The Eastern Economic Forum September 2017: What to Make of It?

Gilbert Rozman

For the third straight year in early September Vladimir Putin traveled to Vladivostok for an international forum with ambitious aspirations. Three objectives stood in the forefront: 1) to spur development of the Russian Far East, thereby solidifying the continued sovereignty by Russia over this distant and sparsely settled frontier; 2) to “integrate” Russia into the Asia-Pacific region, tightening economic and political ties to its neighbors on terms deemed favorable to Russia’s rising leverage; and 3) finally, to strengthen Russia’s geopolitical identity as a great power in a multipolar Asia. With China, North Korea, and Mongolia notably represented at the EEF, the focus in 2017 centered on Japan and South Korea, whose leaders made pitches to Putin for reconfiguring relations despite compelling limitations of their prospects.

When the EEF was launched—not long after the 2012 Vladivostok APEC summit—three assumptions were widely shared: 1) Russia would use as a foundation special relations with China, easily its closest partner in the region; 2) high commodity and energy prices would justify massive infrastructure investments; and 3) both Seoul, in the face of Pyongyang, and Tokyo, under rising pressure from Beijing and Pyongyang, would be inclined to meet some important objectives of Russia. The EEF became an integral part of Putin’s “turn to the East,” establishing an annual marker for how it is faring, where the economics of the Russian Far East occupy center stage, but the complexities of Northeast Asian security loom unmistakably in the background.

Although China was represented by a delegation led by Wang Yang, its presence in 2017, as before, was overshadowed by that of Japan and South Korea. Sino-Russian cooperation is bilateral and through the Eurasian Economic Union (EEU), and there has been no sign of a major Chinese role at the EEF. With Abe Shinzo over the past two years stealing the spotlight and Park Geun-hye in 2016 followed by Moon Jae-in in 2017 making their own play for attention, the EEF has turned into a test of Russia’s ties to US allies in the shadow of US-led sanctions against Russia. The surface mood is upbeat, but sub-surface tensions are difficult to conceal amid regional instability.

Energy corridors remain the key selling points to the Japanese and Koreans, but they no longer have the long-assumed appeal. Lower prices make large, long-term investments riskier. Slower growth in China and little need for new energy supplies in Japan as well as a global glut lessen the need to put a premium on Russian supplies. Government efforts to encourage talks for non-commercial reasons face widespread skepticism among companies. Instead, massive projects are dangled before Russians as part of the end game once other goals have been realized.

Where Putin calculated correctly is that Seoul and Tokyo would keep searching for a breakthrough in relations due to a deteriorating regional security environment. Even if they find little satisfaction, maintaining an upbeat demeanor, e.g., going to the EEF with “plans” for far-reaching agreements appealing to Putin, has become a ritual even if the same “dreams” are pulled from the shelf and dusted off annually. In 2016 Abe grabbed the spotlight; in 2017, it proved harder to alter a somber mood.

As tensions over North Korea—just 70 km. from Vladivostok—were at their peak, just days after it tested what was apparently a hydrogen bomb, business as usual proved difficult. Moreover, as Russo-US relations remained under the cloud of even tougher sanctions and unceasing revelations about Russia’s interference in the US presidential election, Russian ties to US allies could not stay aloof. Also, as earlier hype about the EEF and new Russian policies for the Russian Far East grew stale, a new spike of anticipation was not easy to generate. Thus, the EEF passed without the same fanfare as previously, but Moon and Abe demonstrated that they had goals to accomplish, as they appealed to Putin, trying to change his thinking on relations and on North Korea at what was viewed as a critical time for taking a united stance.

South Korea’s Appeal at the 2017 EEF

Moon Jae-in prepared for his visit with bilateral economic talks, leading to a report.
A highlight of the recommendations newly transmitted from the Korea-Russia Joint Economic Committee was pursuit of an FTA between South Korea and the EEU. Also, there was talk of new cooperation in shipbuilding as well as energy sector. Moon introduced his “New Northern Policy”—replacing Park’s “Eurasian Initiative”—and his “Presidential Northern Economic Commission” during talks with Putin. Framing his overall proposal as new connectivity between the Korean Peninsula, the Russian Far East, and areas beyond, Moon presented South Korea as the best partner for the Far East of Russia. Moreover, he distanced himself from a long-standing image of Seoul making everything conditional on Pyongyang’s change of course, asserting that he was prepared to proceed bilaterally without waiting for North Korea to agree. He appealed to Putin’s lofty aspirations by calling the Russian Far East a “platform for dynamic cooperation that will lead the era of the Pacific Rim.”

One catchy slogan to showcase Moon’s approach was the “9-bridges strategy,” which he embellished as the “royal road to the future.” He flagged broad sectors rather than specific projects: natural gas and electric power, railroads and ports, fisheries and agriculture, and shipbuilding, among others. Already he could point to Korea’s role in building the first ice-breaking LNG carrier for Russia. Moon added that small and medium-sized firms are preparing to become active in the Russian Far East, leaving unexplained why only now. Another theme appealing to Putin is support for the development of the Arctic sea route. Visiting Russia only 4 months after taking office and before visits to China and Japan, Moon suggested that he was outdoing past presidents in prioritizing Russia and is keen on forging close, personal bonds.

Several explanations can be suggested for Moon’s overtures toward Putin. One, in the tradition of the Sunshine Policy, Moon is broadening Seoul’s diplomatic options, perhaps stimulated anew by rockier relations with China—angry over deployment of THAAD—and turbulence due to Donald Trump’s mercurial tone toward Seoul and peripatetic response toward Pyongyang. Two, Moon is desperate about North Korea and is looking for more support from Russia. Finally, there may be a fear factor over what Russia is doing to boost ties to the North and might do ahead. Moon sought to secure Russia’s cooperation with warnings that the North is interfering with plans to develop the Russian Far East, while a joint approach would overcome this. Yet, Putin’s response, skeptical of tough sanctions such as an oil cutoff, did not suggest that a shared understanding was achieved. Although Putin has agreed to tougher UN Security Council sanctions along with China, Moon may be nervous about how well they will be implemented and how Putin will react should talks be launched later.

Progressives are particularly prone to attach increasing importance to Russia’s role in addressing North Korea, despite recognizing its resistance to enforcing sanctions.  Given tensions with China over THAAD, limiting China’s cooperation, and given the oil Russia is supplying to North Korea and the labor it welcomes, cooperation is seen as necessary. Somehow, ignoring years of overtures with similar optimism, it is as if Seoul is poised to win Putin’s ascent to Seoul’s approach to Pyongyang by dangling energy corridors and development of the Russian Far East before him. One article sees new reason for optimism in signs that Japan’s interest in Russia is waning.1

Conservatives are not far behind in their optimism, appraising Moon’s vision of a New Northern Policy uncritically, while pretending that Putin shares the priority of removing the nuclear threat and regaining stability in the region in order to spur economic development.2 Yet, there is also candor about differences on how to achieve denuclearization, as Putin warned against an “emotional approach” of isolating North Korea. Trying to straddle the gap, Seoul Shinmun warned that Moon must first study why Park’s “Eurasian Initiative” failed, hinting that the new plan might not be so different and might have little chance to avoid the same fate.3

South Korea should use investment in the Russian Far East as leverage to weaken Russia-North Korean ties, and at the same time, strengthen the South Korea-Japan-US trilateral security framework into an enduring alliance, one article argued, ignoring Russia’s hostility to this and overstating its priority on economic development.4 The general mood welcomes Moon’s overtures to Putin with hopes for some agreement, but this comes more from feelings of desperation than from optimism about economic ties.

Setting forth in detail Moon’s appeal to Putin, Asahi Shimbun observed that Putin made very clear his rejection of pressure as the solution to the nuclear crisis.5 North Korea had overshadowed the EEF, and the Moon-Putin summit, despite all attempts to find some silver lining, had only exposed a fundamental divide with no sign that it can be bridged. The Japanese media, however divided on Abe’s prospects, saw little hope for Moon.

Japan’s Appeal at the 2017 EEF

In returning to the EEF, as he promised a year earlier, Abe has doubled down on his “new approach” to Russia, further prioritizing economics and personal ties to Putin as if, eventually, that will unlock concessions on their territorial dispute. This time, in response to Putin’s desires, he has pledged to visit St. Petersburg for Russia’s another big economic forum in 2018. Yet, on the Japanese side, each step is linked to the territorial prize—whether or not that means the return of all four islands. The Russian side is not asked to make any major moves, but to speed up agreements on small steps, such as a waste disposal plant on the islands done in a way that does not undermine claims of Japanese sovereignty. Japan is keen on just plowing ahead. This appears at odds with candid assessments of Putin’s spoiler role with North Korea.

On August 28, the optimistic views of Suzuki Muneo and Sato Masaru drew on Mori Yoshiro’s July 9 meeting with Putin to raise hopes that two islands would be returned soon after Putin wins reelection in March and, ideally, in time for the Japanese flag to fly there by the time of the 2020 Tokyo Olympics. They add that after Japan’s economic presence on all four islands intensifies, Russians will feel positive about returning the other two islands too.6 This bombshell prediction as if it were the understanding reached by the Putin-Mori meeting followed a joint article in the same source on July 22, blaming Japanese foreign ministry officials for their handling of relations with Russia. In other words, Japan just needs to try harder.

In a long August issue brief by the National Diet Library, it was noted that without promising the transfer of even one island, Putin’s success in getting Japan’s consent to joint economic activities is considered a big diplomatic victory in Russia as well as an historic Japanese concession. Yet, Russians are concerned about “Japanization” of the islands through joint activities and fear one concrete negotiating condition being met that would lead to the transfer to Japan of Habomai and Shikotan. Overarching themes, however, draw scant mention in the Japanese media in the face of the main focus on minor developments related to travel to gravesites, etc. Still, the issue brief does not avoid mention of the latest Russian affronts—new missile deployments on the islands, designation of a Russian name to a previously unnamed little island, and declaration of an economic special zone to be open to other countries, along with new warnings that Japan needs to show restraint internationally, not just speed up investment in Russia.7 Japanese are coming to recognize Russia’s tougher posture.

While Russians complained about the skimpiness of Japanese investment, Japan was focused on a two-legged process of Abe’s “8-point economic plan” and joint development of the islands in ways seen as favorable to territorial talks ahead. In spite of the upbeat claims at the forum, Japanese sources concentrated on the poor investment environment in the Russian Far East. The biggest casino in Russia, which opened in October 2015, is attracting 360,000 Russians and the same number of Chinese per year, having upped its sales by 20 percent in the first half of this year, as Russians look to the Japan market. Yet, Japanese perceive Vladivostok as a place where plans face long delays due to corruption and a lack of transparency, such as those for a 5-star hotel and shopping arcade planned to stand next to the casino.

As before, Yomiuri Shimbun put the most positive spin on the EEF and the prospects ahead, while further to the right and mostly on the left, media were taking a harsh tone toward Russia—for its negotiating tactics, its North Korean policy and lack of any prospects for loosening ties to China, and the economic prospects in the Russian Far East. As long as the focus narrowly remained on incremental steps for visiting by former island residents there was a way to keep an upbeat outlook without talk of the bigger picture, but that was becoming increasingly difficult in 2017.

The Shadow of North Korea

Putin’s disappointing response to Moon and Abe was that pressure on North Korea is pointless, while insisting that strengthening economic ties with Russia is in the interest of peace and resolution of the nuclear dispute. Divisions over this critical security matter were unmistakable, even if they were left subdued, as if they could be bypassed by Moon’s New Northern Policy and Abe’s New Approach. Thus, the real appeals by the visitors were not the long-term economic development of an area of doubtful commercial vitality and peripheral to their national economic aims, but immediate intensification of cooperation on a vital security necessity. This left the EEF in an odd air of unreality. The massive North Korean nuclear test just 300 km from Vladivostok on September 3 put leaders on notice that there could not be business as usual. Some Japanese media such as Sankei Shimbun found no ray of hope in the discord over North Korea that overshadowed economic talks, while the Abe administration and its media favorites loathed to draw such a conclusion.

Putin made clear to Moon Jae-in that he could not agree to stopping oil exports to North Korea, claiming that civilians and hospitals would be hurt and that Pyongyang should not be driven into a corner.8 This point was reinforced when the DPRK foreign minister was in Moscow three weeks later, as sanctions went unmentioned in favor of a diplomatic solution to the issue, and Russia sought to increase its influence in the North Korea through refusing to follow the US encirclement.9 For Tokyo Shimbun, Russia’s support for the North was unsurprising. Indeed, Russia’s actions reflected deep distrust of the United States amid fear of its military expansion in Korea and sanctions against Russia, and Russian domestic sympathies toward North Korea, a long-time ally, as one poll showed 57 percent blaming Washington for the crisis and only 12 percent, Pyongyang. Russians feel more of a US threat than a DPRK threat.10  

Recently, Japanese media have begun to blame Russia for North Korea. It refuses appeals to pressure the North, seizes the opportunity of deteriorating Sino-DPRK relations to draw closer to Pyongyang, and is so obsessed with containing the United States that it does not take seriously the negative impact on the cause of non-proliferation, according to an editorial in the progressive Asahi Shimbun.11 For the conservative Sankei Shimbun Russia’s guilt was no less. It was intent on using North Korea as a valuable “card” against the United States. In April when Abe met with Putin he complained about Russia launching a regular shipping route between Vladivostok and North Korea, using the same North Korean ship that used to ply between Niigata and North Korea. But Putin dismissed this concern, insisting that freedom of navigation is separate from sanctions. The newspaper also warned that Washington is cool not only to Moon Jae-in’s efforts to start dialogue with North Korea but also to his abiding interest in working more closely with Russia.12

Sankei pointed to news of a secret meeting when, unannounced, North Korean officials went to the EEF and met with Russia’s minister for the development of the Russian Far East. They were encouraged to expect more trade and investment and to draw closer economically to neighboring Russia, as plans were discussed disregarding UN sanctions. Putin asserted that North Korea must be part of the framework of Far East cooperation. Sankei then contrasted this with the deep dissatisfaction with North Korea of residents in the vicinity of Vladivostok after the September 3 nuclear test had rattled areas on their side of the border too.13

One article pointed to Putin’s intensifying support for North Korea. On August 24 Russia and the North Korean embassy agreed to open an official travel office in Moscow “NKorean.”14 Russian exports of gasoline, diesel, and other petroleum products doubled in the first half of 2017 compared to a year earlier, as still quite modest figures omit exports that are “smuggled” across through China. Former officials in the Russian secret police have become military advisors in North Korea, likely with Russian government approval. The article attributes Putin’s increasing support for Kim Jong-un to Russian national identity of treating the United States as the enemy, lumping Japan’s missile defenses and South Korea’s THAAD as additional threats while depicting the North Korean opposition to US strategy as in Russia’s interest in this “war.” A buffer state must be maintained or US power will expand unhindered. As China under US pressure has cut back assistance, Russia is filling some of the slack, the article reports, even as it recognizes that lately at the Security Council Russia has agreed to boost sanctions on North Korea. Such strong criticisms were atypical, but indicative of change.

Sankei editorialized strongly against proceeding with joint economic activities with Russia, pointing to new Russian plans to entice investors from third countries and Russia’s new assistance to North Korea,15 warning too that US secondary sanctions over North Korean dealings could crimp future Japanese economic ties to Russian companies.16

Yoshikawa Motohide, Japan’s ambassador to the United Nations in 2013-16, wrote of stronger Russian resistance (than Chinese) to sanctions in the Security Council, attributing it to both a desire to have its voice heard and preserve its economic interests. When Sino-US agreement was reached, Russia delayed matters and insisted on exclusions. It was dissatisfied that it was excluded from their preliminary consultations, and applied pressure to win concessions on Russia’s chief concerns such as Syria. The ambassador added that Russians have the feeling that they created North Korea.17 This sense of entitlement adds to the price Russia tries to exact for its cooperation. 

Russia’s Pressure Tactics

Instead of striving to find common ground with Japan’s legal concerns, Russians complained about the dearth of Japanese investment on the islands in the aftermath of the December 2016 deal. Further agreement on joint economic activity—seafood farming, greenhouse vegetable cultivation, tours to take advantage of the islands’ special characteristics, installation of wind power generation facilities, and waste-reduction measures—was reached on September 7. Yet, Russia impatiently sought big infrastructure projects, such as a corridor connecting Sakhalin and Hokkaido (rather distant from the islands) with a bridge, tunnel, pipeline, or power transmission line. In August, Medvedev had approved an “advanced development region” on the islands, opening the door to Chinese or South Korean investment on the islands and putting pressure on the Japanese. In Vladivostok, with Abe on the same stage, Putin presented Wang Yang with a medal, remarking that 80 percent of investment in the Russian Far East is from China and then pointedly turning to Abe with the request: “How about upgrading the post of the (Japanese) minister in charge of economic cooperation with Russia to deputy prime minister?”18

When foreign ministers Kono and Lavrov met in New York on September 18, Kono registered Japan’s concern over the new special zone—which could attract Chinese and other firms to the lands Japan claims—and for being forced to act on the five priority economic activities on the islands.19 While some in Japan agreed on accelerating these projects as if legal barriers would somehow be addressed and brushing aside falling Japanese trade in 2016 with the Russian Far East and never-ending troubles for Japanese companies with new regulations and fines,20 Asahi concluded that the strategy of softening Russia up with the “economic card” had failed, as Yachi Shotaro recognized that Russia was insisting on its own laws rather than a “special system” of administration.21

Igor Morgulov made it clear that in joint economic activities, Russian law would apply in contrast to the Japanese position of identifying projects and then facing the issue of sovereignty.22 The Russian side is not reaching for common ground, but is instead issuing ultimatums and pressuring Japan. Having put Japan on notice just a week before the forum of a new special economic zone to attract Chinese and South Korean investors, Russian officials gave it a two-month reprieve to finalize official documents for projects on the islands no matter what progress was made on political issues. This ultimatum was understood to have a big influence on the territorial talks.23 At the forum, strong dissatisfaction was aired with Japan’s investments as the emphasis was put on big state projects, such as pipelines.

Yomiuri stressed the importance of Russia in containment of North Korea and of Abe as the world leader tenaciously trying to persuade Putin, taking advantage of their personal relationship.24 In contrast, Sankei asserted that Russia only views the United States, not Japan, as a negotiating partner on this issue.25 Recognizing the 2-month deadline, Yomiuri was eager to meet it with accelerated joint economic activity, applauding the Abe-Putin agreement in Vladivostok to move in five areas.26 Meanwhile, with a Chinese company laying a 940 km fiber optic cable from Sakhalin to the disputed islands, some concluded that Russia’s capacity to develop the islands was growing as the negotiating position of Japan was weakening.27

Sankei speculated that Putin agreed to UN sanctions as a favor to Abe, allowing him some success, but that comes at the cost of progress on a territorial agreement, as Putin keeps looking for ways to split the US-Japan alliance.28 The EEF was seen, in this light, as an opportunity to capitalize on Abe’s heavy investment in ties to Putin and Moon’s desperation to keep alive his promises of finding a path to negotiations at a time when neither of these predispositions was looked upon favorably by the USA.

Conclusion

Putin convenes regional leaders in Vladivostok not to attract them with appeals to commercial interests and assurances of geopolitical cooperation, but to impress them with the price they may pay if they choose to disengage from Russia. In 2016 Abe was upbeat during his visit, hoping for a breakthrough in relations with Russia by year’s end, while Park Geun-hye felt justified in awaiting Russia’s response to developments in North Korea. Prospects were not as good as these leaders pretended, but the situation appeared to be rather open-ended. By the fall of 2017, a strikingly different atmosphere existed for Abe and Moon as each was preparing to join Putin, not only because of changes in the regional environment, but because Putin had adjusted Russia’s regional policies in an ominous manner.

Toward Japan, Putin had shifted in stages from October-November 2016: putting priority on geopolitics and antagonism to the US-Japan alliance; rejecting Japan’s search for joint development on the islands that are not at odds with legal requirements to keep alive Japan’s sovereignty claims; militarizing the islands beyond anything seen earlier; and threatening with a new status for the islands to bring Chinese investors there. Abe tried to put a bright face on a new agreement to prioritize five areas for joint development, but he was under greatly increased pressure. Putin’s growing ties to North Korea and strong bonds to China set the stage for his discomfort.

Toward South Korea, Putin had intensified his criticism of Seoul’s THAAD deployment while also boosting ties to North Korea contrary to what Moon Jae-in desired. Thus, renewed efforts by Moon to boost economic ties through big projects with Russia had an air of desperation, given the immediacy of the North Korean threat.

Rather than progress in the near-term on joint economic activity and talks to resolve the territorial dispute, Japan can anticipate more pressure from Russia. Instead of any serious movement on economic cooperation or security coordination over North Korea, South Korea also can expect increased pressure. New deals to give Putin economic benefits may be tried to ward off some of the pressure, but they are only likely to demonstrate to Putin that his tactics are working and lead to more of the same.

1. Kyunghyang Shinmun, September 6, 2017.

2. DongA Ilbo, September 7, 2017.

3. Seoul Shinmun, September 7, 2017.

4. Kookmin Ilbo, September 6, 2017.

5. Asahi Shimbun, September 7, 2007, p. 3.

6. Yahoo! Japan, August 28, 2017; Shupun News, August 27, 2017.

7. “Nichirokan no heiwa teiketsu kosho—dainij Abe seikenka no doko—,“ Issue Brief, Chosa to Joho, Kokuritsu Kokkai Toshokan, No. 972, August 8, 2017.

8. Tokyo Shimbun, September 7, 2017, p. 3

9. Yomiuri Shimbun, September 30, 2017, p. 6.

10. Tokyo Shimbun, September 28, 2017, p. 9.

11. Asahi Shimbun, September 8, 2017, p. 14.

12. Sankei shimbun, September 6, 2017, p. 3.

13. Sankei Shimbun, September 10, 2017, p. 5.

14. Diamond online, September 4, 2017.

15. Sankei Shimbun, September 6, 2017, p. 2.

16. Sankei Shimbun, September 6, 2017, p. 11.

17. Sankei Shimbun, September 10, 2017, p. 5.

18. The Asahi Shimbun, September 8, 2017.

19. Sankei Shimbun, September 20, 2017, p. 5.

20. Yomiuri Shimbun, September 7, 2017, p. 7.

21. Asahi Shimbun, September 7, 2017, p. 4

22. Tokyo Shimbun, September 4, 2017, p. 6.

23. Yomiuri Shimbun, September 8, 2017, p. 1.

24. Yomiuri Shimbun, September 8, 2017, p. 3.

25. Sankei Shimbun, September 8, 2017, p. 2.

26. Yomiuri Shimbun, September 9, 2017, p. 2.

27. Sankei Shimbun, August 31, 2017, p. 8.

28. Sankei Shimbun, September 18, 2017, p. 5

#Keywords: economic development #security policy