nternational Cooperation at the Local Level :Primor's and Niigata in the Northeast Asian Context(1)

SRC Winter Symposium Socio-Cultural Dimensions of the Changes in the Slavic-Eurasian World ( English / Japanese )

International Cooperation at the Local Level :
Primor'e and Niigata in the Northeast Asian Context

Katherine G. Burns

Both Primorskii krai and Niigata prefecture have strong reasons for initiating and supporting international cooperation with their Northeast Asian neighbors, notably Japan. However, while Niigata has been largely successful in its efforts to promote international cooperation, Primorskii krai remains suspicious of cooperation with Asia. This paper examines three aspects of local government involvement in the international arena: the "peripheral" status of both Primor'e and Niigata, local levels of international trade and investment in the Northeast Asian context, and local strategies as they relate to the pursuit of international cooperation in Northeast Asia.

Primor'e

Cooperation with the booming economies of Northeast Asia, and with Japan in particular, is an essential precondition for successful development in the Russian Far East and for Primorskii krai in particular. The radical decentralization of control in foreign economic relations which followed the dissolution of the Soviet Union, has delivered the fate of local development into the hands of local government officials. In Primorskii krai, the post-Soviet period witnessed an initial flowering of foreign economic activity. Since 1993, however, the krai's industrial capacity has floundered, and trade flows have fallen off. Local government has become embroiled in political infighting, much of it connected to efforts to profit from the region's budding export industries. For this reason, Primor'e has yet to make significant progress in cooperation with the Northeast Asian countries.

Isolation--Past and Present *1

Nine thousand three hundred kilometers and seven time zones east of Moscow, Primorskii krai has been largely isolated from the bustle of the national capital. Physical distances aside, the krai's proximity to Asia--poised on the northern borders of North Korea and the People's Republic of China, and a mere hour's flight off the eastern coast of Japan--has raised psychological barriers between Moscow and Vladivostok. Of Asia, yet not Asian, Primor'e is at once divided from the Russian heartland and from its Asian neighbors.

Cold War barriers compounded Primor'e's sense of isolation, and recent developments have done little to mitigate Primor'e's fear of isolation and Asian encroachment. Home to the Soviet Union's formidable Pacific Fleet, Vladivostok was a closed city until 1992. An opening to Asia in the post-Cold War era, while raising hopes of economic prosperity, did little to mitigate the krai's sense of isolation. The new era brought a lucrative influx of Asian business to the region, but increased interaction with Asian neighbors raised fears of a new "yellow peril." Old memories die hard in Russia's Far East, and Asian incursions have been a feature of the region's political geography for centuries. A 1991 agreement between Moscow and Beijing ceded 15 km of Primor'e border area to China, further enflaming local fears and raising suspicions that Moscow did not have the region's best interests in mind.

An initial flurry of trading activity in 1992 raised hopes that interaction with Asia would alleviate the krai's growing economic crisis. However, with non-payments endemic, and local infrastructure hopelessly underdeveloped, Asian businesses limited their activity to export of raw materials, often demanding payment in advance, or even resorting to barter. By 1993, misplaced hopes that the opening of Vladivostok would bring increased prosperity compounded to the krai's growing sense of isolation. Total turnover in Primor'e's three main ports--Vladivostok, Vostochnii, and Nakhodka, actually fell in 1993, as did levels of foreign trade activity in the krai's enterprises. *2

By December 1993, with hopes for economic revitalization dashed, growing xenophobic fear of Asian encroachment, and increasing isolation from Moscow, political activity in the krai focused almost entirely on a local strongman--the governor, Yevgenii Nazdratenko. *3 Vowing to protect the krai from Asian incursions and wrest subsidies from Moscow for the region's ailing enterprises, Nazdratenko came to power in March 1993, at the head of a union of enterprise directors, --PAKT-- the Primoskii Monufacturers Shareholders Corporation. Such policies have done little to foster ties with Russia's Northeast Asian neighbors.

Foreign Economic Relations--the trends *4

In view of the deteriorating economic situation in Primorskii krai, the precipitous drop in government orders, and the general lack of financial support from Moscow, a reorientation of the local economy towards the booming Asia-Pacific region would provide the most expedient solution to the region's economic woes.

The Cold War era was indeed followed by an initial period of increased international activity in Primor'e and Northeast Asia. Most noticeable was the growth of trade between Primorskii krai and the People's Republic of China which, by 1993, accounted for 45 % of the krai's total trade turnover. Similarly, trade with Japan reached 28 % of the 1993 local trade turnover, primarily in the export of raw materials. In late 1993, however, and particularly in 1994, foreign trade and investment began to fall off, a victim of the unstable Russian economy, soaring transportation fees, high tax rates, and a general lack of legal as well as physical infrastructure.

Trade between Primorskii krai and its three main partners--Japan, China, and South Korea, fell off sharply, from a total of 771.4 million US dollars in trade turnover in 1992, to 456 million in 1994, a drop of Northeast Asiarly 60 %. An examination of the trade data by country reveals that by 1994, Japan came to dominate Primor'e's export industry--primarily fish and sea products, fuel, timber, and energy resources. The growth of exports to Japan, accompanied by a dramatic drop in exports to China, meant that by 1994, 57 % of Primorskii krai's exports were directed to Japan. Between 1992 and 1994, the percentage of trade turnover directed towards China fell from 45.7 % to 14 %, while that directed to Japan rose from 22.4 % to 49 %, mainly due to the growth in exports. Trade with South Korea has grown steadily, although in 1994 it accounted for only 14 % of the total trade turnover. In 1995, however, the share of Primor'e exports directed to Japan fell to 48.9 %, while exports to Korea rose to 10.6 %. *5 Data from joint venture activities in 1994 and the first quarter of 1995 further attest to Japan's power in the region. In 1994 Japanese-Russian joint ventures accounted for 37 % of trade in Primor'e (conducted by JVs), and 31.2 % in the first quarter of 1995.

Local Strategies and Foreign Economic Relations

Nazdratenko's advent to power in 1993, coincided with the steep fall-off in international trade in Primorskii krai. Nazdratenko's administration has pursued policies which have at times thwarted international interaction in the krai and simultaneously enhanced local government control both directly over the enterprises involved in cooperation abroad, and over flows of capital from abroad. Thus, although the administration has not always opposed international economic cooperation per se, it has sought to gather to itself as much of the financial benefits as possible, thereby expanding it grip on political power in the krai.

Perhaps the most obvious trend set by the krai administration has been the drop in imports from China. Dismayed by the flood of Chinese traders and workmen into Primor'e, in the summer of 1994, the governor's team initiated a barrage of anti-Chinese propaganda designed to discourage trading with the People's Republic. Programs on the local television station portrayed Chinese workmanship as shoddy and unreliable, Chinese workman as taking jobs away from Russians, and Chinese traders as selling substandard products in Vladivostok. Chinese workers are willing to work for less than Russians and even today often provide the bulk of construction crews for projects throughout the krai. With a severe labor shortage throughout the Far East, a cutback in Chinese workers effectively means a slow down in the local construction business. Moreover, in the summer of 1994, the Primorskii krai administration initiated "operation foreigner," closing down entry points along the Russian-Chinese border, enforcing new visa regulations, and stopping anyone Asian in the street to demand documentation. As a result of these polices, imports from China fell off rapidly from a high of 320 million US dollars in 1992 to a mere 24 million in 1994.

Rather than fostering international cooperation, the Primor'e local government has concentrated the bulk of its efforts on controlling export-oriented or transportation enterprises. Such, for example, was the case on January 1995, when the krai administration attempted to hook up with foreign investors to dismiss the management of the refrigerated fishing fleet, VBTRF. *6 A former PAKT enterprise, VBTRF had fallen foul of the Nazdratenko team when the enterprise's general director, Nikolai Nikitenko, had fired Igor Lebedinets, later the Primor'e vice-governor, and then local Duma chairman. Lebedinets retained control over 15 % of VBTRF stock through his wife. Although the attempt eventually failed, the clear goal of the administration was to remove Nikitenko through control of government stocks held by the local Property Fund.

Besides using control over stocks to gain leverage over Primor'e's export-oriented industries, the krai administration has been able to benefit from its increased control over the distribution of quotas, and its power to award perks to particular enterprises. Close consultations between krai administration leaders and directors of Primor'e fishing enterprises, for example, have resulted in reduced electricity bills for these enterprises. *7 Where such local government subsidies have been insufficient, however, many local fishing enterprises have resorted to selling, or bartering fish on the high seas, in return for cash, or other forms of compensation, such as free ship repair in foreign ports or free fuel. While the local government has been able to reward fishing companies with quotas, the administration has also been able to benefit directly from the quota system: In May 1994, for example, the Primorskii krai administration sought ten-year loans from foreign banks, offering as security, quotas allocated for the year 2004. *8

In the transportation sector, the local administration has sought to exert control over foreign interaction through control of bankruptcy laws. One such case was that of the dispute between the local airport and the Vladivostok-based airline company, Orient Avia. According to Vladivostok sources, a major portion of Orient Avia's stock is indirectly controlled by the governor, and more obviously, the president of the company was the Vladivostok city mayor, a loyal Nazdratenko appointee. *9

Orient Avia offers the best and cheapest service to points around Russia but plans to open routes to key Asian destinations such as Hong Kong and Seoul. A written agreement signed by the krai administration and Orient Avia representatives pledged local government support for the airline company. However, when the Vladivostok airport refused to grant Orient Avia special privileges, namely a 50 % reduction in fees for airport use, the krai administration attempted to declare the airport bankrupt and remove the management. In a heated meeting held at the airport at the end of May, Vladimir Saibel', the general director of the airport, defended his company's integrity and accused the krai administration of attempting to use the airport to subsidize the local airline. *10

Thus, while the current administration professes to focus on "development" and to support growth in the export business, the name of the game in Primor'e politics is clearly power and control. Perhaps the clearest indication of the administration's policies has been the recent formation of a new Financial Industrial Group, "Primor'e." Officially founded in December 1994, the group counts among its mandates the "growth of export potential" in the krai. Operating along the lines of its predecessor, PAKT, the group unites the largest military-industrial complex enterprises in the krai. Ten percent of the group's founding capital is held in government stock, thereby granting the administration a decisive say in the group's activities. *11

While the group intends to enhance the krai's export potential by demanding special privileges from Moscow, it effectively places control of enterprise activities and profits in the hands of local government officials.

Conclusion

Local actors in Primorskii krai clearly feel they can benefit from increased interaction with their Northeast Asian neighbors. They have therefore taken measures to increase local autonomy and even facilitate international interaction. They have not, however, endeavored to bargain effectively with central authorities, or to draw Moscow into international negotiation with Northeast Asia. Rather, local leaders have focused on consolidating local power and control over profits from foreign trade an investment. For this reason, local efforts lack central support, and negotiation at the national level is not progressing.

Niigata

Like Primor'e Niigata prefecture has a vested interest in increased interaction with its Northeast Asian neighbors, and with the Russian Far East in particular. Over 63% of the prefecture's export activity relies on Northeast Asian markets, and almost 40% of Niigata's exports go to Russian Far Eastern ports. Niigata officials have made a long-term and concerted effort to increase interaction with Northeast Asia. Despite their efforts, however, Niigata's trade with Russia has fallen off sharply since 1991, due to the uncertainty of the Russian market. Nonetheless, the prefecture's efforts to attract national and international attention to "Japan Sea Rim" cooperation are beginning to bear fruit, and international initiatives are moving forward.

Socio-economic background--a peripheral region *12

Located on the West coast of Japan, also known as the "backside" of Japan, or the Urannippon, Niigata prefecture faces west over the Japan Sea towards the Koreas and the Russian Far East. The prefecture is the fifth largest in Japan, commanding a territory of 12,582 square kilometers, but with a comparatively low population: only 2.5 million, or approximately 200 people per square kilometer. The prefecture's capital, Niigata City, is linked with the country's capital by the Joetsu Shinkansen, which takes slightly over 2 hours to make the trip from downtown Tokyo. Niigata City's East Port is the largest on the Japan Sea side of the country.

Niigata is predominantly agricultural: The prefecture is ranked seventh in the country in terms of agricultural work force, with approximately 155 thousand Niigata residents working in the agricultural sector. Niigata is Japan's foremost producer of rice. The prefecture accounts for about 8.5% of Japan's total rice harvest, and 70% of Niigata's agricultural production is rice. Rice farming aside, Niigata is comparatively underdeveloped. The prefecture accounts for only 2.7% of Japan's total number of enterprises and 2.5% of Japan's industrial work force. The total value of Niigata's industrial output in 1992 stood at approximately 5 million dollars, or a mere 1.5% of Japan's total. In the realm of education, Niigata also lags behind more developed areas of Japan. Education levels in Niigata are among the lowest in the country: in 1992, only 18.6% of the female population held a university degree (national average 25.2%) and 27.1% of the male population (national average 40.2%).

Niigata officials attribute the prefecture's relative underdevelopment to Tokyo's policies, which have focused primarily on the development of Japan's eastern and central prefectures and urban centers. Anxiety about the prefecture's status has been exacerbated in recent years by falling central allocations to local prefectural budgets, and declining comparative production rates in several key industries. Niigata's agricultural produce, for example, accounted for 8.6% of Japan's total, but only 2.9% by 1991. Moreover, Niigata, like most of Japan, has to cope with the problems of an aging population. If in 1970, only 9.6% of the prefecture's population was 65 years of age or older, that figure nearly Northeast Asiarly doubled by 1993 (standing at 17.1%). Over the same time period, the percentage of the population between 0 and 14 years of age dropped from 23.3% to 17.2%.

Foreign Economic Interaction--the trends

Northeast Asia has consistently played an important role in Niigata trade. In 1986, exports to Northeast Asian counties accounted for 88.5% of the prefecture's total exports, while imports accounted for 9.3%. By 1990, with Northeast Asian exports holding steady, Northeast Asian imports rose to 17.9% of total imports. Between 1986 and 1990, exports to Northeast Asian countries rose by 84.4%, and imports by 51.1%.

After 1990, however, total trade turnover in Niigata's ports fell rapidly. This was primarily been due to a steep decline in exports. By 1992, exports to Northeast Asia fell to 32% of 1990 levels. Falling exports to Russia were primarily responsible for these trends. An examination of Niigata's trade by country shows that exports to Russia have played a dominant role in the prefecture's total exports. In 1993, exports to Russia, valued at 8.7 billion yen, accounted for 33.8% of Niigata's total exports. Trade with Russia fell off sharply after 1991. Between 1987 and 1991, Niigata's trade with Russia rose 19%. However, its relative weight, over the same period fell 7%, due to a steep increase in exports to South Korea. Between 1991 and 1992, exports to Russia dropped precipitously. The figure for 1992 exports stood at a mere 29% of the 1991 level. The downward trend continued in 1993, with a further drop of 10%. Between 1991 and 1992, the share of Russian exports from Niigata dropped from 71.8% to 35.8%, a decline of 36%.

While trade with Northeast Asia is of critical importance to Niigata's ports, the same cannot be said of Japan as a whole. While Japan's trade with Northeast Asia has increased steadily since 1990, in 1993 it still accounted for only 10.6% Japanese exports and 14.6% of Japanese imports. Moreover, Japan's exports to Russia, Niigata's main export destination, accounted in 1993, for only 0.42% of total Japanese exports. Total Japanese exports to Russia fell by a factor of two between 1991 and 1992, mirroring the rapid fall in exports to Russia from Niigata ports. In a disturbing trend (for Niigata), however, total Japanese exports to Russia rose nearly 14% between 1992 and 1993, while exports to Russia from Niigata fell by 8.5%. Expanding Japanese exports to Russia are therefore not funneled through Niigata's ports, but rather through Japan's larger ports on the Pacific coast. *13

Indeed, Niigata's ports play a marginal role in overall Japanese trade. In 1993, imports through Niigata accounted for only 0.7% of total Japanese imports, while exports accounted for 0.064% of total Japanese exports. While Niigata's ports handle only a tiny percentage of Japan's total trade, many of the products manufactured in Niigata for export leave Japan through other ports. In 1992, for example, export through Niigata ports accounted for only 9.6% of Niigata enterprises' total exports. In the same year, export through Niigata ports to Northeast Asia countries stood at 60.3% of Niigata enterprises' exports to Northeast Asia. This means that much of Niigata's produce is shipped by land to Japan's Pacific coast and from there shipped out to Northeast Asia. Such is also clearly the case with imports with products from Russia, for example, shipped from Russian Far Eastern ports to Japan's western ports.

Local Strategies and Foreign Economic Relations

Given their prefecture's particular interest in Northeast Asia, it makes sense that local actors have attempted, over the years, to expand Niigata's economic relations with it neighbors to the north and west. *14

In the interest of accelerating local development, Niigata prefecture, has, over the past decade, made a concerted effort to promote economic interaction with the countries of Northeast Asia. Since 1991, Niigata governor Ikuo Hirayama's administration has effectively pleaded its case in Tokyo and promoted its policies in the prefecture. The kencho has energetically pursued a three prong policy which it hopes will bring national and international attention to development processes underway in Northeast Asia.

The first prong of the kencho's policy has been to build a national consensus, transcending prefectural borders, on the importance of Japan Sea Rim cooperation. To this end, the kencho has organized joint study missions, with other Japan Sea prefectures, to investigate investment opportunities in Northeast China and the Russian Far East, held joint conferences to promote Japan Sea exchange, and occasionally teamed up with other Japan Sea prefectures to press their cause in Tokyo. Besides cooperation with other Japan Sea prefectures, the kencho has developed links with other inland prefectures, notably Gunma and Nagano. The rational behind this move is two-fold: first, to demonstrate to Tokyo that enhanced Japan Sea cooperation will benefit not only prefectures along the West coast of Japan, but also the country as a whole; and second, to develop a market for new Northeast Asia imports, which would extend beyond prefectural borders into the heartland of Japan.

The second prong of the kencho's policy has been to build up Niigata prefecture as the leader of a "Japan Sea movement." In 1994, the kencho established a special Japan Sea division, under the general umbrella of its International Relations division. The city also established sister-city relationships with Vladivostok and Khabarovsk. In 1994, a Russian consulate was set up in Niigata-city. Niigata has thus made a concerted effort to set itself apart from, and above, other prefectures, in terms of its commitment to international cooperation in Northeast Asia, as well as its capacity to handle increased trade flows in the region. In this regard, the foremost items on the kencho's agenda have been development of port and airport facilities. In Niigata's East Port, the local government has secured funds from the Ministry of Transportation for expansion of current capacity, contracted with a local construction company, and developed an export processing zone around the port. Besides focusing on port and airport development, the kencho has initiated new and innovative projects. One such project has been a locally financed study of Zarubino port in southern Primorskii krai. The study, completely conceived and financed at the local level, is the first instance in Japan of what amounts to local ODA. The Economic Research Institute for Northeast Asia (ERINA) has been another project. A think-tank exclusively devoted to research on Northeast Asia, ERINA draws up research reports on the Northeast Asia economies.

The final prong of Niigata's policy has focused on garnering international attention to the cause of Japan Sea Rim cooperation. To this end, ERINA, in particular, has established links with the United Nations as well as with the Asian Development Bank (ADB). Representatives of both organizations attended a major conference on the Japan Sea held in Niigata in February of 1995, and again in January 1997. Besides going directly to international organizations, Niigata has played skillfully on important issues in Japan's foreign policy. One issue that Niigata has turned to its favor has been Japan's role as an Asian leader. With no end in sight to trade conflicts with the United States, Niigata and Tokyo officials have voiced the opinion that Japan should turn to Asia in search of new markets. Northeast Asia, they argue, would be an ideal "new frontier" to open.

Niigata's policies have been largely successful in attracting international as well as national attention.

Conclusion

Niigata players are extremely interested and motivated in the cause of Northeast Asia integration. To this end they have taken steps to promote international interaction in Northeast Asia and to move into the international arena as players in their own right. Moreover, they have successfully courted Tokyo's interest and are attempting to pursued Tokyo officials to move on important policy issues such as ODA and DPRK policy. While much still needs to be done, Niigata prefecture has made significant headway in promoting Northeast Asia regional integration.

Conclusion

This paper highlights one of the most vexing issues for local level cooperation in Northeast Asia. Both Niigata and Primor'e share common problems of isolation and relative underdevelopment, and both are heavily dependent on international cooperation to promote development. However, only Niigata has made the sustained effort needed to bring about enhanced cooperation in the Northeast Asian region. Regional imbalances of this nature are more likely to forebode conflict than to promise cooperation.

Notes

Interview with director of a Primor'e fishing enterprise, April 11, 1995.

SRC Winter Symposium Socio-Cultural Dimensions of the Changes in the Slavic-Eurasian World ( English / Japanese )