THE VIEW FROM JAPAN'S NORTHERN EDGE: ABSENCE OF

1. (C) Summary and Comment: The lack of a peace treaty
hinders development of relations between Russia and
neighboring Hokkaido, according to local officials. City
officials in Wakkanai, Japan's northern-most city and close
neighbor of Russia, point to visa and customs issues as
preventing increased economic exchanges. Additionally,
cultural exchanges between Wakkanai and Sakhalin Island as
well as other public services have fallen prey to budget cuts
implemented to preserve the subsidized ferry service linking
Wakkanai to Sakhalin. Efforts to attract Russian tourists
and increase ridership on the cross-strait ferry have
produced no substantial results, however. The number of
Russian ships and crewmembers entering Wakkanai have
decreased since foreign vessels over 100 tons were required
to obtain insurance under a new Japanese law which targeted
North Korea, but also impacted Russian shippers and trade.
Given these difficulties, it is unlikely that Wakkanai will
be able to significantly develop its ties to Sakhalin without
substantial assistance from the central government. End
Summary and Comment.



2. (C) Embassy Tokyo Political Officer journeyed to Japan's
northern prefecture, Hokkaido, June 4-8 to explore local
perceptions of Russo-Japanese relations. In the small,
northern-most city of Wakkanai, city officials revealed that
they view exchanges with Russia's Sakhalin Island as the key
to the city's future development. The continuing territorial
dispute with Russia over four Southern Kurile islands, which
Japan claims as its Northern Territories, is the primary
barrier to concluding a peace treaty and officially
normalizing relations. Consequently, they believe, the
dispute is harming trade and other relations.

Local-Level Peace Treaty Woes: Customs


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3. (C) At the Wakkanai Chamber of Commerce on June 5,
Executive Director Katsumi Ogawa claimed that the absence of
a peace treaty is the primary trade barrier between Sakhalin
and Wakkanai. Specifically, visas issues and customs
barriers are two areas that could be improved if Japan and
Russia were to normalize relations, Ogawa stated. Wakkanai
Deputy Mayor Hiroshi Kudo likewise insisted that customs
hurdles prevent increased trade between Wakkanai and
Sakhalin, and that a formal peace treaty could increase
economic exchanges.



4. (C) Currently, goods flowing into Sakhalin from Japan face
high tariffs that would be eliminated if Japan and Russia
were to normalize relations, Ogawa asserted. Noting that
China has a privileged status in Russia's tariff system, the
disparity in tariff rates between Japan and China results in
Japan's inability to trade with Russia on an equal footing.
In addition, the slow speed at which Japanese goods pass
through Russian customs has frustrated both Wakkanai
businesses and the municipal government. Long, unexplained
delays and frequent personnel changes are the norm in dealing
with Russian customs, Wakkanai Municipal Office Sakhalin
Section Chief Masaaki Narisawa reported. For example, last
year Russia suddenly raised its tariff on Japanese goods
without notifying the Wakkanai Municipal Sub-Office located
in Yuzhno-Sakhalinsk. The lack of transparency and
communication on tariff regulations present a particularly
difficult hurdle for small- to mid-sized businesses
attempting to trade with Russia, Ogawa noted.



5. (C) Wakkanai was accepted as a designated special zone in
April 2003 as part of Prime Minister Koizumi's structural
reforms aimed at stimulating the economy by increasing
deregulation in designated areas. This reduced some trade
barriers through preferential measures that halved the
after-hours customs clearance commission and extended
customs' business hours from 1700 to 1900. Deputy Mayor Kudo
is currently campaigning to elevate the special designation
to free-trade-zone status between Wakkanai and Sakhalin.
This, he believes, would facilitate a reciprocal elimination
of Russia's high tariff rate and allow Japanese goods to be
more competitive in the Russian market.



6. (C) In an effort to further accelerate customs clearance
and provide support for Japanese companies navigating the
Russian bureaucracy, the Wakkanai Municipal Office invited
Russian customs brokerage firm Rostek to establish an office
in the Wakkanai Japan-Russia Economic Exchange Association.
Logistics Specialist Nikolay Makarov, a former Russian
customs official who is one of four Rostek-Sakhalin employees
that will rotate through the Wakkanai branch office,
explained that ensuring Japanese goods' prompt passage

TOKYO 00003449 002.2 OF 004


through customs in Sakhalin is simply a matter of preparing
the correct documents in advance. He confided that Rostek
can easily navigate the Russian bureaucracy and dramatically
reduce the number of days in the clearance process because
"it is the only customs brokerage firm the Russian government
trusts and will work with." This trust most likely stems
from the fact that Rostek is an offshoot of Russian customs.

Local-Level Peace Treaty Woes: Three Views on Visas


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7. (C) Delays in visa issuance, too, have taken a toll on
Russian and Japanese businesses, Executive Director Ogawa
reported, and hindered the exchange of people between
Wakkanai and Sakhalin. It takes one month for a Russian
citizen to receive a Japanese visa, and about three weeks for
a Japanese citizen to receive a Russian visa. Of course,
Ogawa noted wryly, if you pay three times the normal visa fee
to the right person, a Russian visa issuance can always be
accelerated. Single-entry visas are standard, Ogawa
continued, unless the applicant is a high-ranking official or
internationally recognized. However, Wakkanai's designation
as a special zone currently allows Japan to issue multiple
entry visas to Russian company employees who are arranging
Russian customs clearance for materials related to Sakhalin
energy development. If Japan and Russia were to normalize
relations, that could "open the door for a special visa
waiver program," speculated Ogawa.



8. (C) Hokkaido Prefectural Government's Russian Affairs
Group, Commerce and Economic Exchange Division Deputy
Director Kazuhiro Ueno was more optimistic about other
solutions to visa woes. Ueno noted an agreement from the
Putin-Koizumi Summit in November 2005 that placed visa issues
on the bilateral agenda. In February 2006, a working-level
group was established to create a framework that would focus
on extending reciprocal visa validity to three years and
reduce overall issuance time, Ueno reported.



9. (C) Russian Consul Sergey Kastronov, of the Russian
Consulate in Sapporo, told visiting Embassy Tokyo Political
Officer that he disagrees with the assertion that a peace
treaty would solve bilateral visa problems. Russia has
normalized relations with China and South Korea, Kastronov
noted, yet its citizens are still required to obtain visas
for travel to Russia. Russia's current domestic policy does
not allow visa waiver programs, and domestic law would not
change "even with a peace treaty," Kastronov relayed. The
best hope for relaxing visa laws between Russia and Japan
rests with the working-level groups focusing on the bilateral
agreement from the November 2005 Summit, Kastronov indicated,
not with normalized relations.

Budget Cuts Slashing Cultural Exchanges


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10. (SBU) Cultivating personal ties through cultural and
other exchanges is part of Wakkanai's efforts to further
development of economic ties, Executive Director Ogawa
remarked. Through a business exchange program funded by the
Wakkanai Chamber of Commerce, six Russian trainees are
selected each year from the three Sakhalin sister cities of
Nevelisk, Korsakov and Yuzhno-Sakhalinsk to train in a
Wakkanai-based company for two months. Participants are
chosen by the mayor of each sister city, and many exchange
program alumni have risen to prominent positions in Sakhalin,
Ogawa noted. Additionally, a student-exchange program is
conducted between Wakkanai Hokusei Gakuen and Sakhalin
National University, with a total of 98 students
participating since its inception in 1991.



11. (SBU) Two exchange programs, however, have recently
fallen prey to Wakkanai's budget cuts. To promote cultural
exchanges, the municipal government set up Sakhalin House, a
cultural center where Russian entertainers and dancers
performed during the winter months, Deputy Mayor Kudo stated,
but the municipal government was forced to close the facility
last year for financial reasons. Also, the high school-level
exchange between Sakhalin and Wakkanai commerce and industry
students was also suspended last year due to budget cuts.

Wakkanai, Not Tourist-Friendly


--------------------------





12. (C) The absence of a peace treaty has also reduced the
number of Russians coming to Wakkanai for tourism, Chief
Narisawa asserted. Like other Wakkanai city officials,
Narisawa believes normalized relations would produce a
special visa waiver program for Wakkanai and Sakhalin. While
the city's stated goal is to attract more Russian tourists,
Wakkanai residents have not succeeded in creating a

TOKYO 00003449 003.2 OF 004


tourist-friendly environment for foreigners. Despite
widespread reports that Russians are refused entry into
Japanese hot springs baths for fear they would eat, drink, or
act up in the bath, Narisawa claims this only occurs in other
areas of Hokkaido and not Wakkanai. However, Narisawa
admitted, Russians are sometimes refused service in Wakkanai
restaurants and stores because the owners are "afraid of the
language barrier."



13. (C) Chief Narisawa implied that a future peace treaty
could, ironically, deliver another potential blow to
Wakkanai's tourism industry. As the island of Etorofu -- one
of the four disputed islands -- extends slightly further
north than Wakkanai, "Japan's Northern-most Point" title
would be stripped from the city if all four islands were
returned. Most Wakkanai citizens are indifferent to the
"title" issue, Narisawa confided, since the city's primary
concern is normalized relations with Russia.



14. (C) There are currently plans to expand the customs area
and number of docking points for the various ferry services
in Wakkanai, including the cross-strait ferry service that
runs from Wakkanai to Korsakov. The ferry runs 60 times per
year, from April-December, carrying an average of 5,000
people annually. A private company, heavily subsidized by
the Wakkanai municipal government, operates the ferry, Deputy
Mayor Kudo explained. The Wakkanai Municipal Office has
requested financial assistance from the national and Hokkaido
governments, but has yet to receive an encouraging response.
Other cities in Hokkaido have direct access to Sakhalin via
ferry service from Otaru or direct flights from Hakodate and
Shinchitose airports, and wealthier Russians prefer these
destinations to Wakkanai. Under current circumstances, the
Wakkanai ferry service will most likely continue to operate
at a loss. Nevertheless, Kudo emphasized how important the
ferry service is to future Wakkanai-Sakhalin relations and
declared that they "cannot and will not stop this ferry
operation."



15. (C) At the Hokkaido Government Souya Subprefectural
Office in Sapporo, Sakhalin Exchange Promotion Section Chief
Masayuki Suzuki pointed to the high cost of a round-trip
ticket on the ferry, even with the subsidies, as another
deterrent to Russian tourists. The average monthly salary of
a Sakhalin resident is 64,000 yen (approximately USD 550),
yet the round-trip ticket costs 31,000 yen. Suzuki believes
"zero percent" of Russians use the ferry service for tourism.
As for increasing Japanese ridership on the ferry, Chief
Narisawa noted the high cost of tourism to Sakhalin deters
most would-be Japanese ferry riders. Since tourists to
Sakhalin are required to rent a car, hire a tour guide and
stay in accommodations averaging 14,000 to 20,000 yen per
night, Japanese tourists would rather spend similar amounts
on more "tour-worthy" locations, Narisawa explained.

Russian Fishing Ships Entering Wakkanai Continue to Decline


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16. (C) On average, Russian crewmembers spend 1.5 billion yen
(approximately USD 13 million) annually in Wakkanai stores
and restaurants, Chief Narisawa reported. However, this
number is projected to decline due to the revised Japanese
Marine Vessels Oil Pollution Liability Law that came into
effect March 2005 requiring foreign vessels weighing 100 tons
or more to obtain Protection and Indemnity Insurance in order
to enter a Japanese port. As many Russian fishing ships are
over 100 tons and cannot afford the insurance, the new law
has affected the number of Russian fishing ships entering
Wakkanai port. 1,097 ships entered in FY 2005, down from
1,858 in FY 2004. Consequently, the number of Russian crews
entering Wakkanai dropped to 25,903 in FY 2005 from 35,901 in
FY 2004. Narisawa believes these ships are opting to travel
to China and Korea instead, preferring to pay the added fuel
costs than the more expensive insurance. Narisawa added that
the price of insurance is scheduled to increase from 140
million yen to 640 million yen this year, which would further
reduce the number of Russian fishing ships entering Wakkanai.
The Wakkanai Municipal Office is lobbying appropriate Diet
members to exclude Wakkanai from this requirement, but so far
its efforts have been in vain.

Comment


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17. (C) Wakkanai officials are using the absence of a peace
treaty as a convenient but not very plausible excuse to
explain the difficulties involved in increasing
Wakkanai-Sakhalin exchanges. It is questionable whether
normalized relations would produce a substantial increase in
economic and cultural exchanges. City officials view the
ferry service as the vital lifeline to Sakhalin and are

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willing to sacrifice other public projects to continue
subsidizing its operation. While the city officials
repeatedly pointed to increased tourism as a citywide
objective, there are no specific plans to transform Wakkanai
into a "tour-worthy" location. Given these difficulties, it
is unlikely that Wakkanai will be able to significantly
develop its ties to Sakhalin without substantial assistance
from the central government.
SCHIEFFER