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Russia: Turmoil Pinches U.S. Trade Partners

Bellingham, 21 September 1998 (RFE/RL) -- Russia's ailing ruble and virtually moribund banking system have all but halted what had been a rapidly growing trade partnership export companies on America's Pacific Coast.

"The door is completely shut," says Mike Jaffe, whose meat exporting business in Seattle has been forced to suspend its regular shipments of meat products to the Russian Far East -- six shipping containers in just the last two weeks.

Jaffe says the shutdown is "devastating" for his company.

Alexander Blakely, an editor for "Russian Far East Update," a Seattle-based journal specializing in U.S. trade with that region, says Jaffe's company is no isolated incident. Blakely tells RFE/RL that "everything has sort of frozen up," and "a lot of companies have put their business (with Russia) on hold."

Underlying this suspension is uncertainty, the nemesis of trade, where relationships are based on trust and, not least, on the assurance that you will be paid for the services you perform and for the products you provide your overseas customers. That assurance has disappeared with the collapse of Russia's under-developed banking system along with the fall of the ruble.

U.S. Pacific coast states have already been hit hard by the dramatic drop-off of exports to countries caught up in the Asian financial crisis. So this lost Russian business has really increased the pain for the states of Alaska, Oregon and Washington.

Washington state, which counts more heavily than any other state on foreign trade, expects to lose at least $200 million in tax revenues over the next two years, reflecting the anticipated lower profits on which businesses pay state and federal taxes.

In releasing the lowered state forecast last week, state budget chief Dick Thompson said it is "the first clear sign that world events are catching up with us" -- including, besides Russia's instability, the slumping economies across Asia and in South America.

Not all Washington companies trading with Russia are as vulnerable as Mike Jaffe's meat-export business, however. Others are more diversified, spreading their risks.

That's the case of Bob Walsh Enterprises. This company has been active in both Russia and Georgia for several years now.

In Russia, where it markets vitamins and homeopathic remedies, chairman Richard Dortch says "we are taking a wait-and-see attitude."

By contrast in neighboring Georgia, he says, business is thriving. After the initial years of divisive rebellion following the breakup of the Soviet Union and independence, Georgia has emerged with a solid currency in the lari and a functioning banking system. As a result, Dortch says, Bob Walsh Enterprises is moving ahead with its investments in Georgia, which include a luxury hotel, building offices and developing a dairy operation to produce top-quality ice cream in a renovated Soviet factory. All these projects benefit from Georgian partnerships.

As a result, Dortch says, the company's Georgian operations will soon surpass its suspended Russian business. But he adds that he expects the Russian market to rebound eventually.

The current halt in trade does show, however, the extent to which Russia, in the half a dozen years since the collapse of the Soviet Union, has become a part of the global marketplace.

The present hard times do not necessarily jeopardize all Western trade for those companies able weather the "storm" and take a longer view of the future. That's because Russia remains blessed in natural resources.

John Harlowe, who heads a Seattle-based shipping company called Jore Group, looks toward the eventual opening of the Sakhalin oil fields, even though his plans to develop business in Russia are on hold. That's because Harlowe knows that the oil is not going to stay beneath Sakhalin forever. To him, he says, this is not a matter of "if" but of "when."

Even in the short term, some Washington traders appear to be maintaining their Russian partnerships. "Puget Sound Business Journal" reports that the fall fishing season in the Bering Sea and North Pacific is starting on schedule, despite what the weekly newspaper calls the "catatonic" Russian banking system. The reason that is possible, according to Steve Hopley of Marine Resources Company International in Seattle, is that the partners do business by trading fish rather than selling them.

Says Hopley: "We're not doing that much business in rubles."