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Business Watch: March 19, 2002


19 March 2002, Volume 2, Number 11
OIL & GAS
SLOVAKIA SELLS SPP STAKE TO GERMAN-FRENCH-RUSSIAN GROUP (14 March)
The government of Slovakia has agreed to sell a 49 percent stake and management control of the key Russian-Western European gas link, Slovensky Plynarensky Priemysel (SPP), to German-French-Russian group for $2.7 billion. A consortium of Gaz de France, Russian Gazprom, and Germany's Ruhrgas, the sole bidder in the privatization, will assume the management of SPP, which moves 70 percent of the Russian gas used in Western Europe, Reuters reported. SPP serves 1.3 million Slovak gas customers and manages pipeline operations. Slovakian opposition parties have tried to quash the deal, claiming the $2.7 billion price-tag is too low. The privatization is a crucial pillar to the government's economic platform. The sale hit its latest snag when the leftist SDL party, a member of the five-party governing coalition, delayed approval. The government finally agreed to the deal at an extraordinary session on 14 March. Prime Minister Mikulas Dzurinda told journalists, "After the sale, SPP will be stronger and more profitable, with all preconditions to achieve further business, higher [gas] transits, which will positively influence the development of the whole economy, including contributions into the state budget." Dzurinda said the deal should be signed shortly, while Ruhrgas spokesman Helmut Roloff told Reuters the consortium can meet with the government on 18 March. "As far as I know, we will sign the deal with the government on Monday [18 March], and then our people will consequently meet with people from SPP to start talks on the takeover and further strategy," Roloff said. The closing of the deal is expected around the end of April. (JMR)

BUSINESS ALERT
LUKOIL CONSIDERS CONVERTIBLE BOND (6 March)
Russia's largest oil producer, LUKoil, is considering a $300 million convertible bond offering toward year-end, Reuters reported. Speaking at a conference in London, LUKoil's head of business development, Andrei Kochetkov, said that LUKoil's ambitions for overseas acquisitions have been dimmed by a dip in profits. He added that the company is not actively searching for a merger. "Maybe at the end of this year [2002] we should have about $300 million convertible [bond issue] perhaps to refinance obligations of a second tranche of obligations maturing in 2003," he said. Kotchetkov said LUKoil wants to grow its reserves strongly and has designs on acquiring overseas refining capacity but is constrained by capital. (JMR)

VIETNAM AIRLINES INTERESTS IN U.S. AND RUSSIAN BASES (8 March)
Vietnam Airlines has expressed an interest in using two bases in Vietnam dating back to the Vietnam War for civil aviation, according to "Thoi Bao Kinh Te Saigon (Saigon Economic Times)." Vietnam Airlines' General Director Nguyen Xuan Hien said the airline is interested in the U.S.-built airfield at Cam Ranh Bay, the U.S.-built Chu Lai airstrip near the city of Danang, and the Russian naval base at Cam Ranh. Hien said putting the strategic base to civilian use is in line with a recent Foreign Ministry announcement that Vietnam will not lease it to any foreign country in future and will use it to exploit its economic potential. Hien said the Civil Aviation Administration of Vietnam and the Ministry of Defense have voiced their support for the Vietnam Airlines' proposal. He said putting Cam Ranh to civilian use does not mean military use will not be possible, as all airports in Vietnam serve military and civil aviation. (JMR)

GM TO PRODUCE IN RUSSIA IN 2003 (12 March)
General Motors Corporation (GM) has announced its plans to produce 35,000 cars a year by 2003 with AvtoVAZ, Reuters reported. It aims for these Russian-made cars to be exported to Western Europe by 2005. GM said in June it had signed a $332 million joint venture deal with AvtoVAZ to build a factory producing Niva off-road vehicles southeast of Moscow. GM Vice President David Herman told reporters at the Adam Smith Institute's Russian Automotive conference in Moscow, "We will produce 450 vehicles this year, rising to 35,000 by 2003, and by 2005 we expect 30,000 a year to be sold in Western Europe." GM is investing around $100 million in the project, and the European Bank for Reconstruction and Development (EBRD) is making a $40 million equity investment and extending a $100 million loan. At full capacity, the new factory will be producing 75,000 cars a year, up to 40,000 of which will be for export. Herman said GM plans for exports to go through bankrupt South Korean firm Daewoo's sales subsidiaries. GM is currently in talks with Daewoo's creditors to buy core assets for $400 million. Herman predicted a rise in Russian car ownership, from the current 107 vehicles per 1,000 people. "Our forecast is that Russia will grow faster than the world market in general and thereby increase its share of the total world market. That makes Russia one of the eight or 10 most-important development opportunities for the future." The GM and AvtoVAZ vehicle will sell for $7,500 in Russia and $14,896 in Western Europe in 2003. (JMR)

RUSSIAN BUSINESS ABROAD
RUSSIAN BUSINESSES INVEST IN 'CIVILIZED COUNTRIES' (13 March)
Troika Dialog has estimated that the total sum of investment from Russia amounted to $3 billion last year, "Argumenty i fakty" reported on 13 March. Examples include LUKoil's $246 million investment during the first nine months of 2001, which is nearly twice as much as in 2000. LUKoil bought shares of Getty Petroleum Marketing for $70 million. LUKoil has also launched a joint venture with Italian firm Agip on mining in Egypt, which will reap higher revenue than the mines on Sakhalin Island. Slavneft is securing its position in Sudan; Rosneft is opening mines in Columbia; and Gazprom invested $600 million in a reservoir engineering venture in Iran. Yukos plans to invest 4 billion rubles in Central Europe by 2005, which is 200 times more than what it would cost to reactivate all old oil wells in Russia, creating nearly 20,000 new jobs, the newspaper reports.

The article in "Argumenty i fakty" pointed out that a number of reasons account for Russian investment abroad. It notes that business in Russia is conducted by Russian employees, at a Russian pace, on Russian equipment, with a high likelihood of the need to bribe officials. A Troika Dialog analyst said, "It is quite natural that our companies prefer to work in civilized countries. Even in Greece and Bulgaria, the legislation is clearer and more convenient for business than in Russia. And in the United States everything is explained in detail. A businessman is not likely to face any unexpected problems there." He noted that Russian businessmen "earn their money in Russia and invest in plants and factories abroad and then they place their income abroad too." (JMR)

ECONOMIC NEWS & BUSINESS STATISTICS
RUSSIA CONSIDERS BOND ISSUE (7 March)
Russia may issue 15 billion rubles' ($484 million) worth of 2005-07 bonds in the second half of 2002 to soak up liquidity and restructure some paper in the Central Bank's portfolio, according to Deputy Finance Minister Bella Zlatkis. She told Reuters that the bond issue would give investors a repository for loose rubles. "These would be OFZ bonds issued at market yields," she said. "But they will be issued only if the government and the central bank find it useful to regulate market liquidity this way...and the government finds it appropriate from the point of view of macroeconomic balance." The move would also allow the government to avoid spikes in its ruble-denominated debt-redemption schedule. Russia's domestic debt market is illiquid because many commercial banks are reluctant to invest in government securities that offer yields below the rate of consumer inflation. But Zlatkis said the government is not lacking for funds after a budget surplus last year equivalent to 2.9 percent of gross domestic product (GDP). She reiterated the ministry's view that bond yields should offer a premium of 2-3 percentage points over inflation to encourage the development of a domestic debt market. (JMR)

RUSSIAN BUDGET POSTS TWO-MONTH SURPLUS (12 March)
The Russian Finance Ministry reported that Russia posted a budget surplus in the first two months of 2002 of 33.3 billion rubles, or 2.3 percent of GDP, Reuters reported. According to preliminary data, budget revenues were 303.8 billion rubles in the January-February period with expenditure at 270.5 billion rubles. The figures represent 14.3 percent of the government's annual revenue target and 13.9 percent of its spending goal. The sound fiscal performance in the first two months of the year comes on the heels of a budget surplus of 2.9 percent of GDP in 2001 and is one of the main reasons behind improving investor perception of the country. Russia is aiming this year for its first-ever planned surplus of 1.63 percent of GDP. Russia's economy is heavily dependent on oil prices. Russia will have to be vigilant to maintain its fiscal success if oil prices slide. Each dollar drop in the price of crude means $1 billion in lost revenues. The country's 2002 budget is based on revenues of 2.13 trillion rubles and spending of 1.95 trillion rubles. (JMR)

RUSSIA, BELARUS HARMONIZE TAX AND CUSTOMS LAWS (12 March)
Russia and Belarus on 12 March agreed to harmonize their tax and customs laws, remove all trade barriers, and unify energy prices by April, Reuters reported. Russian Prime Minister Mikhail Kasyanov said the agreement brought the union between Russia and Belarus a step closer. After meeting in Minsk with Belarus officials, he said, "We want these documents to be worked out by 1 April and to take effect from 1 April, or soon after." Kasyanov said the planned measures will help improve the business climate in Belarus. He said Belarus will cancel all privileges for domestic producers while Russia will set single prices for oil, gas, electricity, and railway shipments for the two countries. Moscow and Minsk will also unify their customs duties and tax systems. The government of Russian President Vladimir Putin has been more cautious of the union, first proposed under former President Boris Yeltsin and Belarus leader Alyaksandr Lukashenka. Putin has said more must be done to integrate the two countries' economies. (JMR)

UPCOMING CONFERENCES
U.S.-EURASIA TOURISM CONFERENCE (6 March)
A U.S. government-sponsored conference in Istanbul will focus on tourism development in Eurasia on 29-31 May. The event will help match U.S. companies with tourism infrastructure projects in 12 Eurasian countries. The conference will provide participants with information on large-scale projects involving roads, airports, railways, hotels, resorts, parks, monuments, and other cultural heritage sites. Plans for tourism-related water-treatment plants, power plants, and telecommunications networks will also be featured. The combined value of projects to be presented at the conference is expected to exceed $350 million. Organized by the U.S. Trade and Development Agency (TDA), in cooperation with the U.S. Department of Commerce, the conference will highlight opportunities in Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine, Uzbekistan, and Turkey. (JMR)

POLITICAL ECONOMY
U.S. PRESENCE MEANS ECONOMIC GAIN (11 March)
"Nezavisimaya gazeta" reported that the U.S. presence in Central Asia and Georgia can be interpreted as part of a traditional policy of seeking economic gain. The newspaper said that the initial reason for U.S. troops, to fight against terrorism, will be followed by an aim to gain control over energy resources in the Caspian and beyond. Armen Khanbabyan writes in an article titled "Dismantling Of Russia Will Be Carried Out Vertically" and published on 11 March that this will lead to the progressive weakening of Russia by the end of the decade while the U.S. prepares for a mid-century confrontation with China. He also stated that, "It is no secret to anyone in Georgia that it will soon be used by NATO aircraft to bomb Iraq and Nagorno-Karabakh." He continued, "It may be confidently assumed that the ultimate goal of the worldwide operation in the fight against terrorism is the establishment of control not so much over new territories as over the fabulous energy resources of the Caspian region, the Transcaspian, and preferably Iraq and Iran, too." Khanbabyan said the U.S. presence in Georgia is aimed at securing the region and thus the transport of Caspian oil to western markets via the Baku-Tbilisi-Ceyhan pipeline. He added that the weakening of Russia will lead to the division of the country on a "meridian" or "vertical" principle because of its enormous geographical length, so that "Russia is transformed into an amorphous confederate structure."(JMR)

BELIEVE IT OR NOT
FASHION SHOW IN PANKISI VALLEY (11 March)
On 10 March, Maka Asatiani staged a fashion show titled "The Beginning of the End for Terrorism" in Georgia's Pankisi Valley. The catwalk for 12 models was located in front of the last Georgian police checkpoint in the valley. Itself was a mock roadblock, the catwalk was complete with real soldiers and two armored personnel carriers. On the catwalk, metallic dresses with tails and wings, faux-fur kimonos, and tall black hats with earflaps delighted some in the audience. Asatiani owns boutiques in Paris and Moscow. The show was estimated to cost $45,000, Reuters reported. Asatiani, dressed head-to-toe in camouflage fatigues, was delighted. "The clothes are very emotional," she said, breathlessly. "So we needed a hot place like this, like Pankisi."

Attending the fashion show were local villagers, some 300 representatives of Tbilisi's fashion community, Georgia's interior and culture ministers, Chechnya's unofficial envoy to Tbilisi, and other senior political figures from throughout the region. Some 200 police provided security at the show and along the bumpy three-hour drive from the Georgian capital, Tbilisi. President Eduard Shevardnadze declined an invitation, saying that he was busy. The United States is sending up to 200 special forces troops to train Georgians to restore order in the gorge, which has acquired an international reputation as a hideout for Chechen rebel fighters, Islamic extremists, and Al-Qaeda fighters. (JMR)

WHAT'S UP? WHAT'S DOWN?
GOLDEN TELECOM REPORTS PROFITS (5 March)
Russian telecoms provider Golden Telecom's net loss widened in the fourth quarter of 2001 due to a heavy charge, while revenues were hit slightly by a lower take in Ukraine. Russia's largest Internet service provider reported growth in core earnings as margins on long-distance and Internet services widened, however. Earnings before interest, taxes, depreciation and amortization (EBITDA) rose to $10 million in the fourth quarter, from $7.4 million in the previous three months, Reuters reported. Troika Dialog telecoms analyst Tom Adshead said that without a $31.3 million write-down on Internet and Ukrainian mobile assets, Golden Telecom would be profitable. Golden's consolidated net loss deepened in the fourth quarter to $29.7 million from $1.9 million in the previous quarter after an impairment charge. "The severely reduced expectations in demand for Internet advertising in Russia, as throughout Western markets, have impacted the value of our portal assets, and we have written these down by approximately $20.9 million," Golden Telecom Chief Financial Officer David Stewart said in a statement. "In addition, operating difficulties are impacting our Ukrainian mobile division and we have written down those assets by approximately $10.4 million." (JMR)

GAZPROM REPORTS FALL IN NET PROFITS (13 March)
Russian gas monopoly Gazprom has released figures according to international accounting standards, showing that its nine-month pretax profit rose and tax charges dragged down net profits. Net profit fell 15.7 percent to 32.35 billion rubles ($1.0 billion) for the nine months ended 30 September 2001, from 38.38 billion in the same period the year before, Reuters reported. Pre-tax profit rose to 168.78 billion rubles from 130.45 billion, the company said in a statement. Gazprom, which sits on a third of world gas reserves, is the biggest contributor to Russia's budget. The company said it had negotiated a restructuring of its tax liabilities last year, helping boost pre-tax earnings, but significant taxes on profits pulled down its net income. Sergei Glaser, an analyst at Alfa-Bank in London, explained, "The deferred-profit-tax expense doubled from the previous year, so despite the fact that pretax is up, the increase in non-cash charges has eroded net profits." Gross revenue rose 2 percent to 443.71 billion rubles for the nine months. Gas sales were 365.98 billion rubles versus 368.57 billion, which included export gas sales of 257.67 billion against 257.02 billion a year ago. The company said it is still suffering from the fact that it has to sell gas to Russian domestic consumers at discounted rates and wait a long time for payment. James Fenkner at Troika Dialog calculated that Gazprom paid 30 percent taxes. (JMR)

LITHUANIA MAY RAISE 2002 GDP FORECAST (12 March)
Lithuanian Finance Minister Dalia Grybauskaite told Reuters on 12 March that the nation may soon raise its estimate for economic growth for 2002 from 4 percent, which was set in November. She said the ministry will recalculate growth at the end of March or the beginning of April. The minister said this could mean an upward adjustment of "maybe half a percent or 1 percent" to the forecast for GDP, although it is still too early to say for sure. Grybauskaite said domestic demand is increasing fast, particularly in housing. She pointed out that trade with former Soviet countries has offset weaknesses in the western markets. Lithuania's exports are nearly balanced now with around 50 percent going to the former Soviet Union and 50 percent to the European Union. "The slowdown in one balances out the growth in the other," Grybauskaite said. (JMR)

PROFILE
BORIS BEREZOVSKY: A NEVER-ENDING FAREWELL TO RUSSIAN POLITICS
For months, self-exiled tycoon Boris Berezovsky has been Russian President Vladimir Putin's fiercest opponent. While living in France and now in London, he has leveled accusations and predicted Putin's demise -- all the while claiming plans to return to Russia as soon as an opportunity presents itself.

As he stated in an interview with "Komsomolskaya pravda" on 12 February, Berezovsky will be back to Russia as a political player, not a businessman. He says that "one of Russia's biggest losses in the past two years is the color spectrum of life." Because of Putin, Berezovsky claims, "instead of bright, extraordinary people [brought to the government by former President Boris Yeltsin], a throng of gray people is taking over." Berezovsky says that "Russians must be grateful to Yeltsin because he taught them freedom." Putin, however, chose a dangerous, totalitarian political course for Russia, Berezovsky told BBC on 28 December. Moreover, Berezovsky claims, Putin has lost his chance to change Russia's political course. "After choosing an authoritarian road, Putin does not have any choice but to become absolutely authoritarian," Berezovsky stated. Meanwhile, "the West and especially the Western political elite totally underestimate the threat that Russia, as an authoritarian and basically totalitarian country, may bring," NTV quoted him as saying on 8 January. "Fighting with Putin, I am just standing up for my own beliefs. I enjoy this fight because I do not betray my principles or myself," Berezovsky told "Komsomolskaya pravda."

Berezovsky was born in Moscow in 1946 as a citizen of Russia. According to "The Jerusalem Post," Berezovsky and his family were granted Israeli citizenship in 1993. Berezovsky completed a course of studies in mathematics, and followed with graduate school at Moscow State University. He is the author of over 100 scientific works, including some published in the U.S., England, Germany, and France. "I was a successful scientist," he told "Komsomolskaya pravda." "I defended my candidate of science dissertation at the age of 27 and my doctor of science dissertation at 35. I worked for one of the most prestigious research institutes in the USSR.... As far as prestige is concerned, there was just one step to the top -� to become an academician."

After more than 10 years in research and applied engineering, Berezovsky and Samat Zhaboyev established LogoVAZ in 1989. In a few years, the company moved to the forefront of the Russian private sector with a 1993 profit exceeding $250 million. In 1994, LogoVAZ undertook restructuring and became a holding company with Berezovsky as board chairman. In the same year, he established and headed the All-Russian Auto Alliance. In 1995, Berezovsky participated in the creation of Obshchestvennoe Rossiiskoe Televidenie (ORT, Russian public television) and became a board member. In 1996, Berezovsky was elected to the board of Sibir Oil Company (Sibneft). In the same year, he was also appointed by then-President Yeltsin as a deputy to Security Council Secretary Ivan Rybkin, National News Service (NNS) reported.

In 1995, Marshall Yevgenii Shaposhnkiov was appointed director general of Aeroflot. Shaposhnkiov was considered a close personal friend of President Yeltsin's, and he soon appointed Berezovsky's partner from the LogoVAZ Group, Samat Zhaboyev, as his financial and commercial Director. Shaposhnikov also appointed the former deputy director of the AvtoVAZ plant, Nikolai Glushkov. Sources from Aeroflot at the time described Glushkov as the representative for Berezovsky who really ran the show. These sources were convinced that Berezovsky was responsible for most of the decisions being made. They also indicated that a space was specially designed for Berezovsky in the Aeroflot building and that he regularly attended board meetings. The management of Aeroflot reported at the time their belief that Berezovsky was at least equal to Shaposhnikov. Later, this involvement would lead to criminal charges being brought against Berezovsky. On 2 February, officers from the Tax Police and the Federal Security Service (FSB), on the instruction of the chief prosecutor's office, raided car distributor LogoVAZ, oil company Sibneft, Russian national carrier Aeroflot, and ORT's public television stations -- each of which has financial connections to Berezovsky. On 5 March, Berezovsky was sacked from his post as executive secretary of the Commonwealth of Independent States (CIS) "for regular actions [that] overstep the powers of CIS executive secretary and for failing to fulfill the instructions of the chairman of the Council of the Commonwealth heads of state," Yeltsin stated.

The clash between Berezovsky and then-Prime Minister Yevgenii Primakov echoed the struggle between business/capitalism and politics/communism being played out in the business arena. The actions taken by the government in raiding Berezovsky's businesses came on the heels of critical articles about Primakov published in Berezovsky's media outlets.

In 1997, Berezovsky was appointed to join a federal commission on Chechen issues. In November 1997, Yeltsin fired Berezovsky from the Security Council on the grounds that he was "taking over another post." In 1998, in a televised interview, Berezovsky stated, "The Communist Party should be banned because it leads the vanguard of those who try to limit the opportunities for people based on their national origin and political preferences." According to RIA-Novosti, in 1998 Berezovsky was on "Forbes" magazine's list among the 200 richest people in the world. His assets were estimated at $3 billion. In 1999, as the executive secretary of the CIS, Berezovsky proposed a concept for restructuring the CIS and streamlining the activities of the CIS Economic and Executive councils.

In 1999, Sibneft offices were searched for the first time by the prosecutor-general's staff. An investigation was launched into the activities of the private security agency Atoll, which was allegedly spying on senior governmental officials. According to some media allegations, Atoll was financed by Berezovsky. A few days later, Aeroflot's offices were also searched, and LogoVAZ began to experience related problems. In 1999, the Russian State Duma unanimously voted "to release Boris Berezovsky from the position of the CIS executive secretary." In November 1999, Berezovsky registered as a Duma candidate from the Karachai-Cherkessiya Republic and won a seat in the Russian legislature. According to RosBusiness Consulting, in July 2000 Berezovsky resigned from the Duma because he said deputies were not cautious enough over "the radical political changes introduced by the president" and because the government openly and purposefully campaigned "against the interests of Russian big businesses." In October 2000, Berezovsky stated that he would continue working in the media business. Moreover, he stressed, "I will do my best to keep mass media free from the [control of the] government," NNS reported.

A talented financier, Berezovsky calculated the precise impact of the media in gaining and holding on to power. With this in mind, Berezovsky never missed a chance to add a TV channel, newspaper, or publishing house to his assets, "Profil" reported on 23 February. When opening ORT in 1995, Berezovsky was in charge of its financial issues. He was absolutely ignorant of the TV business but absorbed information like a sponge, his ORT colleagues said of him. According to ORT's 1998-99 director, Igor Shabdurasulov, 51 percent of ORT shares were to be controlled by the government and 49 percent by the shareholders. This 49 percent stake was gradually taken over by Berezovsky. According to "Profil," in 1996, ORT played a decisive role in the outcome of the presidential elections, and in 1999 it helped raise the popularity of then-Prime Minister Putin. After voicing his criticism against President Putin, Berezovsky began to lose influence and, within a few months, "he basically handed over his 49 percent of ORT shares to the government," according to "Profil." According to Shabdurasulov, Berezovsky was forced to sell his shares to the companies specifically pointed out by the government. All these companies happened to be affiliated to another oligarch, Roman Abramovich.

Shortly after acquiring ORT, Berezovsky offered to sponsor "Nezavisimaya gazeta," which had been struggling with financial difficulties for years. As a result of that deal, Berezovsky received 80 percent of its shares while another 20 percent went to the publishing team. According to "Profil," the fate of Berezovsky's "Kommersant" is uncertain. Some contend that after crushing TV-6, the government will do the same to "Kommersant" as one of Berezovsky's last bastions.

Berezovsky acquired TV-6 in the spring of 1999, when the channel's founder, Eduard Sagalaev, sold his 37.5 percent stake to the oligarch. It is not known how Berezovsky acquired his majority, but for some years he was a de facto owner of two TV channels. Giving "all his love and passion" to ORT, Berezovsky neglected TV-6 until he lost ORT. Ever since, he has invested money and lots of effort into TV-6. A minority shareholder, LUKoil-Garant, using a pretext of financial losses, filed and won a lawsuit aimed at the liquidation of TV-6.

Once untouchable, Berezovsky's media empire is now in disrepair. Having lost the opportunity to express himself through his media outlet in Russia, the ex-oligarch remains politically active, or at least highly audible in the West, warning about the potential threat that Russia might bring as it sinks into authoritarianism. But the Putin administration appears to have successfully blunted the sting of Berezovsky's message. (TSK, PMJ)

IN FOCUS
RUSSIA BANS U.S. POULTRY (13 March)
On 10 March, Russia imposed a ban on U.S. poultry due to concerns about the quality of the meat. U.S. Secretary of State Colin Powell discussed Russia's ban with Russian Foreign Minister Igor Ivanov the same day. Russia insists that the ban on poultry was not retaliation for new duties on steel imported to the U.S. Russian First Deputy Agriculture Minister Sergei Dankvert said in Moscow that the Russian ban, imposed after tests revealed 16 cases of salmonella, is unlikely to be lifted for at least 60 days. Meanwhile, U.S. State Department spokesman Richard Boucher said, "We would hope that the scientific experts that we've sent to Moscow will enable them to reach the correct judgments on a scientific basis." A 12-member team from the U.S. Agriculture Department, the Trade Representative's Office and the Food and Drug Administration started talks on 11 March in Moscow over the ban, which Boucher has characterized as groundless, Reuters reported. In testimony given to the U.S. House Appropriations Subcommittee on Agriculture, U.S. Agriculture Undersecretary J.B. Penn said, "There is absolutely no merit in claims by Russia about [the] quality or safety of our product." He labeled Russia's concerns "trumped up" charges.

On 12 March, Russia said it wanted to revise a number of poultry supply agreements with the U.S. so as to give its veterinary inspectors more power in the approval process. "We have given American inspectors the right to control the quality, and this does not work," Dankvert said. "And if this does not work, we must change it." He declined to elaborate on the changes that Russia might be seeking.

The ban has started to affect the U.S. poultry and feedmeal industries. U.S. analysts have expressed fears the ban could result in a decline in U.S. soymeal and corn prices, if poultry producers there are forced to cut output, reducing demand for feed. Half of U.S. poultry exports are destined for the Russian market. Poultry accounts for 20 percent of total U.S. exports to Russia, according to the U.S. Trade Representative's office. Last year, about $640 million worth of U.S. chicken and poultry, mainly low-cost chicken-leg quarters, were sold to Russia. These quarters are known as "Bush legs" because they were popularized during a food aid program under former President George Bush. In a news conference on 13 March, current U.S. President George W. Bush said, "We've got to get this chicken issue resolved and get those chickens moving from the United States into the Russian market."

Richard Lobb, a spokesman for an industrial group in the U.S., the National Chicken Council, noted that Russian officials in recent months "have advertised their interest in limiting the amount of [poultry] product coming into the country" through higher tariffs and quotas. Russian Agriculture Minister Aleksei Gordeev told a news briefing that the Russia consumer will not suffer from the ban because Russian "stocks of poultry meat are currently sufficient, so we don't have to worry about a deficit."

Reports are trickling out that the U.S. actions on steel are the result of intense lobbying by the U.S. steel industry. More than 30 plants have closed based on their presumed failure to compete economically in the domestic and global marketplace. This can only be a temporary measure to turn around an industry in crisis. (JMR)

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