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An Uncertain Future for the Russia-Japan Relationship


Over the past few years, Japan and Russia have made several attempts to strengthen bilateral relations, culminating in high-level talks in late January. The reasons for these talks seem straightforward.  Russia sees Japan as a source of capital and a development partner for the country’s Far Eastern energy resources.


Over the past few years, Japan and Russia have made several attempts to strengthen bilateral relations, culminating in high-level talks in late January. The reasons for these talks seem straightforward.  Russia sees Japan as a source of capital and a development partner for the country’s Far Eastern energy resources.  Tokyo wants to be less dependent on Middle Eastern oil and has looked to Russia as an alternative energy source.  A shared fear of China’s rapid rise has been another important motive.  But although Japan and Russia have many of the same concerns, there are several obstacles that could prevent a stable, long-term alliance.  The two have a long-running dispute over the Kurile Islands, and failure to reach an agreement over the Islands could hurt prospects for future energy deals.  Another serious challenge is the corrupt Russian legal system. Russian President Vladimir Putin has made repeated efforts to renationalize the nation’s energy sector. These moves run counter to Japan’s attempts to penetrate the Far Eastern energy market.  Russia has also made overtures to China in the form of arms sales and energy deals.  These overtures challenge the basis for Russian-Japanese cooperation and may jeopardize future relations between the two countries.

Efforts to Improve Relations

There have been several indications of improving relations between Russia and Japan. High-level meetings have become common, and talks have yielded tangible results.  In 2006, Russia agreed to construct an 850 kilometer LNG pipeline to northwest Japan through the Sea of Japan.  Japan and China hotly contested the proposed route which would bypass China.  Japanese companies have also become prominent investors in the Russian oil industry.  Until recently, Mitsui Corporation had a 25 percent stake in the Sakhalin energy company.  Mitsubishi controlled another 20 percent.  These efforts are part of a broader national strategy to source up 40 percent of its oil and gas imports from Japanese-owned concessions.i

Challenges Ahead

But there has been some bad blood between Russian and Japanese businessmen.  The most common complaint has to do with differences in the respective legal systems.  Japan says Russia’s legal system is corrupt and that Japanese businessmen are often mistreated by their Russian counterparts.  Russians accuse Japan’s legal system of being impenetrable and hostile to outside investment.  To address these concerns, Moscow and Tokyo have established an arbitration board to mediate trade and private business disputes to create a more open, business-friendly environment.ii

Another, more serious problem has to do with the long history of animosity between the two countries.  Russia and Japan have several unresolved territorial disputes, and the question of borders has become linked to nationalism.  The dispute centers on Kurile Islands, the four small islands that Russia has controlled since the end of World War II.  Most Japanese see the problem of the islands as an obstacle to the development of a long-term alliance.  Recently elected Japanese Prime Minister Shinzo Abe has taken a firm stance on the issue and said he considers the return of the Islands necessary for future cooperation.iii  The border problems mean that sensitive matters involving national pride have become entangled in issues of trade and business. 

Despite these challenges, the Russians’ expropriation of Japanese assets represents the greatest challenge to future Russo-Japanese relations. Russia’s state policy requires that the majority of ownership for all energy concessions goes to the local investors.  This new regulation has led to the forced reduction of Mitsubishi and Mitsui shares in the Sakhalin oil project.  This represents a major weakness in Japan’s energy policy. Japan does not have a state-owned energy company or large, powerful private company and has relied on the concessions granted to smaller, privately owned companies like Mitsubishi and Mitsui.iv  These smaller companies are less able to negotiate and are more vulnerable to the capricious state policy of host governments.  Many Japanese firms are now more hesitant to invest in the Russian energy sector.  Their reluctance undermines the basis of the Russian-Japanese relationship.  Without the cooperation of private businesses, Japan’s energy policy falls apart and Russia does not benefit from Japanese technology and know-how.

Moving forward

Russia seems to have already begun a search for other energy partners.  Last October, Russia agreed to sell oil from the Sakhalin energy project toChina instead of to Japan as originally planned.  Russia has also continued to sell military equipment to China.  In February, Russia, China, and India held a conference to promote trilateral trade.v  Taken together, these events suggest that Russia may move closer to China at the expense of its relationship with Japan. 
   

   

Source: www.asiaecon.org |

 

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