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Alexander Panov

Head of Diplomacy Department at MGIMO Russia, Chief Research Fellow of the Institute for U.S. and Canadian Studies, Ambassador Extraordinary and Plenipotentiary of the Russian Federation, RIAC member

There is good reason to view the achievements of Russian diplomacy on Asia-Pacific track as obvious successes. Following the collapse of the Soviet Union, Moscow had to practically rebuild its relations from scratch with the countries of Asia-Pacific region - a group that includes former comrades-in-arms from socialist community, US allies, traditionally suspicious and cautious ASEAN member-states, and, naturally, China and India, two countries with growing economic power and political influence.

There is good reason to view the achievements of Russian diplomacy on Asia-Pacific track as obvious successes. Following the collapse of the Soviet Union, Moscow had to practically rebuild its relations from scratch with the countries of Asia-Pacific region (APR) - a group that includes former comrades-in-arms from socialist community, US allies, traditionally suspicious and cautious ASEAN member-states, and, naturally, China and India, two countries with growing economic power and political influence. Russia also had to redefine its role and place within the mosaic of regional relations, as well as position itself with regards to regional organizations.

Russia’s new course of meaningful engagement with the political and economic processes of the region and full-fledged participation in multilateral regional organizations began even before the center of economic and financial activity shifted towards the APR. In the end, this has proved to be the strategically correct choice.

Today, Russia has established friendly and truly non-conflicting relations with all countries in the region, and continues to participate in all multilateral organizations and institutions (with the exception of membership in the Asian Development Bank).

Thus, the initial stage of Russia’s policy on the Asia-Pacific track has been completed. Hosting the APEC Summit in Vladivostok in September 2012 has crowned these efforts.

In particular, the success of Russia’s foreign policy in the East has not only been the result of a comprehensive approach to use all major state resources, but even more so the result of skillful use of political and diplomatic prowess. Unfortunately, these political and diplomatic efforts have not been adequately supported by a meaningful shift toward an expanded economic presence in the region, as evidenced by the lack of dynamic development in Siberia and Russia’s Far East.

The current unresolved politico-military situation in the Pacific area deserves particular attention.

On one hand, contradictions in governments’ foreign policies are growing, territorial disputes are strengthening, and potentially explosive problems refuse to die down – such as situation in both the Korean peninsula and Taiwan.

With its newfound economic power and now modern and well-equipped armed forces, China has begun to even more resolutely assert its international role and claim the region as its top priority.

Photo: US Navy
Andrey Sushentsov:
U.S. military presence in Asia-Pacific region

In turn, United States has responded by attempting to establish a “China containment belt,” made up of states with whom Washington is urgently building friendly relations, strengthening existing bilateral alliances, and increasing its military presence in the APR.

Many states in the region have started to implement large-scale programs for the reinforcement of their military potential, including prioritizing the development of naval forces.

The region is also witnessing the growth of nationalist sentiments.

On the other hand, the APR is undergoing rapid economic integration in various forms, such as the establishment of multilateral institutions, bilateral and trilateral treaties (such as free trade agreements), and international economic cooperation projects, for example the Mekong basin development.

Despite the complexity of the politico-military situation and a number of military deployments (for example, on the Korean Peninsula and near disputed islands), we have seen little intent from any party to escalate the standoff to the level where the large-scale hostilities might be undertaken. Mechanisms to discuss security issues and confidence measures are being established, albeit not without a few difficulties and at a slow pace. Examples include the Association of Southeast Asian Nations Regional Forum (ARF), ASEAN Defense Ministers Meeting, Six-Party talks on Korean nuclear problem, and to some extent the East Asia Summit.

Despite the complexity of the politico-military situation and a number of military deployments we have seen little intent from any party to escalate the standoff to the level where the large-scale hostilities might be undertaken.

It is essential that currently, and at least in the mid-term, new threats are not expected, including military threats against Russia’s Far Eastern borders. As has been already noted, the risks of certain conflict situations being aggravated are already present in the region. However, in the event of escalation of existing conflicts or disputes into an “open phase”, these scenarios may have indirect rather than direct impacts for Russia’s interests.

Moreover, the current situation in the APR is generally favorable for Russia. The regional states do not place any noticeable impediments on Russia’s primarily economic advancement in the region. There has also been serious interest in Russia’s active participation in the discussion of regional security and stability issues and in its cooperation on countering transnational threats such as terrorism, drug trafficking, maritime piracy, natural disasters, and climate change. Quite often the presence of Russia in the APR is regarded as an important element necessary for maintaining the balance of forces and thus regional stability, especially by small and medium regional countries.

Photo: russiatrek.org
Russia's interests in the context of Asia-Pacific
region security and development.
Report №1/ 2012

Upon the completion of the first stage of Russia’s policy on the Asia-Pacific track, Moscow’s main task is to determine the vector of further policy. A choice has emerged between the continuation of what has been done in the past but with slightly greater dynamism and a transition to a new stage of relations, such as launching more comprehensive engagement in the region.

Opting for the first option will not require any substantially new thinking. This approach can sustain Russia’s previous gains in the region and in processes of multinational integration, but will not enable it to fully participate and benefit from the growth of this global economic and financial center of gravity. Moreover, Russia may find itself trailing behind the rapid economic growth experienced by many of the regional powers.

The second option, a comprehensive advance of interests in the region, requires substantial political, economic and intellectual efforts.

Russia must take into consideration the prospects of economic growth in the APR countries when deciding on various development strategies for the Siberian and Far Eastern regions as well as the relevant format for Russia’s involvement in regional economic processes.

According to most forecasts, industrial production in the key countries of the region – China, India, Japan, Republic of Korea, Vietnam, and Indonesia – will continue to grow during the next decade at rather high rates and the demand for natural resources to support this process will increase in stride.

Russia’s territorial proximity to these Asian countries and its vast resource potential in Eastern Siberia and the Far East provide opportunities to benefit from growing demand in these markets and to carry out modernization of the domestic economy on terms advantageous to Russia.

Nevertheless, the supply of Russian energy products to the Pacific energy market (currently the largest in the world) does not play a significant role in the Russia’s overall export of fuel and energy. The share of Russia’s oil exports to the Pacific area, first of all to China, the Republic of Korea, Japan, and the United States, amounts to approximately 15% of total Russian exports on international markets and less than 10% of refined oil products. Exports of liquefied natural gas (LNG) to these countries also do not exceed 7% out of its total export of natural gas. APR’s share of Russia’s exports of coal totals 23%, aluminum – 35%, and copper – 16%.

The development of raw mineral extraction in the eastern regions of the Russian Federation will help attract investments in infrastructure, production facilities to manufacture high value-added products, and enterprises with advanced technologies to produce engineering and construction equipment required for mining and processing enterprises. This in turn will radically change the social and economic situation in these regions and slow down their depopulation. In order to implement these policies, it is essential to launch specific initiatives at the federal level that would provide incentives for economic growth, including directed state funding, the introduction of fiscal and customs privileges, and attracting highly skilled personnel to move to these regions.

The Russian government recognizes the need to address long-standing issue of developing Eastern Siberia and the Far East. In one of his first decrees after his latest inauguration (“On measures of the implementation of the foreign policy of the Russian Federation”), President V.V. Putin declared the objective of increasing “participation in the APR integration processes with the goal of promoting the accelerated social and economic development of the regions of Eastern Siberia and the Far East”. The Ministry for Development of the Far East was also established to implement this policy.

During a meeting with members of the Federation Council on September 17th 2012, Prime Minister D.A. Medvedev endorsed the proposal to apply differentiated fiscal and investment regimes for the Far East and Eastern Siberia.

However, two very different approaches to addressing this problem have emerged. Many representatives of political, scientific, and business communities have come out in favor of the above-mentioned comprehensive, dynamic, and innovative development plans. Speaking at the Vladivostok APEC Forum, the Minister for Development of the Far East V. Ishaev and the Governor of the Amur region O. Kozhemyako noted the importance of establishing special conditions for the development of Far Eastern regions as a necessary prerequisite for ensuring their economic recovery.

Proposals have been made that would exempt all investors - Russian and foreign - from corporate taxes, property taxes, real estate taxes and VAT if they establish new enterprises during the capital cost repayment period for these projects. During a meeting with members of the Federation Council on September 17th 2012, Prime Minister D.A. Medvedev endorsed the proposal to apply differentiated fiscal and investment regimes for the Far East and Eastern Siberia as well as proposed establishing a special fund to finance development projects in these regions.

Alongside the East Development Fund, it also is necessary to establish a Bank specialized in lending to small and medium-size businesses.

It is obvious that in such a vast country as Russia, applying a uniform system of business practices without taking into account the specifics of each region is irrational.

Development plans for the Far Eastern regions that are derived off of “regular, standard conditions” imply resource extraction using old technology and infrastructure. Such an approach will increase exploitation, but limit economies of scale because of insufficient investment, restrictions on foreign investors from exploring new deposits, the absence of necessary infrastructure, and underdeveloped manufacturing capacities. Innovation will suffer under this scenario.

It is essential to develop a comprehensive energy strategy for the regions of Russia in the APR, which for the time being is still missing.

Many expect that budgets will continue to be determined on the basis of the centralization of resource rents and the past practice of financial equalization between the regions. Fiscal and customs regimes will remain unchanged.

On the whole, the economies of Eastern Siberia and the Far East will remain quite static. Slow economic growth will continue as long as prices for raw material remain high, a scenario forecast for the next 10—15 years.

However, if competition increases in resource markets and prices of raw materials fall (for example because of a global economic crisis), the static development model currently in place for these regions will inevitably create additional financial problems for the entire national economy.

We must not forget that just possessing significant resource potential does not guarantee their demand on external markets.

For example, competition is already increasing between both traditional suppliers of national gas (Qatar, Australia) and ones that have recently come on board (Mozambique, Turkmenistan, Kazakhstan, Canada, and the U.S. through its exploitation of shale gas). China and Japan have invested enormous amounts, in the billions of dollars, to acquire and explore gas deposits in Africa and Latin America. At the same time, the development of Russian deposits in Siberia and Sakhalin continues to be delayed. Moreover, a number of foreign producers are already selling natural gas on the global market at prices below Russian rates.

Therefore, it is essential to develop a comprehensive energy strategy for the regions of Russia in the APR, which for the time being is still missing.

Relying on the past inertia of development plans implies placing serious restrictions on foreign investors’ access to new raw material deposits.

Foreign companies, especially ones from Japan and South Korea, are interested in entering the Russian Far Eastern market, including carrying out raw material and infrastructure-related projects. The Russian Far East may also become an important supplier of agricultural products, both for technical needs and for the wider food industry. To achieve these goals, not only foreign equipment, technologies and work force but also foreign investment will be required.

Without sizeable profits or a stable and predictable business climate, foreign business are not interested in entering the Russian market. Unfortunately, there are many recent examples of Russian partners of foreign companies changing the terms of contracts without prior consent or even forcing foreign partners out of projects without compensation.

The region must be “opened” to foreign capital. The experience of China has clearly demonstrated the efficiency of such an approach, without causing detriment to national interests and involved businesses. On the contrary, the inflow of foreign investment will help modernize Russian corporations and facilitate their incorporation of modern methods of management, production processes, and adherence to transparency. In turn, fiscal earnings and budget contributions will grow, making more money available for the modernization of transport infrastructure.

Without radically increasing the railway capacity of the Trans-Siberian and Baikal-Amur mainlines and maritime ports, the idea of creating a transportation corridor from the APR to Europe is nearly impossible. However, plans for arranging this route and feasibility studies are only at the very beginning stages.

Currently, trade and economic integration is gaining momentum in the APR. Two main approaches have been put forward so far.

Unlike the concept of the ASEAN Free Trade Area, the TPP has already agreed to provisions that envisage the total elimination of customs duties within a decade, the liberalization of most service sectors, and a common policy for the protection of intellectual property rights.

The first one is promoted by ASEAN member-states, who established the ASEAN Free Trade Area in 2002. At present, these countries have set the objective of creating a regional free trade area on the basis of the ASEAN treaty, with wider participation to bring in China, India, Republic of Korea, Japan, New Zealand and Australia.

According to a number of economists, establishing such an area will certainly lead to China’s domination, due to its economic power and orientation of ASEAN countries towards the Chinese market. As a result, China will strongly consolidate its position in the APR.

Such a development also does not suit the United States, which currently does not have a free trade agreement with ASEAN and fears being left in isolation or assigned a backseat role in regional trade and economic integration.

Washington has rushed to lead the formation of a Trans-Pacific Partnership (TPP), composed of the USA, Australia, Vietnam, Malaysia, New Zealand, Peru, Singapore, Brunei and Chile. Japan, Canada and Mexico have also been invited to participate in this partnership.

Unlike the concept of the ASEAN Free Trade Area, the TPP has already agreed to provisions that envisage the total elimination of customs duties within a decade, the liberalization of most service sectors, and a common policy for the protection of intellectual property rights.

Indeed such radical measures do not satisfy most ASEAN countries, who fear losing control over the development of their less competitive but still important sectors of economy.

Recently, countries in the region have not only focused on economic development, but also concentrated on building up their armed forces and increasing military spending.

Russia has only just begun the initial stage of negotiating free trade agreements with New Zealand and Vietnam.

On the eve of the APEC Summit in Vladivostok, Russian Minister of Economic Development A.R. Belousov noted that “in the long term, Russia may join the Trans-Pacific Partnership”. Since no further clarifications followed, the impression emerges that as of now Russian economic institutions have not clearly defined their position with regard to either the TPP or the ASEAN concept of a free trade area. However, there is an obvious need to more rapidly define the vector of Russia’s engagement in regional integration processes so as to avoid the situation that existed during Russia’s accession to the WTO.

The Russian Far East offers extensive scientific and technological opportunities for APR countries. Initial steps have been already made in this direction. At the “Vostochny” space facility, a scientific satellite design center could be established for monitoring seismic activity in the region, forecasting climate change, and studying marine environment, including fisheries and safe maritime navigation. Relevant specialists could be trained at the Far Eastern Federal University, which has built new corpuses and equipped them with the latest technology. Scientific and technological engagement with APR countries is a clear sphere of activity where results can be achieved within a very short time frame.

Photo: AP Photo/Kyodo News
Alexei Fenenko:
Territorial disputes in the APR

As has been already mentioned, there is also potential in the APR for the escalation of territorial conflicts, leadership battles, and the resolution of the Korean and Taiwanese dilemmas that have persisted since World War II.

Recently, countries in the region have not only focused on economic development, but also concentrated on building up their armed forces and increasing military spending. One-third of the world’s arms imports flow into the APR countries and naval forces are rapidly being developed. China, Japan, Republic of Korea, and Vietnam are all building or buying the most advanced ships, such as aircraft carriers, destroyers and submarines. The United States has announced its plans to significantly increase the number of its combat ships in the Pacific area.

The Russian Pacific fleet is composed of three cruisers, four frigates and sixteen nuclear submarines. Two big Mistral-class amphibious assault ships will be deployed in the Far East after commissioning.

The concept of a Russian military and naval presence in the region has yet to be worked out according to a realistic assessment of present threats to national security. In the long term, this would help avoiding being drawn in the arms race that would be ruinous for this country’s economy.

In 2010, Russia and China developed a joint initiative to create regional security architecture in the APR. The key principles were defined as the supremacy of international law, a non-bloc policy, equality, openness and indivisibility of security, peaceful settlement of disputes, non-use or threat of force, and renunciation from confrontation. This initiative has been met with interested responses from a number of countries in the region. It is obvious however that due to the vast geographic expanse and the political, economic, ethnic, and religious diversity of potential members, it will not be possible in the near future to establish an organization similar to the OSCE in the APR.

Therefore, ASEAN Regional Forum will remain the most promising platform for discussing and potential coordinating confidence building and transparency measures, including naval activity in the region. We should not exclude that similar issues may be later included in the agendas of East Asia Summits.

The way out of this situation seems to be an idea of holding a conference on the Korean Peninsula that could re-examine peace talks and the establishment of diplomatic relations between DPRK and Republic of Korea, USA and Japan, the denuclearization of the Korean Peninsula, the development of economic cooperation between the two Korean states, and the provision of economic assistance to Pyongyang.

As mentioned above, Russia continues to maintain normal relations with all APR countries. This has provided a unique opportunity to conduct an independent and balanced policy not concentrated on one or two partners in the region. It appears that by keeping its “hands free” Moscow has gained a crucial advantage in ensuring its interests in the region.

Such an approach is especially appropriate in connection with the exacerbating Sino-American rivalry in the region and growing differences between China and a number of regional countries on territorial issues and the struggle for resources in the South China Sea.

The current aggravation of “island differences” between Japan on the one hand, and China, the Republic of Korea, and Taiwan on the other, mirrors the transformation of regional relations. While the Republic of Korea ranks as eleventh biggest economy in the world, Beijing and Seoul are demonstrating a new alignment of forces in contrast to Tokyo, which is losing its economic clout. At the same time, Beijing is even more intensively claiming its right to a number of islands in the South China Sea, where its interests are clashing with the interests of some ASEAN member-states.

Despite the deployment of coastguard or even combat ships to conflict areas, we can safely assume that the hostilities will not follow in turn, even around the Senkaku islands which are under the control of Japan but claimed by China. However, these territorial differences, unlikely to be settled in the coming years, may seriously aggravate relations between major states in the region and also negatively affect further economic integration.

The territorial differences between Tokyo and Moscow are also prone to escalation, but the two sides have demonstrated restraint and a readiness to search for negotiated solutions. “The North Territories Problem” is often used by the Japanese leadership to restrain the development of Japanese-Russian relations. Nevertheless, Japanese businesses find a way to participate in cooperation projects in the Far East when they are economically profitable.

The most significant projects with foreign capital participation in the Eastern regions of Russia have been implemented precisely in cooperation with Japan. They include Sakhalin 1 and Sakhalin 2, the construction of Port Vostochny and LNG plant in Sakhalin, the launch of automotive manufacturing enterprises in Vladivostok and the development of Yakutia coal deposits.

Although in the near future, a solution to the problem of territorial delimitation between Russia and Japan is unlikely be found, economic engagement between the two countries will continue to grow.

Photo: AP/David Guttenfelder
Alexander Vorontsov:
The new face of Pyongyang in Northeast Asia

The situation in the Korean Peninsula remains and apparently will long remain unpredictable and potentially explosive. The probability of large-scale military confrontation or even a war between the Republic of Korea and DPRK is not high. None of the major powers of the region – USA, China or Russia – is interested in such a development. Moreover, Seoul and Pyongyang realize how dangerous the resumption of hostilities would be, especially considering the destructive weapons arsenal both sides possess.

However, instability on the Korean Peninsula, periodic incidents, and the existence of nuclear weapons as well as plans to develop further nuclear missile potential in DPRK seriously complicate the overall situation in Northeast Asia and the APR as a whole. The Six-Party talks on the North-Korean nuclear issue have not produced the expected results. Pyongyang has conducted two tests of nuclear devices. Hopes still remain for the resumption of talks in the Six-Party format, especially with the chance for greater flexibility under the new North-Korean leadership. However, in any event, rapid results should hardly be expected. The acuteness of situation is not limited by the nuclear problem. Until now, almost 60 years after the end of hostilities, an armistice regime rather than a treaty-signed peace, is still in effect on the peninsula. The DPRK has not been recognized and has no diplomatic relations with the U.S. or Japan, and fears to be left “without bargaining chips” at the talks if it abandons its nuclear missile program.

The overall situation in the APR during the forthcoming period until 2020 will be favorable for Russia’s full-fledged and full-scale engagement with various regional integration processes.

The way out of this situation seems to be an idea of holding a conference on the Korean Peninsula that could re-examine peace talks and the establishment of diplomatic relations between DPRK and Republic of Korea, USA and Japan, the denuclearization of the Korean Peninsula, the development of economic cooperation between the two Korean states, and the provision of economic assistance to Pyongyang. This conference could be attended by the UN Secretary General, the five permanent members of the UN Security Council, a number of APR countries and, of course, DPRK and the Republic of Korea.

Obviously this idea would not be accepted offhand. In fact the proposal to hold Six-Party talks on the DPRK nuclear issue was not carried out immediately; during the first stage, talks were held under a four-party format.

Meanwhile, under the pretext of the North Korean “missile threat”, the United States in cooperation with Japan has been taking steps to establish a missile defense system in the Asian-Pacific theatre.

In the long term, this system might also be used against Russia, which would compel adequate response measures. In view of negative reaction to that system already expressed by China, this development may give rise to Russian-Chinese cooperation on the issue.

In conclusion, the overall situation in the APR during the forthcoming period until 2020 will be favorable for Russia’s full-fledged and full-scale engagement with various regional integration processes.

However, the effectiveness of Russian policy to its east will mainly depend on how resolute and rational its efforts will be towards the economic, social, cultural and scientific development of Siberia and the Far East.

Only the recovery of the Far Eastern regions of the Russian Federation combined with consistent and targeted diplomatic activity in the Asia-Pacific Region will create opportunities for Russia to solidify its position as a widely recognized great Pacific power.

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