[Congressional Record Volume 148, Number 69 (Friday, May 24, 2002)]
[Extensions of Remarks]
[Page E910]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




           SOVIET-STYLE ACTIONS IMPERIL FREE TRADE AND RUSSIA

                                 ______
                                 

                            HON. MIKE ROGERS

                              of michigan

                    in the house of representatives

                         Thursday, May 23, 2002

  Mr. ROGERS of Michigan. Mr. Speaker, since the fall of communism and 
the Soviet Union, the Russian government has made significant strides 
in promoting free enterprise and free trade. Sometimes, however, old 
habits die hard.
  Bureaucrats at the Russian Ministry of Agriculture seem to be living 
in the past. In a move reminiscent of the Soviet-era, they have ordered 
the nationalization of a private company with American trademarks, 
Stolichnaya Vodka.
  These actions run counter to the efforts of Russian President Putin 
who has repeatedly demanded more property rights and freedom for the 
Russian people. Unfortunately, bureaucrats in the government have not 
gotten the message.
  The actions against the rightful owner, SPI International, are not 
isolated incidents. As SPI's counsel, Richard Edlin stated in testimony 
before the House Committee on Ways and Means there is a ``troubling 
pattern of regression by the Russian government to the tactics and 
policies of the Soviet era.''
  These abuses must stop if Russia is going to be considered a reliable 
trading partner of the United States. It is incumbent upon the Russian 
government and its trading partners to demand a correction of these 
abuses. These problems should not be swept under the rug. These actions 
threaten trade, reform and prosperity for the Russian people.
  Mr. Speaker, I ask that the following editorial from the May 16, 2002 
Investor's Business Daily be included in the Congressional Record.

           [From the Investor's Business Daily, May 16, 2002]

         Moscow's Sticky Fingers Risk Economic Future of Russia

                            (By Doug Bandow)

       After years of economic chaos and declines, Russia is 
     advancing. Despite serious challenges to civil liberties, 
     press freedom and the democratic process, the Russian people 
     are finally enjoying a growing economy.
       And Moscow's success, including a surprising budget 
     surplus, re-dounds to the benefit of America. A more 
     prosperous Russia is less likely to slide back into its 
     communist past. A more prosperous Russia will offer a better 
     market for U.S. investment and trade.
       Yet continued progress requires that Russia move more 
     inefficient state enterprises into private hands. Moscow must 
     also improve its international commercial reputation.
       However, Russia unfortunately is moving in the opposite 
     direction, at attempting to reverse previous privatizations.
       For instance, vodka is big business, the nation's second 
     largest. (The Russians do love to drink.) One of vodka's most 
     celebrated brand name is Stolichnaya.
       SPI International acquired the Stolichnaya name in 1992, 
     and now sells 1.3 million cases in the U.S. alone. But Moscow 
     is trying to strip away SPI's trademark. To enforce its 
     claim, the Russian Ministry of Agriculture has impounded 
     180,000 cases of SPI's vodka, currently sitting on the dock 
     in the post of Kaliningrad.


                             USSR Crumbles

       SPI's state-owned predecessor first registered its vodka 
     trademark in the U.S. in 1967. PepsiCo bought the right to 
     import Stolichnaya into the U.S. and spent more than $100 
     million over the years to encourage demand (PepsiCo has since 
     left the alcohol business.)
       When the USSR disintegrated at the end of 1991, the 
     successor states, led by Russia, began selling off many state 
     enterprises, SPI became a private company. In October 1992 
     the Russian government confirmed its right to export vodka 
     under several trademarks.
       Two years ago Allied Domecq acquired U.S. distributions 
     rights. In reliance on SPI's property rights, Allied has 
     undertaken a new advertising campaign and launched a new 
     product to compete with Smirnoff. SPI has been shipping 
     Stolichnaya for a decade without complaint from the Russian 
     government, SPI has invested about $20 million to promote the 
     brand and another $50 million to settle the debts of its 
     state-run predecessor.
       Yet the government recently decided that it wants to 
     renationalize Stolichnaya. It went to court to claim 
     ownership earlier this year, and a Moscow court sided with 
     the government.


                          Moscow Short-Sighted

       Despite the vulnerability of Russian courts to state 
     manipulation, SPI won two subsequent decisions. These judges 
     barred the agriculture ministry from trying to exercise the 
     trademark and from seizing SPI's vodka.
       Yet the government has ignored the courts. It has 
     established a federal enterprise to monopolize vodka sales. 
     Officials have even threatened SPI's employees with criminal 
     prosecution.
       Moscow's campaign is curiously short-sighted. Even if the 
     government succeeds in stripping SPI's rights in Russia, it 
     will have no right to export to the U.S. Allied is the 
     registered trademark holder, and SPI is Allied' exclusive 
     supplier.
       Unfortunately, Stolichnaya is not the only target of 
     Moscow's commercial aggression. Greenberg Traurig attorney 
     Richard Edlin complained of ``a troubling pattern of 
     regression by the Russian government to the tactics and 
     policies of the Soviet era'' at a House Ways and Means 
     Committee hearing.
       For instance, the U.S. firm Films by Jove purchased Russian 
     copy-rights. It's spend $4 million in making animated films. 
     Now the Russian government has set up its own company by the 
     same name as the firm that licenses films to Films by Jove 
     and claims it's the true owner. A U.S. District Court upheld 
     the U.S. company's copyright, opining that the Russian 
     court's contrary decision, perhaps made under government 
     pressure, was ``incoherent,'' ``irrelevant'' and 
     ``shocking.''
       No wonder Russian Duma member Boris Nemtsov, head of the 
     Union of Right forces, called on President Vladimir Putin to 
     reverse the ``dangerous'' threat to property rights, one of 
     the ``pillars of true progress for Russia.'' Nemtsov worries 
     that other reforms--Putin has flatten the income tax and 
     legalized the sale of nonagricultural land--``will be for 
     naught if the fundamental weaknesses of the Russian state 
     that undermine property and minority shareholder rights are 
     not addressed.''


                              Rule of Law

       Individual companies, which have invested in reliance upon 
     property rights granted by Moscow obviously have much to fear 
     from the surreptitious rollback of privatization.
       If Russia is to continue to show economic growth, it must 
     establish a stable investment climate to encourage demands 
     and foreign investment. Commercial certainty is particularly 
     important if the nation is to enter the World Trade 
     Organization.
       Putin deserves credit for having halted Russian's slide 
     toward chaos. But real property requires establishment of the 
     rule of law and respect for property rights.

     

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