Fundamental Approach to Japan-Russia Economic Relations
7 December 2015
Japan-Russia Business Cooperation Committee
Keidanren
Amid major changes in the environment surrounding Japan, it is vital to build broader
and deeper economic relations with Russia, both to foster peace and stability in theinternational community and to expand business in the Asia-Pacific region.
This year is the 50th anniversary of the establishment of the Japan-Soviet Business
Cooperation Committee, which was the forerunner of the Japan-Russia Business
Cooperation Committee. As we mark this milestone, and the governments of Russia andJapan make arrangements for President Putin to visit Japan, we have summarised below
Keidanren’s fundamental approach to Japan-Russia economic relations, which will set
the direction for the future activities of this committee.
1. Keidanren Initiatives to Date
Since the establishment of the Japan-Soviet Business Cooperation Committee in 1965,
Keidanren has been involved in setting up national projects and other initiatives, acting
as a contact point for discussion of bilateral trade and investment. Following thetransition to the Russian Federation, Keidanren has actively contributed to thedevelopment of Japan-Russia economic relations through initiatives including
cooperation with the Russian business community to convene 13 joint meetings of theBusiness Cooperation Committee since 1993 and the dispatch of business missions tothe Russian Far East and other regions.
Since 2005 Keidanren has also conducted an annual survey of Japanese companies toaccurately identify problems they face in doing business in Russia and improvements
they would like to see, and urged the Russian government and other relevant parties toimprove the business environment. Although many aspects of these ongoing initiativeshave yet to produce sufficient results, the business environment in Russia has gradually
improved. 1
2. Current Assessment of Japan-Russia Economic Relations
Trade between Japan and Russia reached its highest-ever level in 2014, rising 6.3% fromthe previous year to a total value of around 3.6 trillion yen. However, although Japanese
imports from Russia set a new record of 2.6 trillion yen amid rising energy and resource
imports in the wake of the Great East Japan Earthquake, Japanese exports to Russia fell
1Since joining the World Trade Organization in August 2012, Russia has steadily risen in the WorldBank’s business environment rankings, moving from 112th place in 2013 to 51st place for 2016
(Doing Business 2016: Measuring Regulatory Quality and Efficiency).

1

below 1 trillion yen, declining for the first time since the Lehman crisis.
Japan currently ranks as Russia’s sixth-largest trading partner for both exports andimports, whereas Russia only ranks as Japan’s 14th-largest trading partner for exports
and its 12th-largest trading partner for imports. Moreover, Japanese FDI in Russia fell
below 300 million dollars last year, indicating that Japanese companies are still taking acautious stance towards Russia.
Sluggish domestic consumption in Russia associated with last year’s rouble depreciationand inflation has certainly had an impact on trade and investment. However, considering
the economic might, market scale, and geographical proximity of Japan and Russia, it
would be difficult to conclude that the full potential for bilateral trade and investment
has yet been exploited.
3.

Problems Faced in Doing Business in Russia: Issues the Russian Government
Should Address
According to the latest results of the above-mentioned survey on the Russian businessenvironment, 2 the proportion of respondents not currently doing business in Russia orplanning to do so in the future who regard business prospects in Russia as “Verypromising” or “Promising” plunged from 43.8% in 2014 to 15.6% in 2015. Behind thisincrease in the proportion of companies taking a pessimistic view of Russian businesslie not only economic factors such as the slump in the economy associated with low
crude oil prices and a resource-dependent industrial structure, but also political factors
including sanctions against Russia. Reflecting this negative corporate mindset, theproportion of companies saying that they intend to “Expand or strengthen” business in
Russia fell from about one-half last year to around one-third this year.
When asked which parts of Russia they regard as promising, most respondents continue
to express interest in European Russia, with 90% regarding this region favourably.
Interest in the next-highest region, the Russian Far East, had been on a steady upward
trend since 2007, but last year dropped off for the first time and declined to below 50%.
Despite Russian Government initiatives such as new special economic zones and theEastern Economic Forum, it is important to bear in mind that Japanese companies do
not necessarily have high expectations. To use the Russian Far East as a gateway toleverage expansion in business between Japan and Russia, the Russian government
needs to address the following points:(1) Administrative issues (complicated approval and authorisation procedures, lengthy
waiting times for approvals and authorisations, discrepancies among different
administrative agencies, institutionalised bribery and corruption, etc.)(2) Legal issues (vague and unclear interpretation and application of laws, frequent legal

2

Survey on the Russian Business Environment (FY2015), published on 17 September 2015,
available at http://www.keidanren.or.jp/policy/2015/081.pdf (in Japanese) andhttp://www.keidanren.or.jp/en/policy/2015/081ru.pdf (in Russian)2

changes, new laws brought into force without operational regulations, confusion inadministrative agencies during transition periods for revised laws, etc.)(3) Issues relating to export and import procedures (opaque and complicated procedures,
arbitrary decisions and responses by officials, limited use of letter of credit settlement
associated with banks targeted by sanctions, etc.)(4) Issues relating to tax and accounting systems (complicated procedures for refund of
VAT and import duties, deviation from International Accounting Standards,
complicated procedures for payment of insurance benefits, frequent system changes,etc.)(5) Issues relating to immigration and employment procedures for expatriate staff(lengthy waiting times for visas and work permits, frequent system changes, opaqueprocedures, etc.)(6) Issues relating to financial policies and systems (continuing high interest rates,
unstable exchange rates, complicated settlement procedures with foreign financial
institutions due to financial sanctions, etc.)(7) The Russian government’s policy of giving preferential treatment to domestic
industries (import substitution policy)
The Russian government should strengthen its efforts to improve the businessenvironment, positioning such measures as the best prescription for promoting economic
recovery and closer economic ties with Japan. In doing so, it should establish a forum
for discussion between public- and private-sector representatives of both Russia andJapan with a view to drawing up a specific action plan giving consideration to timelines.
Such an action plan would provide an effective basis for steady, continual efforts toresolve issues through implementation of a plan-do-check-act (PDCA) cycle.
4.

Towards Broader and Deeper Economic Relations between Japan and Russia:
Issues to be Addressed Under the Leadership of Both Governments
To build broader and deeper economic relations between Japan and Russia, bothgovernments should address the priorities listed below in an effort to move forward withexisting projects and identify new initiatives.
(1) Development of Core Infrastructure and Urban Environment Infrastructure in
RussiaRussia, especially the Far East region, has a high need for electric power infrastructure
including oil and gas development and LNG export facilities, distribution infrastructuresuch as railways, and urban environment infrastructure.

Given these circumstances, to move ahead with the mutually beneficial projects listed
below for development of core and urban environment infrastructure, it is important forJapan to attract private-sector funding by expanding finance and guarantees available
through the Japan Bank for International Cooperation (JBIC) and insurance available
from Nippon Export and Investment Insurance (NEXI) as well as relaxing conditions3

imposed by these organisations. Flexible use also needs to be made of support systems
in the energy sector such as those available through the Japan Oil, Gas and Metals
National Corporation (JOGMEC).
Core Infrastructure(a) Resource and energy development (oil, gas, rare metals, etc.)(b) Development of LNG export facilities and gas pipelines(c) Electric power infrastructure (upgrading of obsolete power generation facilities,upgrading and modernisation of power transmission networks, energy conservation,
renewable energy, nuclear energy, etc.)(d) Distribution infrastructure (modernisation of the Trans-Siberian Railway and theBaikal-Amur Mainline, development of railways from coalmines to export ports,
expansion of national highway network, development of ports accessible by large
ships, expansion and modernisation of existing port facilities especially in the Far
East region, development of ice-free ports, upgrading of international and domestic
airports, etc.)(e) Development and expansion of ICT networks
Urban Environment Infrastructure(f) Upgrading of water supply and sewerage systems(g) Development of waste disposal facilities(2) Bilateral Public- and Private-Sector Cooperation Aimed at Modernising theRussian Economy
To promote modernisation of the Russian economy, the Russian government isencouraging foreign investment in Skolkovo and advanced social and economic
development territories through bodies such as the Japan-Russia Advisory Council on
Modernization of the Russian Economy and the Eastern Economic Forum. To provide
backing for this series of Russian initiatives aimed at transforming and diversifying theindustrial structure, the Japanese business community requires detailed information thatwill help Japanese companies to make investment decisions.
At the same time, to effectively utilise Skolkovo and new special economic zones in theFar East, the public and private sectors of both Russia and Japan should set up userfriendly cooperative frameworks and systems for implementing a PDCA cycle
incorporating feedback from users and investors, and take steps to ensure the visibilityof progress.
(3) Intergovernmental Discussion Aimed at Encouraging the Movement of NaturalPersons
As mentioned above, immigration and employment procedures for expatriate staff
entering and leaving Russia present major obstacles to business. A bilateral agreement
simplifying visa procedures by shortening the timeframe for visa screening and4

extending the validity of multiple-entry visas took effect in October 2013, resulting in
simplification of certain procedures.
However, since January 2015 it has been mandatory for staff other than highly qualified
specialists (HQS) to pass a Russian-language test on Russian society, history, law, etc.
in order to obtain a work permit, and this has placed greater burdens on companies thatare considering rotating or increasing their expatriate staff.
With a view to enhancing economic relations through free movement of natural persons,the governments of Japan and Russia should aim for reciprocal visa waiver arrangements
and relax immigration and employment procedures for expatriate staff.
(4) Japan-Russia Cooperation in the Arctic Ocean
The Arctic Circle has long attracted international attention due to the potential of
untapped undersea resources and consideration for the establishment of Arctic shipping
routes. Given this interest, the Government of Japan has determined a fundamental plan
entitled Japan’s Arctic Policy, which includes Japan’s intention to take an active part ininternational rule-making on matters such as resource development in the Arctic Circle.
The Policy sets out Japan’s commitment to reinforcing its efforts to play a leading rolein Arctic Circle development. 3
It is vital for Japan to maintain ongoing dialogue with Russia and other Arctic Circle
nations as it proactively participates in international rule-making related to Arcticdevelopment. In the aim of resolving global issues, the public and private sectors of both
Japan and Russia need to explore and expand cooperative relationships to pursue thepotential for developing Arctic shipping routes and conducting resource exploration
while making optimum use of Japan’s strengths in science and technology.
5. Conclusion
Difficult political and historical issues still remain to be resolved in both Russia andJapan, but we hope that efforts to build broader and deeper bilateral economic relations
will have spillover effects on other fields and lead to a positive future for both ourcountries, including the early conclusion of a peace treaty.
To enhance the overall capabilities of Japanese public- and private-sector players
contributing to Japan-Russia relations, the various councils and forums devised andoperated by the Prime Minister’s Office and other relevant ministries and agencies need
to be organically linked and appropriately integrated as required.

3

Japan’s Arctic Policy (October 16, 2015, Headquarters for Ocean Policy)
Full text in Japanese is available at:
http://www.kantei.go.jp/jp/singi/kaiyou/dai14/shiryou1_2.pdf
A provisional English translation can be downloaded from:http://library.arcticportal.org/1883/

5

Keidanren will continue business dialogue with our Russian neighbours in the aim ofbuilding truly reciprocal and multifaceted economic relations and fostering mutual
understanding and trust. We will also strive to make even greater contributions to closer
economic relations with Russia based on Japan’s distinctive corporate culture andmanagement philosophies, including our approach to cutting-edge technologies andexcellence in manufacturing.

6