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Financial Times / Biz - Money

Russia considers sanctions against US aerospace companies

As the US prepares further sanctions against Russia in response to its support for the Syrian regime, Moscow is still struggling to find ways to retaliate for the first salvo imposed this month.

Measures to be debated in Russia’s parliament this week propose banning US companies from working with Russia’s aerospace and nuclear energy industries, potentially effecting big US groups such as Boeing and General Electric, which would endanger bilateral trade worth almost $30bn a year.

“We can choose from a set of measures depending on the situation, depending on what actions our detractors are taking,” Arkady Dvorkovich, Russia’s deputy prime minister, said of the proposal put to parliament late last week. “Among other things, we will use separate restrictive measures against those countries that imposed sanctions against us to reduce supplies from them . . . Of course, we will do everything so that domestic production does not decrease, but grows.”

The US Treasury’s April 6 move to sanction seven oligarchs, 14 companies and 17 state officials, cutting them off from doing business with US citizens or using dollars, sent the Moscow stock market and the rouble tumbling.

Russia has nowhere near the global clout of the US, limiting its options to strike back. But the draft law targets sectors where US companies rely on Russian products. Senior officials have stressed that Vladimir Putin will make the final decision and that measures adopted will not damage local companies.

Lawmakers behind the proposals said restrictions on co-operation in the nuclear energy, aerospace and rocket manufacturing sectors could be most effective given Russia’s heightened importance in these areas, spooking the Russian companies that stand to lose out on lucrative US exports. 

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Rosatom, the national nuclear energy monopoly, supplies large amounts of enriched uranium to the US, accounting for about 5 per cent of the country’s total electricity supply. The monopoly also works with US nuclear companies in repatriating and processing radioactive materials from third countries and co-operates with GE in nuclear fuel fabrication.

The company’s deputy head told the FT last year that international co-operation was a crucial part of the company’s strategy. Rosatom is working on 34 potential new nuclear plants, the largest order book in the world, and often works with western rivals to source equipment or fuel. 

“It is clear that the draft bill is very raw and ill-thought [through], not just to do with nuclear but also regarding other sectors too,” said a person briefed on the company’s stance. Rosatom declined to comment.

We can choose from a set of measures depending on the situation, depending on what actions our detractors are taking

Arkady Dvorkovich, Russia’s deputy prime minister

Proposed measures would ban exports of titanium to the US, a move designed to hurt Boeing, the aerospace company, which buys about 35 per cent of all its titanium from VSMPO-Avisma, Russia’s titanium monopolist, a subsidiary of state defence conglomerate Rostec.

Boeing has a Russian joint venture with VSMPO and plans to buy $18bn in Russian titanium in the next decade, the company’s Russia chief said last year. VSMPO, which sells 70 per cent of its titanium abroad, is opening a factory for Boeing’s titanium parts this year that will triple capacity. Boeing’s 787 Dreamliner, which the company produces at a rate of 12 a month, uses 56 different titanium parts produced in Russia. 

The aerospace company said it was aware of the “anti-American” legislation, adding that it was “monitoring the situation to understand what impact there may be to our ongoing business and partnerships in the region”.

VSMPO said in a statement that any sanctions would affect its export sales and 20,000 employees: “We are hoping for wisdom and foresight from Russian lawmakers, who, we are convinced, could not take a decision that may negatively affect the Russian titanium sector and the country’s economy as a whole.”

As with Russia’s earlier so-called counter sanctions against western food imports, it is the Russian people who would be most harmed

National Security Council

Lawmakers are also exploring banning US-Russian co-operation in the rocket engine sector. The move appears aimed at banning the United Launch Alliance, a joint venture of Lockheed Martin and Boeing, from acquiring the Russian-made RD-180 engines the US Air Force uses to launch the Atlas 5 rocket. The Pentagon has said switching to US-made rockets would cost between $1.5bn and $5bn. The United Launch Alliance did not respond to a request for comment.

The bill also includes a proposal to allow Russian companies to ignore selected US intellectual property rights, essentially legalising pirating of copyrighted products. In 2016, Russia paid $5bn for usage of all foreign intellectual property.

Proposals also include restricting imports of US pharmaceutical products, alcohol and agricultural products, while also banning US auditing companies from the market. The US is Russia’s fourth-largest trading partner, with 2017 imports from the US of $12.7bn and exports to the country of $17bn.

A spokesman for the White House National Security Council said: “We are tracking the Duma’s consideration of these measures. As with Russia’s earlier so-called counter sanctions against western food imports, it is the Russian people who would be most harmed by these measures, as they would lose access to high quality US products.”

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