>> next up mr. larson, undersecretary of state? >> yes, sir. >> in the bush administration. >> clinton and bush. >> clinton and bush. so thank you very much. the honorable allen larson. thank you very much. >> chairman baucus, senator kyl, distinguished senators, thank you for the invitation to testify. my testimony is informed by many experiences. formally as undersecretary of state for economics during the clinton and george w. bush administrations. currently as senior international policy adviser at covington and burling. and currently as chairman of the board of directors of transparency international usa. in 2009, my transparency international counterpart, whom i'm very pleased you had the opportunity to meet, mr. chairman, and i participated in a private sector group that prepared and submitted a joint

report to president medvedev and president obama. entitled russia u.s. joint working group on joint institutional integrity. simply in 2009 i served as co-chair of a public sector advisory committee that provided the administration with recommendations on a new bilateral investment treaty, new model bit. my written statement describes three sets of disciplines. you could think of them as a triangle, that form the foundation for a solid rule of law framework for international business activity. first trade disciplines, second, investment disciplines, and third, institutional integrity. when only one or two of those are in place, the rule of law framework for business is not as strong nor as stable as it is when all three sides of the rule of law triangle are in place. i believe congress and the administration should be partners in ensuring that all three sides of the rule of law

triangle become firmly established in our economic relationship with russia. in my testimony, in my written testimony, i urged that six actions be taken, one relating to trade, two recommendations relating to investment, and three recommendations relating to institutional integrity and controlling corruption. i believe congress should be engaged in and exercise continuing oversight on these actions, which will strengthen the rule of law for business. first, congress should extend permanent normal trade relations to russia. doing so is in our foreign policy interest and it is in our economic interest. second, the administration in russia should initiate and vigorously pursue negotiations for a bilateral investment treaty, which both countries' legislatures then should ratify. russia failed to ratify an

investment treaty negotiated in 1992, and as a result, u.s. investors in russia lack important rule of law protections. third, the administration should advocate for u.s. investors in russia and vigorously espouse the claims of u.s. investors in ukos oil whose investments were expropriated in 2004 through 2007. in the absence of an investment treaty, these investors do not have the opportunity to pursue dispute settlement through investment treaty arbitration mechanisms. fourth, the administration should vigorously work to ensure that all parties to the oecd anti-bribery convention, including russia fully carry out their commitments under the convention to prevent overseas business bribery by their nationals. fifth, russia and the united states should intensify work to ensure that russia's costs, tax administration, and judiciary

are freer of corruption. sixth, russia and the united states should cooperate to expand the scope for civil society organizations such as transparency international to monitor, investigate, and report on suspected incidents of corruption. i believe the executive branch in the congress can be and should be partners in this work. i would urge the executive branch to present to congress a plan to implement all of these measures to strengthen the rule of law. i would urge the congress to exert active and continuing oversight to make sure it implements the plan vigorously and makes progress for business in putting it into place, all three sides of the rule of law triangle -- the trade side, the investment side, and the institutional integrity side. thank you. >> thank you very much, mr. larson.

some american businessmen tell me they don't want to do business in russia, don't even try because of corruption. it's just not worth it. in fact, i think i saw a study somewhere where an international organization ranked countries according to political corruption. and russia was pretty close -- not the bottom, but it was way down near the bottom. so i'd like to ask mr. allen and mr. pollett, any of you who wish to respond, what should be done about that from u.s. perspective, and does granting ntr help or hurt in that effort. mr. allen? >> from our perspective, we have been doing business for -- as indicated, for a long time, and have had a significant presence

now in the last decade. and corruption is an issue there is no doubt that it exists. but there is corruption in a number of countries. and it's the company and its business conduct that is the important part of this. and when we go to these countries, countries like russia we establish strong conduct guidelines. and we assure that our operations run themselves that way. and we think that ends up being a promoter of improved conduct in the entire business community. i can tell you that when you establish a reputation there that way, you can be effective. the plant that you visited was built in nine months. nine months. that's hard to do anywhere in the world. people say it can't be done in russia because of all of the corruption, quote/unquote. it was done ethically, all aboveboard, and done in a nine-month period of time, working in conjunction with russian government officials. so it is something that we have

to deal with. we work -- we take it very seriously. we enforce it very seriously with our people. but no doubt about it, the permanent normal trade relations will only continue to improve the climate. you won't solve it overnight. but it will improve the climate. >> mr. pollett, what do you say about that? i've talked to a number of american businessmen who say i'm not going to go over there. it's too corrupt. >> mr. chairman, i'd like to echo many of the comments made by mr. allen. we have had the similar experience in many markets around the world. when you work outside the united states, you need to be prepared to working in different environments, including addressing corruption. ge, of course, we work according to the rules every country where we are. it does make it more challenging, probably more expensive. you have to have a lot more lawyers in russia. >> what go you tell a midsized company, not as large as ge? >> it is more challenging, to be honest. we have a very large profile in the country. we have large profile at the government as well, and they know who we are. it is easier for us to push

back, to be very honest with you. but i've been there for 13 years and seen a very dramatic improvement from what it was like in the late 1980s. >> how much will failure to grant pntr help or hinder mid-sized american companies from doing business in russia? >> i think it would help because it brings us together into the wto rules system. i think that's something very important that will help all american companies, not just the large multinationals. >> will it encourage russia to join the oecd? >> yes, it will. >> why? >> they have already signed to do that there is a real sense what i see, they do want to start doing some of the right things. they need foreign investment. they need companies to come in, and they need to be getting improving their operating environment. they recognize that as something they need to work on. >> okay. let me ask you, mr. larson, about corruption and how to deal with it. you mentioned a bilateral investment treaty needs to be negotiated. will we more likely or less likely get that treaty with or

without pntr in russia? >> thank you. first of all, i'd like to say that i do think that the two corporate leaders who just spoke have organizations that have shown themselves to be very serious about overseas corruption. and they have frankly very fine track records. we're privileged to be able to work with them on some of these issues. secondly, senator kyl mentioned in his remarks that russia, as you did too, chairman baucus, ranks very, very low on some of these corruption perception index. and that reflects the fact that there is a widespread view among international business leaders and others that this is a serious problem in russia. third, i think it's a very good thing that russia has decided to become a member of the oecd anti-bribery convention, and has passed the law. they won't necessarily implement

that instantly. a lot of western european countries did. but it's a very good start that they're trying to discipline their own companies in respect of overseas bribery. many, many observers say there is a very serious problem in russia, especially in the customs tax administration and the judiciary. and i think that the administration needs to continue to work with russia on that. i notice that vladimir putin in an op-ed that he published in the "washington post" recently said that there is a problem of systemic corruption. and he wants to, he said in this op-ed, tackle it. well, we ought to take him up on it. and the administration in my opinion ought to propose to congress a plan for how they can follow up and work with the russian government to tackle this problem to the benefit of our u.s. businesses.

i do think that civil society organizations like transparency international have a role to play. i think there should be scope for them to report on suspected incidents of corruption, be able to do that. and finally, chairman, you asked about pntr and its impact on all this. i think pntr is definitely a plus, not just for trade relations, but it impose as degree of discipline in trade relations that is a positive step. on the rule of law. it's necessary. it's not all we need to do. >> thank you. >> but it's very, very important. >> thank you very much. senator kyl? >> thank you, mr. chairman. i think we're getting right to the nub of the problem here, and that is you talk about the three legs of the stool. when is the best time to negotiate over the other two legs of the stool? is it after you have granted pntr or before? and that's really question, it seems to me. you've got a little bit stronger hand to play if we explain that

on, for example, the bits. we want the duma to ratify the treaty that the united states has ratified. ex-appropriation is not something in this day and age is not something that ought to be permitted. we'll talk about ukos in just a moment here. but isn't it rather than urging the administration to begin addressing the problem after pntr, isn't this the time that we would be better off addressing these problems so that we could get the commitments up front, rather than trying to achieve them after we have granted the status? let me ask you first, mr. larson. >> senator kyl, i think you raise a very important point. it's not an easy one to be quite honest. i think that in my experience in diplomacy, it is important not to let perfect be the enemy of good. and i think my own personal view is that we should seize the

opportunity that is created by pntr, extend pntr, and have russia be in the wto. but if we stop there, then we've only done part of the job. and i think as i said in my oral remarks, i think this is something that the congress and the administration should work together. it should not be -- it need not be a partisan issue. it's something -- >> let me just interrupt. >> this is n a partisan issue. >> i know. >> and yes, congress and the administration need to work together. my question goes to when we are most likely to get cooperation, which lets face it, has been very difficult coming. i want to ask mr. williams a question, if i could here. >> can i just one-half sentence to finish. >> sure. >> thank you, sir. i do think it's very important that congress sees the opportunity to ask the administration to come forward with a plan to how they're going to implement the other sides of the rule of law triangle. >> and i appreciate that.

and our leverage is we'll withhold action until that plan is forthcoming and we can negotiate with the russians. none of us here object to the proposition that russia can accede to wto with u.s. approval, and our folks doing business abroad will do even more. and that will help us more in the united states there is no question about that. the question is how do you negotiate the very best situation with a country that has dragged its feet over and other and over. and again, i hope to be able to get to the ucos situation in moment. mr. williams talked about a practical problem, the practical problem of the russian court system. i just want to ask you, given the track record that you identified, do you have concerns that granting russian pntr before the russian duma takes steps to implement the intellectual property reforms and the other wto access commitments, reduces the leverage that we might otherwise have? >> absolutely. i do have concerns.

i'm also 71 years old. i've reached that point in my life where i know that when you move into an area where i lack the expertise to say one is better than the other, i have to point it out that i'm the wrong person to tell you that we need to make these adjustments before or after pntr is granted. i will tell you we're in the rare position at ascap and as music creators, unlike these gentlemen, and i understand your stance completely. we're in a position where whether it's granted or not, our music is going to continue to grow and movies will continue to grow in the country. so my specific concern as an organization, we don't have a specific stance on pntr. i am synthetic to it. individually i'll tell you right now, i sit here and i imagine watching the prospects of china stepping in if we can't do business. for my organization, i have to represent them. and i would say that what we need is no matter what happens with pntr, we need some aggressive action from the party of the united states government

dealing with the russian government and dealing with the judges, dealing with the value added tax that is totally unfair, and where we hopefully will not wind up with a situation like china where, you know, senator, i get more money from honduras than i do from china. it's terrifying. >> and because my time is so short, that's the point i'm trying to make here. we tried to anticipate all the things that we could hold china to. we had a very thick document with china. and yet you saw the report that i held up. it's very difficult after you've granted the status to then get them to make -- to really fulfill the commitments that they've made. that's the concern we have about granting the status to russia prior to the negotiation of these other two legs of the stool. and i'm not suggesting that we can have perfection at any time when you're dealing with an emerging country like russia. but at least you ought to try to understand when you have the best negotiating position to demand those things that, after all, are simply matters of rule of law that other commercialized

nations recognized long ago. >> if i may, senator, the one element that is of greatest concern to us too is the value added tax, it could become a precedent for other countries, and that would be the damage to american music creator, songwriters, composers is beyond what i could state here. it would be huge. >> i thank all of the witnesses. i wish i had a chance to visit with all of you. thank you. >> thank you. >> thank you very much, senator. senator cornyn. >> thank you, mr. chairman. mr. chairman, i want to spend my time actually covering a subject that it may or may not call for a response from the witnesses, but i will invite that at the end. on february 5th, russia and china blocked a u.n. security council resolution that would have endorsed an arab league plan for assad in syria to step down. it would have supported a demand that syrian troops withdraw from towns and start transitioning to democracy.

this is just the latest incident in which russia has for its own reasons intervened in a way that has destabilizes the world and helps iran in this instance, which is the main beneficiary of the continued regime of president assad to stay in power. but i want to highlight this issue. this has to do with how president assad is getting arms with which to kill innocent syrian citizens, some 8,000 of them according to reports from the united nations. it's not only a question of russians exporting arms to syria to kill innocent civilians, it's also the fact that the department of defense, the united states department of defense has a contract with that same russian arms exporter.

and i sent a letter, mr. chairman, to secretary of defense mr. panetta along with 16 colleagues, a bipartisan letter, raising this issue. and i would like to have that made part of the record. >> objection. >> appreciate that. >> imagine my surprise when i found that russia is not only selling weapons to hugo chavez in venezuela and to the mullahs in tehran, but syria, but also that we have a very -- we have a contract, the department of defense to sell a set of helicopters, the 21 dual use mi-17 helicopters for the afghan military from rosoborn export. this is a no-bid contract awarded by the army last summer several months after the syrian uprising began. and it's worth $375 million.

that's $375 million u.s. going russian arms merchant arming president assad and killing -- with which he is killing innocent syrians. it does not require a leap of logic to conclude that the proceeds of this contract are helping -- helping finance these mass atrocities. i should also note that syria has a history of not actually paying for those weapons. according to press reports during a 2005 state visit by assad to russia, then president vladimir putin wrote off nearly 75% of syria's $13.5 billion debt for russia for past arms sales. i think it's unconscionable that u.s. taxpayers would be put in this position where their hard-earned tax dollars would subsidize mass murder. but the department of defense

says so far refused to cancel this contract and even in the face of mounting evidence that export remains a key enabler of the assad regime of murder and intimidation. let me conclude by asking a rhetorical question. and any comment any of the witnesses would care to make would be welcome. sure, we want to create jobs here in america. we want to trade with international partners and grow the economy both in those countries -- our trading partners' countries and here in the united states, but at what point, whether it's corruption, whether it's enabling international terrorists, states like iran, whether it's arming thugs and murderers like president assad in syria, do we say the cost is just too high? in terms of sacrificing our

basic values and protecting human rights? mr. allen? >> that's quite a set-up. well -- >> i didn't intend it as a set-up, i intended it as an honest question, and if you have anything to say about it, i'd appreciate it. >> i'll try to do my best. those are all other issues out there. what i'm not able to correlate is how pntr status will -- and preventing it will in any way change those issues. those issues still need to be solved. i would argue that the -- giving russia pntr status, giving a chance for all of us to continue to move that country along will be a positive. and i think what a lot of people are not looking at right now is this is not just about growing jobs. they're going into the wto. if we don't go wit, it's about

losing jobs because our businesses are all going to go down vis-a-vis our competitors, and i have real life examples i could give you. >> senator mendez? senator kerry, you're next. >> thank you. >> well, let them decide between themselves youant to wait, sen? >> i'll wait one round. >> senator mendez. >> thank you, mr. chairman. i want to pick off -- pick up where some of my colleagues have spoken about here. i appreciate that russia presents a tremendous business market for american companies and that wto rules will hopefully level the playing field for american companies to do business in russia. but at the same time, lifting is a huge benefit to russia. and i'm sure all people understand the essence of leverage in a negotiation. that's not something that is

abstract. i think you do that all the time in your businesses. it seems to me this is a moment in which there is leverage at the end of the day. and this is a huge benefit to russia politically and economically and a lot of us aren't feeling like this is a good time to be rewarding russia for about anything. the recent elections make a mockery of democracy, the democratic governments are far better for business to operate under transparency rule of law, safety of contracts, intellectual property. that happens more likely in a democracy than not. the human rights situation in russia is not improving, and the case of sergei in which my colleague, senator carden has been the champion of is not an exception by any means. and when we ask for help from russia to help stop iran from acquiring a nuclear weapon and help prevent the killing of

innocent citizens in syria, we get nothing in return. now, will et me make the case for our business friends about how that affects us here. look at where gas prices are going through because of instability in iran. gas prices not only for consumers in america, drivers in america, but for the creation of products. when all of you use fuels that are necessary for a creation of a product or the transportation and delivery of your products to the marketplace. so i look at this and i can make real connections not only on the principle of human rights, but on the economics of it, as well, domestically. so what i would hope we would see from the business community, which seems to lack is a dual track approach which addresses everyone's needs and concerns where we find a way forward on repealing jackson vannic, but also find a way forward trying to improve russia's human rights

records. we need a vehicle like the bill, for example, that sends a message to russia we are serious. about human rights and we'll deny visa and block assets. i'd like to ask personally the members of the business community here, do you not see the correlation between the consequences of a russia that does these things and the domestic concerns that we have that actually affect your businesses? in addition to the value that you obviously see as it relates to wto. and can you not join in the voices that say, yes, let us remove jackson so we can get the full benefit of russia's participation of the wto, but let's also pursue these other things that actually have an skt not only in terms of our legitimate interests of human rights and democracy, but also in real economic consequences here back at home. and then finally, i'd like to ask to all the business leaders

and to mr. larsen, i'd like to ask, do you perceive the ability of russia to eliminate the pervasive corruption that seems to affect all aspects of russian life. many american companies particularly in the energy sector have seen contracts broken and agreements altered by heavy-handed regulation and open-handed bureaucrats. will the wto membership actually solve all those problems? i'd like to get to those quickly if we can because i have about a minute left. >> so my quick part i would say first. most people realize that -- or recognize india as a large democracy. we deal with every bit the corruption in india that we deal with in russia. so i think the -- we certainly want to see that corruption change, but the culture and the continued movement forward is going to be a long process. it won't be an event-driven process. and i -- on the first part of my question, do you not see the

nexus between the actions russia takes that affect us here domestically, economically? you don't see that affect on your company? >> yes, i do see those actions. there is a timing issue. that's also -- the part that i keep trying to reinforce is they are going to move into the wto, and we are going to lose any additional leverage as a result of that. and they will be doing trade with other partners, and we will be the disadvantage and have less opportunity to influence them going forward as a result of that. >> mr. chairman, i -- if i could get mr. larsen to answer the latter question i -- >> thank you, senator menendez. what i have recommended is that on the occasion of congressional consideration of pntr that the administration should present a plan for tackling some of these

corruption issues. one, making sure that russia adheres to its obligations under the oecd anti-bribery convention, which has just joined. two, that there by serious cooperative effort to tackle the issue of corruption in customs and tax administration and the judiciary. and three, that there be scope for civil society organizations to report on instances of suspected corruption. >> i think all of that is part of creating a strong rule of law framework for business. i also believe that the extension of pntr and repeal of jackson vannic is part of that rule of law framework. that also will assist. i think we should do both. >> mr. chairman, thank you. i want to thank you for your statement. i thought you hit the nail on the head. and i appreciate your