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U.S. Grants Russia Market Economy Status

The United States announced Thursday that it recognizes Russia as a market economy, a distinction that Moscow said should provide a tremendous boost to Russian exports and the economy.

U.S. President George W. Bush broke the news to Putin in a 20-minute telephone call Thursday.

"Putin welcomed this step toward Russia, which is a real market economy country, noting this will give a powerful impetus to developing bilateral economic ties," the Kremlin press service said.

Prime Minister Mikhail Kasyanov was "deeply satisfied," Interfax reported.

Economic Development and Trade Minister German Gref said current U.S. trade restrictions on commodities such as steel, titanium and fertilizer cost Russian companies $1.5 billion a year.

"This is a certain sign, a certain symbol to recognize those reforms that are taking place in Russia," Gref said on RTR television. "It will present new opportunities for Russian enterprises and investment in Russia."

Russia's largest steel producer Severstal cautioned, however, that Russia and the United States must quickly sign a special memorandum limiting the period the U.S. government could use in assessing countervailing duties to the post-privatization period.

"Without the signing of this memorandum, we can expect a whole series of new compensatory duty investigations against Russian companies," Severstal's sales director Dmitry Goroshkov said.

U.S. Commerce Secretary Donald Evans said in a statement that the decision to grant Russia market status "reflects the tremendous economic changes that Russia has made over the last decade."

The decision is retroactive as of April 1, the start of the second quarter.

"In future cases involving Russian products, the department will now begin using actual process and costs from within Russia and from within actual transactions in Russia for the purpose of calculating anti-dumping and countervailing duty levels," a Commerce Department official said.

"Any ongoing proceedings ... that precede our effective date will continue as is," he said.

Thus, existing restrictions on steel and ammonium nitrate will remain in place. But a Russian company will now be able to request a review.

It was not immediately clear whether any company would ask for such as a review, which the United States has the right to refuse.

Severstal head Alexei Mordashov said only: "This is a very important and long-expected decision for Russian metals. We hope that the market economy status for Russia will help us with anti-dumping suits against Russian steel."

Existing suspension agreements will stay in place.

Steel producers had been going back and forth in recent weeks on whether they wanted greater access to the U.S. market, first asking the Russian government to withdraw from a quota deal with Washington and then changing their minds when they saw that U.S. steel prices were increasing.

The Commerce Department's decision was made after a nine-month investigation by the department's Import Administration.

Under the law, the Commerce Department must review criteria such as currency convertibility, free bargaining for wages, openness to investment, government ownership or control of means of production and government resource allocation.

The Commerce official conceded that a sticking point -- and one that will remain so in WTO negotiations -- had been over the state's allocation of resources in natural monopolies Gazprom, the Railways Ministry and Unified Energy Systems.

"The energy issue was one area where we have found the most significant problems where government controls have been affecting price setting in a way that ... we found to be distortive," he said.

He added: "Commentators raised issues of concern including corruption and barter, which we looked at and found ... that although in both respects they were problem areas, they did not fundamentally affect the market orientation of the economy."

The Commerce Department found that privatization has denationalized the Russian economy even more than in Kazakhstan and Latvia, which already have U.S. market economy status. The Russian private sector now accounts for 70 percent of gross domestic product, compared to 60 percent in Kazakhstan, 65 percent in Latvia and 80 percent in Hungary.

Countries whose economies remain unrecognized by the United States include China, Vietnam, Romania and 10 republics in the CIS.

Vladimir Mau, an influential economist, said the new status would give Russia a much-needed window of opportunity to develop trade.

"It us very important to understand that the market economy status is needed primarily for overcoming the current situation in which Russian exports are dominated by oil and natural resources," he was quoted by Interfax as saying.

Scott Antel, a partner at Ernst & Young who participated in market status hearings in Washington in March, cautioned the status does not mean a smooth ride from here on in.

"Overall this is positive, but it means Russian companies are going to have a huge number of anti-dumping and countervailing duty cases raining down on them in the near future," he said.

"The war has just begun," he added. "If Russian companies want to compete in the international arena, they're going to have to fight their cause. The benefits are certainly worth it."

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