The crumbling of the Soviet political and economic system, which was accompanied by a prolonged structural economic crisis, as well as the start of market reforms have both resulted in some deep changes in the pattern of Russia's foreign economic relations as a whole and with Asia-Pacific nations in particular. These changes represented only the first step, which was soon followed by significant improvements in the overall effectiveness of these relations.
The abolition of the state monopoly over the foreign trade was the most important development in the generally rather spontaneous chain of events that took place in the early 1990s. In fact, this development had triggered many other important changes in various areas of Russian external economic relations.
The deregulation of foreign economic relations (or, rather, the collapse of the old Soviet system of regulations in this area) had some immediate consequences. First of all, it allowed for a more or less free flow of goods, capital funds and technology over the state boundaries. Secondly, these new circumstances allowed for a different set of actors in foreign economic deals to emerge: some old foreign trade players disappeared while the new ones arrived.
This new freedom to export had allowed many Russian enterprises that had a strong overseas demand for their products, to survive and even expand their production. An almost total lack of demand on the internal market during the crisis period of the early 1990s had greatly facilitated this process, enabling producers in some sectors of the Russian economy to restore their earlier production volumes within a very short period of time through shifting their sales to external markets. Among this group of enterprises were commodity producers (first of all, producers of oil, gas, ferrous and non-ferrous metals), fertiliser-producing plants (which redirected most of their production to export markets rather than "wasting" it on the unproductive domestic agricultural sector), producers of wood products, fish, etc.
As a result of these positive developments Russia had managed to repair some of the major distortions that characterised its foreign economic relations during the Soviet period. But at the same time the country could not avoid some of the negative developments, particularly those that came as a result of the combination of the unexpected economic and political freedom and a rather chaotic development (or even disorganisation) of foreign trade during the first post-Soviet years. For example, many Russian producers found themselves operating in the conditions of an extremely low domestic demand and widespread barter trade, and at the same time had many opportunities to earn large profits on substantial margins that existed between internal and export prices. Some of these producers, particularly those in the ferrous metallurgy, tended to behave too aggressively on the world markets. It did not take long before a co-ordinated retaliation from foreign competitors came to block this type of behaviour. Antidumping procedures against Russian exporters were initiated almost in every significant world market; in East Asia this happened in South Korea, Thailand and even in China. This left most of Russian exporters surprised and lost.
The newly found freedom to trade directly with foreign countries had also resulted in a rush to establish Special Economic Zones in many Russian regions. In many cases these zones took exotic ways and forms, unknown in other countries. In addition, reasons behind the creation of these free trade zones often were rather different from the goals of boosting of the local economic development. This had greatly undermined efforts to use the development of Special Economic Zones as means for encouraging the economic growth in some Russian areas with great potential; the latter included few regions in the Russian Far East.
Positive and negative experiences of the past decade have provided a valuable lesson for Russian government authorities as well as for new private players in Russia's foreign economic relations. This provides ground for long-term improvements in this field, which particularly is important in the era of globalisation that Russia is forced to be a part of.
Economic and political changes in Russia had influenced its economic relations with East Asian countries in a variety of ways. In general, the most important outcome was that these relations became much broader, especially if compared to the Soviet days when they were quite narrow and mostly constituted trade exchanges on a state-to-state basis.
For economic and political reasons Russia could no longer continue the previous pattern of economic relations that existed between the USSR and such countries of the region as Vietnam, Mongolia and, especially, North Korea. These relations were formerly based on the principle of 'friendly mutual assistance'. Through the years, however, the implementation of this principle had inevitably led to the accumulation of debts from these Soviet 'friends'. Under the new circumstances Russia had dramatically reassessed the significance of its economic ties with North Korea and Mongolia; the result was a marked decline in these relations during the 1990s. In the case of its ties with Vietnam, it was only in the last year that Russia had finally started to seek for a new approach to the development of these relations.
Post-Soviet changes in Russia also meant that the larger part of previous trade deals between the Soviet Union and Japan had to be curtailed. This mainly affected Soviet state orders for delivery of Japanese machinery and equipment in exchange for Soviet exports of wood products and other raw materials, as well as exports of some intermediate goods. In the past decade this led to a decline in Russia-Japan trade volumes, despite the fact that most Russians consider their nation's economic ties with Japan as very important ad having a huge potential.
In contrast, it was China and South Korea that in the 1990s have gained a more prominent place in Russia's overall economic relations with East Asia.
Another phenomenon of the recent years was a rapidly growing geographic diversification of Russian economic ties with East Asia. In the past, the Soviet economic relations with East Asia were mainly limited only to the northern part of the region. (Here I speak of the 'normal' economic exchanges, which exclude economic assistance and arms supplies to some 'socialist friends', such as Vietnam.) However, in the period that preceded the Asian financial crisis the rapidly developing East Asian economies became important markets for many Russian exporters. In addition, the importance of East Asia as one of the most promising markets for Russian arms has also significantly increased, although the potential of this market should not be exaggerated. At the same time it needs mentioning that despite the recent growth of its economic relations with East Asia, Russia continues to view its economic ties with Northeast Asian countries as strategically important.
During the days of the Soviet Union the Russian Far East (RFE) shipped a large part of its production to Japan and other countries of the Asia-Pacific region (APR). At the same time the RFE imported goods and commodities from other parts of the USSR. The rapid increase in tariff costs for transportation of goods from European parts of Russia to the RFE, that accompanied privatisation of transport companies and subsequent removal of state subsidies, erected a 'Chinese Wall' between the Eastern and the Western parts of Russia. While this development had caused many negative consequences for the economic development of the RFE, it had also played a major role in boosting direct economic ties between the RFE and Asia-Pacific countries. This led to some significant shifts in the structure of the RFE's foreign trade.
Imports of food products to the RFE are one of the most striking examples of these changes. For many years (and, particularly, during the 1970s and 1980s) some Soviet experts advocated, albeit without much success, the idea of meeting RFE's needs in foodstuffs through direct imports from APR. This, they argued, would have been much cheaper and more economically sensible than the expensive transportation of goods to the region from other parts of the USSR. If implemented, this approach to the rationalisation of the RFE's food supply would allow for saving of a significant amount of budgetary funds. It could also help to diversify personal consumption throughout regions of the RFE.
But it was only after the deregulation of foreign trade in the early 1990s that this option, unquestionable from a market perspective, had finally came to realisation. A long-term dream of many Soviet citizens - to buy a car - was also quickly satisfied by imports of new and used cars from Japan. The latter probably was the best known example of satisfying consumers' needs in the RFE through imports from neighbouring countries, but it was far from being the only one.
It is important to stress that any attempt of Russia's integration into APR will become successful only if the Russian economy will become an important part of the regional economy and at every level: at the level of bilateral relations, as well as at subregional and regional levels. From this point of view the development of Russia's economic relations with Northeast Asia becomes crucially important, particularly because all leading economies of the APR are concentrated in this part of the region: Japan, China and South Korea. While China and Japan are among the group of ten leading trade partners of Russia, during the past decade Russia's trade with China, Japan and South Korea was developing rather slowly (Table 1). Only in the last two years the volume of this trade started to grow.
The co-operation with Northeast Asia opens for Russia a range of possibilities, including an access to growing markets for Russia's traditional exports (fuels, minerals, timber, fish, etc.), as well as markets for some manufactured goods (weapons, military equipment and technologies). Northeast Asia can also become an important source for Russia of foreign investment, high-end technologies and supplies of modern industrial equipment.
Continuation of economic reforms in Russia also creates new opportunities for Russia's Northeast Asian neighbours, such as further increase in imports of Russian raw materials, civilian and military technologies, and expansion of exports to Russia of foodstuffs, consumer goods, technology and capital goods (including foreign direct investment). The potential for increased economic co-operation between Russia and with Northeast Asia is high. In this respect it needs mentioning that in the aftermath of the Asian financial crisis of 1997-1998 the demand for the Russian traditional exports in the APR had shrunk significantly. Therefore, there is little doubt that restoration of a stable economic development in the region will provide good chances for an increase of Russia's trade and economic relations with APR nations.
During the 1990s Russian small businesses had played an important role in the development of economic relations with East Asian countries. A substantial portion of this trade was carried by the so-called 'shuttle traders', i.e. Russian petty traders-importers. The larger part of these 'shuttle traders' in the RFE specialised in imports of foodstuffs and consumer goods from China and South Korea. This kind of business turned out to be quite flexible to various changes; the success of 'shuttle trade' was also greatly dependent on the development of economic conditions within Russia and abroad. Thus, in the beginning of the 1990s shuttle traders were mainly importing low-priced (and often low-quality) consumer goods from the APR, primarily from China. By the middle of the 1990s, in the line with the change in domestic demand for higher quality consumer goods, 'shuttle traders' have switched their preferences towards imports of more expensive goods and of better quality from South Korea. Then, following the August 1998 Russian crisis and the devaluation of rouble, the majority of 'shuttle traders' have again resumed large-scale imports of Chinese-made consumer goods.
'Shuttle trade' in Russia is not calculated officially. However, according to some estimates, the volume of Russian 'shuttle imports' from China is about US$ 3-4 billion a year, and that from South Korea is about US$ 0.2-0.3 billion. That means that the officially released data on Russia's trade balance with Northeast Asian countries (Table 2) should be corrected to take into account these figures1.
East Asian investments in the Russian economy are currently very low: the total volume of FDI from APR constitutes less than 2.5% of the total. This level is simply incomparable with the US and West European investments in Russia (see Table 4). This low investment activity of East Asian businesses in Russia can be explained by a number of reasons. First, there is a relatively short history of economic co-operation between Russia and some of major economies of the region, especially South Korea, Hong Kong and Taiwan. Second, in Russia and in many countries of the APR there is an acute lack of adequate business information about the other side, which is enhanced by a deficit of experience in Russian internal affairs among East Asian company managers and businessmen, as well as the deficit of experience in East Asian affairs on the side of many Russian businessmen. As a result the investment activity of East Asian companies in Russia continues to stagnate. Other forms of economic co-operation, such as development of subcontracting systems, science and technology exchanges, etc., are also left underdeveloped.
In the past many Russian experts and politicians were deeply convinced that the sole fact of Russia's geographic presence in Europe and in Asia would in the future be sufficient for Russia to be successful in playing a role of 'Euro-Asian economic bridge'. Indeed, in the post-Soviet period market economic reforms, which were accompanied by elimination of some major legal and administrative obstacles for foreign investment, did stimulate the development of Russia's foreign economic ties with both Europe and Northeast Asia. But at the same time during the 1990s Russia's role as a transport link between the two major global economic regions had declined significantly. Russia's transportation system was badly disorganised as a result of the economic and administrative disorder in the first years of reforms, which led to the lowering of safety conditions for transit goods. Strikes and political demonstrations were also among frequent reasons for paralysing of business activity of Trans-Siberian Railroad (TransSib). In addition, during the 1990s TransSib lost its price competitiveness compared to the 1980s2. The result was that while TransSib has a capacity of delivering about 160 thousand 20-foot containers from APR to the EU each year, up until the end of 1990s its capacities as 'Euro-Asian railway bridge' were utilised at the level of only 7%.3
During the second half of 1990s TransSib significantly increased its efforts aimed at improving the standard of management, modernisation of the railway network and other infrastructure, and improving marketing system. Transport tariffs on container deliveries were 'frozen' during 1998-20004. During the same period many Northeast Asian companies started to pay much more attention to the speed of delivery of their cargo to Europe, which also helped to raise the attractiveness of TransSib. All these efforts had a major positive effect on the increase of traffic on TransSib: in 1999 the number of containers delivered by the railroad from Northeast Asia to the EU increased by 10% and in 2000 it increased by a further 50%.5
Undoubtedly, these recent moves in co-operation between Northeast Asia and Russia in the areas of transport and communications are very positive. If the trend continues into the future, Russia well may start to play an increasingly important role as the major Euro-Asian transportation and communication 'bridge'.
An economic recovery in Russia in 1999-2000 had also an impact on the development of the Russian foreign economic policy. A new phenomenon appeared, which was a growing influence of Russian business groups in foreign economic relations. By the end of the 1990s Russian businessmen started to pay more attention to the APR, particularly to its northern part. During 1999-2000 the second largest Russian oil company 'YUKOS' had announced of its interest in construction of an oil pipeline that should link Western Siberian oilfields with China (via Mongolia). Other major Russian oil companies - like 'Surgutnefnegaz' and TNK - were also reported as discussing possibilities of involvement in large-scale international energy projects. The Russian natural gas giant, GAZPROM, had reportedly already developed plans for construction of a natural gas pipeline to the some neighbouring Northeast Asian countries. 6 Another Russian energy giant 'RAO UES' recently proposed to establish direct electricity power lines to connect its large power stations in Siberia and the RFE with customers in China, Japan, South Korea and some smaller neighbouring countries in the APR.
It can also be noted that, albeit its limited scope, the co-operation between Russia and Northeast Asia in the 1990s had helped to 'thaw the ice' left by the Soviet policy. Thus, one of important results of the development of economic relations between Russia and the APR in the post-Soviet period was that for many countries of the region Russia psychologically is now more acceptable as an economic or trade partner. Russia is slowly becoming a full and an important member of the subregional economic community. This, of course, doesn't mean that Russia had completely managed to overcome the negative legacy of the Cold War. But what is important is that Moscow has finally begun to create a solid background for the development of its future co-operation with East Asia.
The Russian Far East is the most distant part of Russia. Traditionally, it was also less inhabited and developed part of the country, which inherited deep economic and social problems from the Soviet Union. Within the framework of the Soviet development system the RFE played three main roles: (a) as a major base for extraction of rich natural resources for the needs of the Soviet economy and for exports; (b) as a fortress set to 'to defend the distant frontiers of the country' and to serve military needs as they were understood by the Soviet leadership; and, finally, (c) as a place where numerous prison labour camps, scattered throughout the vast region, were supplying 'cheap labour' for the construction of military and civilian facilities and enterprises, and for the mining industry.
Up until the collapse of the Soviet Union, even despite of some 'softness' of its political regime under Gorbachev, the Far East remained to be the area where any direct ties or links with abroad were strictly prohibited. Particularly since the spread of crisis tendencies in the USSR economy since mid-1970s Soviet authorities were also paying very little attention to upgrading of the RFE's regional infrastructure and its communication network. Instead, huge resources were invested in the construction of Baikal-Amur Railway, which now is grossly underutilised. As a result, throughout the Soviet period the intra-regional and inter-regional infrastructure in the Far East continued to be in a rather poor state. That kind of development resulted in the creation of a costly and inefficient regional economy, which had a variety of deep structural distortions. The status of the RFE was basically kept as an important Soviet military fortress and the supplier of raw materials.
Despite some positive (as well as some negative) consequences of recent economic and political reforms in the country the RFE continues to suffer impediments that arise from the previous pattern of its socio-economic and political development. After reformist experiments of the last decade it has now become obvious that there is an urgent need to find new options for the future economic development of the region that could reverse the current critical economic situation. However, in order for that to happen time and hard efforts are required aimed at changing the previous pattern of mentality about the development prospects of the RFE at both federal and regional levels.
If any significant changes in the regional economy are to occur, they will require a substantial increase in assistance to the RFE on part of the Russian federal government. In particular, such assistance should be targeted towards the development of infrastructure, the support of efforts of local authorities in the region to proceed with market-oriented reforms, and towards a significant improvement of economic co-operation within the RFE. Given its own limited investment resources, the RFE will also have to rely upon a radical increase in investment, which might come from other parts of Russia and from abroad. In the latter case, it needs stressing that the expansion of Russia's participation in the Northeast Asian economic integration can open the door for a dramatic increase of foreign direct investment (FDI) directed towards the RFE's economy.
The above-mentioned features of the socio-economic structure of the RFE had also defined the specific ways, in which the region was reacting to the crisis of the USSR economy and then to market and political reforms that were started in Russia in January 1992. Of particular importance were several closely connected factors. The first factor was a higher share of the military-industrial complex in the manufacturing industry of the Far East than in Russia in general. The economic collapse in Russia at the beginning of the 1990s was largely attributed to the situation in the military-industrial complex of the national economy. But that had particularly negative consequences for the RFE's economy where enterprises of the military-industrial complex, according to various estimates, accounted for between 60 per cent and more than 70 per cent of the regional machinery production (mainly shipbuilding and aircraft industries), as well as for at least 20-30% of the total industrial employment. In addition to that, military-industrial enterprises were funding and effectively managing the social infrastructure of many towns in the region (particularly in Primorsky and Khabarovsky krais). It should be also stressed in this regard that a significant part of the mining sector in the RFE (mostly the production of non-ferrous ores) was also aimed at satisfying the needs of the military production. Thus, the sharp decline in military production in Russia in general had an immediate and severe negative effect on the majority of manufacturing plants and on many mining enterprises in the Far East.
During 1991-1998 the industrial output in the RFE had declined by 61 per cent (in Russia on the whole by 54 per cent); in Khabarovsky krai and in the Amur oblast the falls were more than 70 per cent while in Primorsky krai - more than 55 per cent. These were the Far Eastern regions that were mostly hit by the crisis in the military-industrial complex. In the same period the industrial production in Sakhalin oblast fell by 51 per cent, and in Magadan and Kamchatka oblasts - by 45 per cent. The smallest decline (of 24 per cent) was registered in the 'diamond republic' of Sakha-Yakutia.7
The second factor was the prevailing outward orientation of the RFE's economy where most of production was later exported to other parts of the Soviet Union. This led to extremely low levels of inter-regional economic co-operation in the RFE. On the other hand, the RFE's economy became heavily dependent on supplies of a variety of goods and commodities from outside of the region. The third factor was an exceptionally poor state of infrastructure and communications with other parts of Russia. Under the Soviet planning system these two factors were largely offset by artificially low transport tariffs that stimulated internal trade and helped to keep regional supplies at acceptable levels. When in the early 1990s the state support of the transportation system collapsed, the supplies of machinery and equipment, electricity and fuels, consumer goods and foodstuffs from European parts of Russia and Siberia to the Far East became severely disrupted, prohibitively expensive and, as the consequence, were drastically reduced in volumes.
The fourth factor was the combined outcome of the process of privatisation in Russia and severe budget constraints that the Russian government experienced throughout the post-Soviet period. The transfer of property from the state held the latter no longer responsible for support of the larger part of the Russian economy. While the general lack of budgetary funds meant that the federal government could no longer provide large subsidies and concessions that were earlier provided to the RFE by the Soviet central government. These subsidies were directed not only towards transport tariffs but also towards maintaining fixed and low prices for fuels, equipment, food, etc. In the event, in the 1990s the costs of production of goods in the RFE have increased dramatically, which led to a drastic reduction in their competitiveness on the Russian domestic market. For example, in 1998 less than 25 per cent of Primorsky krai's production was sent to other parts of Russia; the similar figure for 1991 was more than 48 per cent. 8
Finally, the fifth factor was that in the post-Soviet period the Russian government found itself in no position to maintain relatively high income levels of the local population that existed in the RFE under the Soviet system. In addition, most of other social concessions that people in the region received earlier from the government also largely disappeared. At the same time the rising prices for food, utilities and consumer goods meant that the cost of living of the Far Eastern population was also rising rapidly. The result was a fast deterioration in living standards in the region, which was accompanied by the process of significant out-migration from the RFE.
The development of the situation in the Russian Far East during the larger part of the 1990s presented a vivid example of the disintegration of the Soviet/Russian domestic market after the collapse of the state planning system. This process was also accompanied by the easing of the earlier strict political controls of the centre over the regions, which gave many regions a free hand in developing direct foreign economic relations with the outside world. Thus, before the start of economic reforms in Russia 75% of the RFE's output was consumed in other parts of Russia, 19% - inside the region itself, and only 6% was exported. The corresponding figures for the last year were the following: 10%, 75% and 15%. 9
The problems of the RFE that stemmed from the Soviet development model, together with the new conditions that appeared in Russia after the collapse of communism, have left the regional authorities, enterprises and new businesses no other option but to start actively explore possibilities of developing economic ties both within the region and with neighbouring countries. These two latter factors - the development of the inter-regional market and the search for new opportunities for direct foreign trade deals - have facilitated the creation of a more rational demand and supply structure in the RFE, particularly if compared to the Soviet period. However, most of these new developments have taken place within the framework of old economic structures. Irrational approaches, such as a nearsighted desire to get quick profits or a gross lack of understanding of the new market opportunities, were still dominating local economic policies. That is the reason why the current, more rational than in the past, model of the regional economy still can not be considered as a solid basis for the future development of the RFE.
The latest data on industrial production in Russia and in the RFE suggests that despite severely disrupted economic and trade ties with the rest of the country the Far Eastern economy has positively reacted to the general economic recovery in Russia. However, the tempo of RFE's recovery is still well behind that in the other Russian regions.
The continuation of economic reforms in Russia can bring new positive changes for the RFE economy just because of the region's geographic location and the new opportunities that arise from development in the APR. However, these new opportunities have to be strengthened by the Russian federal government support and the combined efforts of local authorities. This is particularly important in the current situation when the first positive boost of the new changes in the Russian economic and political environment is no longer providing its initial encouraging influence on the development of the RFE economy. It is essential, therefore, that the momentum of reforms was continued through the supportive measures at federal and local levels.
Unfortunately, this is currently not the case. The federal government has not clear understanding of the important role that region can play in the overall development of the country. Thus, there is still a desperate lack of a clear strategy for the future economic development of the RFE. On the other hand, the economic policy of local authorities in the area in most cases does not take into account a need for combined efforts. Continuation of the rivalry between Far Eastern administrative areas definitely does not help to change the economic situation in the RFE on the whole for the better.
In previous years regional associations of economic interaction or development were established in many areas of Russia. Formally, similar association was also created in the RFE. However, despite that, there were also many examples of rivalry, separatist decisions or general lack of political will, which have brought a lot of harm to the interests of boosting the regional economic development. Local elites continue to see themselves not as partners but rather as rivals for export quotas, markets, and domestic and foreign investment.
The new economic conditions create excellent opportunities under which it is possible to lower the dependency of the RFE on outside supplies through expanding co-operation between enterprises within the region. But such co-operation was and still is largely blocked by the dominant separatist ideology, which had played a major role in the aggravating of the economic situation in the RFE.
There are even examples of an open inter-regional rivalry, which occurred between regional and local authorities in the Far East. It was this rivalry that largely led to the collapse the development of one of a few special economic zones in Russia with great potential - the free economic zone in Nakhodka. Although it needs mentioning that there were also some other reasons for the failure of the project. Probably the most important of these was the general lack of understanding on part of the federal government that setting a good example of creation of a working and prosperous free zone, like the one in Nakhodka, would inevitably open many more opportunities for the development of the region as a whole.
The geographic position of the RFE, which is located thousands of miles away from those Russian regions, which represent the mainstream of economic activity and reform progress in the country, also had its negative influence. Thus, in the Far East many regional authorities continue to think and act in the framework of a planned economy. Their economic planning is often centred around demands for restoration of state orders (procurements) for production; the state monopoly over exports, production and supplies; investment from the federal budget in projects which often have unclear economic future, and so on. Their mentality is also often based on large-scale (and, ultimately, very expensive) projects, which is in striking contrast to the existing modest funding and investment opportunities in Russia.
With the exception of the Administration of Khabarovsky krai and some local authorities elsewhere in the region, it is extremely difficult to find market-oriented local governments in the RFE. This is in contrast to European parts of Russia, where non-reformists are generally in minority. Many Far Eastern politicians have a tendency of exerting direct and heavy controls over regional businesses. The outcome was the creation of a 'bureaucratic market economy' in the RFE, which is very similar to the one that exists in Moscow but which is based on much more modest financial and political resources. This is exactly the reason why the former is also much less efficient. In addition, this trend towards establishment of an overall control of the local economy in the RFE in the past had greatly discouraged investors from the wealthier parts of Russia (like Moscow, St.Petersburg, etc.) from investing in the region. It was only recently that the process of capital movement from the European Russia to the Far East had started to gain momentum. Currently, there are a number of examples of successful and developing co-operation between manufacturing industries of central Russia and its Far Eastern region.
Russian national interests demand that the federal government pursue an active and focused policy towards the development of the RFE, aimed at ensuring that the region does not continue to lag behind other parts of the country in its development. However, it is also important to make sure such a policy does not follow the fate of the two failed federal Programs of the Economic and Social Development of the Far East and Transbaikal region. The first one was adopted by the Soviet government for the period of 1986-2000, but was never implemented. The current program (for years 1996-2005) is also based largely on the Soviet planning model and, therefore, carries most of its deficiencies, but is supported by much more modest financial resources.
The central problem of the future development of the Russian Far East is that an effective reform in the region requires abundant capital, advanced technologies and managerial skills. But the region itself cannot provide enough of these resources; nor can the Russian federal government at the current stage. Therefore, any realistic option for the economic progress in the RFE will have to depend on a more efficient management of the region's local resources and on the development of international co-operation with its economically prosperous neighbours, such as Japan, China, South Korea and Taiwan.
The continuing growth of the Russian economy in 1999-2001 more than ever before brings to the forefront the issue of its integration in the global economy. This issue is also becoming more and more crucial for the successful implementation of further economic reforms in Russia. During his speech at the G-8 Okinawa Summit President Vladimir Putin stressed that '[i]t is important to what extent Russia will be able to join the world trade, economic and financial system'. He added that in their policies Russia's businessmen should take into account the process of globalisation of the world economy while Russia as whole should not stay away from this process. 10
The other crucial factor for Russia is to be able to exercise influence in the decision-making process that affects global economy and that has a direct impact on Russia's own economic development. This is particularly important because following the collapse of the Soviet Union Russia suddenly found itself outside all major economic unions or free trade agreements, with the only exception of the agreements signed within the framework of the Commonwealth of the Independent States. As a result, since 1992 all Russia's economic ties with foreign (non-FSU) countries became purely bilateral.
In these circumstances it is rather peculiar that the only region, where Russia finally managed to establish itself as a member of regional economic organisation, was Asia Pacific. This was despite the fact, that Russia's trade and economic ties with the APR remain underdeveloped, while most of Russian trade is directed towards Western Europe (mostly the EU). The development of Asia Pacific Economic Co-operation Forum (APEC) in 1990s was accompanied by the growth of Russian attempts aimed at entering APEC structures, first as a member of Pacific regional organisations, and then as a full-fledged member of the Forum. This, however, did not lead to any dramatic increase in the volume of trade and economic relations between Russia and other APEC members. Russian government and business continued to look mainly at the EU as their major partner. Thus, it was rather a strange development: Russia ultimately joined an economic union (APEC) in the region of the world where its economic presence continues to be very limited, particularly in comparison with Russia's presence in Europe. To this day Russia has far less prospects for expansion of its economic relations in the APR than in Europe, both for domestic and external reasons.
The problem for Russia, as a recent member of APEC, mainly comes from the fact that so far it failed to work out any clear and consistent policy aimed at interaction with Asia-Pacific region in general. If such general vision existed, that would help to encourage the Russian government and legislators to implement quick measures to promote foreign assistance for the economic development of the Russian Far East. It could also help to expand Russia's bilateral relations with some of its neighbours in the region.
President Putin's administration has on several occasions addressed the issue of the future of Russian participation in APEC. In particular, Vladimir Putin had recently stressed the importance of an active integration of the Russian Far Eastern economy with Asia-Pacific markets. In his view, this option was a logical consequence of the geographic location of the RFE.11 Although such statements do give grounds for hope, it still remains to be seen whether correct strategic perceptions will be eventually backed by a government strategy and adequate bureaucratic decisions and measures to implement it.
The other problem for development of Russia-APEC co-operation lies in the fact that outside the federal government bureaucracy there currently is no influential nation-wide organisation (political or economic) that is capable of acting as a lobbyist group encouraging the development of Russia's ties with the APR. Currently there is only a meagre hope that regional authorities in the RFE and Russian businessmen with keen interests in long-term economic ties with the APR will take active steps towards establishment of such kind of organisation. If created, such an organisation could greatly facilitate the work on comprehensive perceptions of Russian national interests in Asia Pacific. It could also exert influence on the government policy in the area and provide adequate information for the Russian general public on the APR, as well as draw public support for the development of co-operation with Russia's Asia Pacific neighbours.
Russia became a member of APEC at a time of the Asian financial crisis, when criticism of APEC because of its failure to manage the crisis was mounting. Questions had often been asked whether APEC is still relevant to the region, particularly given the fact that the region today is very different from what it was when the Forum was formed in 1989. Some East Asian countries even started to publicly express doubts that APEC became 'too big and too diverse' with its 21 members to be able to address specific concerns of each country or group of countries.12 Despite current difficulties and uncertainties, the future role of the Forum for Russia is certain to be highly important.
It is clear that Asia-Pacific region is now moving towards new decisions on the regional economic and financial architecture that can be taken in not too distant future. (It remains to be seen, however, what concrete forms these decisions will take: whether that will be establishment of an Asian monetary fund, creation of new subregional organisations, decision on turning APEC into a 'Pacific OECD' or something else.) Even if Russian economic presence within the APR remains limited, there is little doubt that it will be in Russia's national interests to remain involved in the process. 13 This is particularly important because decisions that can be taken in the future by Asia-Pacific countries can have direct and extremely important influence on the RFE's economic performance and on Russia's position regarding the Asia Pacific economy in general.
By joining APEC Russia also became part of the process of trade liberalisation in the APR, under which APEC countries agreed to phase out their trade barriers on a unilateral basis by the year of 2010 for industrialised countries and by 2020 for developing countries. Although this decision might encounter certain difficulties in its implementation, there is also a possibility that it can be put to life even earlier. In any case, this step can be very significant to Russia, and to the Russian Far East in particular.
Whatever the future holds for Russia, it is highly unlikely that Russia can survive on its without co-operating with the outside world. We fully agree with the statement that was recently often repeated by both Russian officials and foreign observers that the development of Russia's ties with the world is crucial both for Russia on the whole, as well as for each of Russian regions. 14 The current economic situation in the Russian Far East leaves no other realistic choice of overcoming past deficiencies and current crisis tendencies, but through developing trade and economic co-operation with region's neighbours.
Vyacheslav Amirov
Institute of World Economy and International Relations (IMEMO)
Russian Academy of Sciences
Email: japan-center@mtu-net.ru
1 The Northeast Asia Trade, Investment and Technology Cooperation: Russian Perspective, M., IMEMO, 2000, p.17.
2 Ibid., p.19-21.
3 Ibid., p.20.
4 "Russian Ministry of Railways is going to invest hundreds of millions of US dollars in the middle-run prospects in computerization of Transsib in order to improve radically transit clearing of customs at eastern and western borders of the Russian Federation and for better coordination between train and ships schedules" (The Northeast Asia Trade, Investment and Technology Cooperation: Russian Perspective, p.19-21).
5 Kommersant-Daily, 5 July 2000.
6 Kommersant-Daily, 25 March 2000.
7 Far Eastern Region and Chita Oblast on the Eve of the Third Millennium (in Russian). Blagoveshchensk, 2000, p.71.
8 Data provided by the Primorsky krai Administration.
9 V. Ishaev. The Far East of Russia: Long-term Prospects for Cooperation in Northeast Asia (in Russian). Khabarovsk, 2000, p.16.
10 Press-conference on the results of the G-8 Summit. 23 July 2000, Okinawa (www.president.kremlin.ru).
11 President Putin's speech at the meeting of federal and regional officials on 'Prospects of the RFE's development', Blagoveshchensk, 21 July 2000 (www.president.kremlin.ru).
12 The International Herald Tribune, 2 May 2000.
13 President Putin stressed this point during his speech in Blagoveshchensk (July 21, 2000). Rossiiskaya Gazeta, 22 July 2000.
14 The International Herald Tribune, 5 May 2000.