Map of Kuril Island chain defining pre- and post-WWII boundaries.

Russia and Japan never signed a peace treaty at the end of World War II due to a sovereignty dispute over parts of the Kuril island chain stretching from Sakhalin to Hokkaido. Joint economic development of the islands may now provide a way forward.

On Shikotan, one of the islands under Russian control but claimed by Japan, a special economic zone with a simplified tax and administrative regime has been set up to attract investment in industries such as fishing, renewable energy, mining, and ecological tourism.

The Kuril zone is one of 18 established in Russia’s Far East region that offer preferential business conditions, such as tax breaks for residents, a free customs regime, reduced rents, and simplified land use and classification procedures.

Potential anchor residents for the zone include the Russian firm Ostrovnoy Fish Processing Plant, which plans to invest $126 million to build a seafood processing facility on Shikotan. The company sees a market for its products in Japan, China, and South Korea, as well as in Russia.

Japan’s Ministry of Foreign Affairs has said the country will discuss joint economic activities on the four southern Kuril Islands – Kunashir, Iturup, Shikotan and Habomai – at the Eastern Economic Forum in Vladivostok on September 6-7.

Protesters demand return of islands claimed by both Japan and Russia – called the Northern Territories in Japan and the Southern Kurils in Russia – in Tokyo, Japan Dec. 1, 2016, ahead of Russian President Vladimir Putin’s visit. Reuters/Issei Kato

“There are talks about joint Russian-Japanese economic activities on the Kuril islands, about a specific set of projects, and legal frameworks for such cooperation,” Russian Minister for the Development of the Far East, Alexander Galushka, told the media. “The special economic zones give foreign investors equal terms with Russian investors.”

As Japan and Russia have been deadlocked over sovereignty of the islands for more than 70 years, the agreement to discuss joint economic activities as a way forward was reached when Russian President Vladimir Putin met Japan Prime Minister Shinzo Abe in Japan in December 2016.

Creation of a zone on the Kuril Islands will provide a good opportunity to kick-start economic cooperation between Russia and Japan, said Maxim Krivelevich at the School of Economics and Management of the Far Eastern Federal University.

“The idea here is not to take a piece of land from someone or give a piece of land to someone. The issue is that even though countries have disagreements, they can still find ways to cooperate. A special economic zone is a mechanism that allows you to move political disputes far enough away so that they do not interfere with cooperation,” Krivelevich said in an interview.

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