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A Russian Deal With Japan Finally May Be Possible

Leonid Bershidsky is a Bloomberg View columnist. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website Slon.ru.
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Russian President Vladimir Putin appears to be more open than ever to a compromise with Japan that would end the two countries' post-World War II territorial dispute. Both sides have been making tentative moves toward reconciliation since May, and a deal may finally be in the works after decades of false starts. 

In a recent interview with Bloomberg, Putin explained why Russia and Japan haven't come to an agreement: "We are talking about finding a solution under which neither side will feel put upon, neither side will feel like a winner or a loser." That's the tough part: Russia, where pride about victory in World War II is one of the pillars of national identity, would have to give up a bit of territory to end the dispute with Japan. Even Putin's predecessor Boris Yeltsin, whose government desperately needed Japanese investment and who was on first-name terms with Japanese Prime Minister Ryutaro Hashimoto, could not force himself to part with any of the South Kuril Islands, claimed by the Soviet Union when Japan capitulated in 1945.

QuickTake Vladimir Putin

The Soviet Union and Japan were closest to a deal in 1956, when both countries' parliaments ratified the return to Japan of Shikotan island and the small Habomai archipelago. In the interview, Putin said that Japan had refused to implement the agreement, "and then the Soviet Union, too, sort of nullified all the agreements." That's not quite how it happened: The Soviet Union was enraged by a defense treaty Japan signed with the U.S., and in 1960, and it told Japan that it would only hand over the islands after the withdrawal of all foreign troops from Japanese territory. The Soviets feared a U.S. military presence on the strategically located Kuril Islands, but the Japanese needed protection from Soviet, Chinese and North Korean military might.

The next chance to resolve the territorial issue was in the 1990s, under Yeltsin, but he already faced accusations of selling out to the West. Besides, he had an even better relationship with Helmut Kohl's Germany, which was willing to increase investment, transfer technology and provide technical aid in gratitude for Russia's acceptance of German unification. Yeltsin wasn't big on centralization, either, and the Russian Far East is far from Moscow. The region was pretty much left to its own devices, forced to forge ad-hoc economic relations with China and Japan.

Putin, with his more militant nationalist stand, found it even harder to discuss territorial concessions. Besides, while oil and gas were expensive, his government had plenty of money to invest in the Far East to stave off any threat of secession -- an idee fixe for the Kremlin ruler. Under Putin, the government program to develop the Kuril Islands, which failed for lack of funding under Yeltsin, finally started getting attention. The islands, with a total population of just 20,000 that had been shrinking during the first 15 post-Soviet years, got some new housing, roads and a modern airport that helped establish a reliable transport connection with the mainland. The traditional business, the fishing industry, also received some government support. It didn't look as though Russia would ever have a reason to hand back any of the islands, especially since it plans to build a large Pacific Fleet base on one of them, Matua.

The drop in oil prices and the Western attempt to isolate Russia after the conflict with Ukraine in 2014 changed the calculus. Japan joined the anti-Russian sanctions, and talks about ending the dispute ceased, and just when Russia found itself in more need of a deal than at any point since the 1990s.

Despite budgetary constraints, Putin wouldn't cancel any of the Far East development plans, which he discussed in the Bloomberg interview: Developing the region's vast mineral wealth, including 30 percent of Russia's gold deposits and huge oil and gas reserves, requires better infrastructure, more trained engineers, better living conditions for the locals. Putin also wants the region to become the new base for Russia's space program, and a spaceport is being developed near Khabarovsk. The government program to develop the Kurils, projected until 2025, requires 70 billion rubles ($1.1 billion), more than some much bigger regions are getting.

Cutting back was not an option: Putin is certain that Western adversaries would like to see Russia break up. The Kremlin turned to China for support. Yet, despite China's willingness to cooperate in exchange for access to Far Eastern resources, strengthening the relationship was risky business. The confrontation with the West made China Russia's only big partner in the world, and there were concerns in Moscow about a creeping colonization of vast, sparsely populated Far Eastern territories by Chinese workers and farmers. Every deal to lease land in the region to Chinese companies is presented as akin to treason by the local press. Russia needed another partner in the region, preferably a wealthy and technologically advanced one.

Prime Minister Shinzo Abe's government sensed the opportunity and started talking to Putin in May about stepping up Japanese investment in exchange for a solution to the Kuril problem. He proposed a cooperation plan in the fields of energy, transportation, agriculture, technology, healthcare, urban infrastructure, culture, and small and medium-sized business. In response, Putin stressed that Russian territories weren't for sale -- but he was happy to step up diplomatic contacts. The Abe government is encouraged enough that it recently set up a new ministerial post to oversee economic cooperation with Russia, handing it as a second portfolio to the economy minister, Hiroshige Seko.

No news of a breakthrough came out of Putin's meeting with Abe in Vladivostok on Friday. And yet Putin's opportunism makes a solution possible. The Soviet Union had already once agreed to give up two of the islands. Putin wouldn't be seen as a traitor if he moved gradually back to the 1956 deal, perhaps through interim arrangements like a joint administration.

So far, the Kremlin is careful not to sign anything. Putin said in the Bloomberg interview that that would require the same "high level of trust" that Russia now enjoys with China, and he's clearly concerned about Japan's strong ties to the U.S.: He needs to ensure that Abe isn't simply trying to make a purchase rather than offering becoming the kind of strategic ally Russia needs in the Far East.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Leonid Bershidsky at lbershidsky@bloomberg.net

To contact the editor responsible for this story:
Max Berley at mberley@bloomberg.net