THE STANFORD US-RUSSIA FORUM research Journal Vol. IX APRIL 2018
THE STANFORD US-RUSSIA FORUM RESEARCH JOURNAL VOL. IX, APRIL 2018
Edited by Alexis Lerner For reprints please contact email@example.com The Stanford US-Russia Forum Encina Hall, Stanford University 616 Serra Drive Stanford, CA 94305 www.usrussia.stanford.edu ÂŠ 2018 Alexis Lerner. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying and recording, or in any information storage or retrieval system without the prior written permission of the publisher. Cover: Red Square, Moscow ISBN-13: 978-0-9896006-2-0 Printed in the United States of America
THE STANFORD US-RUSSIA FORUM RESEARCH JOURNAL VOL. IX, APRIL 2018 Edited by Alexis Lerner
THE STANFORD US-RUSSIA FORUM A PREVENTIVE DEFENSE PROJECT INITIATIVE Stanford, California
Waiver or Not? Considerations of NSG Membership for Non-NPT States and Prospects for US-Russia Cooperation
Frameworks to Advance Arctic Wind Development through US-Russia Collaboration
Rebuilding the Cyber Bridge of Confidence toward Establishing Bilateral Behavioral Norms for US-Russia Cooperation
Electronic Health Records in the United States and Russia: Challenges and Opportunities for Collaborative Leadership Nation-State Adoption of Distributed Ledger Technology: How Blockchain Will Remake Traditional Nation-State Relationships Promoting Business Attractiveness for the Tech Sector in Russia: Lessons from the United States and China
Permafrost Degradation and Coastal Erosion in the US and Russia: Opportunities for Collaboration in Addressing Shared Climate Change Impacts Lessons Learned from the ISS: Enabling Future Spaceflight Collaboration for the US and Russia Stanford US-Russia Forum Journal Volume IX, April 2018
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Alexander Chekhov, Nadya Maslennikova, Libiao Pan, Melissa Samarin, and Shana Wu
Valentina Bonello, Maxim Glagolev, and Katherine Weingartner
Andrew Carroll, Elvira Chache, and Tinatin Japaridze
HEALTHCARE Brian T. Cheng, Alexandr A. Kalinin, and Marina Pokrovskaya
Jules Hirschkorn, Alexei Levanov, Anton Titov, Ryan Williams
Tatiana Aleksandrina, Colton Cox, Kirill Protasov, and Boguang Yang
Chelsea L. Cervantes de Blois, Ilya Stepanov, Kirill Vlasov, and Ellen Marguerite Ward
Louise Fleischer, Carolina Moreno Aguirre, and Johannes Norheim
STANFORD SURF Team EXECUTIVE DIRECTOR Ravi Patel PROGRAM DIRECTORS Nelson Zhao Pavel Yakushev DIRECTOR OF RESEARCH Alexis Lerner PROGRAM OFFICERS Kyle Duchynski Pavel Kuznetsov Andrey Bakalenko
SPECIAL THANKS WIlliam J. Perry George P. Shultz Michael McFaul Deborah Gordon Kathryn Stoner Matthew Rojansky Alexei Sitnikov Anatoly Antonov Jon Huntsman Jr. Sergei Petrov Edmund G. Brown Jr.
Preface: From the Leadership On behalf of the Stanford US-Russia Forum (SURF), we would like to welcome you to our program’s tenth year. SURF’s core mission is to develop the next generation of future leaders in US-Russia engagement through substantive discussion, research, and collaboration while generating innovative solutions to issues of mutual importance for both countries. More than 400 students from over 85 universities have participated since SURF’s 2008 inception. Each year the program brings 40 students from both countries together to attend a weeklong conference in Russia in the fall, conduct research with their working group peers over the academic year, and ultimately present their work at a capstone conference at Stanford University in the spring. More than half of the participants are graduate students, bringing maturity and experience to complement the enthusiasm of undergraduate team members. Research themes include topics in international relations, the sciences, business and entrepreneurship, regional and humanitarian issues, and others. Started as a student initiative, SURF also emphasizes leadership experience and gives student leaders a role in organizing elements of the program. SURF’s mission has strong roots in the idea of track two diplomacy, the unofficial, informal interaction between private citizens that can help guide policymakers towards diplomatic conflict resolution and improved relations. The young leaders who comprise the SURF delegation are actively helping break down the boundaries between research and policy change, bridging the gap by engaging directly with those in positions of influence. Now more than ever, the geopolitical situation between the US and Russia highlights the critical need for this type of dialogue. We are incredibly grateful to sponsors who make SURF possible. Thanks to their ongoing support we have been able to expand the SURF program, including adding a segment in Washington DC for this year’s delegation. We hope you enjoy reading the research put together by our delegates this year! Thank you for your interest in our efforts,
Vladimir Yakushev Kenneth Martinez
Ravi Patel Executive Director
Preface | vii
From the Editor Dear Readers, It is with great pleasure that I introduce the 2018 edition of the Stanford US-Russia Forum’s annual publication. In this issue, we bring together 28 sharp, young scholars from around the world to unpack complex issues related to US-Russia relations, while also fostering bi-national dialogue. Drawing from diverse linguistic, cultural, and professional backgrounds, these delegates worked collaboratively and tirelessly on the eight excellent articles included in this issue. By thinking critically about the fortification of existing ties in finance, trade, and security, to the prospects for cooperation in environment, technology, and healthcare, these eight pieces flow together seamlessly, creating an optimistic narrative about US-Russia relations in a time of increased conflict. Our journal starts with authors Alexander Chekhov, Libiao Pan, Melissa Samarin, Nadya Maslennikova, and Shana Wu, in their exploration of the long-term consequences of criteria-based admission — an approach supported by both the United States and Russia — to the Nuclear Suppliers Group (NSG). In particular, these authors focus on the cases of India and Pakistan, two states that have not signed the Non-Proliferation Treaty (NPT), and the potential ramifications of their admission to the NSG. The second article, written by Valentina Bonello, Maxim Glagolev, and Katherine Weingartner, asks how the US and Russia can mitigate high energy supply costs and the risks associated with supply disruptions in their Arctic regions. They conclude by recommending that regional actors unite to support renewable wind energy, in order to increase the resiliency of diesel-dependent energy systems in light of the Arctic’s thawing permafrost. From here, Andrew Carroll, Tinatin Japaridze, and Elvira Chache explore the psychological priors that prevent cooperation in the field of cyber-operations. They argue that the problems of cybersecurity and cyber-deterrence can only be overcome if both sides can humanize the other, thereby dissipating tensions and the further escalation of conflict, both within and beyond the cyber-sphere. In our fourth article, Marina Pokrovskaya, Brian Cheng, and Alexandr Kalinin evaluate the use of electronic health records, which have emerged in both the United States and Russia as a technological solution to facilitate the continuity of care and to improve population health. The group argues that sharing best practices regarding electronic health records presents an apolitical avenue for US-Russia collaboration. Our next pair of articles cover technological developments in the US and Russia. Representing a new SURF venture into financial technologies, Jules Hirschkorn, Alexei Levanov, Anton Titov, and Ryan Williams explore distributed ledger technology and its potential use to centralized governments and authorities at the nation-state level. Ultimately, they conclude, blockchain-type technologies represent a massive technological disruption that will likely benefit early adopters and reshape global norms, as did the Internet in its early days. Considering more ‘traditional’ business ventures like manufacturing and entrepreneurism, Tatiana Aleksandrina, Colton Cox, Kirill Protasov, and Boguang Yang evaluate the innovation ecosystems of Moscow, Tatarstan, and Tyumen region. Utilizing the case studies of technological innovation in Silicon Valley and manufacturing production in Shenzhen, they outline how states can write policies that help firms to overcome common roadblocks, increase investment, and foster a robust digital sector. Our last two articles concern the state of our planet and what lies beyond. Writing on the topic of permafrost degradation and coastal erosion, Chelsea Cervantes de Blois, Kirill Vlasov, Ilya Stepanov, and Ellen Ward propose that the United States and Russia cooperate at the subnational level to protect their northern territories. They note that the US and Russia are among the main contributors to, and countries most impacted by, Climate Change. This reality places these two countries in a unique position to prevent further environmental degradation, both domestically and abroad. In the final article in our journal, Louise Fleischer, Carolina Moreno Aguirre, and Johannes Norheim discuss the future of space collaboration as the International Space Station, in operation since 1998, prepares to deorbit in 2024. The group suggests that space station architects review lessons learned regarding the joint ISS program before planning the proposed Deep Space Gateway, in order to improve our prospects for bilateral Deep Space exploration. Whether read in succession or independently, each article leaves its readers with renewed hope for a brighter future in US-Russia relations. And while the research in this journal discusses time-bound concerns like the coming deorbit of the International Space Station, the scholars behind these pieces represent the long, slow diplomatic efforts that build over decades. The delegates and alumni of the Stanford US-Russia Forum may be junior scholars today; but they are the CEOs, professors, and statesmen of tomorrow. By investing in relationships and retaining faith in dialogue, the SURF network illustrates optimism in a tense political climate and promise in the long-term. Please enjoy the fruits of their hard work, critical thinking, and creative problem-solving.
Alexis Lerner Director of Research
1 Waiver or Not? Considerations of NSG Membership for Non-NPT States and Prospects for US-Russia Cooperation I. Arms Control and Nuclear Security Working Group Alexander Chekhov, Nadya Maslennikova, Libiao Pan, Melissa Samarin, and Shana Wu Abstract Two states that have not signed the NPT, India and Pakistan, requested to join the NSG. So far, the responses worldwide have varied dramatically. Some experts and states see the two states’ request as a serious threat to the non-proliferation regime and a violation of its protocols and efforts. Others see membership in the NSG as an opportunity to hold both countries accountable as nuclear states and to include them in the non-proliferation regime in some capacity. States in support of this expansion are in the process of constructing a criteria-based approach – a series of conditions and standards that these states must meet before they are accepted formally to the NSG – as a credible commitment that would stand-in as a plausible alternative to NPT membership. Although both Russia and the US appear to support some form of a criteria-based approach, our research shows that implementing the criteria-based approach and allowing non-NPT states to join the NSG jeopardizes nuclear compliance and monitoring efforts, posing threats to and undermining the nuclear non-proliferation regime at large. INTRODUCTION
he nuclear non-proliferation regime was designed to clarify deterrence and to halt the expansion of existing stockpiles, while also preserving the nuclear monopoly for existing nuclear states. A secondary outcome of the regime is the cultivation of international consensus regarding the reduction of nuclear weapons. Despite challenges in building and maintaining this regime, the existing network of organizations, institutions, and norms has been relatively effective in curbing nuclearization and the spread of nuclear weapons (Nye 1981, 15). This success is partly due to treaties Alexander Chekhov, Moscow State Institute of International Relations (MGIMO-University), Department of International Relations and Foreign Policy of Russia Nadya Maslennikova, Moscow State Institute of International Relations (MGIMO - University), Masters Program on Regional Studies Libiao Pan, Middlebury Institute of International Studies at Monterey, Nonproliferation and Terrorism Studies Melissa Samarin, University of California, Berkeley, Department of Political Science Shana Wu, Johns Hopkins University, The Paul H. Nitze School of Advanced International Studies (SAIS), Korea Studies and China Studies
like the Nuclear Non-Proliferation Treaty (NPT), a binding agreement that sets out the standard practices and protocols on non-proliferation by which many subsidiary organizations abide, including the Nuclear Suppliers Group (NSG). It is an unspoken rule and informal practice that NSG members also sign the NPT, and all current NSG members are also NPT members. The acceptance of this arrangement was not an issue until 2016, when India and Pakistan both formally applied for NSG membership without being party to the NPT. The NSG is a fundamental part of multilateral nuclear export controls. This informal group consists of 48 countries committed to limiting nuclear proliferation by monitoring export controls and dual-use technologies, as well as overseeing the transparent transfer of nuclear material between states. The NSG’s participating governments (PGs) deliberate and make consensus decisions behind closed doors, though the group has no legal enforcement mechanism. Nevertheless it remains a critical fixture in sustaining the non-proliferation regime and keeping states accountable to it. The acceptance of India and Pakistan into the NSG is not an isolated issue. The recent discussion surrounding this topic raises serious concerns regarding the objectives and consistency of non-proliferation at large. This situation has
2 | The SURF Research Journal ∙ April 2018 ∙ Vol. IX divided scholars and policy-makers alike, particularly those in the United States and Russia. NSG membership for India and Pakistan may be a way to make these two countries accountable nuclear states by including them in the non-proliferation regime and perhaps contributing to stronger and more stable non-proliferation efforts overall. After all, it is highly unlikely that either will sign the NPT under existing circumstances, which would require them to give up the nuclear weapons they already have. Instead, supporters of their admission laud the so-called ‘criteria-based approach’ – a series of standards that states must meet before being accepted – as an adequate alternative to NPT ratification. This criteria-based approach is currently still being formulated and has received support in some form or another by many NSG PGs, including the US and Russia. However, the criteria-based approach presents numerous notable concerns. First, the non-proliferation regime relies on self-enforcement and the NSG itself has no formal compliance mechanism. International relations theory suggests the way to overcome such uncertainty and facilitate cooperation is through iterated and credible commitment-making (Axelrod and Keohane 1985, 227; Abbott and Snidal 1998, 4-5). The lack of a formal compliance mechanism means that there is no way to ensure that India and Pakistan will follow through on commitments within this criteria-based approach. Alternatively, scholars suggest that the value of such organizations lies in their normative power, even without compliance enforcement mechanisms (Tannenwald 1999). This nuanced understanding points us toward the claim that India and Pakistan are unique, per their historically hostile political relations. The admission of one must be accompanied by the other in succession, in order to avoid escalating bilateral tensions between the two competing states. Yet there is no way to ensure that employing a criteria-based approach will result in equitable implementation. Should political tensions intensify, they can plausibly spill over into larger regional and/or global conflicts. Finally, nuclearization – or the acquisition of nuclear capabilities – remains of major concern to the global community, highlighted in the cases of Iran and North Korea. Any additional slippage within the regime – problematized by a criteria-based approach that takes a case-by-case stance toward non-proliferation – sets a weak precedent for states already susceptible to non-compliance and undermines existing non-proliferation efforts. Employing a criteria-based approach and allowing India and Pakistan into the NSG thus threatens the stability of the non-proliferation regime and jeopardizes both nuclear compliance and monitoring efforts. This paper takes that stance that India and Pakistan ought not be formally admitted to the NSG through a criteria-based approach, as this admission would reward these states after they violated and withdrew from both the NPT and the non-proliferation regime. LITERATURE REVIEW The nuclear proliferation literature understands nuclear proliferation as a result of both demand-side and supply-side
causes. The former focuses on a state’s willingness to acquire nuclear weapons, and the latter emphasizes a state’s opportunity to acquire nuclear weapons (Kroenig 2009, 161-80). From a demand-side perspective, Sagan argues that domestic politics and international normative factors, along with national security considerations, explain a country’s decision to develop nuclear weapons (1996-1997). The first model, called the security model, suggests that states build nuclear weapons to increase national security against foreign threats. This explanation flows from the realist logic, which assumes an anarchic international system, and considers international institutions like the NPT as able to prevent a country from developing nuclear weapons only if neighboring countries stay non-nuclear (Sagan 1996-1997, 54-86). However, it might be inadequate to explain nuclear proliferation decisions by only referring to the realist security model. The dynamics in the decision-making black box also need to be examined. The second model focuses on domestic politics and internal bureaucracy, and envisions nuclear weapons as political tools used to advance domestic and bureaucratic interests. The domestic politics model suggests that, instead of deriving from an agreed upon security decision within India, it was the Chinese nuclear test in 1964 that catalyzed a lengthy internal, bureaucratic debate on developing nuclear weapons in India. This model argues that the pro-bomb lobby – which focuses on scientific research, political concerns about Chinese nuclear developments, and a leader’s domestic legitimacy considerations – more accurately explains India’s nuclear weapon test in 1974, than does the aforementioned security model. Moreover, according to the domestic politics model, India’s decision to nuclearize is not driven by normative considerations, but more so by a domestic nuclear power industry’s strategic choice to form an alliance with the pro-bomb lobby to justify the former’s continued existence. Considering that laboratory officials and scientists are key actors in India’s nuclear weapons program, strengthening non-nuclear research and development programs (as in the current US-Russia ‘Lab-to-Lab’ program) could weaken incentives for nuclear weapons development (Sagan 1996-1997, 54-86). In the third model, referenced as the norms model, the acquisition of nuclear weapons and the restraint in weapons development serve as important normative symbols for the state (Sagan 1996-1997, 54-86). In other words, nuclear weapons not only serve national security and domestic political purposes, but are also indicators of modernity and identity in the international community (Sagan 1996-1997, 54-86). From this perspective, states gain prestige by holding nuclear weapons, which allows them to shape international norms. If, for instance, the US and Russia were to pursue a joint strategy aimed at reducing nuclear weapons domestically, these two superpowers could also alter the norms of non-proliferation in the future for other states around the globe (Sagan 1996-1997, 54-86). In terms of supply-side perspectives, states with foreign nuclear support and/or internal domestic capacity tend to develop nuclear weapons (Kroenig 2009, 162). Nuclear
I. Arms Control & Security ∙ Chekhov, Maslennikova, Pan, Samarin, & Wu | 3 importers reneging on re-export guarantees, due to commercial or political reasons, could be a source of nuclear proliferation through covert ‘gray marketeering’ activities. These activities include covert or official assistance, scientific mercenaries, and the sale, barter, or gift of nuclear weapons (Dunn 1977, 113). Increasing nuclear capabilities in states like Pakistan, Iran, or North Korea has been shown to increase the likelihood that nuclear materials will then become more available in international markets (Kroenig 2009, 162). Last, the dual-use problem in the making of nuclear weapons further complicates nuclear proliferation issues. The isotopes uranium-235 and plutonium-239 can be used to build nuclear weapons (Atomic Heritage Foundation 2014). But the materials and processes to make fuel grade uranium is nearly identical to that of weapons grade material (Mathis 2013, 169-85). The boundaries for civil nuclear programs and nuclear weapon programs are easily blurred. For civil nuclear programs, less than 20 percent of the fuel needs to be uranium-235 concentrate, whereas nuclear weapons require Highly Enriched Uranium (HEU) at a higher percentage of uranium-235 concentrate. However, both are easily convertible via identical centrifuge technologies (Mathis 2013, 169-85). Notably, HEU has significant medical uses, which also complicates the separation of civil and weapon nuclear programs. Moreover, the waste of civilian nuclear energy production can be reprocessed to make weapons-grade plutonium 239 and 240 (Mathis 2013, 169-85). Given the previously-mentioned incentives for a country to acquire nuclear weapon capabilities and the obscure boundary between civil and weapons-based nuclear programs, international institutions such as the NPT and NSG have had critical and positive effects in preventing nuclear proliferation (Sagan 2011, 225-44). The NSG increased the cost for developing nuclear weapons. Likewise, a cornerstone of the NSG’s success – until now – is its ability to strengthen the national export control systems of PGs (McGoldrick 2011, 36). As the main treaty on controlling nuclear proliferation, the NPT obliges nuclear weapon states to help non-nuclear weapon states build civilian nuclear programs, while preventing their escalation into weapons programs (Mathis 2013, 169-85). The NSG is an important channel for nuclear export control, but its criteria for membership is unclear and thus its stand-alone effectiveness is debatable. As exemplified in the case of India, due to deficiencies in the country’s current Separation Plan and 2009 safeguard agreement (Carlson 2018, 1-11), it can be difficult to clearly separate civil and military nuclear programs. Therefore, admission of non-NPT member states, like India, into the NSG must be carefully considered. The approval of India’s or Pakistan’s membership request to the NSG involves Great Power politics and ought to involve changing the current consensus-based approach to a legally-binding decision-making process (Hibbs 2017).
cluding academic journals, books, and official political documents in both Russian and English. Our methodology also includes a series of in-depth expert interviews, which were conducted with academics, politicians, diplomats, and specialists in both Moscow and Washington, D.C. The thematic focus of these interviews extended widely and reflect variation in contemporary views amongst the nuclear arms control community on this topic. For example, the Chief Counsellor at the Department of Nonproliferation and Arms Control at the Russian Ministry of Foreign Affairs, Mikhail Kondratenkov, confirmed that the NSG is currently holding serious discussions in response to India and Pakistan’s bid for membership (Kondratenkov 2017). Roland Timerbaev, Ambassador-at-large and chief Soviet negotiator for the establishment of the NSG, pointed out that the original purpose of forming the group was to prevent non-NPT members from accessing nuclear weapon-related materials and technologies (Timerbaev 2017). With this in mind, Timerbaev stated that the incorporation of non-NPT members into the group will jeopardize the original design of the NSG. Similarly, former Russian Ambassador to India, Vyacheslav Trubnikov, expressed the view that a criteria-based approach should not be a substitute for NPT membership as a condition for approving NSG members, because doing so could undermine the NPT itself (Trubnikov 2017). India and Pakistan should at least agree to ratify and abide by the Comprehensive Nuclear-Test-Ban Treaty (CTBT), if not the NPT, as a condition for admission. However, Former Director of International Cooperation Department at Rosatom, Mikhail Lysenko, suggested that if the group agrees to expand the NSG to non-NPT states, it could possibly lessen the deadlock over issues of the CTBT, since it could motivate India and Pakistan to join the CTBT and bring it that much closer to entering into force. He also pointed out that a country’s decision to join one treaty could improve the likelihood of joining another, in this case the NPT itself (Lysenko 2017). Vice President for Studies at the Carnegie Endowment for International Peace, Douglas Paal, suggested that the NPT had been effective during past decades in preventing nuclear proliferation, but that it needs to be reevaluated as an insurance strategy to make it more effective in responding to future challenges, especially as countries’ demand for nuclear power increases. In this sense, accommodating India’s membership request could further weaken nuclear non-proliferation structures (Paal 2017). Our aim is to answer the question of whether the criteria-based approach is an appropriate course of action for the international community. Given our question’s hypothetical and policy-oriented nature – India and Pakistan have not yet been admitted to the NSG and the non-proliferation regime has never been faced with such a situation before – we believe this approach best suits our research agenda.
Criteria-Based Approach A criteria-based approach solution has been discussed as a possible route for countries to gain NSG membership since India’s waiver was issued in 2008. Although many formats
Our research takes a historical discourse analysis approach and draws upon both primary and secondary sources, in-
4 | The SURF Research Journal ∙ April 2018 ∙ Vol. IX exist, the latest version of the approach was modified in 2016. This version, known as the Grossi Formula, is a 9-point plan that includes commitments to: 1. the verification of clearly separated civilian and non-civilian nuclear facilities; 2. the reporting of all civilian nuclear facilities to the International Atomic Energy Agency (IAEA); 3. an end to nuclear testing; 4. the issuance of a pre-plan for future nuclear intentions and policies; 5. the strengthening of non-proliferation efforts; 6. the cessation of the use of any transferred nuclear material from unsafeguarded facilities; and 7. the intent to join consensus with NPT member states in non-proliferation activities (Kimball 2017). The primary issue with this type of approach is that many of the points are extremely vague. For instance, it is unclear what a pre-plan ought to include and is nearly impossible to verify civilian and non-civilian nuclear material, especially within India and Pakistan. The approach is also not a universal formula that can be applied to any potential government seeking membership. Current PGs make NSG decisions and grant membership by consensus on a case-by-case basis. Thus, admission of one country does not set a precedent for others. In the case of India and Pakistan, this presents particular concerns, as the most sustainable decision must be made for both states simultaneously in order to avoid undue conflict. Finally, the criteria-based approach is not comprehensive. It does not uphold Articles I, III.II, and VI of the NPT, which oversee the development and exchange of nuclear materials, and it does not cover provisions regarding civilian nuclear safeguard agreements and inspection. If India and Pakistan, or any other state, want to join the NSG, a criteria-based approach is not an adequate way to assess commitment and compliance, particularly given the motivations these states – India and Pakistan – have for wanting to join the NSG in the first place. Case Study 1: India India applied for membership to the NSG in May 2016, almost simultaneously with Pakistan. India has signed neither the NPT nor the Comprehensive Agreement on Safeguards with the International Atomic Energy Agency (IAEA), which have thus far been mandatory conditions for acceptance to the NSG. Signing these documents would inevitably force India to give up its military nuclear program, which it considers to be a fundamental part of its national security; therefore, it is unlikely that India will ever become a signatory to either agreement, short of universal disarmament. Despite this, India has still made every effort to gain full membership into the group. In 2008, after a series of negotiations, India was granted a waiver to the NSG that allowed it to buy nuclear fissile materials abroad, but not the ability to import enrichment and reprocessing (ENR) technologies or to export any materials. For India, the ideal situation is to be a full member of the NSG, which it now is actively pursuing. For India, NSG membership would be a way to gain political prestige and recognition as an emerging world power. It is eager to be recognized by the international community as a ‘responsible’ and ‘legitimate’ nuclear state, even though it has not signed documents that could restrict development of its nuclear program (Zamaraeva 2016; Varadarajan 2008;
Fitzgerald 2008; Heinrich 2008). India wants the opportunity to be a part of the international decision-making process and gaining access to the NSG may even help it eventually become a permanent member of the UN Security Council (Hibbs 2016; Swaraj 2016). Indian membership to the NSG would also provide further confidence to investors within its domestic nuclear power projects. Commercial incentives are important, in this regard, as India seeks to expand nuclear trade with other countries on a fully legal basis. In addition, the country seeks access to updated nuclear technologies and fissile materials, and wants to become a fullfledged player in the international nuclear market. In 2011, the NSG implemented a number of new restrictions that strongly prohibit the export of any dual-use technologies to non-NPT signatories, which gives greater impetus for India to become a full member to the group (Viski 2012). Former Indian ambassador, Ashok Sajjanhar, clearly stated, “India is keen to become a member of NSG in order to significantly expand its nuclear power generation and also enter the export market in coming years. Although the 2008 waiver by NSG does provide significant possibilities to India to engage in civilian nuclear trade with other countries, membership in the NSG will provide a legal foundation to India’s nuclear regime” (Sajjanhar 2016). Although the 2008 waiver was a significant milestone, many Indian officials do not feel this status fully empowers the country. Its deal with the NSG still depends on the decision-making process within the group, which could still negatively impact the development of India’s atomic energy program. If India were able to join the NSG, it would be able to protect its national interests directly. It could procure critical technologies and streamline the process of importing nuclear materials, which is currently a time-consuming and cumbersome endeavor due to India’s intermediate status (Shaw 2016). India has tried to persuade the international community that it is a responsible nuclear state with an untarnished reputation. But there are some serious concerns that the international community must still address. For one, since India has not been clear on which specific technologies it wants access to, there is no way to ensure that the safeguarded materials that it would import would be used for civilian purposes only. Additionally, the country has never fully separated its military and civilian facilities, further fracturing India from NSG guidelines. Last, given India’s challenging relationship with other nuclear states, the non-proliferation regime, and the NSG itself, there is also no way to discern whether India has any alternative motives to weaken the NSG or the international non-proliferation regime, itself (Goldschmidt and Dalton 2011; Goldschmidt 2011). India’s bid is also a matter of political leverage in its bilateral relations with Pakistan. India and Pakistan traditionally consider each other as threats to their respective national securities. If accepted to the group, India would have a legal right to veto Pakistan’s bid, since the NSG’s decision-making process pivots on consensus (Krepon 2017). This is concerning, given their political history and the role that each country plays as a pillar in regional stability. Furthermore,
I. Arms Control & Security ∙ Chekhov, Maslennikova, Pan, Samarin, & Wu | 5 if India joins the NSG, it would be able to find other suppliers and would not be solely reliant on the US and Russia, major nuclear trading partners that have issued some conditional policies on the country in the past (i.e. Agreement 123) (Radyuhin and Dikshit 2016). US-India relations remain tense at times, and India would like to free itself from such a conditional relationship. The same logic applies to China, which does not support Indian admission into the NSG and from whom India would like nuclear independence (Lunev 2016). Indian authorities state that they want NSG membership in order to secure their access to plutonium, which is necessary to produce Mixed-Oxide (MOX) Fuel. This has been a part of India’s bid platform, but the country may, in fact, already have the materials that it needs for any new technologies, making its bid for NSG membership pointless (Ramana and Raju 2016). India has also expressed eagerness to gain access to dual-use enrichment technologies that would make it less dependent on imported enriched uranium. Once again, the majority of nuclear reactors in India do not rely on enriched uranium, which makes India’s bid questionable. By joining the NSG, India would secure its natural uranium supplies, especially since its own uranium resources are of poor quality (World Uranium Mining Production 2017). India may want access to nuclear supplies through the NSG for civil atomic energy fuel production, especially since India suffers from fuel shortages and uses its own indigenous resources for military purposes, combining safeguarded and unsafeguarded fissile materials for MOX-fuel production. This would be in India’s favor, since it insists that imported safeguarded materials should not be subject to monitoring (Carlson 2015, 12). It remains unclear why India feels the need to apply for NSG membership, when it already has a fully functioning waiver. That waiver grants it access to most of the materials it needs, gives it considerable leverage over Pakistan, and allows it some level of accountability within the non-proliferation regime. This is why the international community ought to be more concerned about India’s motivations and intent to uphold its commitments to the NSG: its motives are multifaceted and may not be strictly for nuclear technology reasons. India may be seeking greater cooperation with the international community; however, it may also seek to develop more advanced ENR technologies to accumulate funds for developing tactical nuclear weapons. Its motivation can be explained by both political and technological needs, but the overwhelming narrative is that, for India, NSG admission would be a major political step. The international community needs to be aware of this before granting India full membership. Case Study 2: Pakistan Like India, Pakistan applied for NSG membership in May 2016. However, the international response to Pakistan’s application was largely negative. Concerns were raised about the country’s record of commitment to the non-proliferation regime and its views on nuclear exports. Like India, Pakistan refuses to sign the NPT and the Comprehensive Agreement on Safeguards with the IAEA. From the point of view of Pa-
kistani leadership, Pakistan ought to have the right to use nuclear weapons. Officials have been vocal about this and have defended this position publicly, which is why it is highly unlikely that Pakistan will ever sign the treaty (Haider 2002). Perhaps the most questionable and negative factor from the standpoint of the international community is Pakistan’s record with and connections to illicit networks, notably the A.Q. Khan Network. A nuclear physicist and metallurgical engineer, A.Q. Khan headed Pakistan’s uranium enrichment program from 19762001. He utilized centrifuge technology that was legally acquired from URENCO, a European uranium-enrichment consortium. During his time at Khan Research Laboratories, Pakistan’s uranium-enrichment facility, Khan sold nuclear centrifuge technologies and equipment for making enriched uranium to several questionable international buyers, including Libya, North Korea, Iran, and China (Pollack 2012). This became known as the Khan Network and these connections, in conjunction with Khan’s personal association with Pakistan’s atomic weapon development and program, continue to mar Pakistan’s involvement with the international non-proliferation regime. Khan is considered one of the nation’s greatest scientists and is viewed as a hero for salvaging Pakistan from potential domination of a nuclear-armed India, but he remains a controversial figure in the non-proliferation community and allegations of Pakistani state support for his proliferation activities continue. Despite Pakistan’s refusal to sign the NPT and its continued denial of alleged ties to the Khan Network, from the Pakistani perspective the country has demonstrated a solid commitment to non-proliferation goals. The motivation for the country’s willingness to join the NSG and other multilateral export control regimes are based on a desire to prove that it is a responsible state with regard to nuclear weapons and non-proliferation. According to the Pakistan National Command Authority, Pakistan seeks to prove that it can contribute constructively to the realization of a world that is free of nuclear weapons and support the goals of non-proliferation on the basis of partnership and equality with the international community (Kamran 2016). In terms of diplomacy and international influence, it has enhanced its status as a responsible nuclear nation by taking many practical stances to earn it international recognition. For example, after being invited to and visiting Pakistan in early 2014, the Director General of the IAEA expressed confidence about the steps the country had taken in recent years to safeguard its nuclear assets (Mustafa 2014). On the domestic front, Pakistan attributes this confidence to its strategic trade control system. For the last 15 years, it has strengthened its national command and control structure considerably, and implemented the Export Control Act of 2004, which is consistent with the scope of the NSG and other multilateral export control regimes (Akhtar and Hussain 2010, 175-97). The Export Control Act provides a specific list of technologies and goods that are subject to regulatory controls. In 2007, Pakistan also established the Strategic Export Control Division (SECDIV) as part of its Foreign Affairs Ministry. The SECDIV began issuing export control guidelines in 2009 and also issued Internal
6 | The SURF Research Journal ∙ April 2018 ∙ Vol. IX Compliance Program Guidelines at the end of 2014. Pakistan sees its application to the NSG as a means to strengthen multilateral non-proliferation regimes, but there are serious concerns from an international viewpoint about the validity of their stance. Pakistan already feels excluded from the non-proliferation regime and slighted by the NSG’s approval of a waiver for India, let alone its consideration to grant India formal NSG membership. Pakistan lacks a substantial incentive to continue with its ongoing international engagement with the non-proliferation regime, as long as these tensions with India exist. In addition, given the various insurgent and terrorist groups active within Pakistan and across the region, there are significant reasons to be worried about the potential diversion or capture of Pakistani nuclear weapons by such groups. Furthermore, formally accepting Pakistan into non-proliferation institutions such as the NSG may signal acceptance of its potentially illicit activities. Despite these concerns, many observers see the inclusion of Pakistan into non-proliferation regimes as of benefit to the international community as it may be safer and less threatening to have Pakistan inside the NSG and adhering to its guidelines than outside any export control regime. However, as long as Pakistan expresses discontent over the inequality in recognition between itself and India over their nuclear programs, there is no way to verify that Pakistan will uphold and abide by NSG principles, were it admitted. Under the surface, its motivations to join the NSG appear to be largely driven by its competition with India and international status recognition, more so than as a commitment to non-proliferation practices and protocols. For Pakistan, a positive application to the NSG would amount to global recognition of the efforts and improvements that it has made toward non-proliferation. Pakistan’s inclusion in the NSG would allow it to trade nuclear materials under the watch of the international community in an open and legitimate manner with all of the associated benefits. However, it is crucial to note that including Pakistan as a member of the NSG would allow it to influence the non-proliferation regime and international nuclear market, a fact that is particularly alarming given its potentially incriminating connections with nefarious networks and groups. A negative application, particularly if rival India is accepted, would confirm Pakistani criticism that the nuclear regime is discriminatory and may harden Pakistani attitudes toward non-proliferation; this is why the decision of membership for India and Pakistan needs to be made in unison. But inclusion of Pakistan into the NSG would ultimately give it greater independence, access to the international nuclear market, and opportunities to cooperate on nuclear technology development with other world powers. Pakistan’s nuclear energy needs are currently being addressed through its bilateral relationship with China, and Pakistan views nuclear power as an important element in national energy security. Pakistan sees NSG membership as important to establishing the peaceful use of nuclear power as part of its national development, but it has yet to convince observers that it is ready to do so on the international stage.
IMPLICATIONS FOR US-RUSSIA RELATIONS The United States and the Soviet Union played a crucial role in drafting the NPT during the 1960s and securing its signing and entry into force. Since then, Moscow and Washington are considered the two main nuclear powers responsible for maintaining the non-proliferation regime. By the nature of US-Russia relations in the field of nuclear security, both states pay serious attention to this status. The validity of this argument is supported by the fact that nuclear non-proliferation issues stay separated from their domestic agendas. Even in spite of great bilateral tensions, the US and Russia have always maintained a certain level of cooperation in this sphere. The NSG provides a particularly good case on this account. Soon after entry into force of the NPT on March 5, 1970, it became clear that the treaty itself was not a universal safeguard against the further spread of nuclear weapons. In 1974, India, which actively participated in the negotiations as a country without nuclear weapons but nevertheless refused to sign the NPT, conducted its first nuclear test. It became evident that further maintenance of the non-proliferation regime required additional strengthening of multilateral export control measures beyond the regulations already adopted. It was Moscow and Washington that took the lead that same year and established the NSG. Critical to note is that “regardless of their global rivalry, the two superpowers [US and Soviet Union] throughout the Cold War cooperated without interruption in administering the NSG and the nuclear trade regime” (Hibbs 2017). Nowadays, the US and Russia have continued this legacy and maintain relatively high levels of cooperation in the NSG and non-proliferation regime and share similar interests in this sphere. Forty years have passed since the first Indian nuclear test, and 2018 will mark twenty years since Pakistan’s first test. Neither state shows any intention to abandon their nuclear weapons programs in exchange for peaceful atomic energy. Once again, Russia and the US are among the leading players shaping this framework, specifically as key decision-makers in whether India and Pakistan would (or would not) be admitted to and/or cooperate with the NSG. Both countries support India’s acceptance into NSG (although this support is not definitive) and oppose Pakistani admittance. However, as our research has shown, this may be a volatile decision and the US and Russia ought to think carefully about the long-term consequences of this policy. The problem goes beyond maintaining the sustainability of the non-proliferation regime as such, but also raises questions of the US and Russia’s responsibility in maintaining the said regime. Expansion of the NSG at the expense of India and/ or Pakistan may provoke a negative reaction from certain states such as China. Some countries will consider such an expansion as evidence that the US and Russia put their own economic and geopolitical interests above the maintenance of the nuclear non-proliferation regime. Despite a less-than-optimistic trend in US-Russia relations, the tacit cooperation between the two states within the framework of multinational institutions like the NSG since the 1970s reminds us of the fact that US-Russia coop-
I. Arms Control & Security âˆ™ Chekhov, Maslennikova, Pan, Samarin, & Wu | 7 eration in preventing nuclear proliferation has persisted and has generally been unaffected by changes in their bilateral agendas. While the Intermediate-Range Nuclear Forces Treaty (INF Treaty) currently faces major challenges, both the US and Russia maintain their commitment to the NSG. Douglas Paal summarized frustrations regarding the US-Russia role in the non-proliferation regime succinctly, noting that rational discussion about the relationship is a critical and necessary measure (Paal 2017). Mikhail Kondratenkov stated that NSG expansion should not be interpreted as a major breakthrough in bilateral relations (Kondratenkov 2017). It is hard not to agree with this statement, since the groupâ€™s activities are concerned with a narrow set of problems compared to the broad scope of the US-Russia bilateral agenda. Nevertheless, the fact that this group does present a multilateral format, under which the two countries can cooperate and make a decision that can again impact non-proliferation outcomes, particularly when they share the same position on the issue, can and should be viewed as a silver lining. In the 1960s, multilateral negotiations on nuclear non-proliferation played a crucial role in establishing the diplomatic framework that was later used to pursue dĂŠtente in US-Russia relations. In this regard, maintaining and promoting existing lines of diplomatic communication in nuclear non-proliferation can be a crucial factor for the future improvement of US-Russia relations.
8 | The SURF Research Journal ∙ April 2018 ∙ Vol. IX
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I. Arms Control & Security ∙ Chekhov, Maslennikova, Pan, Samarin, & Wu | 11 Williams, Lauryn. 2016. “A Path Forward on Indian NSG Membership.” Carnegie Endowment for International Peace. http:// carnegieendowment.org/2016/04/01/path-forward-on-indian-nsg-membership-pub-63237. World Nuclear Association. 2017. “World Uranium Mining Production.” World Nuclear Association. http://www.worldnuclear.org/information-library/nuclear-fuel-cycle/mining-of-uranium/world-uranium-mining-production.aspx. Zamaraeva, Natalya. 2016. “Pakistan and Indian application to the NSG membership.” New Eastern Observation. http:// ru.journal-neo.org/2016/07/05/pakistan-i-zayavka-indii-na-vstuplenie-v-gyap/. ________________________________________  Note: formally according to the international law, the Nuclear Suppliers Group is not an international organization because it is not institutionalized, which means that the Group does not have an official Charter (it has only the Guidelines) or a common budget.  Note: In 1974, India conducted a “peaceful nuclear test” and used equipment and fissile materials from the U.S. and Canada, which was an obvious violation of bilateral contractual arrangements. The NSG was established immediately after the test.  Note: MOX-fuel - MOX fuel is an alternative to the low-enriched uranium (LEU) fuel used in the light water reactors (LWRs) that predominate nuclear power generation. India hopes to expand its LWRs capacity, so in order to do that India would need this particular type of fuel. In 2015 India put its first LWR in operation to produce electricity. See more at: http://indianexpress. com/article/india/india-others/work-begins-on-indias-first-light-water-reactor-after-smaller-version/  For a more detailed description of the Export Control Act of 2004, please refer to “INFCIRC/636: Pakistan’s national legislation entitled: ‘Export Control on Goods, Technologies, Material and Equipment related to Nuclear and Biological Weapons and their Delivery Systems Act, 2004’ ”, International Atomic Energy Agency (IAEA), November 23, 2004, https://www.iaea.org/ sites/default/files/publications/documents/infcircs/2004/infcirc636.pdf
2 Frameworks to Advance Arctic Wind Development through US-Russia Collaboration II. Energy Geopolitics Working Group Valentina Bonello, Maxim Glagolev, and Katherine Weingartner Abstract Ice melt and permafrost thaw in the Arctic, accelerated by climate change, increase economic potential for United States (US) and Russian companies, as well as for national and state governments to pursue hydrocarbon extraction in the Arctic regions. However, despite US and Russian leadership in oil and gas production and the fact that both hold some of the world’s largest hydrocarbon resources, their Arctic regions suffer from high energy supply costs and risks associated with supply disruptions. The US and Russia could cooperate to address similar energy security challenges in the Arctic, particularly by investing in renewable energy sources to increase the resiliency of diesel-dependent energy systems currently prevalent in these regions. This paper examines the potential to collaborate on increasing the deployment of wind energy on the national, company, and regional level, concluding that the regional level is the ideal platform for such cooperation. INTRODUCTION
ce melt and permafrost thaw in the Arctic, accelerated by climate change, increase economic potential for United States (US) and Russian companies, as well as national and state governments, to pursue hydrocarbon extraction in Arctic regions. However, despite US and Russian leadership in oil-and-gas production and the fact that both hold some of the world’s most extensive hydrocarbon resources, their Arctic regions suffer from high energy supply costs and the risks of supply disruptions. The US and Russia could cooperate to address similar energy security challenges in the Arctic, particularly by investing in renewable energy sources to increase the resiliency of their diesel-dependent energy systems. The goal of this paper is to evaluate the possibility of US-Russia cooperation on wind power development in the Russian Arctic and in Alaska. We first examine the state of wind energy and the challenges to its development in both countries. We then assess the institutional and company-related barriers and incentives to invest in wind energy in Russia and in the US. Finally, we identify US-Russia cooperValentina Bonello, The University of Texas at Austin, Lyndon B. Johnson School of Public Affairs Maxim Glagolev, Skolkovo Institute of Science and Technology, Energy Systems CREI and Gazprom StroyTEK Salavat Katherine Weingartner, The George Washington University, The Elliott School of International Affairs
ation opportunities on national, company, and state levels. Ultimately, we determine that state-level cooperation is the most advantageous for advancing wind energy development in US and Russian Arctic areas. ALASKAN INTEREST IN WIND ENERGY Increasing energy costs and demand, the want to diversify and strengthen the state economy, and energy security concerns all support an increased interest in developing Alaska’s wind capacity (Johnson et al. 2012). Alaska’s electric energy consumption is the second lowest in the US (Musial et al. 2016) and yet, many remote Alaskan communities face the highest electricity costs in the nation with some paying 1 USD per kilowatt-hour compared to the national average of 0.12 USD per kilowatt-hour. This is due to the high cost of shipping fossil fuels, most of which are diesel, to communities by barge or plane result in these higher energy costs (Shaw 2017). In the midst of growing demand for heat, electricity, and transportation fuel in the state, renewable energy sources (RES) like wind have the potential to save communities millions of dollars annually, while keeping money in the Alaskan economy (Renewable Energy Alaska Project 2016). Wind power has the potential to replace expensive diesel fuel and, as innovative approaches to diesel-wind-energy storage systems develop, further wind power opportunities become more competitive (Hirsch 2013). RES, such as wind, can offer energy at a known cost, which increases a community’s resil-
14 | The SURF Research Journal ∙ April 2018 ∙ Vol. IX iency to volatile fuel prices and inflation (Renewable Energy Alaska Project 2016). In 2016, Alaska’s utility-scale electricity generation was made up of 42 percent natural gas, 15 percent hydroelectricity, 10 percent coal, and 4 percent of wind power and biomass, collectively (US Energy Information Administration 2017). Greater investment in wind energy can help Alaska to reach its goal of being 50 percent powered by RES by 2025 (Renewable Energy Alaska Project 2016), especially because Alaska has significant wind power potential, particularly near its coasts (Today in Energy 2015). CHALLENGES TO WIND DEVELOPMENT IN ALASKA Wind development in Alaska is not without its challenges. In the last 60 years, the average temperature of Alaska has risen by approximately 3° Fahrenheit, which is twice the rate of the rest of the US. By mid-century, projections indicate an additional 2 to 4° Fahrenheit temperature increase. Permafrost lies beneath 80 percent of Alaska’s surface (US Environmental Protection Agency 2017). Its thawing can pose additional technical challenges to wind energy installation. To protect against permafrost thaw, turbines may require special foundation designs, thereby increasing project costs. Heavy installation equipment such as cranes can only be used when permafrost ground is frozen and waterways are clear of ice to allow equipment to be delivered by barge, putting additional strain on construction, shipping, and maintenance costs and logistics (US Department of Energy 2015). The state of Alaska offers financial assistance to local communities, where residents pay three to five times higher electricity rates than those in urban areas (US Energy Information Administration 2017). Additionally, the majority of recent RES projects were funded by state and federal grants, but as the state budget has contracted, so have these grants (Waldholz 2017). Higher upfront costs of RES, compared to diesel, can make financing difficult, paving the way for alternative funding mechanisms on wind energy projects (Kokorin et al. 2017). CURRENT WIND RESOURCES IN ALASKA Despite its challenges, Alaskan communities are investing in wind energy. In 2016, the city of Nome had times when wind accounted for up to 30 percent of its power (Hovey 2017). In March 2017, 99.7 percent of Kodiak’s energy came from RES, 20 percent of which came from wind generation (Shaw 2017). Several other communities including Savoonga, Wales, Chevak, Emmonak, Shaktoolik, and Gambell have followed suit by investing in wind energy (Shaw 2017). The largest wind energy project in the state, Eva Creek, is connected to the Railbelt transmission system, which allows it to provide electricity for two-thirds of Alaska’s population (Today in Energy 2015). Alaskan communities have also integrated renewable energy generation into microgrid systems to maximize energy system efficiency and resilience without the need for expensive transition lines. In the past decade, Alaska has become an international leader in microgrid development and operation. In 2015, Alaska’s over-70 microgrids accounted for 12 percent of the world’s renewably-powered microgrids (University of Alaska Fairbanks 2015). In light
of reduced state and federal funding, successful wind development stands to benefit from greater cooperation with the business community. In Alaska, the company 60Hertz is in the process of aggregating several onshore community wind projects to attract investors and make use of economies of scale (Waldholz 2017). RUSSIAN INTEREST IN WIND ENERGY FOR THE ARCTIC REGION As in the US, the Russian Arctic’s high energy costs and the threat of supply disruptions may incentivize greater investment in wind development. Energy systems in the Russian Arctic mainly consist of diesel-based generators, though coal and residential oil are also used (Berdin 2017). Fossil fuel delivery to remote areas of the Arctic Region, which currently operates under the Northern Delivery (‘Severniy Zavoz’) scheme, is problematic and expensive. Deliveries can only take place during a short time period each year, and transportation routes are very long. Moreover, climate change increases the risks associated with the Northern Delivery due to weaker ice and unstable river flows (Berdin et. al. 2017). The State Commission for Arctic Development stated in June 2016 that up to 6-8 million tons of fossil fuels and up to 20-25 million tons of coal are delivered each year to the Arctic regions (Proceedings, 2016). The price for diesel delivered this way can reach 74 rubles per ton, while the price for electricity might reach 120 rubles per kilowatt-hour (IPGG SB RAS 2017). As a result, heat and power production shortages exist still today (Smolentcev 2012, 24), posing a challenge to affordable and sustainable power generation. Without modern, efficient, and dependable energy systems, Russia cannot succeed in the rapid and large-scale development of its Arctic region, which creates an additional incentive to invest in RES like wind. Both energy companies and the Russian Government are motivated to have sustainable, efficient, and affordable power and heat supplies in the region. Several scenarios are possible: renewable-based generation, diesel-based generation, and gas-based generation. A combination of these types of generation, also called hybrid generation, will most probably be implemented. Incorporating RES into these hybrid generation sources can contribute to energy diversification and energy efficiency, while reducing carbon emissions and mitigating climate change (Russian Government 2009). CHALLENGES TO WIND DEVELOPMENT IN THE RUSSIAN ARCTIC The price of electricity produced through renewable energy systems risks not being competitive in a country where electricity price is kept low through regulated gas prices (Smeets 2016). However, the uncertain economic conditions of the Arctic region open up opportunities and lower the economic barriers to the implementation of renewable energy solutions in the region. RES can become a beneficial tool to reduce the operational costs of energy systems and fuel delivery, while increasing the energy efficiency of these systems. Environmental conditions are positive for RES implementation in the Arctic. Coastal areas of the Russian Arctic
II. Energy Geopolitics ∙ Bonello, Glagolev, & Weingartner | 15 are well-positioned to host wind farms, as the average wind speed is about 7 meters per second (Konovalova 2016; Popel et. al. 2015). At the same time, extreme and harsh weather conditions could become a potential challenge for wind energy. Turbines cannot be operated under stormwind conditions complicating the potential for deployment of wind power in these regions. The issue of de-icing must also be addressed. Test cases have shown that de-icing procedures may consume as much electricity as the wind turbine generates (Berdin 2017). Thus, new technologies must be implemented to satisfy the aerodynamic conditions of blades to become economically efficient. Storage of RES-generated electricity in the Arctic also poses problems and is compounded by the region’s frigid temperatures. A number of energy storage technologies could be implemented, but need to be adapted for the region (e.g. fuel cells and LiOn accumulators need certain thermal conditions for efficient operation). CURRENT WIND RESOURCES IN THE RUSSIAN ARCTIC There are several wind projects in the Russian Arctic operating across five locations, the largest of which is located in the Chukotka Autonomous District’s Observation Cape, with 2.5 megawatts (MW) of installed capacity (Shilova & Solovjov, 2015). As pure wind generation poses a number of challenges (for example, the need of power storage and some difficulties in balancing the system), a hybrid approach was implemented; wind-diesel or wind-solar-diesel stations were created in settlements with strong wind potential despite relatively mild climates (Mortensen 2017). In total, five hybrid wind–diesel power units operate in the Russian Arctic. Due to improved economic performance, wind projects are more developed in the Russian Arctic than in any other Russian region. These projects are located on the coastline from Murmanskaya district to Chukotka and Kamchatka. These projects might help to save tons of diesel and reduce tariffs. A number of wind projects have been initiated in the Arctic. For example, the Murmansk district plans to build an onshore wind farm on the Barents Sea coast, which will produce more than 700 kilowatt-hours per year (Regional Energy 2017). POTENTIAL BARRIERS AND OPPORTUNITIES FOR NATIONAL-LEVEL WIND DEVELOPMENT COOPERATION US and Russia National-level Renewable Energy Policies The institutional RES frameworks in Russia and in the US differ widely because of the different role that the government plays in these two countries’ energy sectors. This divide is especially evident in the case of renewable energy policy. The largest Russian energy companies are controlled by the state, which makes it easier for Moscow to exercise control and set the course of the Russian energy sector. On the other hand, the US energy industry is highly liberalized, with very little government influence. US and Russian national-level approaches to RES development vary in structure and execution, but both are currently limited in their ability to encourage further investment in RES. The Russian Government officially stated that, by 2020,
it intends to increase the share of electricity produced from RES within the Russian federation to 4.5 percent (Smeets 2016, 138). To achieve this goal, Russia designed a capacity-based renewable energy support scheme to allow for the financing of upfront capital investments. According to this scheme, the Russian Government concedes financial guarantees on the domestic wholesale electricity market, up to a certain installed renewable energy project capacity, including wind, hydroelectric, and solar projects. Such projects receive a guaranteed 14 percent return on investment on their renewable energy sales over 15 years (Smeets 2016, 143). Nevertheless, the capacity-based renewable support scheme does not come without downsides. First, this policy does not apply to the Russian Far East, but only to West Siberia and European Russia. Furthermore, in addition to the challenge of making RES cost competitive in a market of low fossil fuel costs, the scheme only applies to the wholesale market, which excludes power systems below five megawatts. Such systems are very common in technologically isolated areas (Smeets 2016). These characteristics prevent investors from taking advantage of the scheme to develop RES systems in remote regions of the Russian Federation. This policy also requires that companies responsible for accepted projects have production capacity in the Russian Federation, either by setting up their own production facilities or by acquiring such capacity from companies already present in the territory. This requirement, as well as the depreciation of the ruble, and the subsequent difficulty of the government in subsidizing the scheme, could also discourage foreign investment in RES (Smeets 2016). The question of Arctic development is being discussed at all levels in Russia. Alexander Novak, Russia’s current Minister of Energy, leads the Development of Energy Systems Group within the Governmental Commission on Arctic Development. The goal of the group is to develop strategic and long-term energy systems in the Arctic (Governmental Commission on the Arctic Development 2017). Decree 1064, signed on August 31, 2017, updates the ‘Socio-Economic Development Program of the Arctic Zone of Russian Federation until 2020’ (Government of the Russian Federation 2017). In particular, this document aims, in vague terms, to develop the Russian Arctic, though the effectiveness of this decree is yet to be seen. Despite these efforts, existing policies are still not sufficient to promote RES in the Arctic Region (Mortensen 2017). Unlike Russia, the US has no federal renewable energy policy and the government, irrespective of its political orientation, often fails to support clean energy development (Elliott 2013). According to Elliott (2013), this is largely due to Congressional opposition and the ideological shifts that follow each round of presidential elections. Moreover, each state is in charge of regulating electric utilities, while only wholesale transportation is regulated at the federal level, which creates policy and investment coordination problems. In spite of these obstacles, 26 US states implemented renewable portfolio standards (RPS), regulations that require retailers to ensure that a minimum percentage of the electricity they supply comes from RES (Barbose 2016). The
16 | The SURF Research Journal ∙ April 2018 ∙ Vol. IX minimum requirement is set by each state, which chooses voluntarily whether to introduce RPS. According to the Department of Energy’s Office of Energy Efficiency & Renewable Energy (2016), RPS were responsible for a 60 percent renewable energy capacity increment since 2000 (Barbose 2016, 11). Moreover, in 2013, greenhouse gas emission reduction resulted in 7.4 billion USD in savings, compared to a 1 billion USD RPS implementation cost. US-Russia Diplomatic Relations in the Arctic US-Russia relations deteriorated greatly in 2017. Suspected Russian interference in the US presidential election led to sanctions on Russian intelligence agencies and allegedly-involved companies. In the summer of 2017, the US Senate approved a new sanctions bill against Russia, targeting its energy, defense, intelligence, metals, railways, and mining sectors. In August 2017, the Russian Government required 755 US diplomatic staff in Russia to leave the country. Despite challenging relations between these countries, the US and Russia continue to collaborate within the Arctic Council, a high-level intergovernmental forum that allows for greater cooperation, coordination, and interaction among Arctic States. For example, in May 2017, both countries signed the binding Agreement on Enhancing International Arctic Scientific Cooperation in Fairbanks, Alaska (“Arctic Council Ministers meet” 2017). Recent US-Russia cooperation within the Arctic Council on maritime safety, international fisheries, and the creation of an Arctic Coast Guard Forum further supports the idea that constructive engagement is possible in the Arctic. Arctic collaboration has been relatively insulated from the general decline of relations between these two countries, suggesting that it is an ideal place to foster improved ties (Kortunov and Oliker 2017). POTENTIAL BARRIERS AND OPPORTUNITIES FOR COMPANY-LEVEL WIND DEVELOPMENT COOPERATION Although state and federal government efforts had a significant impact on RES development, individual companies in the US are the actors that ultimately invest in RES and could, potentially, lobby against the expansion of the clean energy industry (InfluenceMap, 2016). For this reason, it is important to analyze the incentives and the obstacles that may push the major oil-and-gas companies to support, or to work against, RES development. Renewable Energy and Oil-and-Gas Companies: a Contradiction in Terms? Although oil-and-gas companies have traditionally opposed RES development (these companies rarely include RES in their investment portfolios, and they often lobby against government support to the expansion of the clean energy industry); yet there may be an incentive for them to invest in wind in the Arctic. Economic incentives spurred by the high cost of diesel, could push the oil-and-gas industry to invest in RES. Such incentives could make US-Russia cooperation even more profitable and plausible. According to the existing literature, there are two main reasons why the supermajors of the oil-and-gas industry do not invest, and lobby against investments, in the renewable
energy sector. First, they have an interest in preserving the world’s dependence on fossil fuels and, second, they state that returns are not high enough to justify these investments (Csómos 2015). For instance, ExxonMobil, the largest oil company in the US and in the world, does not invest in wind or solar energy. During their 2015 annual shareholder meeting, Exxon CEO Rex Tillerson stressed that RES are not economical enough, and hence the company does not invest in RES as it chooses “not to lose money on purpose” (The Guardian 2015). Nevertheless, other major companies such as Shell and BP do invest in wind power, although they have kept such investments to a minimum. For instance, Shell owns six wind farms in North America, and one third of the generation capacity it manages in the US comes from RES (Shell n.d.). BP is the supermajor with the largest renewable energy portfolio. The company owns 14 onshore wind sites with a total generating capacity of 2,259 megawatts (BP n.d.). Russian energy company Gazprom recognizes the incentives of investing in wind and solar power in remote areas, and today operates more than 100 off-grid renewable power systems (Gazprom n.d.). The incentives for oil-and-gas companies to invest in RES, and specifically in wind energy, are mostly economic. For example, investing in wind energy development can help them to maintain a constant cash flow when oil and gas prices are low. Indeed, Norwegian oil-and-gas companies invested cyclically in wind power to compensate for revenue losses caused by low oil-and-gas prices (Hansen and Steen 2014). Moreover, investing in RES can allow big energy companies to meet the world’s energy demand by preparing for changes in global energy consumption, which may see the depletion of hydrocarbon resources in the distant future (Csòmos 2015). The economic incentives of investing in RES may be especially prominent for energy companies that operate in geographically remote areas, isolated from centralized power networks, where powering oil-and-gas plants becomes more expensive (Boute 2016). This is especially true of isolated Arctic areas, where untapped sites can top-off, and compensate for, the rewards from existing extractive projects. Alternatively, many isolated systems in the Arctic regions of the Russian Federation and the US rely on diesel for energy production, and severe weather sometimes requires diesel to be delivered by helicopter, making the cost of diesel transportation to remote areas very high (Lombardi et al. 2016). According to Lombardi et al. (2016), electricity generated through diesel in the Russian Far East can also be expensive, with prices upward of 2500 USD per MW/h (Lombardi et al. 2016, 536). In spite of high upfront investment and storage system costs, wind energy production could provide a more affordable and reliable alternative once enough systems are set up. Therefore, off-grid and renewable energy systems may help to reduce the costs of powering operations in the Russian Far East. Moreover, according to the study by Lombardi et al. (2016), upgrading or replacing old isolated power system with renewable energy systems could also lead to job creation which may further benefit companies and the
II. Energy Geopolitics ∙ Bonello, Glagolev, & Weingartner | 17 State. Though economic disincentives for oil-and-gas companies to invest in wind persist, there is evidence that such investment can potentially reduce the high cost of diesel in the technologically isolated areas in which these companies operate. Political Obstacles Following Russia’s formal annexation of Crimea on March 18th, 2014, the US applied sanctions to 17 additional individuals and companies. In July of the same year, US sanctions began to target the Russian energy sector, banning Rosneft and Novatek from accessing loans with more than 30 days of maturity. The US applied the same provision to Gazprombank and Vneshekonombank (Rutland 2014). After pro-Russian rebels shot down Malaysian Airline Flight 17 in Eastern Ukraine, the US intensified its sanctions against Moscow in July 2014, adding additional Russian banks to the list of sanctioned entities, now including Bank Moskvy, Rosselkhozbank, and VTB. However, the US increased the maturity threshold for borrowing for Novatek, Rosneft, Gazpromneft, and Transneft from 30 to 90 days (Rutland 2014, 3). Moreover, the current sanction regime prohibits US companies from providing technology, goods, and services that facilitate deepwater, Arctic offshore, or shale oil exploration and production (Department of Treasury 2014). These sanctions are designed to affect Russia’s oil industry and, therefore, do not impact technology and knowledge exchange related to renewable energy system development. Nevertheless, the sanctions also have the goal of limiting Russian banks’ and companies’ access to sources of capital with more than 30 or 90 days of maturity. As a result, the threshold may prevent Russian companies that seek to invest in RES to look westward to obtain the capital necessary to develop such energy projects. This, however, does not mean that RES development in Russia will not happen, nor does it mean that Russian companies will not be able to cooperate with their US counterparts in developing renewable energy systems in the Russian Arctic. In order for collaboration to happen, however, Russian companies need to find other sources of debt financing or choose alternative financing strategies. EXAMINING OPPORTUNITIES FOR US-RUSSIA COOPERATION ON WIND ENERGY DEVELOPMENT National-Level Recognizing that US-Russia cooperation within the Arctic Council continues despite a decline in political relations, this forum represents a potential platform to advance US-Russia collaboration on wind energy development in the Arctic. In April 2017, the Arctic Council’s Sustainable Development Working Group endorsed the Arctic Renewable Energy Atlas (AREA) project. The purpose of AREA is to enhance knowledge of local adoption and best practices of RES in the Arctic. The project will gather renewable energy data from all eight Arctic countries, create a useful database of community energy production, consumption, and efficiency, and develop a best practice guide for remote community renewable energy integration and efficiency, among other deliverables. En-
couraging Russia to engage actively with the US on this project has the potential to not only benefit greater US-Russia collaboration on Arctic wind energy development, but can also serve to benefit renewable energy investment in other parts of the Arctic. Company-Level On the company level, wind development can provide cost savings in comparison to continued reliance on diesel in powering energy projects. Such collaboration can be divided into three categories. The first is device exchange (for example, wind turbines) from American to Russian companies. Moreover, cooperation could consist of labor and resource divisions among American and Russian firms; while the former hold more advanced technologies, the latter can access more affordable composite materials and metals. As a result, both sides may gain from this cooperation through less costly production. The second category consists of bilateral soft technology exchange, which includes control strategies and management systems. This exchange can flow in both directions. Finally, American and Russian companies could cooperate through joint research and development efforts and exchanges. For instance, US and Russian companies interested in Arctic development could conduct joint research to determine the extent of possible cost savings resulting from substituting RES to diesel-generated electricity. State-Level Although there is potential to collaborate on wind energy at the national and company levels, we propose that state-level cooperation is the ideal platform for enhancing the US-Russia partnership in wind development. The state-level is not only one step removed from the politicization of national and international politics, but also avoids the complex dynamics evident in company engagement with RES. Overcoming barriers to wind development depends on understanding an area’s specific geographic characteristics which demands a more localized approach to problem-solving. The states of Alaska and Tyumen have been identified as the most promising actors for such state-to-state cooperation. Alaska and Tyumen are major energy producers that recognize the importance of reducing high energy costs while holding Arctic territory. Both have intimate knowledge of, and interactions with, the energy interests of companies and their respective national leaderships, making these regions key players to connect the various interests and players in the Arctic energy space. Recognizing the resource limitations of both states, we propose that a state university be selected by each state government to engage in a university research partnership project of one year with the goal of identifying opportunities for state-level partnership to enhance wind development. Sharing best practices on project-financing methods and technological exchanges, particularly in the area of hybrid microgrid systems, are just some potential areas of exploration. The state-level partnership would provide resources and advice where needed to the university-level partnership. As an additional benefit, this kind of bi-national engagement could strengthen US-Russia relations at both the state
18 | The SURF Research Journal ∙ April 2018 ∙ Vol. IX and professional levels while offering scholars a unique and valuable educational opportunity to sharpen their research. CONCLUSION Though deteriorating relations pose obstacles to US-Russia collaboration on energy, the Arctic still represents a platform for collaboration. There are incentives for both the US and Russia to enhance wind energy development on the national, company, and state levels. US and Russian cities and states can engage in information and knowledge-sharing to bolster wind development in the Arctic. On the company level, a case can be made that wind development can offer cost savings by reducing operational dependence on diesel electricity generation. On the national level, the poor state of US-Russia relations and the current sanctions should not prevent investment in wind. Rather, the two countries can collaborate on wind development within the Arctic Council, specifically through the AREA project of the Arctic Council’s Sustainable Development Working Group (Arctic Renewable Energy Atlas 2017). We conclude with the recommendation that greater collaboration be fostered at the state level between Alaska and Tyumen, particularly by creating a state-guided university partnership to overcome barriers to greater wind energy development in their Arctic regions.
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3 Rebuilding the Cyber Bridge of Confidence toward Establishing Bilateral Behavioral Norms for US-Russia Cooperation III. Security Relations and Defense Cooperation Working Group Andrew Carroll, Elvira Chache, and Tinatin Japaridze Abstract Conflicts in cybersecurity continue to strain US-Russia relations, further intensified by allegations of malicious, Russian cyber-involvement in the 2016 US Presidential Election. Part of this conflict is due to a mutual distrust, perpetuated by a lack of commonly-accepted behavioral norms, field-specific definitions and understandings, and challenges of attribution. We argue that cybersecurity, and particularly cyber deterrence, is an exercise in both psychology and technology. Therefore, it is deeply entrenched in questions regarding cross-cultural psychology and cultural exchange. In order to improve relations, and even cooperation, in the cyber-sphere, it is necessary to first humanize other actors. In our paper, we argue that bilateral coordination in the realm of cyber-operations will help to foster cultural understanding, effective communication, and stronger ties, thereby dissipating tensions and the further escalation of conflict beyond the cyber-sphere.
CYBERSECURITY AND US-RUSSIA RELATIONS
n his address to the United Nations General Assembly on September 19, 2017, Secretary-General António Guterres noted that cyberwarfare continues to escalate as a global threat with implications of disrupting inter-state relations and destroying the “structures and systems of modern life” (Guterres 2017). He emphasized the lack of international cybersecurity norms as a dominant reason why cyber-conflict persists as one of the leading problems of the current era. Information and communications technologies are an integral part of modern life and society; however, with greater connectivity come greater risks. Previous attempts to address these risks have failed, including the United Nations Global Cybersecurity Index (GCI) negotiations – aimed to restrict cyberwarfare on a multilateral level –, which finally collapsed after thirteen years in June 2017. Today, we witness significant gaps in security among the 134 countries surveyed in the final report of the GCI, including China and Russia, two Andrew Carroll, United States Air Force Academy, US Air Force Academy Department of Political Science Elvira Chache, MGIMO, Faculty of Law and Sberbank, Cybersecurity Department Tinatin Japaridze, Columbia University, Harriman Institute
of the permanent five members states of the UN Security Council. Cybersecurity is a direct cause of increased strain in US-Russia relations. This tension is further intensified by allegations from top US security and intelligence professionals of malicious Russian cyber-involvement in the 2016 US Presidential Election (Lemire and Colvin 2017). Security concerns among European allies of the United States further limited cooperation between the US and Russia on this issue. The Russian administration contents that the allegations are unfounded. In fact, while Russian officials have refrained from any public allegations or accusations targeting the United States regarding cyber-related concerns, this is in direct contradiction with the numerous actions and related statements made by the Russian Federation, accusing the United States of using various (including cyber) technologies as tools for interfering with Russia’s domestic affairs and election processes (i.e., 1996, 2000 and 2012 presidential elections) with a larger goal of Western-style democracy promotion (Malinowski 2017). Additionally, Russia condemned the United States for weaponizing cyber resources within the framework of the North Atlantic Treaty Organization. We address these contradictions in the second half of this paper. The present lack of international norms of behavior in the field of cybersecurity threatens to cause expanded con-
24 | The SURF Research Journal ∙ April 2018 ∙ Vol. IX flict between the United States and the Russian Federation. Historically, security concerns and differences in perspective presented barriers to US-Russia (and former Soviet). This potential for conflict is exacerbated by the borders of cyberspacce, where physical space matters much less than in traditional warfare, there are no distinct lines or borders between the private and the public, and engagements take place at “network speed” (Healey 2017). However, the two countries share many mutual interests in the uncharted field of cybersecurity, from the protection of financial interests from nefarious third parties to dissipating cyber-conflict. Despite a shared proclivity to cooperate, the US and Russia have been unsuccessful at effectively leveraging this new field to improve relations. While it is difficult, and perhaps unrealistic, in the current geopolitical environment to believe that complete trust between the two nations can develop, this paper argues that working toward building a level of confidence in actions and perceived intent in the field of cybersecurity will help to promote improved interactions between the US and Russia overall (Karaganov 2017). CONTRASTING DEFINITIONS AND ALLEGATIONS OF MISCONDUCT The United States and Russia remain fundamentally divided over the issue of cybersecurity. This division stems not only from using cyber resources subversively or to project power, but also from each country’s respective, and often times contrasting, definition and general understanding of the cyber concept, itself. The United States (US) and the Department of Defense agency in charge of the US cyber operations define “cyberspace” as: “a global space in the digital environment, consisting of interdependent networks of information and communication infrastructures, including the Internet, communication networks, computer networks and embedded processors and controllers” (Department of Defense 2017). Accordingly, the US views cybersecurity as a primarily military and defense-oriented mission. As one unnamed US State Department official said to New York Times reporters, “We really believe it’s defense, defense, defense” (Markoff and Kramer 2009). This is also apparent when exploring the US distribution of cybersecurity resources and funding. The Department of Defense retains control over the majority of the US’ cybersecurity assets, following an order from the Commander in Chief, President Donald J. Trump in his establishment of a new separate Cyber Combatant Command ( (Department of Defense 2017). The new command will oversee both the US’ defensive and offensive cybersecurity capabilities, and have the authority to employ cybersecurity resources in support of US Military and Government goals on a global scale. What remains fundamental to the US’ viewpoint on cybersecurity is the separation of government and private sector affairs. US cybersecurity initiatives largely concern the US Government and the security of its agencies and systems (i.e. energy resources and power grids). Private sector organizations are then largely left to manage their own cybersecurity operations and contingency response
plans, although critical infrastructure is increasingly becoming a major priority. Meanwhile, Russian authorities view cybersecurity as a piece of what is termed the “Information Sphere” (Russian Federation 2016). The Ministry of Defense of the Russian Federation understands said Information Sphere as an area of activity related to the creation, transformation, and use of information, including individual and public consciousness, information and telecommunications infrastructure, and information proper (Research Center for Information Security 2008, 40). Furthermore, the 2016 Doctrine of Information Security of the Russian Federation, a document put forth by the Office of the President, the domain of the Information Sphere includes not only cybersecurity, but also traditional media organizations and operations, social media platforms, telecommunications networks, and subjects whose activities are connected with the formation and processing of information, as well as a set of mechanisms for regulating relevant public relations. Even within the realm of military operations, leading Russian military theorists and officials do not use the terms “cyberwarfare” or “cybersecurity” as do their US counterparts, instead relying on the concept of “information warfare” to encompass cybersecurity operations (Connell and Vogler 2017). Under this model, multiple government and private sector agencies are responsible for providing and upholding cybersecurity within the Russian Federation. Thus, the broad Russian view of integrating cybersecurity as an element of the information domain across government and private sector levels, viewed alongside the contrasting US idea of cybersecurity as largely a military and defense issue, presents a definitional conflict. Undoubtedly, each respective country’s starkly contrasting definition of cybersecurity has the potential to create increased division, growing lack of confidence in actions, and misunderstandings of each country and their intentions among leaders and citizens alike. In the case of recent events, we can trace these misunderstandings and their consequences in allegations of cyber-misconduct by both parties against one another. Indeed, both the US and Russia have interfered, whether covertly or publicly, with the other’s internal political affairs when they deemed strategic interests could be at stake (Burt, Hitch, Pettibone, Shillinglaw, 2017). For its part, the US spent billions of dollars on democracy promotion in 1990s Russia, considering such involvement “benign” and motivated solely by “humanitarian concerns” (Burt, Hitch, Pettibone, Shillinglaw, 2017). And, since the end of the Cold War, the United States accused Russia of using cybersecurity assets to impact neighbors negatively and to exert its influence over former Soviet satellite states. As early as 2007, the US, alongside NATO-ally Estonia, accused Russia of using cybersecurity resources in an offensive manner to shut down the government of Estonia and its ability to operate critical systems tied to the internet through a distributed denial of service attack (Connell and Vogler 2017). The US also accused Russia of using the Republic of Georgia during the 2008 Russo-Georgian war as a live testing ground for the combination of cybersecurity assets with conventional
III. Defense Cooperation ∙ Carroll, Chache, & Japaridze | 25 military forces in an effort to weaken an opponent’s ability to communicate (Connell and Vogler 2017). In recent years, the United States alleged that Russia weaponized cyber resources in Ukraine to spread propaganda and to weaken Ukrainian military forces (Gross and Greenberg 2017), and tampered with domestic elections by spreading propaganda in France and Germany (Simmons 2017). However, one of the most significant US claims regarding Russia’s use of cybersecurity initiatives for diametrically opposed goals is the allegation of Russian involvement, and even direct meddling, in its 2016 presidential elections. The US accused Russia of using spear-phishing against the Democratic National Committee, thereby gaining high-level access to protected systems. This claim, backed by the US Central Intelligence Agency and the Office of the Director of National Intelligence, has resulted in increased strain in US-Russia relations, leading to a deterioration of confidence between the two states (Shelbourne 2017). Russia has also accused the United States of perpetuating political incidents using cyber resources. Most notably, Russia condemned the US for weaponizing cyber resources for use by the North Atlantic Treaty Organization (NATO) through programs such as its Cyber Defense Center of Excellence and NATO’s counter-hybrid warfare programs, perceived to target Russia directly. Additionally, Russian officials point to the 2012 employment of the Stuxnet computer virus against Iranian nuclear facilities as evidence of US efforts to utilize cybersecurity assets to harm Russia, despite the fact that the US has not claimed responsibility for implementing Stuxnet (Doctrine of Information Security of the Russian Federation; Sanger 2012). From Russia’s perspective, the US weaponization of cybersecurity resources is carried out both unilaterally and through NATO for the purpose of potentially hurting Russia and Russia’s ability to respond to threats from the alliance in the future (Connell and Vogler 2017). Russia retorts that the US wrongfully blames Russia for cyber attacks without adequate evidence. In Russia’s view, cyber attacks are often perpetrated not by the Russian government, as the US alleges, but rather by patriotic, Russian-speaking civilians (Yusufov 2017). While the Russian government argues that it is not connected to the patriotic, Russian-speaking civilians that carry out cyber-attacks, it does not deny that these attacks have occurred and that they originated from within Russian borders. As a result, the Russian government is able to claim plausible deniability regarding the cyber-attacks. This attribution mistake by the US, Russia argues, is a root cause of the deterioration of confidence in cyber security relations, including failed initiatives such as the 2013 negotiations between the Kremlin and the Obama Administration that sought to establish norms of conduct on communication cybersecurity and defense matters (White House 2017). Ultimately, repeated allegations of misconduct regarding cybersecurity resources by both states, challenges of attribution, as well as recent actions using cybersecurity resources to interfere in elections, institutions, and other conflicts, have served to further strain relations. This weakened confidence, due to misunderstandings, has strained bilateral
relations between the US and Russia, making cooperation in the field of cybersecurity more challenging than ever before. PAST COOPERATION INITIATIVES AS A MODEL FOR THE FUTURE Diplomacy While recent rhetoric regarding US-Russia relations is tense, the two countries attempted to work together on cybersecurity matters in the past. In 2009, for example, representatives from both countries tried to establish a mutual agreement for cybersecurity and the employment of cybersecurity assets (Markoff and Kramer 2009). However, talks soon broke down over what particular method would be best to improve cooperation in this ever-changing field. Russia insisted that a treaty was necessary to define the scope of cybersecurity and establish international norms for its use (Markoff and Kramer 2009). Ideally, according to Russia, such a treaty would model efforts to restrict the use of chemical weapons, and be overseen by the United Nations. The US, however, stated that a treaty was unnecessary, instead citing its faith in international norms as a preferable avenue to cooperation among international law enforcement groups like INTERPOL (Markoff and Kramer 2009). Nuclear Weapons Despite the failure of recent initiatives to spur US-Russia collaboration on cybersecurity, Americans and Russians can both look to previous attempts at bilateral cooperation in other fields. Namely, negotiations and agreements regarding the testing of nuclear weapons provide an excellent example upon which the US and Russia could potentially model cooperative efforts in the cybersecurity domain today. Although cybersecurity and nuclear nonproliferation do not seem similar at first glance — for example, the cost of nuclear weapons greatly outweighs the costs of cybersecurity in terms of potential destruction and it is far more difficult to determine attribution in the realm of cybersecurity — the two fields hold many commonalities between them. Significantly, both domains feature a superiority of offensive over defensive use, the potential use for tactical and strategic purposes, the possibility of first and second use scenarios, and the likelihood of unintended consequences stemming from cascading effects caused by new technology being poorly understood (Nye 2011). With these commonalities in mind, we can look toward efforts such as the Limited Test Ban Treaty and the 1987 agreement to establish Nuclear Risk Reduction Centers between the US and the Soviet Union as potential exemplars for the US and Russia (Department of State 1987). Both treaties sought to turn a zero-sum game into a positive-sum game, thereby promoting US-Russia involvement by convincing both sides that their cooperation was tantamount (Nye 2011). NATO The US and Russia can also look to international organizations designed to promote reconciliation, collaboration, and understanding between states long at odds with one another. The 1997 NATO-Russia Founding Act, designed to increase confidence between the US, NATO, and Russia immediately
26 | The SURF Research Journal ∙ April 2018 ∙ Vol. IX after the Cold War, can serve as a model for cybersecurity cooperation, given its tenets of bringing NATO and Russia together to develop broad-based norms regarding territorial integrity, the use of conventional forces in Europe, and the recognition of sovereignty of new states (Mendelsohn 1997). Additionally, both parties could refer to the reinvigoration of the NATO-Russia Council in 2016 on an agenda of limited goals as a means of restarting cooperation and communication at a broad level between the US and Russia in the area of cybersecurity (Mendelsohn 1997). REBUILDING MUTUAL CONFIDENCE IN US-RUSSIA CYBERSECURITY RELATIONS The continuing drift in US-Russia relations both in cybersecurity and on a wider bilateral spectrum has the potential for detrimental consequences. The lack of a series of constructive state-level dialogues at diplomatic, military, and civilian levels could have highly negative implications for geopolitics, domestic economies, and bilateral trade. Cooperation in this domain is further prevented by a lack of effective bilateral communication, the continuation of security concerns for both countries, and a need for a collaborative framework. Underneath an escalating cyber-conflict lies a growing misunderstanding and lack of confidence, if not mistrust, in both Washington and the Kremlin, which the more optimistic political pundits believe can be “assuaged, at least in part” (Burt, Hitch, Pettibone, and Shillinglaw 2017) through jointly-conceived and executed programs and summits. What we are witnessing today is a consequence of a lack of rules and regulations — or more specifically a lack of norms — that, should they be agreed upon and adopted, can help to avoid “undue interference” in the domestic affairs of each country (Burt, Hitch, Pettibone, and Shillinglaw 2017). December 2017 marked the 30th anniversary of the Soviet Union and the United States’ signing the Intermediate-Range Nuclear Forces (INF) Treaty — an event that signalled the end of the Cold War. And yet, three decades later, the treaty appears to be in jeopardy as the possibility of a nuclear arms race returns (Welna 2017). The former General Secretary of the Soviet Union, Mikhail Gorbachev, reflected on the upcoming anniversary of the signing of the treaty on the strategic arms reduction. Lamenting the current state of US-Russia relations, particularly following the US allegations of the Russian Federation’s meddling in its 2016 presidential elections, the former Soviet leader called for a summit between the two countries. He noted that while both sides have “raised issues of compliance ... [in turn accusing the] other of violating or circumventing” key provisions, it is ultimately the “political will” of the two leaders that can overcome the crisis and prove “decisive” (Gorbachev 2017). FUTURE INITIATIVES In the spirit of General Secretary Gorbachev’s statement, we propose a renewed dialogue between the leadership of the United States and Russia. In this proposed dialogue between the leadership of the two states, the frank discussion of these allegations by both parties is essential in order to move for-
ward and begin discussing future steps, based on mutual respect and dignity. Furthermore, negotiations regarding acceptable norms on both sides, and the fundamentals of terminology and definitions, are in dire need of clarification. We believe that vastly different definitions, contrasting interpretations and concepts of ‘cyberspace’ and ‘information space’, and the mechanisms and procedures that take into full account the specifics of informational and cyber technologies, must be refined, codified, and ratified. With such different concepts and interpretations of ‘cyber’ versus ‘information’ space, how can all nations, let alone two states, sign off? If words on paper and actions do not match, which we have seen in the past months, years, and even decades on both sides, the unfortunate end result is a growing lack of confidence both between states, as well as in the power of international organizations to mitigate the tensions that arise from this lack of confidence. A further complication is the fluid and malleable nature of technology, in general, and the cyber world, in particular. The field of cyber is constantly evolving, and therefore, sticking to a set of constructs put into writing several years or even months earlier and abiding by such norms can be a flawed and unrealistic approach at its core. Thus, regularly updating and maintaining a system of checks and balances is vital for fostering a healthy bilateral relationship in practice. Past efforts to regulate the use of conventional force and ease fears in both countries through initiatives like the NATO-Russia Founding Act and NATO-Russia Council, including the body’s reinvigoration in 2016, are emblematic of avenues to build confidence in actions in both countries that can be re-implemented today with a focus on the cyber realm. By recognizing and respecting past allegations and viewpoints from both the US and Russia regarding each other’s use of cybersecurity, as well as using Cold War-era and NATO-Russia cooperation initiatives as examples, rebuilding confidence through actions and initiatives between the US and Russia is not only essential, but we believe also possible. Ideally, this same improved mutual trust can then be translated into future bilateral agreements on cybersecurity norms of behavior between the US and Russia, paving the way for cooperation in other fields. CONCLUSION Conflicts in cybersecurity continue to strain US-Russia relations, further intensified by allegations of malicious, Russian cyber-involvement in the 2016 US Presidential Election. Part of this conflict is due to a mutual distrust, perpetuated by a lack of commonly-accepted behavioral norms, field-specific definitions and understandings, and challenges of attribution. Considering this current climate, how can the US and Russia move forward from bilateral conflicts in the field of cyber-relations? What are the realistic chances of resuming dialogue and drafting a bilateral agreement towards finding a consensus on a critical issue where one side is publicly accusing the other, while the other is neither admitting nor fully rejecting the allegations? In this paper, we argue that rebuilding confidence and collaboration must begin with cyclically redefined, codified,
III. Defense Cooperation âˆ™ Carroll, Chache, & Japaridze | 27 and ratified definitions and norms of engagement. While this does not mitigate the problem of ambiguous attribution in this unique and relatively new space, we suggest that solutions to cyber-conflicts exist within psychological frameworks. Even though the physical proximity of individual contact is not a factor in this exchange on the surface, the psychological factors play a vital role, as do cultural norms and cultural differences. Thus, on a large scale, the aim of improving cooperation in this field through our joint research is to change the culture of lack of trust by putting a human face to Russians and Americans. Bilateral coordination in the area of cybersecurity will help to dissipate tensions and chance for conflict, as well as foster cultural understanding, effective communication, and stronger ties for greater future cooperation and improved relations not only among the state actors but hopefully among the citizens of the two nations.
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BIBLIOGRAPHY 1987. “Nuclear Risk Reduction Centers (1987).” U.S. Department of State. 2017. “DoD Initiates Process to Elevate U.S. Cyber Command to Unified Combatant Command.” U.S. Department of Defense. 2017. “Experts Suspect Russia Is Using Ukraine As A Cyberwar Testing Ground.” NPR. 2017. “NATO-Russia Council.” Romania’s Permanent Delegation to NATO. Axelrod, Robert. 1984. The Evolution of Cooperation. New York: Basic Books. “Basic Principles for State Policy of the Russian Federation in the field of International Information Security to 2020.” No.1753, approved by Decree of the President of the Russian Federation on July 24, 2013. Brown, Gary, and Christopher D. Yung. 2017. “Evaluating the U.S.-China Cybersecurity Agreement.” Diplomat. https:// thediplomat.com/2017/01/evaluating-the-us-china-cybersecurity-agreement-part-3/. Burt, Jeffrey, James Hitch, Petter Pettibone, and Thomas Shillinglaw. 2017. “Trump, Eisenhower and Russia: A Chance for Peace.” National Interest. Connell, Michael, and Sarah Vogler. 2017. “Russia’s Approach to Cyber Warfare.” Center for Naval Analyses Publications (Spring): 1-38. Eisenhower, Dwight D. 1953. “Address ‘The Chance for Peace’ Delivered Before the American Society of Newspaper Editors.” The American Presidency Project. Online by Gerhard Peters and John T. Woolley. Farrell, Henry. 2017. “Trump’s plan to work with Putin on cybersecurity makes no sense. Here’s why.” Monkey Cage, Washington Post. https://www.washingtonpost.com/news/monkey-cage/wp/2017/07/09/trumps-plan-to-work-withputin-on-cybersecurity-makes-no-sense-heres-why/. Fields, Craig, and Jim Miller. 2017. “Statement Before the Armed Services Committee, United States Senate: ‘Cyber Deterrence.’” Senate.gov. Forsberg, Tuomas, and Graeme Herd. 2015. “Russia and NATO: From Windows of Opportunities to Closed Doors.” Journal of Contemporary European Studies 23, no. 1 (March): 41-57. Gorbachev, Mikhail. 2017. “My plea to the presidents of Russia and the United States.” Washington Post. https:// www.washingtonpost.com/opinions/mikhail-gorbachev-my-plea-to-the-presidents-of-russia-and-the-unitedstates/2017/10/10/36225a60-ade2-11e7-a908-a3470754bbb9_story.html. Guterres, Antonio. 2017. “Address before the General Assembly of the United Nations.” United Nations. Hayden, Michael V. 2011. “The Future of Things Cyber.” Strategic Studies Quarterly 5:1 (Spring): 3-7. Healey, Jason. 2017. “Cyber Warfare in the 21st Century: Threats, Challenges, and Opportunities.” Testimony to HASC. ---. 2011. “Breakthrough or Just Broken? China and Russia’s UNGA Proposal on Cyber Norms.” Atlantic Council. Healey, Jason, and Klara T. Jordan. 2016. “Setting Priorities on Cybersecurity.” Democracy, Symposium: The Election & the World. No. 40 (Spring): n.p. Lemire, Jonathan, and Jill Colvin. 2017.“Trump calls Putin’s denials ‘sincere,’ later says he’s ‘with our agencies’ on Russian election meddling.” Chicago Tribune. Libicki, Martin C. 2011. “Cyberwar as a Confidence Game.” Strategic Studies Quarterly 5:1 (Spring): 132-146. Lukatskiy, Alexey. 2017. “Accusations of cyberattacks: the facts to keep in mind.” Global Internet Governance and Cyber Security, 53-56. Moscow: PIR Press. Malinowski, Tom. 2017. “Did the United States interfere in Russian elections?” Washington Post. https://www. washingtonpost.com/news/democracy-post/wp/2017/07/21/did-the-united-states-interfere-in-russian-elections/. Markoff, John, and Andrew E. Kramer. 2009. “U.S. and Russia Differ on a Treaty for Cyberspace.” New York Times. http:// www.nytimes.com/2009/06/28/world/28cyber.html. May, Ernest. 1990. “Cold War and Defense,” in The Cold War and Defense, eds. Keith Neilson and Ronald G. Haycock. New York: Praeger. Mendelsohn, Jack. 1997. “The NATO Russia Founding Act.” Arms Control Today.
III. Defense Cooperation ∙ Carroll, Chache, & Japaridze | 29 McConnell, Bruce W., Pavel Sharikov, Maria Smekalova. 2017. “Suggestions on Russia-U.S. Cooperation in Cybersecurity.” Russian International Affairs Council. EastWest Institute, No.11. N.a. 2013. “Fact Sheet: U.S.-Russian Cooperation on Information and Communications Technology Security.” National Archives and Records Administration. N.a. 2008. Dictionary of Terms and Definitions in the Field of Information Security. 2nd edition, extended and amended. Military Academy of the General Headquarters of the Armed Forces of the Russian Federation. Moscow, Russia: Research Center for Information Security. Nye, Joseph S. 2011. “Nuclear Lessons for Cyber Security.” Strategic Studies Quarterly 5:4 (Winter): 18-38. ---. 2011. The Future of Power. New York: Public Affairs Press. Recknagel, Charles. 2016. “NATO-Russia Council: From High Hopes To Broken Dreams.” Radio Free Europe/Radio Liberty. https://www.rferl.org/a/russia-nato-council-high-hopes-to-broken-dreams/27854482.html. Remington, Thomas, Chris Spirito, Elena Chernenko, Oleg Demidov and Vitaly Kabernik. 2016. “Toward U.S.-Russia Bilateral Cooperation in the Sphere of Cybersecurity.” Working Group Paper on the Future of U.S.-Russia Relations. Russian Federation. 2016. “Doctrine of Information Security of the Russian Federation.’ Approved by Decree of the President of the Russian Federation. No. 646. Moscow, Russia. ---. 2013. “Basic Principles for State Policy of the Russian Federation in the field of International Information Security to 2020.” Approved by Decree of the President of the Russian Federation. No.-1753. Moscow, Russia. Sanger, David E. 2012. “Obama Order Sped Up Wave of Cyberattacks Against Iran.” New York Times. http://www.nytimes. com/2012/06/01/world/middleeast/obama-ordered-wave-of-cyberattacks-against-iran.html. Shelbourne, Mallory. 2017. “CIA: Director ‘stands by’ Russian interference assessment.” TheHill. http://thehill.com/ homenews/administration/359913-cia-director-stands-by-russian-interference-assessment. Simmons, Ann M. 2017. “Russia’s meddling in other nations’ elections is nothing new. Just ask the Europeans.” Los Angeles Times. http://www.latimes.com/world/europe/la-fg-russia-election-meddling-20170330-story.html. Uchill, Joe. 2017. “Trump, Putin discuss working together on cyber issues.” TheHill. http://thehill.com/policy/ cybersecurity/341062-russian-official-trump-and-putin-agreed-to-team-up-on-cybersecurity. U.S. Congress. 2016. “S.754: To improve cybersecurity in the United States through enhanced sharing of information about cybersecurity threats, and for other purposes.” 114th Congress. Washington, D.C. U.S. Department of Defense. 2015. “The DOD Cyber Strategy.” Washington, D.C. Welna, David. 2017. “The Intermediate-Range Nuclear Forces Treaty Could Be in Trouble.” NPR. https://www.npr. org/2017/10/06/556230576/the-intermediate-range-nuclear-forces-treaty-could-be-in-trouble.
4 Electronic Health Records in the United States and Russia: Challenges and Opportunities for Collaborative Leadership IV. Healthcare Working Group Brian T. Cheng, Alexandr A. Kalinin, Marina Pokrovskaya Abstract Electronic health records (EHRs) have emerged as a technological solution to facilitate the continuity of care and to improve population health. Despite the promise to aid physicians and patients, efforts since 2009 to widely implement EHRs in United States healthcare systems have faced significant barriers, which have revealed the need for a different approach. Russia has a much less storied history with EHR, but Minister of Health of the Russian Federation, Veronika Skvortsova, recently announced the Ministry’s aim to universalize EHR access to improve patient care. Considering the robust opportunity for bilateral collaboration to achieve better healthcare, we evaluate the similarities and differences in EHR use between the two nations and use a comparative approach to identify growth opportunities in each country. We suggest two main practices that can augment the partnership: (1) the equitable valuation for, and open sharing of, best practices in public-private relationship management, including resource allocation, method regulation, and the financial support of businesses; (2) a science and technology transfer that can foster the adoption of EHRs, which can directly help patients as system benefactors. Healthcare is an area that both the US and Russia value greatly, and we argue that collaboration can relax currently-tense bilateral relations and set the stage for further partnership in the future. INTRODUCTION
ealthcare is one of the few areas in which international cooperation does not require extrinsic motivation. The United States and Russia share an interest in improving health provisions for their citizens, but more notably, collaboration on healthcare between the two nations can help to ‘thaw’ the currently frosty bilateral relationship. As such, collaboration in healthcare may catalyze further productive efforts to address global challenges. One promising realm for collaborative leadership in healthcare involves the novel developments in information technology (IT). IT has become the principal vehicle for supporting clinical decision making, healthcare delivery, and patient engagement (Daglish and Archer 2009). Healthcare information technology, especially electronic health records (EHRs), have the
Brian T. Cheng, Northwestern University, Feinberg School of Medicine Alexandr A. Kalinin, University of Michigan, Department of Computational Medicine and Bioinformatics Marina Pokrovskaya, Goethe University Frankfurt, Faculty of Economics and Business Administration
potential to serve as partial solutions to existing healthcare problems in each nation. An EHR is a longitudinal collection of patient health information stored on an electronic platform, which can be shared across healthcare settings via the network-connected enterprise-wide information system. Such patient records may include demographics, medical history, medication and allergies, immunization records, laboratory test results, radiology images, and billing information. The use of EHR systems has been shown to increase physician efficiency and decrease human error, ease physical storage requirements, reduce costs of care, promote evidence-based medicine, and improve the overall quality of care (Yina 2010; Fernández-Alemán et al. 2013). Indeed, the use of EHRs empowers patients and transforms them from passive recipients of services to active participants in informed decision-making (Daglish and Archer 2009). Moreover, the utility of such technology — strengthened by smart-sensor systems — is not restricted to therapeutic purposes, but can also reveal trends and be used for predictive medicine. Existing means of data collection can and will need to be revised to capitalize on the technological potential of modern sensors (Ilyas 2008). Neither Russia nor the United States
32 | The SURF Research Journal ∙ April 2018 ∙ Vol. IX have devised how to take full advantage of advancing EHR capabilities, and robust use of EHR represents an opportunity for collaborative leadership between these countries. Taking into consideration the differences in Russia and the United States’ healthcare systems, and in the accumulated experience among the two states in the adoption of EHRs, there is room for collaboration in addressing common issues as well as overcoming shared difficulties. This study aims to evaluate the similarities and differences between healthcare infrastructure in the two nations, to use a comparative approach to identify deficiencies in each approach, and to suggest potential areas for bilateral collaboration to address outstanding issues. ENDURING ISSUES REGARDING THE ADOPTION OF EHRS IN THE US AND RUSSIA Adoption of EHRs in the US Although EHR is not a new technology in the US, its adoption by clinicians has been slow over recent decades. The 2009 passage of the Health Information Technology for Economic and Clinical Health (HI-TECH) Act offered system purchase subsidies and reimbursement incentives through Medicare and Medicaid to increase the prevalence of “meaningful use” (Middleton et al. 2013). It rewarded clinicians who took the initiative to purchase EHR systems and penalized physicians who submitted Medicare claims using paper documentation. The program also contained provisions to promote patient interaction with their own medical records, health information exchange among clinicians, and stricter enforcement of medical information privacy laws. A survey by the US Department for Health and Human Services revealed that the number of office physicians using EHR systems increased from 57% to 87% during the 2011-2015 period. While the decentralized nature of the healthcare practice makes it challenging to evaluate the proportion of patients who benefit from an EHR, as of 2016, 96% of hospitals in the United States adopted a federally tested and certified EHR program — a ninefold increase since 2008 (Reisman 2017). The adoption of EHRs incentivizes the substitution of electronic for paper-based records, enhances patient documentation, optimizes billing practices, and generates a data repository (Boonstra and Broekhuis 2010). The growing adoption of EHR systems has been accompanied by a heightened recognition of the issues related to using EHR systems. Some EHR users lament that health IT appears designed for clinical transactions, instead of for clinical care. In addition, many EHR systems require extensive training, while the lack of a standard user interface means clinicians who work in multiple care settings with disparate technologies may struggle with the differences in interface design and have an adverse impact on patient safety (Middleton et al. 2013; Babbott et al. 2014). Amidst legislative attempts to prompt the widespread adoption of EHR systems, the US continues to face barriers to meaningful use: non-communicability between platforms from different companies, the privacy of shared information, and the cost of financial implementation. Despite clear progress in the adoption of EHRs in the US, the nation still faces many
challenges associated with the efficient and productive use of the technology. Adoption of EHRs in Russia For many years, healthcare was highly centralized in Russia (Gordeev, Pavlova, and Groot 2011), and public funding of the healthcare system in Russia — even if historically mismanaged — remains far greater than in the United States (Young and Chatwood 2011). However, medical care quality in Russia depends heavily on urban-rural divides and a physician’s own education, tenets, and professional experiences (Taranik and Kopanitsa 2017). Variation in styles of practice make it even more urgent that EHR is widely adopted in order to facilitate case-based reasoning in decision support systems. The Russian EHR market is maturing alongside the health care system with a compound annual growth rate of 10-14% since 2009 (Parikh 2015). Large private suppliers have entered the Russian EHR market to provide rapid EHR data exchange and unified access to health care data, while also helping medical institutions to meet secure information requirements. For example, in 2011, IBM introduced its Lotus platform, an EHR platform designed for use by Russian clinicians. This was touted as the maiden foray of an American company into the Russian EHR market, and IBM Lotus now serves nine hospitals in Russia (Parikh 2015). When IBM announced their Lotus Notes launch, the effort was intended not only to digitize patient records, but also automate hospital processes. While several review articles summarize the growing body of literature regarding US challenges in EHR adoption, relatively few exist which describe challenges and guiding solutions for Russian EHR initiatives. Common issues, including a lack of economic incentives and technical expertise to implement and use EHRs, appear as major barriers to EHR adoption in Russia. Others brought up when Russia was a part of the Soviet Union tend not to trust diagnostics and treatments unless they are printed out on paper — perhaps attributable to a generational divide —, which poses a cultural obstacle to widespread patient engagement with their electronic patient information. Similar to the situation described in the US, the high costs of EHR installation pose a major barrier to Russian medical practices. Although problems remain to be tackled, the prevalence of EHR use in Russia continues to grow steadily (Moore 2011). Russia declared its intent last year to expand EHR use in its healthcare sector, and the US’ relevant experiences should be valuable for Russia to avoid similar mistakes. Common Puzzling Issues with the Adoption of EHRs The US and Russia each aim to leverage new technology and improve healthcare provisions, and each country recognizes the importance of EHRs. However, their efforts are associated with numerous challenges. Despite historical, economic, political, and cultural differences, there are common issues between both countries regarding the adoption of EHRs. So far both systems implement the use of EHR reactively — for the sick — instead of proactively, for prevention and wellness. Both systems are also challenged by fragmentation and inefficiencies that increase the cost burden on their
IV. Healthcare ∙ Cheng, Kalinin & Pokrovskaya | 33 respective economies and create disparities in access to quality care. And both must educate their populations and incentivize physicians and hospitals to focus on prevention and wellness. The disparity in published research highlights the potential for bilateral collaboration and mutual growth. The US’ history of EHR adoption and technical knowledge can help to aid Russia’s adoption. On the other hand, Russian officials are considering the use of novel technological solutions, such as blockchain integration, to facilitate effective EHR use; the new experiences of Russia will be useful to solve persistent issues with EHR systems in the US. In order to address these issues, we propose strengthened international collaboration and experience exchange on the subject, to the benefit of both parties. COLLABORATIVE LEADERSHIP WILL EXPEDITE THE BILATERAL ADOPTION OF EHRS AND ENHANCE THEIR EFFICACY US-Russia Collaboration in Healthcare has Historically Proven to be Successful During, and in the years following, the Cold War, healthcare has been a fruitful area of collaboration between United States and Russia. Smallpox eradication and the widespread use of the Sabin polio vaccine are two key examples of this productive relationship (Rojansky and Tabarovsky 2013). Throughout the late 20th century, joint US–Soviet or US– Russian health activities continued, with a major focus on HIV/AIDS prevention, as well as the prevention of other sexually transmitted diseases and tuberculosis (TB) (Hotez 2017). Today, issues varying from fighting pandemic threats to overcoming many other problems related to healthcare require access to substantial patient data pools. These examples illustrate that the US and Russia have aligned interests in healthcare and that these countries have the capacity to work together in addressing healthcare challenges. Hostilities between the United States and Russia may be nowhere near confrontations during the 1960s and 1970s, but extraordinary opportunities remain to meld our scientific activities to eliminate the world’s major neglected and emerging diseases, thereby overcoming geopolitical tensions (Hotez 2017). We seek to explore and analyze best historical practices of bilateral collaboration and how they can be applied for EHR adoption in the present. The United States is More Experienced with EHR Adoption The United States is a leader in the healthcare industry, as well as in various other innovative sectors. Indeed, the US healthcare market accounts for one-sixth of global healthcare spending (Carroll and Frakt 2017). Nevertheless, in a survey reported by Babbot et al., physicians report stress, dissatisfaction, burnout, and extensive time pressure during visits (2014). In their survey responses, these problems appeared across the urban-rural divide, from physicians in inner-city clinics in New York and Chicago, managed care clinics in mid-sized cities like Milwaukee and Madison, Wisconsin, and small rural clinics in central Wisconsin (Babbot et al. 2014). To mitigate these negative effects, it seems rea-
sonable to account for physicians’ workload and varying cognitive abilities while implementing EHRs (Babbott et al. 2014). Russia’s Private Healthcare Sector is a Growing Market Open to New EHR Opportunities The Russian healthcare market — particularly in the areas of prescription drugs and medical devices — skyrocketed in recent years, reaching over $30 billion USD (Twigg 2014). The “IT in Healthcare 2016” report by the Russian information agency CNews indicated that the overall profit by the private health IT providers was 2.2 billion rubles in 2015, which is nine percent more than in 2014 (Rudicheva 2016). By the end of 2018, 40 percent of the population of the Russian Federation will hold EHRs, as was announced by Prime Minister Dmitry Medvedev and Minister of Health Veronika Skvortsova (Bugrim 2017). With regard to personal data protection, however, EHRs pose certain threat, as far as Roskomnadzor, the Federal Service for the Supervision of Communications, is concerned (Islamova n.d.) As for the Tyumen region, EHRs were allegedly implemented in all hospitals in 2017 (Federation Council 2017). Dmitry Medvedev also approved 5.62 billion rubles to improve medical care using technological tools through 2025 (Pakhomov n.d.) This characterizes the Russian EHR market as growing and changing rapidly, which indicates possible opportunities for adopting new approaches and best practices from established markets. Employees of the Regional Hospital #1 in Tyumen, Russia claim that there are many legislative barriers to fully implementing EHRs (Personal Communication 2017). Obstacles still exist in the form of signatures and formal agreements for treatments, required in hard copy. In addition, medical staff must be trained to utilize EHRs. Moreover, the local government has employed private contractors to build out IT infrastructure, essential for diverging to EHRs. For example, the blood test laboratory is connected to other hospitals in Tyumen region and allows for the storage and electronic transfer of patient data. Experts from Tyumen point out the fact that there is no interregional compatible framework that would allow for having access to patient records from outside of Tyumen region (Personal Communication 2017). Several start-ups exist that look for technical solutions in this field that can be potentially supported by the local administration. It is important to note that Tyumen is a particularly wealthy and technologically-advanced oblast, and the investment and educational opportunities available in Tyumen are not necessarily representative of the country, as a whole. Public-Private Partnership is Still Growing in Russian Healthcare Despite unfavorable economic conditions, private-public partnerships (PPP) are expected to expand in Russia. Private investment aimed at PPP in healthcare sector currently comprises ten percent of total spending in this sector. For instance, at the Sochi-2017 Russian Investment Forum, agreement has been reached with regard to constructing the Leningrad Regional Centre for Medical Rehabilitation in the
34 | The SURF Research Journal ∙ April 2018 ∙ Vol. IX Gatchina region. Long-term benefits, like those posed by the new institution, are essential for PPP investment projects to be appealing for investors (Samsonova 2017). If we can expect low inflation, we find potential for PPP investments in Russian healthcare, in general, and in development of EHRs, in particular. Executive Summary of Suggested Mechanisms for Potential Solutions Although historical, economic, social, financial, and cultural differences on the healthcare business markets between the two countries present many obstacles, they also provide opportunities to leverage two histories so that each country can learn from the experiences of the other. For example, the US-established business models in healthcare may serve as tested examples of public-private cooperation, while Russia’s private healthcare sector can model a dynamic and adaptive market that is successful with less competition, fewer regulations, and a faster translation of ideas to patient delivery. In this respect, the US experienced quite a few obstacles in EHR implementation related to over-reaching governmental control. Therefore, a business environment should be taken into consideration when developing EHRs in Russia. To accelerate adoption of state-of-the-art EHR practices and ensure quality of implementation, the government must stimulate the involvement of entrepreneurs and established businesses, balance regulation and stimulation in its private sector partnerships, and encourage close international cooperation between the US and Russia in knowledge transfer. We suggest two ways to drive the effective partnership: (1) the equitable valuation for, and open sharing of, best practices in public-private relationship management, including resource allocation, method regulation, and the financial support of businesses; (2) a science and technology transfer that can foster the adoption of EHRs, which can directly help patients as system benefactors. Such mutual learning between the US and Russia will accelerate development and the adoption of best practices in healthcare IT. Sharing best public-private partnerships practices will enable the involvement of entrepreneurs in still-developing markets, supporting the growth of the healthcare sectors. With a population of over 450 million people living in the two countries combined, collaboration promises an enormous potential to affect lives. From a broader perspective, severing contact on such an obvious shared interest as healthcare, where professionals share common interests and motivations beyond political habits of cooperation, could prove highly desirable for the re-establishment of positive bilateral ties between the two nations (Twigg 2014). We further determine that collaboration on EHRs will lead to substantial improvements in the healthcare business markets of both countries, which in the end will benefit governments, physicians, and, most importantly, patients. CONCLUSIONS Russia’s healthcare reforms and efforts to penetrate the EHR space present an opportunity for the US to partner with Russia and to raise the standard of healthcare information
technology. Authentic collaborative leadership would spark meaningful healthcare progress for the people of both nations, while also providing models for a successful EHR rollout in other health systems around the globe. The US placed full government support behind EHR expansion in 2009 and thus has greater technical experience with EHR implementation than Russia does. However, the current state of EHR in the US leaves much to be desired, with problems stemming from lack of interoperability, non-adoption, and regional disparities. Russia can serve as a locale for a novel approach, one that can potentially turn around and improve EHR usage in the US. Considering current tensions in bilateral relations, any chance for sustainable co-leadership requires that the US take care to avoid any ‘white-knight’ overtures. This means that the US cannot view collaboration as a donor-recipient relationship and must equally value opportunities to learn from Russia’s EHR experience. Russia has increasingly pushed to re-brand itself as a global hegemon, and its challenges to Western countries’ soft power has further strained US-Russia relations. However, successful collaboration on EHR development could ‘reset’ relations, simultaneously improving diplomatic relations and healthcare outcomes. Productive relations may even lead to larger US-Russia partner initiatives to address other global issues, whether through bilateral engagement or multilateral initiatives.
IV. Healthcare ∙ Cheng, Kalinin & Pokrovskaya | 35
BIBLIOGRAPHY Babbott, Stewart, Linda Baier Manwell, Roger Brown, Enid Montague, Eric Williams, Mark Schwartz, Erik Hess, and Mark Linzer. 2014. “Electronic Medical Records and Physician Stress in Primary Care: Results from the MEMO Study.” Journal of the American Medical Informatics Association: JAMIA 21 (e1): e100–106. Boonstra, Albert, and Manda Broekhuis. 2010. “Barriers to the Acceptance of Electronic Medical Records by Physicians from Systematic Review to Taxonomy and Interventions.” BMC Health Services Research 10 (August): 231. Carroll, Aaron E., and Austin Frakt. 2017. “Can the US Repair Its Health Care While Keeping Its Innovation Edge?” The New York Times, October 9, 2017. https://www.nytimes.com/2017/10/09/upshot/can-the-us-repair-its-health-care-while-keeping-itsinnovation-edge.html. Daglish, David, and Norm Archer. 2009. “Electronic Personal Health Record Systems: A Brief Review of Privacy, Security, and Architectural Issues.” In Privacy, Security, Trust and the Management of E-Business, 2009. CONGRESS’09. World Congress on, 110–20. IEEE. Fernández-Alemán, José Luis, Inmaculada Carrión Señor, Pedro Ángel Oliver Lozoya, and Ambrosio Toval. 2013. “Security and Privacy in Electronic Health Records: A Systematic Literature Review.” Journal of Biomedical Informatics 46 (3): 541–62. Gordeev, Vladimir S., Milena Pavlova, and Wim Groot. 2011. “Two Decades of Reforms. Appraisal of the Financial Reforms in the Russian Public Healthcare Sector.” Health Policy 102 (2-3): 270–77. Hotez, Peter J. 2017. “Russian–United States Vaccine Science Diplomacy: Preserving the Legacy.” PLoS Neglected Tropical Diseases 11 (5): e0005320. Ilyas, Mohammad. 2008. “Emerging Technologies for Healthcare.” In 2008 International Symposium on High Capacity Optical Networks and Enabling Technologies. https://doi.org/10.1109/honet.2008.4810201. “In Order to Implement IT in Healthcare RUB 5.52bln Are to Be Spent.” n.d. Accessed October 22, 2017. https://vademec.ru/ news/2016/11/09/na-proekt-po-vnedreniyu-informatsionnykh-tekhnologiy-v-zdravookhranenii-vydelili-5-52-mlrd-rubley/. “In the Federation Council the Experience of Implementing Electronic Medical Records Has Been Discussed Using an Example of Tyumen Region.” 2017. Federation Council of the Federal Assembly of the Russian Federation. February 13, 2017. http:// www.council.gov.ru/events/news/77003/. Middleton, Blackford, Meryl Bloomrosen, Mark A. Dente, Bill Hashmat, Ross Koppel, J. Marc Overhage, Thomas H. Payne, et al. 2013. “Enhancing Patient Safety and Quality of Care by Improving the Usability of Electronic Health Record Systems: Recommendations from AMIA.” Journal of the American Medical Informatics Association: JAMIA 20 (e1): e2–8. Moore, Elizabeth Armstrong. 2011. “IBM to Digitize Records for Russian Hospitals.” CNET. 2011. https://www.cnet.com/news/ ibm-to-digitize-records-for-russian-hospitals/. Parikh, Harsh. 2015. “Overview Of EHR Systems In BRIC Nations.” Clinical Leader. https://www.clinicalleader.com/doc/ overview-of-ehr-systems-in-bric-nations-0001. Reisman, Miriam. 2017. “EHRs: The Challenge of Making Electronic Data Usable and Interoperable.” P & T: A Peer-Reviewed Journal for Formulary Management 42 (9): 572–75. Rojansky, Matthew, and Izabella Tabarovsky. 2013. “The Latent Power of Health Cooperation in US-Russian Relations.” Science and Technology. http://www.sciencediplomacy.org/article/2013/latent-power. “Roskomnadzor - Processing of Personal Data: Subject for Our Concern or Warrant of Our Protection?” n.d. Accessed October 23, 2017. http://16.rkn.gov.ru/directions/oficialnye-vystullenija/p7935/. Rudicheva, Natalya. 2016. “IT in Healthcare 2016 (in Russian).” CNews. 2016. http://www.cnews.ru/reviews/publichealth2016/ articles/sozdanie_rossijskogo_ehealth_tormozitsya_otsutstviem_deneg_i. Samsonova, Victoria. 2017. “Private Healthcare Market in Russia: Outlook for 2017-2019 | KPMG | RU,” June. https://home. kpmg.com/ru/en/home/insights/2017/03/private-medical-services-market-in-russia.html. Taranik, Maksim, and Georgy Kopanitsa. 2017. “Decision Support System for Medical Care Quality Assessment Based on Health Records Analysis in Russia.” In International Conference on Information and Software Technologies, 203–9. Twigg, Judyth. 2014. “US-Russia Health Engagement: Still on the Agenda.” Center for Strategic and International Studies (CSIS). Yina, Wan. 2010. “Application of EHR in Health Care.” In 2010 Second International Conference on Multimedia and Information Technology. https://doi.org/10.1109/mmit.2010.32. Young, T. Kue, and Susan Chatwood. 2011. “Health Care in the North: What Canada Can Learn from Its Circumpolar Neighbours.” CMAJ: Canadian Medical Association Journal = Journal de l’Association Medicale Canadienne 183 (2): 209–14.
Nation-State Adoption of Distributed Ledger Technology: How Blockchain Will Remake Traditional Nation-State Relationships V. Fintech Working Group Jules Hirschkorn, Alexei Levanov, Anton Titov, and Ryan Williams Abstract Since its first emergence in the late 2000s as the engine behind the then-unknown digital experiment known as Bitcoin, distributed ledger technologies have been repurposed, reimagined, and re-engineered into a diverse array of applications. While its use in powering digital currencies is its most widely known and understood application, its potential use to centralized governments and authorities at the nation-state level remains puzzling. Ultimately, blockchain technology represents a massive technological disruption that will have far-reaching effects from the individual to the nation-state. Drawing from the case of Russia in its recent efforts to offer Blockchain-based government services, including the so-called ‘Cryptoruble’, we address the geopolitical challenges that might arise as states move toward blockchain adoption at different rates and with different, often conflicting, objectives. INTRODUCTION
lockchain – or distributed ledger technology (DLT), as it is generically known – has attracted a new generation of entrepreneurs and theorists, focused on building innovative ways for people and organizations to collaborate without the need for centralized platforms. At its most basic, blockchain is a cryptographically indelible distributed ledger that is managed by a host of participating computational devices, incentivized economically to support and maintain the ledger. The intrinsic capabilities of blockchain technology spark considerable discussion regarding not only the future of the global financial industry, but also the future of financial and societal collaboration. Indeed, blockchain-based systems may soon be capable of providing many of the services traditionally supplied by governments and private corporations. After all, distributed ledger technologies offer certain benefits: they enable varying degrees of decentralization and autonomy for myriad digital appliJules Hirschkorn, Stanford University, Center For Russian, East European, Eurasian Studies Alexei Levanov, Chief Engineer at Sberbank Technology and PhD student in MSTU n.a. Bauman Anton Titov, Sberbank, Technology Development Strategy Team Ryan Williams, University of Texas, LBJ School of Public Affairs
cations, and they are stable and resistant to tampering because they are managed collectively. By large, the characteristics of distributed ledgers deem the platform well-suited to solving coordination problems among individuals, corporations, and potentially even nation-states. Many theorists and industry professionals see blockchain as a revolutionary technology that will change the way that groups interact and transact with each other at every level of society. In this paper, we explore the implications of the adoption of blockchain technologies at the nation-state level. In particular, we ask how states might implement such technology and how these new technological capabilities will affect existing global power dynamics. We use computer simulation to model the effects of DLT adoption in the international system. BLOCKCHAIN TECHNOLOGY AND CAPABILITIES Public knowledge and adoption of DLTs is growing quickly and commercial enterprises are well on their way to integrating the technology into their existing systems. However, there is a relatively shallow understanding of how nation-states have, or may, adopt DLT, as well as the implications of how this technology can affect relations between states (Weiss 2005). Literature that does address the impact of blockchain on international relations consists, typically, of structured expert panel surveys and technical extrapola-
38 | The SURF Research Journal ∙ April 2018 ∙ Vol. IX tion on one end of the spectrum, and normative theories on the other end (White 2017). Even when research focuses on technical questions, there is a notable preoccupation with bitcoin itself – which is only one specific, and very narrow, application of a blockchain – while relatively little work is done on potential second-order-use cases such as supply chain management, financial asset-tracking, or peer-topeer autonomous organizational management to name a few (Yli-Huumo et al. 2016). In the article “Blockchain Technology as a Regulatory Technology,” Primavera De Fillipi and Samer Hassan detail a possible future where, facilitated by smart contracts and decentralized identity management systems, “the blockchain progressively acquires the status of a ‘regulatory technology’ — a technology that can be used both to define and incorporate legal or contractual provisions into code, and to enforce them regardless of whether or not there subsists an underlying legal rule” (Filippi and Hassan 2016, 10). Some researchers even suggested that the implications of blockchain technology are so profound that they will give rise to autonomous algorithmic entities, capable of participating independently in markets and finding jurisdictions suited to their purposes (Lopucki 2017). However, this same brand of systemic thinking has not yet been applied to blockchain’s consequences for state power in the international system. Interestingly, some of the best articulated and theoretically compelling treatments of the governance and policy implications of blockchain can be found in investment bank research reports and in advisory materials prepared by consultancies. For instance, in a 2016 report “Bitcoin, Blockchain and Distributed Ledgers,” Deloitte researchers suggest a framework for evaluating the advisability of adopting distributed ledger technology and demonstrate how it could be applied by states (Evans-Greenwood et al. 2017). In their formulation, actors should consider moving to blockchain when any of the following objectives exist within an organization: disintermediation (removal of process intermediaries), cross-jurisdictional flows (ie across political of organizational lines), or compliance verification. While this demonstrates that some researchers are attempting to formalize when and why actors should adopt blockchain, these efforts also fail to address the consequences of such adoption on existing power structures at the global level. Furthermore, literature discussing the technical nuances of blockchain technology is of relatively little direct application beyond developing an understanding of how the processes function and their technical capabilities and limitations. Susan Strange, author of Structural Power, proposes a useful concept for thinking about how states leverage their respective structural advantages (1989). Her ideas however, have yet to be incorporated into a modern world that capitalizes on blockchain technology. Robert Keohane and Joseph Nye on the other hand, with their influential Complex Interdependence Theory, allow for more opportunities for blockchain to have a greater impact on things like the distribution of global power within the international system (Keohane and Nye 1977). As distributed ledger technology changes the structure of the global financial system, it will democratize access
to financial capital for nation-state and non-nation-state actors alike, enabling nations and entities to operate with autonomy and discretion in direct bilateral or multilateral economic and financial arrangements. This will, in turn, equilibrate, to some degree, global power asymmetries by giving all participants equal and unfettered access to customized financial networks that are capable of existing and operating outside of the influence of non-participants by creating completely new eco-systems. That is to say, the ability of nations to exert an outsized influence on one another, or to intervene in the financial and economic activities of other nations without the explicit consent of all parties involved, will be greatly diminished. Further, states will be forced to adopt and incorporate distributed ledger technologies in an attempt to preserve their existing positions and to keep pace with the technological revolution taking place around them. Ultimately, the emergence of these new technologies may erode the international power dynamics of the last century as individuals and states can now equip themselves with the tools to control trans-border economic interactions without reliance on centralized systems. Cross-jurisdictional financial services that were once functionally impossible are now feasible using distributed ledger technologies. Furthermore, depending on how these DLT systems are designed, states will likely have limited ability to regulate or interfere with the activities of these services. THE BLOCKCHAIN ECOSYSTEM The arrival of blockchain marked the beginning of a renaissance in networked data structures and the platforms that innovators build on top of them. Blockchain has produced a means of collaboration based upon an entirely novel way of categorizing data structures. Within this new framework, data structures can be located along a spectrum from completely open, decentralized, and public, to completely closed, centralized, and exclusive. When states, companies, and individuals are forced to choose a model for sharing data, they must weigh the advantages and limitations of each technology along this spectrum. For instance, when banks decide that they want to move a financial process ‘to the blockchain,’ in reality they are often speaking of a more general process involving a fundamental re-evaluation of the stakeholders, risks, and transaction volumes that the new design must accommodate. Many sources (Tapscott and Tapscott 2017) relate blockchain to the democratization of services and organizations by increasing the transparency and legitimacy of underlying data and its resistance to unauthorized entries and tampering. There are several factors that contribute to this. First, all participating computational nodes must agree on transaction validity, as they all share the same ledger copy. Second, node operators are independent parties with their own interests. Third, except in certain unique circumstances, verified transactions cannot be canceled or deleted once assembled in a block. The latter two factors are applicable only in the case of public blockchain systems, which utilize individual computational power to sustain transaction verification processes. Public blockchains are open for anyone
V. Fintech∙Hirschkorn, Levanov, Titov, & Williams | 39 to join and to observe. Private, or permissioned, blockchain is often deprived of these latter two factors, but still has the requirement of consensus among participating nodes. However, in private blockchain there is no guarantee that all node operators will have the common interests and incentives necessary to drive the collective prevention of transaction manipulation. Thus, it is crucial to distinguish public from private blockchains. They are different not only in terms of technical implementation, but also in developmental incentives. Traditional enterprises that rely upon centralized, asymmetric relations, such as banks for example, focus mainly on piloting private rather than public blockchains (Scott 2016). In these cases of private use, there is a risk that blockchain applications will be managed by only a few actors, in essence, giving rise to a “blockchain technological elite” (Adams et al 2017). By monopolizing the technology and rejecting its principles of decentralization and disintermediation, centralized institutions risk engendering public distrust, which might cause the rise of alternative organizations. These organizations, also called Distributed Autonomous Organizations (DAO), would be governed autonomously without requiring a centralized authority. DAOs are largely theoretical organizations ‘hosted’ on distributed ledgers that use smart contracts to administer the operations of an organization or firm. The blockchain ecosystem has taken its first steps toward this vision of autonomous organization, in the form of decentralized applications that execute smart contract code and use app-specific tokens to minimize the application’s reliance on human management. In practice, human management may resemble the following scenario: several groups are currently working on decentralized applications meant to rival transportation services Uber and Lyft (Raval 2016). In such apps, drivers would earn app-specific tokens for successfully completing drives which they could either use themselves or sell to passengers wishing to use the service. DAOs, in contrast, are even more autonomous and could be configured to become facets of the internet. Such organizations would be largely agnostic toward discriminators such as a participant’s citizenship or physical location. If DAOs become widespread, nation-states could even face situations where large numbers of their citizens are involved in complex financial and organizational structures, governed by autonomous code executed independently on the blockchain. Another example is an organisation called “Bitnation,” which has the vision of fully hosting alternative state institutions on a blockchain. The primary goal of this DAO is to offer more convenient, secure, and cost-efficient government services than does the current administration (Prisco 2015). Blockchain’s original vision focused on replacing institutionally-mediated trust systems with technological infrastructure, or a “politics-free” infrastructure” (Scott et al 2017). In recent years, the blockchain ecosystem has witnessed an explosive infusion of investment and research into firms pursuing this vision. Although industry experts are skeptical of fully autonomous organization and their near-term realization (Yanovich 2017), it remains a concept with extreme
disruptive potential. THE STATE-BLOCKCHAIN NEXUS Before turning to blockchain’s implications for nation-states, it will be informative to consider a historical example of how another hierarchy-flattening technology affected and can affect traditional power structures. The advent of the internet changed the dynamics of nation-state and individual power by enabling the free flow of information. Before the internet, traditional information flow was largely controlled by large media networks (Westcott 2008). That is, where governments or organizations once enjoyed the ability to meter the information that individuals consumed, the internet—particularly with the introduction of social media—democratized access to information across the world, thereby significantly reducing the power of centralized media organizations. Indeed, much information now flows from peer-to-peer, as individuals communicate directly with other individuals, institutions, and even governments. This shift has empowered individuals with the means to find and share information, regardless of the support of legacy institutions. As an extreme example, during its 2011 military campaign against Gaddafi and his forces in Libya, NATO intelligence personnel routinely utilized information from Twitter users in order to build a real-time picture of events on the ground (Norton-Taylor and Hopkins 2011). In this example, it is relatively easy to see how individual rebels were able to leverage and support the military power of a sympathetic nation-state actor against their own, domestic leadership — all through the use of an ordinary smartphone and an internet connection. Schematically, the internet reconfigured how information flowed between states, between people, and across borders. Whereas traditional information flow relied largely on a centralized authority with a high degree of control over information, the internet eroded that centralized control while simultaneously increasing the informational power of individuals. In the same way that the internet reconfigured the global communications architecture, as well as associated power dynamics at both the state and individual levels, distributed ledger technologies are reconfiguring the global coordination architecture for individual, corporate, and state participants (Westcott 2008). That is, where centralized power and authority has always resided within large financial and governmental institutions, the next generation of financial architecture will see that power greatly diminished as more and more entities opt to utilize emerging blockchain technologies (Westcott 2008). Beyond individual banking institutions, however, the potential impacts of distributed ledger technology on global power dynamics is likely to be significant. Within this technology exists the potential for nation-states to reclaim financial autonomy outside of the traditional financial system without sacrificing legitimacy, security, or convenience. An example of such an increase in autonomy could be found in proposals to replace the cash transfer service SWIFT with a blockchain-based alternative. Russian Deputy Prime Minister Arkady Dvorkovich recently suggested that Russian banks are readying to “turn off” the SWIFT cash transfer service (RT
40 | The SURF Research Journal ∙ April 2018 ∙ Vol. IX 2018). Blockchain’s affordances align with state actors interested in revising the global financial status quo. It is therefore critical for current global powers to analyze and understand the implications of this technology and work to reinforce existing diplomatic channels or to develop alternate means of international cooperation and dispute resolution. Recently, Venezuela’s President Nicolas Maduro announced that his country will soon create its own cryptocurrency. Maduro claims that his new currency, which is to be supported in some manner by Venezuela’s oil reserves, has the ability to help Venezuela “defeat the financial blockade and move toward new forms of international financing for the economic and social development of the country” (Chappell 2017). That is, recent activity in Venezuela highlights both the rapidity with which technological understanding and adoption of DLT is progressing, as well as the potential use cases that are soon to be put to the test. If Venezuela is indeed successful in using its own cryptocurrency to circumvent economic blockades, the implications of this on international relations are difficult to understate. What is more, as blockchain has the ability to create new methods of cooperation that are immutable, verifiable, and transparent, it opens even more possibilities within the realm of treaties in areas such as trade, finance, and perhaps even defense cooperation. Blockchain’s impact on global power dynamics and the strategic logic facing states that are considering the state-sanction adoption of blockchain, such as Venezuela and Russia, are highly interrelated. If incorporating distributed ledgers into a state’s operations confers it an advantage in the international system, this will necessarily become a consideration when it comes time for the state to make decisions about blockchain. Embracing a new regulatory technology is a complex and multidimensional problem, often decided by the consensus of multiple stakeholders across multiple government agencies. In an overview of the ways structural power has been conceptualized by international political economists, Martijn Konings writes that “structural power need not be coercive in any overt manner, although it may be a precondition for certain types of coercive action” (Konings 2008). He goes on to explore how the rise of new financial institutions and technologies transformed, but ultimately re-entrenched, the structural power of the United States. Konings claims that “the globalization and expansion of financial markets did not render the US vulnerable to the same disciplinary pressures as other countries but largely freed it from the balance of payments constraint and increased its policy leverage” (Konings 2008). Researchers must try to anticipate how changes in the financial system will transform how structural power is constructed and wielded. Blockchain can be seen as a protocol for flattening hierarchies and democratizing access to financial markets — among other things. Alternatively, such technology can generate absolute barriers to entry for firms outside of the trust network. States that reject the new DLT model might find their ability to determine their own financial destinies deteriorated, while states that embrace novel, more technologically-progressive models based on DLT would be in control of entirely new levers of economic power — or, alternatively, free from the in-
fluence of traditional power structures. One of the most striking implications of blockchain is the multiplication of transaction opportunities. In a world of distributed ledgers, assets and organizations become more programmable. Blockchain enables new, complex derivatives and transactions involving large numbers of counterparties. As Keohane and Nye point out, however, “interdependent relations involve costs, since interdependence restricts autonomy” (Keohane and Nye 1977). States who move first to set the terms of blockchain’s integration into the global financial system will be advantaged with structural power created by this technological shift. In the same way that the United States gained advantage by the globalization and expansion of financial markets, some states will seize the opportunities in blockchain’s disruption of the status quo. These opportunities will not come without associated costs, however, and in this case will most likely include a deteriorated ability to intervene in domestic markets. There is certainly no shortage of interest in blockchain from regulators, bureaucrats, managers, and strategists in many states around the world. Beyond Venezuela’s claims regarding its own cryptocurrency, both the Russian and United States governments have expressed interest in using blockchain technologies to provide services and to enhance recordkeeping (Brainard 2016). Our research indicates that the Russian government has been more ambitious than the United States in developing a cohesive, whole-of-government blockchain strategy. The United States has made consumer protection and marketplace development its primary objectives, while Russian strategy reflects a greater concern for opportunities to actually use DLT in government operations, it remains to be seen precisely what kind of DLT models the Russian authorities will implement. If the projects turn out to be based on more traditional ledger designs, they may forfeit first strike advantage but, potentially, exert more influence over domestic markets than ever before. The Association of Financial Technologies, a consortium consisting of the Central Bank of the Russian Federation, private entities, and Russian government officials, recently shared a white paper outlining the principles of a proposed “Masterchain” (Arkhipov et al. 2017). Masterchain would reduce the regulatory uncertainties for entities that wish to build services on top of distributed ledgers by producing an approved, Ethereum-based protocol. Masterchain also serves as the foundation of several private and state-run blockchain initiatives, such as a proposed electronic mortgage recordkeeping system. Based on conversations we had with policymakers while visiting Russia, we believe Masterchain will also enable the much rumored CryptoRouble — although the exact details of this apparently remain a well guarded secret as it escaped all of our efforts to uncover more substantial information. Although the white paper does not describe how, exactly, Masterchain will differ from the Ethereum specification, it does claim that Masterchain will be a distributed ledger protocol with controlled access and so will probably most closely resemble a permissioned blockchain controlled by some facet of the government. Blockchain’s general influence on traditional levers of power in the international system is also directly relevant to the
V. Fintech∙Hirschkorn, Levanov, Titov, & Williams | 41 specific case of US-Russia relations since states will inevitably be forced to develop new means of influence and methods of cooperation. An additional dimension in which blockchain might influence international relations is the decentralization of decision-making processes among community participants aside from those directly involved in governance. That is, despite official policies, members of a blockchain-based community might determine their own rules regulating the ways that they collaborate with each other (Rea, Fischer, and duRose 2017). The technology creates an alternative jurisdiction with its own binding rules, where the external politics of any country are not able to affect the interrelations of specific stakeholders, such as the residents of these countries. In this case, we observe self-managed communities, in other words decentralized autonomous societies (DAS), which ultimately have the potential to alter global rules and norms (Garrod 2016). DELIVERABLE DISCUSSION Our proposed deliverable will utilize a computer simulation to attempt to model changes in entity behavior according to changes in the nature of their associated relationships. The objective of the computer simulation is to model a process with sufficient accuracy to draw reasonable conclusions. Computer simulations are particularly useful if, for some reason, the actual process is difficult or impossible to directly observe or measure. In our study, we want to understand how the introduction of blockchain technology will affect the relationships between nation-state actors and the potential implications for global economic power dynamics. To start, our hypothesis is that the use of technologies related to decentralized processing and data transfer, specifically within the global financial ecosystem, will affect many aspects of society. For example, it has the potential to increase the trend toward decentralization, speed up data handling, and increase the security and autonomy of data transmission. To test this hypothesis, we would need to either wait for a lengthy period of time (years) in order to observe the actual changes to the system, or collect a sufficiently large set of statistics of similar process transformations. Although the first option is reliable, it is also not practical. The second option uses assumptions and predictive modeling and therefore sacrifices accuracy. In the context of this hypothesis, it is possible to use computer simulations to enhance the reliability and utility of the second method. By expertly selecting the initial parameters that are relevant to the factors in question, the simulation can be constructed. Such modeling will allow us to consider changes in inter-community dynamics across numerous aspects of virtual communities. Communities in the experiment can be represented by multi-agent systems. These agents in turn exchange data among themselves and constitute a special entity in the theory of multi-agent systems, as they are able to make decisions and achieve objectives. The model is constructed in such a way as to maintain the ability to grow and multiply (critical in the simulation of human society or dynamic entities). Agents are then able to transfer data packets between one another. These data packets characterize the flow of information and,
in this specific case, monetary transactions. In the first variant of the experiment, the transfer of this data will be conducted through specific nodal points — agents in the network. As data is transmitted through nodal agents, probabilistically-determined changes in transmission patterns and data integrity can be programmed into the simulation. These changes can include anything from how, and with whom, the network participants can communicate, how they access informational flows, and how much decision-making authority they have. These simulations should then allow us to see the developmental trends of the society for different options based on how they utilize distributed ledger technologies. Furthermore, the data obtained can help in the theoretical forecasting of the consequences of using blockchain in the field of finance on a global scale. Implementation of such a function is possible in almost any object-oriented language. The most popular for these types of tasks are MatLab and Python. Our implementation can be performed in the objective-c language in order to run on a mobile device that will display the simulation. CONCLUSION There are many parallels between the current state of blockchain technology and the early days of the internet, circa 1995. At the time, it was understood in many circles that internet technology was going to fundamentally change how people lived and worked, but the nuances of how that actually manifested 10 or 15 years later were nearly impossible to see or understand. Further, even the most committed visionaries could not have imagined the rise of such phenomena as Facebook and Twitter; nor could they have envisioned those platforms being used to organize dissent and topple state dictatorships as we saw in Egypt. These platforms leveraged much of the original structure of the internet; in essence, they mirror the same technology that emerged in the late 90’s and early 2000’s. Distributed ledger technologies represent a similar paradigm shift in how people use data and connectivity to organize and operate. Further, this shift extends to the interactions within and between nation-states themselves, both in how states choose to use and implement the technology, as well as how states are forced to adapt and change due to the adoption of DLT by other states around them. DLT has the ability to enable states to streamline and economize many bureaucratic processes while simultaneously making them more secure and robust. It also has the ability to empower smaller, less capable states with a level of economic and financial autonomy previously unobtainable — despite the desires and influences of larger states. There is no doubt that DLT represents a profound technological innovation with massive implications at all levels. In fact, the implications of this technology may be so profound that it is likely to change the basic landscape of how people, and states, interact and connect — it may even begin to challenge how we define some of these basic terms in the first place.
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6 PROMOTING BUSINESS ATTRACTIVENESS FOR THE TECH SECTOR IN RUSSIA: LESSONS FROM THE UNITED STATES AND CHINA VI. Trade and Business Development Working Group Tatiana Aleksandrina, Colton Cox, Kirill Protasov, and Boguang Yang Abstract Currently, the Russian economy faces stalled GDP growth, along with decreases in both investments and oil prices. To compete in a vibrant knowledge economy and retain companies within its borders, Russia should attempt large-scale optimization of its domestic business climate for high-tech companies. We focus on three Russian regions: Moscow, the Republic of Tatarstan, and Tyumen Oblast, analyzing the investment climate and the development of the digital sector in each region. Stating the most crucial needs for technology companies to stay successful and competitive in each stage, we identify the most common roadblocks and the necessary steps for key actors that want to create a supportive ecosystem. For broad, comparative, empirical lessons, we utilize the case studies of Silicon Valley (US) and Shenzhen (China). To conclude, we build a threefold policy framework that examines the impact of innovation and partnered learning at the state, federal, and transnational level. INTRODUCTION
urrently, Russia is in a challenging economic situation: its GDP growth rate is stalled, international sanctions have led to a decline in investments, and the price of oil, a key economic driver, has decreased significantly. However, optimistic forecasts predict that the slowing of inflation and resultant decrease in the cost of capital will open up new opportunities for companies operating in Russia. Yet, the Russian economy must diversify in order to stay competitive in the global market. As innovation — or the development of creative, technological solutions in fields as varied as healthcare, finance, and social engagement — plays an increasingly important role worldwide, companies continue to grow their investments in cutting-edge technologies and entrepreneurial endeavors. It is thus no surprise to say that “yesterday’s technology investments are today’s building blocks” (PWC 2017). In order to stay competitive globally, Russia must foster a forward-thinking and well-supported Tatiana Aleksandrina, Graduate School of Management, Corporate Finance Colton Cox, Rice University, Sociology and International Policy Studies Kirill Protasov, Georgia State University, Andrew Young School of Policy Studies Boguang Yang, University of Rochester, Department of Political Science, Department of Economics
business climate for the new cadre of technology-focused companies. In the absence of a supportive domestic environment, Russian tech companies often move abroad in search of more dependable business climates (Sukharevskaya 2017). According to the 2017 KPMG “Global Technology Innovation” Report, though other countries have made significant strides in innovation development, the United States and China continue to present the most promising markets for technology breakthroughs with global impact. In order not to fall behind in the global knowledge economy, Russia should aim to bring about the large-scale optimization of its domestic business climate for foreign high-tech companies that will likely usher in advanced techniques, critical lessons, and new markets. As a result, this process would also open up new opportunities for economic transformation and diversification, particularly in regions that are heavily reliant on a single sector. For example, Vadim Shumkov, the Regional Vice Governor of Russia’s Tyumen region, is eager to promote business development and to use trade, regional tax, and financing policies, as ways to expand local startups (Shumkov 2017). Tyumen Governor Vladimir Yakushev also notes the region’s challenges in developing new markets and broadening commodity distribution channels (Yakushev 2017). We use this paper to demonstrate how a more technology-driven economy ultimately promotes aggregate productivity and innovation, which has broad implications
46 | The SURF Research Journal ∙ April 2018 ∙ Vol. IX not only in improving national economies but also in the context of transnational cooperation and trade. Ultimately, we hypothesize that case studies from the US and China reveal important mechanisms for the promotion of a robust business climate and attractive investment opportunities for technology companies in Russia. OVERVIEW OF TECHNOLOGY STARTUPS, INNOVATION RATES, TECH-SECTOR PRODUCTIVITY, AND DEVELOPMENT PROJECTIONS AROUND THE GLOBE Since the information revolution, the technology sector has been grown exponentially. By one measure, worldwide revenues for information technology (IT) products and services are forecasted to reach nearly $2.4 trillion USD in 2017, an increase of 3.5 percent from 2016 (International Data Corporation 2017). The IT sector across different Russian regions, however, still has large unexploited potential in development; in these areas, a major concern arises from how to build a desirable and sustainable investment environment that could attract more leading foreign tech companies. Russian President Dmitry Medvedev made clear in his 2010 visit to the United States that visiting California’s Silicon Valley and learning about the conditions that produced such a vibrant technology ecosystem were of key priority, subsequently expressing his desire to create an analogous environment in Russia (O’Mara 2011). Regarding cross-national rankings and comparisons of technological ecosystems, renowned economic theorist and management professor, Richard Florida, ranked Russia 22nd in the world for research and development investment in 2011. However, Florida ranked Russia’s potential higher, at number 12 per its high per capita science and engineering researchers, only five spots behind the US (Florida 2011). These data reveal that while Russia trails behind nations such as the US, Canada, Israel, and a wide range of West European nations, in terms of technological productivity indicators, Russia has nonetheless outpaced other large nations such as China and Brazil (Florida 2011), suggesting that Russia maintains an inherent potential for growth within its technological sector. According to a thematic think piece from the United Nations on technological change in developing countries, “the ability of local firms and enterprises to access technological know-how is fundamental to shaping their ability to provide products and services” (United Nations 2015). The agenda lists political stability, an educated workforce, enterprises committed to research and development, and a balanced intellectual property rights-framework as key issues to address in order to increase technological investments. Keeping in mind this array of governmental, legal, and private sector factors which catalyze the growth of technological business ecosystems in developing nations, our research centers on ‘young’ tech companies within Russia, specifically referring to those spanning the start-up phase to approximately two to three years after their formation. Furthermore, we define the appropriate metrics for assessing a nation’s rate of innovation and the productivity of a nation’s tech sector.
OVERVIEW OF THE CURRENT STATE OF THE BUSINESS CLIMATE FOR TECHNOLOGICAL DEVELOPMENT IN PRESENT-DAY RUSSIA More and more citizens and companies in Russia acknowledge the importance of digital skills and technological resources in the modern world. However, the rate of personal computers and internet usage in Russia is still lower than it is in Western Europe, and there remains a dearth of technologically-skilled workers. In 2016, the share of Russian people using broadband wireless internet was 18.77 percent, and the average web speed reached 12.2 megabits per second (World Bank 2015). Based on this measure, Russia’s web usage is on the same level as France, Italy, and Greece (World Bank 2015). By 2017, the market for commercial data centers and warehouses increased 11 percent from the previous year (EWDN 2017). Moreover, we can now see stable growth in the market for cloud technologies – at 40 percent annually (5 Hot News 2016). The potential for companies to thrive in this environment is exemplified in the examples of innovation zones like Skolkovo in Moscow, Innopolis City in Tatarstan, and the industrial parks in Tyumen. Despite said growth, there is still a large gap between Russia and other developed countries. Recently, the World Economic Forum assessed the readiness of countries to achieve digital transformation (WEF 2016), with Russia ranking only at number 41, falling behind leading developed countries like the US, Finland, Singapore, and Great Britain. The report identified Russia’s weak policy framework, poor market conditions, and sub-optimal business climate as reasons for such a ranking (WEF 2016). A recent World Economic Forum Global Competitiveness Report ranked a country’s business environment, assessed on a composite of skills, infrastructure, and investment (WEF 2016-2017). Ranked 43rd, Russia once again fell behind developed countries such as the United States, Switzerland, Netherlands, and Germany. These numbers emphasize that reforms and other changes to Russia’s business climate are crucial for the nation to stay competitive. Despite Russia’s relatively lackluster international rankings, the digitalization of the Russian economy is projected to be a top driver of its long-run economic growth (McKinsey 2017). Currently, the share of digital industries in Russia’s GDP is 3.9 percent, while the corresponding share is 10.9 percent in the United States, and 10.0 percent in China (McKinsey 2017). By these numbers, Russia has the potential to harness digitalization and increase its GDP by 4.1-8.9 trillion rubles by 2025 (McKinsey 2017). In large part, this impact should derive primarily from production and logistics optimization and from an increase in labor efficiency. It is important to consider that the level of digitalization differs in Russia from region to region. Nonetheless, lagging regions are developing quickly and, in 2016, the so-called ‘technology gap’ between Moscow and other Russian regions decreased to a measure of 1.35, in comparison to 2.6 in 2011 (Volkova 2016). Moreover, the frequency of ‘e-shopping’ is nearly the same across the federation, while in Moscow the average bill is 25 percent higher (BCG 2016). The Boston Consulting Group (BCG) assessed the digital economy in
VI. Trade ∙ Aleksandrina, Cox, Protasov, & Yang | 47 Russia and placed the country at number 39 in global ratings (2016). On the question of logistical infrastructure for technology firms, projections demonstrate that if more Russian governmental funds would be directed toward constructing the necessary facilities for the technology industry, the contribution of the digital economy could reach 3 percent of the GDP by 2021 (Volkova 2016). When designing future initiatives it is important to consider and mitigate cross-regional disparities. The Russian government has taken some steps to help industries within the country achieve digital transformation. For example, in July 2017 the state announced a federal program, titled “Digital Economy in the Russian Federation.” The goal of this program is to create an ecosystem for the digital economy, to construct necessary institutional and infrastructure facilities for technology companies, and to increase competitiveness in the global market. The program outlines goals, milestones, and a roadmap for 2024 in five key areas: policy, human resources and education, research and technology, IT-infrastructure, and information security. THE THREE RUSSIAN REGIONS IN OUR COMPARATIVE CASE STUDY: Moscow, Tatarstan, and Tyumen Moscow, Tatarstan, and Tyumen are economically strong regions, each with a high gross regional product (GRP) per capita. Though our research draws on interviews conducted within the city of Tyumen proper, our mention of Tyumen in this research refers specifically to Tyumen Oblast, also denoted “Tyumen region,” unless otherwise mentioned. Moscow has the highest GRP per capita, which is 2.4 times higher than in Tatarstan, and 1.8 times higher than in Tyumen region. The regions differ in terms of the structure of their economies. In Moscow, almost 70 percent of the GRP consists of manufacturing, wholesale and retail trade, and real estate. Interestingly, the share of wholesale and retail trade (35.4 percent) in Moscow is almost two times higher than the mean share for Russia (19.0 percent), while there is a zero percent share in mining. In Tatarstan, 63 percent of the GRP derives from a combination of mining, manufacturing, wholesale and retail trade and real estate and leasing. The same industries make up 58 percent of the GRP in Tyumen region. Other industries that are important for regional economies are construction, transportation, and communication. Thus, Moscow is more specialized in trade and real estate, while Tyumen and Tatarstan are more mining-oriented and industrial regions. The structure of a regional economy depends on, and simultaneously affects, the investment attractiveness of a region. In the most recent Rating of Investment Attractiveness of Russian Regions prepared by RAEX (Expert RA) rating agency, the Republic of Tatarstan is included in the second group of Russian regions, specifically encompassing regions with a minimum risk and a medium potential. Moscow is in the group of regions with a high potential and a moderate risk while Tyumen region has the lowest rank and is classified in the group of Russian regions with a lower potential and a moderate risk (see Tables 3 and 4 in the appen-
dix). The regions differ significantly in terms of risks and potential combinations of such risks. Tatarstan has the lowest overall risk, while Moscow has the highest economic, criminal, and managerial risks among the three regions. Tyumen region specifically demonstrates the highest ecological and social risks. In terms of potential, Moscow is ranked as the strongest region in almost all categories except natural resources and tourism potential. Tatarstan is also ranked among the top ten regions with the most potential in almost all categories except infrastructure and natural resources. In contrast, Tyumen is ranked 34th among all 85 Russian regions in the category of potential. Thus, all three regions share essentially the same risks (minimum to moderate, with a difference of seven positions) while differing significantly in potential (lower to high, with a difference of 33 positions). According to another rating compiled by the Agency for Strategic Initiatives, Moscow, Tatarstan and Tyumen region are included among the top ten Russian regions in a ranking of investment climates in 2017. Tatarstan ranked first (as in 2016), Moscow third (tenth in 2016), while Tyumen region was sixth (fifth in 2016). The rating includes 45 indicators from the following arenas: 1) regulation; 2) institutional setting; 3) infrastructure; and 4) support of Small-to-Medium Enterprises (SMEs). In the latest rating of innovation development, compiled by the National Research University Higher School of Economics, Tatarstan is ranked first and Moscow is second, while Tyumen takes only 21st place (see Table 5 in the appendix). Nonetheless, all three regions are classified as having a high regional innovative index. This particular rating assesses Russian regions in the following four categories: 1) socioeconomic conditions for innovation; 2) scientific and technical potential; 3) innovation activity; and 4) the quality of an innovation policy. Thus, all three regions seem to create appropriate conditions for technological transformation and innovative development. FACTOR ANALYSIS FOR INVESTMENT IN TECH COMPANIES AND REQUISITE STEPS REQUIRED FROM THE THREE RUSSIAN REGIONS Companies The typical life cycle of young technology companies can be described in four main phases: 1) research and development; 2) concept development and building the minimum valuable product (MVP); 3) product development and first shipment; and 4) scaling. In order to succeed in each of the phases, however, technology companies must gain specific resources and obtain the requisite level of investments. In a generalized sense, key resources which young technology companies need in each of the stages can be grouped into three main areas: network, assets (finance, human capital, infrastructure, institutional settings), and culture. According to a recent McKinsey report (2017) there are two main roadblocks which disable further development of the technology ecosystem and venture industry in Russia: sector specifics and a lack of financing. Moreover, there is a
48 | The SURF Research Journal ∙ April 2018 ∙ Vol. IX dearth of required competencies, both from entrepreneurs as well as from investors and mentors. Each phase of development for young technology companies requires substantial investment. The report concludes that the biggest problem for technology companies in Russia lies in the assets component, specifically on the finance side (McKinsey 2017). In the research and development stage, substantial investment is crucial in order to proceed with product development. Human capital also plays an essential role, with universities and research institutions incorporating research and design (R&D) activities as regular components of their everyday processes. The key finance contributors are grant funds and R&D budgets of corporations. For the grant funds, the main insufficiency in Russia is a lack of focus on commercially successful projects, while for corporations the main insufficiency is a significant gap in the level of financing in comparison to international companies (McKinsey 2017). In the phase of concept development and building a minimum viable product (MVP), it is important to have platforms which enable MVP building and concept creation, such as ITparks, accelerators, and incubators. Elsewhere, the essential work derives from the experts in the particular field and their accumulated knowledge base. Culture is also an important resource, as the percentage of successful projects is very modest and a cultivated entrepreneurial culture could be an important motivator. The key contributors in terms of finance are business angels and state funds. Currently, the level of investments at this stage is not adequate for building a robust digital economy in Russia (McKinsey 2017). In the phase of product development and first shipment, a range of resources are equally important for the company. However, networks play an important role in the first shipment, as distribution channels are not always easily reachable and entry barriers still exist in many industries. The main contributors in the finance side are venture funds, state and private funds, development banks, strategic inves-
tors, and corporations. Despite the substantial number of possible sources of financing, the level of investment in Russia is still very low. The key shortfalls are lack of incentivized investors, innovations not being the highest priority and the low level of investments due to the lack of possible exit opportunities from the project. Nevertheless, the scaling phase is the last in this lifecycle. At this stage, all of the resources and effort should be maximized in order to create sustainable, successful, and long-lasting companies. In the scaling phase, investment sources mainly come from commercial banks and state and private investment funds. From commercial banks the main insufficiency in Russia derives from the absence of ‘long’ low-cost investments and the lack of readiness to take venture risks. We now turn to an examination of the three aforementioned regions in terms of the current level of business climate for young technology companies, employing this threefold perspective of networks, assets, and culture. Regions Every region has a set of assets, networks, and an underlying business culture that determines its success in supporting high-tech firms. According to the Asset Mapping Roadmap (see Figure 1), these elements form the regional innovation environment that impacts the ultimate prosperity of the region (Council on Competitiveness 2007). The region’s success in developing a successful high-tech sector depends on the linkages between these elements and their integration into the regional policy. As shown in Figure 1, the assets, networks, and culture combine to form a regional innovation environment, defined as “an ecosystem in which human creativity, business acumen, scientific discovery, investment capital, and other elements come together in a special recipe that nurtures budding ideas so they can grow into flourishing and sustainable enterprises” (Hwang 2012). In the following paragraphs, we outline the assets, networks, and culture available in the
Figure 1. Regional Innovation Environment Inputs and Outputs (Council on Competitiveness 2007)
VI. Trade ∙ Aleksandrina, Cox, Protasov, & Yang | 49 innovation ecosystems of Moscow, Tatarstan, and Tyumen. Assets Assets include the human, financial, physical, and institutional capital in a region. The asset base is an underlying factor for corporate location decisions. Intellectual resources can be assessed through examining higher education statistics in each region. The population of Moscow region is 12,380,664, Tatarstan is 3,885,253, and the Tyumen region is 1,477,903 (Rosstat 2017). According to the 2010 Russian Census, the share of people with higher education in Moscow is 35.23 percent, in Tatarstan it is 18.48 percent, and in Tyumen region it is 18.2 percent. To compare, 18.8 percent of the entire population holds a bachelor’s degree, a master’s degree, or a specialist’s degree in Russia (Russian Census 2010). In the last Rating of Russian Regions on the Quality of Life compiled by RIA Rating, in terms of the share of people with high education these regions were ranked 1st (Moscow), 14th (Tatarstan), and 34th (Tyumen) (RIA Rating 2017). Nonetheless, there are huge discrepancies between demand from tech companies and supply on the labor market. First, the hightech sector needs a different knowledge base and set of skills than most students gain during their studies. Most university programs focus on fundamental knowledge ignoring the importance of personal (leadership, creativity, independent thinking) and professional skills (programming, research and managerial skills). Second, most students are willing to work for large corporations and the public sector rather than start their own businesses, indicating a relatively low level of entrepreneurial culture. Third, engineering majors and hard sciences are just recovering after a deep crisis resulting from a lack of interest from future students, and deteriorating research facilities. It should be noted that individual Russian regions are limited in their ability to influence universities and educational policies as the higher education system is primarily regulated by the federal Ministry of Education and Science. In terms of financial capital, technology companies require investment in each phase to cover capital and operational expenses. In most of the cases, technology companies apply for financial assistance from various sources. As aforementioned, the key contributors are: grant funds, R&D budgets of corporations, state funds, business angels, venture funds, other commercial funds, development banks, commercial banks and strategic corporate investors (McKinsey 2017). While analyzing the current state of development on the financial side, it is important to consider these players and their role and presence in a particular region. Currently, in Russia, state federal funds and state grants play a large role in financing new venture opportunities. The following large funds bear mentioning: Russian Venture Fund (RVC), Innovation Promotion Fund, Fund for Infrastructure and Educational Programs under Rosnano. The Russian Venture Fund (RVC) is a state-owned fund and development institute. The main investment activities of this fund are to attract Private Russian and international investors in innovation segments using the Public-Private Partnership model. Recently RVC announced a venture fund of 3 billion rubles for investment in fields such as artificial
intelligence, the Internet of Things, virtual reality, and big data analytics. To fund these projects, 1.5 billion rubles will come from state budget and the other half will come from private co-investors. The RVC operates 26 venture funds and is planning to create an additional 10 venture funds by 2020 (Stulov 2017). Moreover, RVC is managing a federal accelerator of technology startups known by the moniker ‘Generation S’ and plans to further improve its activities helping to attract money for companies and to develop the innovation ecosystem in Russia. The development of venture funds and business angels in Russia is lower than overseas. Moreover, most of the funds belong to Russian residents and only a few of them are international. In comparison to 2016, in 2017 the number of annual venture deals did not change and stayed at a level of approximately 400. In 2017 there were only 49 actively investing Russian funds (Plenin 2017). However, in 2017, 11 new funds conducted investments, while in 2016, only four new funds did so (Plenin 2017). Moscow, as the capital, arguably has the most plentiful finance opportunities. The headquarters of most corporations and banks are in Moscow and many funds and accelerators are also from Moscow. For instance, one of the biggest startup funds, the Fund for Development of Internet Initiatives operates in Moscow and its offline educational and networking programs operate mainly in Moscow. The Skolkovo center and business school are also based in Moscow. Finally, other venture funds, business angels, and independent investors work out of Moscow, or plan their meetings and roadshows in the capital. Each of these factors open a window for startup financing in Moscow, thereby creating a high level of competition for investor resources. In order to be competitive and attract investment, startups and technology companies in Moscow should aim to have a coherent strategy and reliable business plan with a clear roadmap. Tatarstan is one of the few regions in Russia which is vigorously promoting and investing in technology and startups. The region is building technoparks, accelerators, and special economic zones such as Innopolis. Investment and venture funds in Tatarstan play an important role and support hightech industries, as they are used to organize events, competitions, and other investor roadshows in an effort to attract money into the industry. Technoparks, such as the IT-park in Kazan also attract new technology companies and help them to gain initial investment. The business incubator at Kazan IT-park has already attracted more that 60 projects with more than 650 million rubles in investment. While Tyumen is moving toward a more complete innovation and technology ecosystem, the level of technology development is still low and thus the ease of access to financial resources is also low (Yakushev 2017). There are a number of industrial parks developing in the region, which could bring investors to technology startups. For example, business incubators at the Tyumen Technopark provide companies with the resources necessary to start initial work (for example, discounts on rent and other operational expenses, the possibility of meeting investors, and so on). Moreover, the region is investing money to hold startup competitions
50 | The SURF Research Journal ∙ April 2018 ∙ Vol. IX • A responsive workforce development program that like Innoweek-2017, which will conclude with a startup comincludes skill-building initiatives; petition where entrepreneurs from five industries compete • Active youth engagement; and for investments of up to 10 million rubles (Expert Ural 2017). • University-industry linkages (Hwang 2012). However, the Tyumen region stands out in terms of the quality of regional infrastructure, as it is ranked first for Culture roads and quality of life metrics (Government of Tyumen A supportive business culture will help regions to leverage Region 2015). Moscow and Tatarstan are also considered reassets and build networks successfully. One indicator of the gions with high quality infrastructure and rich physical capentrepreneurial culture is the number of entrepreneurs per ital. Growing populations and increasing demands placed 1,000 working-age people. The Tyumen region had 0.0740 on infrastructure will require new models of designing, constructing, and operating infrastructure objects. Public-Private Partnerships (PPPs) presents one potential solution, though Tyumen region lags behind Moscow and Tatarstan in this regard; in the national PPP rankings, the top PPP project in Tyumen was ranked only 19th, in contrast to Moscow and Tatarstan, which were in first and eighth places, accordingly (3P Rating 2017). Meanwhile, Tyumen region and Tatarstan focus more than Moscow on strengthening regional industrial complexes. For example, Tyumen region developed the “Borovsky,” “Bogandinsky,” and the agro-focused “Ishimsky” industrial parks. Likewise, Tatarstan creatFigure 2. The Concept of The Innovation Ecosystem (Hwang 2012) ed the special economic zone “Alabuga,” and industrial parks “Chistopol,” “Master,” and “M7.” Last, each region has created special inentrepreneurs per 1,000 working-age people in 2010 when stitutions, such as the Investment Agency of the Tyumen Rethe last census was carried out, Moscow had 0.0182 entregion, the Infrastructure Development Agency of the Tyumen preneurs per working-age people, and Tatarstan had 0.0494 Region and the Tatarstan Investment Development Agency, entrepreneurs per working-age people (Rosstat 2010). In whose primary focus is to attract capital and coordinate co2014, the number of small enterprises per 1,000 people was operation with local entrepreneurs. These institutions help equal to 201 in Moscow, 127 in Tatarstan, and 193 in Tyumen companies to find appropriate office and industrial space, region (Rosstat 2017). manage their infrastructure, and identify sources of finanThese numbers indicate that the entrepreneurial culture cial support. in these regions is inadequate. However, each of the regions Network considered in our study is undergoing efforts to promote enThe links between different kinds of assets, key actors, and trepreneurship and support new firms and entrepreneurs. entities are as important as their presence in a region. Nu- For example, the Tyumen region started a project among merous regional assets should be linked to support the tech- schoolchildren aimed at enhancing entrepreneurial skills nological transformation of Russian regions. And the success and culture. In Tatarstan, the Entrepreneurship Factory, a of innovation requires the convergence of many disciplines kind of school where young entrepreneurs are studying unand a particular kind of interaction among individuals. As we der the guidance of experienced mentors, has graduated show in Figure 2, many actors and components in a success- more than 1,000 entrepreneurs. Nonetheless, these regions ful innovation environment are connected to a number of both suffer from weak economic networks and partnerships other actors and components, thereby creating a networked among entrepreneurs and firms. system that leads to greater accountability, incentive to inMETHODOLOGY: WHAT CAN RUSSIA LEARN FROM CASE vest, and workshopping of ideas. The most successful innoSTUDIES IN DIFFERENT NATIONAL CONTEXTS? vation ecosystems create and foster networks by focusing on the following elements: Silicon Valley (USA) • A supportive infrastructure for tech-companies; Silicon Valley, in the state of California, is often regarded • Strong intellectual property frameworks; as the “ideal-typical innovative region” (Kenney and Pat• A robust capital “food chain”; ton 2005). The history of this regional technology hub has • Entrepreneurial support of tech start-ups; multifaceted origins involving government financing, ven• Proactive innovation leadership development;
VI. Trade ∙ Aleksandrina, Cox, Protasov, & Yang | 51 ture capital, and intellectual capital deriving from universities (Kenney and Patton 2005). Vitaly Golomb, Founder and CEO of Keen Systems, remarks that the United States’ federal initiatives, such as the Small Business Administration’s fund-matching program of the late 1950s and federal initiatives to slash capital gains taxes, proved indispensable in stimulating the venture capital sector that supported the early growth of Silicon Valley (Golomb 2014). Other scholars point to the amplification of boutique investment banks in the San Francisco Bay Area and “entrepreneurial support networks,” referring to integrated networks of patent attorneys and managers not involved in venture capital, as key factors that bolstered the entrepreneurial potential of Silicon Valley. Such integrated legal, financial, and management networks, they argue, led to the formation of “clusters” of tech enterprises in Silicon Valley, which, in turn, led to a “spillover” effect wherein innovation was further diffused geographically (Kenney and Patton 2005). Moreover, other scholars point to the importance of a university located within such technology clusters. Leslie and Kargon note that while northern New Jersey in the mid1960s was a vibrant research hub that generated a significantly higher amount of research and development funding internally than did northern California, this northern region was later overtaken by Silicon Valley because it did not boast a local STEM-focused university such as Stanford from which to draw employees and expertise (1996). Partnerships between Stanford faculty and local industries led to a unique synergy that allowed Silicon Valley to become the nation’s preeminent technological research and development hub, underscoring the importance of having a multi-purposed university in technological ecosystems that provides both academic knowledge and industrial best-practices consulting (Leslie and Kargon 1996). Ultimately, one can discern from these facts that the development of Silicon Valley is unique, involving federal financing initiatives and academic-industry cooperation, all undergirded by an interconnected network of experts from legal, venture capital, and other financial sectors. Today, Silicon Valley retains its prestige as a catalyst for economic growth within the tech sector, in large part due to the vibrant financial institutions concentrated near tech company headquarters. In the year 2000, total venture capital fundraising in the US reached a peak of 24.3 billion USD, and has increased significantly in recent years (Cao 2004). Total venture capital fundraising in the US increased to 42 billion USD in 2016, from a 2015 total of 35.2 billion USD (KPMG 2017). In addition to these enduring alternative investment resources, recent national legislation has proven conducive to the growth of new technological startups in the region. Financial observers have noted that the bipartisan-passed JOBS Act of 2013 eased legal restrictions on crowdfunding; a provision which allows tech startups to rely on a wider range of investors and which could increase the marketing potential of nascent ventures in the valley (Needleman 2012). Thus, plentiful access to private capital and federal regulations, which protect intellectual property and engender rigorous investment standards, continue to make Silicon Valley
a unique center of technological innovation. Indeed, Russian regions can learn a great deal from the growth factors behind Silicon Valley, particularly from the vibrant private sector involvement and the access to intellectual and legal organizations who cannot merely help to drive innovation, but also to make innovative products more marketable and appealing to consumers. Critics of Russia’s Skolkovo project in the Moscow region have alleged that the development has relied too greatly on government funding and would not be able to flourish through private capital in the manner that Silicon Valley has. Moreover, certain members of the international venture capital community have observed that while Russia has abundant intellectual capital and possesses the innate ability to create disruptive technologies, Russian scientists and entrepreneurs often have difficulty in turning their innovations into marketable products. Additionally, even in the Tyumen region which is beginning to host more innovation centers such as the Tyumen TechnoPark, the Tyumen Deputy Governor stated that it is a priority of his government to both increase the number of IT graduates in the region and to facilitate a hiring process in the tech sector by establishing greater channels of communication between the industry and students (Tyumen Deputy Governor 2017). With this consideration in mind, the Tyumen region could learn much from the synergy that developed in Silicon Valley between universities – namely, but not only, Stanford University and the University of California, Berkeley – companies, and startups in the region who thrive off channeling graduates from these top-ranked institutions. Given these mechanisms which allowed this regional technology hub in the United States to flourish, we now turn to an examination of how China’s analogous hub of Shenzhen came to be, with an eye to similarities and divergences from the US and Russian case studies. Shenzhen (China) In this section, we study the case of Shenzhen, the heartland and frontier of technology innovation in today’s China, to show how China applied advanced lessons from the United States and succeeded in creating a desirable environment for the growth of technology companies, both domestic and foreign. Shenzhen was a small fishing village in 1980. Under China’s “Open Door Policy,” Shenzhen, as one of the Special Economic Zones (SEZ) initially set up in 1980, attracted massive foreign direct investment. Shenzhen was the first SEZ established and showed rapid growth, averaging at 40 percent per year between 1981 and 1993, compared to the average national Chinese GDP growth of 9.8 percent (Ge 1999). A number of foreign enterprises set up manufacturing facilities for export trade and later served the domestic markets, as well. Shenzhen largely reformed the existing regulations and provided huge incentives for Chinese-foreign joint ventures. Utilizing its geographical advantages as a port city and a neighbor of Hong Kong, products made in Shenzhen rapidly seized markets at home and abroad due to its price competitiveness. Given Shenzhen’s outstanding record in sustaining a manufacturing and tech-driven economy, what lessons can other countries such as Russia learn? First, the city largely invested in building a multifaceted
52 | The SURF Research Journal ∙ April 2018 ∙ Vol. IX and comprehensive educational and research environment that could provide sustained intellectual and academic support for innovation. Chen and Kenney (2007) stress the importance of interaction with academia: in the 1990s, Shenzhen convinced Tsinghua University to establish Shenzhen Tsinghua Research Institute, and PKU, CAS, and Hong Kong University of Science & Technology also had research bases established in Shenzhen. Today, the city incentivizes tech start-ups by allowing tech experts to buy shares with their patents and technologies. Advanced degree holders with expertise in particular fields are granted permanent residence and housing benefits. According to Murphy (2017), Shenzhen’s entrepreneurial prosperity largely results from the success in attracting ‘returnees’ from abroad – groups of Chinese citizens who witnessed the power of advanced technologies in places such as the United States and Canada. Second, the city promoted vigorously the flow and clustering of knowledge, ideas, and cooperation by setting up industrial parks and innovation centers. Citing the example of Shenzhen High-Tech Industrial Park, the first national-level park in China, Cheng et al. (2014) show empirically that the presence of science parks significantly increases the probability of attracting more small- and medium-sized enterprises (SMEs). Take Huaqiangbei (HQB) electronics market area of Shenzhen as a prevailing example: at HQB, any small business-owner can find all of the raw materials needed for production within a one-kilometer radius. Given these circumstances, the business-owner is capable of completing R&D, developing the first MVP, and achieving small-scale production a shorter amount of time. The joint advantages from having a strong manufacturing capacity, increasing institutional support, and maintaining a complete industrial chain opened new possibilities for innovation and entrepreneurship in Shenzhen. In the latest development agenda, the city announces its plan to grow the R&D spending percentages up to 4.25 percent (of GDP) by 2020, which highlights its capability to be the leading innovative city worldwide (see
Figure 3). The growth rate is expected to exceed 10 percent annually to ensure long-run development. Facilitated by lessons from advanced foreign companies, the policy support from both national and regional levels sparked off the rapid development of a wide range of local firms that, today, have become world leaders in different sectors, such as Huawei, ZTE, and Tencent. Today, Chinese firms from Shenzhen are largely exporting their technologies abroad, as American companies did in Shenzhen two decades earlier. On the other hand, Shenzhen has faced significant issues related to inadequate intellectual property protections, which has affected the reputation of local products worldwide. The regulation loopholes regarding intellectual property infringement led to heated competition between firms, as well as to the emergence of pirates and fake product manufacturers. Over time, firms found that they needed to spend large sums of money to settle related legal battles. In geographically vast countries, such as Russia and China, development across regions has become of particular interest to federal authorities. In China, the cities of Kashgar and Khorgos in Xinjiang Province were established in recent years as the 5th and 6th SEZs in China. Under direct policy guidance and financial support from Shenzhen, the two regions are now catching up rapidly, bringing spillover effects to other industrial sectors and to the local economy as a whole. The two regions adapted the California and Shenzhen lessons to their localities and avoided blind duplication. At the request of the central government, Shenzhen and Kashgar coordinated their policies on growing expertise, protecting key technologies, perfecting industrial chains, and optimizing the distribution channels for final products. Furthermore, successful tech firms from Shenzhen were incentivized to expand their businesses into Xinjiang by cooperating and financing with local, small- and medium-sized enterprises. The success stories in connecting two geographically remote regions, Shenzhen and Xinjiang, shows how a geographically extensive country such as Russia can narrow its intra-country disparities in terms of business attractiveness for technology firms. CONCLUSION: THE ‘SO WHAT’ QUESTION AND OTHER POLICY FRAMEWORKS
Figure 3. R&D Investment in Shenzhen
Technology development and innovation has become a major battleground for global competition. Despite the challenges faced in its regions, Russia will enjoy more significant potential in economic growth and entrepreneurial transformation by promoting a more robust business climate and offering more attractive investment opportunities. Given the lessons from the United States and China outlined in this paper, we propose the following guidelines for the development of an innovative ecosystem in Russia’s regions:
VI. Trade âˆ™ Aleksandrina, Cox, Protasov, & Yang | 53 1. Regional authorities should invest vigorously in policies and projects that promote the clustering of firms. Unlike firms in agricultural or manufacturing sectors, those in the tech sector learn comprehensively from their competitors when placed closely together, and local-level entrepreneurship benefits from convenient access to all levels of inputs and ideas. 2. Local governments in Russiaâ€™s regions should strengthen their cooperation with academia in order to bring ideas into reality, as was done in Shenzhen and Silicon Valley. The state should strive to assist firms in clearing legislative hurdles regarding business set-up, and aim to enhance legal protections for intellectual property to ensure an efficient and friendly business atmosphere. 3. Local governments should increase aggregate expenditure as a percentage of GDP on research and development. In regions with less financial autonomy, the central government should provide greater financial support for frontier sciences, such as opening new research labs, awarding advanced innovative ideas, and subsidizing the implementation of said ideas. In sum, when individual Russian regions craft a better business climate, they will establish a more robust and technology-driven local economy, with spillover effects in trade and transnational economic cooperation. Trade not only provides broader access to overseas markets with new sources of demand, but also facilitates the exchange of new technologies and resources that expedite the process of digitization. We suggest further study on this topic to assess the short and long-term impacts of digitization on trade and regional economic integration.
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BIBLIOGRAPHY Agency for Strategic Initiatives. 2017. “Public-Private Partnership in Russia 2016-2017: Current State, Trends, and the Rating of Russian Regions.” http://pppcenter.ru/assets/docs/raytingREG2017_B5_Block_31-03-2017-web.pdf. All Russia Population Census 2010. 2010. “Population Size and Distribution.” Last modified 2013. http://www.gks.ru/free_ doc/new_site/perepis2010/croc/perepis_itogi1612.htm. Aptekman, Alexander et al. 2017. “Digital Russia: A New Reality.” McKinsey, July 2017. https://www.mckinsey.com/~/media/ McKinsey/Locations/Europe%20and%20Middle%20East/Russia/Our%20Insights/Digital%20Russia/Digital-Russiareport.ashx. Bayley, Caroline. 2017. “How Russia’s High Tech Start-Ups Are Looking Beyond Oil.” BBC News, November 26, 2017. Cao, Cong. 2004. “Zhongguancun and China’s High-Tech Parks in Transition: ‘Growing Pains’ or ‘Premature Senility?’” Asian Survey 44, no. 5: 647-668. Chen, Kun and Martin Kenney. 2007. “Universities/Research Institutes and Regional Innovation Systems: The Cases of Beijing and Shenzhen.” World Development 35, no. 6: 1056-1074. Cheng, Fangfang, Frank van Oort, Stan Geertman, and Pieter Hooimeijer. 2014. “Science Parks and the Co-Location of HighTech Small- and Medium-Sized Firms in China’s Shenzhen.” Urban Studies 51, no. 5: 1073-1089. Council on Competitiveness. 2007. “Asset Mapping Roadmap: A Guide to Assessing Regional Development Resources.” http://www.jedc.org/forms/Illuminate%20Guide%20to%20Asset%20Mapping.pdf. Expert Ural. 2017. “Startups From All Over the Country Are Going to Meet in Tyumen.” Expert Ural, December 2017. http:// expert.ru/ural/2017/13/v-tyumeni-soberutsya-startapyi-so-vsej-stranyi/. EWDN. 2017. “Goldman Sachs Invests $15 Million in Russian Data Center.” East-West Digital News, September 13, 2017. http://www.ewdn.com/2017/09/13/goldman-sachs-invests-15-million-in-russian-data-center/. Firrma. 2017. “Russian Business Angels Rating 2017.” Firrma, December 20, 2017. http://firrma.ru/data/analytics/95157/. Florida, Richard. 2011. “The World’s Leading Nations for Innovation and Technology.” CityLab, October 3, 2011. https:// www.citylab.com/life/2011/10/worlds-leading-nations-innovation-and-technology/224/. Ge, Wei. 1999. “Chapter 4: The Performance of Special Economic Zones.” In Special Economic Zones and the Economic Transition in China. World Scientific Publishing Co Pte Ltd. pp. 67–108. ISBN 978-9810237905. Golomb, Vitaly. 2014. “The Government Once Built Silicon Valley.” TechCrunch, July 4, 2014. https://techcrunch. com/2014/07/04/the-government-once-built-silicon-valley/. Government of Tyumen Region. 2015. “Tyumen Region: Region of New Opportunities.” Accessed December 31, 2017. http:// admin.ved.gov.ru/uploads/Presentation%20of%20the%20Tyumen%20region.pdf. Hwang, Victor W. 2012. The Rainforest: The Secret to Building the Next Silicon Valley. Los Altos Hills: Regenwald. International Data Corporation. 2017. “Worldwide IT Spending Forecast to Sustain Growth of More Than 3% Through 2020 Led by Financial Services and Manufacturing Industries.” Last modified February 8, 2017. https://www.idc.com/getdoc. jsp?containerId=prUS42298417. Kenney, Martin and Donald Patton. 2005. “Entrepreneurial Geographies: Support Networks in Three High-Technology Industries.” Economic Geography 81, no. 2: 201-228. KPMG. 2017. “2017 Global Technology Innovation Report.” March 5, 2017. https://home.kpmg.com/us/en/home/media/ press-releases/2017/03/us-and-china-lead-tech-innovation-and-disruption-even-as-innovation-spreads-globall-kpmgreport.html. KPMG. 2017. “Venture Pulse: Q4‘16 Report.” January 12, 2017. https://home.kpmg.com/xx/en/home/insights/2015/10/ venture-pulse.html Murphy, Flynn. 2017. “China’s Silicon Valley.” Nature 545, no. 7654: 29-31. Needleman, Rafe. 2012. “JOBS Act to Rewrite the Rules of Silicon Valley Investing.” CNET, March 9, 2012. https://www.cnet. com/news/jobs-act-to-rewrite-rules-of-silicon-valley-investing/.
VI. Trade ∙ Aleksandrina, Cox, Protasov, & Yang | 55 O’Mara, Margaret. 2011. “Silicon Valleys Here, There and Everywhere.” Boom: A Journal of California 1, no. 2: 75-81. Plenin, Daniil. 2017. “Russian Venture Funds Rating 2017.” Firrma, RVF, EY. December 12, 2017. http://firrma.ru/data/ analytics/93763/. PWC. 2016. “Russia’s Protracted Recession: How Are Consumers and Companies Coping?” June 2016. https://www.pwc.ru/ru/publications/consumer-business-report/e-russias-protracted-recession_e. PWC. 2017. “2017 Global Digital IQ® Survey: A Decade of Digital Keeping Pace with Transformation.” January 2017. https:// www.pwc.ru/ru/publications/global-digital-iq-survey-eng.pdf. RIA Rating. 2017. “The Rating of Rating of Russian Regions on the Quality of Life - 2016.” December 2017. http://vid1.rian.ru/ ig/ratings/life_2016.pdf. Russian Federal State Statistics Service (Rosstat). “Home Page.” Last modified February 2017. http://www.gks.ru. Stulov, Maksim. 2017. “NTI projects will receive not only grants but venture funds”. Vedomosti, December 26, 2017. https:// www.vedomosti.ru/technology/articles/2017/12/26/746525-proekti-nti-venchurnie. Sukharevskaya, Alyona. 2017. “Province by the Sea: Why Did Russian IT Entrepreneurs Go to Cyprus Massively?” VC.RU, April 26, 2017. https://vc.ru/23435-cyprus-migration. United Nations System Task Team on the Post-2015 UN Development Agenda. 2015. “Science, Technology and Innovation for Sustainable Development in the Global Partnership for Development Beyond 2015.” http://www.un.org/en/ development/desa/policy/untaskteam_undf/thinkpieces/28_thinkpiece_science.pdf. Volkova, Olga. 2016. “BCG Warned about the Backlog of ‘Digital’ Russia from the Leaders for 20 Years.” RBC, June 2016. http://www.rbc.ru/economics/10/06/2016/5759aed19a79470d3392e05. World Bank. 2015. “Russian Federation - A Sector Assessment: Broadband in Russia (English).” January 1, 2017. http:// documents.worldbank.org/curated/en/934441468298761104/Russian-Federation-A-sector-assessment-broadband-inRussia/. Zavyalova, Victoria. 2016. “Tatarstan: Russia’s Next Innovation Hotspot.” Russia Beyond the Headlines, May 5, 2016. https:// www.rbth.com/science_and_tech/2016/05/05/tatarstan-russias-next-innovation-hot-spot_590521. 5 Hot News. 2016. “Analysts Predicted the Growth of Cloud Services Market in Russia Three Times.” 5 Hot News, November 7, 2016. https://5hotnews.com/2016/11/07/analysts-predicted-the-growth-of-cloud-services-market-in-russia-threetimes/.
7 PERMAFROST DEGRADATION AND COASTAL EROSION IN THE US AND RUSSIA: OPPORTUNITIES FOR COLLABORATION IN ADDRESSING SHARED CLIMATE CHANGE IMPACTS
VII. Climate and Environment Working Group Chelsea L. Cervantes de Blois, Ilya Stepanov, Kirill Vlasov, and Ellen Marguerite Ward Abstract The United States (US) and Russia are among the main contributors to Climate Change (as the 2nd and 4th largest emitters of greenhouse gases worldwide, accordingly), and have vast territories impacted environmentally and economically by this scientific and social phenomenon. The northern territories of both countries are especially vulnerable. In this article, we focus on coastal erosion and permafrost degradation, two Climate Change indicators that impact both Russia and the US, and for which the consequences will be disastrous without sufficient adaptation measures. We highlight the importance of cooperation across borders at the inter-regional level, considering the ambiguity of both American and Russian federal climate policies. The paper is divided as follows: (1) background on the science of Climate Change, permafrost thaw, coastal erosion, and the community impacts of permafrost degradation and coastal erosion in Alaska and Russia; (2) an overview of existing relocation and adaptation efforts for relevant communities and infrastructure in both countries; (3) a proposal of subnational cooperation between the US and Russia as a promising avenue for bilateral cooperation on these shared challenges, with a focus on the potential for cooperation between the regions of Tyumen, Alaska, and California. INTRODUCTION
he Arctic has emerged as the barometer of global Climate Change. This northern region’s surface temperatures are increasing faster than anywhere in the world, with a 3-4° Celsius temperature increase compared to the pre-industrial period while the average Earth temperature increase is 0.8°C (AMAP 2011). Indeed, Climate Change underlies a wide spectrum of new challenges for the Arctic’s ecosystems and its four million multinational, human inhabitants. The US and Russia are among the main contributors to Climate Change (as the 2nd and 4th largest emitters of greenChelsea L. Cervantes de Blois, University of Minnesota, Twin-Cities, Department of Geography, Environment, & Society Ilya Stepanov, National Research University Higher School of Economics, Department of World Economy Kirill Vlasov, Lomonosov Moscow State University, Geology Ellen Marguerite Ward, Stanford University, Earth System Science
house gases in the world, accordingly), and have vast territories impacted environmentally and economically by this scientific and social phenomenon. The northern territories of both countries are especially vulnerable. In this article, we focus on coastal erosion and permafrost degradation, two Climate Change indicators that impact both Russia and the US, and for which the consequences will be disastrous without sufficient adaptation measures. It highlights the importance of cooperation across borders at the inter-regional level especially taking into account the ambiguity of both the US and Russian federal climate policies. The paper is divided as follows: section one provides background on the science of Climate Change, permafrost thaw, coastal erosion, and the infrastructural impacts of permafrost degradation and coastal erosion in Alaska and Russia; section two provides an overview of existing relocation and adaptation efforts for these communities and infrastructure in both countries; and section three proposes subnational cooperation as a promising avenue for US-Russia cooperation on these shared challenges, with a focus on the
58 | The SURF Research Journal ∙ April 2018 ∙ Vol. IX potential for cooperation between the regions of Tyumen, Alaska, and California. BACKGROUND: CLIMATE CHANGE AND THE SCIENCE OF PERMAFROST THAW AND COASTAL EROSION The Establishment of the Intergovernmental Panel on Climate Change (IPCC) Since the 1980s, the climate science community’s discussion of Climate Change has arrived at consensus on the reality of anthropogenic global warming. In 1988, the United Nations Environment Programme and the World Meteorological Organization established the Intergovernmental Panel on Climate Change (IPCC) to provide clear scientific views on Climate Change and its global impacts. Since then, IPCC Assessment Reports (ARs) have provided comprehensive information on the science of Climate Change and its impacts worldwide. According to the United States’ National Oceanic and Atmospheric Administration’s (NOAA) mean annual temperature observations, 2016 was the warmest year in the last 137-year sequence of recorded observations (NOAA 2016). The average global annual temperature was 0.94° Celsius above the 20th century average (NOAA 2016). This is the fifth time that a temperature record was set in the 21st century (NOAA 2016). The most recent data for 2017 shows a global mean with annual temperatures in the top three warmest years since the beginning of observations, with an average temperature about 0.84° Celsius higher than the 20th century average. The impacts of this warming are keenly felt in the Arctic, where the consequences of warming are amplified. The increase in annual average temperature since 1980 has been twice as high over the Arctic as it has been over the rest of the world. Surface air temperatures in the Arctic since 2005 have been higher than for any five-year period of previous observations (AMAP 2011). The Arctic’s rapidly rising temperatures are due, in part, to the loss of its summer sea ice, and a corresponding loss of albedo, defined as a fraction of incoming solar radiation that is reflected rather than absorbed at the earth’s surface. The Arctic cryosphere — the frozen part of the Earth’s surface — is transforming rapidly. Scholars used to think of the Arctic as a world of eternal winter, with perennially frozen soil, short summers, unique wildlife, and fragile but established ecosystems. All of this is changing and will continue to change in the near future if global warming continues unabated. In Arctic regions, the consequences of Climate Change are visible not only with remote sensing data on vast territories, but with the naked eye on small scales. Furthermore, the pessimistic predictions of the past have turned into a reality: the Arctic is warming and changing, and it is happening faster than previously thought (AMAP 2011). An excellent example of the impact of Climate Change in the Arctic is the thawing of its permafrost — a layer of material that remains at temperatures below 0° Celsius for more than two consecutive years (Brady and Weil 2002) — and a core element underlying the stability of Arctic ecosystems. Permafrost is known to be extremely sensitive to tempera-
ture increases (AMAP 2011). The thawing of permafrost areas is going to affect not only human activity in this region, but environmental conditions as well. First, permafrost is the main storage compartment for water for most parts of the northern regions of the Arctic, which are otherwise arid regions with only around 200-400 millimeters of annual precipitation (Serreze and Hurst 2000). Second, permafrost contains an incredible amount of methane, one of the strongest greenhouse gases. As the permafrost degrades, increasing amounts of methane are released into the atmosphere, creating a positive feedback effect on planetary warming. Not to mention that much of the current infrastructure in Arctic towns and settlements was designed on the assumption that the earth will remain frozen. If permafrost degrades, the potential for infrastructure like oil pipelines, roads, and buildings to be negatively impacted may increase significantly in the short-term (Larsen et al. 2014). Permafrost temperatures have increased in most Arctic regions since the 1980s, leading to permafrost thaw and degradation (IPCC 2015). For many regions, the change in the depth of seasonally-frozen ground was observed in recent decades — in some non-permafrost parts of the Eurasian continent by more than 30 centimeters from 1930 to 2000 (IPCC 2015). Though the rate of change varies — the rate of change is higher for colder permafrost than it is for warmer permafrost –, it has already led to a significant permafrost degradation in the Russian European North. The southern limit of discontinuous permafrost (isolated islands of frozen soil) moved 80 kilometers northward, while the boundary of continuous permafrost (the permafrost area per traditional understanding) moved to higher latitudes, up to 50 kilometers since 1975 (IPCC 2015). These results demonstrate that the infrastructure within approximately a 100 kilometer zone has been affected variably. Satellite data and in situ measurements display surface subsidence associated with the degradation of ice-rich permafrost, which has occurred at many locations in this zone (IPCC 2015). These results are from the last 20-30 years; approximately one human generation. For coastal communities, permafrost degradation is only one of two major threats that they face — the other being rising sea levels, and its impacts. Sea level rise is a major contributor to coastal erosion, or the progressive destruction of coastal areas by waves. As the sea level increases, the shoreline begins to move inland. The speed of this process increases during high storm surges, as coastal sands move offshore. Combined with increased wave height, this makes the destruction of dunes and sand bars more prevalent and rapid. Thus, if storms become more severe — which is one of the predicted effects of Climate Change — the impact will also escalate (Wong et al. 2014). Due to the destruction of the shoreline, many settlements around the world are under threat, with coastal areas experiencing the full impact of this hazard (IPCC 2015). In general, coastal erosion is influenced by many factors, not only sea level rise. Erosion is also caused by currents, winds, waves (especially during storms), and coast mechanical properties. Moreover, current understanding of the interconnec-
VII. Climate & Environment ∙ Cervantes de Blois, Stepanov, Vlasov, & Ward | 59 tions between the geomorphological and ecological parts of coastal ecosystems is weak, complicating the establishment of adaptation and mitigation policies. As the global mean sea level has risen by 0.19±0.2 meters over the century from 1901 to 2010, the rate of erosion has also increased (IPCC 2015). Some findings show that this is an ongoing process, originating from the mid-19th century, progressing steadily up to the early 20th century, and drastically increasing by the end of this century (Stocker 2013). Since there is no widely accepted standard for assessing shoreline changes, it can be difficult to compare erosion rates generated from different studies; we do know that the northern Alaskan coast has among the highest shoreline-erosion rates in the US, at more than one meter per year for much of the coast that has been studied (USGS 2015; 2018). Rates of coastal erosion in Russia have been cited in the range of l-10 meters per year (Nikiforov et al. 2010). This leads to the conclusion that the hazard of flooding and coastal erosion will increase for communities residing on the Arctic shoreline (Wang et al. 2014). COMMUNITY IMPACTS OF PERMAFROST DEGRADATION AND COASTAL EROSION IN ALASKA AND RUSSIA Impacts in Alaska Climate Change affects Indigenous peoples’ traditional practices. The people of Shishmaref on the Seward Peninsula in Alaska face serious threats from sea level rise and coastal erosion (Marino and Schweitzer 2009). The result of decreasing sea ice affects the economic prosperity and livelihoods of Native Alaskan populations, including the Alaskan villages of Shishmaref, Tuvalu, Kivalina, Newtok, Koyukuk, and Shaktoolik, which are all experiencing the impacts of drastic climate and environmental shifts, resulting in immediate displacement and resettlement challenges (Bronen 2009). According to the United States’ Environmental Protection Agency (EPA), melting permafrost will have a lasting negative effect on transportation, forests, ecosystems, and the economy for Alaska Natives who practice subsistence hunting, fishing, and trapping, and will be forced to relocate due to increased erosion and flooding along Alaska’s northwestern coast. Permafrost degradation also affects Alaska’s infrastructure. Estimated impacts to Alaska’s public infrastructure — including road flooding, transportation damage, and pipeline destruction — are projected to cost 4.2 billion USD (RCP4.5) to 5.5 billion USD (RCP8.5) from 2015 to 2099, with potential savings from proactive adaptation of up to 2.9 billion USD in the RCP8.5 scenario (Melvin et al. 2017). According to the US Global Change Research Program (USGCRP)’s Third National Climate Assessment, 85 percent of Alaska lies within a permafrost zone. Scientists predict that, by 2030, permafrost will increase the costs of maintaining existing infrastructure in the region by 3.6 billion USD to 6.1 billion USD, and, by 2080, economists predict an increase of 5.6 billion USD to 7.6 billion USD (US Global Change Research Program and US Census Bureau 2010; Jorgenson et al. 2001; Osterkamp et al. 1998). To mitigate these costs, adaptation efforts are in place, such as the EPA’s recommendation to design cold-climate homes with adjustable foundation piers
to accommodate for deterioration due to permafrost conditions or federal and state initiatives to rebuild existing roadways atop an extra four inches of insulation. Impacts in Russia Permafrost degradation is one of the most serious impacts of Climate Change in Russia, a country with more than 60 percent of its territory covered by permafrost (Pavlova 2011). One major impact of permafrost degradation is a reduction in the stability and reliability of buildings and engineering structures, including the major oil and gas pipelines that bring electricity and heat to millions of inhabitants throughout the region (Katsov and Parfiriev 2012). The level of physical infrastructure damage ranges by village, but is dramatic in each case: 60 percent in the towns of Igarka, Dixon, and Khatanga, 55 percent in Dudinka, 22 percent in Tixi, 50 percent in Pevek and Amder, and 100 percent in the villages of the Taymir Peninsula (Roshydromet 2014). Some estimates indicate that maintenance and repair costs for all permafrost-related damages in Russia are as high as 55 billion rubles (0.93 billion USD) every year. In the Norilsk industrial region, around 300 sites have undergone substantial damage due to permafrost degradation and over 100 infrastructural objects are in emergency condition (Roshydromet 2014). Annually, in Western Siberia, several thousand accidents associated with oil-and-gas pipelines take place, with one fifth of them caused by mechanical influences and structural deformations. In these instances, uneven sediment due to thawing permafrost leads to a weakening of foundations (Makarov and Stepanov 2015). Coastal erosion is also a serious challenge for Russian coastal communities and communication infrastructure, including both telecommunication lines and the means of navigational support for sea transport (Roshydromet 2014). The most vulnerable locations are small towns and several hundred villages, 80 percent of which are located in coastal areas. Nevertheless, the full scope of the problem lacks consensus due to empirical variation. RELOCATION AND ADAPTATION POLICY AND EFFORTS IN ALASKA Despite the emergency status of numerous coastal Alaskan communities, relocation financing has made little progress. In the case of Newtok, Alaska, the town’s application to the US Federal Emergency Management Agency (FEMA) for a declaration of disaster status and subsequent application for FEMA funding by the State’s Division of Homeland Security and Emergency Management were both denied — a result that the town calls “bureaucratic subversion,” and which the State says is the result of following overly bureaucratic federal rules that deny funding arbitrarily (Waldholz 2017). Elsewhere in the US, however, governments have financed relocation and adaptation initiatives. In 2016, the US Department of Housing and Urban Development (HUD) awarded a total of 1 billion USD to thirteen states for “resilient housing and infrastructure projects for states and communities that were impacted by major disasters between 2011 and 2013” (HUD 2016). Neither the State of Alaska, nor one of its individual communities faced with imminent in-
60 | The SURF Research Journal ∙ April 2018 ∙ Vol. IX undation and erosion, were selected for funding, though the State was selected as a top 40 finalist (Alaska 2017). Alternatively, New York City was awarded the most funding of any applicant at the City, County, or State Level, at 176 million USD (HUD 2016). Louisiana was also awarded HUD funds to finance the relocation the Biloxi-Chitimacha-Choctaw tribal community, whose island home of Isle de Jean Charles is estimated to disappear completely (State 2017). RUSSIAN CLIMATE CHANGE ADAPTATION POLICY Russian Climate Change policy stems from its Climate Doctrine, issued in 2008 (Climate Doctrine 2008). Though rather general in nature, the doctrine establishes a policy framework which incorporates both mitigation (reducing and restricting emissions growth) and adaptation (adapting to Climate Change impacts) dimensions for any further legal Climate Change initiatives. The latter is especially relevant in Russia for two reasons. First, Russia possesses immense adaptation potential due to the size of its territory and climate conditions both in terms of reducing existing damage and proactively confronting future weather patterns (Analytical Center for Government of the Russian Federation 2017). In particular, Russia’s vast Arctic territories face dramatic climate risks and therefore could benefit significantly from emerging opportunities. Second, Russia is highly dependent on fossil fuels (a main cause of the greenhouse gas effect) and, therefore, any restrictive measures in consumption or production of fossil fuel-based energy may contradict the goals of economic development and, thereby, be less politically feasible. Until recently, adaptation strategy has not driven any nation-wide policies in Russia. So far, all short-term or midterm development programs (either at the sectoral or regional level) in Russia fail to embrace any adaptation initiatives or to generate funds officially dedicated to adapt to a changing environment (Analytical Center for Government of the Russian Federation 2017). Triggered by the Paris Accord on Climate Change, Russia is taking its first steps in developing a national Climate Change adaptation strategy. The preliminary estimates show that climate related costs can go up to 1-2 percent of GDP per annum. For the most affected areas, including the Arctic, Siberia, and the Far East, the share could reach up to 5 percent of the regional GDP (Ministry for Natural Resources and Environment 2015). By mid-2018, three Russian ministries – the Ministry of Construction, the Ministry of the Economy, and the Ministry of Energy — are expected to develop the methodology for Climate Change risk and impact assessment, working closely with regional governments. The national adaptation plan will establish a set of measures for different scenarios that include a variation of potential threats to buildings, transportation systems, infrastructure (due to permafrost and ice sheets thawing), an increasing volume of precipitation, and the overall number floods and hurricanes (Arctic-info 2017). Both the Climate Doctrine and the Paris Accord distinguish between the local, subnational, and regional dimension of Climate Change adaptation policy. The national adaptation strategy should consist of a set of regional plans
that mirror a federal framework, while also accounting for regional needs. Such a diversified approach is especially relevant for Russia with its vast number of regions that vary drastically with respect to climate and socio-economic conditions. So far, regional governments do not show an explicit intent to establish a national climate strategy. At the same time, efficient adaptation policies, both at the local and international level, can not only help subnational governments deal with socio-economic obstacles and mitigate climate risks, but can also show leadership and subnational integration with the international community by cooperating with local governments in other countries. SUBNATIONAL AVENUES OF US-RUSSIA CLIMATE COOPERATION: A CASE STUDY OF ALASKA-TYUMEN COOPERATION ON PERMAFROST DEGRADATION AND COASTAL EROSION The Russian region of Tyumen and the US State of Alaska are two regions that may potentially benefit from international cooperation in the domain of Climate Change adaptation. For the Tyumen region, an adaptation policy may serve as a useful tool to tackle local socio-economic problems. At the same time the region will further integrate into the international agenda through scientific collaboration and the exchange of best management practices and technological
Figure 1. The current extent of continuous and discontinuous permafrost in the Tyumen region, Western Siberia (Yershov 1996).
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Figure 2. The current extent of continuous and discontinuous permafrost in the state of Alaska (USGS 2017). solutions with Alaska, a region that faces similar problems. For Alaska, such cooperation may not only be beneficial in terms of exchange of scientific and technological expertise, but will also be useful with regard to building trust at the state level. Taking into account the decision of President Donald Trump’s administration to withdraw from the Paris Accord, states and regional governments in the US are left to initiate and to carry out Climate Change-related initiatives. Furthermore, US states will need to take responsibility in transitioning to low-carbon development. Tyumen faces unique challenges and opportunities in terms of addressing the impacts of Climate Change. The Tyumen region, with its largest district, the Yamalo-Nenets Autonomous District, lying entirely within the low Arctic tundra and continuous permafrost zone, is exposed to severe Climate Change risks (Figure One). That makes residential and business infrastructure (including buildings and the wide network of pipelines) extremely vulnerable to permafrost thaw. However, the region’s economy is also the biggest Russian hydrocarbon storehouse and industrial center (Neftyaniki 2017). New energy and adjacent infrastructure projects are expected to be launched in the foreseeable future (Government of the Russian Federation 2017). Therefore, adaptation policy may serve as an effective platform for expanding resilient socio-economic development policy capable of embracing changes in the region’s climate and benefit from emerging opportunities. The Tyumen region has proven its’ interest in international environmental cooperation with individual US States. In the fall of 2017, Jerry Brown, the Governor of California, and Vladimir Yakushev, the Governor of Tyumen region, committed to work on the development of an environmental protection agreement, with a focus on the regions’ ecology (Governor Yaskushev, 2017). In the case of Tyumen-Alaska, a Memorandum of Understanding in the domain of Climate Change adaptation can serve as a first step toward cooperative actions, while the regions’ shared issues regarding coastal erosion and permafrost degradation represent a
fruitful avenue for such a dialogue. The US and Russia have a strong record of cooperation, both formal and informal, in the Arctic as members of the Arctic Council. Both countries are signatories to the Agreement on Cooperation on Aeronautical and Maritime Search and Rescue in the Arctic (2011), the Agreement on Cooperation on Marine Oil Pollution Preparedness and Response in the Arctic (2013), and the Agreement on Enhancing International Arctic Scientific Cooperation (2017) (Arctic Council 2017). These Arctic Council agreements set a strong precedent and illustrate that US-Russia cooperation on environmental and human issues in the Arctic is possible. At the same time, these agreements are the product of international cooperation at the ministerial, or national, level. Apart from its Indigenous participants, the Arctic Council lacks channels for communication and legal cooperation between subnational entities (Vladimir Barbin 2017). The case of an Alaska-Tyumen dialogue in the northern latitudes, in cooperation with Arctic Council Working Groups, may be used to further institutionalize interregional cooperation across Arctic nations. The regions can demonstrate strong leadership in light of the ambiguity in both Russian and US federal climate policies. CONCLUSION Climate Change is transforming the high latitudes of the US and Russia. Permafrost degradation and coastal erosion, two consequences of global warming, have multi-billion dollar implications for government and industry in both countries. These issues also project high social costs, where communities face degrading infrastructure and the potential wholescale loss of villages. Considering the current impasse of the US-Russia relationship at the federal level, and the lack of US federal leadership on the issue of Climate Change under the Trump administration, the possibility for cooperation between subnational units on these shared challenges may be more fruitful. In this paper, we argue that coastal erosion and permafrost degradation are shared issues that can serve as a fruitful avenue for dialogue between the US and Russia. We propose that Alaska and Tyumen region develop subnational dialogue on the shared issues of Climate Change adaptation practices. Considering the already successful relationship between Tyumen region and the State of California, we suggest that a Memorandum of Understanding or similar policy tool be used as a first step to formalize subnational cooperation. Such an agreement may be further utilized to establish a precedent of subnational unit cooperation of Arctic Council member states. The initiative can serve not only as an important means of technology and the exchange of best practices, but also as an effective way for the Alaska and Tyumen governments to show leadership in the domain of Climate Change policy with broad socio-economic implications.
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VII. Climate & Environment ∙ Cervantes de Blois, Stepanov, Vlasov, & Ward | 63 Pavlova Tatiana, “Calculation of the evolution of the cryosphere in the XX and XXI using global climate models of a new generation” Cryosphere of the Earth 11, no. 2 ( 2007) (in Russian). “Russia cannot afford to loose 2% GDP due to Climate Change”, accessed December 20, http://www.mnr.gov.ru/news/ detail.php?ID=141452 “Russia will Start Adaptation to the Climate Change”. Arctic-info.ru. 07.02.2017. n.d., accessed December 29.2017 http:// www.arctic-info.ru/news/07-02-2017/rossiya-nachnet-adaptatsiyu-k-izmeneniyu-klimata/ (in Russian) Serreze, Mark C., and Ciaran M. Hurst. “Representation of mean Arctic precipitation from NCEP–NCAR and ERA reanalyses.” Journal of Climate 13, no. 1 (2000): 182-201. “State Chooses Site near Thibodaux to Relocate Isle de Jean Charles Climate Refugees | Environment | Theadvocate.com.” n.d. Accessed December 29, 2017. http://www.theadvocate.com/baton_rouge/news/environment/article_4c46b2bae685-11e7-9c86-0f1dd0c64526.html. “State of the Climate: Global Climate Report for Annual 2016”, accessed December 23, 2017. https://www.ncdc.noaa.gov/ sotc/global/201613 “State of the Climate: Global Climate Report for November 2017”, accessed December 23, 2017. https://www.ncdc.noaa. gov/sotc/global/201711 “The Second Roshydromet Assessment Report on Climate Change and Its Consequences in the Russian Federation”, n.d. , accessed December 20, 2017. http://cc.voeikovmgo.ru/ru/publikatsii/2016-03-21-16-23-52 US EPA, OA. n.d. “Climate Impacts in Alaska.” Overviews and Factsheets. Accessed February 18, 2018. /climate-impacts/ climate-impacts-alaska. US Census Bureau. 2010. State and county quickfacts: Fairbanks North Star Borough, Alaska. Washington, DC. Online at http://quickfacts.census.gov/ qfd/ states/ 02/ 02090.html. Accessed July 26, 2010. USGCRP (2014). Chapin, F.S., S.F.Trainor, P. Cochran, H. Huntington, C. Markon, M. McCammon, A.D. McGuire, and M. Serreze, 2014: Ch. 22: Alaska. Climate Change Impacts in the United States: The Third National Climate Assessment, J. M. Melillo, Terese (T.C.) Richmond, and G. W. Yohe, Eds, US Global Change Research Program, 514-536. US Global Change Research Program. 2009. Global Climate Change impacts in the United States. Washington, DC. “USGS Open-File Report 2015–1030: National Assessment of Shoreline Change—A GIS Compilation of Vector Shorelines and Associated Shoreline Change Data for the North Coast of Alaska, US-Canadian Border to Icy Cape.” n.d. Accessed February 18, 2018. https://pubs.usgs.gov/of/2015/1030/. “USGS Projects Large Loss of Alaska Permafrost by 2100.” n.d., accessed December 28, 2017. https://www.usgs.gov/news/ usgs-projects-large-loss-alaska-permafrost-2100. Waldholz, Rachel. 2017. “Newtok Says State Agency Blocked Access to Disaster Funding | Alaska Public Media.” Alaska Public Media. October 20, 2017. https://www.alaskapublic.org/2017/10/20/newtok-says-state-agency-blocked-accessto-disaster-funding/. Wong, P.P., I.J. Losada, J.-P. Gattuso, J. Hinkel, A. Khattabi, K.L. McInnes, Y. Saito, and A. Sallenger, 2014: Coastal systems and low-lying areas. In: Climate Change 2014: Impacts, Adaptation, and Vulnerability. Part A: Global and Sectoral Aspects. Contribution of Working Group II to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change [Field, C.B., V.R. Barros, D.J. Dokken, K.J. Mach, M.D. Mastrandrea, T.E. Bilir, M. Chatterjee, K.L. Ebi, Y.O. Estrada, R.C. Genova, B. Girma, E.S. Kissel, A.N. Levy, S. MacCracken, P.R. Mastrandrea, and L.L. White (eds.)]. Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA, pp. 361-409. Yershov, E. D., K. A. Kondratyeva, S. A. Zamolotchikova, N. I. Trush, and Ye N. Dunaeva. “Geocryological Map of the USSR.” Moscow State University, Lomonosov,[Legend in Russian and in English] (1996).
8 LESSONS LEARNED FROM THE ISS: ENABLING FUTURE SPACEFLIGHT COLLABORATION FOR THE US AND RUSSIA VIII. Science at Technology Working Group Louise Fleischer, Carolina Moreno Aguirre, and Johannes Norheim Abstract The International Space Station (ISS) has seen Russians and Americans work hand in hand over the past decade. Scheduled to deorbit in 2024, the future of US-Russia spaceflight collaboration after the ISS’ end remains uncertain. This paper inspects the lessons learned from the joint ISS program, applied to both the engineering and legal partnerships of future space station programs. A review of bilateral dynamics in the space sector suggests further improving the current model by establishing US-Russia collaboration in the public-private domain, and jointly opening a path toward a new key collaborator: China. Although the ideas discussed could apply to any future space station architecture, this paper focuses on the case study of the proposed Deep Space Gateway. Moving beyond the proximity of the Earth, where the ISS currently operates, and doing so together, would set the example on the achievements possible through collaboration, while setting a precursor for further exploration of Deep Space. “Let both sides seek to invoke the wonders of science instead of its terrors. Together let us explore the stars.” - US President John F. Kennedy in his 1961 Inaugural Address
lthough the United States (US) and Russia achieved some of the world’s greatest technological advancements during the so-called ‘Space Race’ of the 1960s and 1970s, political motivation to fund national projects of the same magnitude has since faded. Instead, states turn to international arenas, as joint collaboration helps to reinforce the durability of a project beyond presidential cycles. This long-term vision helps to secure programs that might otherwise get cancelled at a national level, recently exemplified in the 2010 cancellation of the American Lunar “Constellation” program. One of the greatest examples of large scale collaboration is the International Space Station (ISS). With partners
Louise Fleischer, Stanford University, Aeronautics and Astronautics Carolina Moreno Aguirre, Skoltech Institute of Science and Technology, Center for Space Research Johannes Norheim, Massachusetts Institute of Technology, Aeronautical and Astronautical Engineering
as diverse as the Canadian Space Agency, the Japanese Aerospace Exploration Agency, the United States’ National Aeronautics and Space Administration (NASA), the European Space Agency, and Russia’s Roscosmos State Corporation for Space Activities (Roscosmos), the ISS has hosted astronauts from around the world since 1998. Through the many experiments executed there by visiting astronauts, the station has expanded scholarly understanding in a variety of domains from medicine to the material sciences. It has also provided extensive insight into the effects of the space environment on the human body, which is key for deeper space exploration. With the ISS reaching the end of its lifetime in 2024 (NASA 2017), the future of collaborative space exploration stands threatened. However, new opportunities are being born and a new chapter is about to be written. Following the Global Exploration Roadmap drafted by the International Space Exploration Coordination Group (ISECG), agencies from around the world are looking toward deep space exploration, including manned missions to asteroids, to the Moon, and to Mars (ISECG 2013). For example, after cancelled efforts of the Asteroid Redirect Mission (ARM), the United States is resetting its
66 | The SURF Research Journal ∙ April 2018 ∙ Vol. IX goals toward the Moon, following a space directive signed by President Donald Trump in December 2017. Considering this potential for new endeavors, we ask the following questions: How can knowledge from joint flight heritage be leveraged to build better designed stations? The present research focuses on leveraging the successes of current human space flight cooperation to deepen the economic and diplomatic impact of this international collaboration. BACKGROUND Previous Collaborative Efforts In the early days of the Space Race, Soviets took the lead by placing the first artificial satellite in orbit in 1957, the first human, Yuri Gagarin, in orbit in 1961, and the first astronaut, Alexey Leonov, to spacewalk in 1965. Despite the Space Race in the headlines, some collaboration took place between the US and Russia. Through back channels enabled by the scientific community, agreements were settled in three neutral areas: (1) the exchange of weather data from satellites and the eventual coordinated launching of meteorological satellites; (2) a joint effort to map the geomagnetic field of Earth; and (3) cooperation in the experimental relay of communications (Sagdeev 2008). This link became an enabler for future US/USSR collaboration. By 1975, the establishment of the Apollo-Soyuz program, motivated by the idea that the US and Russia were the only spacefaring nations and, in a possible contingency, would be the only parties able to rescue one another (Maudit 2017). It led to the construction of a common docking interface between Apollo and Soyuz, and the famous handshake when both spacecraft docked. After this chapter, which was “heralded as a breakthrough in Cold-War diplomacy” (Garan 2015), relations cooled. Two decades later, they were revived with the fall of the Soviet Union, when costs for domestic projects — the Russian space station Mir-2 and the US space shuttle — turned out to be much higher than expected. Working together, the US could learn from Russia’s extensive experience in space ahead of the construction of a new station, while Russia could leverage the idea of a new station to replace their aging Mir station. This gave birth first to the Shuttle-Mir program. By 1992, Russian cosmonauts flew aboard the shuttle mission STS-60 while American astronauts stepped aboard Mir. A secondary consequence of this effort was the construction of the International Space Station (NASA 2015), which is an important symbol of science, technology, and engineering collaboration on space, with Russia and the US as key partners. As stated by Congress, “the ISS is a unique testbed for future space exploration systems development, including long-duration space travel” (NASA 2017). The space station provides an important opportunity to study the conditions that would enable long-term stay in a non-Earth environment. After 15 years of permanent human presence in space aboard the ISS, it might soon be decommissioned due to aging systems, components, and reaching the limits of the design lifetime; debates have started on the next steps to take.
PRIORITIES FOR THE FUTURE OF SPACE EXPLORATION Individual Plans for Each Country Both the US and Russia are looking into expanding their individual capabilities. NASA is currently focused on the goal of sending humans to Mars by the 2030s (NASA 2009). Their projected strategy comprises three phases: ‘Phase I — Earth Reliant’ that focuses on research aboard the ISS and the development of commercial crew and cargo access to Low Earth Orbit (LEO); ‘Phase II — Proving Ground’ with a series of missions in cislunar space, a space lying between the Earth and the Moon, or in orbit around the Moon, using their Space Launch System heavy-lift rocket and Orion spacecraft systems (House Hearing 2014); and ‘Phase III — Earth Independent’ which aims to test entry, descent, and landing techniques and in-situ resource utilization capabilities (NASA 2015). Each phase is more challenging than the previous, while signifying a milestone for critical capabilities for space exploration. On the other hand, Roscosmos has announced its plan to establish a LEO National Space Station, and the Orbital Piloted Assembly and Experiment Complex (OPSEK), which will potentially use elements of the current Russian Orbital Segment of the ISS (Roscosmos 2009). The agency is further interested in establishing a presence in lunar space, for which it is currently developing the spacecraft Federatsiya (Roscosmos 2016). Other Russian plans include Robotic Exploration of Lunar and Martian Surfaces. The Deep Space Gateway, a Future International Space Station? While both agencies have their own goals, the commitment to a joint effort has not faded. In 2015, NASA awarded a series of contracts for conceptual and risk reduction studies for future human spaceflight plans, under the Next Space Technologies for Exploration Partnerships (NextSTEP) (NASA 2014). The awards are broken into three chapters: Habitat Systems, Multi-Material InSpace Manufacturing, and Propulsion Systems. These contracts led to the development of a cislunar orbit space station concept, the Deep Space Gateway, advertised as a stepping stone to deeper space and easier lunar access. On September 27th, 2017, from the 68th International Astronautical Congress in Adelaide, Australia, Roscosmos and NASA issued a joint statement regarding collaboration on the Deep Space Gateway (Roscosmos 2017). Thus introduced the possibility of making the Deep Space Gateway into a new international space station with other current ISS partners: the European Space Agency (ESA), the Japan Aerospace Exploration Agency (JAXA), and the Canadian Space Agency (CSA). The project would take over the International Space Station mission of advancing and facilitating human space flight research, while investigating the challenges of deep space. Nevertheless, this concept does not address the question of which collaboration model will be used: would the model be similar to that of today’s ISS or might it differ? While the current ISS collaboration model is considered a great success, the partnership came with its own engineering and
VIII. Space ∙ Fleischer, Moreno Aguirre, & Norheim | 67 legislative challenges. Addressing these challenges could provide the key to an improved cooperation model. LESSONS LEARNED FROM THE CURRENT COLLABORATIVE MODEL This paper next outlines some of the challenges and questions that future collaboration will raise, starting with the engineering challenges, and scaling up to the legal framework, both which are believed to give rise to a new collaboration opportunity. The most notable problem regards logistics: there has been no clear initiative to leverage acquired knowledge from the joint operation. Developing modules independently is expensive and, if history is any predictor, will lead to certain interface challenges. Furthermore, without an adequate debrief of the ISS, NASA and Roscosmos lack a normative guideline for future projects and interactions. Leveraging 15 Years of Collaboration to Improve the Engineering Design In the current model, both the American and Russian ISS segments have robust survival interfaces, which allow for more technologically-advanced propulsion, orientation, and communication (NASA 2014). Nevertheless, other interfaces could be improved, and are discussed in this section. One such example has been brought to us by European astronauts Thomas Pesquet and Jean-Fraçois Clervoy. Aboard the ISS, the power system on the American and Russian sides do not operate at the same voltage; the American side uses 120V, while the Russian side operates on 28V (Gietl et al. 2000). Therefore, any equipment powered on both sides would require bulky adapters or costly, replicated machinery. This makes interoperability of equipment across both sides a challenge, while increasing complexity and mass. Another example regards different module diameter sizes, which is why the Russian and American parts of the station are currently interfaced with a Pressurized Mating Adapter (PMA). The PMA also serves as an airlock across both sides, as each has different environmental control and life support systems. One could argue that the lack of commonality in life support systems is an advantage, as it can reduce redundancy. However, it creates day-to-day problems as, for example, the opening of the airlocks cannot accommodate the space suit of the other nation. This could create a blockage in the case of a contingency where one airlock broke down, and the second were unavailable as a back-up. In addition, despite an agreement to use the metric system, the United States ended up using a mix of the imperial and metric systems, thereby rendering tools incompatible. This increases the amount of tools and overall mass that need to be brought up to the space station. Still other examples of this incongruity are berthing systems that only allow certain ships to dock; astronauts and cosmonauts that revert to their native tongue despite mandates to speak both languages; and an incompatible sanitizing agent for drinking water between the two segments (chlorine on one side and silver ions on the other). It appears that these divergences arise largely from unclear textual specifications; on one hand, ISS policy seems to follow the guidelines that: “full commonality is not neces-
sary as [the] historical and cultural specificity of each partner will remain individual,” while, on the other hand, it tells us that the “standardization and unification of appropriate interfaces in basic spheres of interaction (system integration, power, transportation, management, etc.) are critical” (NASA 2014). Perhaps, too, these variations are the result of path dependence in established norms and infrastructure, combined with a lack of oversight, both at the onset as well as over time. Regardless of why these variations exist, it is important that they are not repeated in future projects. Carrying out these changes will require strong leadership and the right legal framework, which we will discuss in the next section. Updating the Legal Framework for Human Spaceflight Collaboration Alongside the physical plan for the International Space Station, the partners also proposed a legislative agreement for transnational collaboration, called the Intergovernmental Agreement (IGA). The IGA was first signed by NASA, the CSA, the ESA, and, in 1989, JAXA. After the USSR fell in the 1990s, NASA issued a formal Memorandum of Understanding (MOU) to the Russian Space Agency, which was signed in 1996 (NASA 1998). This document “resolved many outstanding technical and managerial issues, such as sharing common operation costs, utilization rights on board the ISS, crew make-up, and provisions relating to logistics and other services” (Moenter 1998). With this new partner, the fifteen member nations cooperating on the ISS updated and signed a new version of the IGA in early 1998. It is important to note that the ISS was born of American initiative, and therefore the US is responsible for the overall management of the station (Article 7.2 of the IGA 1998). This includes “overall system engineering and integration, [the] establishment of overall safety requirements and plans, and overall planning for and coordination of the execution of the overall integrated operation of the Space Station” (NASA 1998). In addition, all partners except Roscosmos are designated as part of the American Segment of the station. This stems from the fact that all MOUs were signed bilaterally with only the US, and not with other actors. To conclude, the management of the International Space Station is very much centered around the decisions of NASA. The MOU between NASA and the Russian Space Agency (RSA), the precursor to Roscosmos, stipulated the existence of a Joint Management Plan and a NASA-RSA Program Coordination Committee. However, these entities have not been revealed during this research. The absence of a coordination committee highlights one such avenue for improvement in drafting a less centralized Deep Space Gateway. Furthermore, policies regarding space are scarce, often outdated, and out of phase with the current state of the industry. In the example of international space legislation, the Outer Space Treaty Act was signed by 104 parties, but in 1967. Article VI of that treaty stipulates that states are obligated to authorize and continuously supervise their national space programs (Sharpe and Tronchetti 2015). This means that the vast majority of space activities fall under the legislation of independent states and it is up to each country
68 | The SURF Research Journal ∙ April 2018 ∙ Vol. IX to decide what their space legislation looks like. Without an updated international treaty, individual states interested in moving forward with new innovative ideas — like deep space mining startups out of the US — may inadvertently breach the Outer Space Treaty Act as they pursue their own national interests. Two international bodies could help in this area: the United Nations Office for Outer Space Affairs (UNOOSA) and the International Space Exploration Coordination Group (ISECG). UNOOSA is a body of the United Nations that works to promote international cooperation in the peaceful use and exploration of outer space. ISECG is a coordination forum of 15 space agencies that seek to exchange information regarding interests, plans, and activities. Both organizations help to establish international frameworks to govern space activities and could set up the baseline rules for every space actor — whether old or new players —, thus facilitating interactions between nations. By homogenizing the legal framework, some of the barriers to entry in the industry would be lowered, hence enabling smaller players to take on economical roles within the partnership, while also introducing new states, like India or China, into the discussion. GETTING MORE ACTORS INVOLVED IN SPACE COLLABORATION This section discusses two mechanisms that could impact human spaceflight the most: the increase of private companies in in the space sector, and the arrival of new key players, such as China. Promoting Public-Private Partnerships Across Borders The drive to explore space has inspired several new companies that seek to disrupt the industry’s modus operandi. Seeing an opportunity to innovate without bureaucratic restrictions, NASA cooperates with the private sector. This has led to effective competitive domestic development and innovation-driven entrepreneurship within the United States. Russia has yet to establish this kind of partnership with its emerging private sector. According to a Roscosmos representative, a joint movement is needed between state enterprises and private, Russian business. In order to achieve this kind of partnership, the state must identify acceptable regulation in the private sector, and private businesses must prove that they have high-competence with low-risk. While financial, social, and cultural differences between both space markets present many challenges, they also provide the opportunity to establish strong bilateral ties by learning from one another. Russians may use the American Private-Public model as foundation for developing such a sector, while Americans could benefit from observing a young and evolving market with less established legislations and competition, and use this knowledge to re-evaluate their own business models. Including China, a Fast-Growing, Space-Faring Nation In October 2017, the head of the ESA, Jan Woerner, said that international space endeavors should allow for the participation of India and China. In allusion to current geopolitical tensions, Woerner said, “space is above all Earthly borders.
If we do not cooperate, how can we expect cooperation in other areas?” However, the US Congress banned NASA from engaging in bilateral agreements with China, in the hope of preventing espionage (112th Congress 2012), leading the Chinese to look for alliances elsewhere. For example, China and Europe are set to collaborate on the development of a Moon base, as confirmed by representatives of the two agencies (Griffin 2017). Future plans also include a ESA astronaut aboard the Chinese Station and conducting mission analysis on samples brought back by China’s unmanned lunar exploration mission Chang’e 5. Russia has also openly expressed its interest in working with China. In 2015, Roscosmos administrator, Igor Komarov, said that “the ISS should be an open structure and if countries follow the rules and requirements, they should have the opportunity to join the partnership” (Morring Jr 2015). Earlier in November, the two countries established a series of space treaties, including joint spacecraft development, lunar and deep space exploration, earth remote sensing, and space debris monitoring (GBTIMES 2017). The desire of the United States to include China into the ISS partnership or into any upcoming missions remains uncertain. As mentioned by Harvard Professor of National Security Affairs, Joan Johnson-Freese, “the United States has unnecessarily created the perception of a space race between the US and China, and the US is losing, by its unwillingness to be inclusive in ISS space partnerships” (David 2015). As a consequence, the Chinese are building their own space station, which may become the de facto international space station once the ISS deorbits. If China is set to become a major player in the aerospace arena, the state should be seen as a potential collaborator on international endeavors, and with the US, in particular. We believe that cooperation at the level of astronaut training is a good place to start, as in the successful collaboration model for the US and Russia. The ESA and the Chinese National Space Administration have already invited each other’s astronauts to participate in isolation trainings, with the goal of fostering stronger relationships between the two agencies while avoiding the pitfalls of technology exchanges. CONCLUSION Human spaceflight collaboration is an opportunistic arena for the US and Russia. The ties between NASA and Roscosmos have held firm, despite political fluctuations, and such relationships can be trusted when confidence wavers elsewhere. We believe that it is critical to continue deepening the ties between the US and Russia in the space sector. We conclude that there are three axes on which improvement can be made: 1. The standardization of subsystems and components for better technological interaction; 2. The update of international space legislation using UNOOSA and ISECG for allowing a fair economic environment; and 3. The integration of private ventures and new interna-
VIII. Space âˆ™ Fleischer, Moreno Aguirre, & Norheim | 69 tional players into future space station consortia. In the end, political will is a critical factor for the implementation of these action items. The US Congressâ€™ 2019 budget allocation for human spaceflight will reveal how committed the United States is to new international collaboration. The building of a functional cislunar international station would set an example on the achievements possible through collaboration and allow the United States and the Russian Federation to keep communication channels open, despite a relationship at a historic low.
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APPENDIX A ARTICLE 6: TRADE AND BUSINESS DEVELOPMENT
Source: Rosstat 2017.
Source: Rosstat 2017.
74 | The SURF Research Journal âˆ™ APPENDIX
Source: Rosstat 2017.
Source: Expert RA 2017.
Source: Expert RA 2017.
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