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By Ilya Akdemir On December 15th, 2016, Russia’s President Vladimir Putin will pay a visit to Japan. The discussions between President Putin and Prime Minister Abe will primarily concern trade and other issues of bilateral relations. But in recent weeks, there have been indicators from both Japanese and the Russian sources that new steps are being taken to resolve the longstanding territorial dispute between the two countries over the Kuril Islands. Situated north of Japan’s Hokkaido Prefecture, the Kuril Islands are a chain of volcanic islands that extend 1200 km from Japan’s northern Hokkaido Prefecture to Russia’s Kamchatka Region. Although a part of Russia’s Sakhalin Oblast, the four southernmost islands of Etorofu, Kunashiri, Shikotan, and Habomai off the coast of Hokkaido Prefecture – known as the four South Kuril Islands – are claimed by both Russia and Japan. Apart from being rich in resources, the islands form a strategically important gateway to Russia’s resource-rich Far Eastern regions and the Sea of Okhotsk. The origins of the territorial dispute can be traced all the way back to the end of the Second World War. Although the war ended in 1945 with the victory of the Allied forces, the USSR refused to sign the 1951 Peace Treaty of San Francisco, which meant that, legally, the Soviet Union has had no formal peace treaty with Japan. To restore relations, in 1956 USSR and Japan signed a Joint Declaration, which ended the state of war between the two states. However, it’s important to note that under international law this Joint Declaration did not necessarily constitute a formal peace treaty – indeed, Article 9 of the Joint Declaration specifically states that “the USSR and Japan agree to continue, after the restoration of normal diplomatic relations between the USSR and Japan, negotiations for the conclusion of a Peace Treaty.” Considering the Russian Federation is the legal successor to USSR under the Alma-Ata Protocol and Belavezha Accords of 1991, this lack of formal peace has remained a part of Russia-Japan relations to this day. The Kuril Islands were an important element in the Soviet Union’s decision to refuse to sign the 1951 Peace Treaty. This is best demonstrated by then Soviet Foreign Minister Gromyko’s statement, which outlined USSR’s key objections to the Peace Treaty, one of which was the issue of sovereignty over Kuril Islands and the nearby South Sakhalin. Gromyko stated that “the draft confines itself to a mere mention of the renunciation by Japan of rights, title and claims to these territories and makes no mention of the historic appurtenance of these territories and the indisputable obligation on the part of Japan to recognize the sovereignty of the Soviet Union over these parts of the territory of the USSR.” Of particular importance to the Kuril Islands territorial dispute between Japan and Russia is Article 1(b) of the 1951 San Francisco Peace Treaty which states that “The Allied Powers recognize the full sovereignty of the Japanese people over Japan and its territorial waters.” But what’s interesting about this territorial dispute is the fact that Article 2(c) of the 1951 Peace Treaty clearly states that “Japan renounces all right, title and claim to the Kurile Islands.” However, despite this rather express language of the Article 2(c) of the Treaty, Japan still claims sovereignty over Kuril Islands. The reason why Japan still has, or argues to have a legal claim over the Kuril Islands is that Japan refers to some of those islands – specifically the four islands of Etorofu, Kunashiri, Shikotan, and Habomai islands – as “Northern Territories”, which are seen as an inherent part of territory of Japan and an extension of the Hokkaido Prefecture. Japan claims that these four islands have always been Japanese territories and hence do not constitute a part of “Kuril Islands” under the 1951 Treaty. Furthermore, Prime Minister Yoshida’s statement at the 1951 Conference in San Francisco claimed that these islands had been taken unilaterally by the Soviet forces on September 20th, 1945, shortly after the surrender of Japan and the official announcement of the surrender on August 15th, 1945, which was officially signed on September 2nd, 1945. Indeed, Russian historical works on the subject also confirm that the invasion and occupation of the Kuril Islands happened after the official announcement of Japan’s Surrender, in the period between August 28th and September 5th. The fact that USSR did not sign the 1951 Peace Treaty makes it difficult to ascertain what “Kurile Islands” meant for both parties, even though USSR did participate. Nevertheless, Russia refers specifically to the wording of the 1945 Yalta Agreement signed towards the end of the war between the Allied Powers. Of interest is Article 3 of the Yalta Agreement, which explicitly states that the Kuril Islands shall be handed over to the Soviet Union. Therefore, the takeover of islands after the official surrender of Japan is seen as having a legal basis under the 1945 Yalta Agreement. The territorial dispute surrounding the Kuril Islands has lasted for over 71 years but recently, there has been a renewed push at negotiating an agreement and signing a formal Peace Treaty between the two states. The Ministers of Foreign Affairs of both countries are claiming they are working on a deal in time for the arrival of President Putin to Japan on the 15th of December, 2016. Some argue, that there could perhaps be an agreement on a model for the joint Russo-Japanese administration of the disputed islands. On the other hand, Russia’s Foreign Minister Lavrov has stated that the process is not going to be easy. Indeed the recent military buildup on the Kuril Islands by Russia puts a big question mark on the hopes of achieving a peace deal in the near future. Furthermore, Lavrov has recently claimed that it would be a mistake to have excessively high expectations of a peace deal any time soon. The bilateral negotiations and statements we’ve heard in recent months seem to be a clear indicator of a possible change in the established status quo of this territorial dispute. A solution to the Kuril Islands question seems closer than ever and it is highly likely that we might witness a Peace Treaty between Japan and Russia in our lifetimes. It is unlikely that we will see the Peace Treaty this month – nevertheless, commentators have argued that as long as President Putin and Prime Minister Abe are in office, there exists a chance for an agreement. The Asia-Pacific region has recently seen an increase in tensions – this is especially evident through the many controversies surrounding the territorial disputes in the South China Sea. Seeing a resolution of the longstanding dispute between Japan and Russia over the Kuril Islands could perhaps lead to a decrease in tensions in this region and would undoubtedly lead to better relations between the two states.

By Maribeth Hunsinger, JD Candidate 2019 The relatively young nations of Central Asia have been slowly opening their economies to foreign investment over the past twenty years. However, infrastructure shortfalls in the region, including failing transportation and utility networks, are hampering continued economic growth and development. The World Bank estimates that over $1 trillion a year in additional infrastructure investment will be required to meet the current demand shortfall in emerging markets and developing economies. The gap in global infrastructure investment has a tangible impact on quality of life worldwide: 2.6 billion people have no access to electricity, while 800 million people have no access to clean water. Infrastructure spending differs not only across regions, but also across countries within the same region, depending on factors such as government funding, legal frameworks, and security issues. Inadequate infrastructure can reduce output, lower productivity, impede the flow of people and goods within and between countries, and impose higher transaction costs. However, the governments of most Central Asian states have relatively limited financial capacity to rehabilitate existing infrastructure or fund new infrastructure. These nations are facing declining growth projections and budgets following the 2014-15 drop in global oil prices, and they will likely need to find different methods of financing their widening infrastructure gaps. Infrastructure in Central Asia Governments have traditionally financed infrastructure and made it available as a public good. However, with the breakup of the Soviet Union, the five post-independence Central Asian states – Kazakhstan, the Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan – have experienced difficulty with developing and maintaining their national infrastructure. The existing Soviet infrastructure in Central Asia is, for the most part, failing and in need of upgrades. The link between local infrastructure and Russian’s own networks exacerbates the need for new infrastructure. Central Asia has generally experienced economic growth in the period since the collapse of the Soviet Union. Unfortunately, the precipitous drop in oil prices in the last eighteen months, from over $100 per barrel to around $30 per barrel, is exposing the lack of region’s lack of economic resilience, regardless of whether a country is oil-rich or oil-poor. The Economist’s Intelligence Unit forecasts that 2016 will be the first year since 1998 that oil exporter Kazakhstan’s economy contracts. Price declines in non-oil commodities such as copper, aluminum, and cotton, coupled with low import demand from China, are also dampening the export revenues of Central Asian countries. In such an environment, private sources of infrastructure investment may be necessary to meet developmental needs. Potential for Public-Private Partnerships Public Private Partnerships (PPPs) present an option to meet the funding gap in developing economies, and could be an important factor in improving the current infrastructure issues in Central Asia. PPP refers to a long-term arrangement between public and private sector parties. PPPs are often used as a funding model for public infrastructure projects, where the public partner is a government entity or public agency, and the private partner is a privately-owned company, public corporation, or consortium. PPPs are constructed using a variety of investment and incentive structures for the involved parties, but typically the private partner will make a risk-bearing equity investment and execute some combination of design, financing, construction, rehabilitation, or operation of assets on behalf of the public partner. In addition to accelerating the development of civil infrastructure in developing countries, PPPs can perpetuate local private sector capabilities (through joint ventures and sub-contracting opportunities) and gradually expose state-owned enterprises to increasing levels of private sector participation. Legal Framework for Public-Private Partnerships An increasing number of foreign governments have enacted PPP or concession laws to incentivize foreign investment, and Central Asia is no different. These laws serve a variety of purposes depending on the country, including: establishing an institutional framework to support PPPs, giving regulatory priority to PPP projects over others, and closing legal gaps pertaining to investors’ rights and procurement processes. In 2014, the Economist published its “Infrascope” for the Asia-Pacific Region, which benchmarked countries’ PPP-readiness relative to four developed countries in the region. Legal and regulatory frameworks constituted twenty-five percent of each country’s weighted score, indicating the importance that aspects such as regulatory consistency, bid fairness/transparency, contracting mechanisms, and dispute-resolution practices play in creating an environment conducive to PPP. Of the nineteen Asian countries evaluated in the Infrascope, three were in Central Asia – Kazakhstan, Kyrgyz Republic, and Tajikistan. Kazakhstan ranked highest of the three, but still came in behind countries such as Pakistan and Bangladesh. Kazakhstan had exhibited recent improvements to its investment climate and PPP policies, but was lacking in the institutional reforms required to minimize risk and improve deal flow. Despite the fact that both the Kyrgyz Republic and Tajikistan have passed PPP laws, they ranked second- and third-to-last, respectively. This was in part for their failure to deliver any PPP projects (Kyrgyz Republic) and their need to improve institutional support for PPP (Tajikistan). An Emerging Opportunity: Kazakhstan Following the publication of the Infrascope, Kazakhstan, which previously had enacted a Concessions Law pertaining specifically to the Build-Operate-Transfer type of PPP projects, enacted a PPP law in 2015 that provides for a more extensive legal framework to regulate all forms of PPP projects. This law allows government-owned companies to act as the public partners, whereas previously only government entities could fill this role. It also provides for the possibility of multiple public and private partners in a singe PPP, and for step-in rights (the right to substitute a partner) for private partners. These provisions serve not only to make foreign investment in Kazakh infrastructure projects more attractive, but also to send a signal to foreign creditors and investors that the country is an increasingly stable and welcoming environment in which to make such investments. Ideally, such actions on Kazakhstan’s part will motivate its neighboring states to make improvements to their own PPP policies in order to incentivize private parties to begin participating in projects in those countries as well. Going Forward Central Asia boasts ample natural resources and strong economic potential, but the region will need to improve its physical infrastructure networks if it is to realize this potential. PPPs present a potential means of attaining such improvement through private, likely foreign, investment. However, in the absence of strong economic growth to incentivize foreign lenders to invest in its infrastructure and markets, the region will need to demonstrate progressive, reliable legal and regulatory frameworks to promote such investment.