Mr. Chairman:
I appreciate your invitation to testify today about developments in Russia and U.S. policy toward that country. I would like to affirm from the outset my strong conviction that neither the Administration nor our colleagues in the Congress can afford to formulate our analysis or our policy regarding Russia as though Russia exists in a vacuum. Our policy, indeed, is and needs to be part of an American vision, and policy, for all the Newly Independent States that emerged from the Soviet collapse, and of our nation's broader, interest-based goals for Europe, Asia and globally. Further, we share a responsibility to bring realism and objectivity to assessments of events and their implications for U.S. interests. We will at our peril allow outdated ideologies or misplaced hopes to rule our judgments at a moment with great opportunity and great risk for American interests.
In this spirit, I would begin by recalling that for the last five years -- I might say for just the last five years -- the geopolitical space inhabited by the former Soviet Union -- over 1/6th of the planet -- has been occupied by 15 independent states, engaged each in their own way, in the historic struggle to transform their societies from communist totalitarian rule to a future of freedom and responsibility for their own future. This transformation has provided and continues to provide us both opportunities and risks. The opportunity is clear: nothing less than turning former adversaries -- in Russia as well as the other Newly Independent States -- into full members of the family of democratic nations with whom we can cooperate and compete to advance shared interests and manage differences in a constructive, civilized and respectful manner. That is the key to making sure that no major threat to the safety of Americans or to our national security ever again arises from this area, and that American interests and values can be protected and promoted in cooperation with these new nations as we begin a new century.
There is a precedent for success in this vision. In the upheaval and chaos that followed World War II, enlightened policies which guided our decisions and actions as a nation opened the way for foes to become close allies and for old divisions to give way to integration. There is also precedent for failure. In the aftermath of this century's first great war, a spirit of revenge and isolation led to an intensification of hatreds and divisions that cost the lives of millions and brought incalculable destruction to two continents. If ever there was a missed opportunity, it was then. Our challenge today is to avoid that mistake and to rise to the challenges met so courageously at the end of World War II.
To achieve this goal will require all Americans to show the courage to remain steady in pursuit of our vision and realistic in defining our interests and policies. Even as we try to consolidate and broaden the basis of our cooperation with that Russia, which seeks to become a full member of the regional and global family of industrial democracies, we recognize that forces there also continue to challenge this idea and that consensus about Russia's future course remains elusive. In this context, our interests lie in seeking areas of cooperation with Russia where we can, managing differences where we must, and keeping foremost the bedrock of American interest.
Our policy toward Russia, as toward the other Newly Independent States rests on five enduring American interests:
-- First, we seek to limit and reduce the Cold War nuclear arsenal and other weapons of mass destruction, and to ensure proper control of their constituent components; this is the most urgent national security task of the post-Cold War era and the task most immediately tied to the safety of every American citizen.
-- Second, we are encouraging and helping Russia and the other eleven countries to democratize and develop market economies. This is in fact the prerequisite to the integration and future prosperity of Russia and the other Newly Independent States.
-- Third, we seek to encourage the integration of these countries into international political and economic institutions, and to construct a durable security structure for Europe;
-- Fourth, we are promoting the development of stable, cooperative relations among the Newly Independent States based on the principles of equality, independence, security, and the development of comprehensive ties with the international community. The collapse of centralized imperial rule from Moscow has opened the opportunity for these young states to achieve a future of democracy and freedom. But without regional peace and security and an end to conflicts and rivalries from the past, that goal will remain in danger. Regional peace and the political settlement of conflicts are a vital U.S. objective if we are to prevent flare-ups and new threats to regional or global instability from this area.
-- Finally, we seek to advance the interests of American business, investment, and trade throughout the Newly Independent States. We are confident in this that America's private sector is government's strong partner in encouraging and supporting positive change.
Fortunately, none of these American interests inherently contradicts or is incompatible with what we believe are the fundamental interests of Russia and the other NIS. Yet the legacy of Cold War ideological rivalry, the tensions and uncertainties linked with the political and economic collapse of communist rule and empire, and the natural difference in perspective and interest that attend relations between great powers leave no room for complacency. This is particularly true of our policy toward Russia.
While our policy is set for the long haul, it requires constant tending and interaction with Moscow. The next major event in this process is President Clinton's March 19-20 meeting with President Yeltsin in Helsinki. As both President Clinton and President Yeltsin begin their second terms, the Helsinki meeting assumes key importance for the opportunity our leaders have to shape and revitalize the capacity for Russian-American cooperation. It is a meeting which also must address some of the most difficult and sensitive issues of national interest and security on the eve of historic events in Europe and decision each of our nations is about to make concerning future defense and security policies. With a NATO (North Atlantic Treaty Organization) summit on enlargement of the Alliance set for July, we would like to use the Helsinki meeting to further strengthen our relationship with Moscow and set the course that will take it into the next century.
U.S.-RUSSIA STRATEGIC RELATIONS
Russia and the United States carry particular responsibility for the Cold War nuclear arsenal. Reducing the stock of weapons of mass destruction and preventing the proliferation of these weapons and their constituent elements remains a central and vital part of our relations. Since the end of 1991, we have cooperated successfully with Russia in this area to:
-- achieve agreements by which Ukraine, Kazakstan, and Belarus transferred all of their nuclear weapons to Russia (where they are in the process of being dismantled) and by which they joined the NPT (Nuclear Non-Proliferation Treaty) as non-nuclear weapon states;
-- extend the Nuclear Non-Proliferation Treaty indefinitely; and
-- negotiate a Comprehensive Test Ban Treaty, where Russia helped in particular to frame the scope of prohibition and the key elements of the verification regime for nuclear testing.
Since 1992, approximately 1.2 billion dollars in assistance provided under the Nunn-Lugar Cooperative Threat Reduction program has facilitated the safe destruction of nuclear systems -- including the destruction of over 900 nuclear missile launchers, the safe dismantling of forces and infrastructure, and the secure storage of nuclear weapons and fissile materials. These are tangible steps, achievements of joint action which with each month make Americans and Russians just that much safer from nuclear conflict and open the way, we hope, for steadily broadening cooperation. In that regard, it is with real satisfaction that I can report we have extended this program to chemical weapons destruction. In fact, the CW destruction facility being built by the U.S. is designed to destroy almost 14 percent of the Russian CW stockpile. This cooperation will enhance our capacity to encourage prompt Russian ratification of the Chemical Weapons Convention and destruction of Russian CW stocks as the Administration sends the CWC to the Senate shortly for ratification.
Beyond the challenges of dealing with the weapons of the Cold War, the U.S. and Russia both face new threats and dangers from the proliferation of technologies and capabilities that can place weapons of mass destruction in the hands of hostile states and potentially criminal or terrorist elements. In this environment strengthening controls on the large amounts of civil and military nuclear materials in the former Soviet union, and preventing them from reaching terrorists or rogue states like Iran or Libya, is a central American national security objective. In pursuit of this goal, we have established under the auspices of the P-8 members a program to prevent illicit trafficking in fissile materials. We are today working with Russia and other P-8 members to implement and strengthen the effectiveness of all aspects of this important program. American experts using American assistance funds and American know-how are at work with Russian counterparts to increase materials protection, control, and accounting at civilian facilities in the Newly Independent States where fissile materials are stored, a critical program in preventing the seepage of such materials into illicit channels.
In addition, we are successfully implementing the U.S.-Russia agreement to purchase Highly Enriched Uranium (HEU) from dismantled nuclear warheads. Already reactor fuel derived from at least 18 tons of HEU has been delivered to the U.S., and all arrangements are in place for delivery of another 130 tons over the next five years. We have agreed with Russia's authorities to institute far-reaching transparency measures for this agreement that greatly enhance our confidence that the material we are receiving is in fact the product of weapons dismantlement.
So, the record offers encouragement. Yet, encouraging as these steps are, there remain areas where we and Russia differ over programs and where we have very different perceptions of interest and risk. A key example is the major difference we have with Moscow over its contract to supply nuclear power reactors to Teheran. The United States believes that this sale will help Iran develop infrastructure and expertise that could advance Iran's nuclear weapons program and thereby pose a threat to the national security of the United States, Russia and Russia's southern neighbors. We continue to raise this issue at the highest levels. In response, Russia has agreed to limit the scope of its cooperation with Iran in the nuclear area and not to include in the sale uranium enrichment technology, which would facilitate Iranian efforts to develop nuclear weapons.
We will continue to press this issue with the Russians as we make equally clear that we expect Russia to abide by its commitment not to undertake any new arms sales to Iran. We have likewise voiced concerns about Moscow's arms sales to Cyprus and other destinations.
DOMESTIC REFORM
The emergence of democratic, market-oriented, and prosperous societies in the Newly Independent States is the best guarantee that they will become full-fledged partners of the U.S. and constructive players in the international arena. We therefore have joined with Congress to support the transition of Russia and the other NIS to a pluralistic, market-based society.
DEMOCRATIZATION
In political terms, we know only too well what Russia is moving away from, what the Soviet system represented in the past. The July presidential election gave a clear indication that a large and growing majority of the Russian people want no part of that communist past. We and most Russian citizens can be less certain of where Russia is heading.
Some of the signs are positive. Russia has made substantial strides toward a pluralist, democratic, constitutionally based political system. Few today will contest that real politics shape the environment for governance in Russia at all levels of government. Strongly contested elections deemed by the international community as essentially free and fair have been held for office at every level: one presidential, two parliamentary, and numerous gubernatorial and municipal. The electoral process and the relatively high voter turnout rates themselves represent progress in institutionalizing the idea that the Russian people will periodically have the opportunity to hold their leaders to account and to choose among contending candidates for office.
Of no less significance, a government built on the principle of separated powers and an independent judiciary is gradually taking hold. And the once highly centralized system that concentrated power in Moscow is gradually being replaced by a system of shared and devolving powers that have increased the importance of regional and local government. The Russian media is becoming vibrant and open. It has show a readiness to report critically on government activities -- for instance on the military operation in Chechnya. At the same time, the broadcast media in Russia remain influenced by the government and by a new class of emerging financial magnates. We encourage these media to continue movement toward full and objective coverage of all events.
The Russian government has also demonstrated growing respect for civil liberties. The midnight knock on the door that characterized life in the Soviet Union for too many people is no longer part of the picture. But incidents still occur that give rise to uncertainty. The problems in obtaining registration of the Jewish Agency last year created uncertainties about the commitment by local and central government authorities to unbiased application of the law. The occasional targeting of activists like Aleksandr Nikitin, a former Russian navy captain, accused of allegedly passing state secrets to a Norwegian environmental organization, also raises questions about how stable and strong the respect for civil rights has become.
But perhaps the greatest danger to civil society in Russia today stems from the stark and troubling rise in crime. Along with the positive and historic opportunities created by the collapse of the former Soviet Union, a vacuum of legitimate authority developed that has led to a rapid increase of criminal activity in the NIS as well as new types of criminal activity, such as money laundering and alien smuggling. Crime now poses a major challenge to the political and social fabric of Russian and other NIS democracies in transition. It undercuts the development of fledgling democratic institutions, and can allow criminal groups, rather than the citizenry, to become strong enough to become the ultimate brokers of power. Criminal groups, indeed, represent a type of private economy, but it is a private economy that rejects free market principles in favor of control by force and denies the ordinary citizen access to the benefits of full opportunity. Crime contributes to social instability. It discourages needed foreign investment. Most worrisome is the potential for the citizenry of the NIS to equate crime with the emergence of democratic and economic reform.
We have worked cooperatively with Russia and other NIS for several years now to combat organized and other types of crime emanating from the former Soviet Union. Our programs focus both on the development of rule of law and on law enforcement training. In addition, we are building working relationships between U.S. and NIS law enforcement counterparts which allow us to cooperate effectively on specific criminal cases. We are working also to institutionalize our cooperation through the negotiation of law enforcement agreements that allow us to share information and cooperate in investigations, prosecutions, and the prevention of crime according to internationally accepted standards.
We see some progress. While economic crime is rising, the incidence of violent crime in Russia appears to be moderating. Slowly, Russia and the other NIS are beginning to pass much-needed legislation to form the basis of a rule of law society. Perhaps most importantly, there is now greater recognition at the political level of the disastrous consequences which unchecked crime can have on the development of democracy and on economic development and growth.
In that regard, we especially welcomed President Yeltsin's March 6 statements on crime. The NIS still have a long way to go, however. The keys to further progress in the fight against crime will be the passage of fundamental pieces of anti-crime legislation, the strengthening of implementation and enforcement mechanisms, the development of regulatory and other institutions, and control of corruption. President Yeltsin's commitment in his March 6 State of the Federation address to strengthening the judiciary and the rule of law is a welcome call for priority attention in this area.
Chechnya had been a running sore across the body of Russian reform over the last two years. This Committee is familiar with our policy toward this issue. While supporting Russian territorial integrity, we sharply criticized Russia's, at times, indiscriminate use of force and called on all sides to the conflict to negotiate a political solution. They reached initial agreement last August, which led to an end to the fighting and the withdrawal of Russian troops. Pursuant to agreement between the sides, presidential elections were held in late January. We continue to support the political process launched by the August agreement and the work of the OSCE (Organization for Security and Cooperation in Europe) in Chechnya.
MOVING TOWARDS A MARKET ECONOMY
Russia has also made long strides toward ending the state's monopoly control over Russia's resources and toward a market economy. On the macroeconomic side, the government has managed to stabilize the ruble and tame inflation. In 1996, inflation was down to just 22 percent, a startling contrast to the 2500 percent annual inflation in 1992 and 130 percent in 1995. In January, industrial output and the economy as a whole appear to have grown for the first time in years. Significantly, that is based on official statistics. And these official statistics are generally conceded to understate a significant "gray economy," some of which also contributes to the welfare of the Russian people.
But, as President Yeltsin himself underscored last week, these successes are accompanied by serious problems which require urgent and effective action if the successes are not to be put at risk. The challenge for Russia's leadership at this point is to move from stabilization to growth. To accomplish that, Russia will need to attract investment, both from its own investors and outside. That will require government steps to make Russia competitive in the capital market and attractive as a place for investors.
For example, federal tax revenues fell from about 15 percent of GDP in 1995 to around 11 percent in 1996. This poor revenue performance, which generally worsened as the year went on, led the Russian government to sequester budgeted expenditures -- including payments of salaries and pensions. Sequestration in turn led to concern about social stability and the political viability of continued reform. The situation also induced the International Monetary Fund to interrupt its program on two separate occasions in 1996 and once this year -- temporarily putting the brakes on a monthly credit disbursement of about $340 million. These weaknesses create a sense of vulnerability in the macroeconomic picture which generates uncertainty and discourages investment.
The tax situation is, in some ways, symptomatic of a larger problem that I have already mentioned -- the reluctance of senior GOR officials to take hard decisions during this past political year. To correct the fiscal problems and improve the climate for investment, tax reform is urgently needed. The existing tax system has rates that are simply too high, too complex, inconsistent and shot throughout with exemptions. The result is that evasion is widespread, and U.S. firms tell us that it is the most significant obstacle to doing business in Russia. President Yeltsin's pledge in his recent State of the Federation speech to reform the tax code by simplifying it, eliminating the majority of special benefits, and ensuring a more just tax burden for business people is a step in the right direction.
The picture for privatization is more positive. Today, 60-70 percent of GDP originates with privately owned firms. We also have evidence that shows significant numbers of firms -- particularly those exposed to world market forces -- downsizing work forces, cutting overhead costs and expanding marketing efforts in response to economic forces -- in short, beginning to compete in a real market.
Nonetheless, downsides are evident. New privatization of major firms has slowed to crawl, producing a falloff in expected revenues for the treasury. Moreover, privatization has become too much of an insiders game, seen by many Russians as unduly benefiting those close to power and raising new barriers to U.S. and other foreign bidders. Despite President Yeltsin's decree of early last year permitting farmers to take land out of some of the collective ownership arrangements that currently dominate Russian agriculture, not much has occurred. Legislation establishing clear rights to own private property, including agricultural land would be a large step forward. At the same time, private property legislation would in our view, help arrest, if not turn around, Russian capital flight.
Moscow also needs to recognize its own interests in making its trading system more transparent and consistent with global norms. Trade differences between nations are natural. In the recent past, we have had dust-ups with Russian trade authorities over such things as poultry, vodka and aircraft imported from the U.S. We are encouraging Russia to take steps necessary to accede to the World Trade Organization. This would allow Russia to enjoy the benefits that go with being a full member of the world community of trading nations and also establish mutually accepted trading rules and dispute settlement that will avoid, or at least work to depoliticize, inevitable trading problems.
Corruption continues to obstruct the development of a normal and robust commercial environment in Russia. Corruption is cited by the American and other foreign business communities as one of the chief hindrances to the growth of trade and investment in Russia. As with crime, corruption flourishes in the vacuum of legitimate legal and institutional authority created by the collapse of the Soviet structure. As with crime, the passage of key pieces of legislation such as a law on corruption, contract law, et cetera, will be essential to overcoming this pervasive plague. These labs must be bolstered by strong enforcement mechanisms, regulatory institutions, and arbitration mechanisms. The promotion of the concept of transparency in transactions and the acceptance of codes of conduct for business and government will also contribute to a stronger commercial environment. True change will likely be generational in nature. However, the governments of the NIS must be willing to put in place now the key components to address this serious problem if their economies are to grow and prosper in the future.
ENVIRONMENTAL REFORM
Similarly, we have seen mixed progress on environmental issues. Last year, Russia downgraded its Ministry for the Environment to a State Committee -- an action that we have raised with Moscow as potentially weakening environmental protection. And, Russian environmental actions affect the United States.
Contrary to its commitments under the Montreal Protocol, Russia has continued to produce ozone-depleting chlorofluorocarbons. Russian CFCs threaten crops and human health through weakening the ozone layer and allowing increases in ultraviolet light. They also undermine the multibillion dollar U.S. business investment in developing ozone-safe alternative products and inhibits the growth of overseas markets for these alternatives. Therefore, we are working with the World Bank to complete the phaseout of Russian CFCs.
We have raised the problem of short-term business interests harming the environment. Therefore, we continue to cooperate on a number of sustainable development initiatives to support Russia's long-term environmental and economic health. We also are promoting the business and environmental benefits of energy efficiency as well as the judicious stewardship of natural resources.
Environmental issues also are part of our broader political and economic strategies with Russia. We have invited Russia to participate in the environmental consultations in the run-up to the G-7 Summit in Denver in June. We have engaged the Russian military in bilateral and multilateral fora on environmental projects. We continue to promote "nuclear safety, sound exploitation of oil and gas reserves, and U.S. environmental business opportunities in Russia, among other efforts, as part of everyday engagement with Russia. In response, Russian officials have sought to work with U.S. on finding ways to strengthen environmental protection, but we still have more work to be done.
THE AMERICAN RESPONSE
Our efforts to promote reform and economic growth that will build public support for market-based institutions are not limited to high-level exchanges between our governments. That level of exchange has its place, of course, and we believe it has encouraged new perspectives. A quick look at President Yeltsin's "State of the Federation" message of March 6 suggests that Russian leaders have begun to see problems through the perspectives of the global market system. He focused on the need to build the rule of law, construct an investment-friendly environment and create popular support for reform through proper attention to the public welfare -- in short, to make Russia's a competitive economy, supportive of the Russian Federation taking its place among the industrialized democracies.
Over the past five years we also sent numerous experts to Russia to work with counterparts in a wide range of fields. The work has focused on advancing American security interests, building democracy, creating a market infrastructure, and promoting the elements of a civil society. To data we have provided a total of $4.7 billion in grant assistance to Russia. This includes $2 billion in economic and technical assistance under the Freedom Support Act, $1.7 billion in humanitarian and food assistance -- an early focus of our efforts, $1.0 billion in security and weapons dismantlement assistance under the Cooperative Threat Reduction program. In addition, we support over $6.0 billion of U.S. export and project financing and insurance.
Overall assistance to Russia also has declined from a peak of $1.6 billion in fiscal year 1994 to $95 million in the current fiscal year. In the President's 1998 budget request, we have asked for $900 million in Freedom Support Act assistance for all the Newly Independent States. This sum would permit assistance to Russia to rise to $241 million. The President has also requested $279 million for Russian Cooperative Threat Reduction programs in 1998 and another $129 million for nuclear materials security -- making a total of about $650 million for all types of Russian assistance.
The increase in Russian assistance is targeted on two basic goals -- the restart of robust economic growth and creation of a civil society. Policy drift has eroded the patience of the Russian public and political elites. A standstill on reform has meant missed opportunities. Market interest in emerging economies is atypically high; the Russians could rapidly benefit from positive change in the investment climate. We intend to use our assistance to create a regional investment initiative that will work in a limited number of promising Russian regions to create access to capital and spread market interest further afield from Moscow and St. Petersburg -- the two centers where the market has begun to transform economic life.
The second focus of our effort -- the creation of a civil society -- will assist the Russians in creating the myriad number of political and social organizations that we take for granted. We have to remember that the texture of civil society largely was destroyed over a 75-year period. We want to assist Russians to recreate that civic texture of democracy -- by establishing a long-term broad network of people-to-people exchanges and partnerships. We expect these would be created at all levels -- between academic institutions, professional organizations, community partnerships, joint ventures and cooperative activities in health, energy, environment, science and technology and so forth.
RUSSIAN INTEGRATION
Genuine democratic and market reform in Russia constitutes the basic prerequisite for Russia to take its proper place in the world community of nations. We are working with Moscow to promote this integration at a pace consistent with mutual benefit and real progress in Russia. Russia is already a member of the World Bank, the IMF, the European Bank for Reconstruction and Development, a host of U.N.-related economic bodies and others. I have already noted that we believe it in Russian and U.S. interest that Russia adhere to the World Trade Organization as soon as practicable. Membership in WTO would consolidate Russia's global position as a trading partner and would provide additional strength to economic restructuring internally. Similarly, when Russia can meet the responsibilities of membership in organizations such as the Paris Club and OECD (Organization for Economic Cooperation and Development), we believe Russia and all will benefit from Russian membership and adherence to the responsibilities that membership involves.
EUROPEAN INTEGRATION, EUROPEAN SECURITY AND NATO
While our governments for the most part have shared both a common interest and common goals with respect to economic integration, issues involving the future integration of Europe and Russia's place in that process have frequently been contentious. President Clinton has made it a cardinal priority of the United States that we promote a democratic, undivided Europe as we enter the next century. The United States has worked to ensure that institutions such as the Organization for Security and Cooperation in Europe, the European Union, the OECD and other structures have our support for the contribution they can make to this process. For the most part, we have had Russian cooperation in this effort, and we have agreed on the goal of an undivided, democratic and integrated Europe. On one particular issue, however, Russian views and positions have diverged from the views of the U.S. and its allies. That issue is the place of NATO in the future European security structure and in particular, the issue of NATO's admission of new members.
NATO enlargement is a critical part of the Alliance's efforts to adapt NATO to better address the changed security situation and new security challenges that Europe has faced since the end of the Cold War. When Alliance leaders meet next July in Madrid, they will issue invitations to one or more states to begin accession negotiations. This process is on track. And it will proceed according to the timetable and strategy decided by the Alliance and its members.
Russia has stated its opposition to enlargement. Since the Alliance's announcement in January 1994 of its intentions to adapt and enlarge NATO, Russian leaders have made clear that they view enlargement as a threat to Russia's security. Russian leaders question the necessity of admitting new members into NATO given that the Cold War is over. They have sought assurances that NATO "infrastructure" not be moved into the territory of new member states. They are concerned that the Alliance's military capability not be brought closer to Russia's western border.
The issue of NATO's adaptation and enlargement has been discussed many times by U.S. and Russian leaders. We have told Moscow that our goal is to create a more secure, stable, and undivided Europe hospitable to the interests to all concerned parties. As Secretary Albright said during her first visit to Moscow as Secretary of State, it is no longer a situation of us versus Russia or Russia versus us. She pointed out that NATO no longer has an enemy to the east. NATO's military system is fundamentally different. Its doctrine has changed. Its forces have been reduced. NATO today is configured not to fight the Cold War, but to work with partners, with Russia to build a stable and undivided Europe.
We are continuing a serious dialogue with Russia on how to define the role it deserves in an undivided Europe, in full cooperation with an enlarged NATO. To that end, we are working with the other members of the Alliance to develop more fully Russia's relationship with NATO and to expand our successful cooperation, such as our joint effort in the Bosnian implementation force. We seek to create an overall European security system in which Russia, fully integrated into Europe, plays an important role in helping assure stability and peace in post Cold-War Europe.
This effort to deepen the relationship between NATO and Russia is proceeding on a track parallel to enlargement. While we would welcome significant progress on this track in the months leading up to the Madrid summit, progress on the NATO-Russia track will not influence or affect progress on the enlargement track. Enlargement will proceed as determined by the Alliance; the Madrid summit will go forward. We strongly encourage Russia to work with us constructively on the NATO-Russia relationship over the next few months. But, Madrid is not a deadline. If Russia cannot agree by July, we and NATO will be ready to pick up after Madrid discussions of NATO-Russia cooperation.
RUSSIA'S RELATIONS WITH ITS NEIGHBORS
The emergence of the NIS from the ashes of the Soviet Union has allowed the people of this region to begin to enjoy the benefits of democratic development and independent national existence -- some for the first time in their history. It has also, however, brought forth a host of interstate differences that had been repressed during the Soviet period. These problems include centuries-old ethnic antagonisms, economic rivalries, and an absence of developed, normal state-to-state relations among the NIS.
In this connection, we have worked energetically, but quietly, for the normalization of Russia's relations with its neighbors. We believe our discreet approach has contributed to some notable successes:
-- Russia has withdrawn all its active duty troop formations from the Baltics, save a small, non-uniformed unit dismantling the Skrunda radar installation in Latvia. In accordance with a 1994 agreement monitored by the OSCE, the last Russian troops stationed in the Baltic states have the right to operate the Skrunda Ballistic Missile Early Warning (BMEW) radar until August 1998. According to that agreement, Russia will cease operations on that date and dismantle the radar by February 29, 2000. We continue to support the work of the OSCE in analyzing the progress Russia is making toward this deadline.
-- Working through OSCE and with Moscow, we have cooperated to achieve and maintain a 30-month-old cease-fire in Nagorno-Karabakh. With the U.S. now joining Russia and France in the Minsk Group Tri-Chair, our interaction will grow. We are working to encourage regional leaders to take risks and make compromises for peace. Our experts will meet in Paris (March 17-19) to hammer out a common approach.
Nevertheless, the development of normal relations among the NIS continues to pose challenges to which we and others, including the EU, are working to find solutions and defuse tensions. For example:
-- Russia and the Baltic states continue in an uneasy relationship. Currently, Russia's relations with Lithuania are relatively good, while ties with Latvia are cooler. Relations with Estonia have been more problematic. The prospect of an agreement to resolve border differences between Russia and Estonia appear dim at the moment, having been complicated by public statements from Russia linking its signing of the approved treaty to better implementation of laws pertaining to resident, non-citizen ethnic Russians. I have personally urged in discussions with Russian officials that Russia pursue its human rights concerns through appropriate multilateral channels while taking a pragmatic, non-polemical approach to resolving border issues.
-- Relations between Russia and Ukraine have special significance. We welcome and support the decisive opening by Ukrainian authorities toward full partnership with the U.S. and the West. An independent, prosperous and secure Ukraine will serve as a cornerstone of stability in its corner of the world. At the same time, it is in U.S. interests that Ukraine and Russia enjoy good relations, and we support efforts by both Moscow and Kiev to resolve the differences between them. The Ukrainian-Russian treaty remains unsigned because of differences over the Black Sea fleet. The two countries have also not yet reached agreement on border demarcation, and Russian politicians continue to make provocative statements about Sevastapol.
A critical part of our approach here is to strengthen relations with the NIS. Our active diplomacy with the NIS and our encouragement of reform are designed to promote emergence of strong, pluralistic, prosperous, secure societies.
Economic development is, of course, key to promoting prosperity and stability in the NIS. We believe that finding a way to develop and market the vast energy resources of the Caspian Basin will be critically important for the NIS to Russia's south.
We are encouraging the Caspian Sea littoral states to adopt principles that will facilitate investment and energy development. We also favor the use of multiple pipelines for the Caspian region to provide needed export capacity for these projects. A major goal in this energy-rich area is to foster development of regional resources, to diversify world energy supplies and enhance Western energy security, and to promote U.S. commercial interests. The U.S. is supporting commercially viable export routes of Caspian oil and gas west and south, bypassing Iran, and is encouraging Caspian states to adopt a Caspian Sea legal status that fosters international investment through clear national property rights for the seabed, that is, that would avoid a condominium approach involving Iran.
PROMOTING U.S. BUSINESS INTERESTS
U.S. business interests in Russia have grown dramatically since the collapse of the Soviet Union. U.S. direct investment in Russia has roughly doubled every year, and bilateral trade has doubled since 1992. Membership in the American Chamber of Commerce in Moscow grew from 180 firms a year ago to 350 today. Most U.S. firms tell us that their sales in Russia are doubling each year. Kodak saw its sales in Russia rise 1000 percent in the last three years, and Russia is now its second largest market. Russia is Polaroid's largest overseas market. Xerox's sales were up 50 percent in 1996. IBM plans to boost sales by 30 percent in 1997. Bausch and Lomb dominates the Russian contact lens market. Coke and Pepsi are battling it out, each planning to invest about $600 million in plants and distribution. GM is producing Chevy blazers in Tartarstan, and the world's busiest McDonald's is in Pushkin square.
This is just a snapshot, and it is a good start. The fast pace of growth in U.S. commercial activity reflects the great potential of the Russian market. But Russia so far pales in comparison to a number of other countries, with smaller internal markets and fewer natural advantages. U.S. companies have invested more in Hungary, for example, than Russia, and trade more with Singapore. Many are waiting on the sidelines, viewing Russia with great interest, but unwilling to commit themselves.
Our promotion of U.S. business interests in Russia is accomplished through multiple channels. I have already mentioned a number of them. For example, we strongly support the programs of the International Financial Institutions. They have assisted the Russian Federation attain price and currency stability -- the basic prerequisites for renewed Russian economic growth. Without growth, Russian consumers will not have the wherewithal to purchase our goods, Russian firms will not be in the market for our capital equipment, and our investors will lack the incentive to enter this emerging market. The U.S. is providing public support and advice for Russian entry into the WTO (World Trade Organization) and other international economic organizations. Accession to those bodies will help establish recognized rules for U.S. businesses to operate in the Russian market, while giving our firms internationally recognized means to contest actions they find unfair.
Advocacy of a wide range of U.S. business interests is undertaken everyday by our Embassy in Moscow and our staff in the Department. On a typical day, we might intervene with the Russian Government on behalf of U.S. airlines seeking new routes to the Russian market, debate investment legislation with visiting Russian parliamentarians, protest protectionist actions taken by central or local authorities against U.S. agricultural imports and counsel a U.S. firm being squeezed by a Russian business partner.
This administration has established a very successful consultative mechanism -- the Bilateral Commission on Economic and Technological Cooperation -- commonly referred to as the Gore-Chernomyrdin Commission, that allows us to regularly raise business disputes and promote our economic interests at a very high level. At the last session in February, the Vice President stressed to Russian Prime Minister Chernomyrdin the need for concrete action to create a more favorable investment climate. We identified pressing requirements to reform the tax system, enact legislation to secure U.S. energy investments, ratify our bilateral investment treaty and, finally, signal a new commitment to the rule of law.
HELSINKI
I have already alluded to the upcoming Summit In Helsinki. We will use the President's meeting to advance the broad interests that I have elaborated in each area of our policy. But the moment demands that we focus in particular on three agenda items.
We intend to use the Summit to underscore our mutual commitment to Russian integration into the world community. We are working with the Russians to take the steps necessary to bring them into the WTO. We support Russia's entry as a creditor into the Paris Club and hope that ongoing negotiations will permit them to assume membership in the relatively near future. Additionally, it should be possible to begin a serious negotiation with the Russians about OECD membership, after WTO entry Is attained.
The Russians are also seeking an expanded participation In G-7/8 mechanism -- beyond the political and global issues agenda that has been extended to them at recent summits. In general, we see a need for Russian participation to be meaningful and even expanded, particularly in areas like nuclear safety, where it can help spur greater progress. As I stated earlier, we already have extensive cooperation among the eight on many nuclear and non-proliferation issues.
The NATO-Russia relationship will be a primary issue on the agenda for President Clinton's meeting with President Yeltsin in Helsinki next week. We, as well as our allies, are working directly with Moscow to encourage movement on the NATO-Russia front. But the main channel for intensive talks on the specific aspects of the relationship remains between NATO Secretary-General Solana and Russian Foreign Minister Primakov.
The primary elements of the NATO-Russia relationship, as NATO sees them, include a NATO-Russia charter, a joint consultative council, and adaptation of Treaty on Conventional Forces in Europe. I would like to provide a brief sketch of the primary elements:
-- The NATO-Russia charter will give further definition to the NATO-Russia relationship and set out mechanisms for additional joint cooperative activities. We see the charter as a dynamic document that will allow for the evolution of NATO-Russian cooperation and the emerging needs of European security in the coming century;
-- The consultative mechanism will encourage consultation and coordination on a broad range of issues without infringing the freedom of either the Alliance or Russia to act independently, but in accordance with their other international obligations; and
-- Adaptation of the Treaty on Conventional Forces in Europe will be aimed at moving away from the discarded dividing lines of the past and making the Treaty reflect post-Cold War security realities.
Arms control will be another important item on the Helsinki agenda. We are working on an arms control package that includes (1) securing a Russian commitment to ratify START II promptly, (2) guidelines for START III negotiations for further reductions beyond START II limits, with talks to begin after ratification of START II, and (3) an agreement on the demarcation between ABM systems and theater missile defenses that will preserve the ABM treaty while supporting our capacity to develop the theater missile defense programs our defense requires in the new threat environment.
This is an ambitious agenda designed to center our relationship with Moscow in the days ahead. But it is not an exclusive list. Whether we look at the short or the long term, our agenda with Moscow is deep, broad and complex. That is not surprising. The United States and Russia are great powers with wide-ranging interests; there are bound to be areas where our respective policies converge -- and where they diverge.
Over the past five years, we have actively and successfully sought to increase the area of cooperation with Moscow. And it is in our long-term interest to maintain this policy -- to provide incentives for the domestic reform and international integration that are the best guarantees of cooperative relations with Moscow. At the same time, we have been quick to pursue our interests and manage the differences where Russian and American policies head in opposite directions. Yet, whether promoting cooperation or managing differences, we have found no alternative to active interaction with Moscow. That, too, is not surprising. As global powers, the United States and Russia are destined to work with one another.