For Immediate Release
Office of the Press Secretary
May 24, 2002

Background Briefing by a Senior Administration Official on Trade and Commerce
National Hotel
Moscow, Russia

5:14 P.M. (Local)

MS. BUCHAN: Good afternoon. We're about to begin our first background briefing. I think you'll recognize our briefer. I think he'll begin with a couple remarks, and then be happy to take your questions.

SENIOR ADMINISTRATION OFFICIAL: Good afternoon, on this historic day, historic occasion. I actually arrived several days ago. I arrived and went straight to St. Petersburg. I flew into St. Petersburg early Tuesday morning. This is my third trip to Russia. I've actually been to Russia more than I've been to -- or as much as I've been to Midland, Texas, in the last 10 months or so.

Q A wise choice.

SENIOR ADMINISTRATION OFFICIAL: Well, I don't know about that. Listen, I love that place. But I care a lot about Russia, too. And we're focused on it, and I'm focused on it. I will continue to travel to Russia.

But this trip I had the opportunity to go to St. Petersburg and on down to the Samara region. And in St. Petersburg, I had a chance to see some of the results of the growing economic partnership between our two countries, like going to the Ford plant that will open in a couple of weeks -- $140 million investment by Ford -- and sit down with some of the workers there over lunch, and see the excitement on their face, what a difference it was going to make in their lives to have a facility like this in their city to manufacture these new cars.

So that was the opportunity to see real things happening to real people in this economy. I went from there down to the Samara region. I had a chance to -- the Samara region is where GM is investing over $300 million in a manufacturing facility that they will open in September of this year. And also, I was there because the Ex-Im Bank had provided some sub-sovereign loan -- they provided a sub-sovereign loan guarantee to support the export of some Case-New Holland farm equipment, tractors, actual flow harvesters, to the Samara region, 142 pieces of farm equipment that were there and had arrived. And I had actually been in the manufacturing facility in Racine, Wisconsin, and so I closed the loop by going to Samara and seeing them arrive there.

But again, having a chance to talk to some of the farmers that were going to be using these tractors. What it was going to do to their yields on their farms and what a difference it was going to make in production for their farms in that region. And so real things happening.

And then yesterday, I had the chance to witness the signing of the Exxon platform contract to the -- with the Amur Shipbuilding Company. It's a $140-million contract. It's another step in Exxon's ongoing commitment to explore and develop Sakhalin-I. And so you're starting to see some real things happening.

When I came here 10 months ago and first met with -- it was actually my second meeting with Minister Gref, we said, look, we've got to focus on a set of issues of things we want to accomplish so that we can create the right conditions to increase the partnership, the economic partnership, relationship, commercial, trade, investment and otherwise between our two countries, and here's the list.

And we put on the list 13 issues that we wanted to focus on. And they're WTO, and start a Russian-American business dialogue, and look at market-based economy status, and develop a banking dialogue working group to help reform the banking system here, and judicial reform working group. And so it gave us something to measure ourselves against. Are you making progress? Are you accomplishing real results? Are you creating the kind of conditions that you need to create to encourage trade and commerce and investment? And I would say, yes, we are. We're not there yet. They know there's lots to be done, but look at what's happened in the last 12 months. There has been tax reform, there has been land reform, there has been judicial reform. And it needs to move its way down through the local governments. It needs to move its way down through the -- and the cities and throughout the country.

But are they headed in the right direction? It's clear, in my view, that they are. There's a growing sense of confidence in the belief that they're headed in the right direction. I hear that from the business community, is who I hear it from. When I come talk to Am-Jam and those that are out there writing the checks and investing the money and taking the risk, what I hear from them is, yes. The environment has improved a great deal. There's still uncertainty, there's still some risk. There's risk anytime you invest capital. But what I hear more often now from the business community is not, should I invest in Russia, but how do I invest in Russia.

So I see positive momentum. I see that the effort that really this administration began some year ago, when the Presidents expressed mutual trust for each other -- which is fundamental to making this work, which is fundamental to accelerating the process, which is fundamental to accomplishing positive things -- I see that mutual trust kind of relationship that these two Presidents have, moving down through out societies and working at the levels in the private sector where private sector individuals sit across the table from each other American Dream work with each other and trust each other and figure out ways to do things with each other, form partnerships and joint ventures.

So I'm one that's very optimistic about the future, but also very realistic, knowing there's still a lot of work to be done, and knowing that we've got to continue to build on the results and show even greater results in the future.

And one area, before I go to questions, real quick that I should touch on is an area I'm familiar with, which is energy and what an important role Russia will play and what an important role energy will play not only in the development of this economy, but in the global economy. They -- Russia has some 40 percent of the natural gas reserves in the world. They have vast oil reserves here. They will be a very, very important -- they will play a very important and strategic role in providing this world with a stable, secure supply of energy. The growth in the Russia oil production in the last couple years has been about equivalent to the increase of global demand of oil in the world.

So it's very clear that they will play this country will play a strategic role, an important role in the future growth of this global economy because we all know how interlinked energy and the economy are. And we will look for ways to cooperate in the area of energy. We will look for ways to form joint ventures. We will look for ways to share our knowledge.

And, in saying that, you know, we have a lot to learn from Russia. I mean, there's incredible human capital here and great minds here. So what we're going to find as we work closer together and in partnerships and joint ventures, we're going to learn a lot from each other. So we will be encouraging the development of the energy sector in Russia in every way that we can. We're going to, in fact, host an energy summit this fall that will be hosted by co-hosted by Minister of Energy, Minister of Trade and Development from Russia, and Secretary of Energy and Secretary of Commerce from the United States. It will be a place to bring focus to the importance of our energy cooperation.

And we'll also be putting a lot of emphasis on how important it is to develop a transportation system through market forces and free market forces. Let the markets decide where the pipelines should be built. Let the markets make the decisions, how it's going to be most efficient way to get oil into the global market.

The President, I know today in his press conference, mentioned the Baku-Jihan pipeline. That's one. There seems to be some capital that's ready to go into the construction of that pipeline. But there will be many more. I mean, there are -- that is going to be one of the big challenges is going to be developing the transportation infrastructure to move these resources, these vast energy resources into the global marketplace.

Let me stop there and, sure, fire away.

Q How much do national security interests play into what you're doing, the idea of developing exports for Russia, other than the traditional exports of arms technology and nuclear technology?

SENIOR ADMINISTRATION OFFICIAL: Yes. No, I think it's got to do with the economic security of the world. I think it's energy and the economy are integrally linked, they're connected. It's a matter of the important role Russia will play in the stable, secure supply of energy in the global marketplace.

As I said, I think that -- that there's going to be a big challenge just to develop the infrastructure to get it into the global marketplace. But you look at the increase in production of Russian oil in the last couple of years, 1.5 million barrels, that's been an incremental increase in world oil demand.

Q I didn't mean to limit it just to oil, I mean overall in the economy -- develop exports that are an alternative to the traditional exports --

SENIOR ADMINISTRATION OFFICIAL: Yes, I think there is reasons to believe you'll see that in the future. I mean, you look at Sakhalin I, Sakhalin II, Sakhalin III, there's vast resources in Eastern Russia. You look at the proximity of those fields to the proximity of Alaska, or the western part of the United States. You can start to envision a market that would suggest that maybe it -- you would be moving energy from that part of Russia to the western part of the United States. I mean, I don't have that laid out, I'm just saying that I think it's market forces that will determine where the crude oil moves or where the energy moves.

Q Your Russian colleague, Graf said today that Russia will increase oil supplies to the United States in the very near future. Can you indicate what volume of such supplies --

SENIOR ADMINISTRATION OFFICIAL: Well, I don't -- again, those transactions take place in the private sector. You know, the private sector or major energy companies that are marketing crude oil in the United States, that are making decisions about where they purchase their crude oil. And a small -- you know, I know a small percent of crude oil is moved from Russia to the U.S. now. But part of it is just the lack of deep water ports. Part of it is to get the ships in that are large enough to make a haul from the Russia area to the United States economical. I mean, in some of the lifting ports right now, they're shallow water ports, you can only get smaller tankers in there. It doesn't make economic sense to move that smaller tanker all the way to the United States, in most instances.

Q Following up with some Graf comments, he also suggested today that he expects a new agreement from cold-rolled steel by September. Can you confirm that, and can you tell us here that it will mean greater access to Russia steel producers to the American market?

SENIOR ADMINISTRATION OFFICIAL: Well, we had a very good discussion about steel. I know he's sending his team of experts to the United States. This is the next week or two, we're going to sit down and talk about our steel agreements. There are several that they would like to discuss. Under the comprehensive agreement, we are obliged to discuss those agreements with them, and we will do that. We will see what the outcome is. But we're certainly more than -- we certainly will honor our responsibility, obligations on our comprehensive agreement to sit down and discuss those agreements, and see if there is room for us to make any modifications. It might help this industry here, without causing a surge in our industry that would be harmful -- in our country that would be harmful.

Q The joint declaration that the two Presidents signed today commits your Department to make final judgments by, I believe it's June 12th, on whether or not Russia is a market economy.

SENIOR ADMINISTRATION OFFICIAL: Fourteenth, right.

Q The 14th -- excuse me. Assuming that the answer is yes, what would be the practical effect of such a declaration?

SENIOR ADMINISTRATION OFFICIAL: Well, I'm not going to go there. I've just -- I don't want to -- you can take a look at other, I guess, cases, but I don't want to -- I'm going to let the decision be made and then we'll be in a position to talk about the effects that it will have or won't have.

Q I'm not asking for your judgment about what the decision will be, I'm just asking for what it would do --

SENIOR ADMINISTRATION OFFICIAL: It gets -- yes, part of what happens, is it gets -- it's how we deal with our trade laws, our anti-dumping and countervailing duty laws. There's a different methodology that is used in the calculation of tariffs under our trade laws, if you're a market economy or a non-market economy.

Also, when you deal with another region of the world under market economy status, you work directly with industry. When you work with another region of the world under non-market economy status, you work with the government. So, you know, that's another difference.

Q Opens up industry to industry --

SENIOR ADMINISTRATION OFFICIAL: It opens up industry to our government discussions.

Q Are tariffs lower for a market economy?

SENIOR ADMINISTRATION OFFICIAL: Hard to say.

Q Is this connected in any way with WTO accession? Will this pave the way for the Russian WTO accession?

SENIOR ADMINISTRATION OFFICIAL: You know, we're very supportive and we're working with Russia for WTO membership. We think it's very important. And we'll continue to work with them on that. I think that -- I'll just let that one -- I'll just leave that one there.

Q Can you say what you'll be looking at specifically between now and June 14th most carefully to evaluate and make that decision? And second, in discussing Russia's future as a strategic oil supplier, you see the day where Russia becomes an alternatives to, say, Saudis as a swing producer?

SENIOR ADMINISTRATION OFFICIAL: Well, a couple of things. One is, I think we passed out a fact sheet on market-based economy administrative process. And it's got the principles, the statutory guidelines by which that decision is based. It is administrative, regulatory process. It's the decision made in my department, or made in the Department of Commerce. And it's based on currency convertability, it's based on free bargaining on wages. I mean, there's a list that you can go down.

But one of the points that's important to make, this is an open, transparent, public process. And it started in September of 2001. And we closed the public record on it in early April of 2002. And during that period, parties from all sides had the opportunity to come in and make their case and present their views, and present information and present data. And so we've collected a tremendous amount of information during that open, transparent, thorough deliberative process. And after you close the record, then there is a time period to review all of that. And so that's what's been going on for the last couple of months. And we've decided that we'll be in a position to make a decision on this on or before June the 14th.

Q -- and on the --

SENIOR ADMINISTRATION OFFICIAL: Yes, again, I try to -- what I said earlier is just how I feel. Look, it's Russia will be important to the global energy market. They will be in this is a very important supply of energy to the global energy market to make sure the global energy market is secure, there's an affordable supply of energy out there.

It is a commodity and it moves out into the world market and is handled like a commodity. There are buyers and sellers and they enter into an agreement and, you know, here is the price at this point. And so, you know, are they important? In terms of the global economy, yes, very much so. Are we a part of the global economy? Sure we are.

So in that sense, you know, it's very important that we do what we can to support the development of these strategic and important oil reserves.

END 5:40 P.M. (Local)