U.S. Investments Being Driven Away, Russians Warned

Deputy Secretary of State Lawrence S. Eagleburger, endorsing a “real partnership” in U.S.-Russia trade, warned Russians on Wednesday night that their confusing, shifting and bureaucracy-bound market will rapidly drive American business elsewhere unless changes occur.

“In the short time I have been in Moscow, I must say that virtually all the American businessmen I have seen have told me that their ability to contribute as partners to economic recovery is severely, if not fatally, hampered by regulatory and fiscal practices that they are encountering at all levels of government,” Eagleburger said.

He is visiting here--with officials from the U.S. Agriculture, Commerce and Treasury departments and other agencies--to evaluate economic aid to and humanitarian needs of the former Soviet republics.

Eagleburger gave the key address to a Wednesday night meeting of Russian and American business leaders. His underlying message was that the aid under way or contemplated by the Bush Administration cannot by itself accomplish the huge task of moving Russia from seven decades of state planning to capitalism.

But government practices here and the disarray of a semi-socialist, semi-market economy--as well as endemic corruption--befuddle and dismay Americans who try to do business in Russia and the other former Soviet lands, Eagleburger said.

Among complaints of U.S. firms that he cited for his hosts: “constant changes and lack of transparencies of laws and regulations,” “prohibitive increases” in taxation and shifting tax brackets, fuzzy ownership of property and overlapping government jurisdiction.

There are also daunting problems, he said, in getting paid in a country where the currency is not convertible on foreign markets, dollars and other exchangeable currencies have been scarce and creditors have few legal recourses to recover debts. U.S. firms are owed more than $190 million on trade deals concluded with the Soviet Union, he told the bilateral Trade and Economic Council in the Kremlin.

U.S. businessmen “cannot do business when, for example, a sudden tax increase wipes out the anticipated profit on a previously negotiated project,” Eagleburger said.

“They will, in fact, go elsewhere if they must to find a favorable environment among the oldest or the newest of the world’s many free-market democracies,” he cautioned.