Medvedev's U.S. Trip Boosts Effort to Reset Economic Ties

Dmitry Medvedev and Barack Obama will try to jump-start economic links this week as Russia’s president travels to Silicon Valley and Washington, building on improved political ties after the U.S. “reset” relations.

Medvedev travels to California tomorrow to meet with technology leaders, including Google Inc. Chief Executive Officer Eric Schmidt, as he seeks to build a Russian Silicon Valley. Medvedev goes to Washington for talks with Obama on June 24. The presidents will also meet with company bosses such as Jim Albaugh, CEO of Boeing Co.’s commercial airplane division.

Since Obama called for a reset in relations with Russia last year, the countries have signed a nuclear arms reduction treaty and agreed to increase cooperation in Afghanistan. Russia also supported a U.S.-led proposal for sanctions against Iran. Both the Kremlin and White House say Medvedev’s visit is a chance to push that cooperation into the sphere of business.

“We’ve made progress on political and security issues of late and now we have a chance to make a parallel progress on some very important economic issues, an economic reset,” Robert Hormats, U.S. undersecretary of state for economics, energy and agriculture, said June 17 in an interview at the St. Petersburg International Economic Forum.

The $18.4 billion of trade between the U.S., the world’s biggest economy, and Russia, the largest energy exporter, doesn’t reflect the potential relationship between the two countries, Russian Economy Minister Elvira Nabiullina said.

Not ‘Mafia Central’

The U.S. is Russia’s eighth-largest trading partner, with crude oil, aluminum, titanium and fertilizers accounting for more than 80 percent of the goods shipped to the U.S., according to ministry statistics.

“We are interested in accelerating investment cooperation,” Nabiullina said June 17 at the St. Petersburg forum. “We are interested in attracting U.S. direct investment for modernizing and diversifying our economy.”

Medvedev must convince U.S. investors they can make money in Russia and the state will protect their interests, said Chris Weafer, chief strategist at UralSib Financial Corp. in Moscow.

“He needs to leave the U.S. having firmly planted the notion that Russia is, after all, not the mixture of Orwell’s vision of 1984 and Mafia Central that many Americans think it is,” Weafer said.

Diversifying Economy

The Obama administration has suggested calling this week’s visit “a summit of innovation,” Foreign Minister Sergei Lavrov said June 19.

The 44-year-old Russian president has made diversifying away from energy exports and improving the investment climate his primary policy goals. He named billionaire Viktor Vekselberg and Craig Barrett, former CEO of Santa Clara, California-based Intel Corp. as co-chairmen of his plan to build a technology hub in Skolkovo, outside Moscow.

U.S. technology companies will pledge to participate in the Skolkovo project during the Silicon Valley visit, billionaireVekselberg said June 19 in St. Petersburg.

Emerging from a meeting with Medvedev in St. Petersburg, Barrett said Intel and Chicago-based Boeing are interested in Skolkovo. Vekselberg said talks are also underway with Google Inc. of Mountain View, California, Microsoft Corp. of Redmond, Washington, and Cisco Systems Inc. of San Jose, California.

‘Sharpen His Resolve’

“I suspect he will learn something, see some good examples there that will help to sharpen his resolve,” Barrett said of Medvedev’s trip. “Whether that visit does something back here in Russia I think you just have to wait and see.”

As Medvedev moves on to Washington, Boeing is expected to sign an agreement to sell more than $3 billion of 737s to Russia, Alexander Shokhin, president of the Russian Union of Industrialists and Entrepreneurs, said in a June 17 interview. Shokhin heads a delegation of businessmen who will meet with their U.S. counterparts and both presidents June 24.

The CEOs of energy producers OAO Gazprom and OAO Lukoil, as well as metals companies OAO GMK Norilsk Nickel and OAO Novolipetsk Steel will accompany Medvedev to Washington, Arkady Dvorkovich, the president’s economy aide, told reporters today.

Moscow-based Russian Technologies Corp., which controls an alliance of six domestic carriers, this month chose Boeing to supply at least 50 narrow-body planes. Boeing will announce new initiatives for Russia during Medvedev’s visit, Dvorkovich said.

Sergei Kravchenko, head of Boeing’s operations in Russia, declined to comment on any future deals.

WTO Talks

Russia is also seeking U.S. participation in the development and production of a heavy-lift cargo plane, an idea Medvedev raised during Obama’s visit to Moscow last July. The government needs funding and customers to resume production of the Soviet-designed Antonov-124, which carries outsized cargo for anyone from the military to pop stars.

The project could become “the largest cooperation effort between the two countries since the International Space Station,” Alexei Fyodorov, CEO of Moscow-based United Aircraft Corp., said in a June 16 interview.

The U.S. would have to lift restrictions on access to technology for a project of this scale to succeed, said Shokhin of the Union of Industrialists.

Medvedev has repeatedly said he is counting on the Obama Administration to support Russia’s bid to join the World Trade Organization after 17 years.

For a real improvement in trade prospects, the U.S. must drop the Jackson-Vanik amendment, said Mikhail Margelov, chairman of the Foreign Affairs Committee in Russia’s upper house of parliament. The 1974 measure, which penalized the Soviet Union for restricting emigration of Jews, still prohibits Russia from receiving most-favored-nation status.

“This amendment is somewhat anecdotal given the visa-free regime with Israel,” Margelov said. “Its abolition should be tied in with Russia’s entry in the WTO.”

To contact the reporter on this story: Lyubov Pronina in Moscow at lpronina@bloomberg.net

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