Canadian firms in Russia fear fallout from sanctions

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Leaders of Canadian companies operating in Russia are fearful that Western sanctions – and Ottawa's overtly pro-Ukrainian position over Crimea – will lead to a worsening business environment for them here.

Canada has not only joined the United States and European Union in slapping sanctions on Russian officials following Moscow's annexation of Crimea, Prime Minister Stephen Harper's government has been more outspoken in its support for Kiev – and criticism of Moscow – than any other Western country.

Business leaders are hoping the political tension doesn't quickly spread through the business community.

Kerry Irwin, a Toronto native who heads the Moscow office of public relations giant Edelman, said that her firm's clients had not yet felt a direct impact from the Western sanctions, which the Kremlin answered last week by banning nine top American officials from travelling to Russia. But she admitted she was personally growing concerned.

"Up until [Thursday, when the United States announced a second tranche of sanctions], I wasn't that worried about it," she said. "It's becoming more of a tit-for-tat thing now. There's no dialogue any more."

Canadian business people here say their Russian colleagues have taken notice of Ottawa's "antagonistic" position, and are baffled by it. "They're asking us 'what's next from Ottawa?' and we say 'We don't know, they're not consulting us,'" said one executive who has been doing business in Russia for decades and asked not to be named for fear of angering one of the governments. "Everybody's nervous."

Rumours of a blowback from the Russian side were flying at the Canada Eurasia Russia Business Association annual charity auction Friday night in Moscow's historic Sovietsky Hotel.

As bidding proceeded at the $150-a-head affair, Canadian executives gathered in the lobby and worried aloud about what might happen next.

Business people passed around links to a story on a Russian news website that suggested Montreal's Bombardier Inc. was cancelling a $3.4-billion (U.S.) aircraft deal to manufacture aircraft in the southern city of Ulyannovsk.

Bombardier made it clear last week the plans have thus far only been delayed, not cancelled. Another business official said he had heard Russia was preparing to tighten the rules for imports of Canadian pork.

Some Russian politicians have suggested nationalizing the assets of Western corporations that do business here, in retaliation for the sanctions imposed on Moscow. That's a worrying prospect for any company with substantial operations here. Kinross Gold Corp., a Toronto-based miner, is the biggest foreign mining company operating in Russia, operating the massive Kupol gold project in the remote Chukotka region.

In addition to sanctions targeting 17 Russian and Crimean officials with travel bans and asset freezes, Ottawa recalled its ambassador from Moscow. "for consultations" on March 1 in protest at Russia's interference in Ukraine. Canada has also suspended military co-operation with Russia, and pledged $220-million in aid to the new government in Kiev.

Mr. Harper and Foreign Affairs Minister John Baird have also raised eyebrows here by comparing Russia's moves in Crimea to Nazi Germany's 1938 annexation of Sudetenland.

No one at the CERBA event in the Sovietsky Hotel wanted to go on the record blaming Ottawa or Moscow for the chill. Everyone said they hoped diplomacy would somehow prevail, and quickly.

In a sign of the times, one of the prizes CERBA was auctioning Friday night was a dinner with John Kur, Canada's absent ambassador to Russia. The prize made it clear the dinner might not happen for a while. "Before March 31, 2015," was all that was promised. Several Canadian business people hinted they thought the ambassador's recall was particularly rash.

(Ukraine is the only other country that has recalled its ambassador over the crisis. The last U.S. ambassador to Moscow, Michael McFaul, left his post shortly before the Crimea conflict began. He has not yet been replaced.)

"Countries which engage each other and maintain close, consultative relationships have a better chance of influencing each other than those that sever ties," said Nathan Hunt, president of the Moscow chapter of CERBA.

It's hard to see a quick end in sight. On Friday, Mr. Putin pushed ahead and signed the final documents making Crimea a formal part of Russia, and NATO's top military commander warned Sunday of a "very, very sizable and very, very ready" Russian troop buildup along its border with Ukraine. Russia's deputy defence minister denied there was any "undeclared military activity that would threaten the security of neighboring countries."

Addressing the possibility of more sanctions from the West, a Kremlin spokesman said Russia would respond to each new round of economic punishments "with a mirror image."

Sanctions have begun to nip at ordinary Russians in recent days as Visa and Mastercard cancelled their services with four Russian banks targeted by the U.S. for their alleged links to the Kremlin. On Saturday, Mr. Harper added one of those banks, Bank Rossiya, to Canada's own sanctions list, meaning Canadians are prohibited from doing business with it.

In televised remarks, Mr. Putin professed that he knew little about Bank Rossiya, but promised to open an account there on Monday and start depositing his salary there.

Twenty-three years after the fall of the Soviet Union, two-way trade between Canada and Russia remains modest. At $2.7-billion a year, Russia is only Canada's 19th largest trading partner.

Political ties are standoffish as well. Mr. Harper has never made an official bilateral visit to Moscow since first winning office in 2006. In his 15 years as president or prime minister of Russia, Vladimir Putin has only been to Canada once, for a G8 summit in 2002.

Hockey legend Vladislav Tretiak, who attended the CERBA soiree, dodged political questions in a brief interview with The Globe and Mail. He said he just wanted the dispute to end quickly.

"Russia and Canada must be friends, we must do business," said Mr. Tretiak, who is now a parliamentary deputy in Mr. Putin's United Russia party. "I hope that there won't be problems between Russia and Canada, and that the people at the top can resolve this. Our only conflict should be in hockey."