Hoping to break a decades-old stalemate in a row with Russia over ownership of a string of islands off Hokkaido, Prime Minister Shinzo Abe has taken a new tack.
He has proposed an economic cooperation package including joint development of the disputed territory.
The move is out of step with the Group of Seven policy of imposing sanctions over Moscow’s annexation of Crimea in 2014. The package, worth ¥300 billion ($2.6 billion), was welcomed by Russian President Vladimir Putin at his summit with Abe in Japan earlier this month.
But at home, the reaction has been more equivocal. Japanese companies have raised concerns about the profitability of the proposed projects and the potential to pave the way for further opportunities in Russia, while doubts have also arisen about whether the initiative will really help deliver the islands back to Japan.
The economic cooperation package targets eight areas, including energy, health care, urban development and industrializing the Russian Far East, a depopulated and underdeveloped region in which Putin is eager to spur growth.
The Dec. 15-16 summit between Abe and Putin ironically served as a reminder that the two countries remain far apart on the sovereignty of the islands, which Soviet forces seized from Japan near the end of World War II.
Their agreement to work out a “special framework” to address legal issues facing the joint economic activities, such as those in the fishing, tourism, medical and environmental fields, is an indication of the difficult path ahead, analysts say.
“There were words at the bottom of the press statement linking the economic cooperation to the peace treaty issue, but there was nothing to show that any progress is being made over the territorial issue,” says Shinji Yokote, professor emeritus of Russian history and politics at Keio University.
“As for the joint economic activities on the northern islands, it will not be easy to realize them,” Yokote says.
The agreement between Abe and Putin covers 12 intergovernmental and 68 private-sector programs. Russia is pinning hopes on a transfer of technologies to help it transform its resource-dependent economy.
Analysts say the future of the agreed projects, however, hinges on growth in the Russian economy, which shrank 3.7 percent in 2015, while the imposition of G-7 and European sanctions as punishment for Russia’s annexation of Crimea also make Japanese investors cautious about doing business in Russia.
While Sumitomo Mitsui Banking Corp. and Mizuho Bank have decided to jointly extend loans to Russia’s state-run gas firm Gazprom, Bank of Tokyo-Mitsubishi UFJ did not join the co-financing program, apparently for fear of retaliatory actions by U.S. authorities.
But political risks still linger despite the Russian government’s enthusiasm for foreign investments.
In 2007, Japan’s Mitsui & Co. and Mitsubishi Corp., along with the Royal Dutch Shell group, which had invested massively in the Gazprom-controlled Sakhalin-2 gas and oil project, had to cede their majority stake in the project to Gazprom reportedly due to pressure from the Russian government.
There are also concerns in Japan that joint economic activities on the disputed islands could end up strengthening Russia’s control over them.
“Japan used to refuse discussion on joint economic activities on the islands but broke new ground by conceding on the issue. This will lead to Russia and Japan standing closer and moving their dialogue forward,” says Dmitry Streltsov, professor at Moscow State Institute of International Relations.
“But the Russian and Japanese positions on the territorial issue are far apart and its settlement will be difficult,” he added.
“Negotiations will continue, but I don’t think they will bear fruit in the near future.”
This is the last of a three-part series on Japan-Russia relations.