Russia and JapanAs a Resource forMutual Development:A 21st-CenturyPerspective on a20th-Century Problem

Dmitri Trenin andVasily Mikheev

Russia and JapanAs a Resource forMutual Development:A 21st-CenturyPerspective on a20th-Century Problem

Dmitri Trenin andVasily Mikheev

© Carnegie Endowment for International Peace, 2005

The Carnegie Endowment for International Peace and Carnegie Moscow Center

normally does not take institutional positions on public policy issues; the views and

recommendations presented in this publication do not necessarily represent the views

of the Carnegie Endowment or Carnegie Moscow Center, its officers, staff, or trustees.

Contents

Summary 4

Introduction 6

Japan as a development resource for the Russian East 9

What is preventing Russia from using the "Japanese resource" 12

and what should be done

Option 1: Expanding relations without a resolution of the territorial problem 16

Option 2: A resolution according to the "Two Plus …" 20

principle and the American factor

Conclusion 23

About the Carnegie Endowment for International Peace 27

Summary

4

Russia and Japan are moving to a new stage in their development in the early 21st centu-

r y. Tokyo is striving for a new position in global politics that adequately reflects its economic

p o w e r. This push for a new position coincides with the rise of China, which is creating an

entirely new situation in East Asia. Now more than ever, Japan needs reliable partners in

Asia. Moscow for its part is under increasing pressure to address its main challenge of this

century: the future of the Russian Far East and Eastern Siberia. Russia is striving to pre-

serve its territorial integrity by initiating new development models. After a century of war

and confrontation, Russia and Japan have practically demilitarized their relations. A military

conflict between Russia and Japan is just as inconceivable as a conflict between Russia

and Germany or Japan and the United States, for example. Russia’s and Japan’s strategic

goals objectively force them to view each other not through the lens of traditional interna-

tional relations, but rather, first and foremost, as a mutual development resource.

To d ay, both countries have what the other needs, and this could be

exchanged. For Russia, Japan is an important factor in the development of

its eastern regions. For Japan, Russia is a significant factor in the deve l o p-

ment of a favorable international political and economic environment.

From this perspective, the time is ripe to resolve the territorial problem. Harboring this

longstanding dispute deprives both parties of the benefits that they could potentially

gain. The authors of the report believe a compromise solution is absolutely necessary

and propose what they call the "Two Plus…" option. The "two" refers to implementing

the 1956 Declaration and transferring the Khabomai and Shikotan Islands to Japan,

after which internationally recognized borders could be established. The "plus" reflects

the material, non-territorial gains Russia would offer Japan in a single

package along with a territorial settlement. These include:

• Russia’s consistent and active support for Japan’s efforts to become a permanent

member of the UN Security Council;

• Russia’s active involvement in the establishment of an East Asian hydrocarbon mar-

ket in integrating cooperation with Japan. An agreement of this kind should be comple-

5

mented by the appropriate adjustments to Russia’s energy development strategy;

• Involvement of Japanese companies in energy projects in Russia;

• Special terms for Japanese financial involvement in the economic development of the

Kuril Islands;

• Close cooperation with Japan to ensure a "soft landing" for the North Korean regime,

including Moscow’s support for Tokyo’s position on the Japanese nationals abducted by

North Korean intelligence agents. This cooperation should be expressed at the Six-Party

Talks on the North Korean nuclear program and via bilateral contact between Moscow

and Pyongyang;

• Moscow’s understanding for Japan’s policy of expanding the scope of application of

its Defense Forces and of making the relevant amendments to its Constitution.

To adopt the "Two Plus…" option, the two countries will need political will and a certain

amount of courage. Russia will have to concede territory, and its leaders will have to

explain this concession. Even greater courage is required of the Japanese leadership,

despite the fact that Japan would be acquiring territory that it could not obtain without

Russia’s consent. However, we believe that the strategic advantage the globally rising

Japan would receive from the "Russian resource" and the return of the two islands (in

the eyes of general public Japan would indeed be acquiring territories) objectively out-

weigh the inevitable dissatisfaction that will be felt by part of the Japanese establish-

ment that the disputed territories will not be handed over in full.

Russia, by taking additional, economically significant steps to meet Japan halfway via

the "Plus…" format, will acquire a powerful "Japanese resource" for the development of

Eastern Siberia and the Far East, if it does its homework by elaborating and imple-

menting a new model of development for these regions. This approach would therefore

help Russia solve its main geopolitical problem in the 21st century: balancing the devel-

opment of the western and eastern part of the country, thereby preserving the integri-

ty of the Russian state and ensuring that Russia prospers.

Introduction

6

New development directions are open to President Vladimir Putin and Prime Minister

Junichiro Koizumi as they embark on their second terms in office amid the globalization

of national economic and security interests. Tokyo is striving for a new position in global

politics that adequately reflects its economic power. This "global political rise" coincides

with the rise of another Asian giant, China, which is creating an entirely new situation in

East Asia. Now more than ever before, Japan needs reliable partners in Asia. Moscow

for its part is under growing pressure to address its main challenge of this century, the

future of the Russian Far East and Eastern Siberia, as it seeks to preserve its territorial

integrity and explore new development models. After a century of wars and confronta-

tion, Russia and Japan are no longer enemies. A military conflict between Russia and

Japan is just as unthinkable as a conflict between Russia and Germany, for example.

Moscow and Tokyo are cooperating in the fight against international terrorism and the

proliferation of weapons of mass destruction, and are both members of the G-8.

M o r e o v e r, the strategic challenges facing Russia and Japan have encouraged them to

objectively view each other not only as good neighbors or security partners, but also as

a potential mutual development resource.

Today, both countries have what the other needs, and this could be mutu-

ally exchanged, regardless of the outcome of dialogue regarding the

"Northern Territories." For Russia, this means seeing Japan as a resource

for developing Eastern Siberia and the Far East and thus addressing the

problem of maintaining Russia’s integrity and evenly distributed devel-

opment. Japan’s new circumstances are connected to its changing glob-

al political positioning and to a shift in the priorities of national securi-

ty strategy, including those related to energy. In this respect, Russia

could be an important resource for the stable development of Japan in

the 21st century.

Despite widespread concerns that Russian-Japanese relations will continue to be hob-

bled by the unresolved territorial issue, the people of both countries can rightly expect

significant steps forward from their governments, if not a breakthrough. The leaders of

7

both countries have the advantage of political stability at home and their remaining

terms in office to make such breakthrough decisions. There are also symbolic dates to

be commemorated this year, such as the 150th anniversary of the establishment of

diplomatic relations between Russia and Japan, and the 60th anniversary of the end of

World War II, among others.*

Any effective breakthrough, however, will require innovative conceptual approaches to

Russian-Japanese relations. National interests are not written in stone and do not exist out-

side the perception and articulation of these interests by officials whose function is to make

and implement political decisions – to develop them, prepare and push them through. The

very fact that a Russian-Japanese Council of Sages was established reflects an under-

standing between the two parties of the need to overcome the conceptual impasse over

the island dispute. The Council of Sages has managed to show that Russia and Japan have

many coinciding interests in politics, economics, security, culture and science, and that the

disputes should be left for future generations to resolve. It is important, however, to move

forward immediately in an attempt to understand the strategic significance that Russia and

Japan have for one another, to see each other as a potential resource for development.

Then the two countries must take full advantage of this potential.

This Carnegie Moscow Center project aims to provide a fresh under-

standing of the strategic significance that Russia and Japan have as a

* 7 February: 150th anniversary of the Treatise on Trade and Borders concluded in Simoda on

25 January (7 February) 1855.

7 May: 130th anniversary of the Treatise between Russia and Japan concluded in St. Petersburg on 25 April

(7 May) 1875, with an additional article signed in Tokyo on 23 August 1875.

8 June: 110th anniversary of the Agreement on Trade and Navigation between Russia and Japan signed in

St. Petersburg on 27 May (8 June) 1895.

5 September: 100th anniversary of the Portsmouth Peace Agreement signed between Russia and Japan

on 23 August (5 September) 1905.

20 January: 80th anniversary of the Convention on the Basic Principles of Cooperation between the

Soviet Union and Japan of 20 April 1925.

8 August: 60th anniversary of the Declaration of the Soviet government to the government of Japan

of 20 August 1945.

2 September: 60th anniversary of the signing of the Act of Unconditional Surrender of Japan of

2 September 1945.

8

mutual development resource and to propose options on that basis for

resolving the territorial dispute.

The project’s methodology involves examining Russia’s view of Japan as a resource for

the development of the Far East and Eastern Siberia, and the huge challenge of main-

taining the territorial integrity of Russia and even, or at least "acceptably uneven", eco-

nomic development in European and Asian Russia. For its part, Russia is also a power-

ful political and economic resource that could help meet Japan’s strategic objective of

acquiring a new status on the evolving international stage. In that respect, Russia and

Japan have a vital interest in mitigating the loss of historical time that they needlessly

incur due to the unresolved territorial dispute that the current generation of statesmen

inherited as a legacy of the World War II era.

This paper is the result of the discussions of a working group of experts from Moscow,

Khabarovsk (Pavel Minakir, Corresponding Member of the Russian Academy of

Sciences) and Vladivostok (Victor Larin, Doctor of History). The members of the work-

ing group would like to express their gratitude to the director of the Carnegie Moscow

Center, Andrew Kuchins, for the attention he gave to this issue and for paving the way

to a successful project. The authors, Dmitri Trenin and Vasily Mikheev, take full respon-

sibility for the content of this paper and its specific proposals.

Japan as a development resource for the Russian East

9

Japan became the first major trading partner of the Russian Far East after World War II.

Economic cooperation with Japan in the 1960s and 1970s contributed greatly to the

large-scale development of the timber, fishing, coal-mining and shipping industries in the

Far East, and it spurred the exploration and assessment of oil and gas resources. During

this period, economic cooperation with Japan was based on intergovernmental agree-

ments that were industrial as well as macro-structural in nature and involved production,

consumer markets, manufacturing infrastructure, technology and labor management.

In the late 1980s, after the first documents regulating foreign investment appeared in

the Soviet Union in 1987, Japan’s role in the economic development of the Far East

grew even more rapidly. In parallel with intergovernmental agreements, small and medi-

um-sized Japanese business projects in timber, fishing and the hotel industry began to

multiply throughout the Far East in the form of joint ventures. This gave a brief but tan-

gible structural boost to the region’s economic development. The contribution of Japanese

capital was particularly notable in the development of the timber processing, fish farm-

ing, building and reconstruction of small hotels and restaurants, as well as the estab-

lishment of modern communications.

The largest and most significant joint project with Japan for the Far East’s economy and

foreign trade is the exploration of oil and gas resources on the Sakhalin shelf, which has

had a broad impact on investment, infrastructure, technology and the social situation in

the region. Thanks to contracts reached in the course of the project, the financial posi-

tion of the shipbuilding, metalworking, construction, engineering and transportation

sectors in the Khabarovsky and Primorsky territories and Sakhalin region has improved

greatly. The Sakhalin region regularly receives additional revenues in the form of royal-

ties and has the opportunity to significantly enhance and upgrade local infrastructure by

building gas and oil pipelines, modernizing ports and developing environmental moni-

toring.

Today the Sakhalin projects are about the only prominent examples of Japanese involve-

ment in the development of the Russian Far East. The Russian-Japanese joint ventures

10

that appeared in the late 1980s and early 1990s have virtually ceased to exist, and

although Japan remains the leading foreign investor in the Far East, the scale of invest-

ment is extremely small. The major intergovernmental compensation agreements that

were typical of the 1960s and 1970s are no longer possible under today’s conditions.

Japan’s share in the overall foreign trade of the Far East has gradually fallen, from 35

percent at the beginning of the 1990s to 20 percent today. The past decade has essen-

tially been a time of a prolonged decline in Russian-Japanese economic relations in the

Far East.

Nevertheless, the hopes that Japan will invest have not faded. Illusions have persisted,

and neither the repeated failure of negotiations over the future status of the Kuril

Islands, nor the experience of the past decades can dispel them. Those that live in the

Far East remain convinced that Japan has an interest in the region’s resources and in

investing in the Russian economy.

In that context, the Far East expects much from the planned construction of the

Taishet-Nakhodka trunk oil pipeline as a means for stimulating the

entire regional economy. First, the construction of the pipeline along this route

would create an additional infrastructural corridor in the southern part of the Far East,

which would be an axis for exploration and development. Second, pipeline construc-

tion would create significant growth in demand on the regional market for metalwork,

construction materials, and transportation and construction services. Third, revenues

would increase to the corporate sector, households, and regional and municipal budg-

ets. Fourth, shipping would increase significantly, and seaports would need to be mod-

ernized and new terminals built, with positive consequences for the labor market and

the region’s foreign trade.

A potential channel for Japanese involvement in the economy of the Russian Far East

would be the broader participation of Japan in the development of Russian

energy resources — oil, gas, coal and electricity — including the Elginsk coal-

field in Yakutia. In the long term, it may be possible to return to some kind of a new ver-

sion of the large-scale concessionary agreements in fuel and energy.

The withdrawal of Japanese capital from the timber industry of the Far East and the halt

of Japanese investment in the timber cutting industry caused the timber business in the

Far East to shift its focus to the Chinese market. Yet both the timber business and Japan

are losing out. The Far East is losing revenues as timber is cut and exported illegally and

11

production and export facilities deteriorate, and Japan is losing out, as it cannot com-

pete with the inexpensive wood products manufactured in China from Russian timber.

Therefore, one niche for Japan in the Far East is the return of Japanese invest-

ment in the region’s timber industry and the development of mobile facil-

ities to process lumber earmarked for export to Japan as well as China. This would

benefit the economy of both Russia and Japan and would enhance their competitive

standing vis-a-vis China.

Another potential niche for Japan is to set up modern plants in the Khabarovsk

and Primorsky territories to produce relatively complex home appliances

and electronic equipment — televisions, audio and video equipment,

microwave ovens, washing machines and refrigerators — that would be

competitive on the Russian market. In principle, this could be an opportunity for

Japanese industry leaders to use their technological and design abilities. Any kind of

cooperation with leading Japanese producers would significantly improve the competi-

tive position of the Far East’s enterprises and enable them to promote their products on

the Russian national market.

The subjective mutual perceptions of Russians and Japanese also have great

significance for the prospects of Russian-Japanese cooperation in the Far East. Russians

feel very positively about expanding relations with Japan. Japan remains the most "like-

able" country for a significant part of the population in the Far East. Around 45 percent of

the region’s inhabitants have the strongest positive feelings toward Japan (followed by

South Korea with 12 percent, China with 9 percent and North Korea with 3 percent). No

other country in the world can rival Japan’s popularity in the region. (The attitude to the

US of Russians living in the Far East as well as Russians at large is highly politicized and

affected by various international crises and the way these crises are presented in the

media.) Among the reasons for Japan’s popularity are its economic achievements (53

percent of those polled) and its fascinating and unique culture (42 percent). A significant

number of people in the region think relations between Russia and Japan are in good

shape: 29 percent called them "good" and "very good" and 52 percent "satisfactory." They

were even more optimistic about their prospects: respectively 44 and 37 percent.

Meanwhile, the number of pessimists who predicted a turn for the worse in Russian-

Japanese relations in the near future declined by four times over the past 10 years (from

22 to 5 percent). People understand that their future and the future of Asian Russia to a

great extent depends on the nature of Russia’s relations with Japan.

What is preventing Russia from using the "Japanese resource" and what should be done

12

In Japan, the outlook on cooperation with Russia in the past decade has changed from

hope for great success to pessimism. The extremely large amount of Japanese business

activity in the region that appeared in the early 1990s quickly disappeared. At that time, hun-

dreds of Japanese companies and officials descended onto the Far East to explore the ter-

r i t o r y ’s investment potential, and Japanese businessmen, especially from Japan’s western

coast, risked investing their capital in the Russian economy. Only a few investors who

came to the Far East in the early 1990s were able to adapt to the reality on the ground. The

Japanese are drawn to convenient business conditions and are extremely sensitive to the

lack of conditions for normal business operations such as the rule of law, political and legal

s t a b i l i t y, and responsible and reliable partners. In the eyes of the Japanese, Russia not only

inherited the vices of the Soviet state — aggressiveness, expansionism and nationalism —

but acquired new ones: the criminalization of society, corruption and lawlessness.

The idea of using Japanese technology to convert the Far East’s military industrial com-

plex proved unviable. The technology gap with Japan proved too wide. The way the

directors of former state enterprises, local officials and the newly wealthy tried to work

with the cautious Japanese was far from market-oriented. Expensive Japanese goods,

despite their high quality, could not compete due to the poverty of the local population

and the presence of cheap Chinese goods often bearing phony brand names.

The first post-Soviet years show that cooperation with Japan is possible even with an

unresolved territorial problem. Many factors, however, are thwarting continued cooper-

ation. Some affect all of Russia, such as corruption, the bureaucracy’s overwhelming

role in the Russian economy, the infrastructural and demographic problems of Asian

Russia, the unfavorable business climate, organized crime’s extensive involvement in

the Far East’s economy, and other Russian misfortunes. Whether these problems can

be overcome will depend on the normalization of the situation in Russia as a whole and

not on any steps made exclusively toward Japan.

Other obstacles are conceptual in nature. Russia lacks a "Grand Asian Strategy," which

would take into account the geographic and economic specificities of the huge but

13

sparsely populated territory of Asian Russia. In terms of foreign policy, it would stipu-

late clearly defined priorities for multilateral cooperation between Russia and East Asia

and bilateral relations with Russia’s Asian neighbors.

In the past year or two, Moscow has signaled that it is taking a more active approach

to East Asia. A Russian-Japanese Plan of Action was signed in 2003. Russia finally

resolved its territorial disputes with China in 2004 and simultaneously established an

institutional basis for improving relations. Russia is taking an interest in the Six-Party

Talks regarding North Korea and is actively involved in the ASEAN Regional Forum for

security dialogue and the Asia-Pacific Economic Cooperation Forum. Of course, simply

paying more attention to East Asia is not enough. Nevertheless, it means we can put

the following old conceptual question to Russia’s leaders: What should the strate-

gy for development of the Russian Far East be, given its existing natural

economic factors? These include a sparse population and consequently

low demand and meager savings and investment opportunities on one

hand, and a vast undeveloped territory with scattered natural resources

requiring long-term, major expenditures of capital on the other.

The theoretical answer to this dilemma is clear: the region needs external sources of

investment and external sales outlets, both abroad and in European Russia, as well as

the parallel development of region’s manufacturing to meet the local demand of the

millions living in Eastern Siberia and the Far East, a population that, although not huge,

is still significant on a Russian scale.

In strategic terms, the idea for the Russian Far East to join with the emerging economic,

financial and technological integrated space of Northeast Asia, with the participation of

Japan, China and South Korea, is useful and feasible. In practice, however, establishing a

mechanism for trilateral integration in Northeast Asia will require time, and bilateral

relations between the Far East and Eastern Siberia and each of the three partners will be

the main form of involving Russia in regional integration processes.

Meanwhile, it is important to take trends in Japanese business interests into account.

Japan has an objective economic interest in four areas of cooperation with the Russian

Far East: energy resources, timber, seafood and technology. Japan also has the great-

est financial potential of all the countries of Northeast Asia to invest in the development

and exploration of oil and gas deposits in the region. Japan has an interest in seeing the

flow of timber, which first goes to China for processing and then ends up in Japan,

14

diverted along different lines, by which wood processing would take place in Russia.

Japan is also interested in reducing criminal involvement in fishing and in promoting a

better organized and more ecologically sound development of Russia’s marine

resources. In the past year, Japanese corporations have shown some interest in tech-

nological cooperation with Far Eastern producers of home appliances who have already

established their brands in the region.

In these areas, Japanese business interests and local regional interests in the Far East

and Eastern Siberia correspond.

Japanese business has a tradition of thinking along the lines of cooperation and inte -

gration, not purely mercantile thinking. In other words, it sees the synergistic effect of

integration and close cooperation with foreign partners. It also has a tradition and a

wealth of experience in transferring production facilities to other, less developed coun-

tries. These facilities do not compete with Japanese corporations, although they can be

considered as competitors to South Korean and especially Chinese companies that use

similar methods for obtaining foreign capital and technology. This hypothetically expands

the scope of cooperation with Japan in establishing modern production facilities in

Russia.

Furthermore, Japanese business is waiting for a signal to begin more active operations

in the Russian Far East, a signal that must come not only from Tokyo, but also from

Russia itself. This signal can be loosely described as the widely discussed idea of

"establishing of a stable, more amenable business climate for foreign and Russian busi-

ness in Russia’s Far East."

On a practical level, an adjusted economic development strategy for Eastern Siberia and

the Far East of Russia, clearly transmitted to the Japanese leaders and through them to

Japanese businesses, could function as this signal. Along with improving the domestic

economic legislation and de-bureaucratizing Russian business as a whole, its main com-

ponents would include:

• Stating Russia’s readiness to use its Eastern Siberian and Far Eastern

resources to help establish an East Asian hydrocarbon market, as well as

regional oil reserve fund within Northeast Asia;

• Changing the working principles of the Federal Program for the

Development of Eastern Siberia and the Far East, and switching from

15

financing individual projects to specifying industry priorities, taking into

account their appeal to Japanese and other foreign investors;

• Expanding the development of Eastern Siberia and Russia’s Far East as

a "transit territory" to incorporate another strategy, namely the estab-

lishment of production bases geared toward internal demand and export

of local products. These production bases are to be set up along the main

transport corridors going in the direction of Nakhodka and the ports of

Vostochnyi and Blagoveshchensk. This would also allow a portion of the

value added in the Far Eastern "transit zone" to be redistributed accord-

ing to regional interests;

• Strengthening bilateral cooperation, including with Japan, and multi-

lateral cooperation with Northeast Asian countries to end organized

crime’s involvement in industries such as timber processing and fishing.

Moreover, the importance of an "Eastern focus" in developing Russia’s

energy sector, in addition to the "Western" one, should be recognized

and clearly stated in Russia’s economic strategy, taking into account the

growing demand from the economies of Northeast Asia, whose com-

bined GDP already now makes up around 75 percent of the GDP of the

European Union.

We understand that the unresolved territorial problem is not the only or even the main

obstacle preventing the "Japanese resource" from coming into play in the development

of the Far East and Siberia. Nevertheless, this is no reason to ignore the problem or pre-

tend it will go away on its own. Either we get ready to expand relations while the bor-

der issue remains unresolved — figuratively speaking, driving ahead while stepping on

the brakes — or we can search for mutually acceptable options for a solution.

Option 1: Expanding relations without a resolution of the territorial problem

16

In late 2004, Moscow made a compromise proposal to resolve the territorial dispute with

Japan as part of the 1956 Declaration, ratified by the parliaments of both countries, which

stipulated the transfer of two of the four islands claimed by Japan. Tokyo turned the pro-

posal down and continued to insist on the return of all four islands. Meanwhile, there is a

predominant belief in both countries that the territorial issue will not be resolved either at

the upcoming Russian-Japanese summits or in the medium term before the end of the sec-

ond terms in office of the Russian President and Japanese Prime Minister. In this context,

the desire to improve mutual relations - which is shared by officials, business people and

the intellectual and regional elite of Russia and Japan - raise an old question: How far can

Russian-Japanese cooperation evolve when the territorial dispute remains unresolved?

During Vladimir Putin’s and Junichiro Koizumi’s terms in office, the two countries have

managed to formulate the conceptual basis to answer that question: the parallel devel-

opment of dialogues regarding security, political and economic issues, and regarding the

territorial problem. In fact, however, the unresolved territorial problem and the lack of a

peace agreement hampers genuine Russian-Japanese cooperation, preventing both

parties from using the potential for cooperation to serve their national interests and the

interests of regional and global markets and regional and global stability.

The paradoxical nature of Russian-Japanese relations as determined by the territorial

factor is as follows.

In the area of military security, Russia does not see Japan as a direct military threat and

believes that the Japanese Defense Forces could constitute such a threat only in the

event of a highly unlikely military conflict between Russia and the United States. Japan

has also ceased to think of Russia as a military threat, viewing North Korea and China’s

military buildup as greater dangers.

In the area of global security and politics, the positions of Russia and Japan on issues such as

terrorism, proliferation of weapons of mass destruction and environmental security are either

identical or very close. Their approaches to regional conflicts in North Korea, the Middle East

17

and Afghanistan are fundamentally similar, which makes Russia and Japan partners and lays

the groundwork for political cooperation aiming to strengthen regional stability.

In the economy, the complementary nature of Russia and Japan’s economic structures

establishes a fundamental basis for co-development through integration.

In the area of culture and interpersonal relations between Russians and Japanese, most

people bear no historical enmity and relate to each other with interest and fondness.

Nevertheless, Moscow and Tokyo remain — rightly in our view — dissatisfied with the

state of bilateral relations. The principle of parallelism essentially does not work and

continues to be hobbled by the problem of the "Northern Territories."

We believe that substantially new circumstances have arisen in conjunction with

changes in the world and the Asia-Pacific region that would enable Russia and Japan to

resolve the issue of how to restore Russian-Japanese relations despite unresolved ter-

ritorial problems from a different vantage point.

1. Japan is stepping up efforts to redress the imbalance between its economic power

and its relatively minor global political role. Tokyo, on one hand, is participating more

actively in international peacekeeping operations, arrangements to control the prolifera-

tion of weapons of mass destruction and settlement of regional conflicts than in the

past. On the other hand, it is trying to raise its status in the United Nations and become

a permanent member of the Security Council. Russia’s support would be of great sig-

nificance to Japan in that respect.

2. Tokyo is making changes to its military doctrine and foresees a wider use of its

Defense Forces abroad. A signal from Russia that it does not intend to oppose

Japanese plans for a military buildup would be a positive factor for Tokyo.

3. The global political ascendancy of Japan is taking place under new international cir-

cumstances in which the U.S. security strategy is now focusing on the war against glob-

al terrorism, which makes Russia and Japan allies of the United States and other major

countries in this campaign.

4. The instability of the world oil market resulting largely from political instability in the

Middle East is causing Japan to revise its national energy security strategy. A key fac-

18

tor here is Tokyo’s desire to establish a regional East Asian hydrocarbon market, in

which Japan would play a leading role. China in 2004 developed similar plans, but for its

own benefit. Meanwhile, without Russian hydrocarbon resources from Sakhalin, the

Irkutsk region and Yakutia, the implementation of these plans will be impossible for both

Japan and China. The resources in Eastern Siberia and Far East could become a strate-

gic reserve that Tokyo could draw on to resolve its long-term goal of guaranteeing

national energy security.

The growing economic competition and political rivalry between Japan and China objec-

tively confronts Russia and Japan with new challenges within the tentative political tri-

angle of Moscow-Tokyo-Beijing, which has the potential to promote cooperation or to

spark rivalry. It is in Russia’s interest in that connection to strengthen cooperation and

reduce the likelihood of conflict.

5. Russian analysts have registered the continued interest of regional Japanese political

and business elite (of the Sea of Japan basin) in cooperation with Russia. This interest,

however, has yet to be clearly stated: The Japanese regions are expecting not only a

political signal from Tokyo, but also guidelines to ensure that regional cooperation with

the Russian Far East can be used in their own local interest.

The "parallel" diplomacy and mutual exchange of strategic capabilities between

Moscow and Japan also gives a different perspective to the problem of a Russian-

Japanese peace agreement. The 1956 Declaration legally and de facto puts an end

to World War II and establishes full-scale diplomatic relations between Moscow and

Tokyo. To strengthen the legal basis for relations, it is more rational to talk in the

existing conditions about an agreement of a different order, not traditional peace

agreement; for example, a cooperation agreement in the context of globalization

and non-traditional security threats. The essence of this proposal is not to claim that

the territorial question has become less pressing. We are focusing on how in

t o d a y ’s changing world, both Russia and Japan must face these challenges and

threats, regardless of what stage the dialogue regarding the "Northern Territories" is

at. We are also attempting to show how far Russian-Japanese relations might

develop following the principle of parallelism, given the unresolved nature of the

territorial dispute.

This will only be possible, of course, provided that we shift our thinking in the right

direction, give an up-to-date interpretation of Russian and Japanese national interests

19

and resolutely try to satisfy these interests. Russian and Japanese leaders need to

recognize that not having any form of a solution to the territorial problem could harm

both countries, at the very least in the form of failed opportunities and untapped

p o t e n t i a l .

Option 2: A resolution according to the "Two Plus …" principle and the American factor

20

We believe that despite the significant difficulties and seeming inevitability of pursuing

parallelism, Russia and Japan have a historic opportunity to make a breakthrough in rela-

tions already in 2005. The issue can indeed be resolved and will demand political will

and strategic vision from the leadership of both countries. Appealing precisely to their

will and vision, we propose a second option for resolving the territorial problem using a

"Two Plus …" approach, taking into consideration the strategic interests that Russia and

Japan have in common as a mutual development resource. The "two" reflects the idea

proposed by Moscow of settling the territorial dispute via the 1956 Declaration and

transferring the Khabomai and Shikotan Islands to Japan, after which internationally rec-

ognized borders between the two countries could be established. The "plus" reflects the

non-territorial benefits that Russia should propose to Japan in exchange

for adopting the compromise option. They include:

• Russia’s consistent support – but namely as part of a "package decision" – for Japan’s

attempts to gain a position among the permanent members of the UN Security Council.

Tokyo needs this support given Beijing’s stance on the issue, as well as the opposition

of some political circles in the United States.

• Russia’s consent to actively integrate and cooperate with Japan to establish an East

Asian hydrocarbon market. This consent should be complemented by the appropriate

changes to Russia’s energy development strategy;

• Assistance in providing for a "soft landing" for the North Korean regime, including,

among other things, a drift in Russia’s position toward active support of Japan vis-a-vis

the Japanese abducted by North Korean intelligence agents at the Six-Party Talks on the

North Korean nuclear program and via bilateral contacts between Moscow and

Pyongyang;

• On condition of Tokyo’s agreement to the compromise option of settling the territori-

al dispute, support of Japan’s movement toward expanding the scope of application of

its Defense Forces and introducing the respective amendments to its Constitution.

21

M o r e o v e r, Russia, "from its side", could assist in ensuring that Japan and China, which are

both moving toward global prominence in parallel, encourage elements of cooperation

rather than competition in their relations. It could do so by renouncing the game of play-

ing Tokyo off Beijing and by involving both Japan and China in the development of oil and

gas resources in Eastern Siberia and the Far East and in establishing a hydrocarbon mar-

ket in East Asia.

Finally, to save political face for those political forces in Japan that consider the resolu-

tion of the territorial dispute on the basis of the 1956 Declaration not as a compromise,

but as an unresolved dispute, Russia and Japan could reach yet another compromise.

Namely, they could agree, after the return of the two islands and the signing of an

agreement on the territorial dispute settlement, to postpone discussion on the two

other islands for 50 years, meanwhile granting Japanese businesses the right of joint

access with Russia to the resources of the Kuril Islands.

Adopting the "Two Plus…" option will require political will and a measure of courage from

both countries. Russia, in the eyes of the Russian public, is giving up territory. However,

considering that Moscow is prepared in principle to adopt this approach, great courage

and perhaps even daring is demanded of the Japanese leadership. The strategic advan-

tages that the "globally ascendant" Japan could receive from the "Russian resource,"

along with the return of the two islands (in the eyes of the general public Japan g a i n s t e r-

ritories), will, in our view, still objectively outweigh the inevitable disappointment of part

of the Japanese establishment that the entire disputed territory will not be handed over

to Japan. Moreover, as decades of post-war history have shown, this will not be achieved

either by political pressure or historical or international legal claims. The alternative to a

partial solution has long been the absence of any resolution at all.

Russia, by taking additional and economically significant steps to meet Japan halfway in

the "Plus…" format, could acquire a powerful "Japanese resource" for the development

of Eastern Siberia and the Far East, if it does its "homework" and proposes a new devel-

opment model for the eastern regions. Consequently, this would contribute significant-

ly to resolving Russia’s main geopolitical problem in the 21st century: balancing the

development of the western and eastern part of the country and thereby preserving the

integrity of the Russian state.

There is yet another important, American, dimension to Russian-Japanese relations. For

60 years after the end of World War II, U.S. policies have played a significant role in the

22

history of relations between Moscow and Tokyo. There is a widespread belief among

Russian experts that the United States are the main opponent to improved Russian-

Japanese relations during the Cold War. We do not aim to analyze this belief, but we

would like, however, to emphasize that after the end of the Cold War, especially in the

past several years, the situation has changed fundamentally in the context of the fight

against terrorism and proliferation of weapons of mass destruction. Today, there is an

urgent need and the most favorable of all the post-war years conditions to set up

Northeast Asian security arrangements involving Russia, Japan, the United States,

China and South Korea.

The essence of the new political situation is that systemic confrontation has disap-

peared in relations between Russia on one hand, and Japan and the United States on

the other. After 2001, Russia and Japan became involved in the international anti-ter-

rorist coalition led by the United States and endorsed the Proliferation Security Initiative

(PSI) advanced by Washington. The countries in the Russia-Japan-United States triangle

do not see each other as a military threat. Of course, there are still considerable barri-

ers hindering the actual establishment and development of Russian-Japanese-American

global and East Asian regional partnership, including the territorial problem between

Russia and Japan. What is important, however, is that, based objectively on these new

security interests and meeting the goals related to these interests, Washington stands

to benefit from the complete normalization of Russian-Japanese relations. Therefore, it

would also benefit from a resolution to the territorial dispute.

Meanwhile, the involvement of the United States in improving relations between Russia

and Japan over the territorial issue would not only strengthen the anti-terrorist coalition,

but would also enhance Washington’s international position. In that sense, the part of

the Russian and Japanese public ready to support a compromise on the islands rightly

expects a new and more active approach on behalf of the United States toward the ter-

ritorial problems of Russia and Japan. In particular, they rightfully expect the Bush

administration to give practical assistance in settling Russian-Japanese disagreements

and to express its clear or at least implicit support for the "Two Plus…" option.

23

Conclusion

Thus, Russia and Japan have several possible strategies for addressing the issue of the

"Northern Te r r i t o r i e s . "

The first is the all-or-nothing option: This means that despite the agreements reached

between Vladimir Putin and Junichiro Koizumi on the "parallel" development of eco-

nomic and political dialogue and discussion of the territorial problem, the territorial

issue is still seen as the main obstacle to improving Russian-Japanese relations, and

the transfer of all four islands is still seen as a prerequisite for further cooperation. In

this case, the two countries will have missed an opportunity with respect to bilateral

economic and humanitarian contacts, bilateral and regional cooperation and also multi-

lateral global and regional forums on security issues and cooperation involving Russia

and Japan.

The second option is parallelism: to pursue the "parallel" development of multilateral

cooperation and the continuation of an essentially endless territorial dispute and seek

ways of strengthening relations while the territorial problem remains unresolved. This

option provides a greater opportunity for mutual benefit. In practice, however, it also

entails Russia and Japan’s continued stumbling over the post-war territorial dispute

while trying to resolve future strategic goals. As a result, Russia and Japan would be

missing a historic opportunity to use each other as a strategic development resource.

The third option is to resolve the territorial dispute using the "Two Plus…" formula.

Once again, this would entail a) the return of the two islands to Japan according to

the 1956 Declaration; b) the conclusion of an agreement establishing internationally

recognized borders between Russia and Japan; c) the provision of non-territorial ben-

efits to each other; and d) a freeze for 50 years on official discussions regarding the

two remaining islands, while allowing for their joint economic use. In this case, the

parties would gain the historic opportunity to use each other as a development

resource, a resource for meeting Russia and Japan’s goals, such as responding to

R u s s i a ’s major geopolitical challenges in the new century and the "global ascendancy"

of Japan.

24

This year, 2005, is a year of many important anniversaries in Russian-Japanese rela-

tions. It is a year when the leaders of the two countries still enjoy widespread support

from the population despite a decline in public confidence in their governments. It is

the most opportune time to make a breakthrough.

The U.S. President could also play a positive role in implementing this option. The

United States could thereby play and affirm its role in the functioning and development

of the international relations system. By encouraging the rapprochement of Russia and

Japan (and the development of the Russian Far East and Siberia), the United States

would also be serving its own national interests. Like Moscow and Tokyo, Wa s h i n g t o n

may reach the conclusion that the form and content of national interests are funda-

mentally changing, given the globalization of the world economy and threats to secu-

r i t y, and the reality of the international fight against terrorism and the proliferation of

weapons of mass destruction.

We understand that the "Two Plus…" option would be the most difficult to achieve and

would require political courage, strategic wisdom and tactical daring from government

leaders. But there is still a chance it may work.

The decision now lies with Russia’s President and Japan’s Prime Minister.

25

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