The Changing Political Economy of Japan's Economic Relations with Russia: The Rise and Fallof Seikei FukabunAuthor(s): Lonny E. CarlileReviewed work(s):Source: Pacific Affairs, Vol. 67, No. 3 (Autumn, 1994), pp. 411-432Published by: Pacific Affairs, University of British ColumbiaStable URL: http://www.jstor.org/stable/2760418 .Accessed: 08/03/2012 11:38

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The Changing Political Economy ofJapan's Economic Relations with Russia: The Rise and Fall

of Seikei Fukabun Lonny E. Carlile*

IN RECENT YEARS it has become virtually de riguer for writers to open dis- cussions of Russo-Japanese relations with the observation that frigid

diplomatic relations between the two countries stemming from historical animosities and the territorial dispute over the Southern Kurile Islands (the Northern Territories) have prevented the consummation of what might otherwise be a highly lucrative and complementary economic rela- tionship. Only when the territorial issue is resolved, it is implied, can their economic relations hope to attain their rich potential. Without denying the importance of the Northern Territories issue and historical animosi- ties in shaping Russo-Japanese relations, the following article attempts to build a case for the argument that a resolution of the bilateral territorial dispute may not necessarily be a prerequisite for a significant deepening of the bilateral economic relationship or, for that matter, greaterJapanese economic assistance. It does this by moving away from a monolithic 'Japan, Inc. "-type model of Japanese foreign economic policy making. 'Japan" is disaggregated into several subnational actors whose concerns and interests diverge and who tend to operate in relatively independent political and economic policy spheres. By doing so, the paper hopes to show that Japan's so-called "non-separation of economics and politics" (seikeifukabun) approach to Soviet/Russo-Japanese relations has been the product of a distinctive conjuncture of forces that is currently eroding. In turn, this erosion, facilitated by sociopolitical changes in Russia, is trans- forming the political economy of Russo-Japanese economic relations.

Part 1 of the article presents an overview of Japan-Soviet economic relations prior to the rise of seikei fukabun and introduces the key actors

* An earlier version of this paper was presented before the Role of the New Russia in the Asia- Pacific Workshop, Institute of Asian Research, University of British Columbia (November 13, 1993). The author would like to thank Brian job, Paul Marantz, Robert North, Wadajun'ichi, and the staff ofJETRO Vancouver for helpful comments and assistance.

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involved. Part 2 describes the rise of seikeifukabun in the 1980s and the fac- tors that contributed to that rise. Part 3 delineates more recent develop- ments that precipitated a de facto abandonment of that policy while part 4 discusses current developments that would appear to make a revival of seikeifukabun unlikely, at least for the foreseeable future. The article closes with a set of concluding, summational comments.

I. THE SEPARATION OF POLITICS AND ECONOMICS

Although anti-Russian sentiment in Japan has deep historical roots,' the Japanese government's hard line, all-or-nothing diplomatic stance on the Northern Territories issue emerged relatively late in its postwar his- tory. In 1956, upon normalization of bilateral diplomatic relations, the Japanese government signed a joint communique with the Soviets in which it in effect acknowledged that it was amenable to a return of just two of the four disputed islands. It was only after it became clear that the U.S. was going to end its occupation of Okinawa (accomplished in 1972) that theJapanese government began to actively promote the return of the Northern Territories. And it was not until September 1973 that the Diet adopted a pan-partisan resolution - which has been renewed periodi- cally and to which subsequently installed prime ministers claim to be bound - demanding the return of all four islands.2 Nor did the lack of progress on the Northern Territories dispute hinder a dramatic expan- sion of bilateral economic relations. As figure 1 shows, trade between the two countries grew rapidly even after a hard line stand on the Northern Territories issue was adopted. Rhetoric aside, what the Japanese in fact practiced during the 1960s and 1970s with respect to relations with the USSR was a de facto "separation of economics and politics" (i.e., the antithesis of seikei fukabun) that was not unlike that which they pursued with China at the time. Bilateral diplomatic relations were pursued by one set of actors while economic relations were managed more or less inde- pendently by another group. In addition, since the bulk of the growth in Japanese imports from the Soviet Union consisted of industrial raw mate- rials, its economic relationship with the Soviets reflected another attribute found in Japan's foreign economic policy - namely, a focus on "resource

1 See J. Stephan, 'Japanese-Soviet Relations: Patterns and Prospects," in H. Ellison, ed., Japan and the Pacific Quadrille (Boulder, Colorado: Westview, 1987), pp. 135-59.

2 Gerald L. Curtis, "The Tyumen Oil Development Project and Japanese Foreign Policy Decision-Making," in Robert A. Scalapino, ed., The Foreign Policy of Modern Japan (Berkeley, Los Angeles and London: University of California Press, 1977), pp. 147-73.

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diplomacy" aimed at securing an uninterrupted supply of inputs for its industrial complex.3

The bureaucratic agency most directly concerned with diplomatic rela- tions is the Ministry of Foreign Affairs (MOFA). Its Soviet desk has been described as "the fortress for opposing Soviet designs on Japan" and a site where "an intensely adversarial relationship [with the Soviets] has pre- vailed."4 From 1961 onward, in retaliation forJapan's renewal of its secu- rity treaty with the United States, the Soviet Union backtracked on the stand that it took in the 1956 communique and refused to even acknowl- edge the existence of a territorial dispute. Since that time, MOFA consis- tently resisted the expansion of economic ties in the absence of a settle- ment of the Northern Territories issue. Also concerned with the Soviet Union/Russia's impact on security and generally opposed to expanded economic ties has been the Defense Agency. Right leaning politicians inside the ruling (until the summer of 1993) Liberal Democratic party (LDP) represented a further constituency supportive of a hard line stance. It is these three actors that have been most actively involved in what might be termed the bilateral diplomatic relations arena.

Bilateral economic relations, on the other hand, have been the prov- ince of a separate set of actors. Japan granted the Soviet Union most- favored-nation status in 1957 but during the decade that followed a very modest level of trade with the Soviets was conducted initially largely by small and medium-sized firms and coastal communities along the Japan Sea. Trade with the Soviet Union during that period constituted under 1 percent of theJapanese total. Interest in trade with the Soviet Union on the part of big business was stimulated later in the mid-1960s when the Soviets began to put forward the possibility ofJapanese access to Siberian and Russian Far Eastern raw materials. "Private" visits to the Soviet Union by Japanese business delegations led eventually to the establishment of the Japan-Soviet Economic Committee (JSEC) in 1965 as an arm of Keidanren,Japan's peak business association. TheJSEC became both the primary lobby group for government policies to assist the expansion of bilateral economic ties (eclipsing the small business-dominated Japan- Soviet Trade Committee) and the primary conduit for administering eco- nomic relations between the two countries. The more or less annual joint meetings between the JSEC and its Soviet counterpart, the Soviet- Japanese Economic Committee - the joint meetings have been given the rubric 'Japan-Soviet Joint Cooperation Committee" (JSJCC) - became

3 ChalmersJohnson, 'Japanese-Chinese Relations, 1952-1982," in Ellison, Japan and the Pacific Qyadrille, pp. 107-34; Robert S. Ozaki and Walter Arnold, eds., Japan 's Foreign Relations: A Global Search for Economic Security (Boulder and London: Westview, 1985); John Calabrese, 'Japan in the Middle East," Pacific Review, vol. 3, no. 2 (1990), pp. 100-12.

4 Gilbert Rozman, Japan 's Response to the Gorbachev Era, 1985-1991: A Rising Superpower Views a Declining One (Princeton, NewJersey: Princeton University Press, 1992), pp. 30-31.

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the place where major trade deals were negotiated and the basic frame- work of bilateral economic relations established.

Two points are especially noteworthy about the JSEC and its affiliated firms. The first is that they represent a rather small and specialized seg- ment of the Japanese big business community. Trade with the Soviet Union has been dominated by a small number of general trading com- panies, steel makers, and heavy equipment manufacturers. In 1981, for instance, 84 percent of Japan-Soviet trade was conducted by just seven companies.5 Economic relations with the Soviet Union have traditionally been a highly personalized affair and the JSEC itself a virtual fiefdom of a small clique of business executives led by New Japan Steel's Nagano Shigeo and Kawai Yoshinari of the heavy construction equipment manu- facturer Komatsu. Personal connections between Soviet trade officials andJapanese trading company officials governed trade relations on a day- to-day basis.6 Administrative arrangements on the Soviet side were partic- ularly important in sustaining the big business bias in bilateral economic relations. The Soviet system of state trading meant that Soviet trade was administered by large, centralized bureaucratic agencies - specifically, the Ministry of Foreign Trade and its product-specific foreign trade orga- nizations (FTOs) - and integrated into the command economy appara- tus. Only the largest ofJapan's trading companies had the organizational capacity and the financial resources required to handle the large orders and the long time frames that were associated with doing business with the Soviet foreign trade bureaucracy. The big business bias was further encouraged by the fact that Soviet planners tended to utilize trade with Japan as a medium for resource development in Siberia and the Russian Far East. From the late 1960s onward, the Soviet Union concluded a num- ber of very large compensation trade deals in which Japanese producers would provide the plant and equipment (produced byJapan's large man- ufacturers) needed in Siberian and Russian Far Eastern resource devel- opment projects in exchange for a specified amount of the timber, coal, natural gas and other resources derived from the projects. Such "develop and import" projects were the specialty of Japan's large sogo shosha (gen- eral trading companies). This narrow, big business-dominated structure contrasts with a greater presence of small firms in Western European trade with the Soviet Union.7

5 Leslie Dienes, "Soviet-Japanese Economic Relations: Are They Beginning to Fade?" Soviet Geography, vol. 26, no. 7 (September 1985), pp. 509-25.

6 Suzuki Keisuke and Matsumoto Akio, "Sengo nihon zaikai no soren kosho shi" (3 parts), Will, nos. 109-111 (January-March 1990), pp. 69-76, 136-43, 137-44; Nagata Minoru, "'Odoriba' no nisso keizai kankei," in Kokusai Shinpojiumu Soshiki Iinkai, ed., Tenki ni tatsu kokusaijosei to nisso kankei no tenbo (Tokyo: Kokusai Shinpojiumu Soshiki Iinkai, 1990), pp. 333-41.

7 Dienes, "Soviet-Japanese Economic Relations," p. 516. See Kokumin seiji nenkan (1987), pp. 196-98, for a discussion of the roles of specific sogo shosha in Japan-Soviet trade.

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Political Economy: Japan's Relations with Russia

The second point that deserves note is the fact that the bilateral eco- nomic relationship was consciously constructed upon what the Japanese refer to as a "private sector base." This was done in spite of strenuous Soviet efforts to engineer an official Japanese governmental role. One can see in this Japanese insistence a concerted effort to sustain a formal separation between economic and diplomatic relations for the sake of preventing economic relations from getting entangled in diplomatic con- cerns like the Northern Territories dispute. The "separation of politics and economics" in the Japan-Soviet relationship did not mean, however, the total absence of ajapanese governmental presence. The ministries in fact closely monitored the JSEC and its activities and were invariably pres- ent atJSJCC meetings. Furthermore, the Ministry of International Trade and Industry (MITI), over the objection of MOFA and hawkish elements in the LDP, played a critical role in facilitating the rapid expansion of Japan-Soviet trade that occurred during the 1970s. As the agency charged with economic "parameter maintenance," or the assurance of an interna- tional environment favorable to Japanese economic activity,8 MITI during the late 1960s was concerned aboutJapan's capacity to supply its rapidly expanding, heavy industry-based economy with the energy sources and raw materials that it needed. Motivated by these concerns, and at the request of firms associated with the JSEC, it authorized trade insurance and low-cost Export-Import Bank financing for a number of very large compensation trade deals (see table 1). By the early 1980s it was estimated that the Japanese government had committed a sum of $4 billion to such projects. The trade generated by these projects constituted an estimated 32 percent of Japanese deliveries to and 25 percent of imports from the Soviet Union between 1969 and 1981.9

The formal separation of politics and economics in the Japan-Soviet relationship did not mean that economic relations were totally immune to the impact of developments on the diplomatic and security front. However, prior to more recent developments to be discussed below, the impact of "politics" on Japan-Soviet economic relations had relatively lit- tle to do with the Northern Territories issue. As Tetsuya Kataoka has argued, if there is one single variable that has most strongly shaped Japan's relations with the Soviet Union it has been Japan's relations with the United States.10 During the late 1960s and the early 1970s, the overt impact of the Japan-U.S. relationship on Japan-Soviet economic relations was minimal. One reason for this was self-policing. Sensitivity to "third

8 ChalmersJohnson, "MITI andJapanese International Economic Policy," in Scalapino, Foreign Policy, pp. 227-80.

9 Allan S. Whiting, Siberian Development and East Asia: Threat or Promise? (Stanford: Stanford University Press, 1981), p. 137; Dienes, "Soviet-Japanese Economic Relations," p. 512.

10 Tetsuya Kataoka, 'Japan's Northern Threat," Problems of Communism, vol. 23 (March-April 1984), pp. 1-16.

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TABLE 1 MAJORJAPANESE-SOVIET/RUSSiAN DEVELOPMENT PROJECTS IN THE FAR EAST

Date Project name Credit/ Principal Exports Duration capital of Exports

(millions)

1967 1st KS Far East Forest $163 Timber and lumber 1969-73 Development Project

1971 Wood Chip and Pulp $50 Pulp and wood chip 1972-81 Development Project

1971 Vostochny Port $80 7-year deferred payment

1974 2nd KS Far East Forest $550 Timber and lumber 1975-79 Development Project

1974 South Yakutian Coal $540 Coking coal 1983-98 Development Project

1974 Yakutian Natural Gas $50 Exploration Development Project (50%US)

1975 Sakhalin Continental $185 Exploration, crude Shelf Project (Sakhalin I) * oil and gas

1981 3rd KS Far East Forest $910 Timber and lumber 1981-86 Development Project

1985 Wood Chip Agreement $200 loan Wood chips 1981-95 1991 4th KS Far East Forest $1,400 Timber and Lumber

Development Project 1992 Sakhalin Continental Exploration, crude

Shelf Project (Sakhalin II)* oil and gas

*involves participation by US and/or European firms. Sources: MichaelJ. Bradshaw, "Soviet Far Eastern Trade," p. 252; Nihon Keizai Shinbun (April

22, 1993).

party" implications had become second nature to the segment of the big business community overseeing Japan-Soviet trade. Thus, whatever exporting Japanese firms might have done "informally," the JSEC has scrupulously avoided projects that might involve exports of Cocom-regu- lated items. In projects with significant politico-strategic implications such as the Yakutian Natural Gas Development Project, the Sakhalin Conti- nental Shelf Gas and Oil Project, and the aborted Tyumen oil proposal, bothJapanese government officials andJapanese businessmen insisted on the involvement of U.S. partners as a means of circumventing potential security-related complications." The "separation of politics and econom- ics" in Japan-Soviet relations, in other words, was a policy sustained until

11 See Curtis, "Tyumen Oil Development Project" on this point.

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Political Economy: Japan's Relations with Russia

the 1980s through considerable conscientious effort and self-discipline on the part of the Japanese business community. Also significant was U.S. policy toward Japan. At the time, the Japan-U.S. relationship was still enjoying the "greenhouse effect" described by Donald Hellman, or a U.S. willingness to maintain a benign neglect regarding Japanese business activity in order to sustain a bilateral security alliance.12 Detente, further- more, tended to reduce U.S. concern about expandingJapanese ties with the Soviet Union, thereby allowing Japanese business interests consider- able latitude in their dealings with the Soviet Union.

If anything, it was the Soviet Union that was prone to use the bilateral relationship as a means of exercising diplomatic and political leverage. One concrete example of such manipulation occurred in the fall of 1976 when the Soviets canceled a scheduledJSJCC meeting in order to protest the defection of a MiG fighter pilot in Hokkaido. The history of Japan- Soviet fisheries negotiations is replete with other examples. Such manip- ulations were in fact systematic and lay at the very heart of the Soviets' economic relationships. As Gerald Segal argues: "The Soviet strategy, as in trade with Western Europe, was to take advantage of Western technology and to some extent to build political ties that would eventually undermine U.S. alliances on either side of the Soviet Union."113 With a state trading system linked to a centralized command economy, Soviet officials had much greater ability than their Japanese counterparts to link trade and diplomacy.

II. POLITICS AND ECONOMICS AS INSEPARABLE

During the 1980s the factors that held back pressures for a linkage and sustained a separation of economics and politics in Japan-Soviet rela- tions eroded, opening the way for seikei fukabun or an "inseparability of politics and economics" stand along the lines championed by MOFA and LDP hard-liners. The first variable to undergo a change was the U.S. atti- tude towardJapan's relations with the Soviets. Throughout the 1970s, the aforementioned "greenhouse effect" weakened as the decline of U.S. global hegemony progressed and the Soviets built up their naval and ground forces in the Far East. When Soviet troops invaded Afghanistan in late 1979, the U.S. insisted thatJapan, along with its other allies, impose economic sanctions on the Soviets. A second round of sanctions followed the declaration of martial law in Poland in 1981. In response to these

12 Donald C. Hellman, 'Japanese Politics and Foreign Policy: Elitist Democracy within an American Greenhouse," in Takashi Inoguchi and Daniel K Okimoto, eds., The Political Economy of Japan, Vol. II: The Changing International Context (Stanford: Stanford University Press, 1988), pp. 345-78.

13 Gerald Segal, The Soviet Union and the Pacific (London: Royal Institute of International Affairs, 1990), p. 149.

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pressures, and in what one analyst describes as "the first overtly political use of economic or trade resources byJapan in the postwar period,"114 the Japanese government canceled $1.4 billion worth of credits to the Soviet Union. Subsequently, the Reagan administration also insisted on a tight- ening up of Cocom regulations, thereby effectively banning the export of a number of products that Japanese trading companies had been ship- ping to the USSR. Although these actions dampened the growth ofJapan- Soviet trade, a look at the implementation of these sanctions suggests that there were countercurrents at work as well. As described in a newspaper account, the Japanese government's policy was one wherein "a flexible approach would be adopted where it appears that there might be an ad- verse effect on domestic industry should approval [of a deal] not be granted."15 One instance where such "flexibility" was in evidence was in the oil and gas exploration project in Sakhalin. Japanese credit was cut off to new projects only. Since the Sakhalin exploration was an ongoing proj- ect it was not affected. The first set of sanctions created difficulties for the project nonetheless when they resulted in the nondelivery of critical U.S. equipment and services that the U.S. government had embargoed. After intercession by MITI, the Japanese government successfully convinced the Reagan administration to lift the ban on these goods. However, the project was impacted once again in December 1981 when the U.S. im- posed sanctions to protest the imposition of martial law in Poland. The Japanese protested the action unsuccessfully and drilling ultimately had to be resumed with Soviet equipment.16 A second illustration of pressure to reseparate politics and economics could be seen in the behavior of the Japanese business community. The close scrutiny of the U.S. made it inad- visable for theJSEC to convene aJSJCC meeting scheduled to be held in Tokyo during 1980. The meeting was therefore postponed at Keidanren's request and it was not until 1984 that the JSJCC reconvened. This, how- ever, did not mean that bilateral commercial negotiations ceased. As the testimony of an ex-JSEC official makes clear, a number of alternative channels were utilized in an effort to sustain the bilateral trade relation- ship, including a "private" visit to the Soviet Union - over the savage

14 Kataoka, 'Japan's Northern Threat," p. 14. Also Kazuo Ogawa, "Economic Relations with Japan," in Rodger Swearingen, ed., Siberia and the Soviet Far East: Strategic Dimensions in a Multi- national Perspective (Stanford, California: Hoover Institution Press, 1987), pp. 158-78.

15 Kokumin seiji nenkan (1982), p. 185. 16 Michael J. Bradshaw, "Soviet Far Eastern Trade," in Allan Rodgers, ed., The Soviet Far East:

Geographical Perspectives on Development (London and New York: Routledge, 1990), pp. 239-68; Kokumin seili nenkan (1982), pp. 184-85.

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Political Economy: Japan s Relations with Russia

protests of MOFA and the anti-Soviet element in the LDP - by the pres- ident of the Japan Chamber of Commerce.17 Japanese exports to the Soviet Union continued to grow during the period of sanctions - by 12.9 percent, 17.3 percent, and 19.7 percent in 1980, 1981, and 1982, respectively. A $910 million private sector-based forestry development- related compensation deal - the Third KS Far Eastern Forest Develop- ment Project - was in fact signed in March 1981.

Total bilateral trade, however, did drop after 1981 and it is clear from figure 1 that the initial cause of this was a reduction in Japanese imports, and only later a drop in Japanese exports. The primary factor driving this trend was economic rather than political - cyclical and structural factors were significantly reducing the Japanese demand for Soviet raw materials during the first half of the 1980s, thereby forcing the Soviet Union to reduce its imports from Japan in order to conserve foreign exchange. As in the other advanced industrialized countries, the Second Oil Crisis was followed by a marked slowdown of the Japanese economy. A major struc- tural transformation was also under way in the form of a shift from a high growth, resource-intensive, heavy industry-based economy to an econ- omy characterized by moderate growth rates and knowledge-intensive, resource-conserving production. Japan no longer consumed the kinds of raw materials that the Soviet Union had been exporting at anywhere near the rapidly expanding rate that it used to. Also, quality and delivery prob- lems were beginning to sour Japanese importers toward Soviet raw mate- rials exports. The interest on the part of the trading companies and the heavy industrial firms in assuring access to Russian raw materials that had earlier driven the expansion of bilateral economic relations on the Japan- ese side was no longer as keen as it had once been. Soviet proposals of new development projects atJSJCC meetings and elsewhere were there- fore met with Japanese indifference. Frustrated, Soviet officials began to turn increasingly to European partners.18 Likewise, MITI's bureaucratic interest in expandingJapan-Soviet trade declined as a consequence of the successful implementation of its program of supply diversification. MITI began to focus on more pressing issues such as trade frictions with the United States and the integration of the East Asian economies. Together, these developments reduced the level of domestic resistance to the sort of linkage of politics and economics preferred by MOFA and its allies.

17 Suzuki and Matsumoto, "Sengo nihon zaikai no soren kosho shi (saishukai)," Will, no. 109 (March 1993), pp. 137-44; Kawai Ryoichi, "Dai 10 kai nisso keizai godo iinkai o oete," Keidanren geppo, vol. 34, no. 6 (June 1986), pp. 22-27. Another alternate channel was the 'Japan-Soviet Roundtable Conference." For fascinating insight into the political dynamics of bilateral economic relations during this period see the transcripts of speeches given during a November 1980 Moscow meeting of this group inJiyu, vol. 23, no. 2 (February 1981).

18 Ogawa, "Economic Relations with Japan"; Gordon B. Smith, "Recent Trends in Japanese- Soviet Trade," Problems of Communism, vol. 26 (January-February 1987), pp. 56-64; Dienes, "Soviet- Japanese Economic Relations."

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FIGURE 1 JAPAN-SOVIET TRADE, 1956-1992

(thousands of dollars)

4,000,000 -- -. .-. . - . - - -. --. - r-. - *- -. - - - - - -.-- r -.-- -. - - - I r - -.- 7 -.- -

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Gobahe nd0 potGrbce reor prcs tha mad th poic at-_'_'_' '_'_ _{_'_' '_'_' _'_'_' '_ '_'_'_'_ trativ. Presroia ad orbche's newthikig" pperedto ignl Soviet iners in imr' n ecnoi reain wit Jaa for thi own,,, sake~,,, rahe tha as aX men to a lage staei en as ha bee th case''' '''

420 ~ /,\ _,,,

Political Economy: Japan's Relations with Russia

previously. The Soviets communicated their strong desire to initiate tech- nological exchanges and host Japanese investment as a way of furthering reforms. There were also signs of an apparent willingness on the part of the Gorbachev leadership to make concessions on the Northern Terri- tories issue in order to attain this. Coming at a time when Japanese busi- ness and MITI interest in the Soviet Union was at a low point, MOFA was able to seize the opportunity and use this Soviet desire for economic cooperation as a lever in an effort to extract Soviet concessions on the Northern Territories issue without making commensurate diplomatic concessions on its part. The basic Japanese stance that emerged at this time was cogently expressed in the following:

One of the goals of Soviet Asian policy is normalizing relations withJapan, as Japan is the most appropriate nation to provide the Soviet Union with capi- tal and technological know-how desperately needed to improve the eco- nomic situation in the Soviet Far Eastern and other provinces. Meanwhile, the Soviet Union should understand that there is a long-term problem in the way of normalization of relations with Japan; we need certain concessions on the problem of the Northern Territories. Until there is progress on the Northern Territories problem, the Soviet Union can not [sic] expect to nor- malize its relations withJapan.19

The subsequent deterioration of the economic and political situation in the Soviet Union, and then in Russia, simply encouraged MOFA and its allies further since it appeared that what had earlier been a Soviet interest in Japan's assistance was taking on the character of a dire need.

The result was the complex, now well-documented series of ultimately unsuccessfulJapanese initiatives and responses to Soviet initiatives aimed at making Japanese economic cooperation contingent upon progress in the Northern Territories issue. These ranged from outright insistence that the Soviet Union (Russia) cede control of the territories before any aid is given (the iriguchiron or "entrance approach") to an incremental "expanded equilibrium" (kakudai kinko) formula wherein both sides could divide their concessions into smaller, incremental packages. In both versions, however, officialJapanese economic assistance was linked to a quid pro quo on the territorial dispute.20 The irony of Soviet/Russian-Japanese

19 Heiwa Anzen Hosho Kenkyujo as quoted in Alexei V. Zagorsky, "Soviet-Japanese Relations Under Perestroika: The Territorial Dispute and Its Impact," in Tsuneo Akaha and Frank Langdon, eds., Japan in the Post-Hegemonic World (Boulder, Colorado: Lynne Rienner, 1993), p. 141.

20 See Susan L. Clark, 'Japan's Role in Gorbachev's Agenda," Pacific Review, vol. 1, no. 3 (1988), pp. 276-89; Peggy Levine Falkenheim, "Moscow and Tokyo: Slow Thaw in Northeast Asia," World PolicyJournal, vol. 8, no. 1 (Winter 1990-91), pp. 159-79; Tsuneo Akaha, "The Politics ofJapanese- Soviet/Russian Economic Relations," in Akaha and Langdon, Japan in the Post-Hegemonic World; Harry Gelman, Russo-Japanese Relations and the Future of the US-Japanese Alliance (Santa Monica, Ca.: Rand Corporation, 1993); Tsuyoshi Hasegawa, 'Japan," in Ramesh Thakur and Carlyle A. Thayer, eds., ReshapingRegional Relations:Asia-Pacific and theFormer Soviet Union (Boulder, San Francisco and Oxford: Westview, 1993), pp. 101-23; Zagorsky, "Soviet-Japanese Relations Under Perestroika."

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economic relations, however, was that perestroika - the very catalyst for a full-fledged seikeifukabun policy - set in motion a chain of developments that ultimately undermined that policy.

III. THE COLLAPSE OF SEIIEIFuKABUN

Following the August 1991 coup attempt against Gorbachev, the tremendous international security and economic implications of the breakup of the Soviet Union2" became evident to the leaders of the vari- ous advanced industrialized countries of the West and they began to ac- knowledge the need for substantial economic assistance. Not surprisingly, the first to actively champion such assistance were the EC countries (most notably Germany) that were most directly affected as a consequence of their geographic proximity and close economic ties. The United States was initially cool toward such European initiatives but became more forth- coming as it became increasingly obvious that Boris Yeltsin's political posi- tion in Russia was slipping badly. The symbolic culmination of the U.S. change of heart was the Vancouver summit during the spring of 1993.

Throughout this period the Japanese diplomatic community resisted the entreaties of its G7 partners for a substantial Japanese contribution and tenaciously insisted that its contributions would require some kind of Soviet/Russian concession on the Northern Territories dispute. At the 1990 Houston summit, for instance, Japan agreed to provide technical assistance only on the condition that the Soviets commit themselves to a resolution of the territorial dispute. Modest levels of technical assistance were authorized during Gorbachev's April 1991 visit to Japan in acknowl- edgement of the new Soviet willingness to at least discuss the Northern Territories issue. The aborted coup attempt against Gorbachev in August prompted further calls for Japan to join the other G7 countries in pro- viding assistance. TheJapanese diplomatic community, however, was care- ful to stipulate that its share of the resulting emergency package was "humanitarian aid" rather than "economic cooperation." In October, Japan announced a $2.5 billion package for the USSR without any appar- ent link to concessions on the Northern Territories issue. This apparent exception to seikei fukabun was less of a divergence from existing diplo- matic stance than it might first appear. As Harry Gelman and Tsuyoshi Hasegawa detail in their separate studies, the Japanese offer was an- nounced in the wake of a series of initiatives regarding the resolution of the territorial dispute by representatives of the increasingly powerful Russian federation.22 The incident also illustrates the kinds of diplomatic

21 For discussion see the various essays in Trevor Taylor, ed., The Collapse of the Soviet Empire: Managing the RegionalFall-Out, Volume I (London: Royal Institute of International Affairs and Inter- national Institute for Global Peace, 1992).

22 Gelman, Russo-Japanese Relations, pp. 47-49; Hasegawa, 'Japan," pp. 105-10.

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cross pressures that were beginning to affect MOFA and the hard-liners' policy of diplomatic-economic linkage. The $2.5 billion announcement was designed for presentation at an upcoming G7 meeting in Bangkok and intended to placateJapan's advanced industrialized partners as much as to reward Russia.

In the meantime, bilateral trade levels recovered following Gorbachev's installation. Perestroika created a strong Soviet demand for Japanese high-tech machinery and equipment as well as, interestingly, consumer goods such as automobiles. Also driving the rise in exports was the appre- ciation of the yen following the 1985 Plaza Accord. (The Toshiba Scandal of 1987 resulted in a temporary decline in Japanese exports butJapanese exports returned to their pre-scandal levels in 1988.) On the import side, Japanese purchases of coal, wood and other raw materials increased steadily from 1986 onward. Between 1987 and 1990 Japanese imports at- tained record levels. The so-called Heisei Boom was one source of the increased demand for Soviet commodities. Another, it seems, was the Soviet reform process itself.

In 1987 industrial ministries and a large number of Soviet enterprises were granted the right to deal directly with foreign exporters. A wholesale reshuffling of trade officials occurred. (The bulk of Soviet export com- modities remained under the control of the foreign trade bureaucracy.) A further set of reforms in April 1989 resulted in an expansion of the number of Soviet enterprises allowed to engage in foreign trade and authorized such organizations to obtain hard currency credits.23 Although far from a complete liberalization, these reforms were instrumental in inducing expanded trade since they eliminated or abated a number of basic trade-suppressive, cumbersome bureaucratic obstacles inherent in the earlier system of state trading. By breaking the trade monopoly and the lock that specific Japanese companies had on the interpersonal and interorganizational relations with the Soviet foreign trade bureaucracy, they also expanded the number of Japanese trading companies active in bilateral trade. Furthermore, the incomplete manner in which price con- trols were lifted meant that the pricing of Soviet exports was often quite competitive on the world market. Soviet coal was reportedly 3 percent less expensive than Australian coal in spite of its 13 percent greater caloric content. Also fueling increasedJapanese purchases of Soviet commodities were economic sanctions imposed against South Africa and, later, China.24

Even with the increased Japanese purchases, however, the Soviets ran a trade deficit, as they did in trade with the other advanced industrialized

23 See Alan Smith, Russia and the World Economy: Problems of Integration (London and New York: Routledge, 1993).

24 Kokumin seiji nenkan (1987), pp. 196-97; ibid. (1990), pp. 162-63; Takashi Sato, Toshiaki Momose, and David Williams, "The Gorbachev Revolution andJapan," Tokyo Business Today, vol. 58, no. 3 (March 1990), pp. 26-31.

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countries. During 1990-91, the chronic trade deficit deteriorated into a full-fledged balance of payments crisis, and a rapidly increasing number of Soviet firms fell behind on payments to exporters. As early as the fall of 1990, a consortium of five Japanese banks was forced to provide the Soviet Foreign Economic Bank with a $400 million emergency loan to cover pay- ments due toJapanese creditors.25 By May 1991, the Soviets had racked up an estimated $515 million in unpaid bills. Japanese banks suspended all new loans to the country. Likewise, MITI suspended government trade insurance for major contracts.26 During the fall, in the face of mounting capital flight, Yeltsin issued a decree requiring Russian firms to remit for- eign exchange earnings to the government, decreasing further the ability of Russian importers to repay their foreign creditors. Large trade deals became virtually unfeasible in the absence of some kind of external offi- cial financing. At the end of the year outstanding Soviet trade liabilities vis-a-visJapan had grown further to $800 million. Not surprisingly, exports to the Soviet Union from Japan and elsewhere plummeted. In the mean- time, political and economic disruptions were pushing the Soviet/Russian economy on a downward spiral that was exacerbated by the lack of access to critical imports. Industrial production, which had begun declining modestly in 1990, declined by 8 percent in 1991 and then by nearly 20 per- cent the following year. With an absolute decline in production, Soviet exports also plunged, and along with them the foreign exchange earnings that might have been applied to payments to creditors.27

In the face of these developments, the Japanese big business commu- nity's complacency about bilateral economic relations evaporated. The delinquent commercial payments became the primary topic of concern in the various business forums dealing with Soviet and Russian relations, including meetings of the JSJCC. Business' desire for some sort ofJapan- ese government intervention to rectify the situation was clearly commu- nicated to government officials and, although difficult to document, was also undoubtedly the object of strenuous behind-the-scenes lobbying. Among the items being demanded were official loans to ease the Soviet/ Russian credit crunch, Japanese infrastructural development assistance (in the Far East in particular) to facilitate Russian exports to Japan, and expanded technical assistance to expedite the Russian economic reform process.28

25 Kokumzn seiji nenkan (1991), p. 175; Smith, Russia and the World Economy, pp. 138-76. 26 Gelman, Russo-Japanese Relations, p. 45. 27 Figures from Keidanren Geppo, vol. 41, no. 9 (September 1991), p. 11. 28 Takenaka Hayao, "Dai 13 kai nisso keizai godo kaigi no kekka gaiyo" Boeki to sangyo, vol. 3,

no. 3 (March 1991), pp. 26-29; Yoshida Susumu, "Taiso boeki-toshi no genjo to mondaiten," TsusanJournal, vol. 24, no. 11 (November 1991), pp. 24-27; Yamashita Isamu, Kimura Akio, Ogawa Kazuo and Okamatsu Sozaburo, "Zadankai: Soren no henkaku to nihon no taiso seisaku no kihon sutansu," Tsusan Journal, vol. 24, no. 11 (November 1991), pp. 9-13; Suzuki and Matsumoto, "Sengo nihon zaikai no soren kosho shi (saishukai)."

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Political Economy: Japan's Relations with Russia

Whether directly induced by the Japanese business community or autonomously initiated, a closer look at the details ofJapanese assistance packages reveals that the Japanese government did make an effort to tailor its policies to at least partially address some of these big business con- cerns. For instance, the Japanese government made the release of the funds associated with the October 1991 $2.5 billion package contingent upon a Soviet guarantee of repayment of any trade debts incurred.29 Fol- lowing the collapse of the Soviet Union in late 1991, MITI froze a large sum of funds that had been allocated for transfer to the Soviet Union in order to cover payments owed to Japanese firms, and suspended new credits until the question of who would be liable for past Soviet debts was sorted out. In July 1992, when the IMF agreed to release a $1 billion tranche to Russia, Japan insisted that its share would have to take the form of trade insurance forJapanese machinery exports. That same month the government authorized a $360 million loan to the Russian Bank of Eco- nomic Affairs to help pay unpaid bills owed to nine Japanese trading firms.30 The Japanese government nevertheless continuously resisted increased contributions at various multilateral forums where assistance to Russia was discussed, leading to complaints from the European countries - as well as, of course, Russia - that Japan was unwilling to contribute its fair share.

The year 1992 turned out to be a particularly disastrous year for Japan's Russia policy. The Japanese diplomatic community quickly recog- nized Russia following the dissolution, once it was ascertained that it would be the diplomatic successor state of the old Soviet Union. However, like Gorbachev before him, the initially forthcoming Russian president Boris Yeltsin soon found himself under attack from nationalist forces and forced to take a more intransigent stance on the territorial dispute. In the meantime, G7 sentiment in favor of aid to the former Soviet Union grew stronger. To make matters worse, all of this was occurring at a time when the Japanese Foreign Ministry was in the hands of the hawkish Watanabe Michio. Worried about being completely "isolated" within the G7, the Japanese government announced a paltry $50 million emergency humanitarian aid package for Russia in January. Later in the month, Foreign Minister Watanabe, a well-known proponent of the "entrance approach," suffered the ignominy of having a scheduled meeting with

29 As the Asahi shinbun (October 9, 1991) commented in its review of the package's content: "In light of the fact thatJapanese producers and trading companies are worried that the Soviet Union will fall behind on debt payments, the aim is to expedite trade by having the government absorb the loss in the event of a default."

30 Gelman, Russo-Japanese Relations, pp. 49, 61. 31 Yakov Zinberg and Reinhard Drifte, "Chaos in Russia and the Territorial Dispute withJapan,"

Pacific Review, vol. 6, no. 3 (1993), pp. 278-84; and Leszek Buszynski, "Russia's Priorities in the Pacific," ibid., pp. 285-90.

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Yeltsin canceled during a visit to Moscow. Subsequent negotiations on the territorial issue resulted, if anything, in a backtracking by both sides. At the Munich summit in July, after generating considerable ill will on the part of Germany's Chancellor Helmut Kohl and France's Francois Mitterand by opposing expanded economic assistance and other forms of support to Russia, Japan concluded a "deal" with these countries. Japan would withdraw its objection to G7 aid in exchange for a clause on the Northern Territories in the summit communique. However, as Tsuyoshi Hasegawa comments, "although the Japanese government congratulated itself for scoring a diplomatic victory for having the territorial issue included in the G-7 Political Statement, the Japanese conduct in Munich actually revealed how far the Japanese sense of reality was at variance with the rest of the Western world. "32 In September, Yeltsin abruptly canceled a visit to Tokyo just four days before his scheduled arrival. Yeltsin subse- quently found the time, however, to make a highly successful trip to Seoul where he obtained commitments for a sizable package of South Korean credit. In early December, the Russian government set off an alarm in the Japanese diplomatic community when it was learned that plans were afoot to turn the Kuriles into a free enterprise zone and to invite foreign real estate development into the Northern Territories.33

By late 1992, it was patently obvious thatJapan's Russia policy was, as one analyst put it, "plunging into disaster. 34 In characteristic fashion, how- ever, the direct catalyst for a turnaround in Japanese policy was U.S. action. The newly installed Clinton administration began to take the ini- tiative in organizing G7 support as Germany's post-unification economic woes decreased its ability to sustain contributions to Russia. In mid-April 1993, shortly after the new U.S. commitment was symbolically affirmed at a Clinton-Yeltsin summit in Vancouver, an unprecedentedly large $43.4 billion multilateral package of economic assistance was announced at a G7 foreign and finance minister's meeting in Tokyo. The bulk of the funds were to be channeled through such organizations as the IMF, the European Bank of Reconstruction and Development, and the World Bank, to which Japan would be contributing a substantial share. In addi- tion to these contributions, Japan announced a $1.8 billion package of new bilateral aid.35

According to accounts of internal developments within the Japanese government, as late as the latter part of March the Japanese diplomatic

32 Hasegawa, 'Japan," p. 115. 33 The real estate deal with a Hong Kong firm was subsequently canceled after Japanese pres-

sure was exerted. Similar pressures were directed at South Korea in order to assure that a fishing deal with Russia would not compromise Japan's position on the Northern Territories. See Zinberg and Drifte, "Chaos in Russia," p. 282.

34 Hasegawa, 'Japan," p. 116. 35 Asahi shinbun, April 16, 1993, p. 2.

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Political Economy: Japan s Relations with Russia

community was expressing its unwillingness to support an expanded assis- tance package that was discussed during the preparations for the upcom- ing G7 meeting. The first formal signalling of change occurred in late March when acting LDP secretary general Kato, a close lieutenant of Prime Minister Miyazawa, stated as follows in a speech before a trilateral commission meeting in Washington: "The stability of Russia is extremely critical for the ultimate resolution of the Northern Territories issue. The only action thatJapan can take is to assist Russia in its transition to a mar- ket economy and in its democratization."36 In other words, Japanese aid was to create the conditions for an eventual resolution of the issue rather than serve as a reward for good Russian behavior. The statement was quite significant, for it marked the first public statement by a keyJapanese offi- cial in which economic assistance was delinked from concessions on the territorial issue, and aiding Russia was put forward as a desirable policy in its own right. Kato's speech had apparently been cleared beforehand by the prime minister and had the blessing of the LDP. This apparent shift in LDP stance was followed by a chorus of similar statements to the same effect by other prominent Japanese officials - including Mr. Watanabe. The need to support the Russian reform process economically now became the official line in both official and semiofficial documents.37 Japanese government protestations notwithstanding, it was widely recog- nized in the press that this marked a de facto abandonment of seikei fukabun.

IV. THE CHANGING POLITICAL ECONOMY OF SOVIET/RussO-JAPANESE ECONOMIC RELATIONS

For all its shortcomings, the economic reform process initiated by Gorbachev in 1986 did result in a major decentralization of trade rela- tions between the two countries and this had the effect of bringing new, potentially politically significant interests into the Japan-Russia economic relations issue arena. Whereas the earlier system of state trading virtually mandated that the bulk of bilateral trade be administered through big firm-dominated centralized negotiations of the sort conducted by the JSJCC, the reform process, which was accelerated following the breakup of the Soviet Union, opened the way for direct transactions between firms from both countries. Assisted by a new joint venture law and the opening up of Russian ports in the Far East, during the 1990s there was a dramatic growth of what used to be called border trade, and in particular trade

36 Nihon keizai shinbun, April 17, 1993, p. 1. 37 See, for instance, Saito Kunihiko, "Nihon was naze Roshia ni enjo o surunoka," Gaiko Forum,

vol. 6, no. 7 (July 1993), pp. 4-10; Nakagawa Ichiro, "Shin sekai chitsujo kochiku e no kadai,"Jiyu minshu, no. 484 (July 1993), pp. 44-57.

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involving smaller firms in the Japanese prefectures closest to Russia.38 To take Hokkaido as an example, in 1992 trade between Hokkaido and Russia grew by some 28.6 percent in a year in which overall RussoJapanese trade shrank by 39.9 percent. Hokkaido's share of total bilateral trade grew to 12.6 percent from 5.9 percent in the preceding year, with about four-fifths of that trade consisting of seafood imports. Some 2,730 Russian ships docked in the prefecture's ports that year. Figures for the first part of 1993 suggest that this trade will probably grow by another 25 percent per annum. By 1992, an estimated 75 percent of Russian Far Eastern exports were being directed to Japan. Joint ventures in the Russian Far East also grew steadily, with the bulk of such ventures involving, on the Japanese side, small businesses from theJapan Sea region. OnJanuary 31, 1991, theJapan-Russia Trade Association (an organization of smaller firms) reached a forestry compensation agreement with the Russian republic of Buryat modeled after the earlier big business-dominated Siberian forestry agreements.39

The political impact of this expansion of small firm trade was appar- ent in a number of ways. The concept of a 'Japanese Sea Economic Zone" linking these areas economically with their counterparts in Russia and the other neighboring countries40 has been enormously popular in these pre- fectures, and during the past three years has helped spawn semigovern- mental organizations at the local level aimed at promoting economic rela- tions with the Russian Far East in its name. Among the most active in this regard has been the prefectural government of Niigata, traditionally Japan's gateway to the Russian Far East. In March 1991, a Soviet Invest- ment Environment Improvement Corporation was established in Niigata City with funding from the prefectural and city governments as well as a local bank and fifty-eight interested firms. The firm subsequently helped a number of joint ventures get off the ground, including hotels in Khabarovsk and Vladivostock and a "Russian village" amusement park in Niigata. The prefecture of Aomori followed suit with its own 'Japan-Soviet Trading Company" whose primary line of business is the export of used cars to the Soviet Far East. A number of other prefectures in the region

38 Sergei Manezhenev, "The Russian Far East" (Royal Institute of International Affairs, 1993). See alsoJohn T. Stephan, 'The Russian Far East," Current History, no. 576 (October 1993), pp. 331-36; Ed Paisley and Jeff Lilley, "Bear Necessities," Far Eastern Economic Review, July 8, 1993, pp. 40-42; and Leonid Polishchuk, "Siberia and Russian Far East: Economic Reform, Political Crisis, and New Regionalism" (paper presented at the Role of the New Russia in the Asia-Pacific Workshop, Institute of Asian Research, University of British Columbia, November 13, 1993).

39 Asahi shinbun, July 4, 1993, p. 4; Manezhenev, "The Russian Far East," p. 43; Nihon keizaz shin- bun, February 1, 1993.

40 Hisao Kanamori, "Developing the Sea ofJapan," EconomicEye, vol. 9, no. 4 (December 1988), pp. 24-27; Kazuo Ogawa, 'Japan Sea Rim: Catalyst for Growth," Journal of Japanese Trade and Industry (May 1991), pp. 15-16; TwuJaw-Yann, "The Coming Era of the Sea of Japan," Japan Echo, vol. 19 (Special Issue 1992), pp. 6-13.

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Political Economy: Japan's Relations with Russia

have established similar ventures. Ajoint Deliberation Council on Japan- Russian Far Eastern Exchange (Nichiro Koryu Kyokuto Godo Kyogikai) was formed in April 1992 as an economic and cultural exchange forum representing local governments and commercial interests from both countries. And in July 1993, Niigata prefecture announced the establish- ment of a large-scale think tank devoted to the study and promotion of the Sea ofJapan economic zone. The electoral and pork barrel potential of this growing interest in trade with Russia was not lost onJapanese politi- cians, as reflected in the formation within the LDP of a 'Japan Sea Diet Members League" in the fall of 1991.4'

As long as the Russian foreign exchange crisis continues, the big firms that had earlier dominatedJapanese-Russian trade will continue to act as a constituency for deepened bilateral economic relations in the form of Japanese financial assistance. As in the other G7 countries, the transfer of pledged Japanese assistance has been delayed due to the inability of Russia to meet the conditions imposed for the release of allocated funds. The Russian government, on its part, has so far been either unable or unwilling to establish a repayment arrangement that will satisfy Japanese business interests. This has meant that the amount owed by Russia to these firms has continued to mount. As ofJune 1993, payments in arrears toJapanese firms totaled $1.5 billion.42 Beyond this, these same firms have a built-in interest in having the Japanese government assist Russia in its economic reforms since their Russian business is unlikely to recover unless Russia can attain political stability, generate and improve the qual- ity of its exports, and establish a secure institutional environment for for- eign investment.

One further key actor in the expanding constituency favoring deeper Japan-Soviet economic relations irrespective of progress on the Northern Territories is MITI. The prospect of a transformed economic relationship with its resource-rich neighbor once again captured MITI's imagination following the initiation of perestroika in the late 1980s. Gorbachev's visit to Japan in the spring of 1991 spawned several MITI-sponsored missions to study various aspects of the Soviet economy. This was followed by a wide- ranging series of technical exchange programs with the Soviet Union in the following issue areas: energy, nuclear safety, oil production, the con- version of defense industries, small business, the distribution system, product standardization, productivity, industrial policy, trade, intellectual property and regional development in the Far East.43 What appears to

41 Nihonkai Ken Keizai Kenkyukai, "Kan nihonkai keizai" no mikata (Tokyo: Sochisha, 1992), pp. 91-92, 97-98, 101; Asahi shinbun, May 24, 1993; ibid., July 13, 1993.

42 Asahi shinbun, June 3, 1993. 43 For reports see TsusanJournal (November 1991); Boeki to Sangyo (April 1991, October 1991);

Sugita Sadahiro, "Nihon-CIS keizai kankei," Boeki to sangyo, vol. 33, no. 4 (April 1992), pp. 44-47.

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have emerged from MITI's involvement in such exchanges is a perspec- tive on economic reform that diverges considerably from the liberal eco- nomics-oriented policies that have tended to predominate in discussions of the subject in North America and the UK Instead of laissezfaire pre- scriptions, the definitive feature of the MITI viewpoint is its assertion that state agencies need to play an active guiding role in the process of build- ing market institutions. It is widely believed that Japan's own transition from a wartime controlled economy to a market economy and its subse- quent rapid growth represent an appropriate model for Russia.44 Inter- estingly, this emphasis on the "software" of economic institution-building and a prominent role for the state is shared by the big business commu- nity, as is evidenced in a recent round-table discussion of corporate exec- utives organized by Keidanren.45 One further recurring theme in MITI pronouncements that is also shared by the business community and other groups is the idea that Japan should concentrate its resources on the development of the Russian Far East. To this end, there is considerable talk of future sizableJapanese assistance in infrastructural development in the region. Although not formally linked to this, an idea implicitly associ- ated with these proposals is the 'Japan Sea Economic Zone" that is so strongly championed by local governments seeking to expand economic ties with the Russian Far East. Lurking behind the concept, it seems, is the recent experience of Southeast Asia and the South China Sea where eco- nomic integration precipitated by economic reforms in Communist coun- tries appears to have dramatically reduced cold war tensions and en- hanced international security in that region.46

V. CONCLUSION

During the second week of October 1993, after more than a year and a half of false starts, two cancellations and the violent suppression of his parliamentary opponents, Boris Yeltsin finally visited Tokyo. In a press conference following his summit meeting with the newly installed Japan- ese prime minister, Hosokawa Morihiro, the Russian president appeared to recognize the validity of the 1956 Japan-Soviet communique, even though this was simply something that was indicated in a verbal response to a reporter's question and not spelled out directly in the joint commu- nique. Although given less attention in the press, another highlight of the

44 Sakakibara Takashi, "Soren ryutsu keizai misshon hokoku," Boeki to sangyo, vol. 32, no. 4 (April 1991), pp. 16-23.

45 Yamashita Isamu, Kawade Jiro, Rokkawa Jiro, Aiko Jiro, and Nukazawa Kazuo, "Kongo no nichiro kankei o tenbo suru," Keidanren geppo, vol. 41, no. 9 (September 1993), pp. 10-21. See also Yukitsugu Nakagawa, "Reflections on Restoring the Former Soviet Union: Can the Japanese Experience Help?" IIGP Policy Paper 92E (June 1992); and Kenichi Ito, 'The West's Mad Rush to Throw Aid at Russia," Economic Eye, vol. 14, no. 2 (Summer 1993), pp. 15-18.

46 See the featured articles on the subject in Journal ofJapanese Trade and Industry (May 1991).

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Political Economy: Japan s Relations with Russia

bilateral summit was the adoption of an "economic declaration." In the declaration, the two governments described the integration of Russia into the global economy as something that was intrinsically in the interest of all countries of the world. Japan's postwar economic development was raised as a model for Russia's transition to a market economy and the Japanese government indicated its readiness to share Japan's expertise in industrial policy in order to assist that process. A number of sectors in which economic cooperation would be pursued were listed, including energy, forestry, transportation and communication, the conversion of military plants to civilian use, the peaceful use of outer space and the envi- ronmentally friendly management of the fishery resources of the North- western Pacific. Economic relations between local regions of the two countries was specifically stressed. In a separate agreement, it was decided that new Japanese consular offices were to be established in the coastal cities of Vladivostock and Khabarovsk while Russia would open a con- sulate in Niigata.47 On the surface, it appeared that the "expanding equi- librium" version of Japan's seikei fukabun stance had been affirmed since a Russian "concession" had been attained in exchange for Japanese sup- port for the Russian economic reform process. The wide scope ofJapan's commitment, however, seems well out of proportion to Yeltsin's quid pro quo.

As implied by the preceding discussion, the outcome of the Tokyo summit can be interpreted as yet another sign ofJapan's declining ability to sustain its linkage of economic assistance and progress on the Northern Territories issue. External pressure, and in particular pressure from the United States, has made it virtually impossible for the time being for Japan to not expand its commitments. This pressure has been rein- forced by the crisis in commercial relations involving the country's large trading firms and large exporters. More significantly, in the longer term, it would appear that deepening local level links between the Russian Far East and Japanese communities facing the Sea of Japan are creating an electorally significant interest inside Japan that will make a reversal of this trend toward greater economic interaction increasingly difficult politi- cally. This is being reinforced further by the assignment of technical exchange functions to a central government ministry that has tradition- ally maintained a high degree of independence from MOFA even as it played a prominent role in the determination of Japan's foreign eco- nomic policies. Concepts like the Sea of Japan Economic Zone, in turn, are reinforcing these trends by establishing an international relations rationale for promoting bilateral economic relations.

47 Asahi shinbun, October 14, 1993, p. 4.

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Each of these trends was initiated by Gorbachev's adoption of a more outward-looking economic policy. Prior to perestroika,Japan's Soviet policy and the level and content of bilateral economic relations were deter- mined by the impact of external events on the balance of influence of sep- arate diplomatically and economically oriented domestic groups. Recent developments seem to have tipped the balance significantly in favor of the latter and are redefining the political economy of Japan-Russian eco- nomic relations. Ultimately, the strength of these internal trends will be critically affected by the degree and format of Russia's - and in particu- lar the Russian Far East's - integration into the global economy.

University of Hawaii at Ma-noa, April 1994

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