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Russia and Japan at the APEC Summit

Tags: APEC , Putin , Noda , Natural Gas , Russia

Saunders, Paul J.

September 18, 2012

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Though the APEC Summit in Vladivostok may not have produced many high-profile multilateral agreements, it may nevertheless lead to some important results. Still, signing papers is not the same as implementing policies—and those hoping for action on inter-governmental and commercial agreements reached at the event should take nothing for granted.

Practically speaking, large international summits rarely end with major agreements—truly important accomplishments require extensive preparation, challenging negotiation, and often a powerful motivating force, like a deeply committed leader in a key nation or a looming crisis. None of this was apparent leading up to the meetings of Asia-Pacific Economic Cooperation leaders on Russky Island.

Regional Significance

That said, the latest APEC Summit was significant for a few reasons. First, one should not discount the formal agenda. While progress on trade and innovation was limited, and the talks on food security and supply chains appear to have been technical and bureaucratic, getting some level of agreement from a group this large and diverse is valuable—particularly in a region like the Asia-Pacific, where political and security tensions have been slowly but steadily growing. The summit deal to reduce tariffs on environmental goods to 5% by 2015 is modest but useful.

Second, like all big international events, business was not limited to formal summit meetings. Whenever large groups of world leaders gather, they have an opportunity to pursue other issues, whether bilaterally or in smaller groups. On Russky Island, this included a broad range of activities, such as consultations on the Trans-Pacific Partnership and the signing of a Chinese-Canadian bilateral investment treaty. Although US President Barack Obama could not attend the summit due to the Democratic National Convention in Charlotte, North Carolina, Secretary of State Hillary Clinton met bilaterally with several key leaders.

Finally, and perhaps most interestingly, Russia made a major effort to use its role as the APEC Summit chair and host to raise its visibility and strengthen its influence in the region, particularly in East Asia. Moscow spent some $20 billion to prepare for the event, including $1 billion for the world’s longest cable bridge between Vladivostok and Russky Island, where the summit took place. When a journalist pushed Russian President Vladimir Putin to justify the expense during a press conference at the end of the meetings, Putin responded that the spending (largely for infrastructure) would have significant long-term benefits for Primorsky Kray.

But Russia’s efforts before and during the summit went beyond spending, and may reflect a longer-term evolution in the country’s foreign policy priorities. For much of its post-Soviet history, Russia’s Asia policy has seemed to be one of benign neglect; top officials have routinely declared the region to be important, but spent little time and energy on diplomacy there—except, of course, in dealing with China. Despite this, Mr. Putin said at the summit that Russia’s trade turnover with the Asia-Pacific has reached 24% of its overall trade turnover, compared to 51% for Europe. First Deputy Prime Minister Igor Shuvalov suggested that Russia’s trade with the Asia-Pacific could exceed its trade with Europe in 5 to 10 years. This may be overly optimistic without a substantial shift in the energy trade, but Asia’s share in Russia’s exports seems likely to continue growing at the expense of Europe’s.

Energy Diplomacy

From this perspective, one of the most significant announcements at the APEC Summit may well be the $20 billion deal between Gazprom and a consortium of Japanese firms to build a liquified natural gas (LNG) plant and other facilities to export up to 10 million tons per year of Russian gas to Japan and elsewhere in Asia. President Vladimir Putin and Prime Minister Yoshihiko Noda personally signed the agreement and also announced that Noda would likely visit Russia before the end of the year. Even so, there is a long way to go before Japan could receive LNG from the new plant—the parties have yet to agree on a price for the gas.

Unfortunately, considering the experiences of Moscow’s other current and potential customers, this may be no small obstacle. Russia and the European Commission are moving increasingly toward a conflict over gas prices as European regulators press Gazprom to follow European Union rules by providing uniform pricing to EU members—something the company has thus far worked hard to avoid through separate and confidential agreements. At the same time, Russia’s often-discussed framework agreement on natural gas with China has remained stalled for years over pricing. Tellingly, while much media coverage emphasized the warmth of the bilateral meeting between Mr. Putin and Chinese President Hu Jintao, China’s official news agency Xinhua reported that Hu “expressed hope that the countries should observe the principle of mutual benefits to achieve continuous progress” in their energy cooperation—a clear indication that from Beijing’s perspective “mutual benefits” do not yet exist.

One key question is whether Japan and Japanese companies can afford to be as firm in price talks as their European and Chinese counterparts, given Japan’s ongoing energy crisis. While understandable in the context of Japan’s domestic politics, the Noda government’s post-summit announcement of plans to phase out nuclear power by 2040 will not help in negotiations with Gazprom. Still, given its ongoing frustration in Europe and limited prospects for growth in markets there, Gazprom could be somewhat more motivated to proceed with the project.

If the LNG plant does move forward, it could be a helpful step in Tokyo’s relations with Moscow, notwithstanding ongoing differences over the Northern Territories, known in Russia as being part of the Kuril Islands. For his part, Putin has often suggested that a better economic relationship could facilitate talks on the islands. It’s difficult to know whether greater trade and investment could truly open a path to agreement on a challenging territorial issue, but given the limited progress in 20 years since Russian independence, it is certainly worth a try.

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