Trade: Canadian-Russian relations sour

Ottawa, Nov 30 (IPS/Mark Bourrie) -- Relations between Canada and Russia have gone downhill steadily since the cancellation in September of a major Canadian trade mission to Moscow because of fears over Russia's political and economic instability.

Russia now has retaliated by telling Canadian Prime Minister Jean Chretien not to bother making a political visit to the region, scheduled for January 1999.

Canadian and Russian officials had spent two years working together on the trade mission - one of the largest of its kind ever planned for the former Soviet bloc. Instead of giving its blessing for the mission, the Canadian government told more than 400 business executives, senior civil servants and politicians to stay home.

Prime Minister Jean Chretien then planned to take a scaled-down political trip to Eastern Europe in January, but Moscow told Ottawa last week that Chretien need not bother making the visit.

The trade blitz was planned to last 11 days during which time politicians were to meet with their Russian counterparts while Canadian investors put together deals with Russian partners.

It was to have been the fifth "Team Canada" trade mission trip of Canada's business and political elite. Previous trade missions were to China in 1994, India and Pakistan in 1996, Korea and Thailand in 1997, and to Mexico, Brazil and Argentina later the same year. Boosters of the trade missions claim they have generated 12 billion US dollars in business for Canadian companies.

Before the trip, the Canadian government boasted of 2,000 applications for the trade mission's 200 business seats as business leaders believed they had a better chance of surviving in the tough world of the Russian economy if they had government backing.

One Russian diplomatic source here said Moscow had been "deeply insulted" because Canada pulled out of the trade mission at a time "when Russia needs as much help as it can get.

"We will remember who our friends were during these years of crisis," the Russian official said.

Paul Drager, head of the international section of Macleod Dixon, a large Canadian law firm operating in Russia, said it was a mistake to walk away from the trade opportunities that Russia offered.

"When juxtaposed to what it was years ago, the Russians have made enormous, enormous changes," Drager said. "We're talking now about a convertible currency, the general privatisation which has occurred, and the establishment of a new private sector. A lot of Canadian companies,
particularly those in the mining and energy sectors, are now realising that there is a real synergy for them and this is a market they should be taking very seriously."

Russia needs help getting on its feet, said Ron Randolphe, an executive with a Toronto tool-making firm who had hoped to be part of the trade mission.

"We had a chance to be in there, and now it's gone because Canadian politicians panicked," Randolphe said. "Are we supposed to wait until the markets in Russia are sated with products from the United States? We had good trade relations with Russia during the Cold War, when the Americans were shut out of Russia, but that advantage is being squandered."

Not all Canadian investment experts agreed. George Samu, an emerging markets specialist with the Royal Bank, Canada's largest financial institution, warned investors not to put money into Russia.

"We're talking worse than an Asia-type meltdown. I don't think it's a good time to invest or even to try to increase your exports. There's tremendous uncertainty, and this is not a good time to make long-term decisions.

Russia spurred the cancellation when, in September, it defaulted for the second time on interest owed on Canadian wheat purchases made in the early 1990s. Russia owes USD 1.5 billion on 15.6 million tonnes of wheat purchased between 1989 and 1992.

Another irritant is the ongoing squabble over the control of the luxury Aerostar Hotel in Moscow between Canadian and Russian partners. Boris Yeltsin's son is one of the major Russian backers of the hotel.

Last April, Aeroflot, another partner in the hotel, paid 20 million dollars to IMP Group of Halifax when an international court in the Canadian's favour on the dispute over finances. Aeroflot only handed over the money after a Russian aircraft was seized in Montreal.

Several Canadian partners fled Russia during the dispute, claiming they feared for their lives.

A similar struggle then broke out between Canadian-owned Black Sea Energy and its Russian partners over the registration and ownership of a joint venture. During the dispute, the value of the venture's stock collapsed.

Most other Canadian oil firms pulled out of Russia in the mid-1990s, claiming they could not operate because of systematic corruption and fear of the Russian Mafia. The Team Canada trip, now cancelled, was meant to have improved the business climate and put Canada back into investing in Russia.