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  • An Analysis of the Current State of Russo-Japanese Trade and Personal Views on the Ideal Future Situation

An Analysis of the Current State of Russo-Japanese Trade and Personal Views on the Ideal Future Situation

|Russia

First of all, let us look back upon changes in the value of trade between the two countries.

The table below shows statistics published by Russia’s Ministry of Economic Development and Trade. (For some reason, these differ from those in the 2002 Statistical Yearbook published by Goskomstat, the State Committee of the Russian Federation on Statistics. The Trade Ministry’s figures closely resemble those published by Japan’s Ministry of Finance, but the Goskomstat figures are always 20-35% lower than these. There are various conceivable reasons for this, but as they are irrelevant to the subject matter of this article, I shall not elaborate upon them.)

Changes in Russo-Japanese Trade

Unit: $1 million

1995 1996 1997 1998 1999 2000 2001 2002
(Jan – June)
Value of trade 5,933.4 4,960.2 5,009.8 3,846.3 4,225.4 5,168.2 4,592.0 1,863.4
Exports 4,763.3 3,936.8 3,995.4 2,874.9 3,747.0 4,596.8 3,872.7 1,424.2
Imports 1,170.1 1,023.4 1,014.4 971.4 478.4 571.4 719.3 439.2

Author’s notes:

  1. Imports and exports are both calculated from Russia’s perspective,so they are the reverse of the figures published by the Ministry of Finance.
  2. I believe that the Japanese Ministry of Finance has already published figures covering the period up to the end of 2002, but the figures published by the Russian side that I have to hand at the moment stop at June.

On the other hand, as can easily be gathered from the statistics above, Russo-Japanese trade remained at a low level; trade between the two countries accounted for 0.6% of total Japanese trade in 2001, with Russia’s share in exports and imports from the Japanese perspective reaching 0.18% and 1.1% respectively.

According to data from Russia’s Ministry of Economic Development and Trade, trade between Japan and Russia experienced a period of renewed growth in 1999 and 2000, rising from $3.8 billion in 1998 to $5.2 billion. However, it went downhill again in 2001 and 2002, falling to $4.6 billion in 2001.

Furthermore, with regard to both countries’ trade, after 1999-2000, when Russian exports grew significantly, they began to backtrack in 2001, declining rapidly. In addition, the trade balance showed a vast gap between exports and imports, with the former 5.5 times larger than the latter. Even looking at trends in the first half of 2002, total trade was just $1.86 billion, with exports 3 times larger than imports.

Looking at the composition of Russian exports to Japan by the type of product, it is firstly noticeable that, as is generally the case, the majority is accounted for by foodstuffs, raw materials and goods that have been processed to a low degree. This trend continued in 2001 and thereafter. Taking 2001 as an example, this is clear from the shares of the total monetary value of trade accounted for by non-ferrous and precious metals (41%), marine produce (27%), wood and processed wood products (15%) and coal (10%).

Imports from Japan include machinery and technology-related products, such as construction equipment, transport machinery, household electrical goods, metal processing machinery and telecommunications equipment.

The main field of strategic cooperation between Japan and Russia is fuel resources; it goes without saying that the projects with the greatest potential in this area are the Sakhalin oil development projects (Sakhalin 1 and 2). However, at the same time, hardly any projects have been acknowledged by both countries in other energy resource-related fields. Nevertheless, there is no question that the orders for steel pipes and finance from the Japanese side (a $1.6 billion loan from the Japan Bank for International Cooperation) that are beginning to emerge as a result of this project are a gamble of life-or-death importance for Russo-Japanese trade, which is languishing in the doldrums.

Of course, a decision has yet to be reached regarding priorities for the Angarsk – Pacific Coast pipeline project and its routing to Daqing in China. (It is reasonable to take the basic agreement reached by Yukos and China’s CNPC in May as a demonstration of the companies’ wish to prioritize this route; the fact that their so-called letter of intention, which is equivalent to an agreement, contains no specific details of the conditions for laying the pipeline is proof of this. One can imagine that there will be sufficient twists and turns hereafter, and, whatever the case may be, it is far from being a foregone conclusion at this stage as to which side will be the winner.) It is probably the case that neither the president nor the government of Russia can make a decision.

Other than energy, the field that is making the most dynamic progress is the automobile industry. For example, Mitsubishi Motors increased its total sales in Russia by 35% at a stroke. Specifically, the company mounted an offensive with a new model in 2002 and sales have risen by 35% in a period of just 9 months. While the number of cars sold between January and September 2001 was 4,126, this rose to 5,592 in the first 9 months of 2002. (Source: an official distributor for Mitsubishi Motors) I will spare you the details, but similar developments have also occurred in the figures for Nissan and Toyota. However, the problem is that most of this takes the form of what is known as roundabout trade, via Europe. If I might be permitted to express my wishes, I would like them to enter the market and try producing cars, just as the European and US carmakers do. In addition, they have not even sounded out the automotive parts industry, which offers great opportunities. In any event, the automobile sector is seen as the sector that will act as an engine propelling Russo-Japanese trade and investment in the future. 150-200 companies from Japan’s automotive component industry have already implemented loans and investments in some kind of form in each of the Czech Republic and Hungary, albeit on a small to medium scale, and are said to be making substantive moves. Given this situation, why is Russia the only market that has been left out? While Japanese enterprises reluctantly admit that the objective environment and psychological barriers are obstacles, looking at the recent development of Russia’s macroeconomy, the gap does make one think, even if one is not Russian. It is undeniable that, in fact, it is the microeconomy that has the problems.

On the other hand, what is Russia expecting of Japan? They are seeking cooperation, in such areas as the joint development of oil and gas wells, joint logging and wood processing projects, and the promotion of the tourism industry. There can be no mistake that Russia needs Japanese technology and experience in such fields. Furthermore, having lived there, I strongly feel that Japanese experience and investment is needed even in reforms in the public arena, including the conservation of energy resources and the efficient use of natural resources. However, I have to say that the Japanese attitude to cooperation with regard to these problems is far from satisfactory. I would add that Japan is invisible in Russia’s food industry, which foreign companies have taken by storm. It is the same in other consumer goods and service industries. Recently, the Kansai Economic Federation dispatched its first mission to Russia, to study the current state of the country, and I am anxious that this will provide an opportunity to forge links between the Kansai region and Russia. Areas on the Japan Sea/East Sea coast have been conducting this kind of regional mission for quite some time, and mutual exchange and understanding has developed considerably, albeit in relative terms. In this sense, one can say that the potential in the Russian Far East is high with regard to most of the necessary conditions for business, but there is a diverse range of problems involved and it is unfortunate that this trend is not spreading.

Looking objectively at this kind of analysis of and the current situation in each field, one cannot shake off the feeling that there is still something lacking in Russo-Japanese economic relations. Of course, this does not negate the efforts that have been made to make individual analyses and strive to promote business between the two countries. However, considering that they are neighbors, there is something comprehensively lacking, as they are trying to consider specific cases and fields in parallel. Perhaps the element lacking could be described as the effort and energy required to overcome adverse mental barriers, including past political problems? Why did the US, the ROK and European countries take the lead in entering the Russian market before Japan? Based on the reasoning that prevailed in Japan in the first half of the 1990s, it was said that the cases of the US and the ROK were different to that of Japan, as they were not crippled by a bitter legacy left over from the Soviet era (unpaid loans). As far as Europe was concerned, there were those who took the view that it was only natural for Europe to support Russia, as it feared a massive influx of refugees were the Russian economy to collapse. However, if there are still those with this kind of mentality these days, they are not merely making excuses for not doing anything; with this anachronism, they are also embarrassing themselves.

Global trends changed greatly thereafter, and, most of all, the political map of the world has changed since the 9/11 terrorist attacks. In Russia, as well, progress has been made with powerful institutional reforms since the inauguration of the Putin administration. Reducing corporate tax from 36% to 24%, setting personal income tax at a uniform 13% and permitting the sale and purchase of land are just a few examples. Of course, the list of negative points is too long to enumerate, and includes the fact that the speed of these reforms is slow, Russia has still not broken free of the constant political pressure from new oligarchies, there is no sign of the government taking a tough stance to completely wipe out corruption, and bloody incidents involving the mafia still occur in the worlds of politics, business and journalism. Do you really think that we can continue to avoid doing anything with regard to Russia just because of all this? Russia is now doing its utmost to ensure that it can join the WTO. Its efforts will cause the country great pain, but its courage in taking on this challenge is worthy of praise. If Japan remains indifferent to this and continues to be tied to its conventional view of Russia, maintaining its current stance, there is no question that trade relations between Japan and Russia run the risk of continuing to stagnate, yielding the same statistics quoted at the beginning of this article.

I have reached the end of my account, which is somewhat lacking in terms of specific proposals for future improvements. Due to the constraints of space, I must lay down my pen here. I have provided some pointers in the foregoing, but I would like to write about my personal views on specific measures at some stage, if I have the opportunity.

[Translated by ERINA]