State Lags in Forging Ties, Investments in Russian Far East

California hardly put out the welcome mat for its earliest Russian settlers, who sold Fort Ross, their trading post north of San Francisco, for $30,000 in 1841 after the fur trade dried up and their crops withered in the ground.

More than a century later, Russian Consul General Vladimir Kuznetsov isn’t having much better luck prospecting in California, despite his political savvy and charm.

Kuznetsov, who opened the consulate in San Francisco in 1993 after the fall of the Soviet Union, has organized a popular cultural celebration for the more than 300,000 Russian-speaking people who call California home. But he has been far less successful at interesting Californians in the economic potential of Russia’s remote Far East region.

Indeed, there are no California state officials at this week’s meeting of a joint U.S.-Russian working group to promote economic ties between the Russian Far East and U.S. West Coast. And Kuznetsov’s dream of getting an agreement to promote trade between California and the timber-, oil- and mineral-rich Russian Far East has stalled.

“I informed Gov. Wilson and other Sacramento officials of this idea and they expressed enthusiasm, but so far nothing has happened,” said Kuznetsov, who served previously as governor of the Far East Primorskii territory.

In contrast, the state of Washington’s delegation to this week’s meeting in Khabarovsk includes Gov. Mike Lowry; Secretary of State Ralph Munro, who has made half a dozen trips to the region since 1987; and top officials of Boeing Co. and other major companies.

Munro has overseen a bridge-building effort that has included food-relief programs, educational exchanges and aggressive campaigning on behalf of Washington companies seeking entry to this newly opened market.

He believes that network of personal relationships is a key reason for a dramatic increase in Washington exports to Russia to nearly $300 million in 1995--more than California, which has six times the people.

After the breakup of the Soviet Union, Seattle was the site of the first Russian Consulate in this country. In 1994, Washington opened a trade office in Vladivostok, making it the only state to be represented in Russia.

“California takes new potential markets for granted,” said Munro, who sees lucrative opportunities there, particularly in agriculture. “We’ve been encouraging California to get involved because there are products we can’t provide that the Russian Far East wants, such as lemons and avocados.”

The Clinton administration would also like to enlist the West Coast’s most powerful trading state in its campaign to bolster Russia’s beleaguered economy. Jan Kalicki, the Commerce Department’s top Russia expert, fears California firms have been bedazzled by larger foreign markets.

But Kalicki noted that U.S. exports to Russia increased just 10% in 1995 to $2.8 billion, while imports from Russia expanded by 24% to $4 billion. An estimated 20% of those goods go through the Russian Far East.

“There is an opportunity there for California to really play a leadership role,” Kalicki said during a recent visit to Los Angeles for a Russian investment forum.

Secretary of State Bill Jones, California’s newly appointed representative to the U.S. West Coast-Russian Far East Ad Hoc Working Group, acknowledged that the Russian Far East has not been a major focus for this state’s trade efforts.

In 1995, California exports to Russia totaled $303 million, a $60-million increase over the previous year. But that placed Russia 32nd on the state’s list of trading partners.

“We have to allocate our resources according to the priorities of the state and our constituents,” said Lloyd Day, assistant secretary in the California Trade and Commerce Agency. “Quite frankly, our private sector has not pushed us to have a large role in this.”

Doing business in any part of Russia is tough going, given the political and economic instability, the primitive legal and banking system and the growth in organized and unorganized crime.

Concerns over President Boris Yeltsin’s heart problems have also contributed to the overall jitters about Russia.

In the past, such problems were magnified in the Russian Far East. Thousands of miles from Moscow, the eastern territories have historically been exploited for their natural resources and used as a military fortress and dumping ground for society’s outcasts.

But the area’s leaders have also taken advantage of their isolation, aggressively pursuing their own economic agenda with their Asian neighbors and the United States. Financing tops their list of needs.

Russian officials are pushing the joint working group to lobby international lending agencies for money to fund major infrastructure projects. But the U.S. side is reluctant to make major financial commitments, choosing instead to focus on such efforts as streamlining customs processing.

When Californian Greg Koepf went to American banks and U.S. government agencies to look for help in financing a $100-million joint-venture manufactured-housing plant outside Vladivostok, the home of Russia’s Pacific fleet, he got nowhere.

“If they want to promote trade to Russia, they have to make it easier for the smaller guy to get financing,” he said.

Koepf, owner of Engineered Forest Products in Moraga, and his Russian partners finally located financing from Europe and are now on schedule to begin manufacturing next spring. Eventually, they hope to supply not only the Russian Far East but nearby markets in Japan and Korea with their low-cost manufactured homes.

But first they have to get their plant up and running, which involves a lot more than just bringing in some equipment and flipping a switch. Koepf’s Russian American partner, FKP Pacific International Co. of San Francisco, has helped win over the region’s most influential players.

“One of the key criteria is getting together with the right partners,” Koepf said. “There are a lot of horror stories of people going over there and losing their shorts. You have to have a lot of patience and do a lot of due diligence.”

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Russian Disconnect

The United States lags in trade with the Russian Far East. California, in particular, has shown little interest in the region, exporting less to it than much smaller Washington state. The region’s top trade partners:

Japan: 49.0%

South Korea: 11.6%

China: 11.1%

Europe: 8.7%

United States: 7.8%

Other: 11.8%

Sources: Russian Far East Update, U.S. Commerce Department