Failing to Bridge the Divide in Russia-Japan Relations

Economic cooperation will be at the top of the agenda when Prime Minister Shinzo Abe meets President Vladimir Putin at the Eastern Economic Forum in Vladivostok on September 6-7. The Japanese leader’s second visit to the Russian Far East in as many years marks an important milestone in his “new approach” to Russia. This policy, which was announced in May 2016, proposes to use economic cooperation to create a positive dynamic in bilateral relations and thereby aid resolution of the countries’ longstanding dispute over the Southern Kurils/Northern Territories.

Central to Abe’s “new approach” is increased cooperation on infrastructure projects. This is made clear from the Japanese government’s 8-point plan, which emphasizes cooperating with Russia in the areas of health, urban infrastructure, energy, industrial diversification, and development of the Russian Far East as an export base. Separately, agreement was reached during President Putin’s visit to Japan in December 2016 to begin discussion of joint economic activities on the disputed islands.

Given the underdevelopment of the Russian Far East and Japan’s engineering expertise, infrastructure is a logical area for bilateral cooperation. However, can the proposed projects succeed economically? Strategically, could they lead to a breakthrough in the territorial dispute?

Two energy megaprojects have attracted the most public attention so far. Bilateral cooperation is already more advanced on energy than other infrastructure types. Mitsui and Mitsubishi have long been involved in the Sakhalin-2 liquefied natural gas project, and Japan already imports approximately 10 percent of its gas from Russia. The first of the megaprojects is a 1,500 km gas pipeline that is proposed to run from Sakhalin to the vicinity of Tokyo at an estimated cost of $6 billion. In theory, this will provide Japan with a source of cheap, reliable energy and reduce the country’s overdependence on imports from the Middle East. Meanwhile, Russia would further its goal of rebalancing energy exports to Asia, without relying more heavily on sales to China.

Although this gas pipeline continues to be discussed periodically, in reality, it is unlikely to ever be built. To begin with, although the Russian Far East has abundant energy reserves, the most obvious sources of gas have already been allocated to other projects. Japanese companies are also certain to be discouraged by the introduction of new U.S. sanctions in August. Those sanctions ban the provision of “goods, services, technology, information, or support that could directly and significantly facilitate the maintenance or expansion of the construction, modernization, or repair of energy export pipelines by the Russian Federation.” There is also the broader question of whether Japan is wise to hand further leverage over its energy security to an adversary of its main ally. With these issues in mind, on August 7, Sekō Hiroshige, Japan’s Minister of Economy, Trade, and Industry, as well as the Minister for Economic Cooperation with Russia, declared that “without a sense of further trust such as a peace treaty, a pipeline would be no good”.

The second megaproject is an “energy bridge” to export electricity from Sakhalin’s hydropower plants to Hokkaido and onward to Japan’s main island of Honshu. The interconnector could supply up to five gigawatts of electricity and is estimated to cost $5.6 billion. It could be one link in a wider Asian super grid to connect the electricity networks of Russia, Japan, China, South Korea, and Mongolia. Supported by Son Masayoshi, chief executive of Softbank Group, the goal is to maximize the use of renewable energy in Northeast Asia. In pursuit of this aim, a memorandum of understanding was signed in March 2016 between Softbank, State Grid Corporation of China, Korea Electric Power Corporation, and Rosseti, a Russian power company and grid operator.

Although enormously ambitious, this scheme appears to have slightly better prospects than the gas pipeline. It has the support of Russian officials who value the opportunity to export domestically generated electricity rather than just raw materials. Despite this, the “energy bridge” will also have to overcome many obstacles. To begin with, Japanese law does not currently permit the import of electricity. Changing that will require political will, which may not be forthcoming. For instance, politicians may be sensitive to public concerns about giving Russia the ability to “turn off the lights.” Additionally, Japan’s major power companies, who are eager to restart idle nuclear facilities, will not welcome foreign competition and may use their political influence to block it. This being so, neither of the energy megaprojects is likely to proceed in the near future.

Joint economic activities on the disputed islands are a priority for the Japanese government since they are viewed as a stepping stone to a broader deal that could see the return of some administrative rights over the Russian-held territory. Meanwhile, for the Russian side, the joint projects are seen as an opportunity to attract investment to a remote region. To identify potential project sites, a delegation of Japanese officials and business figures was sent to the islands at the end of June 2017. This group concentrated on the prospects for cooperation in the areas of health, tourism, and seafood processing. It has also been suggested that Japan and Russia could work together to develop geothermal and wind energy on the islands.

Following discussions at the deputy foreign minister level on August 17, media reports suggested a final accord regarding joint economic activities on the islands will be reached when Putin and Abe meet in Vladivostok in September. This is undoubtedly a significant development in the countries’ decades-old territorial dispute, though expectations in this area should also be tempered. Genuine progress is dependent upon Russia and Japan agreeing to establish a special legal framework on the islands. This is necessary since the Japanese side is unwilling to participate in economic activities on the disputed territory that are conducted under Russian law since this would effectively acknowledge Russian sovereignty. Russian officials, by contrast, insist that all projects must not contradict Russian law. This problem cannot be easily resolved since it determines which police force would investigate criminal acts, which courts would have authority in commercial disputes, which authorities would collect taxes, and other fundamental issues. Until these questions have been settled, major joint projects on the islands cannot proceed. As such, in the short term, Japan and Russia will be forced to concentrate on small-scale initiatives that avoid complex legal issues, such as cruises to take Japanese tourists to view, but not set foot on, the disputed islands.

Japanese hopes took a further blow on August 23 with the signing by Russian Prime Minister Dmitrii Medvedev of an order to create a special economic zone on the Southern Kurils. Offering tax advantages and reduced regulation, this initiative is designed to attract investment. Although Japanese companies are encouraged to participate, this move has been sharply criticized by officials in Tokyo since the zone will operate under Russian law and therefore seems to contradict the plans for joint economic activities.

Overall, the reality of the energy megaprojects and the proposed joint development of the Southern Kurils/Northern Territories is less impressive than the headlines. What is more, these initiatives have done more to highlight problems in the relationship rather than to help overcome them. There are some lower-profile areas in which small-scale cooperation appears more promising. These include pilot projects in Voronezh where Japanese companies are helping the city to overcome traffic congestion, modernize its sewage system, and construct energy-efficient housing. Tokyo is also supporting plans to establish a rehabilitation center in Vladivostok. These schemes are welcome and, if successful, may eventually lead to larger scale projects. In the short term, however, there is little prospect of a major breakthrough in infrastructure cooperation between Japan and Russia.

James D.J. Brown is an associate professor in political science at Temple University in Tokyo and a specialist on Russo-Japanese relations.