It will soon be two years since Russia began its invasion of Ukraine. As the Group of Seven developed countries (G7) tighten economic sanctions against Russia, many foreign companies have decided to “de-Russia.” On the other hand, many companies continue to operate, and a subsidiary of Japan Tobacco (JT), which pays a large amount of tax to Russia, was singled out and criticized by the Ukrainian government. What is the relationship between Japanese companies and Russia? (Takuya Kishimoto)
◆JT International (JTI) and DMG Mori Seiki’s subsidiary
Ukrainian President Volodymyr Zelenskiy (center) visits the U.S. Capitol in Washington in December last year (AP)
“$3.6 billion (approximately 400 billion yen at the exchange rate at the time) of JTI’s (2020) revenue went directly into Russia’s state budget. Equivalent to the cost of 100 Russian fighter jets equipped with
In August last year, Ukraine’s State Anti-Corruption Agency added JT’s overseas subsidiary JT International (JTI), which continues to operate in Russia, to its list of “war-supporting companies” and strongly condemned it in a statement.
The Ukrainian government has labeled foreign companies that continue to do business in Russia and support the invasion through tax payments as “war support companies,” and is forcing them to suspend or withdraw their operations in Russia. Approximately 50 companies, mainly Chinese and American companies, have been designated so far, and JTI is the first Japanese company to make the list. In September, a subsidiary of machine tool manufacturer DMG Mori Seiki was also designated.
◆“It is the largest investor and major taxpayer.”
According to statements and other sources, Switzerland-based JTI operates brands such as Moebius and Camel in Russia, and holds the top share of the cigarette market in 2022 at 36.6%. He pointed out that over the past 20 years, investment in Russia has exceeded $4.6 billion (approximately 670 billion yen), and the tax amount for fiscal 2020 will amount to approximately 1.4% of Russia’s national revenue. and is a major taxpayer.”
Citizens smoking cigarettes in central Moscow. JT has the top market share in Russia = 2018 (Photo by Akira Kurita)
After the invasion, JTI announced in March 2022 that it would suspend new investment and marketing activities in the Russian market, but production at four factories in Russia and local sales continue. The company maintains approximately 4,000 employees and its sales are among the highest among foreign companies doing business in Russia.
In response to an interview with “This Special News Department,” a JT spokesperson admitted that the amount of tax paid to Russia in fiscal 2020 was approximately 400 billion yen, and added, “We have complied with all domestic and international sanctions and regulations. We continue to operate our business.” Regarding the future of the Russian business, the company announced in April 2022 that it is “considering options, including separation from group management,” but no concrete plans have been decided yet.
◆Is it because the Russian business is a “dollar box”?The Japanese government, the major shareholder,
The reason JT is unable to withdraw easily seems to be that the Russian business is a “dollar bank” that generates more than 20% of the group’s overall operating profit. However, as major Western countries, including Japan, have made it clear that they support Ukraine, they are imposing economic sanctions on Russia, and JT’s stance in going against those sanctions has been criticized in the Diet.
Minister of Finance Shunichi Suzuki
Shigefumi Matsuzawa, a member of the House of Councilors of the Japan Restoration Party, stated at the Foreign Affairs and Defense Committee, citing the fact that the Japanese government owns one-third of JT’s shares that it is a special company, saying, “The Japanese government, which has supervisory authority, has no right to control JT.” “They should withdraw from Russian business.” At a press conference in January, he once again emphasized, “If the government does not instruct a withdrawal, Japan risks being internationally criticized as a ‘war-supporting state.”
However, Finance Minister Shunichi Suzuki said, “JT is currently complying with domestic and international sanctions,” and the decision to withdraw from the Russian business was “as a listed company with two-thirds of private shareholders, we are responding voluntarily.” “It is something that we should move forward with,” he said, indicating that the government would not get involved.
◆Actually, there are few companies that “de-Russia”.
After Russia’s invasion of Ukraine, many foreign companies have left Russia.
Major US companies such as McDonald’s, Starbucks, and Apple, as well as Japanese companies such as Toyota, Nissan, and Mazda, have withdrawn from Russia.
It seems that the movement to “de-Russia” is progressing, but according to the database of the Kiev University of Economics, of the 3,722 foreign companies that have been doing business in Russia, 356 have completely withdrawn from business, which accounts for the total Less than 10%. Even if you include the companies that announced their withdrawal (504 companies), the total is just over 20%. Nearly 60%, or 2,167 companies, continue to do business in Russia in some way.
Firefighters extinguish an apartment fire after a Russian attack in Kiev on the 7th (AP)
By industry, a high percentage of companies are withdrawing from automobiles and restaurants, which place importance on consumer brand image.
Looking at Japanese companies, out of 178 companies, 9 completely withdrew, and even the 14 companies that announced their withdrawal accounted for just over 10% of the total, compared to around 30% in the US, Germany, and the UK. The ratio is small.
The number of Japanese companies withdrawing from the market is also slowing. According to a survey by Teikoku Databank, as of August last year, 30 out of 168 Japanese companies had “withdrew (including suspending business),” but this was an increase of only three companies from February of the same year, six months earlier. .
Daisuke Iijima, who was in charge of the survey, said, “Many companies wait and see even if they decide to take it easy, because public opinion doesn’t pursue them that much.On the other hand, companies that really want to leave, but are unable to do so because of stricter regulations from the Russian authorities. There are quite a few,” he points out.
◆Russia has even established a “withdrawal tax” rules are at will
Asia University professor Arata Kuno (international trade theory) said, “As time passes, international public opinion critical of Western companies that continue to do business in Russia is weakening, and companies that make money in Russia have less incentive to withdraw.” I look at it. Russia, with a population of approximately 140 million people, remains a powerful market, and companies with strong Russian business are more likely to have a pragmatic mindset of not wanting to give up their interests.
Russian President Putin = AP
What is more serious is the case of “obstruction” by the Russian government. In response to economic sanctions imposed by the G7 and other countries, Russia has introduced a permit system for companies from unfriendly countries to withdraw from the country, and has demanded that the sale price of assets of companies withdrawing from Russia be discounted to less than half of their appraised value. Furthermore, starting in March last year, a “withdrawal tax” was introduced that requires companies to donate at least 10% of profits from business sales to the Russian government, increasing to 15% from 2024.
Mr. Iijima said, “The risk of Russia, where the rules are constantly changing, has become clear.The goalposts are being moved, and foreign companies are being put in increasingly disadvantageous situations, making it difficult for them to withdraw.”
Perhaps as a result of the successful countermeasures, Russia’s growth rate has returned to pre-invasion levels, and the economy is strong. Takeshi Takayama of the Nissay Research Institute points out, “The impact of the economic sanctions was lighter than expected, and the Western countries’ plan to stop the war by stripping Russia of its economic power was wrong.”
◆“Make an evacuation plan in anticipation of emergencies”
Regarding Russian business, it has become clear that foreign companies from unfriendly countries will have difficulty withdrawing in the event of an emergency. Professor Kuno, mentioned above, explains, “We need to utilize the lessons learned from this time to prepare for a “Taiwan emergency,” which is a geopolitical risk in the future.”
“I don’t want this to happen, but if China and Western countries escalate into exchanging economic sanctions, the damage Japan, which depends on the Chinese economy, would suffer would be incomparable to the sanctions imposed on Russia.” Continue like this. “In cooperation with the government and industry organizations, each company needs to develop an exit plan in anticipation of emergencies. Also, avoid over-reliance on China as a sales and procurement source, and strengthen the supply chain. It is also important to review whether there is any room for diversification.”
◆Desk memo
There are very few war movies that don’t feature cigarettes. The relationship between soldiers and cigarettes is very close. However, we are now in an era where taxes on cigarettes are no longer directly connected to war. In Russia, it was used to fund the continuation of the war, and in Japan, it was used as a source of defense tax increases. There’s no more time for a little reprieve. (Ayumu)
2024-02-11 03:00:00
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