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DE RUEHMO #2723/01 3071356
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R 031356Z NOV 09
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC 5292
INFO RUEHXE/EASTERN EUROPEAN POSTS COLLECTIVE
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHGV/USMISSION GENEVA 5432
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEHAAA/WHITE HOUSE WASHDC

C O N F I D E N T I A L SECTION 01 OF 02 MOSCOW 002723

SIPDIS

WHITE HOUSE ALSO FOR USTR: WILSON, HAFNER
GENEVA FOR WTO REPS
COMMERCE FOR MEDWARDS

E.O. 12958: DECL: 11/04/2019
TAGS: ETRD EINV ECON PREL RS WTO
SUBJECT: INTEL'S CRYPTO IMPORTATION WAIVER: LESS THAN A
BREAKTHROUGH

Classified By: Ambassador John Beyrle, Reasons 1.4 b&d.

¶1. (C) Summary:  Intel representatives recently briefed us on
the waiver it received to import 1,000 encrypted platforms
for the development of software.  Intel was able to by-pass
the cumbersome licensing process by engaging in high-level
lobbying and capitalizing on Russia's desire to become a
"knowledge-based" economy.  Contrary to recent Russian
statements, this waiver does not appear to represent a
breakthrough in the importation of commercial products with
cryptographic content.  Russia continues to operate under the
old regulations; proposed new regulations do not meet the
terms of the 2006 U.S.- Russia side agreement on
cryptography.  End Summary.

¶2. (C) On October 28 Emboffs met with XXXXXXXXXXXX
XXXXXXXXXXXX to discuss Intel's recent waiver on importing
cryptographic goods.  Intel believes this breakthrough is one
that other IT companies could piggy-back on.  XXXXXXXXXXXX stated
that the waiver allows Intel to import 1,000 development kits
containing encrypted platforms necessary to design and
develop software.  The waiver allows the importation without
the required laboratory analysis and approval by the Federal
Security Bureau (FSB).  However, the waiver allows only 1,000
units to be imported; if Intel needs to import more, they
need to request a new waiver.  The waiver applies to only one
specific customs code (item), with no variations.  As well,
these cryptographic items can only be used in R&D; they
cannot appear on the commercial market.  Once Intel is
finished with the platforms they must be submitted to a
designated state-run industrial waste disposal company for
their destruction.

----------
Background
----------
¶3. (C) In 2006 Russia signed a side agreement to its WTO
bilateral Working Party Agreement with the U.S. in which
Russia agreed to streamline and simplify its procedures for
the importation of items containing cryptographic
information.  Nearly three years later, progress in meeting
the terms of this agreement has been slow and its results
minimal.  Russia's proposed new regulations do not meet the
terms laid out in the side agreement or in WTO regulations.
To date, companies still must follow the existing cumbersome
rules in applying for permission to import items containing
any level of cryptographic information, including cell
phones.  This permission request usually involves submitting
samples of the item to an FSB approved laboratory for
analysis, raising concerns about the violation of
intellectual property through reverse engineering.  So far,
U.S. firms have not voiced major concern over this last
issue; rather, their focus has been on the time consuming
process for the importation of crypto-related products.
Current procedures take six months to complete and must be
done for each shipment.

------------------------------
What It Took to Get the Waiver
------------------------------
¶4. (C) In order to get the waiver, Intel capitalized on the
GOR's desire to develop Russia as a knowledge-based economy.
Several high-level Intel officers, including CEO Craig
Barrett, and other officials, such as American Chamber of
Commerce President Andrew Somers, highlighted to their GOR
interlocutors, including President Medvedev, the role Intel
plays in employing over 1,000 Russian engineers.  Intel's
advocates emphasized that if Intel could not quickly import
these development kits, there would be no programming work
available and Intel would have to lay off over 200 engineers.
In addition, R&D work in Russia would have to move to India
or China.  This high-level lobbying secured Intel a meeting
with key FSB officials to explain its needs.  Intel was able
to demonstrate the reasonableness of its request and, as a
result, by-passed the current extensive licensing
requirement.

----------------------------------------
But It Does Not Solve the Crypto Problem
----------------------------------------
¶5. (C) XXXXXXXXXXXX highlighted however, that this breakthrough
does not apply to Intel's commercial products.  He stated
that Intel is currently evaluating options for approaching

MOSCOW 00002723  002 OF 002

the GOR on how to expedite importation of cryptographic
commercial products, a significant source of Intel's sales
revenue.  The procedures that Russia agreed to change in 2006
remain in place three years later.  Recently proposed new
regulations do not appear to significantly reduce the need to
apply for permission for each shipment of goods with
cryptographic components.

¶6. (C) During a July visit, USTR Russia and Eurasia Director
Elizabeth Hafner raised concerns with the FSB and the
Ministry of Economic Development (MED), that the proposed new
regulations, if implemented without revision, would set up
Russia to be in violation of WTO regulations from the moment
of its accession.  MED understood the situation, but felt
that it might be more effective to implement the new
procedures, see where there are problems and fix them as they
appear.  To date, we have not seen a more recent version of
the proposed new regulations for the importation of
cryptographic goods to see if the FSB took USG comments under
advisement.

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Comment
-------
¶7. (C) During several recent high-level meetings between U.S.
and Russian interlocutors, the Russians have highlighted the
Intel waiver as a major breakthrough in Russia's trade regime
dealing with cryptographic goods, and thus a step forward on
their WTO to-do list.  The information from Intel, however,
indicates this is a specific, limited waiver only for use in
R&D.  While this does demonstrate some limited flexibility on
the part of the FSB - and thus a step forward ), whether
other U.S. companies can receive similar waivers remains to
be seen.  Additional GOR actions will be required to
streamline Russia's procedures for the importation of
cryptographic goods for commercial sale.  Russia continues to
lag in the timetables and provisions it agreed to in the 2006
side-agreement on cryptology.  Embassy will follow-up with
the FSB and MED officials, to urge implementation of the 2006
side-agreement, especially with regard to commercial goods.
Beyrle