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Country Commercial Guides for FY 2000: Russia Report prepared by U.S. Embassy Moscow, Released July, 1999 Note*

III. POLITICAL ENVIRONMENT

Bilateral Relationship with the United States

U.S. relations with Russia have evolved through various phases since the break-up of the Soviet Union, and numerous summits and Binational Commission meetings have built a substantial U.S.-Russia agenda of issues for bilateral cooperation. The last bilateral summit was held in Moscow in September 1998, and Presidents Clinton and Yeltsin met most recently on the margins of the June 1999 G-8 Summit in Cologne. In addition to regional crisis resolution, such bilateral talks have been focused on issues such as arms control, cooperation to prevent proliferation of weapons of mass destruction and the means for their delivery, combatting organized crime, counterterrorism, and the environment. Sharp disagreement between Russia and NATO in spring 1999 burdened the U.S.-Russia relationship, but both joined in efforts to bring military actions in Yugoslavia to an end and to work out means of Russian participation in the NATO-led international peacekeeping force for Kosovo.

The U.S. continues to support Russian efforts to build a democratic society and market economy, and to integrate Russia more broadly and firmly into the international community. U.S. assistance and support for international financial institutions' engagement with Russia also continue. The United States also continues to take steps to clear from the books Cold-War-era legislation limiting contacts with Russia.

Major Political Issues Affecting the Business Climate

Russia has only a seven-year history of free elections, and democratic institutions are still fragile. The July 1996 presidential election, the first free nationwide election of a head of state in Russia's 1,000-year history, helped to reassure investors about Russia's political stability. Nevertheless, other political factors, including the legal and judicial climate, affect the business environment in Russia. And the approach of Russia's next round of elections for its national Parliament and President contribute to uncertainties for the next twelve months. Although Russian law now includes a Civil Code (which includes a commercial code) and a Criminal Code, key amendments are needed to improve the business environment.

Protectionist elements in the government and Federal Assembly have risen in response to a broad but unfounded belief that free trade and foreign business activity in the post-Soviet years is a major cause of the nation's industrial decline. This has led some politicians to advocate limits on foreign share holdings or property ownership, or an increased tax burden on foreign businesses.

Political System, Elections, and Orientation of Major Parties

As outlined in the constitution adopted in December 1993, the Russian Federation is governed by a political system modeled after many in the West. The federal system is composed of three branches: executive, legislative and judicial. The Federation is composed of 89 "subjects," including regions, ethnically-based autonomous republics, territories and the cities of Moscow and St. Petersburg. These "subjects" are granted some autonomy over internal economic and political issues, but there is considerable ambiguity in the "power-sharing" agreements which the central government has signed and continues to negotiate with many Federation subjects.

Executive Branch: Under the constitution, the executive branch is led by the President, who is elected for a four-year term and may serve two terms. President Yeltsin's term expires in 2000, and elections are scheduled for June 2000. He has the right to choose the Prime Minister (currently Sergei Stepashin), with the approval of the State Duma (the lower house of the legislature). The President, upon the recommendation of the Prime Minister, appoints Ministers, who are responsible for the execution of legislation and decrees in their respective fields.

Judicial Branch: The top levels of the judicial branch consist of the Constitutional Court, which reviews the constitutionality of federal legislation; the Supreme Court, which is the highest civil and criminal judiciary body; and the Supreme Arbitration Court which resolves economic disputes between subjects of the Federation. The Supreme Court and Supreme Arbitration Court preside over a federal system of lower criminal and civil courts. The Constitutional Court held its first session in the spring of 1995.

Legislative Branch: The legislature consists of a two-chamber Federal Assembly, first elected in December 1993. The upper house, the Federation Council, was reformed in January 1996 and is no longer directly elected. Rather, it consists ex-officio of the heads of both the executive and legislative branches of each subject territory of the Russian Federation. The Federation Council reviews legislation passed by the lower house, including the federal budget and international treaties, and adopts its own resolutions. The lower house, or State Duma, consists of 450 deputies, half selected on the basis of single-mandate geographic districts and half on the basis of party lists. The Duma passes federal laws and adopts resolutions. Duma members are elected to four-year terms, although under rare constitutional circumstances the President can dismiss the Duma and call early elections. The last nationwide Duma elections were held in December 1995, with the next national Duma elections planned for December 1999.

Political Parties: Seven parties and factions are represented in the Duma. The reconstituted Communist Party, headed by Gennadiy Zyuganov, is the largest faction in the lower house. On most issues it is supported by the smaller "People's Power" faction. The "Agrarian Party" also is allied closely with the communists and represents Russia's agricultural establishment, advocating strong government support for the farm sector. Reformist forces in the Federal Assembly are led by Grigoriy Yavlinsky's "Yabloko" party, which supports free markets but is inclined to use government funds to ensure a strong social safety net. Centrist groups, some of which advocate a slower approach to reform, include "Our Home is Russia" (founded by former Prime Minister Chernomyrdin) and "Russia's Regions," a loose grouping of centrist politicians. The "Liberal Democratic Party of Russia" is a right-wing nationalist party led by Vladimir Zhirinovskiy (although its members have not consistently voted as a bloc on key issues). The communists and their allies hold a near majority on most issues.