Newsletter No. 857
News-Analysis
December 24, 2007

 

A BANNER YEAR FOR JAPAN-UAE RELATIONS

This year has been a very good one for Japan-UAE relations. December was packed with significant events, as we will discuss below, but we should also consider the following facts from the past year:

-- The UAE was Japan’s Number Two oil supplier in 2007, neck-and-neck with Saudi Arabia

-- Shinzo Abe became the first Japanese prime minister to visit the UAE since Takeo Fukuda in 1978

-- Abe’s successor as prime minister and Takeo’s son, Yasuo Fukuda, also visited the UAE in April and is in fact that chairman of the Japan-UAE Parliamentary Friendship Association

-- The UAE-Japan Business Forum was held in Tokyo in April and bilateral business relations boomed in 2007

-- The Abu Dhabi government became the largest shareholder in Japan’s Cosmo Oil

-- Japan and the UAE organized events and initiated new projects in the field of environmentalism

About the only thing that didn’t go well in the relationship is that the GCC-Japan free trade agreement negotiations were not completed this year as had been intimated earlier. Of course, we don’t know what the hang-up really is in these negotiations and theoretically they could have nothing to do with the UAE because the GCC encompasses five other Persian Gulf states.

Anyway, it is in the context of all these other banner developments in 2007 that we should read the stories below.

Abu Dhabi Crown Prince and UAE Foreign Minister Make Visits to Tokyo

Last week, from the 16th to the 18th, General Shaikh Muhammad bin Zayd al-Nahyan, Abu Dhabi Crown Prince and Deputy Supreme Commander of the UAE Armed Forces, paid an official working visit to Japan. He met with Emperor Akihito, Crown Prince Naruhito, Prime Minister Fukuda, Foreign Minister Komura, and others. Also in Tokyo at the same time was UAE Foreign Minister Shaikh Abdullah Bin Zayd al-Nahyan. One press report states that the entire UAE delegation was more than three hundred strong. Apparently this was the highest-level UAE delegation in Japan since the visit of then-President Zayd in 1990.

One key event was the Japan-UAE Joint Economic Committee meeting held on the 17th in Tokyo. This was the first such meeting, and apparently they intend to hold similar such meetings in the future. The full joint statement from this meeting is provided below.

Shaikh Muhammad also met members of Keidanren (Japan Business Federation) led by Fujio Mitarai.

But the huge announcement in the field of business was…

US$3 Billion in Japanese Loans to the Abu Dhabi National Oil Company

The Japan Bank for International Cooperation (JBIC) signed an agreement to provide US$3 billion in loans to the Abu Dhabi National Oil Company (ADNOC) in an effort to secure long-term crude oil imports to Japan. This follows on the story first introduced in Shingetsu Newsletter No. 597.

In fact, it seems that the two parties had been discussing in April a US$1 billion in loans, but they have now agreed to triple that amount. This is one of the largest loans, if not the largest, that the JBIC has ever granted internationally. As we mentioned in April, the funds are likely to be used to invest in infrastructure, oil exploration, and increased oil production. ADNOC is expected to repay the loans in the form of crude oil.

By reaching this deal, Japanese leaders are hoping that the UAE will give them precedence in oil supplies should there be new wars or other political problems in the Persian Gulf region. They are also concerned about the growing oil needs of Asian energy competitors such as China and India. While that may be wise on the part of Tokyo, we might add that they would be even wiser still to ensure that their overall foreign policies in the Islamic world create a sense of real trust and affection in the Arab world.

Other Projects

The expansion of the JBIC loans to ADNOC is not the only such large-scale financing project on tap; there is also the Fujairah 2 Power and Water Desalination Plant in Abu Dhabi, which we have mentioned in Shingetsu Newsletter Nos. 636 and 758 and which involves the Marubeni Corporation. On the 18th the JBIC and some other Japanese banks agreed to extend US$2.2 billion in loans to finance the project.

That seems to suggest that the JBIC’s involvement in the UAE this year has catapulted into an investment of over US$5 billion overall. It is worth noting that the Dubai branch of the JBIC had opened only in early 2006. Also, as reported in June in Shingetsu Newsletter No. 660, the JBIC was also considering making an additional US$1 billion loan to the Dubai government.

Also during the visit of the massive UAE delegation Cosmo Oil agreed to a project to co-develop an electric power generation system using solar heat. Remember that the Abu Dhabi government is now the largest shareholder in Cosmo Oil (see Shingetsu Newsletter No. 744).

Japan's top oil refiner Nippon Oil Corporation also agreed on a MoU to conduct a joint survey on whether it would be economically feasible to manufacture material similar to concrete by recycling sulphur from oil fields.

Finally, it seems that some trains for the Dubai Metro are under construction in Japan, near Hiroshima. The trains will operate at speeds of up to 100 km/h and will be driverless. Two new trains are being tested for climatic and operational speed tests before they are transported to Dubai in time for the first Red Line opening, targeted for September 2009.

Joint Statement of the Japan-United Arab Emirates Joint Economic Committee
December 17, 2007

On 17 December 2007, H.E. Mr. Masahiko Komura, Minister for Foreign Affairs of Japan and H.E. Mr. Akira Amari, Minister of Economy, Trade and Industry of Japan on the Japanese side, and H.H. Sheikh Abdullah bin Zayed Al Nahyan, Minister of Foreign Affairs, United Arab Emirates, held the first meeting of the Japan-UAE Joint Economic Committee in Tokyo and reached the following conclusion:

1. Both sides welcomed the commencement of the collaboration under the Joint Economic Committee with the holding of its first meeting, which was established during the visit to UAE by the then Prime Minister of Japan Shinzo Abe in April 2007. The Ministers also welcomed the fact that the meeting was held on the occasion of the awaited visit of Abu Dhabi Crown Prince, Deputy Supreme Commander of the UAE Armed Forces, H.H. Sheikh Mohammed bin Zayed Al Nahyan to Japan.

2. Both sides expressed their expectation that the function of the Joint Committee mechanism would contribute to consolidating a multilayered partnership between Japan and UAE especially in the economic and investment fields.

3. Based on such understanding, the Ministers decided to establish three Sub-Committees under the Joint Committee according to the attached terms of reference. Both sides stressed their shared intention to continue their cooperation through the Joint Economic Committee and its three Sub-Committees in an active and constant manner. Both sides also shared the view that, in accordance with the Memorandum establishing the Joint Economic Committee, additional sub-committees may be established by the Committee where necessary in the future to discuss further cooperation. Towards further development of the economic relations between Japan and UAE, both sides confirmed the importance of proposing and developing an action plan for the improvement of business environment, aiming at further increasing trade, investments and business opportunities between the two countries, taking into account the requests and expectations from the private sectors of both countries.

4. Both sides reviewed and welcomed the progress of the negotiation on a Convention between Japan and the United Arab Emirates for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income.

5. The two sides shared concern over the instability of the oil market and reiterated their common view that the stability of the world oil market is a cornerstone for the sound growth of the world economy. In this regard, both sides decided to further promote bilateral cooperation in the energy field, based upon mutually complementary relationship between the UAE, with its large hydrocarbon resources, and Japan, with its advanced energy-related technologies. Both sides recognised the fact that Japanese private sector's technologies and activities in the UAE have been playing important roles in development of the UAE economy. They reaffirmed that the bilateral economic relations between the two countries have been built through business transactions by the Japanese corporations in various fields, starting from the energy sector, such as oil trade, upstream concessions and renewable energy projects, as well as the infrastructure development in the UAE. Both sides also recognized that diversifying economic activities between the two countries would be very important for further deepening mutual relationship. Recent developments in these fields include the followings: Japan Oil Development Co. Ltd. (JODCO) and Japan Oil, Gas and Metals National Corporation (JOGMEC) fund the Petroleum Institute (PI); International Petroleum Investment Company made direct investment in Cosmo Oil Co. Ltd.,; Japanese companies participate in renewable energy projects; and Japan Bank for International Cooperation (JBIC) and Abu Dhabi National Oil Company (ADNOC) advance with their financial cooperation.

6. Both sides further decided to collaborate in coming up with a promotion scheme of small and medium sized enterprises for the UAE. The Japanese side emphasized the significant contribution that will be made by the wide use of environmentally friendly regional passenger aircraft developed in Japan for solving the environmental problems.

7. The two sides also noted the importance of enhancing their cooperation on industrial and infrastructure development of cities in the UAE. Both sides shared the view that further developing their cooperation in the oil sector, including extension of concessions which is subject to mutual agreement in the coming years, would contribute to further strengthening Japan-UAE mutually complementary relations. Both sides have expressed their happiness with regards to the signing on the agreement on Abu Dhabi Oil Company (ADOC) field which will enhance the relations further between the two countries.

8. Both sides exchanged the view over the global warming issue and stressed that the international community has to devise a strategy to control the global warming. In this regard, the Japanese side commended the positive initiatives taken by oil producing countries on emission reduction announced at the occasion of the OPEC summit meeting, while the UAE side appreciated Japan's Cool Earth 50 initiative as a contribution to the global discussion to address climate change. Both sides expressed their determination for a flexible, fair and effective global framework beyond 2012 in which all countries participate to address climate change.

9. The Ministers welcomed the recent developments regarding the Free Trade Agreement (FTA) negotiations between the Gulf Cooperation Council (GCC) states and Japan. They shared their determination to work towards reaching an agreement in principle as soon as possible. Both sides reiterated that the early conclusion of an FTA would advance their economic relations, achieving a high-level liberalisation of the trade in goods and services. To this end, both sides reaffirmed their resolve to make every effort to achieve that goal with sufficient resources and enthusiasm.

10. The Ministers decided to hold the first Sub-Committee meeting in Abu Dhabi in the first half of next year to explore the focus of discussion in the following Sub-Committee meetings. The Ministers also decided to hold the second Joint Committee meeting at an appropriate time, taking into account the discussion at the Sub-Committees and in accordance with the MOU establishing the Joint Committee.

Masahiko Komura
Minister for Foreign Affairs of Japan

Abdullah bin Zayed Al-Nahyan
Minister of Foreign Affairs of the United Arab Emirates

Akira Amari
Minister of Economy, Trade and Industry of Japan