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01.03.2014 г.

Russo-Japanese Economic Relationship and its Problem Points

Dmitry Streltsov

Economic ties between Japan and Russia in the first two decades of the twenty-first century have demonstrated progressive, albeit uneven dynamics. Only in 2002 Russo-Japanese trade began growing. During the subsequent period from 2003 to 2007 Russian export to Japan increased by 3 times, the import from Japan has grown by almost 7 times. In 2012, the trade turnover reached the record mark of 31.2 billion dollars, with exports from Russia to Japan totaling 15.5 billion to dollars and imports to Russia from Japan 15.7 billion dollars[1].

Yet the level of trade was stable and very low compared to other countries. For example, the share of Japan by value has until recently been about 1.5-2 percent in Russian export and around 6 percent in import. As for the share of Russia in the Japanese trade balance, it never exceeded 1-2 percent. In 2012, Russia ranked the 15-th position among Japan's trade partners, while Japan for Russia was rated the 8-th. The share of Japan in Russia's trade turnover was only 3.7%, compared with the modest share of Russia in Japan's foreign trade of just 1.9%[2]

The quality and structure of trade remain unsatisfactory from the Russian point of view and is characterized by a specific position of Russia as the supplier of certain raw materials for the Japanese markets. The structure of trade did not undergo any major changes for many years. Japan buys from Russia mostly energy resources, non-ferrous metals, seafood and timber. According to Japan's customs statistics, in 2012 35.1 per cent of Russian export to Japan by value made for oil, 29.8 for LPG, 9.1 per cent for non-ferrous metals, 8.6 per cent for coal and 7.3 per cent for seafood[3]. These four product groups account for over 90 per cent of the total value of Russian exports to Japan. Moreover, their proportion is growing steadily and gradually approaching 100%.

After Fukushima, the dominant trend was the rapid growth of Russian exports of oil and gas to Japan, making for over half of total value of exports. In 2012, the share of Russia ranked the 6-th position among oil suppliers - its share in the total amount of Japan's oil imports was 4.8%[4]. Russia's achievements in conquering Japan's gas market are even more impressive - in 2012 it retained 8.2% of the supplies (the 4-th position after Qatar, Malaysia and Australia), while before 2009 Russia had not made any supplies at all[5].

The main problem with trade relations between the two countries is the lack of a sufficient level of interdependence tying the partners to each other. On Russian side, supplies of energy resources ferrous and nonferrous metals, namely aluminum, nickel, metals of platinum group are going on within the limits of the global market demands and have no specific "Japan-oriented" nature. Seafood has good potential but faces the problems of lack of state control in the use of resources, "grey" export and open smuggling. As for Russian import from Japan, one should mention an intolerably low share of the modern industrial equipment and other machinery necessary for the structural modernization of Russian industry. Its most part falls on commodity goods, especially cars (62.1% of the whole import volume in 2012) [6]that gained a special popularity in pre-crisis period of the oil-money consumption boom. Most commodities, especially home electronics are supplied to the European part of Russia not from Japan, but from the branches of the Japanese companies in other countries.

The commodity structure of the Russian-Japanese trade lags considerably behind the requirements of the innovation-oriented development announced by the Russian government as one of its strategic priorities. One of the main explanations here is the deepening of Japan's incorporation to the intrasectoraltrade with East Asian countries the basis of moving low-technology and labor-intensive processes of production outside the limits of the country. Trade with Russia has no distinct perspective within this model[7]

Another reason is the structural distinction between the two economies. The Japanese economy is noncompetitive for the Russian market in terms of consumer goods, foodstuffs, and the investment goods, while the Russian economy is noncompetitive by quality towards the import needs of Japan. Besides, there are natural limits imposed by the specific export-import structure of Russo-Japanese trade. Japan imports raw material and nonferrous metals from Russia within the frames of its requirements that are stable and even decreasing due to structural economic reforms. As for purchases of the Japanese goods by Russia, they do not depend on external influence and are determined only by the unstable internal economic conjuncture.

Neither a reliable model of investment Russian-Japanese cooperation could be built in the foreseeable future. First, the Russian Far East can hardly become a full participant of the intrasectoral integration in the industrial sphere formed in East Asia on the basis of the Japanese capital. Russia does not possess cheap and qualified labour force as China. It concedes to many countries of the region from the point of view of infrastructural development. Besides, the Japanese investors complain of a high level of corruption in Russia, and of the partiality of Russian prosecution organs in financial and economic quarrels with some Japanese companies working in Russia.

With Russia's involvement to globalizing world economy, the significance of investment cooperation in the bilateral economic relations continues to increase. Yet, the volume of investment from Japan remains at a low level in the total amount of FDI. In June 2013, the volume of Japanese accumulated investment to Russia amounted to 10.5 billion dollars, or 2.8 of the whole (10-th place in the list of investors)[8]. The overwhelming part of them of investment is accumulated in field of oil extraction and refinery. The lion's share of this sum is made by so-called investment loans, e.g. bound (tied up) trade credits. Russia can buy goods only from Japanese companies. Besides, the volume of FDI to Russia remains very modest compared to other countries. For example, in 2012, Japan invested to Russia just $757 million (to the USA $ 31.78 billion, to China $13.48 billion, to South Korea $4 billion and to India $2.8billion)[9]. FDI is the most effective form of investment, because they bring new technologies and advanced management methods.

In June 2007 the Japanese government put forward at the Heiligendamm Summit an "initiative to strengthen the Japan-Russia cooperation in the Russian Far East and Eastern Siberia" which was linked to the Federal Program on Economic and Social Development of the Far East and Zabaykalye up to 2013. Cooperation projects were planned in eight sectors, including energy, transportation and communications preservation of the environment, public health services and medicine, perfection of a trading-investment climate, development of inter-regional exchanges.

Among other spheres of investment cooperation, the field of fuel and energy complex development is the most strategically important, given the situation in the Japnese energy sector after Fukushima. Another key moment in the strategy of energy security is the interest of Tokyo in creating a regional market of hydrocarbons in East Asia where Japan could play a leading role. As a measure within this strategy, the Ministry of Economics, Trade and Industries of Japan has expanded state insurance over the projects of development of natural resources abroad, that will apparently have a positive effect on the Japanese investments to Russia.

The most widely known example of energy cooperation between Russia and Japan is connected with Sakhalin projects. The share of Japanese capital is 30 % in "Sakhalin-1» and 22.5 % in "Sakhalin-2". In 2006 Russia started deliveries of oil to Japan from Sakhalin, making up to 6.8 billion tons of oil in 2007. On February 18, 2009, an LPG plant built with Japanese technological and investment assistance started operation in the South Sakhalin. The plan provides up to 60% of its production volume to Japan.The project is planned for approximately a 20 years' period that would make it the most long-term project in the history of the Russian-Japanese economic relations[10].

In 2011 Gazprom together with the Agency for Natural Resources and Energy as well as with Japanese consortium Japan Far East Gas Company (ITOCHU, JAPEX, MARUBENI, INPEX, CIECO), conducted the preliminary feasibility study of the project of the LNG plant construction near Vladivostok (Japan, Gazprom Further Discuss Vladivostok LNG Plant, 2012). In February 2013 the Vladivostok-LNG project entered the investment stage - the Management Committee approved the Investment Rationale for the LNG plant construction[11]. On June 22, 2013 Gazprom and the Japanese consortium signed at the St. Petersburg International Economic Forum a memorandum of understanding, setting out the main principles of further joint activities on the project, along with joint marketing efforts for the project in Japan[12]. The facility is expected to have a capacity of 15 million metric tons a year, with most part of LNG produced at the plant to be exported to Japan. Gazprom plans to start production in Vladivostok in 2018[13].

Another important basic project in the energy sphere that could make a strategic contribution to the economic relationship with Japan is the construction of oil pipeline from East Siberia to the port of Kozmino of the Pacific coast of Russia (ESPO). ESPO's second stage, which will provide the port with a direct pipeline link to fields in Eastern Siberia, has been completed in 2012. The construction of the second part of the pipeline leading will expand the geographical opportunities of Russian export of oil and will simultaneously reduce Russia's dependence on the Chinese demand. Subsequently, Japan is thought to be one of the most active buyers of Russian oil.

The investment cooperation is not limited to the sphere of natural resources. Almost all car manufacturers of Japan have already built or plan to build an assembly factory in Russia. Though the primary aim of investment was to satisfy the growing demand on the domestic market of Russia, it is obvious now that in the long-term view Russian factories will provide car export to the markets of neighbouring countries in Europe. This model of cooperation is mutually beneficial for both countries. On the one hand, an increase of the local share of manufacture of details and components will boost local Russian economy and create new working places. On the other hand, Russian enterprises will be built in the all-European industrial base of the Japanese companies and become one of its key elements. With strengthening global competition the Japanese companies aspire to optimize the division of labour system in view of the advantages of all its participants.

Actually Russia becomes a crucial element in the logistical schemes of the Japanese companies, as far as the logistical component starts to play more and more important role in the strategy of globalization. However, to meet these requirements Russia badly needs to modernize its infrastructure, especially in the Far East. A matter of scrupulous interest from the Russian side in this connection is the investment and technology. In this respect, Russia is extremely interested in the Japanese technology in the spheres of oil and gas production and transportation, high-speed railways, mechanical engineering, energy saving, nuclear power, medicine, ecology etc.

Yet, the level of investment cooperation between the two countries remains at a low and possesses a great unused potential. The disinterest of Tokyo in the economic cooperation with Russia is often associated with the fact that free trade agreements and economic partnership agreements, which form the "highway" of East Asian economic integration, have not yet become a widespread format of Russia's cooperation with its neighbors.Japan has recently prioritized those countries which have a good record of free trade and economic partnership agreements with the widest range of participants using them as an instrument of entering the third-countries' markets. As the experience suggests, such agreements allow legal institutionalization of the existing business relations and have a positive effect in terms of tying the partners down to each other.

One of the major reasons why Russia could benefit from the participation in such kind of formats is the possibility to use them as an instrument of making corrections in the structure of economic ties that presently don't meet the requirements of innovative development. An economic partnership agreement with Japan would allow Russia "to be included" into the system of intra-industry division of labor in the East-Asian region and get integrated into logistical and technological chains of production processes. Having concluded such an agreement Russia could be able, in particular, to enhance its positions not only in the Japanese energy market but beyond it and lay the foundation for expanding its export to Japan.

The signing of the agreement could ease the concerns of the Japanese business about the insufficient development of the investment climate in Russia. With legal mechanisms of investors' rights protection being ensured in accordance with such an agreement, the concerns of the Japanese business about the investment risks in the Russian market could be to a certain extent removed, and it would spur up the process of Japanese economic penetration into the Russian regions of East Siberia and the Far East.

[1]Torgovo-ekonomicheskoesotrudnichestvomezhduRossiiskoiFederatsieiiIaponiei (Trade and Economic Cooperation between Russian Federation and Japan) (2013). Available at: (accessed 24 October 2013).

[2] Ibid

[3]Tai roshiashuyoyushutsuhin no suyi (toshibesu) (The Dynamics of Export of Main Items to Russia, year base) (2013). Available at:

[4]Nihon no gensoyuyunyuaitekokujouijukkakoku no suyi (The Dynamics of Import of Crude Oil LNG from Ten Top Suppliers to Japan)(2013).Available at:

[5]Nihon no ekitaitennengasuyunyuaitekokujouijukkakoku no suyi (The Dynamics of Import of LNG from Ten Top Suppliers to Japan)(2013). Available at:

[6]Tai roshiashuyoyushutsuhin no suyi (toshibesu) (The Dynamics of Export of Main Items to Russia, year base) (2013). Available at:

[7]Karaivanov A.A. ProblemyiperspektivytorgovykhotnosheniimezhduRossieiiIaponiei v nachale XXI v. (Problems and Perspectives of Trade Relations between Russia and Japan in the Beginning of the XXI Century)//Aktual'nyeproblemysovremennoiIaponii. - Vital Problems of Contemporary Japan, 2007, no. XYIII, pp. 84-85.

[8]Ob"emnakoplennykhinostrannykhinvestitsii v ekonomikeRossiipoosnovnymstranam-investoram (The Volume of FDI to Russia by Investor State) (2013)// Available at:

[9]Chokusetsutoshitokei (The Statistics of FDI)(2013). Available at:

[10]Sakhalinskiisammitnaszhizhennom gaze (Sakhalin Summit of LNG)(2009). Available at:

[11] Gazprom Approves Action Plans on Constructing LNG plant near Vladivostok and Establishing Resource Base (2012). Available at:

[12]Japan and Gazprom Sign Mou for Vladivostok LNG (2013). Available at:

[13]Inajima Tsuyoshi and Fujioka Toru(2012). Noda Signs Preliminary Deal With Putin on Vladivostok LNG Plant. Available at:
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