**LETTER FROMTHE U.S. OMBUDSMAN**

 

The Russian economy has begunto stabilize, following the economic crisis of August 1998, but there is stilla considerable amount of work to be done before foreign—and Russian—investors’confidence in Russia begins to return. We need to keep in mind that thetransformation of Russian society is a very complicated task that will likelytake a generation to complete. There have been, however, positive developmentsin the U.S.-Russian relationship, and you, the business community, are a largepart of this picture. In June, I cochaired the fourth annual meeting of theU.S. West Coast-Russian Far East Ad Hoc Working Group (AHWG) in Vladivostok, inwhich over 200 Russians and Americans participated. A key result of thismeeting was an expansion of the CLEAR-PAC project, which streamlines customsprocedures in the Russian Far East. Representing Vice President Gore, I waspresent at the July 30 celebration of the first oil output from the Sakhalin IIproject—the first oil to come from a production-sharing agreement (PSA) todevelop deposits offshore Sakhalin Island. Even in the midst of economicdifficulties, clear progress is being made.

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Rule of Law

We have now completed a draft *Handbook on the Russian CommercialArbitration System*. We have also drafted the *Basic Guidelines for Codes of Business Conduct*, designed to promotegood business practices and ethical behavior in commercial relations betweenprivate firms, as well as with government authorities. Both of these works inprogress have been presented at international roundtables and conferences andhave received strong support from Russian and Western businesspeople andgovernment officials. This fall, building on this success, we initiated aproject on the *Handbook on Corporate Governanceand Shareholder Rights*, and are encouraged by the broad, positive responseto this idea. These  concrete stepsare aimed at developing a functioning rule of law and court system that willprovide greater protection for business and assist in the fight againstcorruption.

 

Regional Cooperation

As many of you are well aware,some of the Russian regional governments have proved more successful thanMoscow in establishing a market economy and providing a business climate thatencourages foreign investment. During the past year, I have visited manyregional capital cities—Novgorod, Irkutsk, Yuzhno-Sakhalinsk, Yekaterinburg,and Perm—and have noted regional officials offering tax and other incentives toattract investors, Russian and foreign alike, to their cities. Other regionalgovernments are working hard to have projects approved as PSAs by the federalgovernment.****

 

Commercial Energy

As evidenced by Sakhalin II’sfirst oil, the PSA framework is beginning to produce tangible results, and theRussian Government is currently working on the normative acts needed to supportthis framework. The Duma is moving toward authorizing more projects to moveforward under a PSA by adding those projects to the “Law on Lists.” There isstill much to be done, such as revising the tax code to fit the PSA structureand reducing tariffs, and the U.S. Government remains committed to working withyou to meet these challenges. ****

 

We are encouraging theRussians to work with us, as well as with other Western countries, on projectsthat could significantly benefit the regions. Moreover, we continue to pursueprivate-public sector partnerships that will prove beneficial to both U.S.companies and Russia.****

 

The task ahead—to transformRussia into a growing free-market democracy—is enormous. There have beensuccesses, but still far too few. Nonetheless, the best way to pursue thistransformation remains the same—and centers on the private sector. The U.S.Government will continue to be actively engaged in pursuing the reforms Russianeeds to move forward—and to support your efforts as you continue to play sucha critical role in the process.****

 

*Jan H. Kalicki*

*Counselor to the Departmentof Commerce and*

*U.S. Ombudsman for Energyand Commercial*

*Cooperation with the NewIndependent States*