Thoughts on Regional Trade with Russia

|Northeast Asia in General

This year the drop in trade with Russia has been severe. While the influence of the simultaneous global slowdown is not in doubt, the size of Russia’s drop is more pronounced. In Asia, the apparent strength of the economies of China, India and also Indonesia and others, is the focus of attention. In contrast, the slump in Japan’s northern neighbor Russia is worrisome. For Niigata and the three prefectures of the Hokuriku region also, from the standpoint of wishing for prosperity in the local economies, the very economic prosperity of Russia and China’s Northeast on the opposite shore of the Sea of Japan is a key factor. In fact, over the three years from 2006 to last year, the number one country of destination for the exports of the three prefectures of the Hokuriku region was Russia.

Russia finally cast off the turmoil of the 1990s, and from 1999 to last year, 2008, its GDP continued positive growth, yet viewed from the aspect of external trade, the direction that Russia is oriented in is one for becoming a resource-exporting nation. In that sense the strategy that Prime Minister Putin is advancing of seeking markets for exports of resources in the Asia-Pacific with a hub in southern Primorsky Krai smacks of realism. Through it the Russian Far East would also thrive in the medium to long term.

That said, only having a supply of resources is not of interest for Japan. In the last few years, Japan’s exports to Russia expanded rapidly, and from 2006 the balance of trade has also switched to surpluses for Japan. When one takes a close look, however, three quarters of Japan’s exports are cars, and putting that together with construction machinery then makes up 80% of the total value of exports, resulting in an extremely skewed trade structure (2008). The car exports from January to June of this year have slumped to 9.1% compared to the same period for the previous year (a decrease of 90.9%), and Russia’s automobile (passenger car) production also fell in the first half of the year by 56% (compared to the same period for the previous year), and also in the sales outlook for the whole year a decrease of 50–60% is expected. In particular, regarding the exports of second-hand cars which had come to predominate in the exports from this region to Russia, the value of the exports which passed through customs in the three prefectures of the Hokuriku region and Niigata Prefecture in the first half of this year has shrunk catastrophically, to 6.4% of that for the same period in the previous year (a decrease of 93.6%). Moreover, there is absolutely no sign of the Russian government easing import duties on second-hand cars.

Considering such a situation, although the export of cars (new vehicles) may recover in two to three years, I think it necessary to open up other categories of export commodities and continue to correct the structure of export commodities. Whereas Japanese manufactured goods, including household electrical goods, had formerly swept the world market, with the economic theory of comparative advantage left to itself, markets have been taken by countries with low labor costs and the presence of Japanese manufactured goods in Russia is weak. Even viewed globally, the result of having continued a market strategy and management approach which shifts over to high-valued-added, high-tech manufactured goods is that today we have been overtaken by a situation where we cannot beat ROK manufacturers in “volume zone” manufactured goods. Moreover, in the markets of emerging countries with remarkable economic development, low-priced commodities have dominated markets, and it can be seen that if we were to evade the competition in volume zone commodities, Japan’s exports would slide gradually into penury. How to compete in the categories of volume zone commodities has become a common problem for Japanese manufacturers, but in this region also (the Sea of Japan coastal region that includes Hokuriku and Niigata) where manufacturers of national brands are few, isn’t it the case that up until today initiatives have increasingly been called for to break the deadlock where the sense of a blockage is rising, by sallying forth abroad, including the development of business in the service industry sector, and expanding into consumer goods and food, with no feeling of obstinately sticking to traditional industrial products for the structure of export commodities? Furthermore, for this region which faces the Sea of Japan, the very expansion of trade with the far shore, making the Sea of Japan an inland sea, is the most hoped for standpoint; yet regarding its realization, in this region also trade with East Asia, such as with the ROK, China, Taiwan, Hong Kong and ASEAN, comprises a large share, and having to continue to place emphasis on trade with that area is a reality. Accordingly, it will be necessary for this region’s external exchange strategy to continue to be tackled taking this point fully into consideration.

In the meantime, in order for this region to continue operating as a node for trade with the opposite shore by way of the Sea of Japan, it is necessary to bring into the region’s ports the logistical needs of the Kanto region in the case of Niigata and of the Chubu and Kansai regions in the case of the Hokuriku region, strengthening the shipping routes across the Sea of Japan. Until recently, however, what supported the base of those logistical needs was the export of second-hand cars to Russia, and today where that export of second-hand cars has fallen into a state of collapse, continuing to secure the needs of the transportation carrying automobiles and construction machinery, and the parts and components for household electrical goods, to the western, European part of Russia via the Trans-Siberian Railway, is the greatest challenge. At the moment, it appears to the author’s eye that as the logistical demand cannot be said to be sufficient to guarantee the establishment and operation of shipping routes, it would be good for a strategy for securing the volume of freight, which the regions of the Japan Sea littoral have cooperated on, to be considered. How about it?

[Translated by ERINA]