tax-related hurdles facing midsize business. The largest tax related hurdles are the time demands made by the current tax reporting process, the timing of tax payments (often before income is received), and the unified social tax on employee compensation.

1. Adopt a low-burden tax filing and payment regime for midsize business.

One of the largest impediments to the growth of midsize business is the time demands made by the current tax reporting process. midsize businesses require a less administratively cumbersome environment in order to flourish because they do not have the financial or human resources to devote to the current arduous tax reporting requirements. Every minute a midsize business spends on accounting is a minute not spent making money and not spent growing the economy. Russian officials can stimulate midsize business activity by simplifying the current reporting requirements or by adopting a special low-burden tax filing and payment regime for midsize businesses. It is critical that such a regime require fewer tax fillings and drastically reduce the amount of time midsize businesses must spend complying with accounting and tax filings.

2. Do not force midsize business to pay taxes on money they have not yet received.

The law must make crucial improvements related to the timing of tax payments. Under article 273 of the Tax Code, all companies whose average quarterly sales exceed 1 million rubles must pay profits tax on sales as they are made (on an accruals basis) and not as they are paid for (on a cash basis). This has the unfortunate effect of taxing small and medium-size enterprises on invoices they have sent, but may never receive payment for. Article 273 is now causing businesses across the country to have cash flow problems and to experience an inability to purchase goods and services on credit. Since businesses now have to pay profits tax before they collect money from their clients, they and their suppliers now tend to require prepayments to avoid paying tax on uncollected sales. As SMEs cannot afford to be taxed on money they have not received and may never receive, the current tax code also has the unfortunate effect of forcing SMEs to hide many of the invoices they send to their clients and to subsequently hide the revenue they receive under these invoices from the tax authorities. The law also deters the extension of credit by small and midsize businesses to their clients because they cannot afford to pay taxes on the cost of goods and services provided to their clients before those clients pay them, so they simply do not extend credit.

3. Reduce or modify the Uniform Social Tax and the Pension Fund contributions included therein for midsize businesses.

The Unified Social Tax and Pension Fund Contributions tax low and middle management salaries too highly. The tax is 35.6 percent on the lowest salaries and remains too high (between 22.26 percent and 14.58 percent) on management-level salaries of 30,000 to 60,000 Rubles per month. The tax is much more reasonable on higher salaries above 93,000 Rubles per month, when it drops to 10.39 percent and continues to lower with higher salaries until it is less than 5 percent. In general, these rates are simply too high for SMEs, contributing to their engagement in employment tax reduction schemes that hinder transparency and tax collection efforts, and resulting in reduced levels of protection for their employees. Another major problem with the Unified Social Tax is that not everyone is allowed to use the regressive rates (that get smaller as the salary increases). Many companies are forced to use the highest rate (35.6 percent) for all employees. The tax should be set at a reasonable level on low and management level salaries and restrictions on using regressive rates should be removed.

B. SME Registration Requirements

We recommend simplifying registration requirements for SMEs and individual entrepreneurs.

1. Remove prohibitions on home address registration for businesses.

Many small businesses begin in the home and need to register companies before they rent their offices and production facilities. A registered address should be an address where correspondence addressed to the company will actually get to someone at the company and where third parties can officially serve notice to a company (whether or not it is actually located at that address). The current system of refusing to register a company to a Moscow home address and of requiring an "official" business address with "proof" of its use by the company often forces SMEs to purchase false legal addresses. These false legal addresses are typically in locations that have nothing to do with the actual location of the business, where correspondence does not get to company representatives or shareholders. Since the current system is incapable of monitoring whether "official addresses" are real addresses and since it often forces citizens to lie about where their businesses are located, a simpler system that allows citizens to be honest and list a real contact address (such as their home or their lawyer) would be a great improvement.

2. Remove special registration and tax requirements for independent entrepreneurs with low income levels.

The current system makes it a criminal offense to engage in entrepreneurial activity without registration. Yet the registration and tax filing processes are so arduous that many citizens simply engage in entrepreneurial activity without registration, and are subsequently forced to hide their income from tax authorities. A simple solution is to allow small, independent entrepreneurs to work without requiring any special registration, and to allow them to pay their income tax like private persons. A change in the law should be considered that would waive registration requirements for entrepreneurial activities of sales of less than 1 million rubles per quarter (if the entrepreneur does not wish to deduct expenses from income). We suggest that the current level of 1 million rubles per quarter is the right level of income to use as the cut off after which registration becomes necessary.

3. Reduce the difficulty of obtaining VAT exemptions for independent entrepreneurs.

Most businesses that pay VAT and applied for a VAT charge exemption (as provided by article 145 of the tax code) have experienced serious problems with obtaining an exemption. In most cases the tax authorities intentionally delayed or avoided issuing exemptions on the grounds that the applicant did not provide documents proving sales of less than 1million rubles in the last three months. The practice of granting VAT exemptions to small business and individual entrepreneurs should be changed to allow authorities to grant exemptions based on taxpayer statements that they satisfy the conditions for exemption. The authorities should have a right to review the person or entity after the exemption is issued and to penalize applicants for improper use of the exemption.

C. Labor Code Provisions

We recommend exempting SMEs from some of the more arduous provisions of the Labor Code that are designed for large enterprises.

1. Review employee severance procedures for SMEs.

SMEs have few resources at their disposal and cannot afford to have workers who are unproductive, unmotivated or provide an unsatisfactory job performance. The current Labor Code is designed to protect the jobs of people who work in large enterprises but it is very poorly suited to SMEs. SMEs typically have small teams of people that are highly dependent upon employee interaction and intangible skills, and having the right employees is often the difference between success and failure. The current Labor Code makes it difficult or impossible for SMEs to fire employees who are not right for the company or whose presence hinders the growth of the company.

2. Change overtime pay requirements for SME employees to match or exceed federal minimum wage.

SMEs often require people to work overtime. Employee turnover at SMEs is cost prohibitive due to a lack of time and money for recruiting and training new employees. As a result, SMEs typically offer salaries on a fixed basis that are intended to include compensation for overtime wages, and are often higher than the federal minimum wage plus overtime. The current system of requiring overtime pay to be based on the imputed hourly wage of an employee's salary does not recognize the fact that SMEs already factor the cost of overtime into employee salaries. The application of this law results in prohibitively high rates of overtime pay for SMEs. As a result SMEs are forced to ignore the overtime requirements of the Labor Code, or to resort to devices which often hinder transparency and impinge on employee rights. We recommend that SMEs be allowed to establish a flat salary (including overtime compensation), as long as that salary meets or exceeds the federal minimum wage (salary plus overtime).

D. SME Interaction with Administrative Agencies

SMEs spend an inordinate amount of time ? in relation to their available resources v attempting to understand and comply with administrative regulations, and responding to administrative inspections and demands for information. The time, extra staff costs, business interruption, and payment of bribes add up to a significant burden and cost unique to small businesses. This burden discourages SMES from starting their operations and stunts their growth.

1. Improve administrative regulations.

Administrative codes are unnecessarily complicated and confusing. Many contain thousands of regulations, making it is almost impossible for a small business to understand and comply with them. Some codes are not in tune with today's technological standards. For example, sanitation standards require larger room sizes and unusual equipment and construction specifications that add to costs and have little to no bearing on improved sanitation.

We recommend mandating a full review of existing administrative codes by establishing and empowering a Review Commission that is independent of the agency charged with enforcement (but includes such agencies' representatives) and whose members include mandatory participation by private sector representatives. Such review should (i) reduce and simplify the codes, (iii) bring the codes in line with today's world technological standards for each regulated industry and (iii) clearly prescribe the sanctions to be levied and procedures to be followed in event of violation.

Understandably, this type of administrative review is a long process. We also recommend taking the following steps to improve the situation in the short-term.

2. Provide information about a company's rights with regard to administrative inspections.

There currently exists a lack of precise information about (1) rights of the inspector and administrative agency, (2) what a company must provide to an inspector, and (3) the rights of the company in the context of an inspection (i.e., company's "Bill of Rights"). Agencies should be required to publish a simplified and abbreviated version of their code that does not require a staff of lawyers to be understood (small businesses simply cannot afford such resources). Each agency should also be required to publish and distribute to businesses under their jurisdiction a company's "Bill of Rights," prescribing (i) the rights of the inspector and administrative agency, (ii) what a company must provide to an inspector, (iii) the rights of the company in the context of an inspection, (iii) the company's rights in the event of a violation, and (iv) the company's rights to administrative review and appeal of any sanctions.

3. Reduce number of administrative agencies with authority over businesses and restrict agency access to company information for unrelated purposes.

We recommend a reduction in the compliance/inspection burden imposed on small businesses by (a) reducing the number of administrative agencies with jurisdiction over a company, and (b) reducing the number of agencies with the right to close a business. This would also result in a reduction of the excessive duplication of information businesses are required to provide to multiple agencies.

In the absence of restrictions, some administrative agencies' exercise the right to conduct "fishing expeditions" for information unrelated to a business's own compliance obligations. For example, Tax Police have been known to take a company's customer lists to search for tax evaders. The result is that customers often refuse to give businesses adequate contact information, leaving businesses with no way to be in contact with customers for legitimate business needs. While recognizing that the Tax Police's broader objectives are important, we maintain that businesses should not have to bear the costs in time and lost revenue opportunities.

4. Create clear, transparent standards for inspections.

Business are harassed and disrupted by constant surprise inspections from multiple administrative agencies with overlapping jurisdiction, by lack of awareness of the rules and regulations with which they must comply, by seemingly ever-changing rules of which they have no knowledge, and by arbitrary interpretations of regulations that vary from inspector to inspector, prefecture to prefecture, and region to region.

There also exists overly broad discretion in the hands of administrative inspectors, including: (1) the right of several dozen agencies to close a business for relatively small violations, rather than a system that limits the ultimate remedy of closure to truly onerous violations, and, in any case, provides appropriate due process, either by review in advance or through an accelerated appeal process, to protect against abuse of this severe remedy; and (2) the right to levy a broad range of sanctions for violations, rather than applying specifically prescribed sanctions for specific violations.

5. Avoid arbitrary or selective enforcement by treating all businesses equally.

In addition, most business owners can cite numerous examples of competitors who are more favorably treated because of their relationships or payment of bribes. In particular, small businesses believe they are more strictly treated than larger businesses because they are easier targets (i.e., they have fewer resources at their command to either arrange preferential treatment or fight against unfair treatment). Foreign businesses believe they are more actively targeted because they are generally more transparent and, instead of being rewarded for such transparency, they are punished.

6. Reduce agency abuse of power.

SMEs believe that abuse of power by administrative officials is widespread. A recommended solution is to target the fundamental root of the problem, as follows:

(a) Institute a system of sanctions to be levied personally against the administrative official guilty of abuse of power, to include a range depending on severity of abuse (e.g., warnings, fines, demotions, loss of job, civil and criminal penalties).

(b) Establish and empower with real authority a Business Rights Ombudsman to receive, investigate, and act on complaints of abuse of authority.

(c) Include protections against intimidation or retribution for business making complaints against administrative officials.

VII. Judicial Reform

We commend the Presidential Administration of Russia in promoting the judicial reform that is underway in the Russian Federation. The reform is, on the whole, a very positive step and is applauded by the business community. The changes that have been proposed are aimed at adequately reflecting economic realities in the Russian Federation and providing an efficient protection for the rights and legal interests of both Russian and foreign companies.

Yet many issues remain. For example, the courts of common jurisdiction should be prohibited from accepting stockholder suits filed at the place of residence of the plaintiffs, as well as issuing injunctions arresting corporate assets.

Of greatest concern to the business community is the need to resolve business disputes through mechanisms that are reliable, effective and trusted. There are, broadly speaking, three areas:

• Litigation in Commercial (state arbitrazh) Courts
  
• Commercial Arbitration (referred to in Russian as "treteyski sud")
  
• Commercial Mediation (amicable settlement of disputes)

A. Litigation in Commercial (State Arbritrazh) Courts

Currently the State Duma is discussing amendments to the draft of the Russian Federation Code of Arbitrazh Court Procedure, adopted in the first reading on April 11, 2001. This draft, which was introduced by the Russian Federation High Arbitrazh Court, defines general objectives for the reform of arbitration court proceedings; however, some of these objectives are disputable. The concerns and recommendations of the business community are reflected below.

1. Appeals Process

Of paramount importance is to change the way court rulings can be appealed. The draft of the Code of Arbitrazh Procedure retains one of the most disputed provisions in the Russian jurisprudence: both trial and appellate litigation are conducted by the same arbitrazh court. Due to a number of reasons, such as identical authority of judges in trial and appellate courts, interchangeability of judges in trial and appellate courts, significant dependency of regional arbitrary courts on local authorities, and impossibility to react fast when the appellate court makes a ruling to arrest judgment on the merits, it is necessary to exclude the appellate court from the arbitration procedure. Often, appeals are used to delay trials on the merits, which contradicts the principles of fast and fair litigation.

It is necessary to significantly reduce the duration of trials and decrease the workload for appellate judges so they can participate in trial courts. It will result in a higher quality of litigation and eliminate the moral issue judges deal with when they have to review judgments made by their fellow team members.

2. Legal Status of Prosecutors in the Arbitrazh Court Procedure

The draft of the Code of Arbitrazh Procedure significantly limited the prosecutor's participation in the trial v the prosecutor is no longer the reviewing authority. At the same time, the draft concedes that companies can use prosecutor's office authority in their commercial interests. Very often prosecutors file suits against government enterprises and organizations in favor of private companies. Notably, prosecutors are exempted from paying the state fee, which allows persons in whose favor the suit is filed, to save money.

The law should list a limited number of persons, in whose interests the prosecutor's office has a right to file a suit. It will make it possible to eliminate the problem of abuse of prosecutor's authority when commercial organizations take their cases to court. It will also increase budget revenues from the state fee.

3. Recusal of Judges

We disagree with the recusal procedure described in the draft of the Code. According to the draft, the decision to recuse an individual judge or a panel of judges is supposed to be made by this very individual judge or panel of judges. Therefore, if the judge is biased and is not willing to apply for recusal, there is no efficient leverage for the parties to affect the court decision in the process of litigation. It would be much more rational and practical if the decision on the judge's recusal and partiality/impartiality was made by an unbiased and independent person. We propose to give this authority to the chairperson of the arbitrary court and the chairperson's deputy, the chairperson of the appropriate board.

4. Parties' Representatives

The draft of the Code of Arbitrazh Procedure establishes requirements for parties' representatives in the litigation. However, these requirements unfoundedly narrow down the circle of persons who have a right to represent parties in the arbitrazh court and abuse companies' rights. For example, deputy general director has no right to represent company's interests in litigation as a party, due to the fact that he/she does not have legal education. All persons, who have a right to represent the company in the arbitrazh court, i.e. all employees of the legal department, should be accredited by the arbitrary court. The draft of the Code entrusts the Russian Federation Supreme Arbitrazh Court Plenum with the authority to set the rules of accreditation for parties' representatives. This expansion of the Plenum's authority is also unfounded. We propose to cancel the requirement about mandatory legal education for parties' representatives, because on many issues, accountants and other specialists can represent their company's interests in court. Accreditation rules contained in the draft of the Code are not provoked by practical necessity and, in essence, they unfoundedly limit the right for court defense.

5. Limit Judicial Review of Commercial Arbitral Tribunals

The draft of the Code defines the roles of arbitrazh courts and commercial arbitral tribunals in the execution of justice. The correlation of these roles is extremely important for the protection of parties' rights and interests in civil litigation. The draft of the Code of Arbitrazh Procedure does not solve the issues affiliated with the commercial arbitration clause obligation and the right to appeal the ruling made by the arbitral tribunal. In our opinion, entrusting arbitrazh courts with the reviewing authority over commercial arbitral tribunals, particularly entrusting arbitrazh courts with the right to confirm or overrule decisions made by commercial arbitral tribunals, abuses lawful interests of legal entities and individual entrepreneurs and has to be excluded from the draft. The violation of the condition on the final and conclusive decision made by the commercial arbitral tribunal that is usually established in the arbitration clause not only does increase the duration of commercial arbitration proceedings, but also makes it virtually inefficient.

Provisions on commercial arbitration that are contained in the draft of the Code cover not only regular and ad-hoc commercial arbitral tribunals in the Russian Federation, but international arbitration as well.

Besides, the draft of the Code contradicts the Russian Federation Law On the International Commercial Arbitration, which fully accords with a number of international conventions and UNICITRAL Arbitration Rules ratified by the Russian Federation. We believe that entrusting Russian arbitrazh courts with the reviewing authority over international arbitration courts will repel foreign investors and create obstacles for the protection of interests of foreign organizations operating in the Russian Federation and domestic companies operating abroad.

The proposals described above have been forwarded to the Legislation Committee of the State Duma, where they have received support from a number of Duma deputies. The second reading for the draft Code of Arbitrazh Procedure is expected in April.

B. Commercial Arbitration ("treteyski sud")

Key reform recommendations:

• Adoption of the draft law on domestic arbitration ("treteyski sud").
  
• Support efforts to improve the record of enforcement by Russian Courts of foreign arbitral awards and compliance with the New York Convention on the Enforcement of Foreign Arbitral Awards.
  
• Adopt legislation to clarify which Russian courts are competent to enforce arbitral awards.

C. Commercial Mediation

Private companies (both Russian and foreign) as well as jurists and legal scholars have expressed a strong interest in undertaking a formal initiative to increase the use of mediation in commercial disputes. Commercial mediation is a method of arriving at consensual outcomes for business conflicts by using a trusted neutral, trained mediator. Mediation is increasingly used with great success in western economies, and amicable resolution of disputes is in fact a long-standing feature of Russian culture. Increased use of mediation in a business context would yield quicker and more interest-based outcomes, reduce judicial caseloads, and enhance long-term business relationships.

Influential Russian business leaders, as well as senior members of the arbitrazh courts and international arbitration bodies, are working with legal and academic groups in Russia and the U.S. to develop a permanent Russian institution to provide the education and expertise needed for the sustainable development of such practices. An explicit statement of encouragement for these efforts from the highest levels of both the Russian and American governments would be a costless and, one hopes, influential boost for these efforts.

Two key goals should be pursued:

• Support the private sector-led initiative to develop a Russian dispute resolution center in Moscow that will support and promote commercial mediation; and,
  
• Adopt legislation that would support and encourage the use of commercial mediation.