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Mar. 10, 2015 - Updated 04:16 UTC

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Economic Cooperation on Islands

Dec. 16, 2016

Japanese Prime Minister Shinzo Abe and Russian President Vladimir Putin have wrapped up their 2-day summit. On Friday, they met in Tokyo for their second round of talks. Abe says they've agreed to start talks regarding joint economic activities on 4 Russian-controlled islands claimed by Japan.

Putin left for Tokyo this morning from a hot-spring resort in western Japan, where the leaders held first round of talks Thursday night.

On Friday afternoon, they met for the second round at the Prime Minister's office in Tokyo. Following that meeting, they announced the results of the summit.

"There is no peace treaty concluded between Japan and Russia, even 71 years after the end of World War 2," Abe said. "We have to put an end to this abnormal situation in our generation. Vladimir and I have confirmed strong determination to do that, and expressed our commitment in a statement. We have agreed to begin talks on this special system for joint economic activities on the 4 islands based on a new approach. This is an important step towards signing a peace treaty."

"Prime Minister Abe has proposed setting up a special mechanism for joint economic activities on the islands," Putin said. "It is important to use the mechanism as the basis to move closer to a final resolution of the peace treaty problem. If someone says Russia is prioritizing economic relations and putting the conclusion of a peace treaty on the backburner, that isn't true. For me, signing a peace treaty is most important."

The leaders say the economic activity could involve industries like fishing, tourism and health care.

Japan refers to the islands as the Northern Territories. It maintains they are an inherent part of its territory, and were illegally occupied after the war. Moscow says they became part of Russian territory as a result of the war.

Abe also said the 2 agreed on humanitarian grounds to consider allowing elderly former Japanese residents easier access to the islands. The residents want to visit their ancestors' graves.

Before leaving Japan, Putin visited a judo center in Tokyo, where he observed a martial arts demonstration. Putin is a judo enthusiast.


Reactions from Foreign Residents

NHK World's Jun Takahashi speaks with anchors Sho Beppu and Aki Shibuya from a location very near the islands in the city of Nemuro, Hokkaido.

Beppu: Jun, how are former residents of the islands reacting to the summit?

Takahashi: Some welcome the agreement on joint economic activity as well as the talks on unrestricted travel to their hometowns.

"I think one step made through the summit is that Japan and Russia will work to ease restrictions on travel to and from the Northern Territories. I'm somewhat disappointed with the summit, but I think there was some progress."
Koichi Iwata, former Etorofu Island resident

Many residents say it would be perfect if all 4 islands are returned. But at the same time, they feel that would be difficult. Unrestricted access to the islands is something they have long wanted. They recognize that as a benefit now, even if negotiations on returning the islands come later. Visits to the 4 islands have been arranged. But they require complicated procedures, so access is hardly easy.

Many former residents want the 2 governments to push forward on improving access next year. And they hope that will lead to the islands being returned someday.

Shibuya: Did people lose all hope for a solution?

Takahashi: People are disappointed by the lack of progress in the negotiations on getting the islands returned. But some see a glimmer of hope. That is the framework linking joint economic activity and the peace treaty that could lead to the return of the islands.

Former residents want the government to continue talks, both to get the islands returned, and for the sake of Japan's sovereignty. They are growing older, so there's not much time left if the governments to resolve the issue.


Reactions from Russian Residents

People on Shikotan Island gave mixed reactions to the announcement of joint economic activities on the Northern Territories.

NHK interviewed Russian residents of the island by phone. A 44-year-old man said infrastructure, such as paved roads and telecommunication systems, are lacking, so he has hopes for Japan's cooperation.

Another had a negative view on whether the joint economic activity would lead to a peace treaty. A 55-year-old man said that economic activities and a peace treaty are totally different things. He said Russians have lived on the island for more than 70 years, even without the peace treaty. He said he welcomes economic cooperation, but doesn't believe a peace treaty is necessary.


Taisuke Abiru. a specialist in Russian affairs with the Tokyo Foundation, joins anchors Sho Beppu and Aki Shibuya in the studio.

Beppu: How much progress do you think we can say the two leaders made on the issue of the Northern Territories?

Abiru: I think we should not forget that Japan had anticipated little progress on the territorial issue, judging from past responses of Russia on the issue. Remember that Abe and Putin met in Lima, Peru in November on the sideline of an APEC conference. After the talks, the Japanese delegates figured that Russia remains firm on its traditional stance on its sovereignty over the Northern Territories.

In other words, Japan's negotiators knew that a breakthrough on the territorial issue would not be possible at this time. Having said that, I do think the talks were successful in setting a confidence building process in motion, with an eye on possible full-fledged negotiations on the Northern Territories, and an ultimate goal of a peace treaty.

Beppu: So what next? Do you think we should be ready for a long process then?

Abiru: Yes. The talks were successful in sounding out how much the 2 countries are willing to give to reach an agreement. I would say the talks were a good starting point for the long-term goal of a peace treaty between Japan and Russia.

Beppu: Under the agreement reached this time, Japan and Russia are to make a pledge regarding economic cooperation on the 4 islands under a special system. But is that so easy?

Abiru: It's not easy, but I do see some hope. For example, at the joint press conference, both leaders were showing a positive stance. The 2 sides are now finally on the starting line, and I think even though it will take a lot of efforts to make it into reality, there is hope. But if both countries keep insisting on their stances, they cannot start economic cooperation on the islands.

This summit has moved both nations to agree to make a pledge, in the form of a treaty, for instance, that will allow them to eventually reach a final agreement.

Beppu: Meanwhile we shouldn't forget that former residents of the islands are getting older and for them not much time is left.

Abiru: I agree. As former Japanese islanders age, their desire to visit the islands more frequently is only growing stronger. These wishes have been communicated to Prime Minister Abe. So let's hope their wishes will come true.


Japan-Russia Business Forum

Another focus of Putin's visit is the strengthening of business ties between the 2 countries. More than 200 company executives joined Putin in Tokyo to take part in a forum hosted by Japanese business leaders.

Much of the talk centered on a wish list of more than 60 joint projects, all of them private-sector ventures. Different industry groups discussed how to put the plans into action.

The projects range from industry promotion and energy development to agriculture. A Japanese machinery exporter says the meeting had boosted prospects for trade with Russia.

"The meeting has raised my expectations for business in Russia. Visas and customs procedures are problems. But I hope improving relations will lower these barriers and promote more exchanges," he said.

Abe and Putin joined the deal-making.

"The fact that the two sides agreed on 60 plus projects shows the strength of the cooperation plan and the big potential for Japan-Russia cooperation," Abe said.

The 2 sides exchanged memoranda of understanding. They agreed on business cooperation based on an 8-point plan that was proposed by Prime Minister Abe earlier this year.

Energy gets high play -- the 2 sides aim to cooperate in exploring oil and gas fields in Russia and in promoting peaceful use of nuclear power.

Financing is covered as well. The Russian Direct Investment Fund (RDIF) is a sovereign wealth fund that invests abroad, but also works to attract foreign investment into Russia.

The Russian wealth fund has signed an agreement with Japan Bank for International Cooperation. The RDIF says each side will invest 500 million dollars to set up a joint investment fund.


Kirill Dmitriev, head of the RDIF, speaks with business anchor Yuko Fukushima.

Fukushima: Where does this joint fund stand in terms of economic cooperation between the 2 countries?

Dmitriev: Well, we believe this fund will be the centerpiece of the economic relationship between Japan and Russia. And we believe that joint investment is very important for joint economic cooperation. We want to have about 20 top projects between Russia and Japan, bringing Japanese technology into Russia, maybe financing some projects even in Japan as well, but really being at the center point of economic and investment cooperation between our countries.

Fukushima: Now, RDIF has a lot of co-investment with global, global community like China, Saudi Arabia, and other countries. And compared to for example China, Japan’s investment is so small, what do you expect from Japan?

Dmitriev: Well, we have a Russia-China fund, for example. It’s already invested in about 15 different projects, and is working quite energetically. But we also believe the Japanese businesses are really important for Russia, for developing the Far East, you have absolutely unique technologies for example in agriculture, also in marine biology.

Fukushima: So, will the amount of investment from Japan impact the resolution of the territorial issue or the conclusion of the peace treaty?

Dmitriev: Well, we believe that those two issues are separate and I’m not a politician, and President Putin has been very clear that, you know, the islands cannot be bought, and Russia cannot be bought. So thankfully we’ve view them as completely separate. And we hope for political resolution but we believe that whenever there are good economic ties, whenever there is good cooperation, it’s just easier to have dialogue.


Economists say Russia has been hit hard by Western sanctions over Ukraine. The OECD expects the second consecutive of negative growth this year. Even so, Dmitriev says growth prospects are improving.


Fukushima: Now about Ukraine-related sanctions, has it impacted investment to Russia?

Dmitriev: Well I think it had some impact but frankly a bigger impact has been oil price reduction, and now we really has a historic agreement with OPEC which increased oil prices quite significantly and really stabilized the market. So Russian economy’s expected to resume growth next year, and grow at about 0.8 percent next year. Of course, we’d like to have higher rate of growth but this is good. So sanctions did have some impact, but we found some replacement for Western capital from Middle East, from Asia.


Higher oil prices aren't the only reason for Dmitriev's optimism. He says the global tide is changing in Russia's favor.


Dmitriev: We believe that, for example, President-elect Trump would have a positive attitude to Russia, not because he has some specific, you know, appreciation of Russia, but just because it’s in geopolitical interest of the US and many other countries to have good relationships with Russia.

Fukushima: Now, you mentioned the Trump administration that’s coming in in January 20th. Do you think the new administration will have a good impact on, for Russia’s economy?

Dmitriev: We believe that the new administration will be very pragmatic, we really like the professionalism of people who are coming in, including Wilbur Ross who’ll be secretary of commerce, and some other people. So frankly, from our perspective, it’s one of the most experienced administrations of people who really achieved a lot in their lives.

Fukushima: For Russia and Japan ties, how do you think it will develop from here?

Dmitriev: Well we believe it will not be an immediate breakthrough and it will take some time, and we understand that in Japanese culture. You know, some time needs to pass to develop trust in joint projects. So for us, a real focus is to make sure we have some specific project that we can do jointly between Russia and Japan.

So we are very optimistic about the way forward, we are very much appreciative of Prime Minister Abe’s focus to restore relationships with Russia. And also, in Q1 of next year we expect to announce a Russian-Japanese venture fund, which will be our fund to invest in technology because we believe technology is very important for the world going forward.


Analysis of Economic Potential

Taisuke Abiru joins business anchor Yuko Fukushima and anchor Sho Beppu in the studio.

Fukushima: Dmitriev told me that businesses in both countries will benefit from the joint investment fund. A survey of Japanese firms doing business in Russia found that they have high expectations for the vast market and growth potential. But many also see risks, like currency volatility and red tape. Do you think Japanese companies can successfully do business in Russia?

Abiru: Well, it's not easy. I understand that Japanese firms have concerns doing business in Russia based on past experiences. Russia joined the World Trade Organization in 2012, and is making efforts. Its ranking for ease of doing business has gone up. So Japanese companies can expect to expand their businesses in the Russian market. But it depends greatly on how the Russian economy performs.

Fukushima: What fields will be the best for Japanese companies looking to expand in Russia?

Abiru: Russia's economy has depended on oil and gas revenue. But because the price of crude is low, new businesses are sprouting up in the country, such as agriculture, food and medical companies, so Japanese companies have big opportunities to enter into these industries. In fact, some firms are already doing business in those fields.

Beppu: But what about the international economic sanctions on Russia over the issue involving Ukraine's Crimea region?

Abiru: It is true that the price drop of crude oil is impacting the Russian economy, and that could be the biggest factor that leads to stagnation in its economy. Having said that, the sanctions are hurting the economy. Taking the long term view, Russia definitely needs to launch structural reforms to its economy. And for that, they need Western investment and technology transfer.

Beppu: The international community is also paying attention to this summit. What kind of regional impact does it have, and what's the significance?

Abiru: The security environment surrounding Japan is drastically changing. The biggest factor in it is the rise of China. Meanwhile the Western nations and Russia are at odds on the issue of Ukraine. In the meantime, Russia advanced its relations with China. In this context, Japan can contribute to the regional balance by strengthening ties with Russia. And I believe that will lead to more stability in the region itself. So let us not forget to look at how the bilateral relations between Japan and Russia develop from a broader perspective.