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13 Issue

May 2012

Foreign Affairs Asia Special Edition

kDN NO: PP 17632/01/031592 NEWSLETTER Volume 1 | MAY 2012 ­ A Publication on Foreign Policy

FOCUS on APEC 2012 In this edition of Foreign Affairs Asia, we are focusing entire on the APEC 2012 event with Russia as the Host.

ASEAN­RUSSIA­APEC Economic Cooperation

The APEC Business Advisory Council (ABAC) this year, reported that under Russia's chairmanship the council has discussed establishing a partnership among APEC economies on food security, which will consolidate the position of business in APEC. Ziyavudin Magomedov, head of the ABAC said "Today, a new mechanism of partnership on food security has been created under Russia's chair for the first time in several years of discussion," He noted that partnership is called upon to help reduce the volatility

of the food market, develop agriculture, and facilitate the access of goods to the APEC markets. "The business community will play a much bigger role in APEC," he added. Sergei Aleksashenko, chair of the Policy Partnership on Food Security (PPFS), explained that the new mechanism allows the heads of economies participating in PPFS to nominate one representative from the economy and one from business. In addition, delegations of the economies in ABAC will have the

right to send up to three representatives to the partnership. Aleksashenko said that the candidates for the partnership must be agreed upon by mid­ March. "We are launching the policy of partnership this year," he said. PPFS plans to hold its first meeting in Kazan in late May ­ early June 2012 during APEC's Food Security Ministerial Meeting.

Tran­Siberian Railway offers safe, economical inland route for ASEAN A market potential of USD200 billion and another access route to the EU via the Russian Siberian hinterland in what could be a major economic shift in Asia is what the ASEAN states should expect with the APEC 2012 in Russia. Regional logistics experts in the transportation of goods between European and South Eastern Asian countries has pinpointed that overcoming instability that major global routes are currently facing, is one viable solution. In that aspect, they suggested that the ASEAN nations should take advantage of the benefits offered by the Trans­Siberian pathway. In the meantime, the Weiss Röhlig group has launched a new Trans­Siberian container service from the Russian Far East to Russia and Central Asia. The service connects China, Korea, Japan, Taiwan and South East Asia with more than 2000 railway stations in Russia and the CIS countries. “Demand is increasing to provide direct services from China to Russia and Central Asia via rail, rather than shipping to Northern Europe and then connecting to the European rail network,” said Franco Ravazzolo, Weiss Röhlig's manager, Project Logistics & Break Bulk. “Our customers are looking for more flexible options in terms of time to market and cost, and

rail freight allows us to deliver direct to customers in inland areas of Russia and the CIS taking out the ocean leg." added Weiss Rohlig. Russia offers immense transit capabilities with great economic appeal not only to ASEAN states but to all APEC members, said an expert to He added that "Cooperation within APEC to promote and upgrade Russian transportation system will undoubtedly gain economic benefits to members states." In that aspect, he appealed to transportation agencies within the ASEAN grouping to look into the rapid progress being made in the betterment of transportation by rail across trans­Siberia. "A good reason why the APEC 2012 meeting is to be held in Vladivostok is for experts and business leaders to see the benefits of using the Transiberia pathway, for themselves." an expert said. Advantages of the Trans­ Siberian compared to sea • reduces by nearly two­ thirds the time for cargo shipments: containers from China to Finland on the Trans­ Siberian take less than 10 days, compared to 28 days by sea; • low level of political risk: up to 90% of the route passes through Russia – a state with a stable democratic system of government, stable political Page 2

climate and steadily growing economy; • minimises the need for transshipment, thus reducing the cost of cargo and the risk of accidental damage to goods during handling. At the moment, a major part of the freight between East and West goes by sea. The dominant or near monopoly position of marine shipping companies means shippers cannot expect a reduction of their transport costs. Rail transport offers a reasonable economical alternative to shipment by sea. Transit times from Vladivostok and Vostochny to Moscow are said to be between nine and 10 days with one or two days clearance needed at port. With the Transiberian pathway, this is considerably reduced as noted above. Europe and Asia The Trans ­ Siberian railway, known as one of the world’s most famous passenger routes is set to become a viable cargo transit route between Europe and Asia. The Trans Siberian railway connects 28 countries, bridging the Far East and Europe across Russia. Boris Lapidus, senior vice president at Russian Railways, thinks new technological developments are necessary. Continued page 8

Special Edition APEC 2 0 1 2

APEC Summit 2012: Russia's Pivotal Regional Role

APEC 2012 ­ Vladivostok

The 24th Asia Pacific Summit (APEC) will be held in Russia's city of Vladivostok in 2012. The summit will be an occasion for the members of the APEC to get know Russia more closely. It will also reassert Russia's pivotal role in the South East Asia (SEA) region. The APEC Russia 2012 summit will of the annual gathering of APEC leaders, will actually be part of the strengthening of the APEC as regional grouping, said regional experts to 'The development of the APEC is a multilateral structure of dialogue on trade, investment, economic and technical regional cooperation.' said Muh'd Isa,'s Malaysia based regional analyst. M. Isa sadi that the APEC is altogether a well oiled platform which acts as a mechanism of interaction concerning the resolution of critical regional and global problems. He added that while the APEC is the premier forum for facilitating economic growth, cooperation, trade and investment in the Asia­Pacific region, it is also very important for the SEA region.

Other observers in the region agreed that the APEC's meeting in Russia will be a very important one as it will enlarge Russia's regional role. "The APEC's goals forms part of Russia's foreign policies which are based on regional development, resolution of crisis in a peaceful manner and economic cooperation through trade and investment." said another expert. Russian representatives are very active during intersectoral meetings, workgroups and task teams sessions dedicated to trade, investment, finance, power engineering, transport, SME, science and technology, fishery and agriculture. Russia is also very active during discussions on counter terrorism. When the leaders from the 21 member economies will meet on Russky Island, off the coast of Vladivostok, Russia in 2012, the focus will be on Russia too. It will be an occasion to look closely at Russia's integration Page 3

into the rapidly developing Asia Pacific region. Russia will

undoubtedly influence ­ in a positive way ­ the economies of the APEC member states. Malaysia will benefit largely from this integration due to the liberalization of trade and economic ties that is made possible by Putrajaya's membership in the APEC. This will have an impact on the furthering of trade and investment between Malaysia and Russia. Russia being an important integration junction that unites Asia, Europe and America will be a long­range partner for Malaysia. This partnership will be seen more strongly in economics, finance, trade and investment. (See Page 4)

APECSummit Summit 2012: APEC 2012: Russia's Pivotal Regional Role Russia's Pivotal Regional Role Russia being an important integration junction that unites Asia, Europe and America will be a long­range partner for Malaysia. This partnership will be seen more strongly in economics, finance, trade and investment. In 2011, the APEC has reiterated its pledge to maintain free and open markets and renew its commitment to withdraw existing restrictive measures and resist new protectionism measures as the global economy recovers. APEC should continue to monitor trade and trade­related measures by APEC economies, with the APEC Secretariat to prepare its next review for the AMM in November 2011. The WTO predicts that global exports will increase 6.5% in 2011, building on the record­ breaking 14.5% surge in the volume of exports in 2010. This will be benefitial to APEC in particular even though other parts of the globe faces an economic downturn in the process. This is where countries like Russia will find their influence enlarged since the current economic growth experienced by Russia will definitely be spilled over in the South East Asia region. "Countries like Malaysia and Indonesia will benefit from investment from Russia while their investment

in Russia would definitely reap large benefits for them," said M. Isa. As of now, APEC has 21 members ­ Australia; Brunei Darussalam; Canada; Chile; People's Republic of China; Hong Kong, China; Indonesia; Japan; Republic of Korea; Malaysia; Mexico; New Zealand; Papua New Guinea; Peru; The Republic of the Philippines; The Russian Federation; Singapore; Chinese Taipei; Thailand; United States of America; Viet Nam ­ which account for approximately 41% of the world's population, approximately 55% of world GDP and about 49% of world trade. In 2004, Russia took the lead in global oil production, leaving behind Saudi Arabia. Additionally, Russia remains a major producer of natural gas and is the largest gas exporter in the world. Russia is the main source of energy resources in the world – now and, possibly, in the future. Russia can retain its leading positions in the world economy if it continues exporting energy within reasonable limits. Besides the positive impact on the regional economics, the growing involvement of Russia into the integration processes in the Asia Pacific region will also influence positively on the strengthening of peace and Page 4

security both on regional and global scale. This issue is of utmost importance in the light of conflict escalation in the Korean peninsular as well as in the South China sea. As a matter of fact, Russia's role in calming the crisis in the South China sea is an example of the pacifying foreign policy of the huge country. Russia has altogether made headway within the ASEAN movement with its economic (investments altogether) in Vietnam and Cambodia where several industries are showing signs of booming. The APEC was established in 1989 to enhance economic growth and prosperity for the region and to strengthen the Asia­Pacific community. The summit on Russky Island will see the resort, catering and entertainment facilities, in addition to the renovation and upgrading of Vladivostok International Airport. The capital of Primorsky Territory ­ city of Vladivostok ­ is the largest port of the Russian Federation on the Pacific Ocean. Population of Vladivostok is 630 thousand people. Population of Primorsky Territory is 2 million 100 thousand people. On the area it is comparable to the territory of such states as Greece and Bulgaria.

Priority For Economic Cooperation With Asia : The APEC meeting in Russia this year will be a major event since it will deal with ways to counter the current global economic slowdown and the uncertainties of the financial sector. While APEC 2011 held at Honolulu took concrete steps toward building a seamless regional economy to generate growth and create jobs, in 2012, Russia is pushing an agenda for a boosting trade among APEC member states, something which still has much room for growth. Hence the theme for the APEC 2012 will be “Integrate to Grow, Innovate to Prosper” , and pledged to facilitate APEC’s collective efforts to increase sustainability and the pace of development. With full support from APEC member economies, Russian Senior Official, Ambassador Gennady Ovechko, announced that APEC will seek to achieve tangible results based on the following priorities: Expanding trade and investment liberalization and expanding regional economic integration Strengthening food security; Establishing reliable supply chains; and Fostering innovative growth. Ambassador Ovechko said regional economic integration

plays a key role in promoting peace and stability. Describing the shift towards the Asia­ Pacific, he expressed concern that the Eurozone crisis could influence financial distortions on world commodity markets, trade and investment. “To address these concerns, APEC will seek to make progress on a number of issues such as integration, investments, fighting protectionism, securing food markets, establishing reliable supply chains and fostering innovation policies,” said Ambassador Ovechko. He said APEC has an important role to play in improving regional and global food security. “Facing major challenges to the food supply, such as price fluctuations, APEC will search for sustainable development in the agricultural sector, facilitation of investment and trade, establishing efficient and resilient food markets and market infrastructure.” “In 2012, APEC will pursue proposals for sustainable agricultural development and stable markets including increased transparency, monitoring and information exchange on agricultural production, and developing policies for community resilience and a more inclusive food supply for socially Page 5

vulnerable population groups.” Ambassador Ovechko also said APEC will prioritize addressing the major chokepoints in supply chains to better ensure the smooth flow of trade. “Reliability of the supply chain is the key issue in APEC and worldwide. They should respond to possible risks related to routing, maintenance and development,” said Ovechko. “It is necessary to ensure appropriate risk management, safe operation and protection of transport and transportation facilities.” In 2012, APEC plans to push for policies that encourage innovation in the region that will increase productivity and ensure economic growth. “We believe that fostering cooperation in innovation will help us boost future trade and investment in APEC, improve existing and build new global production and supply chains,” he said. “Some areas include developing hi­tech sectors and addressing barriers to investment; promoting technological progress among all APEC economies through networking among innovation centers; and providing APEC platforms for cooperation where business and scientists can discuss markets and policy needs.”

A Brief on APEC and Russia's Economic Status APEC A Powerhouse... The APEC accounts for approximately 41% of the total world's population figure. It accounts for approximately 55% of world GDP and about 49% of world trade. The 24th APEC Summit will be held in the city of Vladivostok, Russian Federation. Russian Economic Strength

APEC officials convened throughout 2012 in Russia, including Moscow in February, Kazan in June and Vladivostok in September. Ministers will also meet during the year in these cities, as well as in St. Petersburg, Khabarovsk and Yaroslavl. Finally, the APEC Economic Leaders’ Meeting will be held on Russky Island in Vladivostok on 8 ­ 9 September 2012. The Asia­Pacific Economic Cooperation (APEC) is the premier forum for facilitating economic growth, cooperation, trade and investment in the Asia­Pacific region. APEC was established in 1989 to enhance economic growth and prosperity for the region and to strengthen the Asia­Pacific community.

As of now, APEC has 21 members ­ Australia; Brunei Darussalam; Canada; Chile; People's Republic of China; Hong Kong, China; Indonesia; Japan; Republic of Korea; Malaysia; Mexico; New Zealand; Papua New Guinea; Peru; The Republic of the Philippines; The Russian Federation; Singapore; Chinese Taipei; Thailand; United States of America; Viet Nam. Page 6

The economy of Russia is the ninth largest economy in the world by nominal value and the sixth largest by purchasing power parity (PPP). Russia has an abundance of natural gas, oil, coal, and precious metals. Russian Far East The Russian government is putting a lot of efforts to in promoting both the city of Vladivostok and also the Trans­ Siberian railway which is one of the most efficient and safe transport route in the region today. Russia is also promoting the Russian Far East, which is today's least exploited and most virgin territory in the world.

Moscow Meet Decides On Investment, Regional Cooperation within APEC

Russia held the First Senior Officials Meeting (SOM1) in Moscow and Yaroslavi in February this year. As a result of the meeting, the APEC will concentrate on pressing issues having to do with the forum, including regional economic integration, healthcare, food security, and the battle against corruption and terrorism. The experts spoke mainly about the the need to bring the regulation systems close together, to attract investment, and to implement new APEC strategy on structural reforms in the context of liberalization of trade and investment, and regional economic integration. The Participants in the Investment Experts' Group meeting, the main task of which is to draft investment principles and facilitate investment in the region, discussed key issues of investment liberalization and development in APEC. During the month of February, the latest Finance and Central Bank Deputies' Meeting was

held in Yaroslavl under Russia's APEC chairmanship. This regular meeting provides participants with the opportunity to share views and information on regional macroeconomic and financial developments, as well as on national and regional policy priorities. While discussing food security, participants in the (SOM1) meetings focused particular attention on price fluctuations, food supply and demand, information exchange, providing help to the socially disadvantaged strata in obtaining access to food, and control of food quality and security. In discussing the need to establish reliable transportation and logistics chains, senior officials reviewed initiatives on diversifying supplies and monitoring the movement of cargo through the supply chain, preparedness for emergencies, and reliability and security of food supplies. Page 7

Russia was represented at the meeting on investments the group discussed projects to study advanced principles and practices with a view to making APEC economies more predictable and sustainable and projects on greater investment opportunities. The action plan on improving the investment climate evoked extensive discussion. Much attention was also paid to public足private dialogue, discussion of which started last year and will be continued this year. As part of this dialogue, Russia suggested holding a seminar on public足private partnership in Kazan in May 2012. Delegates showed particular interest in Russia's initiatives on removing barriers to high足 tech investment, attracting highly qualified personnel and forming a mechanism for prompt response to investors' problems as a means of improving the investment climate in the APEC economies.

Tran­Siberian Railway offers safe, economical inland route for ASEAN

The city's current population is approximately 600,000. There are places of interest in the city, mostly associated with its Naval history. The importance of Vladivostok as an outlet to the Pacific Ocean can be appreciated when viewed in the context of Russia's status as a trading nation and important military power, and the difficulties with sea access in its Eastern regions.Japanese interests are prepared to invest in the development of the Trans Siberian route, but aren’t currently using it, as it’s too slow and expensive, according

to Hirokazu Tsujimoto, a senior advisor at Kintetsu world express, wrote the website, Russia's semi­official news portal. Germany – the final European point of the world famous railway, wants more effectiveness and efficiency of what is increasingly seen as a vital route connecting Far East and Europe with Asia. Vladivosto Vladivostok, translates in modern parlance as 'controlling the east' and is a very fitting name for this interesting, but Page 8

primitive home of the Russian Pacific Fleet. The location of the city serves to emphasis the vastness of Russia for, at 9,302 Km (5,767 miles) from Moscow, Vladivostok is closer by 902 Km (563 miles) to San Francisco! The city's current population is approximately 600,000. There are places of interest in the city, mostly associated with its Naval history. The importance of Vladivostok as an outlet to the Pacific Ocean can be appreciated when viewed in the context of Russia's status as a trading nation.


Russia's Economy Shows Solid Growth

As the host of the APEC 2012, it is important to focus on Russia as the rising global economic powerhose. In this section we present Russia's Industries. Russia's industrial 1992–2010




Russia is one of the most industrialized of the former Soviet republics. In the 2000s, Russia's industry, due to increasing demand and improved state finances, emerged from a deep crisis caused by the dissolution of the Soviet Union. Russia has developed large manufacturing capacities, notably in machinery. The defense and aircraft industries are important employers and are able to offer internationally competitive products for export.

Defense industry Russia's defense industry employs 2.5 – 3 million people, accounting for 20% of all manufacturing jobs. Russia is the world's second largest conventional arms exporter after the United States. The most popular types of weaponry bought from Russia are Sukhoi and MiG fighters, air defense systems, helicopters, battle tanks, armored personnel carriers and infantry fighting vehicles. The research organization Centre for Analysis of Strategies and Technologies ranked the air defense system producer Almaz­Antey as the industry's most successful company in 2007, followed by aircraft­maker Sukhoi. Almaz­Antey's revenue that year was $3.122 billion, and it had a work force of 81,857 people.

Aircraft industry Aircraft manufacturing is an important industry sector in Russia, employing around 355,300 people. The Russian aircraft industry offers a portfolio of internationally competitive military aircraft such as MiG­29 and Su­30, while new projects such as the Sukhoi Superjet 100 are hoped to revive the fortunes of the civilian aircraft segment. In 2009, companies belonging to the United Aircraft Corporation delivered 95 new fixed­wing aircraft to its customers, including 15 civilian models. In addition, the industry produced over 141 helicopters. It is one of the most science­intensive hi­tech sectors and employs the largest number of skilled personnel. The production and value of the military aircraft branch far outstrips other defense industry sectors, and aircraft products make up more than half of the country's arms exports. Space industry Space industry of Russia consists of over 100 companies and employs 250,000 people. The largest company of the industry is RKK Energia, the main manned space flight contractor. Leading launch vehicle producers are Khrunichev and TsSKB Progress. Largest satellite developer is Reshetnev Information Satellite Systems, while NPO Lavochkin is the main developer of interplanetary probes. Automotive industry Main article: Automotive industry in Russia A Lada Kalina Super 1600, painted in khokhloma national ornaments. Lada is the brand of AvtoVAZ, the largest Russian car manufacturer in the Russian automotive industry. Automotive production is a significant industry in Russia, directly employing around 600,000 people or 0,7% of the country's total work force.

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Russia's Economy Shows Solid Growth Automotive Industry In addition, the industry supports around 2–3 million people in related industries. Russia was the world's 15th largest car producer in 2010, and accounts for about 7% of the worldwide production. In 2009 the industry produced 595,807 light vehicles, down from 1,469,898 in 2008 due to the global financial crisis. The largest companies are light vehicle producers AvtoVAZ and GAZ, while KAMAZ is the leading heavy vehicle producer. 11 foreign carmakers have production operations or are constructing plants in Russia. Railroad industry Russian Railways accounts for 2.5% of Russia's GDP. The percentage of freight and passenger traffic that goes by rail is unknown. In 2007, about 1.3 billion passengers and 1.3 billion tons of freight went via Russian Railways. In 2007 the company owned 19,700 goods and passenger locomotives, 24,200 passenger cars (carriages) (2007) and 526,900 freight cars (goods wagons) (2007). A further 270,000 freight cars in Russia are privately owned (needs source). In 2009 Russia had 128,000 kilometers of common­carrier railroad line, of which about half is electrified and carries most of the traffic, over 40% was double track or better. Electronics Russia is experiencing a regrowth of Microelectronics, with the revival of JCS Mikron. An example of a successful Russian consumer electronics company is Telesystems, whose products are sold in over 20 countries.

Telecommunications Russia's telecommunications industry is growing in size and maturity. As of 31 December 2007, there were an estimated 4,900,000 broadband lines in Russia. Over 72% of the broadband lines were via cable modems and the rest via DSL. In 2006, there were more than 300 BWA operator networks, accounting for 5% of market share, with dial­up accounting for 30%, and Broadband Fixed Access accounting for the remaining 65%. In December 2006, Tom Phillips, chief government and regulatory affairs officer of the GSM Association stated: "Russia has already achieved more than 100% mobile penetration thanks to the huge popularity of wireless communications among Russians and the government's good work in fostering a market driven mobile sector based on strong competition." Russia's Agricultrue Scene Russia comprises roughly three­quarters of the territory of the former Soviet Union. Following the breakup of the Soviet Union in 1991 and after nearly ten years of decline, Russian agriculture begun to show signs of improvement due to organizational and technological modernization.

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Russia's Trade Growth Figures In 1999, exports were up slightly, while imports slumped by 30.5%. As a consequence, the trade surplus ballooned to $33.2 billion, In March 2002, Russia placed a ban on poultry from the United States. In the first quarter of 2002, exports were down 10% as falling income from goods exports was partly compensated for by rising services exports, a trend since 2000. The trade surplus decreased to $7 billion from well over $11 billion the same period last year. Foreign trade rose 34% to $151.5 billion in the first half of 2005, mainly due to the increase in oil and gas prices which now form 64% of all exports by value. Trade with CIS countries is up13.2% to $23.3 billion. Trade with the EU forms 52.9%, with the CIS 15.4%, Eurasian Economic Community 7.8% and Asia­Pacific Economic Community 15.9%. Trade volume between China and Russia reached $29.1 billion in 2005, an increase of 37.1% compared with 2004. China’s export of machinery and electronic goods to Russia grew 70%, which is 24% of China’s total export to Russia in the first 11 months of 2005. During the same time, China’s export of high­tech products to Russia increased by 58%, and that is 7% of China’s total exports to Russia. Also in this time period border trade between the two countries reached $5.13 billion, growing 35% and accounting for nearly 20% of the total trade. Most of China’s exports to Russia remain apparel and footwear. Russia is China’s eighth largest trade partner and China is now Russia’s fourth largest trade partner.

China now has over 750 investment projects in Russia, involving $1.05 billion.[citation needed] China’s contracted investment in Russia totaled $368 million during January–September 2005, twice that in 2004.[citation needed] Chinese imports from Russia are mainly those of energy sources, such as crude oil, which is mostly transported by rail, and electricity exports from neighboring Siberian and Far Eastern regions. Exports of both of these commodities are increasing, as Russia opened the Eastern Siberia–Pacific Ocean oil pipeline's branch to China, and Russian power companies are building some of its hydropower stations with a view of future exports to China. Russia still exports more to China by amount of 21.23 billion US dollars in comparison to an import of 17.52 Billions in 2009.

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APEC 2012 Russia-ASEAN Cooperation  
APEC 2012 Russia-ASEAN Cooperation  

It is about the APEC meeting in Russia and how the ASEAN movement can benefit with Russia's Chairing of the APEC organization.