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The implications of the Japanese resource procurement strategy for staple resource regions : an examination… Maund, Jacqueline K. 1984

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THE IMPLICATIONS OF THE JAPANESE RESOURCE PROCUREMENT STRATEGY FOR STAPLE RESOURCE REGIONS: An E x a m i n a t i o n of C o a l M i n i n g i n S o u t h e a s t e r n B.C.  JACQUELINE K. MAUND B.A. Honours, M c G i l l U n i v e r s i t y , 1980  A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF ARTS in THE FACULTY OF GRADUATE STUDIES (Department of Geography)  We a c c e p t t h i s t h e s i s as conforming to t h e r e q u i r e d s t a n d a r d  THE UNIVERSITY OF BRITISH COLUMBIA A p r i l 1984 ®  J a c q u e l i n e K . Maund, 1984 !  In p r e s e n t i n g requirements  this thesis f o r an  in partial  advanced degree a t  of  British  Columbia,  it  freely available  Library  shall  for reference  and  study.  I  f o r extensive copying of  understood that for  h i s or  her  copying or  f i n a n c i a l gain  be  shall  g r a n t e d by  not  be  Geography  The U n i v e r s i t y o f B r i t i s h 1956 Main Mall V a n c o u v e r , Canada V6T 1Y3 Date  April  4,  1934  of  Columbia  make  further this  thesis  head o f  this  my  It is thesis  a l l o w e d w i t h o u t my  permission.  Department o f  the  representatives. publication  the  University  the  f o r s c h o l a r l y p u r p o s e s may by  the  I agree that  agree that permission department or  f u l f i l m e n t of  written  ABSTRACT  The  study b e g i n s by n o t i n g the importance of the P a c i f i c Rim  as a  t r a d i n g a r e a w i t h i n the w o r l d economy and examines growing economic between Japan and B.C.  ties  Japan i s becoming i n c r e a s i n g l y s i g n i f i c a n t as a  market f o r B.C.'s raw m a t e r i a l s and a source of investment c a p i t a l f o r resource  development.  In consequence we need to examine the  strategy  f o l l o w e d by Japanese i n d u s t r i a l i n t e r e s t s i n p r o c u r i n g raw m a t e r i a l s .  It  i s noted t h a t t h i s s t r a t e g y d i f f e r s i n s i g n i f i c a n t r e s p e c t s from the American s t r a t e g y of d i r e c t f o r e i g n investment which has been so dominant i n Canadian r e s o u r c e for a staple region.  development and The  thus may  Japanese r e s o u r c e  have d i f f e r e n t i m p l i c a t i o n s  procurement s t r a t e g y i s  d e s c r i b e d f o c u s i n g on Japanese a v e r s i o n f o r i n v e s t i n g e q u i t y long-term c o n t r a c t s , m u l t i p l e - s o u r c i n g of r e s o u r c e s , resource  purchasing.  and  capital,  consortium  A s e t of hypotheses are developed c o n c e r n i n g  the  i m p l i c a t i o n s of t h i s s t r a t e g y and are t e s t e d i n the c o n t e x t of the c o a l industry i n southeastern  B.C.  T h i s i n v o l v e d i n t e r v i e w s w i t h spokesmen  from the f o u r c o a l companies i n the r e g i o n and p r i m a r y and The  secondary  r e l i a n c e upon a number of  sources.  study concludes t h a t the Japanese s t r a t e g y g i v e s r i s e to a set  of new problems which i n c r e a s e s the c o s t s and development.  For example, t h e i r p r e f e r e n c e  s h i f t s the r i s k s of r e s o u r c e  r i s k s associated with staple f o r not  investing equity  development onto the owners of the v e n t u r e  and means t h a t i t i s e a s i e r f o r the Japanese to wind down c o n t r a c t s or terminate  a t r a d i n g r e l a t i o n s h i p than under the American s t r a t e g y of  d i r e c t f o r e i g n investment.  Consortium r e s o u r c e  purchasing  s e l l e r s from r e c e i v i n g adequate r e t u r n s f o r t h e i r r e s o u r c e .  inhibits The  Japanese  Ill  attempt  to encourage over-supply by l e t t i n g  r e s o u r c e s than they r e q u i r e .  This results  out c o n t r a c t s f o r more i n resource developers bearing  the c o s t s of unused c a p a c i t y when c o n t r a c t c u t backs o c c u r . some p o l i c y  Finally,  suggestions a r e o f f e r e d r e g a r d i n g the problems posed f o r  s t a p l e economies by the Japanese r e s o u r c e procurement s t r a t e g y .  iv  TABLE  OF  CONTENTS Page  ABSTRACT  i i  TABLE OF CONTENTS  iv  LIST OF TABLES  v i i  LIST OF MAPS  ix  ACKNOWLEDGEMENTS  x  I.  INTRODUCTION  1  II.  THE IMPORTANCE OF JAPAN AS A MARKET AND INVESTMENT SOURCE FOR B.C.'S RESOURCES  III.  7  HISTORICAL BACKGROUND TO MINING IN SOUTHEASTERN B.C  15  A.  C o a l M i n i n g i n t h e E l k V a l l e y , 1900-1960  15  B.  Contemporary C o a l M i n i n g Under t h e S t i m u l u s o f Japanese Demand  IV.  THEORETICAL BACKGROUND  33  A.  The American Resource Procurement S t r a t e g y  33  B.  The Japanese Resource Procurement S t r a t e g y  36  (a)  H i s t o r i c a l Background  36  (b)  D e s c r i p t i o n of t h e S t r a t e g y  37  (c)  P o s s i b l e I m p l i c a t i o n s o f t h e Japanese S t r a t e g y . . .  39  C. V.  21  Methodology  . . . . .  46  PRESENTATION OF FINDINGS A.  52  The I m p l i c a t i o n s o f Japanese P r e f e r e n c e f o r n o t I n v e s t i n g Equity (a)  53 The Development (i) (ii)  of Backward L i n k a g e s  F o r e i g n and Domestic P u r c h a s i n g P a t t e r n s . . . Domestic Development o f I n p u t s t o t h e C o a l Industry  53 53 55  V  Page  B.  (b)  The Development of Forward L i n k a g e s  (c)  The Development o f F i s c a l L i n k a g e s  61 . . .  63  The I m p l i c a t i o n s o f Long-term C o n t r a c t s w i t h Japanese Buyers (a)  Long-term C o n t r a c t s and S t a p l e Producers  (b) C.  D.  69 69  (i)  S t a b i l i t y o f Demand  .  (ii)  S t a b i l i t y of P r i c e  73  ( i i i ) C o n c l u d i n g Remarks  74  Long-term C o n t r a c t s and R e g i o n a l S t a b i l i t y  . . . .  VII.  80  The I m p l i c a t i o n s of Japanese M u l t i p l e - S o u r c i n g  89  (a)  C o m p e t i t i o n on the Supply Side  89  (b)  The E f f e c t s f o r C o a l S u p p l y i n g Regions  95  The I m p l i c a t i o n s of Japanese Consortium  Resource  Purchasing VI.  70  100  ANALYSIS OF FINDINGS  107  A. B.  107  Summary of Research F i n d i n g s The I m p l i c a t i o n s o f t h e Japanese S t r a t e g y f o r a S t a p l e Resource Region  I l l  CONCLUSION  121  A.  P o l i c y Suggestions  121  B.  C o n c l u d i n g Comments  129  BIBLIOGRAPHY APPENDIX A. APPENDIX B. APPENDIX C.  APPENDIX D.  134 Coal Mining S t a t i s t i c s 1979  f o r E l k V a l l e y Region, 1898142  Main Stages I n v o l v e d i n t h e M i n i n g and P r e p a r a t i o n of C o a l  154  Main Stages I n v o l v e d i n t h e H a n d l i n g of C o a l a t R o b e r t s Bank P o r t  156  Interview Questions  157  vi  Page  APPENDIX E.  APPENDIX F.  Forms Completed by B.C. C o a l Regarding Inputs and S e r v i c e s  S o u r c i n g of  Forms Completed by Westshore T e r m i n a l s L t d . Regarding S o u r c i n g of I n p u t s and S e r v i c e s  167 175  vii  LIST  OF  TABLES Page  Table 1.  E x p o r t s of B.C. p r o d u c t s to p r i n c i p a l c o u n t r i e s , 1965-1981  9  Table 2.  E x p o r t s of B.C. p r o d u c t s t o Japan, 1965-1981 . . . .  Table 3.  New B.C. mega-projects  developed  10  t o supply the  P a c i f i c Rim  13  Table 4.  H i s t o r i c a l Elk Valley population figures  20  Table 5.  C o a l companies o p e r a t i n g i n s o u t h e a s t e r n B.C., 1981  28  Table 6.  F i n a n c i a l d a t a f o r K a i s e r Resources  65  Table 7.  D i s t r i b u t i o n of K a i s e r ' s cash f l o w  67  Table 8.  C o n t r a c t e d tonnages v e r s u s a c t u a l purchases from B.C. C o a l L t d . by Japanese s t e e l m i l l s , 1976-1982 . C o n t r a c t e d tonnages v e r s u s a c t u a l purchases from F o r d i n g C o a l L t d . by Japanese s t e e l m i l l s , 1972-1982  Table 9. Table 10. Table 11. Table 12. Table 13. Table 14. Table 15.  72  Annual p r o d u c t i o n l e v e l s f o r K a i s e r / B . C . C o a l L t d . , 1968-1982  77  Annual p r o d u c t i o n l e v e l s f o r F o r d i n g C o a l L t d . , 1972-1982 . . . . .  78  Annual s i z e of K a i s e r / B . C . C o a l L t d . l a b o u r f o r c e , 1970-1983  79  Annual s i z e of F o r d i n g C o a l L t d . l a b o u r f o r c e , 1972-1982  79  Unemployment f i g u r e s by o c c u p a t i o n f o r E l k V a l l e y r e g i o n , 1981-1983  82  Average income of t a x f i l e r s f o r E l k V a l l e y communities and the p r o v i n c e of B.C., 1970-1980  . .  Table 16.  Contemporary E l k V a l l e y p o p u l a t i o n f i g u r e s  Table 17.  Apartment vacancy r a t e s f o r E l k V a l l e y communities, 1979-1982 T o t a l v a l u e of a l l b u i l d i n g p e r m i t s awarded f o r E l k V a l l e y communities, 1970-1982  Table 18.  71  83 84  85 86  viii  Page Table  Table  19.  20.  Table 21.  F o r e i g n s u p p l i e r s of Japanese c o k i n g c o a l needs, 1970-1981  90  Comparison of f o r e c a s t e d Japanese m e t a l l u r g i c a l c o a l requirements from A u s t r a l i a and western Canada w i t h c o n t r a c t e d amounts  94  Japanese c o k i n g c o a l requirements s t e e l p r o d u c t i o n , 1970-1983  98  i n r e l a t i o n to  ix  LIST OF MAPS Page Map  1.  L o c a t i o n o f E l k V a l l e y Region i n B r i t i s h Columbia  ...  4  Map  2.  H i s t o r i c a l C o a l M i n i n g i n the E l k V a l l e y  16  Map  3.  L o c a t i o n o f Roberts Bank C o a l H a n d l i n g P o r t  23  Map  4.  Contemporary C o a l M i n i n g i n t h e E l k V a l l e y  24  X  ACKNOWLEDGEMENTS  I would l i k e to thank my  s u p e r v i s o r s , T e r r y McGee and Pat Marchak.  Pat Marchak's h e l p i n i n i t i a t i n g the t h e s i s and g u i d i n g me  through  the  p a i n f u l p r o c e s s of " r e s e a r c h d e s i g n " i s p a r t i c u l a r l y a p p r e c i a t e d . would a l s o l i k e to thank Tom  Gunton f o r h i s comments on my  I  research  f i n d i n g s and d i s c u s s i o n s which were e x t r e m e l y h e l p f u l i n t h i n k i n g about the i m p l i c a t i o n s of the Japanese r e s o u r c e procurement s t r a t e g y .  Ray  Payne's comments and s h a r i n g of i d e a s are a l s o much a p p r e c i a t e d . Funding f o r my a grant from the Max  f i e l d w o r k was  made p o s s i b l e by Clyde Weaver  B e l l Foundation.  P a t s y Quay i s g r a t e f u l l y acknowledged  f o r her e x c e l l e n t work i n t y p i n g the t h e s i s . the many i n d i v i d u a l s who my  interviews.  possible.  generously  through  F i n a l l y I would l i k e to thank  shared t h e i r time and knowledge d u r i n g  Without t h e i r p a r t i c i p a t i o n t h i s t h e s i s would not have been  xi  I n d i v i d u a l s Contacted B.C.  -  During Fieldwork  Interviews  Coal L t d .  Robert S t a n l a k e , E x e c u t i v e V i c e P r e s i d e n t of M a r k e t i n g Guy Heywood, M a r k e t i n g A n a l y s t Greg McCormick, P u r c h a s i n g Agent J a c k Buchanan, S u p e r v i s o r , P e r s o n n e l A d m i n i s t r a t i o n  Byron Creek C o l l i e r i e s L t d . -  Kent O'Connor, P u b l i c R e l a t i o n s A d v i s o r  Canada Employment and Rod  Immigration  Smelser, Economist  Canada Mortgage and Housing C o r p o r a t i o n -  George Fessenden, Cranbrook Branch Manager A.M. M a c M i l l a n , C h i e f A p p r a i s e r Helmut P a s t r i c k  Crows Nest Resources L t d . -  C h a r l e s Vermeeren, Manager, P u b l i c and Government A f f a i r s Roger Goodman, M a r k e t i n g  Coleman C o l l i e r i e s L t d . -  W i l f r i d Loucks, President  Fording Coal L t d . -  Ken Carnes, G e n e r a l Manager M a r k e t i n g Wayne S t . Amour, A d m i n i s t r a t o r of P u b l i c R e l a t i o n s Pat K o s k i , A d m i n i s t r a t o r , P u r c h a s i n g  M i n i s t r y of I n d u s t r y and Small B u s i n e s s Development, B.C. -  Ken Roueche, Research O f f i c e r John Roucks  Revenue Canada -  Doug Smith  Westshore T e r m i n a l s  Ltd.  Greg S c o t t , Manager of  Operations  Government  1  I.  According  INTRODUCTION  t o the s t a p l e s t h e o r y of economic growth, a s t a p l e s economy  i s one where r e s o u r c e - i n t e n s i v e the pace f o r economic growth. imported and c o n t i n u e d  exports  are the l e a d i n g s e c t o r which s e t s  Scarce f a c t o r s of p r o d u c t i o n  have t o be  economic growth r e q u i r e s the emergence of a  s t a p l e s e c t o r i f e x t e r n a l demand d e c l i n e s or the r e s o u r c e  new  base i s e x h a u s t e d .  Economic development i n such a r e g i o n w i l l be based on l i n k a g e s stemming from the s t a p l e s e c t o r .  For example, backward l i n k a g e s or the domestic  manufacture of i n p u t s t o the s t a p l e s e c t o r may  d e v e l o p , and  forward  linkages  may  emerge where i n d u s t r i e s u s i n g the s t a p l e p r o d u c t as an i n p u t d e v e l o p .  The  s t a p l e s e c t o r can a l s o generate f i n a l demand l i n k a g e s as r e f l e c t e d i n  the growth of a consumer goods i n d u s t r y , and f i s c a l l i n k a g e s which r e f e r to the normal and above normal r e t u r n s t o c a p i t a l earned i n the l e a d i n g  sector.  An o p t i m i s t i c v e r s i o n of the s t a p l e s t h e o r y p r e d i c t s t h a t these l i n k a g e s w i l l develop and encourage f u r t h e r growth and d i v e r s i f i c a t i o n to the e x t e n t sector.  t h a t the r e g i o n a l economy i s no l o n g e r dependent on the  However, the more common e x p e r i e n c e i s one  staple  where the economy  comes caught i n a " s t a p l e s t r a p " w i t h an o v e r - c o n c e n t r a t i o n  be-  of r e s o u r c e s  in  the s t a p l e s e c t o r and a c y c l i c a l p a t t e r n of economic growth f e a t u r i n g "booms" and  " b u s t s " r e s u l t i n g from changes i n e x t e r n a l demand f o r the  regional staple. *  *  *  *  *  B r i t i s h Columbia has always been a s t a p l e s economy where economic growth has been i n i t i a t e d by e x t e r n a l demand f o r p a r t i c u l a r r e s o u r c e s . present,  f o r e s t and m i n e r a l p r o d u c t s are B.C.'s two  staple exports  making  2  up 89 p e r c e n t of a l l p r o v i n c i a l e x p o r t s .  These c o n s t i t u t e the  At  leading  2  s e c t o r which s e t s the pace f o r economic growth i n the p r o v i n c e . nessed U.S.  We  wit-  the danger of such o v e r - c o n c e n t r a t i o n d u r i n g the r e c e n t d e c l i n e i n  demand f o r B.C.  economy.  lumber and the r e s u l t i n g downturn i n the p r o v i n c i a l  H i s t o r i c a l l y , Great B r i t a i n and the U n i t e d S t a t e s have r e p r e -  sented the m e t r o p o l i t a n economies whose i n d u s t r i a l development has been a i d e d by imports from r e s o u r c e - r i c h B.C.  More r e c e n t l y the P a c i f i c  and Japan i n p a r t i c u l a r , has emerged as an i m p o r t a n t market f o r staples.  The U.S.  Rim,  B.C.  now buys 44 p e r c e n t of B.C.'s e x p o r t s and Japan i s the 3  second major e x p o r t market consuming 23 p e r c e n t of t o t a l e x p o r t s .  Of  the  p r o v i n c e ' s s t a p l e e x p o r t s , f o r e s t r y and m i n e r a l p r o d u c t s , the U.S.  took  4 41 p e r c e n t and Japan took 24 p e r c e n t i n  1980.  L i k e the U n i t e d S t a t e s and B r i t a i n , Japan i s i n t e r e s t e d p r i m a r i l y i n o b t a i n i n g raw m a t e r i a l s from B.C.  to f e e d i n d u s t r i a l a c t i v i t y at home.  p r o v i n c e ' s t h r e e main s t a p l e e x p o r t s t o Japan are f o r e s t p r o d u c t s , and copper;  t o g e t h e r they earn more than t h r e e - q u a r t e r s of t o t a l  e a r n i n g s from e x p o r t s to Japan.~*  The  coal, B.C.  S i n c e the 1960's Japanese companies have  begun d i r e c t l y i n v e s t i n g i n B r i t i s h Columbia, p a r t i c u l a r l y i n r e s o u r c e mega-projects.  A l t h o u g h not p r e s e n t l y major i n v e s t o r s i n the p r o v i n c e , the  s i g n i f i c a n c e of investment  from Japan and o t h e r P a c i f i c Rim c o u n t r i e s such  as South Korea i s expected  t o i n c r e a s e due t o f a s t paced i n d u s t r i a l growth  and the subsequent demand f o r raw m a t e r i a l s . Much of the s t a p l e e x p o r t a c t i v i t y i n B.C.  has been c a r r i e d out  American m u l t i n a t i o n a l c o r p o r a t i o n s a i m i n g t o secure a supply of m a t e r i a l s to feed manufacturing  a c t i v i t y i n the U.S.  heavy l e v e l s of American investment  The  raw  i m p l i c a t i o n s of  i n the s t a p l e r e s o u r c e and  manufacturing  s e c t o r s of the Canadian economy have been d e a l t w i t h by w r i t e r s such A i t k e n (1961), Watkins (1968), L e v i t t  by  (1971), and Gray (1972).  as  Thus we have  3  some u n d e r s t a n d i n g of the workings and e f f e c t s of the s t r a t e g y of d i r e c t f o r e i g n investment f o l l o w e d by the Americans abroad.  to p r o c u r e raw m a t e r i a l s from  However, the s t r a t e g y f o l l o w e d by Japanese  i n d u s t r i a l i s t s to  o b t a i n overseas r e s o u r c e s i s q u i t e d i f f e r e n t from the American w i t h which we have become f a m i l i a r . involvement i n B.C.  I n v i e w of the growing  Japanese  s t a p l e i n d u s t r i e s and our u n f a m i l i a r i t y w i t h the n a t u r e  of t h i s involvement i t i s i m p o r t a n t to understand the Japanese procurement  strategy  resource  s t r a t e g y and i t s i m p l i c a t i o n s f o r r e s o u r c e r e g i o n s .  A l s o , the  n e w l y - i n d u s t r i a l i z i n g c o u n t r i e s ( N . I . C . ' s ) , Taiwan, S i n g a p o r e , Hong Kong, and South K o r e a , appear to be f o l l o w i n g the Japanese model of overseas investment.  South Korea i n p a r t i c u l a r has j u s t completed  its first  major  investment i n Canada and based on the r a p i d growth r a t e of i t s economy we can p r e d i c t t h a t c o u n t r y t o become the n e x t b i g i n v e s t o r i n B.C.  Such  o b s e r v a t i o n s add f u r t h e r weight t o the argument t h a t we must study and u n d e r s t a n d t h e investment s t r a t e g i e s of these c o u n t r i e s . T h i s study examines the i m p l i c a t i o n s of the Japanese r e s o u r c e p r o c u r e ment s t r a t e g y by f o c u s i n g on a case study of a s t a p l e s r e g i o n s u p p l y i n g Japan, the c o a l m i n i n g r e g i o n of the E l k V a l l e y i n s o u t h e a s t e r n B.C. Map  1).  C o a l r e p r e s e n t s the most i m p o r t a n t B.C.  (see  e x p o r t t o Japan i n terms  of v a l u e , and u n t i l the n o r t h e a s t c o a l p r o j e c t b e g i n s s h i p p i n g i n 1984, s o u t h e a s t e r n r e g i o n i s the o n l y p r o v i n c i a l c o a l p r o d u c e r .  I t i s an o l d  c o a l m i n i n g r e g i o n which s u f f e r e d an economic downturn d u r i n g the 1940's and 1950's, but e x p e r i e n c e d a r e s u r g e n c e i n growth i n the l a t e 1960's as d e f u n c t mines were re-opened metallurgical coal.  t o s u p p l y the Japanese  steel industry with  I conducted i n t e r v i e w s w i t h the f o u r c o a l companies  p r e s e n t l y o p e r a t i n g i n the r e g i o n and c o n s u l t e d a number of p r i m a r y and secondary s o u r c e s i n an e f f o r t t o a s c e r t a i n the i m p l i c a t i o n s of the  the  4  SOURCE:  Base map from A.L. F a r l e y , A t l a s of B r i t i s h Columbia. Vancouver: U n i v e r s i t y of B r i t i s h Columbia P r e s s , 1979, p. 11.  5  Japanese r e s o u r c e procurement s t r a t e g y f o r t h i s s t a p l e s r e g i o n . The  study b e g i n s w i t h a g e n e r a l o v e r v i e w of the i n c r e a s e d  importance  of the P a c i f i c Rim as a t r a d i n g a r e a and f o c u s e s on Japanese involvement i n B.C.  r e s o u r c e s stemming from the 1960's.  I then examine the c o a l r e g i o n of  the E l k V a l l e y b e g i n n i n g w i t h a b r i e f h i s t o r i c a l d e s c r i p t i o n of the r e g i o n a l economy d u r i n g the 1900-1960 p e r i o d .  Then the contemporary c o a l  m i n i n g economy i s d e s c r i b e d i n c l u d i n g i n f o r m a t i o n on the c o a l companies, markets,  c o n t r a c t s , and the changes which have taken p l a c e i n response  Japanese demand f o r the s t a p l e e x p o r t . r e s o u r c e procurement s t r a t e g y .  Chapter  To h i g h l i g h t how  to  IV examines the Japanese d i f f e r e n t i t i s from  the  American s t r a t e g y I b e g i n w i t h a b r i e f d e s c r i p t i o n of the l a t t e r and i t s ramifications.  The f o u r main c h a r a c t e r i s t i c s of the Japanese s t r a t e g y a r e  then p r e s e n t e d and a set of hypotheses of each f o r a s t a p l e s r e g i o n .  developed  These hypotheses  c o n c e r n i n g the i m p l i c a t i o n s were t e s t e d i n the c o n t e x t  of c o a l m i n i n g i n the E l k V a l l e y r e g i o n and Chapter V p r e s e n t s the r e s e a r c h findings.  The  study c o n c l u d e s w i t h an a n a l y s i s of the i m p l i c a t i o n s of the  Japanese r e s o u r c e procurement s t r a t e g y and p r e s e n t s some p o l i c y c o n c e r n i n g the problems f o r B.C.  which i t engenders.  suggestions  6  FOOTNOTES  1.  M.H. Watkins, "A S t a p l e Theory of Economic Growth," Canadian Economic H i s t o r y , ed. W.T. E a s t e r b r o o k and (Toronto: M a c m i l l a n Company of Canada L t d . , 1978), f o l l o w i n g d e s c r i p t i o n of s t a p l e s theory i s based on  i n Approaches t o M.H. Watkins p. 141-58. The this a r t i c l e .  2.  B.C., M i n i s t r y of F i n a n c e , B.C. F i n a n c i a l and Economic Review, p. 97, 3.  3.  B.C., M i n i s t r y of F i n a n c e , B.C. F i n a n c i a l and Economic Review, p. 1.  4.  B.C., M i n i s t r y of F i n a n c e , B.C. F i n a n c i a l and Economic Review p. 96,  5.  K e i t h A . J . Hay and S.R. H i l l , Canada-Japan Trade and Investment (Ottawa: Economix I n t e r n a t i o n a l , 1979), p. 68.  7  II.  THE IMPORTANCE OF JAPAN AS A MARKET AND  INVESTMENT  SOURCE FOR B.C.'S RESOURCES  Recent decades have seen a g r a d u a l d e c l i n e i n the hegemonic o c c u p i e d by the N o r t h A t l a n t i c r e g i o n i n the w o r l d economy.  position  The v e r y  i m p r e s s i v e performance of t h e Japanese economy i n the post-war p e r i o d and the f a s t r a t e of economic growth i n t h e newly i n d u s t r i a l i z i n g c o u n t r i e s of Hong Kong, Taiwan, S i n g a p o r e , and South Korea have a i d e d a s h i f t i n economic power westward toward the P a c i f i c Rim.  Trade between N o r t h America and  Europe as a p e r c e n t a g e of t o t a l w o r l d t r a d e i s d e c l i n i n g , w h i l e t r a d e w i t h i n the P a c i f i c Rim i s growing a t a r a t e f a s t e r than the w o r l d average.^ The B r i t i s h Columbia economy has been drawn i n t o t h i s p a t t e r n of i n c r e a s e d t r a d i n g and economic i n t e g r a t i o n w i t h i n the P a c i f i c Rim.  The  p r o v i n c e ' s e x p o r t s t o P a c i f i c Rim economies have grown from a v a l u e of $400 m i l l i o n i n 1969 t o 3.1 b i l l i o n i n 1980.  2  I n 1970, 24 p e r c e n t of a l l  B.C. e x p o r t s were d e s t i n e d f o r P a c i f i c Rim c o u n t r i e s whereas i n 1980,  this  3 f i g u r e had r i s e n t o 32 p e r c e n t .  These e x p o r t s a r e o v e r w h e l m i n g l y composed  of unprocessed and s e m i - p r o c e s s e d goods; o n l y about 2 p e r c e n t of B.C.'s e x p o r t s t o P a c i f i c Rim c o u n t r i e s a r e f u l l y manufactured goods and end 4 products. W i t h i n t h e P a c i f i c Rim, Japan has c o n s i s t e n t l y been the most i m p o r t a n t market f o r B.C. p r o d u c t s .  B r i t i s h Columbia, meanwhile, i s the major source  of Canadian i m p o r t s f o r Japan s i n c e 50 p e r c e n t of Canada's e x p o r t s t o Japan a r e from B.C.^  However, t r a d e between t h e Japanese and B r i t i s h Columbian  economies o n l y began t o a c h i e v e r e a l s i g n i f i c a n c e d u r i n g the l a t e and e a r l y 1960's. relationship.  1950's  A number of events marked the commencement of t h i s  I n 1954, f o r example, a t r a d e m i s s i o n r e p r e s e n t i n g the  8  Vancouver Board of Trade v i s i t e d f i v e major Japanese c i t i e s to d i s c u s s t r a d e p r o s p e c t s between B.C. f o r the s a l e of B.C.  and Japan.  copper c o n c e n t r a t e h e l p e d s t i m u l a t e the l a g g i n g m i n i n g  i n d u s t r y i n the p r o v i n c e . ^ i n 1958  I n 1957, a major c o n t r a c t w i t h Japan  Western Canadian c o a l p r o d u c e r s v i s i t e d Japan  thus b e g i n n i n g the c o a l e x p o r t t r a d e between B.C.  8 the Japanese s t e e l i n d u s t r y . f o r the B.C.  I n 1961  Japan became the major new  lumber i n d u s t r y w i t h s a l e s of hemlock, f i r , and  The decade of the 1960's w i t n e s s e d a new t r a d e between Canada and Japan and t h i s was Columbia.  and A l b e r t a and market 9  cedar.  e r a of r a p i d expansion  in  p a r t i c u l a r l y evident i n B r i t i s h  Table 1 shows the v a l u e and percentage  of B.C.  e x p o r t s going t o  the t h r e e major markets (the U.S.,  Japan, and the U n i t e d Kingdom) f o r  s e l e c t e d y e a r s from 1965  One  importance  to 1981.  of the Japanese market.  e x p o r t s went to Japan and by 1975, cent.  In 1981,  23.1  can c l e a r l y see the i n c r e a s i n g  I n 1965,  10.4  p e r c e n t of B.C.'s  t h i s amount had  i n c r e a s e d t o 22.3  per-  p e r c e n t of t o t a l p r o v i n c i a l e x p o r t s were d e s t i n e d f o r  Japan. Examination may  of Table 2 shows the c o m p o s i t i o n of these e x p o r t s .  be seen t h a t Japanese i m p o r t e r s a r e p r i m a r i l y i n t e r e s t e d i n the  m a t e r i a l s of B.C.  It raw  I n the 1960's and e a r l y 1970's, copper, woodpulp, and  lumber were B.C.'s s t r o n g e s t e x p o r t s t o the c o u n t r y but t h i s changed between 1973  and 1975 w i t h a d r a m a t i c i n c r e a s e i n the e x p o r t of c o a l t o Japan.  From 1965 3.3  t o 1981,  c o a l e x p o r t s i n c r e a s e d from a v a l u e of $4.2 m i l l i o n  p e r c e n t of the t o t a l v a l u e of B.C.  (or  e x p o r t s to Japan) t o $491.1 m i l l i o n ,  23 p e r c e n t of the t o t a l v a l u e and the major B.C.  e x p o r t t o Japan.  In  1981  the p r o v i n c e ' s major e x p o r t s t o Japan were c o a l , lumber, woodpulp, copper c o n c e n t r a t e s , and aluminum i n g o t s .  TABLE 1. Exports of B.C. products to principal countries, 1965-1981. (in millions of dollars) Value U.S.A. Japan U.K. Others  1965  697.8 126.6 190.9 203.6 Total  1,218.9  %  Value  57.3 10.4 15.7 16.6  852.4 266.2 200.7 259.3  100%  1,578.6  Value  Total  Value  %  1,615.2 465.8 201.3 476.2  2,009.4 924.5 325.8 561.2  58.5 16.9 7.3 17.3 100%  2,758.5  3,820.9  Total  Value  %  Value  3,423.4 1,225.4 359.8 1,298.8  54.3 19.4 5.7 20.6  4.202.1 1.559.2 352.0 1,444.7  6,307.7  Value  54.1 16.9 12.7 16.3  1,046.4 297.7 189.4 307.2  100%  100%  1,840.7  55.6 20.6 4.7 19.1  7,558.0 100%  Value  56.8 16.2 10.3 16.7  1,041.4 387.5 207.5 395.7  100%  % 51.2 19.1 10.2 19.5  2,032.1  100% 1976  %  Value  %  Value  %  52.6 24.2 8.5 14.7  1,886.3 863.0 264.3 858.7  48.7 22.3 6.8 22.2  2,670.2 1,040.4 351.4 1,207.6  50.7 19.7 6.7 22.9  3,872.3  100% 1979  %  1970  %  1975  1978  1977 U.S.A. Japan U.K. Others  1968  %  1973  1972 U.S.A. Japan U.K. Others  1967  Value 4,914.0 2,043.7 499.9 2,055.3  1980 % 51.6 21.4 5.4 21.6  9,512.9 100%  Value 4,152.6 2,181.9 625.9 2,693.4  100%  5,269.6  100%  1981 %  43.0 22.6 6.5 27.9  9,653.8 100%  Value 4.054.6 2,112.3 554.0 2,431.8  %  44.3 23.1 6.0 26.6  9.152.7 100%  SOURCE: Adapted from B.C., Ministry of Finance, B.C. Financial and Economic Review, 1977-1982 editions.  TABLE 2.  Lumber  E x p o r t s o f B.C. p r o d u c t s to Japan, 1965-1981 (In m i l l i o n s o f d o l l a r s )  1965  1967  1968  1970  1971  14.6  35.4  45.2  65.2  36.2  -  S h i n g l e s and shakes 39.0  26.3  Woodpulp  49.1  69.8  53.5  1972  1973  1975  88.3  1976  1977  1978  1979  1980  1981  145.4  180.1  203.4  458.8  501.6  364.1  0.1  0.1  0.1  0.1  0,1  130.0  184.1  302.3  384.8  323.2  2.7  3.5  44.3  116.6  0.1  0.1  56.9  95.9  126.1  3.3  0.2  1.9  1,0  3.3  2.2  152.8  "  Newsprint paper  -  1.0  3.9  3.3  2.6'  4.7  Other paper + paperboards  -  0.1  0.3  -  0.4  1.6  8.9  7.9  15.0  19.4  30.8  20.9  32.6  24.8  47.9  43.9  35.8  41.4  31.0  40.6  26.0  8.0  42.5  133.0  99.8  171.6  208.8  0.4  0.2  11.9  Aluminum i n g o t s  -  Zinc ingots  -  2.1  0.8  1.7  0.4  Lead  1.1  0.7  0.8  0.1  -  -  28.5  70.9  84.1  118.9  120.8  170.7  ingots  Copper  concentrates  Iron ore concentrates Molybdenum  concentrates  Coal Fish  products  Others Total  SOURCE:  0.2 424.5  173.4  0.8  -  253.7  214.2  0.2  -  .3  1.5  1.7  1.2  207.3  268.3  283.5  257.7  8.0  10.3  19.7  17.3  19.0  15.3  16.8  10.7  12.2  11.0  10.6  5.8  4.8  6.0  2.0  7.7  6.8  10.8  8.6  8.0  .11.7  14.7  30.6  41.7  53.4  71.8  94.9  57.7  4.2  4.7  4.3  11.5  26.5  71.1  99.9  325.8  266.8  350.4  363.1  419.1  393.2  491.1  122.7  205.3  1.0  2.6  4.3  4.0  7.1  23.8  56.1  36.9  73.5  223.8  72.1  131.8  17.3  36.8  35.2  51.1  45,5  42.9  54.5  52.7  81.3  117.1  143.1  169.1  234.9  238.0  126.6  266.2  297.7  387.5  359.8  465.8  924.5  863.0  1,040.4  1,225.4  1,559.2  ,043.7  2,181.9  2,112.3  Adapted from B.C., M i n i s t r y  of F i n a n c e , B.C. F i n a n c i a l and Economic Review, 1977-1982  editions.  T u r n i n g now  to Japan's r o l e as a source of investment c a p i t a l ,  Japanese began d i r e c t l y i n v e s t i n g i n B.C. v e n t u r e s around  the  and i n a number of r e s o u r c e  the w o r l d i n the e a r l y 1960's.  My attempts to d i s c o v e r  the e x a c t amount of such investment and the p r o p o r t i o n i t r e p r e s e n t s of t o t a l f o r e i g n investment i n the B.C.  economy proved u n s u c c e s s f u l .  Informa  t i o n s o u r c e s are l i m i t e d and i t appears t h a t such d a t a does not e x i s t i n an a c c u r a t e and u p - t o - d a t e form ( a l t h o u g h Hay and H i l l ful  l i s t i n g of B.C.  1976).  One  (1979), g i v e a u s e -  p r o j e c t s f e a t u r i n g Japanese d i r e c t investment as of  can say, however, t h a t most of the Japanese d i r e c t  i n Canada i s c o n c e n t r a t e d i n the B.C. r e p r e s e n t a l a r g e sum  i n comparison  economy.^  investment  I n t o t a l i t would not  t o o t h e r f o r e i g n i n v e s t o r s f o r the  Japanese do not o f t e n p r a c t i s e e q u i t y f i n a n c i n g and i n the cases where they do, they become o n l y m i n o r i t y e q u i t y p a r t n e r s i n a v e n t u r e . It  i s p o s s i b l e t o g i v e some i d e a of the s e c t o r s of the B.C.  p e n e t r a t e d by Japanese d i r e c t i n v e s t m e n t . 1961 when Sumitomo and Granges A.B.  economy  The f i r s t i n s t a n c e o c c u r r e d i n  e s t a b l i s h e d the Bethlehem Copper  C o r p o r a t i o n to e x p l o r e f o r and develop copper i n B.C.^  F u r t h e r Japanese  investment i n companies such as Lornex and V a l l e y i n 1964 and Brenda Mines 12  Ltd.  i n 1968 h e l p e d s t i m u l a t e an un-precedented  boom i n B.C.  mining.  These moves were accompanied by investment i n the f o r e s t r y i n d u s t r y companies such as C r e s t b r o o k (1967), F i n l a y and Q.C.  and  (1969), C.I.P.A. (1970), Mayo  Timber L t d . (1972), and C i n d e r e l l a D a i e i (1973) were e s t a b l i s h e d .  Other s e c t o r s p e n e t r a t e d by some degree of Japanese d i r e c t  investment  i n c l u d e the f o l l o w i n g : t r a d i n g , a u t o m o b i l e d i s t r i b u t i o n , t r a n s p o r t a t i o n f a c i l i t i e s , marine p r o d u c t s , s t e e l w i r e and f e r r o u s p r o d u c t s , f i s h p r o c e s s ing,  c o a l and molybdenum m i n i n g , and m i n e r a l e x p l o r a t i o n .  14  12  T a b l e 3 l i s t s some o f t h e new B.C. mega-projects which have been developed t o supply  resources  Japanese e q u i t y i n v e s t m e n t .  t o Japan and which i n some cases f e a t u r e Such p r o j e c t s r e i n f o r c e t h e c o n c l u s i o n  that  B.C. i s becoming f i r m l y i n t e g r a t e d i n t o t h e P a c i f i c Rim economy and i s p l a y i n g t h e s p e c i f i c r o l e o f raw m a t e r i a l s u p p l i e r w i t h r e l a t i o n t o Japan. I t i s thus i m p o r t a n t t h a t we examine the terms of t h i s i n t e g r a t i o n and how they a r e a f f e c t i n g r e s o u r c e  i n d u s t r i e s and r e s o u r c e  regions  dependent on the e x p o r t o f s t a p l e s t o t h e Japanese market.  i n B.C.  13  TABLE 3.  New B.C. mega-projects  Project  Participants  Northeast Coal  Methanol  developed to supply Che P a c i f i c Rim.  Plant  Description  Q u i n t e t t e Coal (owned 50% by Denison, 12.5% by M i t s u i , 10.5% by Tokyo Boeki, 5% by Sumitomo S h o j l , 10% by Japanese s t e e l m i l l s , 12% by Charbonnages de France)  Operates m e t a l l u r g i c a l c o a l mine near Chetwynd producing about 6.3 m i l l , tonnes/year when i n f u l l production for sale t o Japan  Teck Bullmoose (owned 51% by Teck, 39% by Lornex, 10% by Nissho Iwai)  Operates thermal and m e t a l l u r g i c a l c o a l mine near Chetwynd producing about 1.7 m i l l , tonnes/year when i n f u l l p r o d u c t i o n f o r sale to Japan  Ocelot  Operates near K i t i m a t ; s e l l s 1/3 of product t o Japan  Industries  about  L.N.G. Plant  Dome, TransCanada P i p e l i n e s , Nova, Nissho Iwai  Planned f o r 1987 near P r i n c e Rupert; w i l l s e l l n a t u r a l gas to 5 Japanese u t i l i t y companies  Petrochemical Complex  Dome, Westcoast T r a n s m i s s i o n , Canadian O c c i d e n t a l Petroleum, Mitsubishi  Planned plants a t P r i n c e George and Prince Rupert  F e r r o s i l i c o n Plant  Cominco, M i t s u i  Planned plant at Kimberly; d e c i s i o n depends on economy  Monkman Coal P r o j e c t  PetroCanada, Canadian Superior O i l , Mclntyre Mines, Sumitomo  M e t a l l u r g i c a l and thermal c o a l mine planned near Chetwynd; aiming for Japanese market  David M i n e r a l s , Ssangyong of South Korea  Planned thermal c o a l mine near Chetwynd; aiming f o r South Korean market  Cinnabar  Cinnabar Peak Mines  Planned m e t a l l u r g i c a l c o a l mine near Chetwynd; aiming f o r P a c i f i c Rim and European markets  Sage Creek  Sage Creek Coal (owned by Rio Algom and Pan Ocean O i l )  Planned thermal c o a l mine near F e r n i e ; aiming f o r P a c i f i c Rim market  Elk  E l c o Mining (owned by S t e l c o , Home O i l , and consortium of European S t e e l m i l l s )  Planned m e t a l l u r g i c a l c o a l mine near E l k f o r d ; aiming f o r P a c i f i c Rim markets but postponed a t present.  Willow Creek Coal P r o j e c t  River  Phase Phase Phase Phase Phase  1 2 3 4 5  = = = = =  3  Preliminary project proposal. Preliminary project design. Project design. F i n a l e n g i n e e r i n g and c o n s t r u c t i o n . Operational.  Compiled from B.C., M i n i s t r y of Industry and Small Business Development, "North East Coal Development" f o l d e r (1983); B.C., M i n i s t r y o f Industry and Small Business Development, O f f i c e o f Procurement and I n d u s t r i a l B e n e f i t s , "Major P r o j e c t Inventory", Aug. 1983; Coal A s s o c i a t i o n of Canada, "Coal Focus", Oct. 1983; Don Whiteley, "Methanol plant opens to a rough f u t u r e " , Vancouver Sun, Sept. 16, 1982, p. DI.  14  FOOTNOTES  1.  B.C., M i n i s t r y o f I n d u s t r y and S m a l l B u s i n e s s Development, Economic A n a l y s i s and Research Bureau, P a c i f i c Rim E x p o r t Markets - A B.C. P e r s p e c t i v e , p r e p a r e d by Dennis Grimmer, 1981, p . l .  2.  Ibid.  3.  Ibid.  4.  I b i d . , p.11.  5.  K e i t h A . J . Hay and S.R. H i l l , Canada-Japan Trade and Investment (Ottawa: Economix I n t e r n a t i o n a l , 1979), p.68.  6.  100 Y e a r s of Trade and Commerce Between Canada and Japan ( T o r o n t o : Japan Trade C e n t r e , 1977), p.12.  7.  I b i d . , p.13.  8.  I b i d . , p.14.  9.  I b i d . , p.17.  10.  Hay and H i l l , p.94.  11.  Ibid.  12.  I b i d . ; 100 Y e a r s o f Trade and Commerce Between Canada and Japan, p.21.  13.  Hay and H i l l , p.94.  14.  I b i d . ; B.C., M i n i s t r y o f I n d u s t r y and S m a l l B u s i n e s s Development, " B r i t i s h Columbia Companies w i t h Japanese Involvement", n.d., pp.1-6.  15  III.  One  HISTORICAL BACKGROUND TO COAL MINING IN SOUTHEASTERN  such r e g i o n whose economy i s dependent on the e x p o r t of a s t a p l e  product t o Japan i s the E l k V a l l e y i n s o u t h e a s t e r n B.C. a brief  B.C.  This s e c t i o n gives  h i s t o r i c a l background t o the r e g i o n and then f o c u s e s on the changes  w h i c h have o c c u r r e d i n the a r e a f o l l o w i n g the s t i m u l u s of Japanese demand f o r m e t a l l u r g i c a l c o a l from  A.  B.C.  C o a l M i n i n g i n the E l k V a l l e y , 1900-1960 C o a l d e p o s i t s i n the a r e a had been noted by e a r l y e x p l o r e r s i n the  1870's but i t was not u n t i l the c o n s t r u c t i o n of a r a i l r o a d Crows Nest Pass t h a t they c o u l d be exploited.''' I n 1898  through  the Canadian  P a c i f i c R a i l r o a d (C.P.R.) b u i l t the Crows Nest Pass R a i l r o a d to w i t h the B.C.  Southern r o u t e thus p r o v i d i n g a market ( s i n c e c o a l  the t r a i n s ) and a c c e s s t o a major market a r e a , the burgeoning the West Kootenays (see Map  2).  In 1897  the  connect fuelled  s m e l t e r s of  the Crows Nest Pass C o a l Company  began m i n i n g a t C o a l Creek near the p r e s e n t day s i t e of F e r n i e and i n the 2 f o l l o w i n g y e a r they began p r o d u c i n g coke a t F e r n i e . up the v a l l e y a t the s i t e of M i c h e l began i n 1899  Coal mining f u r t h e r  and coke p r o d u c t i o n began  3 t h e r e i n 1902.  The Crows Nest Pass C o a l Company was  the major c o a l company  i n the r e g i o n and the o n l y one whose o p e r a t i o n s would s u r v i v e t h i s f i r s t p e r i o d of m i n i n g from 1900 was  i n Toronto  ( a l t h o u g h i t was  to 1960.  throughout  The company's head  l a t e r moved to F e r n i e ) and a l l the  o f f i c e r s were from e a s t e r n Canada thus i t i s presumed t h a t i t was  office original eastern  4  Canadian c a p i t a l which developed  the mines.  S i n c e the t u r n of the c e n t u r y c o a l m i n i n g has been the dominant economic a c t i v i t y of the E l k V a l l e y r e g i o n .  F o l l o w i n g the c o n s t r u c t i o n of  Map 2.  KEY:  SCALE:  12 34 56 —  H i s t o r i c a l C o a l M i n i n g i n the E l k V a l l e y .  C o a l Creek Mine (1897-1944) and coke ovens (1898-1932) M i c h e l Mine (1899-1968) and coke ovens (1902-1981) M o r r i s e y Mine (1905-1909) Hosraer Mine (1906-1914) C o r b i n Mine (1908-1935) Smelters f u e l l e d by E l k V a l l e y c o a l Railway r o u t e s as of 1900  1:2,000,000  SOURCE: Base map: Canada, Energy, Mines and R e s o u r c e s , Surveys and Mapping B r a n c h , "B.C." R a i l r o a d r o u t e s adapted from R.H. Meyer, " E v o l u t i o n of R a i l w a y s i n t h e K o o t e n a y s , " u n p u b l i s h e d M.A. T h e s i s , Dept. of Geography, U.B.C., 1970, p. 19.  17  the r a i l w a y t h e r e o c c u r r e d a mushrooming of s m a l l mines, towns, h a m l e t s , and v i l l a g e s . " '  The main communities were F e r n i e and M i c h e l - N a t a l ; F e r n i e  was the h i s t o r i c a l c o a l c e n t r e of the r e g i o n and M i c h e l was b u i l t as a company town by the Crows Nest Pass C o a l Company t o house the workers of i t s M i c h e l mines.  By 1928, M i c h e l ' s p o p u l a t i o n had expanded up the narrow  v a l l e y so t h a t the a d j a c e n t the town l i m i t s . ^  s m a l l community of N a t a l was i n c o r p o r a t e d  into  Other c o a l communities i n t h i s e a r l y p e r i o d i n c l u d e d  M o r r i s e y , C o r b i n , and Hosmer (see Map  2).  The Crows Nest Pass C o a l Company  mined near M o r r i s e y and the o p e r a t i o n was r u n i n t e r m i t t e n t l y between  1905  8 and 1909.  The second major c o a l company of the r e g i o n , C o r b i n C o a l and  Coke Company, began m i n i n g  i n 1908 a t C o r b i n .  T h i s American company w i t h  head o f f i c e s a t Spokane, Washington s u p p l i e d c o a l f o r the r a i l w a y system 9 owned by D a n i e l C o r b i n , the g r e a t American r a i l w a y magnate. developed due t o the m i n i n g from 1906 t o 1914.  Hosmer  a c t i v i t i e s of Hosmer Mines L t d . which l a s t e d  T h i s company was a s u b s i d i a r y of the C.P.R. and a l l  p r o d u c t i o n was consumed d o m e s t i c a l l y by the Canadian r a i l w a y . ^ t i o n to c o a l mining,  f o r e s t r y was an i m p o r t a n t  In a d d i -  economic a c t i v i t y i n the  r e g i o n l e a d i n g t o the growth of s m a l l communities such as E l k o , G a l l o w a y , J a f f r a y , and Waldo. As t o markets f o r the r e g i o n a l s t a p l e , the domestic market f o r E l k V a l l e y coke p r o d u c t i o n was  s t r o n g i n the pre-W.W.l. p e r i o d f o r much of the  coke was used t o f u e l the s m e l t e r s of the West Kootenays, p a r t i c u l a r l y the C o n s o l i d a t e d M i n i n g and S m e l t i n g Company s m e l t e r a t Trail.''"''"  The  tance of d o m e s t i c as opposed t o American markets f l u c t u a t e d d u r i n g p e r i o d but the volume of E l k V a l l e y c o a l e x p o r t e d domestic s a l e s u n t i l the mid-1920's. were more i m p o r t a n t  t o the U.S.  importhis  outweighed  A f t e r t h a t p o i n t , Canadian markets  f o r b o t h c o a l and coke (see Appendix A ) .  Coal  18  p r o d u c t i o n l e v e l s and the g e n e r a l economic p r o s p e r i t y of the r e g i o n a l s o began to change i n the 1920's; t h i s was  the f i r s t p e r i o d f o r which a l a c k  of demand f o r c o a l and coke i s mentioned i n the annual r e p o r t s of the M i n i s t e r of M i n e s .  Examination  of Appendix A shows t h a t 1913 was  the  of peak p r o d u c t i o n when 1,331,725 g r o s s tonnes of c o a l were mined. t h a t the g r a d u a l annual e v i d e n t - the f i r s t  B.C. year  After  i n c r e a s e s i n p r o d u c t i o n of the e a r l y y e a r s were not  "boom" p e r i o d of the E l k V a l l e y c o a l economy had  ended,  a l t h o u g h c o a l p r o d u c t i o n c o n t i n u e d and the r e g i o n a l p o p u l a t i o n remained f a i r l y stable. The  r e g i o n was  s e v e r e l y h i t by the d e p r e s s i o n of the 1930's and c o a l  p r o d u c t i o n and employment l e v e l s were a d v e r s e l y a f f e c t e d (see Appendix A ) . In  1932  the coke ovens a t F e r n i e o p e r a t e d by the Crows Nest Pass C o a l 12  Company were c l o s e d and i n 1935, to  1944  the C o r b i n mines were c l o s e d .  the Crows Nest Pass C o a l Company was  From  1936  the o n l y company o p e r a t i n g i n  the a r e a w i t h mines' a t C o a l Creek and M i c h e l , and coke ovens a t M i c h e l . 1939 tar  the company s t a r t e d a coke oven by-products 13 and gas from the c o a l  In  p l a n t at M i c h e l to recover  treatment.  D u r i n g the 1940's the r e g i o n a l economy e x p e r i e n c e d a temporary r e s u r gence i n growth due t o the s t i m u l u s of W.W.2 14 demand f o r c o a l and coke.  Examination  p r o d u c t i o n l e v e l s between 1941 Company opened a new  and 1951.  and consequent i n c r e a s e i n the  of Appendix A shows the i n c r e a s e d I n 1944  the Crows Nest Pass C o a l  mine c a l l e d E l k R i v e r C o l l i e r i e s near F e r n i e , but  the  company's m i n i n g o p e r a t i o n s a t C o a l Creek were c l o s e d permanently meaning t h a t F e r n i e was  no l o n g e r the c e n t r e of r e g i o n a l c o a l o p e r a t i o n s . ^  same y e a r the o l d C o r b i n mine was between 1944  and  1968  re-opened and o p e r a t e d  I n the  intermittently  by a number of d i f f e r e n t companies ( t h i s p a r t i a l l y  e x p l a i n s the annual f l u c t u a t i o n s i n p r o d u c t i o n l e v e l s d u r i n g t h i s p e r i o d ) .  19  T e c h n o l o g i c a l changes had made p o s s i b l e a new 1948  s u r f a c e mining  type of c o a l mining and i n  i n a d d i t i o n t o underground m i n i n g began i n the  o p e r a t i o n s of the Crows Nest Pass C o a l Company (see Appendix B f o r a d e s c r i p t i o n of the p r o c e s s e s Canadian markets were s t i l l s t a p l e ; i n 1950,  i n v o l v e d i n s u r f a c e and underground m i n i n g ) .  16  the predominant consumers of the r e g i o n ' s  91 p e r c e n t of the c o a l and 53 p e r c e n t of the coke  consumed d o m e s t i c a l l y w i t h the remainder e x p o r t e d  to the U.S.A.^  The p e r i o d of the 1950's t o the l a t e 1960's was s t a g n a t i o n f o r the E l k V a l l e y r e g i o n .  one of economic  Because of the depressed  c o a l markets the mines were not o p e r a t e d  was  s t a t e of  a t f u l l c a p a c i t y and the miners 18  p r a c t i s e d "work-sharing" In 1959,  where they would not always work a f u l l week.  f o r example, the M i c h e l C o l l i e r y o p e r a t e d f o r o n l y 165 days out 19  of a p o s s i b l e 236.  .  .  .  .  Changes i n f u e l markets and the i n t r o d u c t i o n of d i e s e l  l o c o m o t i v e s on the Canadian r a i l w a y system had r e s u l t e d i n a d e c l i n e i n the demand f o r c o a l and coke.  I n 1958  the E l k R i v e r C o l l i e r y of the Crows Nest  Pass C o a l Company c l o s e d l e a v i n g o n l y the company's m i n i n g and coke oven . 20 o p e r a t i o n s a t M i c h e l , and the i n t e r m i t t e n t c o a l p r o d u c t i o n a t C o r b i n . The y e a r 1959 w i t n e s s e d by 1960,  the f i r s t shipment of E l k V a l l e y c o a l t o Japan and  a l t h o u g h t o t a l p r o d u c t i o n was  of t h i s amount was  o n l y 743,979 gross t o n s , 38  percent  consumed d o m e s t i c a l l y , 4 p e r c e n t consumed i n the U.S.A., 21  and 58 p e r c e n t e x p o r t e d t o Japan. The  economic downturn e x p e r i e n c e d by the s t a p l e i n d u s t r y d u r i n g the  1950's had r e p e r c u s s i o n s throughout the r e g i o n .  Table 4 shows p o p u l a t i o n  f i g u r e s f o r the r e g i o n and  i t s major communities and one may  general d e c l i n e s witnessed  from 1951  t o 1961.  note the  F o r example, t a k i n g F e r n i e  as the major p o p u l a t i o n , s e r v i c e , and r e t a i l c e n t r e of the E l k V a l l e y , the town's p o p u l a t i o n i n c r e a s e d by o n l y 4 p e r c e n t and r e t a i l  s a l e s dropped by  TABLE 4. Historical Elk Valley population figures.  (i)  (ii)  (iii)  Elk Valley Regional Population, 1921-1976 1921  1931  1941  1951  1956  1961  1971  1976  8,941*  7,624*  6,820  7,332  7,284  6,739  10,725  14,150  Fernie Population, 1911-1981 1911  1921  1931  1941  1951  1956  1961  1966  1971  1976  1981  3,146  2,802  2,732  2,545  2,551  2,808  2,661  2,715  4,422  4,608  5,444  1971  1976  Michel-Natal Population, 1906-1976 1906  1941  1951  1956  1961  1,200*  2,183  1,895  1,430  1,246  158*  25*  NOTES: *Approximate figures. SOURCE: Compiled from B.C., East Kootenay Regional Statistics, 1954. Fernie and District: An Economic Survey, 1963. Regional Index of East and West Kootenays, 1963; Regional Index of B.C., 1966; B.C. Regional Index, 1978. Fernie Historical Association, Backtracking with the Fernie Historical Association, 1967; Canada, 1976 Census of Canada, Cat. 92-830 and Cat. 92-805; 1981 Census of Canada, Cat. 93-910.  21  10.6  p e r c e n t between 1951  and  1961.  B.C.  as a whole where p o p u l a t i o n  T h i s may  be compared to f i g u r e s f o r  i n c r e a s e d by 16.5  p e r c e n t and r e t a i l  sales  22 r o s e by 45.5  p e r c e n t i n the same p e r i o d .  Chamber of Commerce i n 1958  A r e p o r t done f o r the  s t a t e d t h a t F e r n i e was  experiencing  a  Fernie reduction  i n economic a c t i v i t y , a d e c l i n e i n community p r o s p e r i t y , s u b s t a n t i a l increases  i n the numbers of unemployed l o c a l p e o p l e , and a g e n e r a l 23  o f f of l o c a l b u s i n e s s .  falling-  L a y - o f f s at the mines l e d t o o u t - m i g r a t i o n  the r e g i o n a l p o p u l a t i o n d e c l i n e d by 9 p e r c e n t between 1951  and  and  1961;  such  f i g u r e s i n d i c a t e the d e c l i n e i n r e g i o n a l economic growth stemming from i n a c t i v i t y i n the l e a d B.  sector.  Contemporary Coal M i n i n g Under the S t i m u l u s Conditions  of Japanese Demand  i n the r e g i o n began to change i n the l a t e 1960's.  Interest  i n c o a l e x p l o r a t i o n i n the r e g i o n had been e x p e r i e n c e d throughout the decade . 2 4 but  increased  s h a r p l y i n 1967.  heralded  the b e g i n n i n g s of a new  Valley.  Kaiser Steel Corporation  Then i n 1968  an event took p l a c e which  e r a of i n t e n s i v e c o a l m i n i n g i n the of C a l i f o r n i a  Elk  purchased Crows Nest  I n d u s t r i e s (as the Crows Nest Pass Coal Company had become known) and a l l but  i t s L i n e Creek c o a l r e s o u r c e s  t o set up K a i s e r C o a l L t d .  sources f o r the v e n t u r e i n c l u d e d Canadian banks which p r o v i d e d  Capital $35  million,  an e q u i t y s t o c k Issue on. the Canadian s t o c k exchange f o r $30 m i l l i o n , and 25 the p a r e n t company which p r o v i d e d $20 m i l l i o n . An a d d i t i o n a l $45 m i l l i o n was s u p p l i e d by Japanese and Canadian banks when e r r o r s i n i n i t i a l p l a n t 26 d e s i g n and o t h e r  s t a r t - u p problems n e c e s s i t a t e d f u r t h e r i n v e s t m e n t .  K a i s e r announced the s i g n i n g of a f i f t e e n - y e a r c o n t r a c t w i t h M i t s u b i s h i of Japan f o r the d e l i v e r y of a t o t a l of 45 m i l l i o n tonnes of m e t a l l u r g i c a l 27 c o a l b e g i n n i n g i n 1970. M i t s u b i s h i would then r e s e l l the c o a l to the  22  n i n e Japanese s t e e l m i l l s .  T h i s was  f o l l o w e d by a major expansion  of the  e x i s t i n g m i n i n g o p e r a t i o n s and t r a n s p o r t a t i o n i n f r a s t r u c t u r e (see Appendix A and note p r o d u c t i o n i n c r e a s e s between 1969  and 1970).  The N a t i o n a l  Harbours Board c o n s t r u c t e d an i s l a n d and causeway j u s t south of Vancouver and K a i s e r h i r e d the Vancouver-based c o n s u l t i n g f i r m of Swan Wooster to 28 d e s i g n and b u i l d the huge c o a l - h a n d l i n g p o r t known as Roberts T h i s was for  opened i n 1970  Japan (see Map In  1969  as the f i r s t  Bank.  shipment of K a i s e r c o a l l e f t the p o r t  3).  F o r d i n g C o a l L t d . , a s u b s i d i a r y of Canadian P a c i f i c L t d . ,  s i g n e d c o n t r a c t s w i t h M i t s u i ( a c t i n g as the t r a d i n g company f o r the n i n e Japanese s t e e l m i l l s ) and became the second major company to b e g i n o p e r a t i o n s d u r i n g t h i s second "boom" phase i n E l k V a l l e y c o a l m i n i n g . These c o n t r a c t s c a l l e d f o r the d e l i v e r y of 45 m i l l i o n tonnes of m e t a l l u r g i 29 cal  c o a l over a f i f t e e n y e a r p e r i o d b e g i n n i n g  i n 1972.  I n 1971  Fording  began mining o p e r a t i o n s a t t h e i r s i t e near the F o r d i n g R i v e r and i n the f o l l o w i n g y e a r t h e i r f i r s t shipment l e f t Roberts Bank (see Map In  1973  4).  a major r e - f i n a n c i n g scheme took p l a c e a t K a i s e r C o a l L t d .  which h e l p e d s t a b i l i z e the company's f i n a n c i a l p o s i t i o n .  Japanese i n t e r e s t s  c o n v e r t e d t h e i r debt h o l d i n g s t o e q u i t y g i v i n g M i t s u b i s h i and the n i n e 30 Japanese s t e e l m i l l s 33 p e r c e n t c o n t r o l over K a i s e r o p e r a t i o n s . should be noted  t h a t i t i s unusual  f o r Japanese i n t e r e s t s t o h o l d such a  h i g h degree of e q u i t y i n a f o r e i g n v e n t u r e . s i o n was  t h a t K a i s e r was  time and needed c a p i t a l .  The reason b e h i n d the  the v e n t u r e  convert  e x p e r i e n c i n g s e r i o u s f i n a n c i a l problems a t t h a t Meanwhile, the Japanese s t e e l i n d u s t r y needed a  secure s u p p l y of m e t a l l u r g i c a l c o a l and K a i s e r was ducer a t the t i m e .  It  the o n l y B.C.  coal pro-  The Japanese d e c i d e d to i n v e s t e q u i t y i n o r d e r to keep  operating.  31  Map  3.  L o c a t i o n of R o b e r t s Bank C o a l H a n d l i n g P o r t .  Map 4.  Contemporary C o a l M i n i n g i n the E l k V a l l e y .  SCALE:  1 i n c h = 28 k i l o m e t r e s  SOURCE:  Adapted from D i s t r i c t O f f i c e , E l k f o r d , " D i s t r i c t of E l k f o r d " , (1981).  25  The  t h i r d company to commence m i n i n g d u r i n g t h i s p e r i o d was  Byron  32 Creek C o l l i e r i e s which purchased the o l d C o r b i n mine i n 1972.  Byron  Creek C o l l i e r i e s i s d i f f e r e n t from the o t h e r two companies' mining o p e r a t i o n s i n t h a t i t mines o n l y thermal c o a l and  supplies primarily a  domestic,  e a s t e r n Canadian market.*  For example, O n t a r i o Hydro  was  initially  the major market f o r the company's product when i t began 33  shipping m  1974.  Thus the f i r s t few y e a r s of the 1970's w i t n e s s e d major developments i n the s t a p l e i n d u s t r y of the r e g i o n and huge i n c r e a s e s i n c o a l production. to  C o a l output  i n 1971 was  5,602,000 gross tonnes and almost  9,053,357 g r o s s tonnes i n 1972  p r o d u c t i o n changes).  (see Appendix A f o r more d e t a i l s of  By t h a t y e a r both K a i s e r and F o r d i n g were i n  o p e r a t i o n and a s m a l l mine a t Tent Mountain s t r a d d l i n g the b o r d e r was  doubled  B.C.-Alberta  b e i n g run by the A l b e r t a - b a s e d Coleman C o l l i e r i e s (see Map  P r o d u c t i o n i n the B.C.  s i d e of t h i s mine was  minimal  34 4).  and thus Coleman's  o p e r a t i o n s a r e not d i s c u s s e d i n d e t a i l i n t h i s s t u d y ; t h e i r B.C.  operations  35 ceased i n 1980.  Between 1969  and 1974  coal production m  the r e g i o n  i n c r e a s e d t e n f o l d w i t h the g r e a t e s t p o r t i o n of t h i s output b e i n g  exported  36 as m e t a l l u r g i c a l c o a l to f e e d the Japanese s t e e l i n d u s t r y . In  1978  S h e l l Canada L t d . purchased the r e m a i n i n g L i n e Creek c o a l  r e s o u r c e s h e l d by Crows Nest I n d u s t r i e s and e s t a b l i s h e d the company, Crows 37 Nest Resources L t d . to o p e r a t e the L i n e Creek mine. T h i s i s the f o u r t h  * I t s h o u l d be noted t h a t t h e r e are two types of c o a l mined i n the r e g i o n ; m e t a l l u r g i c a l (or c o k i n g c o a l ) used to produce coke and u l t i m a t e l y s t e e l i s the major type mined, but t h e r m a l (or steaming) c o a l which i s a lower grade c o a l used i n thermal power g e n e r a t i o n i s a l s o mined.  26  and newest company t o b e g i n m i n i n g i n the r e g i o n (see Map  4).  The mine  produces t h e r m a l and m e t a l l u r g i c a l c o a l on l o n g - t e r m c o n t r a c t f o r Korean and Japanese markets; c o n s t r u c t i o n began i n 1980 and the f i r s t c o a l  ship-  ment was made i n 1982. The y e a r s from 1979 t o 1981 have seen a second peak i n the boom p e r i o d of r e g i o n a l economic growth l a s t i n g from 1970 t o 1982.  Shell's  purchase i n 1978 was f o l l o w e d i n 1979 by an announcement t h a t F o r d i n g would be i n c r e a s i n g the c a p a c i t y of i t s mines from an o u t p u t of 3 m i l l i o n 38 tonnes a n n u a l l y t o 5 m i l l i o n tonnes a y e a r .  I n 1980 the B r i t i s h  Columbia Resources Investment C o r p o r a t i o n (B.C.R.I.C.), a B.C.-based p u b l i c company owned by a p p r o x i m a t e l y 2 m i l l i o n Canadian s h a r e h o l d e r s , a c q u i r e d 67 p e r c e n t ownership of K a i s e r C o a l L t d . a t a c o s t of $665 million.  The r e m a i n i n g 33 p e r c e n t e q u i t y was r e t a i n e d by the Japanese 39  steel interests. by "B.C.  I n 1981, the name of " K a i s e r C o a l L t d . " was  replaced  C o a l L t d . " and the c o n s t r u c t i o n of a new mine known as  " G r e e n h i l l s " was announced.*  L o c a t e d near E l k f o r d , t h i s mine i s a j o i n t -  v e n t u r e between the Pohang I r o n and S t e e l Co. L t d . (P.O.S.C.O.) of South Korea which owns 20 p e r c e n t , and B.C. Map  4).  C o a l w h i c h owns 80 p e r c e n t (see  I t r e p r e s e n t s the f i r s t major Korean investment i n Canada and  w i l l be p r o d u c i n g m e t a l l u r g i c a l and t h e r m a l c o a l f o r P a c i f i c Rim 40 when o p e r a t i n g i n mid-1983. B.C.  markets  An a d d i t i o n a l event of n o t e r e l a t i n g  C o a l ' s o p e r a t i o n s o c c u r r e d i n 1981 when the company's  to  coke-making  o p e r a t i o n s ( t h e l a s t i n w e s t e r n Canada) c l o s e d due to the t e r m i n a t i o n of 41 t h e i r l a s t customer, a s m e l t e r i n Idaho. F u r t h e r ownership and mine * I n 1983 the name "B.C. C o a l L t d . " was changed t o "Westar M i n i n g L t d . " (but w i t h no change i n the ownership of the company). For the sake of s i m p l i c i t y , the o l d name of "B.C. C o a l L t d . " w i l l be used throughout t h i s study.  27  c a p a c i t y changes took p l a c e  i n 1981  when Byron Creek C o l l i e r i e s was  chased by Esso Resources Canada L t d . and c a p a c i t y from 1.1 42 announced.  m i l l i o n tonnes to 2.0  p l a n s to i n c r e a s e  the mine's  m i l l i o n tonnes a year were  . . . . Table 5 summarizes p e r t i n e n t i n f o r m a t i o n  f o u r c o a l companies c u r r e n t l y o p e r a t i n g  Thus the p e r i o d from 1970  pur-  to 1982  i n the  f o r each of  the  region.  c o n s t i t u t e s the second "boom"  phase i n the h i s t o r y of E l k V a l l e y c o a l m i n i n g , but  the s i z e , t e c h n o l o g y ,  and markets of the c o a l v e n t u r e s are much changed.  E x a m i n a t i o n of  Appendix A shows the steady i n c r e a s e s  for this  i n production  (except f o r y e a r s when s t r i k e s i n t e r r u p t e d o u t p u t ) and s i z e of the c o a l i n d u s t r y ' s l a b o u r example, t h e r e was regional industry.  force.  a 45 p e r c e n t i n c r e a s e The  Between 1971  period  a l s o the and  increasing  1975,  for  i n the number employed i n the  t a b l e a l s o shows the i n c r e a s i n g importance of  Japanese market up u n t i l 1977  when c o a l shipments to o t h e r f o r e i g n  the  destina-  43 t i o n s began t o become s i g n i f i c a n t . s a l e s went to Japan, i n 1965, 99 p e r c e n t , and  f o r 1977,  83  I n 1959,  17 p e r c e n t of r e g i o n a l c o a l  58 p e r c e n t , i n 1970,  76 p e r c e n t , i n  percent.  These major e x p a n s i o n s i n the main economic a c t i v i t y of the were accompanied by changes i n the s e t t l e m e n t the E l k V a l l e y .  I n 1964  1973,  region  p a t t e r n and p o p u l a t i o n  the M i n i s t r y of M u n i c i p a l A f f a i r s of  proposed the abandonment of the o l d c o a l towns of M i c h e l - N a t a l  of  B.C. and  the  r e - l o c a t i o n of the p o p u l a t i o n to an " i n s t a n t town" to be b u i l t f u r t h e r up 44 the v a l l e y (see Map 4 ) . T h i s was a slow and v e r y c o n t r o v e r s i a l p r o c e s s of urban renewal whereby the houses a t M i c h e l - N a t a l were g r a d u a l l y t o r n 45 down as r e s i d e n t s moved t o Sparwood or l e f t the r e g i o n a l t o g e t h e r . y e a r 1970  marked the opening of the new  Sparwood t o w n s i t e  to house the  The  28  TABLE 5.  B.C.  Company name Ownership  o f company  C o a l companies o p e r a t i n g i n s o u t h e a s t e r n B.C., 1981*.  F o r d i n g Coal L t d .  Coal L t d .  672 by B - C R . I . C 332 by M i t s u b i s h i & 9 Japanese  steel  mills  B y r o n Creek Collieries 1002 b y E s s o (i.e. Imperial O i l )  1002 by S h e l l  Coal Mt. Mine at Corbin  L i n e Creek Mine between Sparwood and E l k f o r d  M a j o r mines and locations  Balmer M i n e at Sparwood  G r e e n h i l l s Mine near E l k f o r d owned BOX by B.C. C o a l + 201 by P.O.S.C.O. o f K o r e a  F o r d i n g M i n e near Elkford  Type o f c o a l mined  - 902 102 - 902 102  - 70* met. + 302 t h e r m a l (1933) - a l l surface mining  - 992 met. + IX thermal - a l l surface mining  T o t a l 1981 production  7.1 m i l l , tonnes c l e a n met. 0.4 m i l l , tonnes thermal  P l a n n e d '83 p r o d u c t - ' t i o n : 1.8 m i l l , tonnes c l e a n met. 0.7 5 m i l l , tonnes thermal  3.7 m i l l , tonnes clean coal  0.96  1982 c a p a c i t y i n c r e a s e d t o 5.0 m i l l . tonneB  P l a n n e d 1983 c a p a c i t y of 2.0 m i l l , tonnes  Japan (822), Taiwan (82), Korea ( 8 2 ) , C h i l e , Europe ( 2 2 )  Canada ( 7 5 2 ) Japan (252)  met. + thermal surface + underground  Expansion plans  Major c o n t r a c t s  Japan (632), Korea (212), B r a z i l (6%) M e x i c o ( 3 1 ) , Taiwan (12), C h i l e ( 2 2 ) , Pakistan (22), Other (22)  J a p a n (402 o f met.) K o r e a (282 o f met.) Taiwan (172 o f met.) Denmark & Hong Kong (thermal)  - M i t s u b i s h i of J a p a n 45.0 m i l l . tonnes t o t a l o v e r 15 y r s . 1970-1985  - POSCO o f S. K o r e a 0.5 m i l l , tonnes met. a n n u a l l y from 1983-2003  - P0SC0 o f S- K o r e a 1.2 m i l l , tonnes met. a n n u a l l y from 1976-1985  NOTES: SOURCE:  • M i t s u i of Japan 45.0 m i l l , tonnes met. t o t a l over 15 y r s . 1972-1987  ' China S t e e l of Taiwan 2.8 m i l l , tonnes met. t o t a l o v e r 10 y r s 1982-1992  C h i n a S t e e l of Taiwan 3.5 m i l l , tonnes met. t o t a l o v e r 10 y r s 1961-1991  • M i t s u b i s h i o f Japan 1.93 m i l l , tonnes met. t o t a l o v e r 3 y r s 1983-1986  POSCO o f S. Korea 1.0 m i l l , tonnes met. t o t a l 1982-85, 0.5 m i l l . met. a n n u a l l y 1985-1992  Kowloon E l e c t r i c i t y of Hong Kong 1.57 m i l l , tonnes t h e r m a l t o t a l o v e r 6 y r s 1982-1988  POSCO f o r 0.1 m i l l , tonnes met. 19B2, 0.2 m i l l , tonnes met. a n n u a l l y 1983-1992  E l k r a f t Power o f Denmark 3.8 m i l l , tonnes t h e r m a l t o t a l o v e r 10 y r s 1982-1992  K o r e a E l e c t r i c Co. 0.15 m i l l . tonnes t h e r m a l 1982, 0.2 m i l l , tonnes thermal annually 1983-1987  * T h i s i n f o r m a t i o n i s based on 1981 d a t a . due t o c o n t r a c t c u t b a c k s .  Resources L t d .  1002 C a n a d i a n Pacific Ltd.(CP.)  1002 t h e r m a l a l l surface mining  mill  tonnes  O n t a r i o Hydro 0.5 m i l l . tonnes thermal annually from 1978-1993  Sumitomo + JCDC + EPDC o f J a p a n ( u t i l i t y consortia) f o r 0.25 m i l l , tonnes t h e r m a l a n n u a l l y from 1981-?  - 52% t h e r m a l , 482 met. (1983) - a l l surface mining 1983 c a p a c i t y o f 2.7 m i l l . tonnes  K o r e a (772 o f t h e r m a l ) , J a p a n (772 o f met.)  Korea E l e c t r i c Power C o r p . 0.75 m i l l , tonnes t h e r m a l a n n u a l l y f o r 15-20 y r s . s t a r t i n g 1982 • Ssangyong C o r p . o f S. K o r e a 0.35 m i l l , tonnes t h e r m a l a n n u a l l y from 1982-1992  C h i n a Cement o f Hong - M i t s u i o f J a p a n 1.0 Kong 0.5 m i l l . m i l l , tonnes met. tonnes t h e r m a l t o t a l a n n u a l l y from o v e r 6 y r s . 1982-1988 1983-1998  P r o d u c t i o n l e v e l s and p e r c e n t a g e c o n t r i b u t i o n s t o d i f f e r e n t markets have changed s i n c e  then  C o m p i l e d from 1981 company r e p o r t s from B.C.R.I.C., B y r o n C r e e k C o l l i e r i e s , Crows N e s t R e s o u r c e s , and F o r d i n g C o a l L t d . ; M a c l e a n H u n t e r L t d . , The F i n a n c i a l P o s t S u r v e y o f M i n e s and E n e r g y R e s o u r c e s , ( T o r o n t o : M a c l e a n H u n t e r L t d . , 1981); A l e x a n d r a Worobec (ed;.), C a n a d i a n M i n e s Handbook, 1982-83 ( T o r o n t o : N o r t h e r n M i n e r P r e s s L t d . , 1982); and i n t e r v i e w s w i t h company spokesmen.  29  K a i s e r w o r k e r s and by 1982, a l l t h a t remained of M i c h e l - N a t a l M i c h e l H o t e l and some abandoned  was t h e o l d  coke ovens and b u i l d i n g s of Crows Nest  46 Industries.  I n 1971 a second " i n s t a n t town", E l k f o r d , was b u i l t about  t h i r t y kilometres  n o r t h of Sparwood and i n c o r p o r a t e d  as a v i l l a g e .  The  47 settlement  was b u i l t by F o r d i n g *  C o a l L t d . t o house i t s employees.  ft  *  &  T h i s h i s t o r i c a l background t o c o n d i t i o n s  ft i n the E l k V a l l e y  illus-  t r a t e s t h e booms and b u s t s i n economic f o r t u n e which the r e g i o n a l economy has undergone as a r e s u l t of changes i n demand f o r i t s s t a p l e , c o a l . may a l s o be seen t h a t markets f o r t h e r e g i o n a l s t a p l e have changed the d i f f e r e n t phases of E l k V a l l e y c o a l m i n i n g .  D u r i n g the f i r s t  It  during period  domestic markets were v e r y i m p o r t a n t ; the E l k V a l l e y c o a l i n d u s t r y was an i n t e g r a l p a r t of t h e e n t i r e Kootenay m i n i n g economy as c o a l from t h e E a s t Kootenays f u e l l e d the s m e l t e r s  of t h e West Kootenays.  I n c o n t r a s t , the  contemporary c o a l i n d u s t r y o f t h e E l k V a l l e y f u n c t i o n s more as an e n c l a v e economy dependent on t h e f o r t u n e s  of t h e Japanese s t e e l i n d u s t r y .  c l e a r t h a t the contemporary "boom" was t h e r e s u l t of s t r o n g demand f o r t h e r e g i o n ' s  metallurgical coal.  It is  Japanese  T h i s demand was accompanied  by a p a r t i c u l a r s t r a t e g y which t h e Japanese have developed t o p r o c u r e raw m a t e r i a l s from o v e r s e a s .  The f o l l o w i n g s e c t i o n d e s c r i b e s  this  strategy  and b e g i n s t o suggest some o f i t s i m p l i c a t i o n s f o r a s t a p l e s r e g i o n as the E l k V a l l e y .  such  30  FOOTNOTES  1.  B a c k t r a c k i n g w i t h the F e r n i e H i s t o r i c a l A s s o c i a t i o n F e r n i e H i s t o r i c a l A s s o c i a t i o n , 1967), p. 17.  (Fernie,  2.  B.C., Department 1897, p. 1165.  of M i n e s , Annual Report of the M i n i s t e r of M i n e s ,  3.  B.C., Department 1902, p. H276.  of M i n e s , Annual Report of the M i n i s t e r of Mines  4.  B.C., Department 1899, p. 820.  of Mines, Annual Report of the M i n i s t e r of Mines  5.  J . J . Crabb, "Crowsnest Pass T r a v e l o g " , Crows Nest R e s o u r c e s , p. 4.  6.  B.C., M i n i s t r y of Economic Development, B.C. R e g i o n a l Index, 1978, p. 12; J . J . Crabb, "Crowsnest Pass T r a v e l o g " , Crows Nest Resources L t d . , 1982, p. 12.  7.  B a c k t r a c k i n g w i t h the F e r n i e H i s t o r i c a l A s s o c i a t i o n F e r n i e H i s t o r i c a l A s s o c i a t i o n , 1967), p. 53.  8.  B.C., Department 1919, p. N344.  of Mines, Annual Report of the M i n i s t e r of M i n e s ,  9.  B.C., Department 1909, p. K260.  of Mines, Annual Report of the M i n i s t e r of Mines  10.  B.C., Department 1908, p. J 1 8 .  of Mines, Annual Report of the M i n i s t e r of Mines  11.  H a r o l d A. I n n i s , S e t t l e m e n t and the M i n i n g F r o n t i e r M a c m i l l a n Co. of Canada, 1936), p. 282.  12.  B.C., Department of M i n e s , Annual Report of the M i n i s t e r of Mines, 1932, p. A274; B. C. , Dept.• of Mines, Annual Report of the M i n i s t e r of M i n e s , 1936, p iG43.  (Fernie,  B.C.:  1982,  B.C.:  (Toronto:  >.  13.  B.C., Department 1939, p. A143.  of M i n e s , Annual Report of the M i n i s t e r of M i n e s ,  14.  B.C., Department 1941, p. A122.  of Mines, Annual Report of the M i n i s t e r of M i n e s ,  15.  B.C., Department 1944, p. A130.  of M i n e s , Annual Report of the M i n i s t e r of M i n e s ,  16.  B.C., Department p. A205.  of M i n e s , M i n i s t e r of Mines Annual R e p o r t , 1948,  31  17.  B.C., Department p. A244.  of M i n e s , M i n i s t e r of Mines Annual R e p o r t , 1950,  18.  Ezner DeAnna 1982:  19.  B.C., Department p. 267.  20.  Ibid.  21.  B.C., Department of Mines and P e t r o l e u m R e s o u r c e s , M i n i s t e r of Mines and P e t r o l e u m Resources Annual R e p o r t , 1960, p. 218.  22.  B.C., Department of I n d u s t r i a l Development, Trade and Commerce, Bureau of Economics and S t a t i s t i c s , R e g i o n a l Index of B.C., 1966, p. 17.  23.  D. L l o y d , I . MacQueen, and J . W i l s o n , U n i v e r s i t y of B r i t i s h Columbia Report t o the F e r n i e Chamber of Commerce (Vancouver: U n i v e r s i t y of B r i t i s h Columbia, 1958), p. 1.  24.  B.C., Department of Mines and P e t r o l e u m R e s o u r c e s , M i n i s t e r of Mines and P e t r o l e u m Resources Annual R e p o r t , 1967, p. 455.  25.  An Economic Development S t r a t e g y f o r B r i t i s h Columbia, A Background Report P r e p a r e d f o r B.C. New Democratic P a r t y , 1981, p. A20.  26.  Ibid.  27.  B.C., Department of Mines and P e t r o l e u m R e s o u r c e s , M i n i s t e r of Mines and P e t r o l e u m Resources Annual R e p o r t , 1968, p. 459.  28.  Rod N u t t , " C o a l harbour view g i r d l e s the g l o b e , " i n Vancouver 13 F e b r u a r y 1982, p. C I .  29.  F o r d i n g C o a l L t d . 1982:  30.  C r a i g Weir, " R e g i o n a l C o a l P r o s p e c t s Spark L o c a l Economy," i n Trade and Commerce Magazine, May 1981.  31.  B.C.  32.  Janeen Bowes, "Byron Creek C o l l i e r i e s " C o l l i e r i e s , 1982), p. 3.  33.  Ibid.  34.  B.C., Department of Mines and P e t r o l e u m R e s o u r c e s , M i n i s t e r of Mines and P e t r o l e u m Resources Annual R e p o r t , 1972, p. A l l .  35.  A l e x a n d r a Worobec, ed., Canadian Mines Handbook, 1982-83 ( T o r o n t o : N o r t h e r n M i n e r P r e s s , 1982), p. 84.  p e r s o n a l communication.  of M i n e s , M i n i s t e r of Mines Annual R e p o r t , 1959,  C o a l L t d . 1982:  Sun,  p e r s o n a l communication.  p e r s o n a l communication. ( C a l g a r y : Byron Creek  32  36.  B.C., Department of Mines and P e t r o l e u m R e s o u r c e s , M i n i s t e r of Mines and P e t r o l e u m Resources Annual R e p o r t , 1974, p. A23.  37.  Crows Nest Resources L t d . 1982:  38.  F o r d i n g C o a l L t d . 1982:  39.  C r a i g W e i r , " R e g i o n a l C o a l P r o s p e c t s Spark L o c a l Economy," i n Trade and Commerce Magazine, May 1981.  40.  The Energy L i n e , B.C.  C o a l , August-September,  41.  The Energy L i n e , B.C.  C o a l , A p r i l 1982, p. 2.  42.  Janeen Bowes, "Byron Creek C o l l i e r i e s " ( C a l g a r y : Byron Creek C o l l i e r i e s , 1982); Byron Creek C o l l i e r i e s , "Byron Creek C o l l i e r i e s E x p a n s i o n Summary", 1981.  43.  B.C., Department of Mines and P e t r o l e u m R e s o u r c e s , M i n i s t e r of Mines and P e t r o l e u m Resources Annual R e p o r t , 1977, p. 23.  44.  A r l e n e B. G a a l , Memoirs of M i c h e l - N a t a l , 1899-1971, n.p., p. 169.  45.  Ibid.  46.  Personal observation,  47.  C r a i g W e i r , "Boom P r o j e c t e d f o r Resource C e n t r e , " i n Trade and Commerce Magazine, May 1981.  p e r s o n a l communication.  p e r s o n a l communication.  1982, p. 1.  1971,  1982.  33  IV.  Having d e s c r i b e d  THEORETICAL BACKGROUND  the growing Japanese involvement i n B.C. s t a p l e s  and p r e s e n t e d some background m a t e r i a l c o n c e r n i n g which w i l l be examined as a case study,  the c o a l mining  I w i l l now d e s c r i b e  region  i n some d e t a i l  the s t r a t e g y f o l l o w e d by Japanese i n d u s t r i a l i s t s t o p r o c u r e raw m a t e r i a l s from o v e r s e a s .  In order  t o h i g h l i g h t t h e unique a s p e c t s of t h i s  I b e g i n w i t h a d e s c r i p t i o n of t h e American r e s o u r c e and  i t s implications f o r a staples region.  strategy  procurement s t r a t e g y  I then d e s c r i b e t h e h i s t o r i c a l  c o n t e x t which produced t h e Japanese s t r a t e g y , the s t r a t e g y i t s e l f , and a set of hypotheses r e g a r d i n g  i t s possible implications.  cludes with a s e c t i o n concerning  The c h a p t e r con-  t h e methodology f o l l o w e d i n o r d e r  to test  these h y p o t h e s e s .  A.  The American Resource Procurement  Strategy  To a c q u i r e raw m a t e r i a l s from abroad American c o r p o r a t i o n s  practise  a s t r a t e g y of d i r e c t f o r e i g n investment whereby a wholly-owned and cont r o l l e d s u b s i d i a r y of the p a r e n t company w i l l be e s t a b l i s h e d i n the f o r e i g n resource  region.''"  The p a r e n t company p r o v i d e s  e q u i t y c a p i t a l and i n c u r s  the r i s k of t h e investment but earns t o t a l ownership and c o n t r o l of t h e venture.  I n many cases the c o r p o r a t e  l e v e l management, p r o d u c t i o n portation infrastructure.  head o f f i c e w i l l a l s o supply t o p -  t e c h n o l o g y , and b u i l d t h e a p p r o p r i a t e  trans-  As A i t k e n w r i t e s , t h e American s t r a t e g y  repre-  sents ... a g e o g r a p h i c a l e x t e n s i o n of the o p e r a t i o n s of e s t a b l i s h e d organizations. Entrepreneurship, s k i l l e d labour, o r g a n i z a t i o n a l methods, advanced t e c h n o l o g y - a l l have been t r a n s f e r r e d . 2  34  Such d i r e c t f o r e i g n investment i n h i b i t s the domestic development of l i n k a g e s from the r e s o u r c e s e c t o r .  A recent  study by S t a t i s t i c s Canada  c o n c l u d e d t h a t e x t e r n a l l y - c o n t r o l l e d f i r m s have a f i v e times h i g h e r s i t y to p r o c u r e i n p u t s from f o r e i g n s u p p l i e r s than t h a t of controlled firms.  3  corporation  domestically-  . . .  American s u b s i d i a r i e s tend to purchase i n p u t s  s e r v i c e s from w i t h i n the v e r t i c a l l y - l i n k e d o p e r a t i o n s  propen-  of the  and  multi-national  thereby s t i f l i n g p o s s i b i l i t i e s f o r backward l i n k a g e s to develop 4  w i t h i n the r e g i o n .  .  Further  l o c a l processing  .  .  .  i s u n l i k e l y s i n c e the  subsi-  d i a r y has been e s t a b l i s h e d to e x t r a c t r e s o u r c e s t o supply m a n u f a c t u r i n g a c t i v i t i e s elsewhere w i t h i n the p a r e n t company's o p e r a t i o n s . development of backward and  employment o p p o r t u n i t i e s , and  e f f e c t engendered by such l i n k a g e s . f i s c a l l i n k a g e or income c r e a t e d  value-  the m u l t i p l i e r  In a d d i t i o n , under f o r e i g n c o n t r o l  through r e s o u r c e e x t r a c t i o n f l o w s out  a c c r u e s to f o r e i g n s h a r e h o l d e r s . ^  l o s e s t h a t c a p i t a l which c o u l d be i n v e s t e d and  under-  f o r w a r d l i n k a g e s means the l o s s of the  added component of p r o d u c t i o n ,  the r e g i o n and  The  Thus the r e s o u r c e  the of  region  i n f u r t h e r r e g i o n a l development  diversification. S i n c e the r e s o u r c e v e n t u r e has been e s t a b l i s h e d to feed p a r e n t company  m a n u f a c t u r i n g a c t i v i t y any  f l u c t u a t i o n i n demand f o r the f i n a l p r o d u c t would  a f f e c t demand f o r the s u b s i d i a r y ' s r e s o u r c e and i n the r e s o u r c e r e g i o n .  l e a d to economic  instability  A c e r t a i n degree of market s e c u r i t y stems from the  f a c t t h a t the v e n t u r e has been s p e c i f i c a l l y developed to supply the p a r e n t company and may  w e l l be the o n l y or main s u p p l i e r of the raw m a t e r i a l .  e v e r , i f t h a t raw m a t e r i a l becomes a v a i l a b l e on a more c o m p e t i t i v e elsewhere i n the g l o b a l economy, the American p a r e n t company may 6 operations  and  re-locate.  One  basis  wind down  f a c t o r i n h i b i t i n g t h i s would be the  heavy investment i n the f i r s t r e s o u r c e r e g i o n and  How-  initial  the c o s t of abandoning or  35  dismantling  infrastructure.  A f i n a l f e a t u r e of the American r e s o u r c e procurement s t r a t e g y t o be noted r e l a t e s t o the p u r c h a s i n g and p r i c i n g of the r e s o u r c e .  S i n c e the  r e s o u r c e v e n t u r e i s wholly-owned by the p a r e n t company and t h a t company u s u a l l y r e p r e s e n t s t h e major market f o r the o p e r a t i o n ' s o u t p u t , the buyer of the r e s o u r c e i s the same e n t i t y as the s e l l e r .  T h i s a l l o w s the p a r e n t  company t o s e t the p r i c e a t which the r e s o u r c e w i l l be s o l d and p r a c t i s e transfer pricing.7* These i m p l i c a t i o n s of the American r e s o u r c e procurement s t r a t e g y may be b r i e f l y i l l u s t r a t e d w i t h an e m p i r i c a l example of the S c h e f f e r v i l l e r e g i o n i n n o r t h e r n Quebec, an i r o n mining a r e a operated by the I r o n Ore Company of Canada (I.O.C.).  T h i s company i s a wholly-owned s u b s i d i a r y of  s i x American s t e e l companies, one American and one Canadian m i n i n g company. The S c h e f f e r v i l l e r e g i o n has a narrow economic base dependent on i r o n ore e x t r a c t i o n which p r o v i d e s a minimal number of j o b s l o c a l l y .  P r o c e s s i n g and  r e l a t e d s e r v i c e s a r e c a r r i e d out by s u b s i d i a r i e s w i t h i n the v e r t i c a l l y 9 integrated operation m decision-making  s o u t h e r n O n t a r i o and the USA.  P a r e n t company  i s not always i n t h e b e s t i n t e r e s t s of the r e g i o n ; the  i n t e r n a t i o n a l management c l a s s c o n t r o l l i n g I.O.C. p l a c e the i n t e r e s t s of Quebec i n a s u b o r d i n a t e p o s i t i o n t o those of the c o r p o r a t i o n . ^  S i n c e the  American s t e e l companies own the r e s o u r c e v e n t u r e and r e p r e s e n t the major market, the owners a r e e s s e n t i a l l y p u r c h a s i n g i r o n ore from themselves and are thus i n a p o s i t i o n t o p r a c t i s e t r a n s f e r p r i c i n g .  F i n a l l y this staples  T r a n s f e r p r i c i n g has been d e s c r i b e d as the d i s c r e t i o n a r y p r i c i n g of i n t e r c o r p o r a t e t r a n s f e r s of goods and s e r v i c e s a t a h i g h e r or lower amount than f o r v a l u e r e c e i v e d . 8  36  r e g i o n has been v u l n e r a b l e t o f l u c t u a t i o n s i n p a r e n t company demand f o r i t s iron ore.  F o r example, p r i o r t o 1962 the r e g i o n e x p e r i e n c e d a g r e a t d e a l  of i n s t a b i l i t y due t o p r i c e and demand changes as I.O.C. and i t s p a r e n t companies debated the f u t u r e of the t o w n . ^  I n November of 1982 I.O.C.  announced t h a t i t would be w i n d i n g down i t s S c h e f f e r v i l l e o p e r a t i o n s f o r they were no l o n g e r c o m p e t i t i v e ; s i n c e t h i s time the s t a p l e economy of the r e g i o n has b a s i c a l l y  B.  collapsed.  The Japanese Resource Procurement S t r a t e g y (a)  H i s t o r i c a l Background  The Japanese economy i n the post-war p e r i o d has shown remarkable success.  Japan has become the f a s t e s t growing i n d u s t r i a l c o u n t r y i n the  w o r l d d u r i n g the l a s t decade o r so and has a c h i e v e d a l e v e l of i n d u s t r i a l p r o d u c t i o n second o n l y t o the USA.  12  T h i s was a c c o m p l i s h e d t h r o u g h a h i g h  degree of government economic p l a n n i n g which i n c l u d e d t h e encouragement of key heavy i n d u s t r i e s such as i r o n and s t e e l , m e t a l r e f i n i n g , p e t r o c h e m i c a l s , 13 and o i l r e f i n i n g .  The post-war p e r i o d a l s o saw the re-emergence of the  o l d " z a i b a t s u " such as M i t s u i , M i t s u b i s h i , Sumitomo, and Yasuda, but r e o r g a n i z e d i n t o i n d u s t r i a l g r o u p i n g s c e n t r e d on a bank and t r a d i n g company 14 and i n c l u d i n g a h o s t of v e r t i c a l l y and h o r i z o n t a l l y - l i n k e d  corporations.  Such a heavy i n d u s t r i a l base i s b o t h r e s o u r c e - i n t e n s i v e and energy consuming.  Yet Japan i s e s s e n t i a l l y w i t h o u t n a t u r a l r e s o u r c e s ; i t i s  almost 100 p e r c e n t dependent on o v e r s e a s s u p p l i e s of b a u x i t e , n i c k e l o r e and uranium, 90 p e r c e n t dependent on o v e r s e a s i r o n o r e , 83 p e r c e n t dependent on o v e r s e a s c o p p e r , 73 p e r c e n t dependent on o v e r s e a s n a t u r a l gas, and 74 p e r c e n t dependent on f o r e i g n c o a l s u p p l i e s . ^  Thus economic growth and  development i n Japan has been and c o n t i n u e s t o be dependent upon i m p o r t s of  37  raw m a t e r i a l s and energy s o u r c e s .  T h i s encouraged  a p o l i c y of e x p o r t  promotion t o pay f o r the i m p o r t a t i o n of raw m a t e r i a l s .  As Duus w r i t e s :  Japan s i m p l y l a c k e d domestic sources of o i l , i r o n o r e , c o t t o n , soybeans, and o t h e r b a s i c r e s o u r c e s e s s e n t i a l t o economic e x p a n s i o n . The r e s u l t was an " e x p o r t o r d i e " p s y c h o l o g y t h a t l e d Japan t o expand t h e i r e x p o r t s a t double the w o r l d r a t e . l ? Such dependence has meant t h a t Japanese  i n d u s t r i e s are very s e n s i t i v e  to any changes i n the supply and p r i c e of t h e needed raw m a t e r i a l s . i n t u r n has l e d t o the development of a r e s o u r c e procurement ensures a s t a b l e and secure i n f l o w of r e s o u r c e s .  18  This  s t r a t e g y which  The s t r a t e g y took on a  new c h a r a c t e r i s t i c i n the l a t e 1960's when an i n c r e a s e d demand f o r raw m a t e r i a l s and an improved b a l a n c e of payments p o s i t i o n l e d t o t h e b e g i n n i n g 19  of d i r e c t investment by the Japanese t o t h i s , Japanese  i n overseas r e s o u r c e p r o j e c t s .  Prior  i n d u s t r i a l i s t s had s i m p l y imported raw m a t e r i a l s by p u r -  20 c h a s i n g them on the open market o r v i a l o n g - t e r m c o n t r a c t u a l arrangements. S i n c e the " o i l shock" of 1973 t h e r e has been i n c r e a s e d Japanese i n t e r e s t i n 21  overseas investment t o secure n a t u r a l r e s o u r c e s u p p l i e s , (b)  D e s c r i p t i o n of t h e S t r a t e g y  There a r e f o u r main c h a r a c t e r i s t i c s of t h e Japanese r e s o u r c e p r o c u r e ment s t r a t e g y .  F i r s t , d e s p i t e t h e comments made above i t s h o u l d be noted  t h a t the Japanese do n o t g e n e r a l l y p r a c t i s e d i r e c t f o r e i g n i n v e s t m e n t . Japanese  i n d u s t r i a l i n t e r e s t s p r e f e r t o import raw m a t e r i a l s v i a l o n g - t e r m  c o n t r a c t s , o r p r o v i d e a i d t o o v e r s e a s r e s o u r c e s u p p l i e s through debt financing.  As Galway n o t e s i n h i s study of Japanese  involvement i n the  B.C. copper i n d u s t r y , they a r e p r i m a r i l y i n t e r e s t e d i n s e c u r i n g s t a b l e 22 sources of s u p p l y r a t h e r than a c q u i r i n g e q u i t y ownership.  Wright c o r -  r o b o r a t e s t h i s comment s t a t i n g t h a t t h e Japanese a r e n o t i n t e r e s t e d i n  38  e a r n i n g p r o f i t s through d i r e c t ownership and  c o n t r o l f o r long-term . .  resource  s u p p l i e s are more i m p o r t a n t than the g e n e r a t i o n  of  23  dividends.  However, the Japanese w i l l take an e q u i t y p o s i t i o n i n o v e r s e a s  resource  v e n t u r e s i f t h e i r e q u i t y f i n a n c i n g i s c r u c i a l to the o p e r a t i o n ' s E v i d e n c e of t h i s i s p r o v i d e d one  success.  by the E l k V a l l e y example where o n l y  of the f o u r c o a l companies f e a t u r e s Japanese e q u i t y p a r t i c i p a t i o n .  This occurred  under e x c e p t i o n a l c i r c u m s t a n c e s where t h e i r c a p i t a l  r e q u i r e d i n order f o r K a i s e r to continue project provides  operating.  was  B.C.'s n o r t h e a s t  another example where the Japanese s t e e l i n d u s t r y  coal  was  persuaded to take an e q u i t y p o s i t i o n and  to c o n t r i b u t e debt f i n a n c i n g 24 thereby a l l o w i n g the v e n t u r e to p r o c e e d . I t should a l s o be noted t h a t i n these i n s t a n c e s of d i r e c t investment the Japanese w i l l h o l d o n l y a . .  25  minority equity p o s i t i o n . Thus t h e r e are major d i f f e r e n c e s between the American and Japanese s t r a t e g i e s of r e s o u r c e i n v e s t o r s to p r o v i d e  procurement.  the e q u i t y c a p i t a l and  They do not have f u l l ownership and do not reap a l l the p r o f i t s , but  The  the  Japanese a l l o w  other  i n c u r the a s s o c i a t e d  risk.  c o n t r o l of the r e s o u r c e  venture  and  then n e i t h e r do the Japanese e x p e r i e n c e  the l o s s i f the p r o j e c t becomes u n f e a s i b l e or i f demand d e c l i n e s .  Finally,  when the Japanese do take a m i n o r i t y e q u i t y p o s i t i o n they i n v e s t as a group composed of a l l the major companies i n v o l v e d i n the i n d u s t r y which uses 26 that resource  as an i n p u t .  T h i s may  a c o n s o r t i u m composed of M i t s u b i s h i and 33 p e r c e n t of B.C. The  be  seen i n s o u t h e a s t e r n  B.C.  where  the n i n e Japanese s t e e l m i l l s  own  Coal.  second major c h a r a c t e r i s t i c of the Japanese s t r a t e g y f u r t h e r  r e f l e c t s t h e i r i n t e r e s t i n o b t a i n i n g s e c u r e s u p p l i e s of raw m a t e r i a l s good terms r a t h e r than i n g e n e r a t i n g  h i g h p r o f i t s from r e s o u r c e  on  extraction.  39  The Japanese purchase r e s o u r c e s on the b a s i s of l o n g - t e r m c o n t r a c t s w i t h r e s o u r c e s e l l e r s , supplemented by spot market p u r c h a s e s .  These c o n t r a c t s  i n d i c a t e the q u a n t i t y of the r e s o u r c e t o be purchased and the p r i c e a t which i t w i l l be bought.  Such l o n g - t e r m c o n t r a c t u a l arrangements a r e  presumably d e s i g n e d t o cope w i t h Japan's v u l n e r a b i l i t y t o any changes i n the  c o n d i t i o n s of supply and p r i c e of r e s o u r c e s .  E x a m i n a t i o n of T a b l e 5  shows t h a t a l l of the f o u r c o a l companies i n s o u t h e a s t e r n B.C. h o l d major l o n g - t e r m c o n t r a c t s w i t h e i t h e r the Japanese s t e e l i n d u s t r y o r a Japanese u t i l i t y c o n s o r t i u m r a n g i n g i n d u r a t i o n from t h r e e t o twenty y e a r s . T h i r d , the Japanese attempt t o ensure s e c u r i t y of r e s o u r c e supply through a s t r a t e g y known as " m u l t i p l e - s o u r c i n g " .  I n s t e a d of r e l y i n g upon  one main r e s o u r c e s u p p l i e r , Japanese i n d u s t r i a l i s t s spread t h e i r dependence 27 over t h r e e or f o u r main s u p p l y i n g r e g i o n s around the w o r l d . of  I n the case  the Japanese s t e e l i n d u s t r y , f o r example, 44 p e r c e n t of the imported  m e t a l l u r g i c a l c o a l was s u p p l i e d by A u s t r a l i a n mines, 33 p e r c e n t by American 28 mines, and 15 p e r c e n t by Canadian mines i n 1981.  Thus no r e s o u r c e  r e g i o n f u n c t i o n s as the o n l y or main s u p p l i e r and each must remain c o m p e t i t i v e to r e t a i n i t s market s h a r e . A f i n a l f e a t u r e t o be n o t e d about the Japanese s t r a t e g y i s t h a t the r e s o u r c e i s purchased by a c o n s o r t i u m r e p r e s e n t i n g a l l the companies t h a t r e s o u r c e as a major i n p u t .  using  F o r example, the c o o r d i n a t i o n and n e g o t i a -  t i o n of a l l m e t a l l u r g i c a l c o a l purchases from the f o u r companies i n s o u t h e a s t e r n B.C.  i s conducted by Nippon Kokan and Kobe (N.K.K.), two of the  n i n e Japanese s t e e l m i l l s . (c) P o s s i b l e I m p l i c a t i o n s of the Japanese S t r a t e g y Thus the Japanese s t r a t e g y of o v e r s e a s  r e s o u r c e procurement  i n s i g n i f i c a n t r e s p e c t s from the American s t r a t e g y .  differs  I t may be suggested  40  t h a t i n consequence the Japanese s t r a t e g y has a d i f f e r e n t impact on regions.  The  f o l l o w i n g d i s c u s s i o n examines each c h a r a c t e r i s t i c of  Japanese s t r a t e g y and The  suggests i t s i m p l i c a t i o n s f o r a r e s o u r c e  Japanese p r e f e r e n c e  venture provides  f o r not  an o p p o r t u n i t y  region.  resource  invest i n resource  development.  to much of the economic n a t i o n a l i s t w r i t i n g of the 1960's  1970's domestic ownership and  c o n t r o l has a p o s i t i v e e f f e c t i n  l i n k a g e s from the s t a p l e s e c t o r . extent  investing equity i n a  Therefore,  one  may  and  generating  argue t h a t to  the  t h a t domestic e n t r e p r e n e u r s respond to Japanese market o p p o r t u n i t i e s  t h e r e w i l l be a g r e a t e r sector w i l l develop.  l i k e l i h o o d t h a t backward l i n k a g e s from the  Domestic e n t e r p r i s e s would not be p a r t of a  c a l l y - i n t e g r a t e d f o r e i g n m u l t i n a t i o n a l which may  from i n t e r n a l o p e r a t i o n s  staple verti-  even p r o h i b i t l o c a l  s u p p l i e r s from b i d d i n g f o r c o n t r a c t s s i n c e i n p u t s and l o c a t e d o u t s i d e the c o u n t r y .  s e r v i c e s are  supplied  I n a d d i t i o n to  g r e a t e r o p p o r t u n i t i e s f o r domestic m a n u f a c t u r e r s to o f f e r t h e i r i t may  the  f o r domestic or f o r e i g n e n t r e p r e n e u r s t o  respond to Japanese market demand and According  staple  services  be argued t h a t domestic e n t r e p r e n e u r s would be more l i k e l y  to  from such m a n u f a c t u r e r s than would f o r e i g n c o n t r o l l e r s of a r e s o u r c e Domestic e n t r e p r e n e u r s ,  due  the  to reasons such as p r o x i m i t y , p r i o r  buy venture.  experience,  and p e r s o n a l knowledge, would be more f a m i l i a r w i t h Canadian m a n u f a c t u r e r s of i n p u t s and  s u p p l i e r s of s e r v i c e s .  H o l d e r argues t h a t domestic  p r e n e u r s , committed to l o n g - t e r m r e s i d e n c e show a "community of i n t e r e s t s and  i n the c o u n t r y  of  entre-  operations,  can be m o t i v a t e d to demonstrate a 29  g r e a t e r sense of commitment than a f o r e i g n o p e r a t o r T h i s sense of commitment may s u p p l i e r s due  include purchasing  to n a t i o n a l i s t sentiment and  facturing industry.  The  who  is  foreign-based".  from domestic over f o r e i g n  l o y a l t y to the domestic manu-  e x i s t e n c e of t h i s market may  i n t u r n l e a d to  41  i n c r e a s e d a c t i v i t y by domestic m a n u f a c t u r e r s and  encourage such e n t e r p r i s e s  to l o c a t e c l o s e to the s t a p l e i n d u s t r y whenever such a l o c a t i o n i s v i a b l e with regard  to o t h e r , non-market l o c a t i o n a l  U s i n g the same r e a s o n i n g  one  criteria.  can argue t h a t f o r w a r d l i n k a g e s from the  s t a p l e s e c t o r w i l l be b e t t e r developed i f t h a t s e c t o r i s d o m e s t i c a l l y t r o l l e d as i s p o s s i b l e under the Japanese r e s o u r c e  con-  procurement s t r a t e g y .  Domestic e n t r e p r e n e u r s w i t h t h e i r g r e a t e r commitment to the r e s o u r c e  region  would be concerned about c a p t u r i n g a l l of the economic o p p o r t u n i t i e s o f f e r e d by the r e s o u r c e .  Domestic e n t e r p r i s e s would not be s i m p l y  branch  p l a n t s of f o r e i g n m u l t i n a t i o n a l s w i t h a s t r i c t mandate t o c a r r y out resource corporate  only  e x t r a c t i o n and f e e d m a n u f a c t u r i n g a c t i v i t y elsewhere w i t h i n organization.  They may  engage i n f u r t h e r p r o c e s s i n g  of  the  the  s t a p l e t h e m s e l v e s , or s e l l the s t a p l e w i t h i n the domestic economy f o r processing. Domestic as opposed t o f o r e i g n ownership of the s t a p l e s e c t o r would not a f f e c t f i n a l demand l i n k a g e s ( i n v e s t m e n t i n the domestic consumer goods i n d u s t r y to s u p p l y  the demand f u e l l e d by income from the s t a p l e s e c t o r  a c c r u i n g to l a b o u r ) .  I t i s assumed t h a t the m u l t i p l i e r e f f e c t generated  by the e x p e n d i t u r e of payments t o l a b o u r  i n the s t a p l e i n d u s t r y would  be  the same whether t h a t i n d u s t r y i s d o m e s t i c a l l y or f o r e i g n c o n t r o l l e d . However, t h i s would not be the case f o r the f o u r t h type of which might d e v e l o p from the s t a p l e s e c t o r . to income from the s t a p l e s e c t o r a c c r u i n g r e t u r n s to c a p i t a l , and  resource  rent.  The  f i s c a l linkage relates  to c a p i t a l i n the form of normal  The  concept of " r e s o u r c e  a component of the f i s c a l l i n k a g e should be c l a r i f i e d . s p e c i f i c to s t a p l e i n d u s t r i e s and  linkage  r e n t " as  Resource r e n t s  stem from the u n i q u e and  are  f i n i t e nature  30  of the r e s o u r c e  itself.  Resource r e n t may  be d e f i n e d as t h a t p o r t i o n of  42  the income generated by the s t a p l e i n d u s t r y w h i c h i s above a normal r e t u r n on c a p i t a l i n v e s t e d . *  I f the r e s o u r c e  v e n t u r e i s c o n t r o l l e d by  foreign  i n t e r e s t s as under the American s t r a t e g y the f i s c a l l i n k a g e l e a k s out the c o u n t r y  and may  g l o b a l economy. demand and  be used to pursue c o r p o r a t e  of  o b j e c t i v e s elsewhere i n the  However, i f domestic e n t r e p r e n e u r s respond t o Japanese  e s t a b l i s h the r e s o u r c e v e n t u r e ,  normal p r o f i t s and  r e n t s w i l l be r e t a i n e d by those e n t r e p r e n e u r s and r e g i o n to d e v e l o p backward and  resource  c o u l d be i n v e s t e d i n the  f o r w a r d l i n k a g e s and  promote economic  diversification.  T u r n i n g now  to the second c h a r a c t e r i s t i c of the Japanese s t r a t e g y , i t  i s suggested t h a t the e x i s t e n c e of l o n g - t e r m c o n t r a c t s between buyer seller  should  a l l e v i a t e some of the "booms" and  w i t h s t a p l e economies. possibility  " b u s t s " i n growth a s s o c i a t e d  U n l i k e the American s t r a t e g y where t h e r e i s the  of f l u c t u a t i n g demand, l o n g - t e r m c o n t r a c t s i n d i c a t e the p r e s e n c e  of an e s t a b l i s h e d market f o r the r e g i o n a l s t a p l e f o r the d u r a t i o n of contract.  T h i s i n t u r n should  s t a p l e and  s t e a d y employment i n the s t a p l e s e c t o r .  stability  and  engender s t a b l e p r o d u c t i o n  i n the s t a p l e s e c t o r f o r the r e s o u r c e  The  l e v e l s of  the the  i m p l i c a t i o n s of  r e g i o n as a whole i n c l u d e :  s t a b l e r e g i o n a l employment l e v e l s w i t h no sudden i n c r e a s e i n unemployment due  to f l u c t u a t i o n s i n the s t a p l e s e c t o r , s t a b l e r e g i o n a l incomes, a s t a b l e  r e g i o n a l p o p u l a t i o n w i t h no sudden o u t - m i g r a t i o n s t a p l e i n d u s t r y , and  due  t o l a y - o f f s i n the  s t a b i l i t y i n the r e g i o n a l h o u s i n g market.  However, the s t a b i l i t y engendered by l o n g - t e r m c o n t r a c t s may threatened  well  be  by some of the i m p l i c a t i o n s of the Japanese m u l t i p l e - s o u r c i n g  A "normal r e t u r n " may be d e f i n e d i n a number of ways. Gunton d e f i n e s "normal p r o f i t a l l o w a n c e s " as a 15 p e r c e n t r e t u r n on s h a r e h o l d e r s e q u i t y a f t e r c o r p o r a t e income tax.31  43  strategy.  Under t h e American s t r a t e g y t h e f o r e i g n r e s o u r c e  u s u a l l y t h e o n l y o r main s u p p l i e r of t h e r e s o u r c e  t o t h e p a r e n t company  whereas under t h e Japanese s t r a t e g y , t h e f o r e i g n r e s o u r c e t h r e e o r f o u r main s u p p l i e r s .  Thus each r e s o u r c e  region i s  r e g i o n i s one of  s u p p l i e r would be com-  p e t i n g f o r a l a r g e r share of t h e Japanese market t h e r e b y e n a b l i n g t h e Japanese buyers t o p i t one s u p p l i e r a g a i n s t a n o t h e r . American s t r a t e g y a r e s o u r c e  S e c o n d l y , under t h e  r e g i o n would o n l y be d i r e c t l y a f f e c t e d by a  change i n demand from t h e p a r e n t company buyer.  Under t h e Japanese  m u l t i p l e - s o u r c i n g s t r a t e g y i t i s suggested t h a t a r e s o u r c e operations  region's  c o u l d be a f f e c t e d n o t o n l y by a change i n demand from t h e buyer,  but a l s o by a change i n t h e c o m p e t i t i v e  p o s i t i o n of t h e o t h e r  suppliers  which might r e n d e r t h e i r o p e r a t i o n s more o r l e s s a t t r a c t i v e i n comparison. A l s o , any change i n t h e g l o b a l s u p p l y p i c t u r e of t h a t p a r t i c u l a r r e s o u r c e might a f f e c t t h e c o m p a r a t i v e p o s i t i o n of an e x i s t i n g s u p p l y  region.  F i n a l l y , t h e r e would be l e s s l i k e l i h o o d of t r a n s f e r p r i c i n g o c c u r r i n g under t h e Japanese s t r a t e g y f o r t h e i n s t a n c e s of Japanese e q u i t y p a r t i c i p a t i o n a r e few and always l i m i t e d t o m i n o r i t y e q u i t y p o s i t i o n s . Japanese c o n s o r t i u m p u r c h a s i n g  resources  i n the industry using that resource  represents  a l l t h e major companies  and would thus be n e g o t i a t i n g from a  s t r o n g u n i t e d p o s i t i o n w i t h a number of fragmented r e s o u r c e the w o r l d .  However, t h e  s e l l e r s around  I t i s suggested t h a t t h i s n e g o t i a t i n g p o s i t i o n would a l l o w t h e  c o n s o r t i u m a g r e a t d e a l of power i n o b t a i n i n g t h e p r i c e and q u a n t i t y t i o n s d e s i r e d from each s e l l e r .  condi-  T h i s i n t u r n may r e s u l t i n l e s s than  e q u i t a b l e r e t u r n s f o r each r e g i o n ' s  resource.  T h i s d i s c u s s i o n may be summarized i n t h e f o l l o w i n g f o u r h y p o t h e s e s :  44  (1)  The Japanese r e s o u r c e  procurement s t r a t e g y o f f e r s g r e a t e r  o p p o r t u n i t i e s f o r domestic ownership and c o n t r o l of r e s o u r c e i n d u s t r i e s than does t h e American s t r a t e g y .  To t h e e x t e n t  t h a t domestic e n t r e p r e n e u r s respond t o t h e s e o p p o r t u n i t i e s i t i s hypothesized  t h a t (a) t h e purchase o f i n p u t s from  domestic m a n u f a c t u r e r s and s u p p l i e r s w i l l be g r e a t e r resource  ina  i n d u s t r y o p e r a t i n g under t h e Japanese than under t h e  American s t r a t e g y , (b) t h e development o f backward and f o r ward l i n k a g e s from a r e s o u r c e  i n d u s t r y w i l l be g r e a t e r  if i t  i s o p e r a t i n g under t h e Japanese s t r a t e g y r a t h e r than t h e American, and (c) f i s c a l l i n k a g e s from r e s o u r c e a r e more l i k e l y  extraction  t o be r e t a i n e d and i n v e s t e d i n r e g i o n a l  economic development under t h e Japanese s t r a t e g y than under the American. (2)  Resource i n d u s t r i e s and s t a p l e r e g i o n s  involved i n long-term  c o n t r a c t s w i t h Japanese buyers w i l l e x p e r i e n c e g r e a t e r s t a b i l i t y than those o p e r a t i n g under t h e American  resource  procurement s t r a t e g y . (3)  A resource  region supplying  t h e Japanese market as p a r t of  the m u l t i p l e - s o u r c i n g s t r a t e g y w i l l be more s e n s i t i v e t o changing c o n d i t i o n s of i t s c o m p e t i t o r s  than a r e g i o n  func-  t i o n i n g under t h e American s t r a t e g y . (4)  Japanese c o n s o r t i u m r e s o u r c e  purchasing  r e s u l t s i n l e s s than  equitable returns f o r the r e g i o n a l resource  as i s t h e case  under t h e American s t r a t e g y p e r m i t t i n g t r a n s f e r p r i c i n g . 0  45  B e f o r e d e s c r i b i n g t h e methodology used t o t e s t t h e s e hypotheses of the concepts p r e s e n t e d need to be d e f i n e d .  some  'Domestic m a n u f a c t u r e r s  s u p p l i e r s of i n p u t s ' i n the case of c o a l m i n i n g i n c l u d e a l l Canadian  and  pro-  d u c e r s and s u p p l i e r s of the items l i s t e d i n Appendix D, pp. 159-166.  I n looking  a t 'the development of backward l i n k a g e s ' r e l a t i n g to c o a l m i n i n g I am i n t e r e s t e d i n the e x t e n t to which m a n u f a c t u r e r s and s u p p l i e r s of t h e s e i n p u t s have developed i n the l o c a l E l k V a l l e y economy, the p r o v i n c i a l economy, and the broader n a t i o n a l economy.  Forward l i n k a g e s from m e t a l l -  u r g i c a l c o a l m i n i n g i n c l u d e the manufacture  of coke ( u l t i m a t e l y used to  produce s t e e l ) and from t h e r m a l c o a l m i n i n g , t h e r m a l power g e n e r a t i o n . A g a i n the study seeks to document whether t h e s e a c t i v i t i e s have developed i n t h e l o c a l , p r o v i n c i a l , and n a t i o n a l economies. to the p r o f i t s generated from c o a l m i n i n g .  F i s c a l linkages refer  I am i n t e r e s t e d i n whether or  not they have been used t o promote r e g i o n a l economic development;  that i s ,  have they been r e - i n v e s t e d i n the r e s o u r c e r e g i o n to promote d i v e r s i f i c a t i o n of the economic base.  The concept of ' s t a b i l i t y ' f o r the s t a p l e  i n d u s t r y w i l l be d e f i n e d as c o n s t a n t annual output w i t h no sudden upswings or downturns.  T h i s would engender s t a b i l i t y i n the r e g i o n as w i t n e s s e d i n  c o n s t a n t employment l e v e l s , c o n s t a n t r e g i o n a l incomes, a c o n s t a n t r e g i o n a l p o p u l a t i o n , and a c o n s t a n t vacancy r a t e .  ' S e n s i t i v i t y t o changing c o n d i -  t i o n s of c o m p e t i t o r s ' r e f e r s to a r e s o u r c e i n d u s t r y i n one l o c a t i o n b e i n g d i r e c t l y a f f e c t e d by changes i n the c o m p e t i t i v e p o s i t i o n of another s u p p l i e r ; i t i s assumed t h a t t h e number of i n s t a n c e s of a Japanese  resource  s u p p l i e r b e i n g d i r e c t l y a f f e c t e d by changing c o n d i t i o n s of c o m p e t i t o r s w i l l be f a r g r e a t e r than f o r a r e g i o n o p e r a t i n g under t h e American procurement  strategy.  resource  The concept of ' l e s s than e q u i t a b l e r e t u r n s ' i s  d i f f i c u l t to d e f i n e p r e c i s e l y .  One can assume t h a t an e q u i t a b l e r e s o u r c e  46  p r i c e i s most l i k e l y t o be a c h i e v e d i n . a c o m p e t i t i v e a r e a number of r e s o u r c e buyers and s e l l e r s .  s i t u a t i o n where  there  Any a b e r r a t i o n of t h a t  s i t u a t i o n may w e l l r e s u l t i n an u n f a i r r e s o u r c e p r i c e .  C.  Methodology Within  t h e time and monetary l i m i t a t i o n s of an M.A.  t h e s i s i t was not  p o s s i b l e to obtain comparative data concerning resource regions under t h e American s t r a t e g y .  Thus t h e hypotheses were m o d i f i e d  operating to focus  on t h e i m p l i c a t i o n s of t h e Japanese r e s o u r c e procurement s t r a t e g y and were t e s t e d i n t h e f o l l o w i n g ways: (l)(a)  The i n d u s t r y chosen as a c a s e study i n c l u d e s b o t h d o m e s t i c a l l y - c o n t r o l l e d companies and t h e f o r e i g n - c o n t r o l l e d comp a n i e s t y p i c a l of t h e American s t r a t e g y so t h i s h y p o t h e s i s c o u l d be t e s t e d by comparing t h e p u r c h a s i n g p a t t e r n s of each.  A questionnaire  requesting and  was a d m i n i s t e r e d  t o each c o a l company  t h a t i t i n d i c a t e from where i t purchased  s e r v i c e s ( s e e Appendix D, q u e s t i o n s # 1 and 2 ) .  inputs General  d i s c u s s i o n s were h e l d w i t h company p u r c h a s i n g agents based on t h e f o l l o w i n g s o r t s o f -  questions:  What a r e t h e c r i t e r i a on which you base your d e c i s i o n as to who t o buy from?  -  Do you make a p a r t i c u l a r e f f o r t t o purchase from Canadian over f o r e i g n m a n u f a c t u r e r s ?  In a d d i t i o n , o t h e r more comprehensive s t u d i e s comparing t h e purchasing patterns companies were  of f o r e i g n and d o m e s t i c a l l y - c o n t r o l l e d  consulted.  47  (b)  An attempt was  made to document the backward and  forward  l i n k a g e s w h i c h have developed from the E l k V a l l e y c o a l industry.  The  completed forms r e g a r d i n g  input sources  and  the d i s c u s s i o n s w i t h p u r c h a s i n g agents served to i n d i c a t e which i n p u t s were a v a i l a b l e from the l o c a l , p r o v i n c i a l , n a t i o n a l economy.  Secondary s o u r c e s l i s t i n g l o c a t i o n s of  some of the m a n u f a c t u r e r s and were c o n s u l t e d .  or  s u p p l i e r s to the c o a l  industry  These f i n d i n g s were then compared w i t h  l a r g e r s t u d i e s which have examined the domestic development of backward l i n k a g e s to the Canadian m i n i n g i n d u s t r y as a whole.  The  d i s c u s s i o n of f o r w a r d l i n k a g e s was  i n t e r v i e w s w i t h company r e p r e s e n t a t i v e s question  #3)  (see Appendix  Due  to d a t a c o n s t r a i n t s i t was  f i s c a l l i n k a g e and for  examine how  each c o a l company.  presented.  on D,  supplemented by the f i n d i n g s of a secondary  s o u r c e examining forward l i n k a g e s from the B.C. (c)  based  The  coal  industry.  not p o s s i b l e t o c a l c u l a t e the and where i t i s b e i n g  However, two  invested  s u r r o g a t e examples a r e  r e s u l t s of a study documenting use of  the  f i s c a l l i n k a g e by a f o r e i g n - c o n t r o l l e d company a r e compared w i t h the way one  i n w h i c h the d o m e s t i c a l l y - c o n t r o l l e d p a r e n t of  of the E l k V a l l e y c o a l companies i s u s i n g  profits  g e n e r a t e d from s t a p l e e x t r a c t i o n . (2)  The  question  of how  s t a b l e the E l k V a l l e y c o a l i n d u s t r y  been s i n c e p r o d u c i n g f o r the Japanese on l o n g - t e r m was  has  contracts  examined by f i r s t l o o k i n g a t the n a t u r e of t h e s e con-  t r a c t s and whether they r e a l l y do o f f e r a c o n s t a n t demand and  p r i c e f o r the r e g i o n a l s t a p l e .  T h i s was  done through  48  i n t e r v i e w s w i t h company r e p r e s e n t a t i v e s (see Appendix q u e s t i o n #4). put and  D,  Second, i n f o r m a t i o n on changing l e v e l s of o u t -  employment i n the s t a p l e i n d u s t r y was  c o l l e c t e d from  i n t e r v i e w s and company r e p o r t s (see Appendix D, q u e s t i o n s # 5 and  6).  These f i n d i n g s were supplemented w i t h d a t a from the  f o l l o w i n g sources:  newspaper a r t i c l e s , secondary  d e a l i n g w i t h long-term  sources  c o n t r a c t s and the e x p e r i e n c e s  Japanese r e s o u r c e s u p p l i e r s elsewhere,  of  and d i s c u s s i o n s w i t h  the p r e s i d e n t of the U n i t e d Mineworkers of America u n i o n i n the r e g i o n ) about the i m p l i c a t i o n s of  (largest  long-term  c o n t r a c t s f o r l a b o u r . . F i n a l l y , i n f o r m a t i o n on r e g i o n a l employment, income, p o p u l a t i o n , and vacancy r a t e l e v e l s  was  c o l l e c t e d from a v a r i e t y of sources to examine s t a b i l i t y i n the r e g i o n a l economy.  These sources i n c l u d e d :  r e p o r t s on  the r e g i o n p u b l i s h e d by government a g e n c i e s , Canada Employment and  Immigration  r e p o r t s , Revenue Canada income i n f o r m a -  t i o n , census d a t a , Canada Mortgage and Housing C o r p o r a t i o n d a t a , and f i l e s from the p l a n n i n g o f f i c e s of the t h r e e main communities i n the r e g i o n . (3)  T h i s h y p o t h e s i s was  examined by l o o k i n g a t the e x t e n t of  c o m p e t i t i o n among c o a l s u p p l i e r s to Japan as i n d i c a t e d i n i n t e r v i e w s w i t h company r e p r e s e n t a t i v e s (see Appendix  D,  q u e s t i o n #7)  was  and secondary s o u r c e s .  This information  backed up w i t h e m p i r i c a l examples from newspapers and secondary sources where the o p e r a t i o n s of Japanese r e s o u r c e s u p p l i e r s have been d i r e c t l y a f f e c t e d by changes i n the c o m p e t i t i v e p o s i t i o n of a l t e r n a t e s u p p l i e r s .  49  (4)  The  i m p l i c a t i o n s of consortium  purchasing  f o r resource  p r i c e were examined through  i n t e r v i e w s w i t h company r e p r e -  sentatives  q u e s t i o n #8).  was  (see Appendix D,  p r o v i d e d by newspaper a r t i c l e s and  d e a l i n g w i t h the e x p e r i e n c e s s u p p l y i n g Japan.  Further  secondary  evidence  sources  of other, r e s o u r c e r e g i o n s  50  FOOTNOTES  1.  Hugh A i t k e n , American C a p i t a l and Canadian Resources ( M a s s a c h u s e t t s : H a r v a r d U n i v e r s i t y P r e s s , 1961), p. 140.  2.  I b i d . , p. 104.  3.  Canada, S t a t i s t i c s Canada, Canadian Imports by Domestic and E n t e r p r i s e s , C a t . #67-509, 1978, p. x v i .  4.  A.E. S a f a r i a n , F o r e i g n Ownership of Canadian I n d u s t r y ( T o r o n t o : M c G r a w - H i l l Company of Canada L t d . , 1966), p. 19.  5.  M.H. W a t k i n s , "A S t a p l e Theory of C a p i t a l i s t Growth" (Paper p r e s e n t e d a t Three N a t i o n s Conference - Dimensions of Dependency, New Z e a l a n d , November 1980), p. 6.  6.  Roy A. Matthews, "The M u l t i n a t i o n a l F i r m and t h e World of Tomorrow," i n The M u l t i n a t i o n a l F i r m and t h e N a t i o n S t a t e , ed. G i l l e s Paquet (Toronto: C o l l i e r M a c m i l l a n Canada L t d . , 1972), p. 151.  7.  Greg Crough, F o r e i g n Ownership and C o n t r o l of the A u s t r a l i a n M i n e r a l I n d u s t r y (Sydney, A u s t r a l i a : T r a n s n a t i o n a l C o r p o r a t i o n s R e s e a r c h P r o j e c t , U n i v e r s i t y of Sydney, 1978), p. 3.  8.  W. Chambers, T r a n s f e r P r i c i n g , the M u l t i n a t i o n a l E n t e r p r i s e and Economic Development (Ottawa: Energy, Mines and Resources, 1976), p. 3.  9.  John B r a d b u r y , "Towards An A l t e r n a t e Theory of Resource-Based Town Development i n Canada," i n Economic Geography 55, no. 2 ( A p r i l , 1979): 159-161.  B.C.  10.  Ibid.  11.  I b i d . , p. 159.  12.  Lawrence B. Krause and Sueo S e k i g u c h i , eds., Economic I n t e g r a t i o n i n the P a c i f i c B a s i n (Washington D.C: B r o o k i n g s I n s t i t u t e , 1980), p. 16.  13.  K e i t h A . J . Hay, The Japanese Economy i n the Post-war P e r i o d (Ottawa: Canada-Japan Trade C o u n c i l , 1982), p. 4.  14.  I b i d . , p. 9.  15.  Terutomo Ozawa, M u l t i n a t i o n a l i s m , Japanese S t y l e (New J e r s e y : P r i n c e t o n U n i v e r s i t y P r e s s , 1979), p. 162; Japan Economic Yearbook, 1981/82 (Tokyo, Japan: The O r i e n t a l Economist, 1981), p. 81.  16.  I r a Magaziner and T. Hout, J a p a n e s e - I n d u s t r i a l P o l i c y (London: P o l i c y S t u d i e s I n s t i t u t e , 1980), p. 4.  51  17.  P e t e r Duus, The R i s e of Modern Japan ( B o s t o n : 1976) p. 257.  Houghton M i f f l i n  Co.,  18.  Ozawa, p. 162.  19.  M.Y. Y o s h i n o , "Japanese F o r e i g n D i r e c t Investment," i n The Japanese Economy i n I n t e r n a t i o n a l P e r s p e c t i v e , ed. I s a i a h F r a n k ( B a l t i m o r e : Johns Hopkins U n i v e r s i t y P r e s s , 1975), p. 255.  20.  I b i d . , p. 252.  21.  J . N i s h i k a w a , "Resource C o n s t r a i n t s : A Problem of t h e Japanese Economy," i n Growth and Resource Problems R e l a t e d t o Japan, v . 5 , ed. S h i g e t o Tsuru (London: M a c m i l l a n P r e s s L t d . , 1980), p. 297.  22.  M.A. Galway, Japanese Involvement i n B r i t i s h Columbia Copper I n f o r m a t i o n Canada, 1975), p. 5.  23.  R i c h a r d W r i g h t , " F o r e i g n Investment Between N e i g h b o u r s : Canada and Japan," i n Canadian P e r s p e c t i v e s on Economic R e l a t i o n s w i t h Japan, ed. K e i t h A . J . Hay ( M o n t r e a l : I n s t i t u t e f o r R e s e a r c h on P u b l i c P o l i c y , 1980), p. 192.  24.  Rod N u t t , "Japanese concept saves n o r t h e a s t B.C. Vancouver Sun, 3 J u l y 1982, p. A l .  25.  Ozawa, p. 163.  26.  I b i d . , p. 186.  27.  I b i d . , p. 163.  28.  K e i t h A . J . Hay, S.R. H i l l , and S.S. Rahman, Canadian C o a l f o r Japan (Ottawa: Econolynx I n t e r n a t i o n a l L t d . , 1982), p. 39.  29.  Jean H o l d e r , C a r i b b e a n Tourism P o l i c y and Impacts (Barbados: C a r i b b e a n Tourism Research and Development C e n t r e , 1979), p. 10.  30.  Thomas I . Gunton, R e s o u r c e s , R e g i o n a l Development and P r o v i n c i a l P o l i c y : A Case Study of B r i t i s h Columbia (Ottawa: Canadian C e n t r e f o r P o l i c y A l t e r n a t i v e s , 1982), p. 4.  31.  I b i d . , p. 20.  (Ottawa:  coal deal," i n  V.  PRESENTATION OF FINDINGS  T h i s c h a p t e r i s d i v i d e d i n t o f o u r s e c t i o n s each d e a l i n g w i t h one of the hypotheses r e g a r d i n g  t h e i m p l i c a t i o n s of t h e Japanese r e s o u r c e p r o c u r e -  ment s t r a t e g y and t h e r e s e a r c h Valley.  The d i s c u s s i o n  f i n d i n g s f o r t h e s t a p l e s economy of t h e E l k  b e g i n s w i t h an e x a m i n a t i o n of t h e Japanese  p r e f e r e n c e f o r n o t i n v e s t i n g e q u i t y i n a r e s o u r c e v e n t u r e and t h e i m p l i c a t i o n s of domestic ownership f o r t h e development of backward, f o r w a r d , and f i s c a l linkages. regard  The second s e c t i o n p r e s e n t s t h e r e s e a r c h  t o l o n g - t e r m c o n t r a c t s and r e g i o n a l s t a b i l i t y .  m u l t i p l e sourcing  findings with  Then Japanese  and i t s r a m i f i c a t i o n s f o r t h e c o a l i n d u s t r y of s o u t h -  e a s t e r n B.C. a r e d i s c u s s e d ,  and f o u r t h , t h e f i n d i n g s w i t h r e g a r d  e f f e c t s of c o n s o r t i u m r e s o u r c e p u r c h a s i n g a r e p r e s e n t e d .  to the  53  A.  The  I m p l i c a t i o n s of Japanese P r e f e r e n c e  (a)  The Development of Backward  (i)  F o r e i g n and Domestic P u r c h a s i n g  f o r not I n v e s t i n g E q u i t y  Linkages Patterns  The h y p o t h e s i s b e i n g t e s t e d here i s t h a t d o m e s t i c a l l y - c o n t r o l l e d r e s o u r c e companies (which can d e v e l o p under the Japanese s t r a t e g y ) a r e more l i k e l y to purchase i n p u t s from domestic s u p p l i e r s than a r e  the  f o r e i g n - c o n t r o l l e d companies found under the American s t r a t e g y of procurement. t i c and  Planned comparison of the p u r c h a s i n g  p a t t e r n s of the domes-  f o r e i g n c o n t r o l l e d c o a l companies i n the E l k V a l l e y was  because o n l y one company, B.C.  the p u r c h a s i n g  s e r v i c e s (see Appendix E ) .  of t h i s q u e s t i o n n a i r e and g e n e r a l d i s c u s s i o n s w i t h  agents from B.C.  C o l l i e r i e s helped  impeded  C o a l L t d . , a c t u a l l y completed the d e t a i l e d  q u e s t i o n n a i r e r e g a r d i n g s o u r c i n g of i n p u t s and However, the c o m p l e t i o n  resource  C o a l , F o r d i n g C o a l , and Byron Creek  i l l u m i n a t e the d e c i s i o n - m a k i n g  the purchase of i n p u t s ( t h e p u r c h a s i n g not w i l l i n g to d i s c u s s the  process w i t h r e g a r d  to  agent from Crows Nest Resources  was  topic).  On the b a s i s of t h i s i n f o r m a t i o n one d e t e c t s no d i f f e r e n c e between the p u r c h a s i n g panies.  D i s c u s s i o n s w i t h the p u r c h a s i n g  company, B.C. and  p a t t e r n s of the d o m e s t i c a l l y and  f o r e i g n c o n t r o l l e d com-  agent of the Canadian c o n t r o l l e d  C o a l , r e v e a l e d t h a t when d e c i d i n g from whom to buy  inputs  s e r v i c e s , a t t e n t i o n i s not p a i d to the " n a t i o n a l i t y " of the s u p p l i e r  and f a c t o r s such as n a t i o n a l i s t sentiment and l o y a l t y to Canadian manuf a c t u r i n g do not come i n t o p l a y .  The  company would not d e c i d e to buy  c e r t a i n s u p p l i e r s s i m p l y because they a r e Canadian.  I n f a c t when i t had  the o p p o r t u n i t y of b u y i n g a l l of i t s r e q u i r e m e n t s of a p a r t i c u l a r from Canadian m a n u f a c t u r e r s ,  B.C.  from  C o a l d i d not n e c e s s a r i l y do so.  input As  an  54  example, about 60 p e r c e n t of B.C.  C o a l ' s purchase of toothed  b u c k e t s ( t h a t i s , wear p a r t s f o r s h o v e l s , b u l l d o z e r s , and came from American m a n u f a c t u r e r s and more, B.C.  C o a l w i l l not buy  blade  f r o n t end  40 p e r c e n t from Canadian.^"  loaders)  Further-  from Canadian s u p p l i e r s i f they a r e not com-  p e t i t i v e i n terms of p r i c e and hoppers, and  and  quality.  For example, i n p u t s such as b i n s ,  chutes ( a n c i l l a r y equipment used i n the p r e p a r a t i o n p l a n t )  a v a i l a b l e through l o c a l E l k V a l l e y s u p p l i e r s but B.C.  Coal does not  are  buy  2 from them due  to problems w i t h workmanship.  In f a c t each of the company r e p r e s e n t a t i v e s i n p u t s and  s e r v i c e s a r e chosen a c c o r d i n g  d e l i v e r y date.  interviewed  stated  that  to c r i t e r i a of p r i c e , q u a l i t y , and  Even i f the companies d e c i d e d to make a s p e c i a l e f f o r t to  p a t r o n i z e Canadian over f o r e i g n m a n u f a c t u r e r s t h e i r a t t e m p t s would be cons t r a i n e d by the f a c t t h a t few of the i n p u t s t o c o a l m i n i n g a r e manufactured domestically. of i n p u t s and  They a r e i n t e r e s t e d i n s e e i n g g r e a t e r Canadian m a n u f a c t u r i n g say they would p r e f e r to purchase a l l of t h e i r r e q u i r e m e n t s  from the l o c a l r e g i o n s i n c e t h i s would be more p r a c t i c a l i n terms of r e p a i r work and  a c c e s s t o replacement p a r t s .  However, the p u r c h a s i n g  agents  s t r e s s e d t h a t as b u s i n e s s e s they c o u l d not a f f o r d to p a t r o n i z e domestic over f o r e i g n m a n u f a c t u r e r s i f the domestic f i r m s were not c o m p e t i t i v e  in  p r i c e , q u a l i t y , and d e l i v e r y s c h e d u l e . There a r e f u r t h e r ways to examine the r e l a t i o n s h i p between domestic c o n t r o l of the r e s o u r c e turers.  i n d u s t r y and  For example, i f one  p a t r o n i z a t i o n of domestic manufac-  c o u l d show t h a t t h e r e a r e g r e a t e r  opportunities  f o r Canadian s u p p l i e r s t o b i d f o r c o n t r a c t s w i t h the Canadian c o a l companies than w i t h the f o r e i g n ones t h i s would i n d i c a t e t h a t Canadian c o n t r o l of a resource  i n d u s t r y does s t i m u l a t e the development of backward l i n k a g e s .  Furthermore, the a s s e r t i o n t h a t s u p p l i e r s a r e chosen p u r e l y on the  basis  55  of t h e i r c o m p e t i t i v e  p o s i t i o n assumes t h a t the p u r c h a s i n g agent has  f e c t knowledge of a l l p o s s i b l e domestic and  foreign suppliers.  per-  I did  not  examine whether the Canadian c o a l companies a r e more f a m i l i a r w i t h domest i c s u p p l i e r s than the f o r e i g n c o n t r o l l e d companies, b o t h of w h i c h a r e s u b s i d i a r i e s of l a r g e , w e l l - i n t e g r a t e d m u l t i n a t i o n a l c o r p o r a t i o n s . f u r t h e r r e s e a r c h was and  This  not u n d e r t a k e n s i n c e i t would be q u i t e c o m p l i c a t e d  time-consuming and  I had  the completed q u e s t i o n n a i r e s  i n i t i a l l y a n t i c i p a t e d t h a t comparison of a l l would be s u f f i c i e n t i n d i c a t i o n of the  impli-  c a t i o n s of domestic c o n t r o l of the r e s o u r c e i n d u s t r y f o r p a t r o n i z a t i o n of domestic i n p u t s and  (ii)  services.  Domestic Development of I n p u t s to the C o a l  I n t h i s s e c t i o n I am  Industry  t e s t i n g the h y p o t h e s i s t h a t backward  linkages  w i l l be b e t t e r developed from a s t a p l e s e c t o r under domestic c o n t r o l as i s p o s s i b l e w i t h the Japanese s t r a t e g y of r e s o u r c e procurement.  Before  documenting the backward l i n k a g e s w h i c h have developed from the i n d u s t r y we must d i f f e r e n t i a t e between l i n k a g e s r e p r e s e n t i n g staple production,  and  coal  inputs  t h o s e which have been developed to c o l l e c t  to and  3  transport four  the s t a p l e .  Within  t h e s e two  types of l i n k a g e s we  can  identify  categories: 1.  The  d e s i g n or r e s e a r c h  and  development of i n p u t s to the  staple  industry, 2.  A c t u a l manufacture of i n p u t s i n c l u d i n g , ( i ) the manufacture of l o w - l e v e l t e c h n o l o g y p a r t s and  components and  t u r e of more s o p h i s t i c a t e d , s p e c i a l i z e d , and inputs, 3.  S u p p l y i n g of i n p u t s v i a r e t a i l o u t l e t s ,  ( i i ) the manufachigh  technology  56  4.  P r o v i s i o n of s e r v i c e s to the s t a p l e i n d u s t r y .  Backward L i n k a g e s f o r S t a p l e P r o d u c t i o n The development of backward l i n k a g e s i n the l o c a l E l k V a l l e y r e g i o n i s extremely l i m i t e d .  There i s one e s t a b l i s h m e n t i n Sparwood and one i n  F e r n i e which manufacture  a n c i l l a r y equipment and wear p a r t s ; t h a t i s , low  l e v e l t e c h n o l o g y p a r t s and components.~* i n p u t s manufactured  However, r e t a i l o u t l e t s s u p p l y i n g  elsewhere a r e numerous, and commercial and  retail  s e r v i c e s r e l a t e d t o c o a l m i n i n g a r e h i g h l y developed i n the l o c a l economy (see  Appendix E pp. 167'to 74) which shows t h a t B.C.  chase about 100 p e r c e n t of i t s open p i t ,  C o a l i s a b l e to p u r -  r o a d , and wear p a r t equipment  r e q u i r e m e n t s from l o c a l s u p p l i e r s as w e l l as a l l needed s e r v i c e s ) . In the l a r g e r B.C.  economy t h e r e a r e a number of companies manufac-  t u r i n g a n c i l l a r y equipment and wear p a r t s , but t h e r e i s no m a n u f a c t u r i n g of  the more s p e c i a l i z e d h i g h t e c h n o l o g y i n p u t s such as open p i t ,  ground, or p r e p a r a t i o n p l a n t equipment.^  under-  H i g h e r l e v e l p r o f e s s i o n a l and  t e c h n i c a l s e r v i c e s r e l a t i n g to c o a l m i n i n g a r e p r e s e n t i n Vancouver  where .  a number of c o n s u l t i n g f i r m s a r e l o c a t e d . ^ W i t h r e s p e c t to backward l i n k a g e s developed a t the next g e o g r a p h i c a l s c a l e , the Canadian economy, t h e r e i s some domestic m a n u f a c t u r i n g of a n c i l l a r y equipment and wear p a r t s f o r the c o a l i n d u s t r y . Appendix E (pp.170-71)'shows t h a t about h a l f of B.C.  E x a m i n a t i o n of  C o a l ' s purchases of  a n c i l l a r y equipment and about 25 p e r c e n t of t h e i r wear p a r t s a r e from Canadian m a n u f a c t u r e r s .  A l l of t h e i r needs f o r t h e s e i n p u t s can be s u p p l i e d  through domestic r e t a i l o u t l e t s .  These f i n d i n g s a r e supported by t h e  c o n c l u s i o n s of a major Energy, Mines, and Resources  (E.M.R.) study on the  Canadian m i n i n g i n d u s t r y as a whole which s t a t e s t h a t about 52 p e r c e n t of  57  " C l a s s C" items (custom-made l o w - l e v e l t e c h n o l o g y components or p a r t s ) used g  by t h e i n d u s t r y a r e manufactured i n Canada. The more s o p h i s t i c a t e d , s p e c i a l i z e d and h i g h t e c h n o l o g y i n p u t s f o r c o a l m i n i n g would i n c l u d e open p i t and road equipment, underground m i n i n g equipment, and p r e p a r a t i o n p l a n t equipment. t i o n o f open p i t equipment  There i s some d o m e s t i c produc-  (which c o n s i s t s p r i m a r i l y of l a r g e v e h i c l e s ) .  For example, about 50 p e r c e n t o f B.C. C o a l ' s needs have been assembled i n Canada ( u s u a l l y i n s o u t h e r n O n t a r i o ) but many o f t h e p a r t s and components 9 a r e from t h e U.S.  Other s o u r c e s s u p p o r t t h i s g e n e r a l s t a t e m e n t .  A study  e n t i t l e d , Economic Impacts and L i n k a g e s o f t h e Canadian M i n i n g I n d u s t r y , found t h a t i n 1974 about 83 p e r c e n t o f t h e Canadian m i n i n g i n d u s t r y ' s purchase o f f r o n t - e n d l o a d e r s (a major p i e c e of open p i t equipment) were imported v e h i c l e s , o v e r w h e l m i n g l y from t h e U S . ^  The E.M.R. s t u d y c o n c l u d e s  t h a t Canadian i n d u s t r y p r o v i d e s l e s s than 30 p e r c e n t o f t h e equipment r e q u i r e d by open p i t m i n i n g . ^  A s i m i l a r p a t t e r n emerges f o r t h e equipment  used t o c o n s t r u c t and m a i n t a i n roads around t h e m i n e s i t e :  about 50 p e r c e n t  of B.C. C o a l ' s purchase o f road equipment a r e v e h i c l e s w h i c h have been assembled i n Canada and t h e remainder i s i m p o r t e d .  A l l o f t h e company's  needs f o r open p i t and road equipment can be s u p p l i e d by Canadian o u t l e t s (see Appendix E pp. 167, 172). I t appears t h a t v e r y l i t t l e underground c o a l m i n i n g equipment i s 12  a c t u a l l y manufactured i n Canada.  The U n i t e d Kingdom, where much of t h e  e a r l y underground c o a l m i n i n g o c c u r r e d and much o f t h e equipment was d e v e l o p e d , appears t o have r e t a i n e d i t s i n i t i a l h o l d and remains t h e major l o c a t i o n f o r most m a n u f a c t u r i n g o f underground c o a l m i n i n g needs.  Some  low t e c h n o l o g y p a r t s and components a r e manufactured i n Canada but t h e major p i e c e s of equipment used by B.C. C o a l a r e purchased from B r i t i s h and  58  Japanese m a n u f a c t u r e r s  (see Appendix  E,.p.  168).  W i t h r e s p e c t t o c o a l p r e p a r a t i o n p l a n t equipment, e x a m i n a t i o n o f Appendix E ,(p.169) • i n d i c a t e s t h a t t h e U.S. i s the major l o c a t i o n where B.C. ;i  C o a l ' s needs a r e manufactured. c a p a c i t y i s q u i t e weak.  T h i s i n t u r n might suggest t h a t domestic  However, the E.M.R. study found t h a t  Canadian  13  c o n t e n t o f b e n e f i c a t i o n p l a n t equipment i s about 65 p e r c e n t .  Perhaps  the t r e a t m e n t p r o c e s s f o r c o a l i s d i f f e r e n t from the t r e a t m e n t f o r t h e m i n i n g i n d u s t r y as a whole and Canadian c a p a b i l i t y i s lower i n t h i s c a s e . A l t e r n a t i v e l y , i t i s p o s s i b l e t h a t Canadian m a n u f a c t u r i n g of c o a l p r e p a r a t i o n p l a n t equipment i s as h i g h as the E.M.R. study s u g g e s t s b u t B.C. C o a l i s s i m p l y not b u y i n g from those Canadian m a n u f a c t u r e r s . Backward L i n k a g e s f o r S t a p l e C o l l e c t i o n " The two major backward l i n k a g e s developed t o t r a n s p o r t and c o l l e c t the c o a l i n c l u d e t h e Canadian P a c i f i c R a i l w a y r o u t e and the c o a l h a n d l i n g p o r t a t R o b e r t s Bank. wholly-owned  The l a t t e r i s o p e r a t e d by Westshore T e r m i n a l s ( a  s u b s i d i a r y o f B.C. C o a l ) and r e p r e s e n t s a major backward  l i n k a g e i n the contemporary  phase o f r e g i o n a l c o a l m i n i n g .  W i t h r e s p e c t t o r e s e a r c h and development r e l a t e d t o the s t a p l e i n d u s t r y i t s h o u l d be noted t h a t R o b e r t s Bank was d e s i g n e d and b u i l t by a Vancouver-based  e n g i n e e r i n g f i r m , Swan Wooster.  Kaiser Coal L t d . hired  t h e f i r m i n the l a t e 1960's and t h e o p p o r t u n i t y proved i n v a l u a b l e .  The  e x p e r i e n c e and e x p e r t i s e g a i n e d has l e d Swan Wooster t o become " t h e w o r l d ' s premier d e s i g n e r o f c o a l p o r t s and a major f o r c e i n harbour and m a r i n e -  See Appendix C f o r a d e s c r i p t i o n o f the p r o c e s s i n v o l v e d i n c o a l h a n d l i n g and l o a d i n g onto s h i p s , and t h e major p i e c e s o f equipment used a t t h e d i f f e r e n t stages of that process.  59  related engineering".  Thus an important  backward l i n k a g e was  developed  through the d e c i s i o n of the f o r e i g n company c o n t r o l l i n g s t a p l e  production  to p a t r o n i z e a l o c a l e n g i n e e r i n g  firm.  E x a m i n a t i o n of Appendix F shows t h a t t h e r e i s some l o c a l m a n u f a c t u r i n g of the a n c i l l a r y equipment and wear p a r t s used as i n p u t s to the of the p o r t .  operation  A l l of t h e s e needs a r e a v a i l a b l e through l o c a l s u p p l i e r s as  a r e the v a s t m a j o r i t y of commercial and  r e t a i l s e r v i c e s used by the p o r t .  However, the manufacture of the more . s o p h i s t i c a t e d and of equipment does not o c c u r i n Canada.  Two  s p e c i a l i z e d pieces  of the s t a c k e r - r e c l a i m e r s were  assembled i n s o u t h e r n O n t a r i o by the Canadian s u b s i d i a r y of an American company and  the t h i r d i s b e i n g manufactured by M i t s u b i s h i i n Japan.  of the p r e s e n t  s h i p l o a d e r s were d e s i g n e d by Swan Wooster and  i n Canada but w i t h many of the p a r t s coming from the U n i t e d  Both  manufactured States.^  Thus  the p a t t e r n i s s i m i l a r to t h a t found f o r the manufacture of the more s p e c i a l i z e d equipment used i n c o a l m i n i n g ; t h a t i s , the backward l i n k a g e i s underdeveloped w i t h Canadian b r a n c h p l a n t s c a r r y i n g out o n l y the assembly of p a r t s manufactured o u t s i d e the  country.  Summary The  evidence presented  agents r e g a r d i n g  above supports  the comments of the  the d i f f i c u l t i e s i n p u r c h a s i n g  purchasing  Canadian i n p u t s f o r back-  ward l i n k a g e s from c o a l m i n i n g do not appear t o be s t r o n g l y d e v e l o p e d . summarize .those t h a t have been developed d o m e s t i c a l l y , each c a t e g o r y  is  examined i n t u r n : l o - The d e s i g n , or r e s e a r c h and development, of i n p u t s . T h i s s e c t o r i s underdeveloped but some important  c a p a b i l i t y does  e x i s t w i t h r e g a r d t o the d e s i g n of i n f r a s t r u c t u r e to c o l l e c t  and  To  60  h a n d l e the s t a p l e a t t r a n s - s h i p m e n t p o i n t s .  2 ( i ) - The manufacture of l o w - l e v e l t e c h n o l o g y p a r t s and components. T h i s i s the most s t r o n g l y developed s e c t o r b u t y e t n o t a l l a n c i l l a r y equipment and wear p a r t s f o r the c o a l i n d u s t r y are manufactured i n Canada.  As one c o a l company r e p r e s e n t a t i v e summarized t h e s i t u a t i o n ,  Canadian i n d u s t r y i s f i t t i n g i n t o the n i c h e o f s u p p l y i n g and  components t o Canadian c o a l m i n i n g . " ^  accessories  The E.M.R. study reaches  s i m i l a r conclusions  s t a t i n g "... the Canadian b r a n c h p l a n t  expertise i s biased  toward the p r o d u c t i o n  of l o w - l e v e l technology  equipment and components, a s p e c i a l i z a t i o n t h a t l e a v e s to p r i c e c o m p e t i t i o n " . ^  I t should  industry  i t vulnerable  a l s o be noted t h a t t h i s c a t e g o r y  of backward l i n k a g e a l t h o u g h v e r y l i m i t e d i n the immediate l o c a l economy, has developed a t the s c a l e o f the p r o v i n c i a l economy.  2 ( i i ) - The manufacture o f more s o p h i s t i c a t e d , s p e c i a l i z e d , and h i g h technology inputs. The development o f t h i s s e c t o r i s v e r y weak.  I t i s only a t the  n a t i o n a l l e v e l t h a t one sees some a c t i v i t y r e l a t e d t o the  production  of heavy equipment f o r c o a l m i n i n g , but t h i s i s l a r g e l y d i r e c t e d toward b r a n c h p l a n t assembly of p i e c e s manufactured i n the U.S. by the American p a r e n t company.  T h i s comment i s a g a i n c o r r o b o r a t e d by  the E.M.R. s t u d y : The Canadian machinery i n d u s t r y does b e t t e r p r o v i d i n g p a r t s and attachments than s u p p l y i n g new c a p i t a l equipment; .... the Canadian b r a n c h p l a n t i n d u s t r y has evolved toward an assembly t y p e o f o p e r a t i o n . . . . ^  61  3 - The The  s u p p l y of i n p u t s v i a r e t a i l o u t l e t s .  m a j o r i t y of i n p u t s to c o a l m i n i n g whether they have been manu-  f a c t u r e d w i t h i n or o u t s i d e Canada can be purchased from domestic supply o u t l e t s .  These have been developed i n the l o c a l economy as  w e l l as at the p r o v i n c i a l and  4 - The  national  level.  p r o v i s i o n of s e r v i c e s .  These l i n k a g e s have been developed d o m e s t i c a l l y and found c l o s e to the r e s o u r c e i n d u s t r y . and  The  are  generally  lower l e v e l commercial  r e t a i l s e r v i c e s r e l a t e d to c o a l m i n i n g are developed w i t h i n  the l o c a l economy and  the h i g h e r  l e v e l p r o f e s s i o n a l and  technical  s e r v i c e s a r e g e n e r a l l y a v a i l a b l e w i t h i n the p r o v i n c i a l economy.  (b)  The  Development of Forward L i n k a g e s  T h i s s e c t i o n p r e s e n t s the r e s e a r c h  f i n d i n g s i n t e s t i n g the h y p o t h e s i s  t h a t f o r w a r d l i n k a g e s w i l l be b e t t e r developed from a r e s o u r c e i n d u s t r y which i s d o m e s t i c a l l y  c o n t r o l l e d as i s p o s s i b l e under the Japanese r e s o u r c e  procurement s t r a t e g y .  The  interviews revealed  t h a t each of the f o u r  companies i n the E l k V a l l e y s h i p t h e i r product out of the r e g i o n as  coal clean  19 raw  coal.  Japan and  Three of the companies e x p o r t to f o r e i g n markets ( p r i m a r i l y o t h e r P a c i f i c Rim  staple occurs,  and  one  c o u n t r i e s ) where f u r t h e r p r o c e s s i n g  company s h i p s to e a s t e r n  These a r e B.C.  the  Canadian markets where the  c o a l i s used as an i n p u t t o t h e r m a l power g e n e r a t i o n . which e x p o r t the raw  of  The  t h r e e companies  c o a l are producing p r i m a r i l y m e t a l l u r g i c a l c o a l .  C o a l and  Fording  (the two  Resources (a f o r e i g n - c o n t r o l l e d company). as an i n p u t t o f u r t h e r p r o d u c t i o n  Canadian companies) and The  Crows Nest  company w h i c h s e l l s i t s c o a l  w i t h i n the domestic economy i s the  foreign-  62  owned Byron Creek C o l l i e r i e s w h i c h produces t h e r m a l c o a l . linkages  Thus f o r w a r d  from m e t a l l u r g i c a l c o a l m i n i n g a r e underdeveloped but t h e r e i s  some f o r w a r d l y - l i n k e d  a c t i v i t y w h i c h uses t h e r m a l c o a l .  These f i n d i n g s suggest t h a t i n t h i s case i t i s market f a c t o r s and not  t h e n a t u r e of d o m e s t i c or f o r e i g n ownership w h i c h a f f e c t t h e degree  to w h i c h t h e s t a p l e undergoes f u r t h e r p r o c e s s i n g w i t h i n t h e n a t i o n a l economy. but  There i s a Canadian market w h i c h uses t h e r m a l c o a l as an  t h e r e i s no r e a l d o m e s t i c demand f o r m e t a l l u r g i c a l c o a l .  i n d u s t r y i n e a s t e r n Canada i m p o r t s c o a l from t h e U.S.  input,  The s t e e l  f o r d i s t a n c e from  the m e t a l l u r g i c a l c o a l mines of w e s t e r n Canada means t h a t t r a n s p o r t  costs  20 a r e h i g h and Canadian c o a l i s not c o m p e t i t i v e . F o r e i g n demand f o r m e t a l l u r g i c a l c o a l i n f u r t h e r p r o c e s s e d form i s also extremely l i m i t e d .  When q u e s t i o n e d as t o why they d i d n o t p r a c t i s e  f u r t h e r p r o c e s s i n g of t h e i r c o a l , t h e company spokesmen e x p l a i n e d t h e i r Japanese customers would o n l y buy raw c o a l , not coke.  that  According to  one spokesman, t h e Japanese s t e e l i n d u s t r y buys about one hundred d i f f e r e n t t y p e s of c o a l from around t h e w o r l d and b l e n d s t h i r t y t o make coke i n t h e i r 21 own ovens and produce t h e i r own p a r t i c u l a r t y p e of s t e e l .  Thus even i f  the domestic owners of the c o a l companies wanted t o p r o c e s s t h e i r p r o d u c t f u r t h e r , t h e i r a t t e m p t s would be c o n s t r a i n e d by t h e n a t u r e of market demand. A s t u d y by H a l v o r s o n i n 1976 examined t h e p o t e n t i a l f o r m e t a l l u r g i c a l coke p r o d u c t i o n i n B.C. and reached s i m i l a r c o n c l u s i o n s c o n c e r n i n g market 22 constraints.  H a l v o r s o n c o n t a c t e d major s t e e l makers t o d e t e r m i n e t h e i r  r e a c t i o n t o t h e p o s s i b i l i t y of p u r c h a s i n g coke from B.C.  H i s s t u d y found  t h a t they p r e f e r t o buy raw c o a l because each s t e e l m i l l  ( p a r t i c u l a r l y the  Japanese) uses i t s own r e c i p e f o r a b l e n d i n g of c o a l s to produce t h e coke which b e s t s u i t s t h e s i z e of i t s b l a s t f u r n a c e and t h e t y p e of s t e e l b e i n g  63  made.  The  s t e e l m i l l s expressed doubt about the q u a l i t y of coke w h i c h  c o u l d be produced i n B.C.  since a blending  r e s u l t i n a high q u a l i t y product. against  of B.C.  c o a l s a l o n e would  Strategic considerations  also  not  mitigated  the purchase of coke from e x t e r n a l s o u r c e s ; i f problems i n t e r r u p t e d  s u p p l y , a l t e r n a t e p r o d u c e r s c o u l d be found more e a s i l y f o r c o a l r e q u i r e ments than f o r coke.  I n a d d i t i o n , t a r i f f d u t i e s i n h i b i t e d the export of  coke ( f o r example, i n 1976 of coke i n t o Japan and  t h e r e was  a 4 p e r c e n t duty r a t e on the  a 5 percent r a t e i n Korea).  t h a t the c o n s t r u c t i o n of a major c o k i n g  operation  import  Thus the s t u d y c o n c l u d e d i n B.C.  i n the near f u t u r e  c o u l d not be recommended. As a f i n a l p o i n t i t i s i n t e r e s t i n g t o note t h a t f o r w a r d l i n k a g e s  from  the r e g i o n a l s t a p l e were b e t t e r developed i n e a r l i e r phases of E l k V a l l e y c o a l m i n i n g and  have g r a d u a l l y weakened.  As mentioned e a r l i e r , i n the  1940's the Crows Nest Pass C o a l Company produced coke, o p e r a t e d a p r o d u c t s p l a n t , and Technological  change which saw  l o s s of markets and activities. i n 1959  s h i p p e d t h e i r coke to f u e l West Kootenay  contributed  o i l . and  gas  by-  smelters.  r e p l a c e c o a l as a f u e l meant a  to the d e c l i n e of t h e s e  forwardly-linked  When Japanese i n d u s t r i a l i s t s began b u y i n g c o a l from the  they were i n t e r e s t e d o n l y i n o b t a i n i n g a s e c u r e s u p p l y of  m a t e r i a l s , not semi-processed goods. s m a l l amount of coke up u n t i l 1982  B.C.  region  raw  Coal did continue producing a  when coke o p e r a t i o n s  were stopped  be-  23  cause t h e i r f i n a l customer, a s m e l t e r i n Idaho, ceased  (c)  The  operation,  Development of F i s c a l L i n k a g e s  The h y p o t h e s i s b e i n g t e s t e d h e r e i s t h a t f i s c a l l i n k a g e s a r e more l i k e l y t o be r e t a i n e d and  invested  i n r e g i o n a l economic development when  the s t a p l e i n d u s t r y i s d o m e s t i c a l l y - c o n t r o l l e d as i s p o s s i b l e under  the  64  Japanese s t r a t e g y of r e s o u r c e procurement.  However, an attempt to c a l c u l a t e  the f i s c a l l i n k a g e c u r r e n t l y being generated i n the E l k V a l l e y was s u c c e s s f u l due  to a number of d a t a c o n s t r a i n t s .  p r o f i t p o s i t i o n and g e n e r a t i o n of r e s o u r c e  not  E s t i m a t i o n of a company's  r e n t s should be done over a  pro-  longed p e r i o d of time i n o r d e r to even out annual f l u c t u a t i o n s . Crows Nest Resources has o n l y been i n o p e r a t i o n f o r one year and to a n a l y z e B.C.  i t s profit position.  thus i t i s too e a r l y  In the case of Byron Creek C o l l i e r i e s  C o a l , t h e i r f i n a n c i a l d a t a i s not d i s a g g r e g a t e d  from t h a t of  p a r e n t companies, I m p e r i a l O i l and B.C.R.I.C. r e s p e c t i v e l y . very d i f f i c u l t  resource  earned by the c u r r e n t f o u r companies i n the E l k V a l l e y or any i n the way operations.  t h i s income i s b e i n g used by the domestic and However, two  surrogate  their  T h i s makes i t  to q u a n t i f y t h e i r i n d i v i d u a l p r o f i t p o s i t i o n s .  not p o s s i b l e to show the e x t e n t of normal p r o f i t s and  and  Thus i t was rents differences  foreign controlled  examples r e l e v a n t t o the r e g i o n  are  presented. An e x a m i n a t i o n of K a i s e r C o a l L t d . , the American company w h i c h dominated the E l k V a l l e y c o a l i n d u s t r y throughout the 1970's, has  shown t h a t  f o r e i g n c o n t r o l of a r e s o u r c e v e n t u r e can r e s u l t i n a s u b s t a n t i a l l e a k a g e of income,from the r e g i o n . operations  and was  Gunton examined f i n a n c i a l d a t a f o r K a i s e r ' s  a b l e to c a l c u l a t e the e x t e n t of the f i s c a l  linkage  24 stemming from the r e g i o n a l s t a p l e .  E x a m i n a t i o n of T a b l e 6 shows t h a t  K a i s e r ' s average a n n u a l t o t a l revenue f o r the p e r i o d from 1975 amounted to $283 m i l l i o n . sum  of $131  A f t e r deducting  to  a l l c o s t s of p r o d u c t i o n ,  1977 the  m i l l i o n r e m a i n s , r e p r e s e n t i n g the average a n n u a l amount of  f i s c a l l i n k a g e g e n e r a t e d by K a i s e r ' s c o a l o p e r a t i o n s .  the  T h i s amount can  then be d i v i d e d i n t o a "normal r e t u r n on c a p i t a l i n v e s t e d " , and an "above normal r e t u r n " or " r e s o u r c e  rent".  Gunton d e f i n e s a "normal r e t u r n " i n  65  TABLE 6.  F i n a n c i a l d a t a f o r K a i s e r Resources ( f i g u r e s a r e a n n u a l averages i n m i l l i o n s o f d o l l a r s f o r t h e y e a r s 1975 t o 1977)  T o t a l revenue  $283  C o s t s of p r o d u c t i o n ^ ^ .".  152  T o t a l income  $131 (2)  Normal p r o f i t a l l o w a n c e .". Above normal p r o f i t  41 $ 90 (3)  D i r e c t and i n d i r e c t t a x e s .". U n c o l l e c t e d NOTES:  SOURCE:  resource  48 rent  $ 42  (1) I n c l u d e s a l l c o s t s o f p r o d u c t s s o l d ( i . e . wages, m a t e r i a l s , a d m i n i s t r a t i o n , i n t e r e s t d e p r e c i a t i o n , a m o r t i z a t i o n , and d e p l e t i o n ) as p e r b a l a n c e s h e e t s from Annual R e p o r t s . (2)  The f i g u r e shown i s t h e b e f o r e t a x p r o f i t n e c e s s a r y t o pay t h e average c u r r e n t c o r p o r a t e income t a x (26%) and p r o v i d e an a f t e r t a x r e t u r n of 15% on s h a r e h o l d e r s e q u i t y .  (3)  D i r e c t payments i n c l u d e payments t o t h e p r o v i n c i a l government under t h e M i n e r a l Land Tax and t h e B.C. M i n i n g Tax. I n d i r e c t payments a r e t h e e x t r a c u r r e n t c o r p o r a t e income t a x o b l i g a t i o n s i n c u r r e d as a r e s u l t o f t h e e x t r a p r o f i t generated.by K a i s e r ' s r e t e n t i o n of a p o r t i o n of the r e n t .  Adapted from Thomas Gunton, R e s o u r c e s , R e g i o n a l Development and P r o v i n c i a l P o l i c y : A Case Study o f B r i t i s h Columbia (Ottawa: Canadian C e n t r e f o r P o l i c y A l t e r n a t i v e s , 1982), p. 19 as computed from d a t a i n v a r i o u s i s s u e s o f K a i s e r Resources Annual R e p o r t s .  66  t h i s case as an amount s u f f i c i e n t to pay  c o r p o r a t e income tax and  an a f t e r t a x r e t u r n of 15 p e r c e n t on s h a r e h o l d e r s e q u i t y .  Using  d e f i n i t i o n , a normal r e t u r n f o r K a i s e r i n t h i s case would be $41  provide this million,  l e a v i n g an above normal p r o f i t or " r e s o u r c e r e n t " amounting t o the average a n n u a l amount of $90 m i l l i o n . was  a b l e to c o l l e c t  T a b l e 6 shows t h a t of t h i s sum,  $48 m i l l i o n through m i n i n g t a x e s and  the  state  extra corporate  income t a x o b l i g a t i o n s l e a v i n g $42 m i l l i o n f o r K a i s e r C o a l L t d . as  uncol-  lected resource rent. As to how exporting to 1979,  K a i s e r used the income i t o b t a i n e d  B.C.'s c o a l r e s o u r c e s ,  Gunton shows t h a t d u r i n g  about 84 p e r c e n t of K a i s e r ' s c a s h f l o w was  economy (see T a b l e 7 ) .  l e a v i n g the p r o v i n c i a l  from B.C.;  the major p o r t i o n  used by K a i s e r to purchase A s h l a n d O i l i n A l b e r t a .  s u b s e q u e n t l y s o l d and  Kaiser Coal.  I n 1980,  1975  payments w h i l s t 59 p e r c e n t c o n s t i t u t e d  r e t a i n e d e a r n i n g s which were l e a k e d  t i o n was  the p e r i o d  and  About 25 p e r c e n t of K a i s e r ' s income a c c r u e d to  f o r e i g n s h a r e h o l d e r s as d i v i d e n d  apparently  through e x t r a c t i n g  This  opera-  the proceeds used to s t r e n g t h e n c o n t r o l over  K a i s e r C o a l was  r e v e r t i n g to K a i s e r S t e e l i n  was  s o l d to B.C.R.I.C. w i t h the  profits  California.  T h i s d i s c u s s i o n i l l u s t r a t e s t h a t l a r g e sums of money can be made from staple a c t i v i t y . and  However, when t h a t a c t i v i t y i s under f o r e i g n ownership  c o n t r o l and when t h e r e i s l i m i t e d  s t a t e i n t e r v e n t i o n to c a p t u r e  r e n t s g e n e r a t e d , s t a p l e e a r n i n g s f l o w out of the r e g i o n a l economy and be i n v e s t e d  i n economic a c t i v i t y e l s e w h e r e .  Thus the income c r e a t e d  r e s o u r c e e x t r a c t i o n i s not a v a i l a b l e to encourage more s u s t a i n e d  the may through  or d i v e r -  s i f i e d development i n the r e g i o n a l economy i t s e l f . I n the second example, an e x a m i n a t i o n of f i n a n c i a l d a t a f o r B.C.R.I.C. (which owns 67 p e r c e n t of B.C.  C o a l ) i n d i c a t e s t h a t a l t h o u g h domestic owner-  67  TABLE 7.  D i s t r i b u t i o n of K a i s e r ' s cash f l o w (1975-1979)  Total  Amount leaked from B.C.  D i v i d e n d payments*  28%  25%  3%  Retained earnings  72%  59%  13%  100%  84%  16%  NOTES:  Amount remaining i n B.C.  * I t i s assumed t h a t the r a t i o of B.C. s h a r e h o l d e r s t o t o t a l Canadian s h a r e h o l d e r s i s s i m i l a r to t h e r a t i o of the B.C. p o p u l a t i o n t o the Canadian p o p u l a t i o n .  SOURCE:  Adapted from Thomas Gunton, R e s o u r c e s , R e g i o n a l Development and P r o v i n c i a l P o l i c y : A Case Study of B r i t i s h Columbia (Ottawa: Canadian C e n t r e f o r P o l i c y A l t e r n a t i v e s , 1982), p. 20 as computed from d a t a i n v a r i o u s i s s u e s of K a i s e r Resources Annual R e p o r t s .  s h i p may  r e s u l t i n domestic r e t e n t i o n of the income, i t does not ensure  t h a t t h i s income w i l l be i n v e s t e d i n t h e r e g i o n a l economy e i t h e r .  B.C.R.I.C.  i s a B.C.-based company w i t h 64 p e r c e n t of i t s r e g i s t e r e d s h a r e s owned by B.C.  r e s i d e n t s and a n o t h e r 16 p e r c e n t owned by r e s i d e n t s of O n t a r i o and 25  Quebec as of December 1981.  Thus t h e income earned through B.C.R.I.C.'s  a c t i v i t i e s i n the n a t u r a l r e s o u r c e i n d u s t r i e s of w e s t e r n Canada i s l a r g e l y r e t a i n e d by d o m e s t i c i n t e r e s t s .  However, r e t a i n e d e a r n i n g s a r e not  n e c e s s a r i l y used t o promote f u r t h e r backward and f o r w a r d l i n k a g e s from these r e s o u r c e i n d u s t r i e s or encourage d i v e r s i f i c a t i o n of r e g i o n a l away from dependence on r e s o u r c e e x t r a c t i o n .  economies  For example, one of B.C.R.I.C.'s  t h r e e major c a p i t a l p r o j e c t s i s an o i l and gas f i e l d known as South Brae  68  l o c a t e d o f f the n o r t h e a s t c o a s t of S c o t l a n d . i n t h i s v e n t u r e through B.C. project.  C o a l which has a 7.7  I n i t i a l p r o d u c t i o n was  a l t h o u g h a temporary  B.C.R.I.C. i s p a r t i c i p a t i n g p e r c e n t i n t e r e s t i n the  expected t o b e g i n by June 1983  o v e r s u p p l y of o i l on the w o r l d market has  and depressed  p r i c e s , the company i s c o n f i d e n t t h a t i t s investment w i l l develop i n t o a h i g h l y p r o f i t a b l e a s s e t i n the l o n g term.  B.C.R.I.C.'s c a p i t a l  expendi-  t u r e f o r t h i s p r o j e c t amounted to $71 m i l l i o n i n 1981 and $66 m i l l i o n i n 1982.  Some of t h i s c a p i t a l came from the e a r n i n g s generated by B.C.  Coal's  e x p l o i t a t i o n of t h e E l k V a l l e y c o a l r e s o u r c e f o r B.C.R.I.C. e s t i m a t e s t h a t B.C.  C o a l w i l l have c o n t r i b u t e d $260 m i l l i o n to the t o t a l c o s t of b r i n g i n g  the South Brae p r o j e c t i n t o commercial  production.  Thus p a r t of the income  generated by the p u b l i c l y - o w n e d c o a l r e s o u r c e of the E l k V a l l e y i s b e i n g used by domestic  e n t r e p r e n e u r s to fund r e s o u r c e development elsewhere i n  the g l o b a l economy and promote f u r t h e r e a r n i n g s f o r c o r p o r a t e i n t e r e s t s .  69  B.  The I m p l i c a t i o n s of Long-term- C o n t r a c t s w i t h Japanese Buyers T h i s second s e c t i o n of t h e c h a p t e r  t e s t s the hypothesis  that  resource  i n d u s t r i e s and s t a p l e r e g i o n s i n v o l v e d i n l o n g - t e r m c o n t r a c t s w i t h Japanese buyers w i l l experience  g r e a t e r s t a b i l i t y than those o p e r a t i n g under t h e  American r e s o u r c e procurement s t r a t e g y .  The d i s c u s s i o n w i l l d e a l  first  w i t h t h e e x t e n t to which such c o n t r a c t s p r o v i d e s t a b i l i t y f o r t h e s t a p l e producers,  and second t h e degree t o which t h i s i s r e f l e c t e d i n t h e r e g i o n a l  economy.  (a)  Long-term C o n t r a c t s and S t a p l e P r o d u c e r s  It i s d i f f i c u l t  t o make g e n e r a l i z a t i o n s about l o n g - t e r m c o n t r a c t s  between Japanese buyers and r e s o u r c e  s e l l e r s because t h e s e c o n t r a c t s a r e  complex documents and a r e not p u b l i c l y a v a i l a b l e .  I n a d d i t i o n , each  c o n t r a c t i s d i f f e r e n t ; one company p u b l i c a t i o n n o t e s t h a t "no two c o n t r a c t s a r e e x a c t l y t h e same r e c o g n i z i n g t h e i n d i v i d u a l concerns and  preferences  26  of each p a r t y t o t h e t r a n s a c t i o n . "  However, one can say t h a t l o n g - t e r m  c o n t r a c t s w i t h the Japanese do n o t i n d i c a t e the presence of a guaranteed market f o r a r e s o u r c e .  An i n i t i a l c o n t r a c t l a s t i n g on the average f o r t e n  to f i f t e e n y e a r s i s e s t a b l i s h e d when t h e two p a r t i e s f i r s t e n t e r i n t o a t r a d i n g r e l a t i o n s h i p . This w i l l the r e s o u r c e  i n d i c a t e t h e t o t a l q u a n t i t y demanded of  and a p r i c e c a l c u l a t i o n f o r m u l a  f o r the l i f e of t h e c o n t r a c t .  However, these s h o u l d be seen o n l y as " l e t t e r s of i n t e n t " f o r the c o n t r a c t s 27  are n o t s t r i c t l y  adhered t o .  ±5 t o 10 p e r c e n t  c l a u s e ) a r e e s t a b l i s h e d d u r i n g annual n e g o t i a t i o n s each  March.  As d e s c r i b e d  A c t u a l p r i c e s and q u a n t i t i e s ( i n c l u d i n g a  i n a B.C.R.I.C. p u b l i c a t i o n , "B.C. C o a l s e l l s most of  i t s c o a l under l o n g - t e r m c o n t r a c t s which c o n t a i n d e t a i l e d q u a l i t y s p e c i f i c a t i o n s , a r e s u b j e c t t o p e r i o d i c p r i c e r e v i e w and s p e c i f y the annual  70  volumes of c o a l t o be purchased and s h i p p e d . "  I t should a l s o be  t h a t these c o n t r a c t s a r e not e n f o r c e a b l e ; t h e r e are no " t a k e or  noted  pay"  i 29 clauses. (i) In  S t a b i l i t y of Demand l o o k i n g at whether long-term  a r e g i o n a l s t a p l e i t was  found t h a t t h e r e are a number of ways whereby  c o n t r a c t s a r e changed and c u t . may  c o n t r a c t s o f f e r s t a b l e demand f o r  F i r s t , the a n n u a l l y n e g o t i a t e d tonnages  w e l l d i f f e r from the amount i n d i c a t e d i n the i n i t i a l c o n t r a c t .  For  example, K a i s e r ' s i n i t i a l c o n t r a c t w i t h the Japanese s t e e l m i l l s i n d i c a t e d the annual q u a n t i t y to be shipped as 4.75 However, from 1980  to 1982  m i l l i o n l o n g tons ±5  percent.  the a n n u a l l y n e g o t i a t e d amounts have a c t u a l l y 30  been 4.30  m i l l i o n l o n g tons ±5 p e r c e n t .  For 1983,  t h i s amount f e l l to  31  3.1 m i l l i o n l o n g tons ±5 Second, t h e r e may  percent. be c u t backs on these a n n u a l l y n e g o t i a t e d amounts  d u r i n g the course of the y e a r i f the Japanese d e c i d e t h a t they need l e s s coal.  A l t e r n a t i v e l y , i f the s t e e l m i l l s d i s c o v e r they need more c o a l than  s u p p l i e d by c u r r e n t c o n t r a c t s , they are a b l e to supplement t h e i r  long-term  c o n t r a c t u a l purchases by b u y i n g on the spot market.*  of  Table 8 shows the a n n u a l l y n e g o t i a t e d amounts f o r B.C. 1982  Examination  C o a l from 1976  as compared to the amounts which the Japanese s t e e l m i l l s  purchased.  I t may  be seen t h a t 1980 was  purchased a l l of the c o n t r a c t e d amount.  to  actually  the o n l y y e a r when the Japanese Cut backs a r e p a r t i c u l a r l y  evident  T h i s i s o f t e n the case w i t h American c o a l s u p p l i e r s w i t h whom the Japanese have fewer long-term c o n t r a c t s . The American mines produce a more s p e c i a l i z e d , h i g h q u a l i t y c o a l which the Japanese a p p a r e n t l y p r e f e r to buy on the spot market a c c o r d i n g to t h e i r changing needs f o r t h i s more expensive c o a l . 3 2  71  TABLE 8.  C o n t r a c t e d tonnages v e r s u s a c t u a l purchases from C o a l L t d . by Japanese s t e e l m i l l s , 1976-1982 ( i n m i l l i o n s of l o n g t o n n e s ) .  B.C.  Amount a c t u a l l y purchased  C o n t r a c t e d amount 1976  4.75  (±5%)  4.10  1977  4.75  (±5%)  4.14  1978  4.75  (±5%)  4.07  1979  4.75  (±5%)  3.73  1980  4.30  (±5%)  4.30  1981  4.30  (±5%)  4.00  1982  4.30  (±5%)  3.23  SOURCE:  B.C.  C o a l L t d . , 1983:  p e r s o n a l communication.  f o r 1982 when the Japanese bought o n l y 75 p e r c e n t of c o n t r a c t e d tonnage. Table 9 shows annual amounts purchased L t d . which may  by the Japanese from F o r d i n g C o a l  be compared to the c o n t r a c t e d amount ( i t s h o u l d be  noted  t h a t s t a r t - u p problems and s t r i k e s i n h i b i t e d F o r d i n g from s u p p l y i n g the a n n u a l l y c o n t r a c t e d amount d u r i n g the i n i t i a l y e a r s of the o p e r a t i o n ) . 1983,  B.C.  C o a l shipped 66 p e r c e n t of c o n t r a c t volume and F o r d i n g  In  shipped  34 75 p e r c e n t i n response F i n a l l y , i t was  to Japanese cut  backs.  d i s c o v e r e d t h a t i n extreme cases the Japanese  cancel long-term c o n t r a c t s before t h e i r completion  may  i f the r e s o u r c e s u p p l i e r  i s not c o m p e t i t i v e w i t h r e g a r d to a l t e r n a t e p r o d u c e r s .  This i s accomplished  by r e - n e g o t i a t i n g the c o n t r a c t and e s t a b l i s h i n g a "winding-down" o r 35 "funeral" contract.  One  example of t h i s i s Coleman C o l l i e r i e s whose  o p e r a t i o n s s t r a d d l e d the B.C.  - A l b e r t a border.  The company had a c o n t r a c t  w i t h the Japanese s t e e l i n d u s t r y which c a l l e d f o r the d e l i v e r y of 1.5  million  72  TABLE 9.  C o n t r a c t e d tonnages v e r s u s a c t u a l p u r c h a s e s from F o r d i n g C o a l L t d . by Japanese s t e e l m i l l s , 1972-1982 ( i n m i l l i o n s of metric tonnes). Amount a c t u a l l y purchased  C o n t r a c t e d amount 1972  1  3.0 (±10%)  1.24  1973  1  3.0 (±10%)  1.98  19742  3.0 (±10%)  2.27  1975  3.0 (±10%)  2.91  3.0 (±10%)  1.74  1977  3.0 (±10%)  2.44  1978  3.0 (±10%)  2.69  1979  3.0 (±10%)  2.74  1980  3.0 (±10%)  2.65  1981  3.0 (±10%)  2.81  1982  3.0 (±10%)  2.40  1976  NOTES:  2  J-Year o f 1 ow p r o d u c t i o n l e v e l s due t o i n i t i a l 2 Year o f lower than expected strike.  SOURCE:  s t a r t - u p problems.  p r o d u c t i o n l e v e l s due t o m i n e r s '  F o r d i n g C o a l L t d . , 1983: p e r s o n a l communication.  tonnes o f c o a l a n n u a l l y from 1967 t o 1982. T h i s c o n t r a c t was r e - n e g o t i a t e d i n 1977 and a " f u n e r a l c o n t r a c t " e s t a b l i s h e d from 1977 t o 1980 t o t e r m i n a t e the r e l a t i o n s h i p between buyer and s e l l e r .  The o r i g i n a l c o n t r a c t was wound  up because Coleman was n o t c o m p e t i t i v e due t o :  low q u a l i t y r e s e r v e s , a  l o n g d i s t a n c e between mine and p r e p a r a t i o n p l a n t , and a need f o r new c a p i t a l 36 investment  t o make t h e o p e r a t i o n v i a b l e .  Another example i s t h e Smokey  R i v e r C o a l mine owned by M c l n t y r e Mines and l o c a t e d a t Grand Cache i n Alberta.  T h i s company had a c o n t r a c t t o produce m e t a l l u r g i c a l c o a l f o r  the Japanese s t e e l m i l l s u n t i l 1983, b u t t h e Japanese r e c e n t l y stepped i n  73  and n e g o t i a t e d a f u n e r a l c o n t r a c t from 1982  to 1984  to t e r m i n a t e  . . r e l a t i o n s h i p because o p e r a t i o n s were not (ii) I t was  the  37  competitive,  S t a b i l i t y of P r i c e found t h a t t h e r e a r e two ways whereby c o a l p r i c e i s d e t e r -  mined but i n n e i t h e r case w i l l a s e t p r i c e n e c e s s a r i l y be adhered to f o r the d u r a t i o n of the c o n t r a c t . produced by new  I n the f i r s t  i n s t a n c e , the p r i c e of c o a l  mines i s determined a c c o r d i n g to a "base p r i c e p l u s  e s c a l a t i o n c l a u s e " f o r m u l a which takes i n t o account changes i n the c o s t 38 of i n p u t s such as m a t e r i a l s , l a b o u r , and f u e l . mining  T h i s method of d e t e r -  r e s o u r c e p r i c e s i s used f o r the two newest mines i n the  southeast,  G r e e n h i l l s and L i n e Creek, to h e l p reduce u n c e r t a i n t y f o r the o p e r a t o r 39 d u r i n g the s t a r t - u p p e r i o d . However, t h i s method of p r i c e c a l c u l a t i o n w i l l not be adhered t o i f . . . 40 the d e r i v e d p r i c e d i f f e r s s i g n i f i c a n t l y from the w o r l d p r i c e of c o a l . T h i s may  work to the advantage of e i t h e r p a r t y ; f o r example, d u r i n g  f i r s t f i v e y e a r s of K a i s e r ' s o p e r a t i o n s the p r i c e was  the  determined by a base  p r i c e p l u s e s c a l a t i o n c l a u s e f o r m u l a u n t i l r a p i d i n c r e a s e s i n the p r i c e of o i l i n 1975  meant t h a t the w o r l d p r i c e of c o a l was  from the c o n t r a c t f o r m u l a . t i o n was  f a r above t h a t d e r i v e d  At t h a t p o i n t t h i s method of p r i c e  determina-  r e p l a c e d by annual n e g o t i a t i o n which r e s u l t e d i n a p r i c e r e f l e c t 41  ing  the w o r l d p r i c e of c o a l .  mining  T h i s r e p r e s e n t s the second way  r e s o u r c e p r i c e i n the long-term  of d e t e r -  c o n t r a c t ; t h a t i s , the p r i c e i s  e s t a b l i s h e d d u r i n g the annual n e g o t i a t i o n s and b a s i c a l l y f o l l o w s the world p r i c e .  Thus, i t cannot be s a i d t h a t long-term  p r i c e s t a b i l i t y f o r the s t a p l e  c o n t r a c t s engender  producer.  F i n a l l y , i n d i s c u s s i n g p r i c e d e t e r m i n a t i o n w i t h the c o a l company r e p r e s e n t a t i v e s , another important  element of the Japanese s t r a t e g y  was  74  revealed.  The Japanese i n s i s t on F.O.B. (free-on-board)  p r i c e s because  they h a n d l e a l l s h i p p i n g of the c o a l from Roberts Bank to Japanese p o r t s . * T h i s p r i c i n g arrangement and c o n t r o l over s h i p p i n g g i v e s the Japanese buyers the power to e n f o r c e any d e c i s i o n s they make w i t h r e g a r d to c u t t i n g back on c o n t r a c t e d tonnages. the summer of 1982,  For example, d u r i n g the c o a l cut backs i n  the Vancouver Sun r e p o r t e d the f o l l o w i n g :  Shipments a r e b e i n g d e l a y e d as l o n g as i s f e a s i b l e . Coal c a r r i e r s a t sea a r e b e i n g o r d e r e d t o reduce speed t o d e l a y t h e i r a r r i v a l here.^3 The Japanese s t e e l m i l l s s i m p l y i n f o r m the c o a l company of t h e i r d e c i s i o n to cut back on the n e g o t i a t e d amounts and then send fewer s h i p s to c o l l e c t the c o a l a t Roberts (iii)  Bank.  Concluding  Remarks  I n summarizing, one c o a l company r e p r e s e n t a t i v e suggested  that a  c o n t r a c t i s not always a c o n t r a c t , t h e r e i s no f i x e d r e s o u r c e p r i c e or q u a n t i t y demanded which can be depended upon, and the q u a n t i t y of c o a l s o l d i s b a s i c a l l y determined by how  much the Japanese are prepared  to buy  44 f o r any p a r t i c u l a r y e a r .  However, these c o n c l u s i o n s should be  by a number of o t h e r statements long-term  qualified  which the c o a l company spokesmen made about  c o n t r a c t s w i t h the Japanese.  F i r s t , i t should be p o i n t e d  out  t h a t the c o a l companies much p r e f e r t h i s type of c o n t r a c t u a l p u r c h a s i n g arrangement t o s e l l i n g t h e i r r e s o u r c e s on the spot market. c o n t r a c t s r e p r e s e n t a commitment between buyer and  s e l l e r and serve as a  s t a r t i n g p o i n t f o r the annual n e g o t i a t i o n s c o n c e r n i n g shipped.  Long-term  tonnages to be  T h e o r e t i c a l l y c o n t a c t s c o u l d be cut to zero but  realistically,  F.O.B. means t h a t the p r i c e i s quoted a t the p o i n t of p r o d u c t i o n and does not i n c l u d e the c o s t of t r a n s p o r t . ^ 2  thus  75  as l o n g as o p e r a t i o n s  remain c o m p e t i t i v e ,  there  i s a b a s i c tonnage which  45 the Japanese w i l l buy  annually.  Thus, the e x i s t e n c e  of a l o n g - t e r m  c o n t r a c t p r o v i d e s p r o t e c t i o n f o r the r e s o u r c e s u p p l i e r d u r i n g p e r i o d s economic downturn.  T h i s i s a p t l y i l l u s t r a t e d i n the c u r r e n t  of  situation  where many of the s m a l l e r American mines which s e l l t h e i r c o a l on the market to Japan are h a v i n g t h e i r s a l e s cut by 100  spot  percent, as compared to  the 25 p e r c e n t c u t backs e x p e r i e n c e d on most l o n g - t e r m c o n t r a c t u a l *ments.  arrange-  4 6  Second, a l l of the c o a l company r e p r e s e n t a t i v e s  interviewed  stated  t h a t when the Japanese cut back on c o n t r a c t s  they do  from a l l e s t a b l i s h e d and  For example, a t p r e s e n t t h e i r  t h r e e main c o a l s u p p l y i n g  competitive regions  mines.  so f a i r l y and  equally  around the w o r l d are a l l e x p e r i e n c i n g 47  c o n t r a c t c u t backs of 20 to 30 p e r c e n t . s t a t e d t h a t the Japanese are not  The  company spokesmen a l s o  l i k e l y to c u t back purchases from newly-  e s t a b l i s h e d mines f o r t h i s would s e v e r e l y a f f e c t the p r o f i t margins the most r i s k y stage i n the l i f e of a r e s o u r c e v e n t u r e . events do not  support t h i s s t a t e m e n t .  t h a t the Japanese s t e e l i n d u s t r y has  However,  For example, i t has been f o r m a l l y asked B.C.  during  recent  reported  Coal f o r a reduc-  t i o n , i n the p r i c e of m e t a l l u r g i c a l c o a l from i t s r e c e n t l y completed G r e e n h i l l s mine, even though the c o n t r a c t does not p r o v i d e r e q u e s t- . 4 8  T h i r d , i t s h o u l d be n o t e d t h a t the e x i s t e n c e  f o r such a  of l o n g - t e r m  contracts  p l a y s an i m p o r t a n t r o l e i n f a c i l i t a t i n g a m i n i n g company's a c c e s s to c a p i t a l needed to e s t a b l i s h a new t i o n of market demand and  mine.  Contracts  are taken as an  consequent v i a b i l i t y of the o p e r a t i o n  e n c o u r a g i n g banks t o i n v e s t i n the r e s o u r c e p r o j e c t . l o n g - t e r m c o n t r a c t s were a n e c e s s i t y  I n some  the  indica-  thus instances  i n o r d e r f o r the c o a l mines to b e g i n  76  operation.  Such comments are supported and emphasized  Galway, i n h i s study of Japanese  involvement i n B.C.  by o t h e r s o u r c e s .  copper, c o n c l u d e d  t h a t l o n g - t e r m c o n t r a c t s were regarded by l e n d i n g i n s t i t u t i o n s as a c o n f i dence s u s t a i n i n g f a c t o r which made debt f i n a n c i n g f e a s i b l e . S m i t h , i n l o o k i n g a t l o n g - t e r m c o n t r a c t s and the A u s t r a l i a n c o a l i n d u s t r y  states  t h a t t h i s was a l s o the case f o r many of the mines t h e r e . Thus i t may  be c o n c l u d e d t h a t l o n g - t e r m c o n t r a c t s do not p r o v i d e a  s t a b l e market f o r the r e g i o n a l s t a p l e , a l t h o u g h they do tend to l e s s e n the s e v e r i t y of economic downturns.  I n f u r t h e r support of t h i s f i n d i n g some  d a t a on c o a l p r o d u c t i o n and employment l e v e l s f o r the two major i n the r e g i o n i s p r e s e n t e d .  companies  These companies are chosen because they have  been s u p p l y i n g the Japanese on l o n g - t e r m c o n t r a c t f o r some time whereas Byron Creek C o l l i e r i e s and Crows Nest Resources have o n l y r e c e n t l y begun s u p p l y i n g the P a c i f i c  Rim.  E x a m i n a t i o n of Table 10 shows c o a l p r o d u c t i o n l e v e l s f o r B.C. and the e a r l i e r K a i s e r .  Coal  I t may be seen t h a t p r o d u c t i o n has not been con-  s t a n t or i n c r e a s i n g but has f l u c t u a t e d , p a r t i a l l y i n response to p e r i o d i c c u t backs by the Japanese, the major b u y e r s .  F o r example, cut backs i n  1976 and 1977 due to a d e c l i n i n g demand f o r s t e e l a r e r e f l e c t e d i n lower annual p r o d u c t i o n l e v e l s . i n 1978,  C o n t i n u e d c o n t r a c t cut backs by the  Japanese  1979 and 1981 a r e l e s s e v i d e n t i n o v e r a l l p r o d u c t i o n l e v e l s be-  cause B.C.  C o a l began to expand shipments t o o t h e r customers  (especially  52 Korea) a t t h i s t i m e .  The cut backs of 1982 had such a pronounced  impact  on p r o d u c t i o n l e v e l s because not o n l y the Japanese but a number of o t h e r 53 customers began c u t t i n g back on c o n t r a c t e d tonnages. Table 11 shows c o a l p r o d u c t i o n f i g u r e s f o r F o r d i n g C o a l L t d . and i n d i c a t e s t h a t F o r d i n g has been l e s s a f f e c t e d by c u t backs than B.C.  Coal.  77  TABLE 10.  Annual p r o d u c t i o n l e v e l s f o r K a i s e r / B . C . C o a l L t d . , 1968-1982 ( i n m i l l i o n s o f l o n g tonnes o f c l e a n c o a l ) .  1968/69  approximately  0.446  19701  approximately  1.785  1971  approximately  5.357  approximately  5.357  1  19721  1  19731  4.910  1974  5.714  1975  6.428  1976  2  5.428  1977  2  5.419  1978  5.803  1979  6.607  1980  3  1981 1982  5.267 7.500  2  5.200  F l u c t u a t i n g p r o d u c t i o n l e v e l s due t o i n i t i a l s t a r t - u p 2 C o n t r a c t c u t backs by the Japanese a r e r e f l e c t e d tion levels. 3 . M i n e r s s t r i k e l e d t o lower p r o d u c t i o n l e v e l . SOURCE:  m  problems.  lower  produc-  B.C. C o a l L t d . , 1982: p e r s o n a l communication; B.C.R.I.C. Annual R e p o r t , 1982.  78  TABLE 11.  Annual p r o d u c t i o n l e v e l s f o r F o r d i n g C o a l L t d . , 1972-1982 ( i n m i l l i o n s of l o n g tonnes of c l e a n c o a l ) . 1972  1  1.009  1973  1  2.206  1974  2.012  2  1975 1976  NOTES:  2.833 1.611  2  1977  2.763  1978  2.746  1979  2.876  1980  3.432  1981  3.690  1982  3.940  F l u c t u a t i n g p r o d u c t i o n l e v e l s due t o i n i t i a l s t a r t - u p problems. 2 . Miners  SOURCE:  s t r i k e l e d t o lower p r o d u c t i o n  F o r d i n g C o a l L t d . , 1982:  level.  p e r s o n a l communication.  The company d i d n o t e x p e r i e n c e any major c u t s i n c o n t r a c t s u n t i l 1982 and thus p r o d u c t i o n l e v e l s have been b a s i c a l l y c o n s t a n t o r i n c r e a s i n g . impact of these c u t backs i s n o t apparent i n the 1982 p r o d u c t i o n but i s suggested  when one c o n s i d e r s t h a t t h e planned  The  levels  production l e v e l f o r  t h a t y e a r was 4.35 m i l l i o n tonnes whereas a c t u a l p r o d u c t i o n reached  only  54 3.94 m i l l i o n  tonnes.  The i m p l i c a t i o n s of f l u c t u a t i n g demand and c o n t r a c t c u t backs f o r workers i n t h e s t a p l e s e c t o r a r e i n d i c a t e d i n T a b l e s 12 and 13.  The s i z e  of the B.C. C o a l (and e a r l i e r K a i s e r ) l a b o u r f o r c e has been c o n s t a n t o r i n c r e a s i n g s i n c e 1970 except f o r a d e c l i n e i n 1977, 1982, and 1983. d e c l i n e s were t h e r e s u l t of l a y o f f s due t o c o n t r a c t c u t backs by the  These  79 TABLE 12. Annual size of Kaiser/B.C. Coal Ltd. labour force, 1970-1983 (includes a l l employees on salary and hourly wages). 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983  1  1  1  NOTES:  1384 1377 1517 1653 1871 1888 1896 1774 1794 2058 2065 2153 1912 1479  Contract cut backs by Japanese resulted in worker layoffs.  SOURCE: B.C. Coal Ltd., 1983: personal communication.  TABLE 13. Annual size of Fording Coal Ltd. labour force, 1972-1982 (includes a l l employees on salary and hourly wages). 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 Oct. 1982  614 677 846 917 945 1043 1041 1206 1365 1543 1545  SOURCE: Fording Coal Ltd., 1982: personal communication.  80  Japanese and  consequent lower p r o d u c t i o n  requirements.  workers has been most severe d u r i n g the most r e c e n t were l a i d o f f i n September of 1982,  and  397  The  impact on  c u t b a c k s ; 200  the f o l l o w i n g F e b r u a r y .  have a l s o been d e t r i m e n t a l l y a f f e c t e d by the p e r i o d i c shutdown of Coal's operations  employees  f o r seven weeks i n the f a l l of 1982  and  Workers B.C.  s i x weeks i n the 56  s p r i n g of 1983 The  as an attempt to lower p r o d u c t i o n  f i g u r e s f o r Fording  has not y e t e x p e r i e n c e d any backs.  and  stockpile levels.  Coal L t d . i n d i c a t e that t h e i r labour  a c t u a l l a y o f f s r e s u l t i n g from c o n t r a c t  However, r a t h e r than l a y o f f w o r k e r s , F o r d i n g  has  have o c c u r r e d i n c l u d i n g one about 1500 (b)  Long-term C o n t r a c t s  and  day  and  f o u r f o r 1983; 58  on each  the d i s c u s s i o n now  the  occasion  laidoff.  Regional  Stability  Having examined the workings of l o n g - t e r m c o n t r a c t s and t h a t they do not p r o v i d e  during  A number of temporary shutdowns  i n l a t e 1982  employees are t e m p o r a r i l y  cut  i n s t i t u t e d a "work-  s h a r i n g " program whereby the work week i s s h o r t e n e d by one c u r r e n t p e r i o d of d e c r e a s e d demand.^  force  concluded  a g r e a t d e a l of s t a b i l i t y f o r s t a p l e p r o d u c e r s ,  d e a l s w i t h the e x t e n t to which t h i s i s r e f l e c t e d i n  the s t a p l e s economy.  How  s t a b l e has  the E l k V a l l e y r e g i o n a l economy been  from 1970  to 1982,  the p e r i o d d u r i n g which i t s s t a p l e s e c t o r has  supplying  c o a l on l o n g - t e r m c o n t r a c t f o r the Japanese market?  been  This  will  be a s s e s s e d by examining a number of i n d i c a t o r s of r e g i o n a l economic growth i n c l u d i n g employment l e v e l s , income l e v e l s , p o p u l a t i o n r a t e s , and No labour  construction  f i g u r e s , vacancy  activity.  d e t a i l e d annual data c o n c e r n i n g the c o m p o s i t i o n of the E l k V a l l e y  f o r c e c o u l d be found which would a l l o w one  i n employment l e v e l s f o r v a r i o u s  economic s e c t o r s .  to a s s e s s f l u c t u a t i o n s Some d a t a on  regional  81  unemployment f i g u r e s i s a v a i l a b l e , but o n l y f o r the p e r i o d a f t e r March 59 1979.  E x a m i n a t i o n of t h i s i n f o r m a t i o n  showed d r a m a t i c i n c r e a s e s  number of unemployed i n the r e g i o n between December 1981, 1982. 313  In December of 1979, i n December 1980,  By F e b r u a r y of 1983  464  t h e r e were 283  December  unemployed i n the E l k V a l l e y ,  i n December of 1981,  these f i g u r e s had  and  and  1,182  i n December  was  Q u a r r y i n g " where the number of unemployed r o s e from 5 i n  December 1981,  to 727  i n c r e a s e d by 145  i n F e b r u a r y 1983.  The  number of unemployed miners  times d u r i n g t h i s 14 month p e r i o d r e f l e c t i n g the  of c o n t r a c t cut backs and  subsequent l a y o f f s . *  I n a c t i v i t y i n the  s e c t o r a l s o a f f e c t e d unemployment l e v e l s i n r e l a t e d o c c u p a t i o n s . 14 shows t h a t between December 1981  and F e b r u a r y 1983,  unemployed i n " c l e r i c a l " o c c u p a t i o n s r o s e by 2.4 3.7  t i m e s , i n " t r a n s p o r t a t i o n equipment" 4.1  s e c t o r 2.8  1982.  r i s e n r a p i d l y a g a i n to r e a c h 1,749.  E x a m i n a t i o n of Table 14 shows t h a t the o c c u p a t i o n most a f f e c t e d " M i n i n g and  i n the  times.  unemployment due  Thus i n 1982  t h e r e was  staple Table  the number of  times, i n "construction"  t i m e s , and  i n the  a sudden i n c r e a s e  t o f l u c t u a t i o n s i n the s t a p l e  impact  "service"  in regional  sector.  Table 15 shows income l e v e l s f o r the t h r e e main communities i n the E l k V a l l e y from 1970  to 1980.  A p a r t from a d e c l i n e i n 1978,  regional  incomes have been i n c r e a s i n g throughout the contemporary phase of Valley coal mining.  Indeed, comparison w i t h p r o v i n c i a l f i g u r e s shows t h a t  the E l k V a l l e y incomes have g e n e r a l l y been h i g h e r income.  than the B.C.  T h i s suggests t h a t f o r the p e r i o d from 1970  has been e x p e r i e n c i n g  Elk  a h i g h r a t e of economic growth.  I t s h o u l d be n o t e d t h a t the F e b r u a r y 1983 f i g u r e was the 6 week shutdown of B.C. C o a l ' s o p e r a t i o n s .  t o 1980,  average the  Data i s not  region yet  c o l l e c t e d before  82  TABLE 14. Unemployment figures by occupation for Elk Valley region, 1981-1983.  December 1981  Occupation  TJ i u ni 0 > v  o  i-l rt 4->  o  ^ 1 1 — 1 4 - 1 <D & ,  r  B  a)  o  December 1982 u-icu O >.  o  S-Jt—I a) cu E B a>  r-\ rt W .  o  -U y-i  o  February 1983  O  f  T3 4-i<y - ,  o  Mi—I a) p. flB E a>  I—I rt ^  o  4-1 u-i O  Managerial, Administrative  3  0.7%  9  0 .8%  10  0.6%  Sciences, Engineering  4  1.0%  19  1.7%  25  1.5%  Social Sciences  4  1.0%  2  0 .2%  4  0.2%  Teaching  5  1.2%  12  1.1%  12  0.7%  13  3.1%  17  1.5%  23  1.3%  Art, Literature  1  0.2%  2  0 .2%  1  0.1%  Sport, Recreation  1  0.2%  2  0 .2%  2  0.1%  Clerical  84  20.1%  225  19 .9%  203  11.9%  Sales  22  5.3%  38  3 .4%  42  2.5%  Service  45  10.8%  96  8 .5%  128  7.5%  Farming  3  0.7%  3  0 .3%  8  0.5%  Forestry, Logging  23  5.5%  23  2 .0%  23  1.3%  >Mining, Quarrying  5  1.2%  266  23 .5%  727  42.6%  Processing  64  15.3%  26  2.3%  24  1.4%  Machining  10  2.4%  30  2 .7%  28  1.6%  Fabricating  21  5.0%  33  2.9%  45  2.6%  Construction  78  18.7%  255  22 .6%  293  17.2%  Transportation Equipment  17  4.1%  54  4 .8%  70  4.1%  Materials Handling  9  2.2%  9  0 .8%  21  1.2%  Other craft equipment  1  0.2%  2  0 .2%  4  0.2%  Occupation not stated  5  1.2%  7  0 .6%  15  0.9%  464  100%  1182  100%  1749  100%  Medicine, Health  Total  SOURCE: Compiled from Canada, Employment and Immigration, "U.I. Unemployed by Canada Employment Centre", 1979-1983 (unpublished information).  TABLE 15.  0  Average income o f tax f i l e r s  1970  1971  $6,745  $7,669  N.A.  $9,103  $10,337  $12,581  $11,184  $14,680  $12,594  $15,548  $18,784  Sparwood  5,474  7,011  $7,667  8,393  10,117  12,276  12,294  14,630  12,837  15,152  17,277  Fernie  6,005  6,535  ' 6,747  7,565  8,419  10,804  11,232  13,055  12,171  13,856  16,522  P r o v i n c e o f B.C.  5,842  N.A.  6,886  7,798  9,002  10,006  11,276  11,929  12,045  13,277  15,337  Elkford  SOURCE:  1972  f o r E l k V a l l e y communities and the p r o v i n c e of B.C., 1970-1980.  1973  1974  1975  1976  1977  1978  1970-76 E l k V a l l e y d a t a from Revenue Canada, 1983: p e r s o n a l communication; 1970-76 B.C. d a t a from Revenue Canada, T a x a t i o n S t a t i s t i c s , 1973-82 e d i t i o n s ; a l l 1977-80 data from B.C., M i n i s t r y o f I n d u s t r y and Small B u s i n e s s Development, S t a t i s t i c s Bureau, "B.C. T a x a t i o n S t a t i s t i c s 1977 and 1978", "B.C. T a x a t i o n S t a t i s t i c s 1979 and 1980".  1979  1980  84  a v a i l a b l e t o a s s e s s the impact of the r e c e n t c u t backs and l a y o f f s on r e g i o n a l incomes but one can assume t h a t 1982 l e v e l s would be lower  than  those o f p r e v i o u s y e a r s . Table 16 shows p o p u l a t i o n f i g u r e s f o r the t h r e e main communities and f o r the E l k V a l l e y r e g i o n as a whole where a v a i l a b l e .  These f i g u r e s  i n d i c a t e t h a t t h e a r e a has shown a h i g h p o p u l a t i o n growth r a t e d u r i n g t h e p e r i o d under s t u d y .  I n f a c t , t h i s r a t e has been h i g h e r than t h e r a t e o f  growth i n t h e p r o v i n c i a l p o p u l a t i o n .  Between 1966 and 1971 t h e E l k V a l l e y  p o p u l a t i o n i n c r e a s e d by about 55 p e r c e n t whereas B.C.'s p o p u l a t i o n r o s e by o n l y 16 p e r c e n t .  The y e a r s from 1971 to 1976 w i t n e s s e d a 32 p e r c e n t  rise  i n E l k V a l l e y p o p u l a t i o n compared t o a 13 p e r c e n t i n c r e a s e i n t h e B.C. population.^  Thus i n s p i t e of some f l u c t u a t i o n s i n t h e s t a p l e s e c t o r be-  tween 1970 and 1981, t h e r e g i o n has e x p e r i e n c e d an u n u s u a l l y h i g h  TABLE 16.  Contemporary E l k V a l l e y p o p u l a t i o n f i g u r e s . 1966  Elkford  1971  1976  1981  167  1,875  3,126  Sparwood  1,928  2,154  4,050  4,157  Fernie  2,715  4,422  4,608  5,444  Elk Valley region  6,900*  10,725  14,150  NOTES: SOURCE:  N.A.  *Estimated. Compiled from B.C., R e g i o n a l Index of B.C., 1966 and B.C. Index 1978; Canada, 1981 Census of Canada, C a t . 93-910.  Regional  85  p o p u l a t i o n growth r a t e due t o heavy i n - m i g r a t i o n .  More r e c e n t f i g u r e s a r e  not a v a i l a b l e but one would assume t h a t t h e r e g i o n a l p o p u l a t i o n has now s t a b i l i z e d o r p o s s i b l y d e c l i n e d from t h e 1981 l e v e l due t o c o n t r a c t c u t b a c k s , l a y o f f s , and p o s s i b l e  out-migration.  F i n a l l y , l o o k i n g a t vacancy r a t e s and c o n s t r u c t i o n a c t i v i t y from 1970 t o 1982, t h e r e was a s h o r t a g e of accommodation i n t h e r e g i o n  through-  61 out t h e 1970's.  T h i s was p a r t i c u l a r l y pronounced around 1980 when t h e  E l k V a l l e y appears t o have e x p e r i e n c e d a "boom" i n economic a c t i v i t y due t o t h e e x p a n s i o n o f e x i s t i n g c o a l mines and t h e development o f two new mines, G r e e n h i l l s , and L i n e Creek.  These developments r e s u l t e d i n i n -  m i g r a t i o n , a s t r o n g demand f o r r e n t a l accommodation, and a low vacancy r a t e (see T a b l e 17 and n o t e r e s u l t s o f C.M.H.C. vacancy survey f o r October, 1980).  T h i s a c t i v i t y a l s o s e t o f f a boom i n c o n s t r u c t i o n as shown i n  T a b l e 18.  I n 1981 t h e r e o c c u r r e d  a major i n c r e a s e i n t h e v a l u e of b u i l d i n g  p e r m i t s awarded thus i n d i c a t i n g a f l o w o f c a p i t a l i n t o t h e r e g i o n and a TABLE 17.  Apartment vacancy r a t e s f o r E l k V a l l e y communities, 1979-1982*. Oct.  '79  O c t . '80  Nov. '81  Oct.  Elkford  N.A.  0%  N.A.  8.7%  Sparwood  0.6%  0%  0%  7.9%  Fernie  2.0%  0%  1.3%  6.0%  NOTES:  SOURCE:  *Based on C.M.H.C. s u r v e y s o f r e n t a l apartments i n b u i l d i n g s cont a i n i n g 6 o r more u n i t s ; does n o t i n c l u d e s i n g l e detached houses, m o b i l e homes, i n d i v i d u a l s u i t e s i n condominium, n o n - p r o f i t h o u s i n g , and p u b l i c - s p o n s o r e d r e n t a l u n i t s . C.M.H.C, Vancouver and Cranbrook o f f i c e s , a n n u a l apartment vacancy surveys ( u n p u b l i s h e d ) .  86  TABLE 18. Total value of a l l building permits awarded for Elk Valley communities, 1970-1982 (in thousands of dollars)  1970  1971  1972  1973  1974  1975  1976  $720  $1,020  $4,312  $2,211  $5,185  $5,842  $2,706  Sparwood  4,197  3,530  1,457  970  2,870  3,507  1,861  Fernie  1,890  1,551  4,337  616  1,149  3,502  5,535  1977  1978  1979  1980  1981*  1982  $582  2,710  2,546  3,356  13,293  19,614  Sparwood  7,392  4,589  1,170  3,609  17,704  5,527  Fernie  3,903  3,085  2,628  8,849  12,491  N.A.  Elkford  Elkford  NOTES: Construction boom. SOURCE: Compiled from building permit files in Elkford Village Office, Sparwood City Office, and Fernie City Office.  87  heightened  pace of economic a c t i v i t y .  These comments a r e supported  by  a r t i c l e s on E l k f o r d and Sparwood which appeared i n Trade and Commerce Magazine i n May,  1981.  That year E l k f o r d was  f a s t e s t growing c e n t r e i n C o a l Country" of a town shopping  c a l l e d " B r i t i s h Columbia's  and w i t n e s s e d  the  establishment  c e n t r e , a t h i r t y - f i v e a c r e i n d u s t r i a l park, and a  m i l l i o n c o n s t r u c t i o n program to expand and  improve sewage, d r a i n a g e ,  $10 and  62 road f a c i l i t i e s .  Sparwood i n 1981 was  p l a n n i n g the expansion  e x p e r i e n c i n g a housing  boom and  and r e - v i t a l i z a t i o n of i t s commercial c o r e p l u s 63  i d e n t i f y i n g l a n d f o r an i n d u s t r i a l  park.  However, t h i s s i t u a t i o n changed d r a m a t i c a l l y i n 1982. shows t h a t apartment vacancy r a t e s r o s e from 0-1 percent  i n 1982.  The  t i g h t h o u s i n g market.  Table  p e r c e n t i n 1981,  17 to  6-9  r e g i o n no l o n g e r f e a t u r e d a booming economy w i t h a T h i s c o n c l u s i o n i s supported  a C.M.H.C. r e p r e s e n t a t i v e who  by d i s c u s s i o n s w i t h  s t a t e d t h a t the r e s i d e n t i a l u n i t s c o n s t r u c t e d  d u r i n g the 1980/81 boom cannot a l l be f i l l e d and thus the vacancy r a t e has 64 climbed.  Between 1981  and 1982  t h e r e was  an average 10 p e r c e n t d e c l i n e  i n house p r i c e s i n the t h r e e main communities i n the E l k V a l l e y and i n January  of 1983,  F o r d i n g C o a l L t d . lowered  the p r i c e s of the houses i t  o f f e r e d f o r s a l e by $5,000 as an i n c e n t i v e to p u r c h a s e r s . ^ i n demand f o r h o u s i n g  T h i s downturn  i n the r e g i o n i s due to the u n c e r t a i n economic c o n d i -  t i o n s stemming from c o n t r a c t cut backs by the J a p a n e s e . ^ In c o n c l u d i n g , i n s p i t e of some c o n t r a c t cut backs i t may  be seen  t h a t the E l k V a l l e y d i d e x p e r i e n c e a h i g h r a t e of economic growth from 1970 u n t i l 1982. s i g n i n g of new  Indeed, 1980/81 was  a boom p e r i o d a s s o c i a t e d w i t h the  c o n t r a c t s w i t h Korean, Hong Kong, and Taiwanese c u s t o m e r s .  However, the s i t u a t i o n s i n c e 1982  of major c u t s i n c o n t r a c t s by a number of  customers has c r e a t e d i n s t a b i l i t y f o r s t a p l e producers  which i s c l e a r l y  88  m a n i f e s t e d i n the s t a p l e economy by h i g h r e g i o n a l unemployment f i g u r e s , an i n c r e a s e d  vacancy r a t e , and a changed housing  situation.  Thus l o n g - t e r m c o n t r a c t s do not i n d i c a t e the presence of a s e c u r e market f o r a r e g i o n a l s t a p l e and do not r e s u l t i n the d i s a p p e a r a n c e of ' t h e "booms" and " b u s t s " which so o f t e n c h a r a c t e r i z e s t a p l e  economies.  As t o the a s s e r t i o n t h a t t h e s e c o n t r a c t s o f f e r some p r o t e c t i o n f o r s t a p l e s e l l e r s i n times of downturn,  f u r t h e r r e s e a r c h would be needed t o t r a n s -  l a t e t h i s i n t o r e g i o n a l i m p l i c a t i o n s and suggest, f o r example, t h a t regions  operating  w i t h l o n g - t e r m c o n t r a c t s might s u f f e r l e s s severe  economic downturns than those p r o d u c i n g f o r the spot market.  89  C.  The I m p l i c a t i o n s o f Japanese M u l t i p l e - S o u r c i n g The  research  f i n d i n g s appear t o support t h e h y p o t h e s i s  that a  resource  region supplying  sourcing  s t r a t e g y w i l l be more s e n s i t i v e t o changing c o n d i t i o n s o f i t s  competitors  t h e Japanese market as p a r t o f t h e m u l t i p l e -  than a r e g i o n under t h e American r e s o u r c e  procurement s t r a t e g y .  In t h i s s e c t i o n o f t h e c h a p t e r t h e c o m p e t i t i v e n a t u r e of t h e s u p p l y w h i c h m u l t i p l e - s o u r c i n g engenders w i l l be d e s c r i b e d  side  as w e l l as t h e way i n  which Japanese buyers f o s t e r and t a k e advantage o f t h i s s i t u a t i o n .  Second,  the e f f e c t s o f m u l t i p l e - s o u r c i n g f o r s u p p l y i n g r e g i o n s w i l l be d i s c u s s e d and  some e m p i r i c a l examples p r e s e n t e d .  (a)  C o m p e t i t i o n on t h e Supply  With regard  Side  t o t h e s u p p l y and demand s i t u a t i o n f o r m e t a l l u r g i c a l c o a l  i n t h e P a c i f i c Rim t h e r e i s one main market and a number of s u p p l i e r s . Japan i s t h e most i m p o r t a n t p u r c h a s e r f o l l o w e d a t some d i s t a n c e by t h e n e w l y - i n d u s t r i a l i z i n g c o u n t r i e s o f South Korea and Taiwan. a r e too f a r away t o be e c o n o m i c a l l y  European markets  s u p p l i e d t o any g r e a t e x t e n t .  Following  the m u l t i p l e - s o u r c i n g s t r a t e g y Japanese p u r c h a s e r s d i v i d e t h e i r r e q u i r e m e n t s among t h e c o a l p r o d u c e r s o f t h e r e g i o n : Canada, t h e U.S.S.R. and C h i n a . producer, a l s o exports  A u s t r a l i a , the United  States,  South A f r i c a , a l t h o u g h a r e l a t i v e l y  c o a l t o P a c i f i c Rim m a r k e t s .  smaller  T h i s r e s u l t s i n com-  p e t i t i o n between t h o s e s u p p l i e r s t o i n c r e a s e t h e i r share o f t h e Japanese market.  E x a m i n a t i o n o f T a b l e 19 shows t h e p e r c e n t a g e c o n t r i b u t i o n o f each  s u p p l i e r ; t h e s e f i g u r e s may v a r y from year t o year as c o n d i t i o n s i n one r e g i o n change and t h e Japanese p a t r o n i z e an a l t e r n a t e s u p p l i e r .  F o r example,  i n 1978 t h e U.S. c o n t r i b u t i o n t o Japanese i m p o r t s of m e t a l l u r g i c a l c o a l dropped t o 18 p e r c e n t due t o l a b o u r u p h e a v a l c a u s i n g  d i s r u p t i o n s i n supply.  TABLE 19.  Australia's contribution  F o r e i g n s u p p l i e r s o f Japanese c o k i n g c o a l needs, 1970-1981.  USA contribution  Canada s contribution  U.S.S.R. contribution Million tonnes  1  Million tonnes  %  Million tonnes  %  Million tonnes  1970  16.5  34%  25.3  52%  3.2  7%  2.8  1975  22.7  37%  22.4  37%  10.6  18%  1978  24.5  49%  8.8  18%  10.9  1979  26.0  46%  13.4  24%  1980  25.8  42%  19.3  1981  29.2  44%  21.5  SOURCE:  K e i t h A . J . Hay, S.R. H i l l ,  %  %  South A f r i c a ' s contribution  Other suppliers  Total  Million tonnes  %  Million tonnes  6%  0  0  1.0  1%  48.8  100%  3.0  5%  0  0  1.9  3%  60.6  100%  22%  2.1  4%  2.3  4%  1.6  3%  50.2  100%  10.4  19%  2.1  4%  2.3  4%  1.9  3%  56.1  100%  31%  10.5  17%  1.9  3%  2.9  5%  1.5  2%  61.9  100%  32%  9.6  15%  1.1  2%  3.0  5%  1.3  2%  65.7  100%  and S.S. Rahman, Canadian C o a l f o r Japan (Ottawa:  %  Million tonnes  %  Econolynx I n t e r n a t i o n a l L t d . , 1982), p.4.  o  91  In consequence the A u s t r a l i a n , and Canadian shares b o t h i n c r e a s e d as Japanese purchased  the  more from these s u p p l i e r s . ^  Thus t h e c o a l i n d u s t r y s u p p l y i n g Japan i s h i g h l y c o m p e t i t i v e . A l l of t h e c o a l company r e p r e s e n t a t i v e s i n t e r v i e w e d c o n f i r m e d C o a l i t was  this.  At  B.C.  s t a t e d t h a t o p e r a t i o n s must remain c o m p e t i t i v e or the company  r i s k s h a v i n g c o n t r a c t s cut and t h a t volume s u p p l i e d by a more e f f i c i e n t 68  producer.  Spokesmen a t F o r d i n g C o a l emphasized t h a t they l o o k a t the  g l o b a l scene when i d e n t i f y i n g c o m p e t i t o r s .  Indeed, a l l of the companies  o p e r a t i n g i n t h e E l k V a l l e y make e f f o r t s to monitor  c l o s e l y each c o a l  mine around the w o r l d w i t h r e g a r d to c o a l q u a l i t y , p r i c e , t r a n s p o r t i n f r a s t r u c t u r e , and  so f o r t h .  Each company i s competing f o r t h e same major  market y e t t h e r e i s v e r y l i t t l e any one can o f f e r to d i s t i n g u i s h from i t s c o m p e t i t o r s .  itself  C o a l q u a l i t y i s s e t , t h e Japanese e s t a b l i s h t h e  volume they a r e w i l l i n g to buy, and t h e r e a r e c o n s t r a i n t s on the p r i c e a t t a i n a b l e ( t h e Japanese would not accept a p r i c e which i s out of l i n e w i t h t h a t of c o m p e t i t o r s and i t i s u n l i k e l y t h a t a company c o u l d a f f o r d to undercut  p r i c e s and s t i l l earn a normal r e t u r n on  investment).  However, t h e c o a l companies do have a s m a l l degree of c o n t r o l  over  t h e i r r e l a t i v e c o m p e t i t i v e p o s i t i o n w i t h r e g a r d to n o n - f i x e d f a c t o r s of production.  As mentioned p r e v i o u s l y , i t I s e x t r e m e l y important f o r the  Japanese t o r e c e i v e a s t e a d y i n f l o w of raw m a t e r i a l s .  S u p p l i e r s may  t h e r e f o r e be a b l e to improve t h e i r c o m p e t i t i v e p o s i t i o n by p a y i n g  special  a t t e n t i o n t o f a c t o r s such as l a b o u r and t r a n s p o r t a t i o n which might i n t e r r u p t r e s o u r c e p r o d u c t i o n and f l o w .  E f f o r t s i n t h i s d i r e c t i o n were b e i n g made'  by the E l k V a l l e y c o a l p r o d u c e r s .  For example, B.C.  C o a l , i n an attempt  a v o i d l a b o u r d i s p u t e s and decrease  l a b o u r t u r n o v e r r a t e s , has a l a r g e  to  i n d u s t r i a l r e l a t i o n s department and o f f e r s mortgage a s s i s t a n c e encouraging  92  employees t o buy houses i n . t h e a r e a . confirmed  At Crow's Nest Resources i t was  t h a t a h i s t o r y of good management-labour r e l a t i o n s a t t h e mine-  s i t e i s v e r y a t t r a c t i v e t o Japanese b u y e r s . ^  To t h i s end t h e company has  i n s t i t u t e d a " m u l t i p l e - s k i l l i n g " p r a c t i c e where t h e worker i s p a i d ing  t o t h e number of m i n i n g  accord-  s k i l l s he/she can a c q u i r e , and t h e same f r i n g e  b e n e f i t s a r e o f f e r e d t o u n i o n members and management.^  The degree o f  a t t e n t i o n p a i d t o v a r i a b l e f a c t o r s of p r o d u c t i o n , p a r t i c u l a r l y t h e r o l e of l a b o u r , i n d i c a t e s t h e h i g h l y c o m p e t i t i v e n a t u r e of t h e c o a l s u p p l y s i d e . As was h y p o t h e s i z e d  e a r l i e r , Japanese r e s o u r c e buyers a r e a b l e t o  t a k e advantage of t h e c o m p e t i t i v e s i t u a t i o n engendered by m u l t i p l e - s o u r c i n g and p i t one s u p p l i e r a g a i n s t t h e o t h e r .  Each of t h e c o a l company r e p r e -  s e n t a t i v e s i n t e r v i e w e d agreed t h a t t h e Japanese do p l a y company o f f a g a i n s t company, and c o a l r e g i o n a g a i n s t r e g i o n .  Even B.C. C o a l , of w h i c h t h e 72  Japanese a r e p a r t - o w n e r s , i s no l e s s s u s c e p t i b l e t o t h i s p r a c t i c e .  This  " p l a y i n g o f f " of s u p p l i e r s i s p a r t i c u l a r l y n o t i c e a b l e d u r i n g t h e a n n u a l c o n t r a c t n e g o t i a t i o n p e r i o d each March.  The Japanese s t r a t e g y i s t o  e s t a b l i s h a c o a l p r i c e w i t h t h e companies i n one s u p p l y i n g r e g i o n and then negotiate consecutively with other s u p p l i e r s .  They w i l l n o t accept a  p r i c e above t h a t a l r e a d y e s t a b l i s h e d and t h u s each r e g i o n has l i t t l e but t o a c q u i e s c e . i n March, 1983.  T h i s was i l l u s t r a t e d d u r i n g t h e c o a l p r i c e n e g o t i a t i o n s Representatives  of t h e Japanese s t e e l i n d u s t r y n e g o t i a t e d  f i r s t w i t h South A f r i c a n s u p p l i e r s and then w i t h Chinese, accepted  choice  a U.S.$13.00 c u t i n p r i c e p e r tonne.  b o t h of whom  They then n e g o t i a t e d  with  t h e i r American c o a l s u p p l i e r s f o r a p r i c e of US$54.00 p e r tonne and reached the same agreement w i t h A u s t r a l i a n p r o d u c e r s ( e q u i v a l e n t t o a U.S.$12.00 73 cut from t h e p r e v i o u s y e a r ' s p r i c e ) .  A t t h a t p o i n t t h e Japanese began  n e g o t i a t i o n s w i t h t h e w e s t e r n Canadian c o a l mines p r e s s i n g f o r a p r i c e c u t  93  which would b r i n g Canadian c o n t r a c t s  i n l i n e w i t h those a l r e a d y  Thus those p r i c e s were used as l e v e r a g e and  settled.  Canadian s u p p l i e r s had  no  c h o i c e but to a c c e p t a U.S.$13.00 p r i c e cut per tonne i n o r d e r to h o l d onto t h e i r b u s i n e s s w i t h the Japanese. The  Japanese attempt to encourage t h i s c o m p e t i t i o n  suppliers.  I t i s obviously  t o t h e i r advantage.  by k e e p i n g the s u p p l y s i d e f a i r l y t r a n s p a r e n t . steel industry publishes  an i n f o r m a t i o n  which shows c o n t r a c t and  other pertinent  One  way  between c o a l t h i s i s done i s  For example, the Japanese  source e n t i t l e d The  A p p a r e n t l y t h i s i s a market p l o y e n a b l i n g  information  Tex  Report  f o r each s u p p l i e r .  s u p p l i e r s t o f i n d out  t h e i r c o m p e t i t o r ' s p o s i t i o n and  improve t h e i r own  operation  t h e r e b y encouraging c o m p e t i t i o n  amongst c o a l suppliers.''"'  about  accordingly,  F u r t h e r m o r e , i t has been a l l e g e d t h a t the Japanese f o s t e r c o m p e t i 76 t i o n by encouraging o v e r - c a p a c i t y s t r a t e g y was explanation  o f f e r e d by one  on the s u p p l y s i d e .  Indeed t h i s  c o a l company r e p r e s e n t a t i v e as a  of the m o t i v e s behind Japanese i n t e r e s t i n B r i t i s h Columbia's  n o r t h e a s t c o a l development p r o j e c t ; t h a t i s , the Japanese may i n g t o encourage an o v e r - s u p p l y s i t u a t i o n f o r c o a l i n B.C. P a c i f i c Rim  possible  and  be a t t e m p t i n the  t h e r e b y a f f o r d i n g the Japanese as major buyers g r e a t e r  i n playing region off against  region.  Dramatic e v i d e n c e of t h i s o v e r - s u p p l y s i t u a t i o n c o a l i s found i n a 1983  power  for metallurgical  study by H a l v o r s o n f o r e c a s t i n g c o a l m i n i n g  activity.^  E x a m i n a t i o n of T a b l e 20 shows t h a t Japanese s t e e l i n t e r e s t s  have c r e a t e d  t h i s s i t u a t i o n by l e t t i n g out c o n t r a c t s  they r e q u i r e .  For example, f o r 1985  f o r more c o a l than  i t i s e s t i m a t e d t h a t the Japanese  w i l l need t o import 60 m i l l i o n tonnes of m e t a l l u r g i c a l c o a l .  Based  on  t h e i r t r a d i t i o n a l c o n t r i b u t i o n s , about 36 m i l l i o n tonnes of t h a t amount  94  TABLE 20.  Comparison of f o r e c a s t e d Japanese m e t a l l u r g i c a l c o a l requirements from A u s t r a l i a and western Canada with c o n t r a c t e d amounts ( i n trillions o f tonnes).  1983  Japan's crude s t e e l  B.  C.  D.  production^-  1985  1990  1995  2000  119  132  93  102  108  .'. Amount of c o a l r e q u i r e d Amount supplied d o m e s t i c a l l y  59 4  64 4  71 4  78 4  86 4  Amount needed to be imported  55  60  67  74  82  Amount r e q u i r e d from A u s t r a l i a and Canada^  34  36  36  43  51  Amount required from other s u p p l i e r s ^  21  24  31  31  31  SUPPLY  CONTRACTED AMOUNTS  A  Australia  29  39  37  45  8  45  Western Canada  15  15  16  22  13  22  Total  44  54  53  67  21  67  3  B  4  A  3  B  4  A  3  B  4  SURPLUS Amount required from A u s t r a l i a and Canada  34  34  36  36  36  36  Amount c o n t r a c t e d  44  54  53  67  21  67  10  20  17  31  -15  31  Surplus  NOTES:  from A u s t r a l i a and Canada  Based on c u r r e n t f o r e c a s t s by Japanese S t e e l Industry to 1990, followed by a 2% per year growth to 2000. 2  and the I n t e r n a t i o n a l I r o n and S t e e l Industry  Based on past c o n t r i b u t i o n s to Japanese market and expected f u t u r e performance. Case A assumes that e x i s t i n g c o n t r a c t s due to e x p i r e by t h i s date are not renewed. SOURCE:  Case B assumes that e x i s t i n g c o n t r a c t s due to e x p i r e by t h i s date are renewed. Adapted from H.N. Halvorson Consultants L t d . , F o r e c a s t of Coal Mining A c t i v i t y to 2002 f o r B.C. Hydro and Power A u t h o r i t y , March 1983, p. 37, 39.  95  would come from A u s t r a l i a n and w e s t e r n Canadian s u p p l i e r s . assuming t h a t c o n t r a c t s due  to e x p i r e by t h i s date a r e renewed, the  Japanese w i l l have a c t u a l l y c o n t r a c t e d i n a s u r p l u s of 31 m i l l i o n tonnes. to e x p i r e by 1985  However,  f o r 67 m i l l i o n tonnes.  Even i f one  This r e s u l t s  assumes t h a t c o n t r a c t s  a r e not renewed, the Japanese w i l l have c o n t r a c t e d  17 m i l l i o n tonnes more than they need.  amongst i t s s u p p l i e r s and  t o p l a y weakened s u p p l i e r s o f f a g a i n s t  (b)  The  for  Such a s t r a t e g y ensures t h a t  Japanese i n d u s t r y r e c e i v e s a s t a b l e s u p p l y of raw m a t e r i a l s w h i l s t ening c o m p e t i t i o n  due  height-  f a c i l i t a t i n g Japanese a b i l i t y  each  other.  E f f e c t s f o r C o a l S u p p l y i n g Regions  Japanese m u l t i p l e - s o u r c i n g means t h a t t h e r e i s l e s s s e c u r i t y of market demand f o r any  one  s u p p l i e r than under the American r e s o u r c e p r o -  curement s t r a t e g y where the p e n e t r a t e d r e s o u r c e r e g i o n c o n s t i t u t e s main or o n l y s u p p l i e r .  Demand f o r a r e g i o n ' s  r e s o u r c e w i l l be  the  affected  not o n l y by f l u c t u a t i o n s i n demand f o r the f i n a l p r o d u c t , but a l s o by changes i n the c o m p e t i t i v e  p o s i t i o n of t h a t r e g i o n r e l a t i v e to Japan's  other s u p p l i e r s .  c o n f i r m e d by one  t a t i v e s who  T h i s was  a t t e s t e d t h a t i f one  of the c o a l company r e p r e s e n -  s u p p l i e r i s performing poorly,  Japanese w i l l wind down purchases and buy  the  from a more r e l i a b l e s u p p l i e r .  I t s h o u l d a l s o be noted t h a t any  change i n the t o t a l number of  a f f e c t s e x i s t i n g supply regions.  Some e m p i r i c a l examples a r e  suppliers presented  t o i l l u s t r a t e t h e s e themes. Recent d e c l i n e s i n the c o m p e t i t i v e  p o s i t i o n s of A u s t r a l i a n  and  American c o a l s u p p l i e r s a r e a l l e g e d to have a i d e d B r i t i s h Columbia i n i n c r e a s i n g i t s share of the Japanese market. symposium on the P a c i f i c Rim  any  An a r t i c l e f o l l o w i n g a  c o a l t r a d e i n January 1982  declared  that  96  "B.C.  i s now  set to p i c k up b i l l i o n s of d o l l a r s w o r t h of c o a l  as f a l t e r i n g A u s t r a l i a n and U.S. mines and U.S.  has  ienced  s u p p l i e r s face labour  long d e l a y s a t t h e i r c o a l p o r t s . " ' '  poor p o r t c a p a c i t y on i t s west c o a s t and  serious delays i n shipping.  companies had  to pay  p o r t s ; i n 1981  p e r c e n t of c o n t r a c t e d country's ports.  strife in their  reported  that  customers had  For example, i n 1981  the  exper-  Japanese c o a l  about $300 m i l l i o n , i n demurrage charges a t Hampton  Roads c o a l p o r t i n V i r g i n i a . mines and  I t was  8  contracts  A u s t r a l i a i s a l s o s t r i k e prone b o t h a t  A u s t r a l i a n mines were a b l e to s u p p l y o n l y  c o a l due  t o l a b o u r d i s r u p t i o n s a t b o t h of  B.C.'s c o a l h a n d l i n g  port apparently  the  80  the  b e n e f i t t e d from  t h e s e problems as Japanese s h i p s were d i v e r t e d from A u s t r a l i a n and  U.S.  79 p o r t s to c o l l e c t c o a l from R o b e r t s Bank. In t h i s instance  i t may  be c l e a r l y seen t h a t v a r i a b l e f a c t o r s of  production,  l a b o u r and  t r a n s p o r t a t i o n , were r e s p o n s i b l e  competitive  p o s i t i o n of A u s t r a l i a n and American s u p p l i e r s .  Japanese c o a l buyers t u r n e d t h e i r a t t e n t i o n to B.C. c i p a n t s a t the symposium, "....B.C.'s l a b o u r t o t h a t of A u s t r a l i a and  f o r weakening  the  I n consequence  According to  parti-  c l i m a t e i s s t a b l e compared  i t s r a i l t r a n s p o r t a t i o n i s the most e f f i c i e n t i n  8 0 the w o r l d . "  Furthermore i t has  been suggested t h a t t h e s e f a c t o r s  encouraged the development of B.C.'s n o r t h e a s t c o a l mines as w e l l as mines i n the E l k V a l l e y .  The  executive vice-president  quoted as s a y i n g ,  "The  because of l a b o u r  s t r i f e i n A u s t r a l i a and 81  problems i n . the  n o r t h e a s t c o a l p r o d u c e r s won  the  the p o r t and  of B.C.  Coal  new was  contracts.... transportation  U.S."  A second example i l l u s t r a t e s t h a t under the m u l t i p l e - s o u r c i n g changes i n the performance of one  strategy  s u p p l i e r coupled w i t h a d e c l i n e i n demand  f o r the f i n a l product can. a f f e c t a l l s u p p l y i n g  regions.  D u r i n g 1981/82 the  97  Japanese s t e e l m i l l s i n c r e a s e d  t h e i r p u r c h a s e of American c o a l on t h e spot  market i n a n t i c i p a t i o n of renewed l a b o u r  problems i n t h e A u s t r a l i a n c o a l  82 fields.  Thus American s u p p l i e r s b e n e f i t t e d from a p e r c e i v e d  the c o m p e t i t i v e  p o s i t i o n of A u s t r a l i a n c o a l p r o d u c e r s .  decline i n  However, t h e a n t i -  c i p a t e d l a b o u r problems d i d not m a t e r i a l i z e , p l u s g l o b a l demand f o r s t e e l began t o d e c l i n e s h a r p l y .  The Japanese d i s c o v e r e d  t h a t they had o v e r -  purchased and began t o c u t back on c o n t r a c t s w i t h a l l s u p p l i e r s i n t h e summer of  1982.^  F i n a l l y , an a d d i t i o n t o t h e number of raw m a t e r i a l s o u r c e s on w h i c h the Japanese depend i n t e n s i f i e s c o m p e t i t i o n  f o r a l l supplying  regions.  For example, Byron Creek C o l l i e r i e s i n i d e n t i f y i n g i t s c o m p e t i t o r s b o t h p r e s e n t and f u t u r e t h e r m a l c o a l m i n e s . ^ *  includes  The emergence of a new  m a t e r i a l s o u r c e i n t h e form of B.C.'s n o r t h e a s t c o a l development  raw  will  a f f e c t t h e o v e r a l l s u p p l y and demand p i c t u r e f o r t h e P a c i f i c Rim c o a l  trade.  T h i s p r o j e c t w i l l be p r o d u c i n g about 7 m i l l i o n tonnes of m e t a l l u r g i c a l c o a l for  Japan and w i l l mean an i n c r e a s e d  to p l a y o f f a g a i n s t  each  number of s u p p l i e r s f o r t h e Japanese  other.  The impact of t h i s i n c r e a s e  i n c o a l s u p p l y becomes v e r y s e r i o u s i n  the p r e s e n t s i t u a t i o n of d e c l i n i n g demand f o r m e t a l l u r g i c a l c o a l .  As  T a b l e 21 shows, Japanese s t e e l o u t p u t has been g r a d u a l l y d e c l i n i n g s i n c e i t s peak i n 1973 and i s u n d e r s t o o d t o be e n t e r i n g a l o n g - t e r m and  permanent  phase of d e c l i n e ; f o r example, t h e i n f l u e n t i a l Japanese M i n i s t r y of I n t e r n a t i o n a l Trade and I n d u s t r y  ( M . I . T . I . ) , has been d i s c o u r a g i n g domestic 86 investment i n s t e e l s i n c e 1974. However, i n t h e s h o r t - t e r m t h e r e has  Seven new t h e r m a l c o a l mines a r e proposed i n the a r e a of A l b e r t a west of Edmonton. A l l w i l l be s u p p l y i n g p r i m a r i l y t h e P a c i f i c Rim.85  98  TABLE 21. Japanese c o k i n g c o a l r e q u i r e m e n t s i n r e l a t i o n t o s t e e l p r o d u c t i o n , 1970-1983 ( i n m i l l i o n s o f t o n n e s ) . Imported c o k i n g c o a l  Crude s t e e l  production  1970  46.73  93.32  1971  43.47  88.56  1972  43.78  96.90  1973  53.72  119.32  1974  58.90  117.13  1975  57.82  102.31  1976  56.45  107.40  1977  56.27  102.40  1978  48.95  102.11  1979  52.15  111.75  1980  58.31  111.40  1981  66.60  112.00  1982  N.A.  99.55  1983  N.A.  92.50  NOTES: SOURCE:  ''Estimated by Japan I r o n and S t e e l F e d e r a t i o n . 1970-1981 f i g u r e s from K e i t h A . J . Hay, S.R. H i l l , and S.S. Rahman, Canadian C o a l f o r Japan (Ottawa: Econolynx I n t e r n a t i o n a l L t d . , 1982), p. 27, 31; 1982 and' 1983 f i g u r e s from Vancouver Sun, J a n . 19, 1983, p. F7 as quoted by Japan I r o n and S t e e l F e d e r a t i o n .  99  been a sudden and u n a n t i c i p a t e d d e c l i n e i n s t e e l p r o d u c t i o n the g l o b a l r e c e s s i o n and a drop i n t h e demand. 1982 led  stemming from  Total s t e e l production f o r  was i n i t i a l l y planned t o r e a c h 115 m i l l i o n tonnes but lowered demand to a revised production -  j  a c t u a l l y produced.  s c h e d u l e and o n l y 93.5 m i l l i o n tonnes were  87  As p r e v i o u s l y mentioned, t h i s d e c l i n e i n demand f o r s t e e l has l e d the Japanese t o c u t back on c o n t r a c t s w i t h a l l s u p p l i e r s . w i l l be aggravated when n o r t h e a s t  c o a l begins production  This  situation  i n 1984. F o r  example, B r i t i s h Columbia i s c u r r e n t l y i n t h e i r o n i c p o s i t i o n of h a v i n g i t s c o a l i n d u s t r y c a p a c i t y doubled w h i l s t o n e - t h i r d o f t h e i n d u s t r y ' s 88 w o r k f o r c e has been l a i d o f f due t o poor m a r k e t s .  Multiple-sourcing i n  t h i s i n s t a n c e means t h a t a d e c l i n i n g demand f o r t h i s raw m a t e r i a l must be shared amongst an i n c r e a s e d number of s u p p l i e r s and thus c u t backs w i l l be more s e v e r e than would have been t h e case i f t h e n o r t h e a s t had n o t been d e v e l o p e d .  coal project  The s e c u r i t y of market demand f o r a l l s u p p l y i n g  r e g i o n s has been t h r e a t e n e d  not o n l y by a d e c l i n e i n demand f o r t h e f i n a l  p r o d u c t , but a l s o by t h e emergence of a new s u p p l i e r under t h e Japanese multiple-sourcing  strategy.  100  D.  The  I m p l i c a t i o n s of Japanese Consortium Resource  The  research  tium r e s o u r c e  f i n d i n g s appear to s u p p o r t the h y p o t h e s i s  purchasing  r e g i o n a l resource  Purchasing that consor-  r e s u l t s i n l e s s than e q u i t a b l e r e t u r n s f o r  the  as i s the case under the American s t r a t e g y w h i c h p e r m i t s  transfer pricing.  Consortium p u r c h a s i n g  means t h a t one  or two of the  nine  Japanese s t e e l m i l l s a c t as r e p r e s e n t a t i v e s of the i n d u s t r y as a whole and negotiate Two  the annual c o n t r a c t s w i t h each c o a l s u p p l i e r around the  of the s t e e l m i l l s , Nippon Kokan and Kobe" (N.K.K.), r e p r e s e n t  i n n e g o t i a t i n g and southeastern  B.C.  world. the  nine  c o o r d i n a t i n g a l l m e t a l l u r g i c a l c o a l purchases from and  the new  northeast  coal project.  l a r g e s t Japanese s t e e l p r o d u c e r , c o o r d i n a t e s  Nippon S t e e l , the  purchases from A u s t r a l i a n and  89 American s u p p l i e r s .  These n i n e s t e e l m i l l s always a c t i n  and a r e the same u n i t which owns 33 p e r c e n t of B.C.  conjunction  C o a l and has a combined 90  10 p e r c e n t e q u i t y i n the Q u i n t e t t e mine of the n o r t h e a s t  coal project.  Two  Japanese u t i l i t y c o n s o r t i a , Japan Coal Development C o r p o r a t i o n  (J.C.D.C.)  and  the E l e c t r i c Power Development Company ( E . P . D . C ) , a r e r e s p o n s i b l e f o r  c o o r d i n a t i n g purchases of t h e r m a l c o a l from the E l k V a l l e y . T h i s manner of p u r c h a s i n g t i o n , of Japanese s o c i e t y and business.  One  raw m a t e r i a l s r e f l e c t s the group o r i e n t a -  i s seen i n , numerous a s p e c t s of Japanese  c o a l company spokesman e x p l a i n e d  t h a t d u r i n g annual  t i o n s w i t h the Japanese i t must be remembered t h a t one  negotia-  i s d e a l i n g not  an i n d i v i d u a l but w i t h a group w h i c h w i l l have reached a consensus  with  before-  91 hand.  Moreover, once t h i s group makes a d e c i s i o n , they adhere to i t and 92  the customer must behave a c c o r d i n g l y or r i s k l o s i n g the  business.  What a r e the i m p l i c a t i o n s of t h i s manner of r e s o u r c e c o a l producers?  buying f o r  Keeping i n mind the b a s i c s u p p l y and demand s i t u a t i o n  the m u l t i p l e - s o u r c i n g s t r a t e g y p r e v i o u s l y d e s c r i b e d ,  i t i s argued t h a t  the and  101  c o n s o r t i u m p u r c h a s i n g complements m u l t i p l e - s o u r c i n g buyers i n t a k i n g advantage of the c o m p e t i t i v e  and  coal supply s i t u a t i o n .  Japanese a r e a b l e t o p r e s e n t a u n i f i e d b a r g a i n i n g  p o s i t i o n to  so t h a t not o n l y a r e c o a l p r o d u c e r s i n the P a c i f i c Rim major n a t i o n a l market, but  The  suppliers  competing f o r  one  they a r e a l s o competing to do b u s i n e s s w i t h  p u r c h a s i n g u n i t i n t h a t market.  conditions  purchases i n c o n t r a c t s w i t h the weak, fragmented, and The  one  T h i s i n s t i t u t i o n a l arrangement a l l o w s  buyers a g r e a t d e a l of power i n s e t t i n g the terms and  separated coal s u p p l i e r s .  a i d s Japanese c o a l  of  the.  their  geographically  f o l l o w i n g d e s c r i p t i o n of the  Australian  c o a l i n d u s t r y a p p l i e s e q u a l l y w e l l to the s i t u a t i o n of c o a l s u p p l i e r s  in  the E l k V a l l e y : ...fragmented A u s t r a l i a n e x p o r t e r s were p l a c e d i n a weak b a r g a i n i n g p o s i t i o n by the o r g a n i z e d and u n i t e d p u r c h a s i n g p o l i c i e s of Japanese i m p o r t e r s . T h i s problem was seen to be p a r t i c u l a r l y a c u t e i n the c o a l t r a d e where a c o n s o r t i u m of Japanese s t e e l m i l l s n e g o t i a t e d s e p a r a t e l y w i t h the i n d i v i d u a l A u s t r a l i a n c o a l producers.93 F u r t h e r e v i d e n c e was  p r o v i d e d through the I n t e r v i e w s .  c o n s o r t i u m r e s o u r c e p u r c h a s i n g a f f e c t e d t h e i r p o s i t i o n , one s t a t e d t h a t customers who obtain  the c o n d i t i o n s  negotiate  When asked  how  respondent  as a group have much more power to  they want than i f they were n e g o t i a t i n g  as  individual  94 companies w i t h each s u p p l i e r . s u p p l i e r , a t a d i s a d v a n t a g e and  Group p u r c h a s i n g p u t s each fragmented enables the c o n s o r t i u m to p r a c t i s e monopoly  95 pricing.  T h i s comment i s supported by statements made by W a l t e r  the c h i e f e x e c u t i v e of B.C.  C o a l , who  suggests t h a t B.C.  mines a r e  g e t t i n g a h i g h enough p r i c e f o r t h e i r c o a l i n the c o n t r a c t s  Riva, not  stemming from  96 1980. V a l l e y may  I n consequence i t was  i n d i c a t e d t h a t the c o a l r e g i o n of the 97 not be g e t t i n g a f a i r r e t u r n f o r i t s r e s o u r c e s .  Elk  102  FOOTNOTES  1.  B.C.  C o a l 1982:  2.  Ibid.  3.  M.H. W a t k i n s , "A S t a p l e Theory of Economic Growth", i n Approaches t o Canadian Economic H i s t o r y , ed. W.T. E a s t e r b r o o k and M.H. Watkins ( T o r o n t o : M a c m i l l a n Company of Canada L t d . , 1978), p. 55.  4.  Adapted from: Canada, Energy, Mines, and R e s o u r c e s , M i n e r a l P o l i c y A D i s c u s s i o n Paper, 1981, p. 115.  5.  B.C., M i n i s t r y of I n d u s t r y and S m a l l B u s i n e s s Development, Manufact u r e r s ' D i r e c t o r y 1982-83, P a r t I I I , p. 4, 12; and B.C. C o a l 1982: p e r s o n a l communication.  6.  B.C., M i n i s t r y of I n d u s t r y and S m a l l B u s i n e s s Development, B r i t i s h Columbia's C o a l Development B u s i n e s s O p p o r t u n i t i e s , 1981, pp. 12-15.  7.  I b i d . , p. 12.  8.  Canada, Energy, Mines and R e s o u r c e s , M i n e r a l P o l i c y - A D i s c u s s i o n Paper, 1981, p. 113.  9.  B.C.  C o a l 1982:  p e r s o n a l communication.  p e r s o n a l communication.  10.  P.E. N i c k e l et a l . , Economic Impacts and L i n k a g e s of t h e Canadian M i n i n g I n d u s t r y ( K i n g s t o n : C e n t r e f o r Resource S t u d i e s , Queens U n i v e r s i t y , 1978), p. 115.  11.  Canada, Energy, M i n e s , and R e s o u r c e s , M i n e r a l P o l i c y - A D i s c u s s i o n Paper, 1981, p. 114.  12.  B.C.  13.  Canada, Energy, M i n e s , and R e s o u r c e s , M i n e r a l P o l i c y - A D i s c u s s i o n Paper, 1981, p. 114.  14.  Rod N u t t , " C o a l harbour v i e w g i r d l e s the g l o b e , " i n Vancouver F e b r u a r y 13, 1982, p. C I .  15.  Westshore T e r m i n a l s L t d . 1982:  16.  Byron Creek C o l l i e r i e s 1982:  17.  Canada, Energy, M i n e s , and R e s o u r c e s , M i n e r a l P o l i c y - A D i s c u s s i o n P a p e r , 1981, p. 115.  18.  I b i d . , p. 113, 115.  C o a l 1982:  p e r s o n a l communication.  Sun,  p e r s o n a l communication. p e r s o n a l communication.  103  19.  B.C. C o a l , Byron Creek C o l l i e r i e s , Crows Nest R e s o u r c e s , F o r d i n g C o a l 1932: p e r s o n a l communication.  20.  K e i t h A . J . H i l l , S.R. H i l l , S.S. Rahman, Canadian C o a l f o r Japan (Ottawa: Econolynx I n t e r n a t i o n a l L t d . , 1982), p. 26.  21.  Crows Nest Resources 1982:  22.  B.C., M i n i s t r y o f Economic Development, E v a l u a t i o n o f Coke M a n u f a c t u r e i n B r i t i s h Columbia by H.N. H a l v o r s o n C o n s u l t a n t s L t d . , 1976.  23.  B.C. C o a l , The Energy L i n e , A p r i l 1982.  24.  Thomas I . Gunton, Resources, R e g i o n a l Development, and P r o v i n c i a l P o l i c y : A Case Study o f B r i t i s h Columbia (Ottawa: Canadian C e n t r e f o r P o l i c y A l t e r n a t i v e s , 1982), p. 17-22.  25.  B r i t i s h Columbia Resources Investment C o r p o r a t i o n , A n n u a l . R e p o r t , 1981 and 1982. The f o l l o w i n g d i s c u s s i o n i s based on t h e s e a n n u a l r e p o r t s .  26.  Janeen Bowes, "Byron Creek C o l l i e r i e s " , Byron Creek C o l l i e r i e s , 1982.  27.  Rod N u t t , " L a t e s t c o a l p r i c e s u n s a t i s f a c t o r y . . . " , i n Vancouver Sun, Sept. 21, 1982, p. C5.  28.  B r i t i s h Columbia Resources Investment C o r p o r a t i o n ( B . C . R . I . C ) , " P r o s p e c t u s Summary", 1982, p. 21, (emphasis m i n e ) .  29.  B.C. C o a l 1982:  30.  Ibid.  31.  B.C.R.I.C, " F i r s t Q u a r t e r R e p o r t " , 1983.  32.  F o r d i n g C o a l L t d . 1982:  33.  B.C. C o a l 1982: . p e r s o n a l communication.  34.  H.N. H a l v o r s o n C o n s u l t a n t s L t d . , F o r e c a s t o f C o a l M i n i n g A c t i v i t y t o 2002 f o r B.C. Hydro and Power A u t h o r i t y , March 1983, p. 48.  35.  B.C. C o a l 1982:' p e r s o n a l communication.  36.  Coleman C o l l i e r i e s  37.  B r i a n K i e r a n , " C o a l town i n A l b e r t a a w a r n i n g f o r B.C.", i n Vancouver Sun, Nov. 13, 1982, p. DI.  38.  B.C. C o a l 1982:  39.  Ibid.  40.  Crows Nest Resources 1982:  p e r s o n a l communication.  p e r s o n a l communication.  1982:  p e r s o n a l communication.  p e r s o n a l communication.  p e r s o n a l communication.  p e r s o n a l communication.  104  41.  B.C. C o a l 1982: p e r s o n a l communication.  42.  P e t e r E. L l o y d and P e t e r D i c k e n , L o c a t i o n i n Space (New Y o r k : and Row, 1977), p. 182.  43.  Geoff Murray, "Japan's s t e e l m i l l s o v e r - e s t i m a t e d need f o r c o a l , " i n Vancouver Sun, Aug. 18, 1982.  44.  Byron Creek C o l l i e r i e s 1982: p e r s o n a l communication.  45.  F o r d i n g C o a l 1982: p e r s o n a l communication.  46.  B.C. C o a l 1982: p e r s o n a l communication.  47.  Geoff Murray, " 1 - m i l l i o n - t o n n e drop i n s a l e s p o s s i b l e , " i n Vancouver Sun, Sept. 18, 1982.  48.  The Globe and M a i l , O c t . 1, 1983, p. B6.  49.  Byron Creek C o l l i e r i e s 1982: p e r s o n a l communication.  50.  M.A. Galway, Japanese Involvement i n B r i t i s h Columbia Copper I n f o r m a t i o n C a n a d a , 1 9 7 5 ) , p. 26.  51.  Ben Smith 1982: p e r s o n a l communication.  52.  B.C. C o a l 1983: p e r s o n a l communication.  53.  B.C. C o a l 1983: p e r s o n a l communication.  54.  F o r d i n g C o a l 1982: p e r s o n a l communication.  55.  B.C. C o a l 1982: p e r s o n a l communication.  56.  Ibid.  57.  F o r d i n g C o a l 1982: p e r s o n a l communication.  58.  F e r n i e F r e e P r e s s , March 2, 1983.  59.  Canada Employment and I m m i g r a t i o n , Vancouver O f f i c e 1983: communication.  60.  Computed from: Canada, S t a t i s t i c s Canada, 1966 census o f Canada, C a t . 92-601 and 1976 census of Canada, C a t . 92-80U  61.  B.C., Department of Economic Development, I n t e r i m P l a n n i n g Agreement S t a f f , A Summary Report of Development P o s s i b i l i t i e s i n the Kootenay R e g i o n , 1976, p. 261.  Harper  (Ottawa:  personal  62. , C r a i g W e i r , "Boom P r o j e c t e d f o r Resource C e n t r e , " i n Trade and Commerce Magazine, May 1981.  105  63.  C r a i g W e i r , " R e g i o n a l C o a l P r o s p e c t s Spark L o c a l Economy," i n Trade and Commerce Magazine, May 1981.  64.  Canada Mortgage and Housing C o r p o r a t i o n (C.M.H.C.), Cranbrook 1982: p e r s o n a l communication.  65.  Ibid.  66.  Ibid.  office  67.  K e i t h A . J . Hay, S.R. H i l l , and S.S. Rahman, Canadian C o a l f o r Japan (Ottawa: Econolynx I n t e r n a t i o n a l L t d . , 1982), p. 5.  68.  B.C.  69. 70. 71.  C o a l 1982:  p e r s o n a l communication.  Ibid. Crows Nest Resources 1982:  p e r s o n a l communication.  Ibid.  72.  B.C.  C o a l 1982:  p e r s o n a l communication.  73.  Rod N u t t , "On the menu: March 19, 1983.  74.  Rod N u t t , " C o a l shipped t o Japan m i l l s a t cheap r a t e , " i n Vancouver Sun, A p r i l 6, 1983, p. C7.  75.  Crows Nest Resources 1982:  76.  See f o r example: Ben Smith, "The Japanese C o n n e c t i o n - N e g o t i a t i n g A Two-Way S t r e e t " i n A u s t r a l i a ' s Resources F u t u r e , ed. P e t e r H a s t i n g s and Andrew F a r r a n (Melbourne: Thomas N e l s o n A u s t r a l i a P a r t y L t d . , 1978).  77.  H.N. H a l v o r s o n C o n s u l t a n t s L t d . , F o r e c a s t of C o a l M i n i n g A c t i v i t y t o 2002 f o r B.C. Hydro and Power A u t h o r i t y , March 1983, p. 37, 39.  78.  Rod N u t t , "B.C. l e a d s r a c e f o r P a c i f i c Rim c o a l t r a d e , " i n Vancouver Sun, J a n . 19, 1982, p. F l .  79.  Ibid.  80.  Ibid.  81.  Ibid.  82.  B.C.  83.  Rod N u t t , "Charges soar as s t o c k p i l e s of c o a l mount," i n Vancouver Sun, Aug. 25, 1982, p. C6.  84.  Byron Creek C o l l i e r i e s 1982:  $100 m i l l i o n c o a l c u t , " i n Vancouver  Sun,  p e r s o n a l communication.  C o a l and F o r d i n g C o a l 1982:  p e r s o n a l communication.  p e r s o n a l communication.  106  85.  Ibid.  86.  I r a Magaziner and T. Hout, Japanese I n d u s t r i a l P o l i c y S t u d i e s I n s t i t u t e , 1980), p. 46.  87.  Rod N u t t , "Japan s t e e l t a r g e t drops once a g a i n , " i n Vancouver Sun, Sept. 15, 1982.  88.  B.C., M i n i s t r y of Energy, M i n e s , and P e t r o l e u m R e s o u r c e s , B.C. M i n e r a l Q u a r t e r l y , Feb. 1983, p. 3, 6.  89.  Rod N u t t , " S u r p l u s of c o a l 'won't c a n c e l ' B.C. p r o j e c t s , " i n Vancouver Sun, Aug. 26, 1982, p. D I .  90.  Rod N u t t , "Japanese ' b a l k ' a t s h o v e l l i n g funds i n t o c o a l , " i n Vancouver Sun, Nov. 26, 1982, p. E5.  91.  B.C. C o a l 1982:  92.  F o r d i n g C o a l 1982:  93.  Ben Smith, "The Japanese C o n n e c t i o n - N e g o t i a t i n g A Two-Way S t r e e t , " i n A u s t r a l i a ' s Resources F u t u r e , ed. P e t e r H a s t i n g s and Andrew F a r r a n (Melbourne: Thomas N e l s o n A u s t r a l i a P a r t y L t d . , 1978), p. 122.  94.  B.C. C o a l 1982:  95.  F o r d i n g C o a l 1982:  96.  Rod N u t t , " L a t e s t c o a l p r i c e s ' u n s a t i s f a c t o r y ' . . . , " i n Vancouver Sun, Sept. 21, 1982, p. C5.  97.  B.C. C o a l 1982:  (London: P o l i c y  p e r s o n a l communication. p e r s o n a l communication.  p e r s o n a l communication. p e r s o n a l communication.  p e r s o n a l communication.  107  VI.  The  ANALYSIS OF FINDINGS  q u e s t i o n posed at the o u t s e t of t h i s study was,  i m p l i c a t i o n s of the Japanese r e s o u r c e resource differs  and  The  i t was  as such might have a d i f f e r e n t  strategy  hypothesized i n other  a staples resource  the v a r i o u s  we  impact on a s t a p l e s  major c h a r a c t e r i s t i c s of the Japanese s t r a t e g y were d e s c r i b e d t h a t i n some ways t h i s s t r a t e g y c o u l d have p o s i t i v e  r e s p e c t s i t may region.  present  different  s e t s of problems  In t h i s s e c t i o n I summarize the  f i n d i n g s , r e l a t e them to the i n i t i a l  hypotheses, and  research  then t i e together  s t r a n d s of i n f o r m a t i o n to e l u c i d a t e the i m p l i c a t i o n s of  Japanese s t r a t e g y f o r a r e s o u r c e  A.  I suggested that t h i s  i n s i g n i f i c a n t r e s p e c t s from the American s t r a t e g y w i t h which  e f f e c t s , but for  the  procurement s t r a t e g y f o r a s t a p l e  r e g i o n such as the E l k V a l l e y ? "  are more f a m i l i a r and region.  "what are  Summary of Research Looking  first  the  region.  Findings  at the p o s s i b i l i t y f o r domestic entrepreneurs  respond to Japanese market demand and  to  e s t a b l i s h a resource venture,  we  were i n t e r e s t e d i n the d i f f e r e n c e t h i s might make to the development of backward, forward,  and  fiscal  linkages.  With regard  ward l i n k a g e s from E l k V a l l e y c o a l mining i t was apparent d i f f e r e n c e between the p u r c h a s i n g domestic c o a l companies.  found t h a t there  i s r a t h e r tenuous f o r i t  i s based o n l y on g e n e r a l d i s c u s s i o n s w i t h p u r c h a s i n g  agents s i n c e  p a t t e r n s c o u l d not be o b t a i n e d .  cannot e x t r a p o l a t e from t h i s example to the broader i s s u e and t h a t domestic companies do not buy  i s no  p a t t e r n s of the f o r e i g n and  However, t h i s f i n d i n g  comparable data on p u r c h a s i n g  to s t i m u l a t i n g back-  directly  Thus  one  conclude  more i n p u t s from Canadian manufacturers  108  than do f o r e i g n companies. s t u d i e s have c o n v i n c i n g l y  Other f a r more d e t a i l e d and comprehensive determined t h a t d o m e s t i c a l l y - c o n t r o l l e d companies  are indeed more l i k e l y t o purchase i n p u t s from domestic over f o r e i g n 1 sources. I t was a l s o found t h a t backward  l i n k a g e s from c o a l m i n i n g a r e n o t  s t r o n g l y developed i n t h e domestic economy.  Some m a n u f a c t u r i n g of l o w - l e v e l  t e c h n o l o g y i n p u t s does o c c u r i n t h e p r o v i n c i a l and n a t i o n a l economy b u t w i t h r e g a r d to the more s o p h i s t i c a t e d , h i g h - t e c h n o l o g y i n p u t s , Canadian  partici-  p a t i o n i s l i m i t e d t o t h e assembly of i n p u t s manufactured e l s e w h e r e .  These  f i n d i n g s a r e s u p p o r t e d by l a r g e r works d e a l i n g w i t h t h e development  o f back-  ward l i n k a g e s i n the Canadian economy f o r t h e m i n i n g i n d u s t r y as a whole. R e t u r n i n g t o the o r i g i n a l h y p o t h e s i s , what can be i n f e r r e d from t h e s e findings?  I t i s f e l t t h a t a l t h o u g h t h e backward  l i n k a g e s from t h e s t a p l e  s e c t o r a r e i n t h i s case underdeveloped, one cannot i m m e d i a t e l y c o n c l u d e t h a t domestic c o n t r o l does n o t p l a y a r o l e i n s t i m u l a t i n g investment i n domestic input supplying  industries.  F o r example,  i n the case of manufacture of c o a l  m i n i n g equipment i t appears t h a t B r i t i s h and American m a n u f a c t u r e r s g a i n e d the i n i t i a l advantage because the market f o r such p r o d u c t s was q u i t e there.  The Canadian market  i n comparison was s m a l l .  large  Furthermore, c l o s e r  e x a m i n a t i o n of t h e e x t e n t of domestic c o n t r o l of t h e s t a p l e s e c t o r i n t h i s case study r e v e a l s t h a t t h i s c o n t r o l of a major p o r t i o n of t h e i n d u s t r y i s only recent.  The contemporary  phase of c o a l m i n i n g i n t h e E l k V a l l e y was  i n i t i a t e d by K a i s e r , a f o r e i g n - c o n t r o l l e d company which dominated t h e staple industry f o r twelve years.  T h i s company may w e l l have purchased  i n p u t s from f o r e i g n sources e s t a b l i s h e d through the c o n n e c t i o n s of i t s p a r e n t company, K a i s e r S t e e l of C a l i f o r n i a .  I n t h i s way a c c e s s t o t h e c o a l  market would have been r e s t r i c t e d f o r Canadian m a n u f a c t u r e r s .  industry  I t i s only  109  r e c e n t l y (1980) t h a t these major c o a l o p e r a t i o n s purchased by Canadian i n t e r e s t s and the p u r c h a s i n g p a t t e r n s companies i n t e r v i e w e d chasing  of the r e g i o n have been  thus the company may  e s t a b l i s h e d by  i t s predecessor.  following  A l l of the  coal  i n d i c a t e d t h a t they were i n t e r e s t e d i n g r e a t e r  of i n p u t s from Canadian m a n u f a c t u r e r s , but  v e r y few  s t i l l be  i n existence.  One  pur-  found t h a t t h e r e were  r e a s o n b e h i n d t h i s c o u l d be t h a t f o r e i g n c o n t r o l  of the s t a p l e s e c t o r i n the r e c e n t p a s t i n h i b i t e d market a c c e s s f o r Canadian m a n u f a c t u r e r s and p r e s e n t attempts are u n s u c c e s s f u l  due  to an i n a b i l i t y  compete w i t h e x i s t i n g and w e l l - e s t a b l i s h e d f o r e i g n s u p p l i e r s . assuredly  a h o s t of o t h e r e x p l a n a t i o n s  as t o why  would be r e q u i r e d to e l a b o r a t e  on  Canadian  further investigation  these.  I n the case of f o r w a r d l i n k a g e s i t was t i c i n d u s t r i e s which use  There are  t h e r e a r e so few  m a n u f a c t u r e r s of i n p u t s to the c o a l i n d u s t r y ; l e n g t h y  to  the r e g i o n ' s  found t h a t t h e r e are no domes-  m e t a l l u r g i c a l c o a l as an  input.  Canadian c o n t r o l of p a r t of the s t a p l e s e c t o r i n t h i s case does not  appear  to encourage the development of such l i n k a g e s d o m e s t i c a l l y ; b o t h f o r e i g n and Canadian companies are c o n s t r a i n e d processing they can  f o r there  m a t e r i a l s and  attempt to encourage f u r t h e r  i s no Canadian market f o r m e t a l l u r g i c a l c o a l which  supply c o m p e t i t i v e l y .  E l k V a l l e y has  i n any  emerged p u r e l y  The  contemporary c o a l m i n i n g economy of  i n response to a f o r e i g n demand f o r  those f o r e i g n customers are not  r e g i o n a l s t a p l e i n f u r t h e r p r o c e s s e d form.  raw  i n t e r e s t e d i n purchasing  Thus the r e s e a r c h  the  the  findings  suggest t h a t domestic c o n t r o l of the s t a p l e does not ensure the development of f o r w a r d l i n k a g e s from t h a t s e c t o r f o r market c o n s t r a i n t s may any  well  inhibit  such i n t e r e s t on the p a r t of domestic c o n t r o l l e r s . T u r n i n g f i n a l l y to the f i s c a l l i n k a g e s from c o a l m i n i n g , i t was  t h a t domestic c o n t r o l of p a r t of the s t a p l e s e c t o r may  found  l e a d to domestic  110  r e t e n t i o n of the income c r e a t e d  through s t a p l e e x t r a c t i o n .  However, t h i s  does not ensure t h a t the income w i l l be used t o d i v e r s i f y the economy or o t h e r w i s e b e n e f i t the p e o p l e of the p r o v i n c e that staple  who  staple  ultimately  own  resource.  I n summarizing, the Japanese investment s t r a t e g y a l l o w s o p p o r t u n i t i e s f o r domestic c o n t r o l over s t a p l e development.  greater As such i t w i l l  be p r e f e r r e d by economic n a t i o n a l i s t s such as W a t k i n s , L e v i t t , and Gray  who  argue t h a t f o r e i g n c o n t r o l of r e s o u r c e development under the American  strategy  i n h i b i t s the growth of l i n k a g e s from the s t a p l e s e c t o r .  findings  However, the  of t h i s study suggest t h a t domestic c o n t r o l of the s t a p l e cannot n e c e s s a r i l y i n and  of i t s e l f a u t o m a t i c a l l y  from t h a t s e c t o r .  The  generate backward, f o r w a r d , and  fiscal  linkages  d a t a p r e s e n t e d here i n d i c a t e s t h a t t h e r e remain a  number of o t h e r f a c t o r s w h i c h impede domestic development of those l i n k a g e s ; f o r example, h i s t o r i c a l reasons of i n i t i a l advantage, problems of encountered by domestic i n t e r e s t s , market c o n s t r a i n t s , and oh how  s t a p l e income s h o u l d be The  differing  regional  s t a p l e on the b a s i s of l o n g - t e r m c o n t r a c t s would engender economic  quantity t o and  The  opinions  spent.  second h y p o t h e s i s suggested t h a t the purchase of the  f o r the s t a p l e r e g i o n .  competition  research  stability  f i n d i n g s c o n c l u d e d t h a t the p r i c e  and  s p e c i f i c a t i o n s of the l o n g - t e r m c o n t r a c t s were not always adhered  t h a t a d e c l i n e i n demand f o r the f i n a l p r o d u c t d i d produce a d e c l i n e  i n Japanese demand f o r the r e g i o n a l s t a p l e . r e s u l t e d i n s o c i a l and  Such f l u c t u a t i o n s i n demand  economic i n s t a b i l i t y i n the s t a p l e r e g i o n .  Thus the  i m p l i c a t i o n s of the Japanese s t r a t e g y f o r r e g i o n a l economic s t a b i l i t y not much d i f f e r e n t from the f l u c t u a t i o n s i n demand and  i n s t a b i l i t y witnessed  under the American s t r a t e g y of o v e r s e a s r e s o u r c e procurement. existence  of l o n g - t e r m c o n t r a c t s may  w e l l provide  are  However, the  some p r o t e c t i o n f o r  the  Ill  staple industry during  periods  of severe economic downturn and as such a r e  c e r t a i n l y p r e f e r a b l e to s e l l i n g the s t a p l e on the open market. T h i r d , the Japanese p r a c t i c e of m u l t i p l e - s o u r c i n g resource  p u r c h a s i n g was examined.  The r e s e a r c h  and consortium  f i n d i n g s supported the  i n i t i a l hypotheses f o r i t was shown t h a t m u l t i p l e - s o u r c i n g operations and  does render  i n any one s t a p l e r e g i o n more s e n s i t i v e to competing s u p p l i e r s ,  t h a t c o n s o r t i a p u r c h a s i n g from those fragmented s u p p l i e r s weakens the  bargaining  p o s i t i o n of the s t a p l e i n d u s t r y and the r e t u r n s  the r e g i o n a l  B.  received f o r  resource.  The I m p l i c a t i o n s  of the Japanese S t r a t e g y  f o r a Staple  Resource  Region The  objective i n this  s e c t i o n i s to l i n k these f i n d i n g s and demonstrate  how the c h a r a c t e r i s t i c s of the Japanese r e s o u r c e f o r c e each other  to ensure Japanese r e s o u r c e  procurement s t r a t e g y  security.  of the consequences of t h i s s t r a t e g y f o r s u p p l y i n g clearly  rein-  In so doing some  regions  can be more  revealed.  First, preference  i t i s important to examine the m o t i v a t i o n s  f o r not i n v e s t i n g e q u i t y  behind the Japanese  i n overseas r e s o u r c e  v e n t u r e s and the  i m p l i c a t i o n s f o r those domestic o r f o r e i g n i n t e r e s t s who do c o n t r o l the venture.  In encouraging the emergence of overseas r e s o u r c e  Japanese a r e only raw  materials  i n t e r e s t e d i n a c q u i r i n g a secure,  to f e e d Japanese i n d u s t r y .  t i o n s i n t h e i r overseas r e s o u r c e ensuring activity. direct  a s t a b l e supply  uninterrupted  American m u l t i n a t i o n a l  flow of corpora-  v e n t u r e s a r e a l s o p r i m a r i l y concerned w i t h  of r e s o u r c e s  The American s t r a t e g y  s u p p l i e r s , the  f o r parent company manufacturing  i s to ensure v e r t i c a l  investment and c o n t r o l of the f o r e i g n r e s o u r c e  i n t e g r a t i o n through v e n t u r e , and  112  associated i n f r a s t r u c t u r e i f necessary.  The  Japanese, i n c o n t r a s t ,  t h i s aim by e s t a b l i s h i n g l o n g - t e r m c o n t r a c t s w i t h r e s o u r c e r e l y i n g on a number of such s u p p l i e r s around the w o r l d .  s u p p l i e r s and  Japanese  t r i a l i s t s w i l l p r o v i d e debt f i n a n c i n g but w i l l become m i n o r i t y p a r t n e r s o n l y under e x c e p t i o n a l c i r c u m s t a n c e s c r u c i a l to the p r o j e c t ' s s u r v i v a l . buyer and  achieve  indus-  equity  where such p a r t i c i p a t i o n i s  T h i s r e l a t i o n s h i p between  resource  s e l l e r has been termed " q u a s i - i n t e g r a t i o n " as opposed to the  full 2  v e r t i c a l i n t e g r a t i o n achieved  by the American s t r a t e g y of d i r e c t i n v e s t m e n t .  T h i s p r a c t i c e a l l o w s the Japanese to s h i f t a l l c o s t s and  risks  a s s o c i a t e d w i t h d i r e c t investment onto the domestic (or f o r e i g n ) e n t r e p r e n e u r s who  u n d e r t a k e to f i n a n c e and o p e r a t e the r e s o u r c e v e n t u r e and  p r i v a t e or p u b l i c i n t e r e s t s who and of i t s e l f  the  b u i l d the a s s o c i a t e d i n f r a s t r u c t u r e .  t h i s would not appear to be p a r t i c u l a r l y  In  objectionable.  Domestic i n t e r e s t s , to the e x t e n t t h a t they respond to Japanese market demand and are a b l e to s e c u r e c a p i t a l t o e s t a b l i s h the v e n t u r e , w i l l the r i s k s of investment but w i l l a l s o e x p e r i e n c e o p e r a t i o n and a s s o c i a t e d p r o f i t e a r n i n g s . study  suggest t h a t upon c l o s e r e x a m i n a t i o n ,  incur  f u l l c o n t r o l over the  However, the f i n d i n g s of  this  the Japanese s t r a t e g y of  seas r e s o u r c e procurement g i v e s r i s e to a s e t of new  problems which  to i n c r e a s e the c o s t s and r i s k s a s s o c i a t e d w i t h r e s o u r c e  overserves  development i n a  staples region. F o r example, under the American r e s o u r c e  procurement s t r a t e g y  there  would be some s e c u r i t y of market demand f o r the s t a p l e r e g i o n stemming from the f a c t t h a t the v e n t u r e was p a r e n t company and resource.  s p e c i f i c a l l y developed to supply i t s  i s l i k e l y to be the main (or o n l y ) s u p p l i e r of  Under the Japanese s t r a t e g y t h a t r e g i o n would be one  number of competing s u p p l i e r s , a s i t u a t i o n of which Japanese  the  among a  resource  113  purchasers ability  take advantage by p l a y i n g s u p p l i e r s o f f a g a i n s t each o t h e r .  to do t h i s  with resource  i s f a c i l i t a t e d by  suppliers.  meetings to n e g o t i a t e an o p p o r t u n i t y  the r e l a t i o n s h i p of q u a s i - i n t e g r a t i o n  For example, long-term c o n t r a c t s r e q u i r e annual  the s p e c i f i c s of p u r c h a s i n g  f o r Japanese buyers to c o l l e c t  supplier's competitive  position.  The  few  terms and  information.  result  provide the  i n s t a n c e s where Japanese buyers a l s o permit  access  to  Such endeavors are p a r t of the s o p h i s t i c a t e d  Japanese i n f o r m a t i o n g a t h e r i n g suggested, may  these  information concerning  h o l d m i n o r i t y e q u i t y p o s i t i o n s i n the r e s o u r c e venture production  Their  system which, as one  c o a l company spokesman  i n Japanese c o a l buyers knowing more about a c o a l 3  mine t h a t do The  i t s owners.  absence of Japanese e q u i t y investment i n the r e s o u r c e  venture  means there are fewer f a c t o r s c o n s t r a i n i n g a p o s s i b l e t e r m i n a t i o n of r e l a t i o n s h i p between r e s o u r c e  buyer and  seller.  the  Under the American  s t r a t e g y , i f the needed r e s o u r c e becomes a v a i l a b l e on more a t t r a c t i v e terms elsewhere i n the g l o b a l economy a major d e t e r r e n t to r e - l o c a t i o n of operations resource  i s the heavy investment made by the parent  region.  The  company i n the  c o s t s of abandoning, d i s m a n t l i n g , or s e l l i n g  o p e r a t i o n s would c o n s t r a i n such a r e - l o c a t i o n d e c i s i o n .  their  However, under  the Japanese s t r a t e g y where there are g e n e r a l l y no b i n d i n g investment the Japanese can r e - n e g o t i a t e p u r c h a s i n g and b e g i n p a t r o n i z i n g a new  resource  initial  ties  terms, e s t a b l i s h a f u n e r a l c o n t r a c t ,  s u p p l i e r w i t h no  impact on the buyer's  profit position. The consortium  o r g a n i z a t i o n of Japanese r e s o u r c e which s e t s the terms and  have few  i n t o one  strong united  c o n d i t i o n s under which i t i s w i l l i n g  purchase the r e g i o n a l s t a p l e poses a new Because they may  purchasers  challenge  a l t e r n a t e markets and  to  to r e s o u r c e s u p p l i e r s .  are competing w i t h a number  114  of o t h e r  s u p p l i e r s as p a r t of the Japanese m u l t i p l e - s o u r c i n g  strategy,  r e g i o n a l resource  p r o d u c e r s have l i t t l e b a r g a i n i n g power i n d e a l i n g  t h i s consortium.  The  with  i n s t i t u t i o n a l arrangement of Japanese r e s o u r c e  thus i n h i b i t s r e s o u r c e  buyers  s e l l e r s from r e c e i v i n g adequate r e t u r n s f o r the  regional staple. One  of the most i m p o r t a n t ways through which the Japanese s t r a t e g y  of r e s o u r c e  procurement s e r v e s to i n c r e a s e the r i s k s a s s o c i a t e d w i t h  a c t i v i t y i s t h e i r encouragement of o v e r - c a p a c i t y suppliers.  on the p a r t of  staple  resource  T h i s i s a c c o m p l i s h e d i n the case of the c o a l i n d u s t r y  by  w r i t i n g c o n t r a c t s f o r more c o a l than Japanese s t e e l i n t e r e s t s can buy. should be remembered t h a t such " l o n g - t e r m c o n t r a c t s " are o f t e n i n a l l o w i n g resource for  resource  instrumental  d e v e l o p e r s to a c q u i r e the needed investment c a p i t a l  they are seen as an i n d i c a t i o n of a secure market and  viability.  It  consequent p r o j e c t  Thus these c o n t r a c t s p l a y an i m p o r t a n t r o l e i n g e t t i n g the  project started.  However, as Table 20 showed, the Japanese do  r e q u i r e a l l of the c o a l which they c o n t r a c t to buy agreements are not always honoured.  and  F u r t h e r m o r e , any  thus these  not  purchasing  change i n Japanese  demand ( r e s u l t i n g from a d e c l i n e i n the demand f o r the f i n a l p r o d u c t or  the  emergence of a r e l a t i v e l y more e f f i c i e n t p r o d u c e r ) w i l l r e s u l t i n cut backs or the p o s s i b l e winding-down of e x i s t i n g c o n t r a c t s .  Japanese c o n t r o l over  the s h i p p i n g of the raw m a t e r i a l g i v e s the buyer the power to e n f o r c e  such  cut back d e c i s i o n s . T h i s means t h a t r e s o u r c e  developers,  to the e x t e n t  t h a t they used  i n i t i a l c o n t r a c t s as a b a s i s f o r mine d e s i g n and p r o d u c t i o n had been p r o d u c i n g to f u l f i l l  capacity  and  the terms of such c o n t r a c t s , w i l l bear  the  c o s t of unused c a p a c i t y and u n s o l d  coal.  The  owners of the  t r a n s p o r t a t i o n system w i l l be a f f e c t e d by r e v i s e d p r o d u c t i o n  associated l e v e l s and  115  subsequent lowered p a t r o n i z a t i o n of t h e i r s e r v i c e s . be t r a n s l a t e d i n t o l e s s e n e d bility  i n the s t a p l e r e g i o n .  These c o s t s w i l l  job s e c u r i t y f o r workers and F i n a l l y , i f the s t a t e was  economic i n s t a involved i n carrying  or s u b s i d i z i n g the c o s t s of i n f r a s t r u c t u r e development i n the r e g i o n , expected r e t u r n s on investment w i l l be lowered due revenues.  I t may  be  resource  to decreased  seen t h a t the absence of e q u i t y i n v e s t m e n t ,  encouragement of a number of competing s u p p l i e r s , and  then  tax  the  the m a n i p u l a t i o n of  p u r c h a s i n g c o n t r a c t s are m u t u a l l y r e i n f o r c i n g f e a t u r e s of the Japanese s t r a t e g y which e f f e c t i v e l y s h i f t the r i s k s of r e s o u r c e development onto owners of the v e n t u r e and  the i n h a b i t a n t s of the s t a p l e r e g i o n w h i l e  ing the.primary g o a l of e n s u r i n g  a secure i n f l o w of raw m a t e r i a l s  the  achiev-  for  Japanese i n d u s t r y . I f , as has been suggested, p a r t of the m o t i v a t i o n of the n o r t h e a s t c o a l p r o j e c t was over-capacity  and  b e h i n d the  creation  a d e s i r e by the Japanese to encourage  an i n c r e a s e d number of competing s u p p l i e r s i n w e s t e r n  Canada, these f i n d i n g s do not bode w e l l f o r the economic f u t u r e of resource venture.  N o r t h e a s t c o a l may  this  w e l l prove t o be a c o s t l y example of  the r i s k s engendered by the Japanese r e s o u r c e procurement s t r a t e g y ,  aggra-  v a t e d by f a u l t y government d e c i s i o n - m a k i n g . S i n c e the p r o j e c t was to whether t h e r e  .  .  t h i s new  and  f i r s t announced q u e s t i o n s have been r a i s e d  i s s u f f i c i e n t market demand to j u s t i f y the investment i n  .4  isolated coal region.  Nevertheless,  i n t e r e s t s have proceeded w i t h the v e n t u r e . are i n v e s t i n g $1.3  as  The  b i l l i o n to develop the new  government and  B.C.  and  business  f e d e r a l governments  t o w n s i t e , new  port,  railways,  r o a d s , and power l i n e s , and p e o p l e have m i g r a t e d to the r e g i o n t o take p a r t i n the a n t i c i p a t e d economic boom based on coal."' B.C.  One  study c a l c u l a t e s  government s u b s i d y f o r n o r t h e a s t c o a l to amount to $120  the  an annual tonne  116  w h i l s t each j o b i s c o s t i n g t h e government $400,000 t o c r e a t e .  Meanwhile,  e a r l i e r doubts about the a b i l i t y of t h e Japanese market t o absorb t h i s new s u p p l i e r appear t o be v a l i d f o r t h e Japanese s t e e l m i l l s a r e s e e k i n g to b r i n g down t h e p r i c e s t i p u l a t e d i n t h e c o n t r a c t s . ^ and  q u a n t i t y c u t s on t h e v i a b i l i t y o f the r e s o u r c e  trous:  The impact of p r i c e  v e n t u r e would be d i s a s -  m i n i n g companies would n o t get the expected r e t u r n on t h e i r i n v e s t -  ment, lowered p r o d u c t i o n  l e v e l s would mean l e s s than a n t i c i p a t e d t a x  revenues f o r the government, and the workers i n t h e new town would e x p e r i 8  ence economic i n s t a b i l i t y w i t h no o p p o r t u n i t i e s f o r a l t e r n a t e employment.  T u r n i n g now t o o t h e r  i m p l i c a t i o n s of the Japanese s t r a t e g y , some  comments can be made r e g a r d i n g tween r e s o u r c e  t h e r e l a t i o n s h i p of q u a s i - i n t e g r a t i o n be-  buyer and s e l l e r and the e x t e n t t o which t h i s might l e s s e n  the o p p o r t u n i t i e s f o r Canadian m a n u f a c t u r e r s t o supply resource  venture.  i n p u t s t o the  As p r e v i o u s l y suggested, q u a s i - i n t e g r a t i o n p e r m i t s  r e g u l a r c o n t a c t between the two p a r t i e s and a c c e s s t o p r o d u c t i o n I n so d o i n g i t i n c r e a s e s  the l i k e l i h o o d t h a t Japanese i n d u s t r i a l i n t e r e s t s  p a r t i c i p a t i n g i n the purchasing and may o f f e r t o supply  information.  c o n s o r t i u m w i l l be aware o f equipment needs  i n p u t s from w i t h i n t h e i r own d i v e r s e network o f  b u s i n e s s i n t e r e s t s i n Japan.  Hay c o n f i r m s t h i s p o s s i b i l i t y i n acknowledging  t h a t one o f the b e n e f i t s of m i n o r i t y Japanese e q u i t y i n an o v e r s e a s venture i s the opportunity and  which t h i s p r o v i d e s  t o c o l l e c t market  resource  information  t e c h n o l o g i c a l know-how w i t h which t o develop p r o d u c t s s u i t a b l e f o r 9  f o r e i g n markets. One such example where a Japanese m a n u f a c t u r e r was p a t r o n i z e d over a Canadian s u b s i d i a r y of an American company o c c u r r e d contracts f o r stacker-reclaimers  d u r i n g t h e awarding of  t o be used a t the new R i d l e y T e r m i n a l c o a l -  117  handling  p o r t b u i l t f o r the n o r t h e a s t c o a l p r o j e c t .  m i l l i o n c o n t r a c t was " t i m i n g and  t e c h n o l o g y " ; t h i s d e c i s i o n r e s u l t e d i n job and  kept 96 p e r c e n t of i t s s u b - c o n t r a c t s keep o n l y 53.2  w i t h i n Canada whereas M i t s u b i s h i w i l l  s p e c i f i c r e a s o n was  the company a l l o w e d  One  income l o s s f o r  i n d i c a t e d t h a t i t would have  p e r c e n t w i t h i n the c o u n t r y . ^  s i d i a r y s t a t e d t h a t no b i d , nor was  $19  awarded to M i t s u b i s h i Canada L t d . f o r reasons of  Canadians s i n c e the Canadian s u b s i d i a r y had  tender."^  A p p a r e n t l y the  A representative  sub-  g i v e n f o r the r e j e c t i o n Of  an o p p o r t u n i t y  the  to improve i t s b i d and  cannot c o n c l u d e from t h i s t h a t M i t s u b i s h i was  a f a v o u r to the Japanese r e s o u r c e b u y e r s .  of the  re-  patronized  However, i t can be  as  suggested  t h a t the q u a s i - i n t e g r a t i v e r e l a t i o n s h i p w i t h r e s o u r c e s e l l e r s which c h a r a c terizes  the Japanese s t r a t e g y may  w e l l f a c i l i t a t e a c c e s s f o r Japanese  m a n u f a c t u r e r s t o the Canadian market f o r r e s o u r c e equipment. F i n a l l y , some remarks can be o f f e r e d c o n c e r n i n g the Japanese r e s o u r c e procurement s t r a t e g y and  the p o s s i b i l i t y f o r e x p o r t i n g  f u r t h e r p r o c e s s e d form from s t a p l e r e g i o n s .  The  raw m a t e r i a l s  in  l i t e r a t u r e on Japanese  economic p o l i c y r e f e r s to r e c e n t moves to r e s t r u c t u r e Japanese i n d u s t r y 12 and  encourage g r e a t e r o f f s h o r e r e s o u r c e p r o c e s s i n g .  However, upon c l o s e r  e x a m i n a t i o n i t appears t h a t t h i s i s o n l y o c c u r r i n g i n s p e c i f i c and  f o r s p e c i f i c reasons.  Perhaps the most i m p o r t a n t m o t i v a t i o n  r i s e i n the c o s t of imported f u e l s and hence the i n c r e a s e d . 1 3 with processing  i n Japan i t s e l f .  has been most a f f e c t e d by i s a l s o one  industries  increased  One  costs .  i s the associated . .  of the Japanese i n d u s t r i e s which  o i l p r i c e s i s aluminum r e f i n i n g ;  this  of the major examples where Japanese i n d u s t r i a l i n t e r e s t s have  encouraged g r e a t e r p r o c e s s i n g  of the raw m a t e r i a l i n o v e r s e a s r e s o u r c e 14  regions The  and  are p r e p a r e d to purchase the goods i n semi-processed form.  r a t i o n a l e b e h i n d t h i s move i s a d e s i r e to take advantage of abundant  118  yet inexpensive  f u e l and power sources which can be found i n the same l o c a -  t i o n as the raw m a t e r i a l .  For example, a h y d r o - e l e c t r i c power p l a n t  aluminum r e f i n i n g p l a n t are b e i n g b u i l t i n I n d o n e s i a  and  to produce aluminum  i n g o t s f o r the Japanese market, and two huge aluminum s m e l t e r s are  being  developed i n A u s t r a l i a to e x p l o i t b a u x i t e d e p o s i t s and energy supplies."''^ Increased  l o c a l p r o c e s s i n g of raw m a t e r i a l s d e s t i n e d f o r Japan i s  not b e i n g w i t n e s s e d  i n a g r e a t number of o t h e r i n d u s t r i e s .  In the case of  copper m i n i n g , h i g h energy c o s t s have a f f e c t e d the c o m p e t i t i v e p o s i t i o n of s m e l t i n g a c t i v i t y but a p p a r e n t l y  i t s t i l l remains more economical f o r the  Japanese to use domestic c a p a c i t y and copper s m e l t i n g o c c u r r i n g i n B.C.  thus they are r e l u c t a n t to see The  Japanese a l s o appear r e l u c t a n t t o  buy p r o c e s s e d p r o d u c t s of the p r o v i n c i a l f o r e s t i n d u s t r y . the Japanese s a w m i l l i n d u s t r y , s u r c h a r g e s on dressed to maintain export  greater  P r o t e c t i o n of  lumber, and a d e s i r e  t r a d i t i o n a l wood p r o c e s s i n g methods i n h i b i t s B.C.  attempts to  the f o r e s t r y s t a p l e i n a more p r o c e s s e d form t o J a p a n . ^  As  previous-  l y i n d i c a t e d i t seems e x t r e m e l y u n l i k e l y t h a t the Japanese s t e e l i n d u s t r y would change i t s p o l i c y toward c o a l s u p p l i e r s and encourage p r o v i n c i a l p r o d u c t i o n of coke which i t would be p r e p a r e d t o  buy.  I t i s c o n c l u d e d t h a t the Japanese r e s o u r c e procurement s t r a t e g y does s e t c o n s t r a i n t s on the degree of r e s o u r c e o c c u r i n the s t a p l e r e g i o n .  p r o c e s s i n g which i s l i k e l y  Japanese i n d u s t r i a l i n t e r e s t s are  to  basically  concerned w i t h s e c u r i n g s u p p l i e s of raw m a t e r i a l s from o v e r s e a s to produce manufactured goods f o r e x p o r t .  The  success of the Japanese economy stems  from the e f f i c i e n c y of t h i s m a n u f a c t u r i n g s e c t o r and p o s i t i o n of t h e i r e x p o r t s  i n world trade.  the  competitive  As such i t i s u n l i k e l y t h a t  Japanese economic p l a n n e r s would encourage l a r g e - s c a l e d e c e n t r a l i z a t i o n of domestic p r o c e s s i n g c a p a c i t y .  Some f o r w a r d  l i n k a g e s from r e s o u r c e  activity  119  are  b e i n g encouraged  i n f o r e i g n r e s o u r c e r e g i o n s but only under  specific  c i r c u m s t a n c e s where t h a t r e g i o n o f f e r s a c o s t advantage which r e n d e r s traditional  domestic p r o c e s s i n g uneconomical i n comparison.  120  FOOTNOTES  See i n p a r t i c u l a r : Canada, S t a t i s t i c s Canada, c a t . 67-509, Canadian Imports by Domestic and F o r e i g n C o n t r o l l e d E n t e r p r i s e s , 1978. Joseph R. D'Cruz, " Q u a s i - i n t e g r a t i o n i n Raw M a t e r i a l M a r k e t s - The Overseas Procurement of C o k i n g C o a l by the Japanese S t e e l I n d u s t r y " (Ph.D. d i s s e r t a t i o n , H a r v a r d B u s i n e s s S c h o o l , 1979), a b s t r a c t . Crows Nest Resources 1982:  p e r s o n a l communication.  See f o r example: Dr. H.N. H a l v o r s o n , " P r e s e n t a t i o n on N o r t h e a s t e r n B.C. C o a l Development t o S t a n d i n g Committee on N a t i o n a l Resources and P u b l i c Works", Oct. 3, 1980. H.N. H a l v o r s o n , "The dubious economics of d e v e l o p i n g n o r t h e a s t c o a l , " i n The Sun, A p r i l 21, 1983, p. A5. Ibid. Rod N u t t , " N o r t h e a s t c o a l p r i c e f a l l of $14 proposed," i n The Dec. 24, 1983, p. D I . H.N.  Sun,  H a l v o r s o n i n The Sun, A p r i l 21, 1983, p. A5.  K e i t h . A . J . Hay and S.R. H i l l , Canada-Japan Trade and Investment (Ottawa Economix I n t e r n a t i o n a l , 1978), p. 105. " C o n t r a c t s p a r k s row" i n Vancouver Sun, Feb. 18, 1982, p. H I . Ibid. See f o r example: B.C., M i n i s t r y of I n d u s t r y and S m a l l B u s i n e s s Development, P a c i f i c Rim E x p o r t Markets - A B.C. P e r s p e c t i v e , 1981; T. Magaziner and T. Hout, Japanese I n d u s t r i a l P o l i c y , 1980; Terutomo Ozawa, M u l t i n a t i o n a l i s m , Japanese S t y l e , 1979. B.C., M i n i s t r y of I n d u s t r y and S m a l l B u s i n e s s Development, Economic A n a l y s i s and Research Bureau, " P r o j e c t on Japanese I n d u s t r i a l S t r a t e g y and Approach t o Economic C o o p e r a t i o n , " i n B r i t i s h Columbia's Trade P r o s p e c t s i n A s i a ( V i c t o r i a , B.C.: M i n i s t r y of I n d u s t r y and S m a l l B u s i n e s s Development, P r o v i n c e of B.C., 1981), p. 28. I b i d . , p. 29. Ibid. I b i d . , p. 30, 27. I b i d . , p. 30, 31.  121  VII.  CONCLUSION  Having d i s c u s s e d the Japanese r e s o u r c e procurement s t r a t e g y and i t s i m p l i c a t i o n s f o r a s t a p l e r e s o u r c e r e g i o n I w i l l c o n c l u d e by f o c u s i n g on some o f my more g e n e r a l f i n d i n g s and r e l a t i n g t h e s e t o b a s i c q u e s t i o n s c o n c e r n i n g n a t i o n a l i t y of ownership and the development o f l i n k a g e s . p o l i c y recommendations a r e made i n t h i s a r e a .  Some  I then suggest a r e v i s e d  emphasis i n d e a l i n g w i t h s t a p l e economies'and p r e s e n t some p o l i c y  directions  to cope w i t h t h e p a r t i c u l a r problems posed by t h e Japanese r e s o u r c e p r o c u r e ment s t r a t e g y .  The f i n a l s e c t i o n d e a l s w i t h the l i m i t a t i o n s o f my study  and d i s c u s s e s f r u i t f u l a r e a s f o r f u r t h e r r e s e a r c h .  A.  P o l i c y Suggestions Much of the work d e a l i n g w i t h s t a p l e r e g i o n s and t h e r e s o u r c e - b a s e d  n a t u r e o f t h e Canadian economy i t s e l f has f o c u s e d on t h e need t o c a p t u r e backward and f o r w a r d l i n k a g e s and on t h e r o l e o f domestic ownership o f t h e resource sector i n f a c i l i t a t i n g  such growth.  However, the r e s e a r c h f i n d -  i n g s p r e s e n t e d h e r e i n d i c a t e t h a t some degree o f domestic c o n t r o l i s n o t s u f f i c i e n t t o encourage the development of l i n k e d a c t i v i t y .  I t i s suggested  t h a t s t a t e i n t e r v e n t i o n i s needed t o ensure t h a t more o f t h e economic opport u n i t i e s a f f o r d e d by t h e r e s o u r c e base a r e t a k e n advantage o f .  Based on  d i s c u s s i o n s w i t h government o f f i c i a l s and c o a l company p u r c h a s i n g agents as w e l l as c o n s u l t a t i o n o f secondary s o u r c e s on m i n e r a l p o l i c y , I o f f e r some s u g g e s t i o n s t o encourage g r e a t e r domestic i n p u t p r o v i s i o n and r e s o u r c e processing. There a r e two g e n e r a l d i r e c t i o n s which government p o l i c y can pursue to f o s t e r the development o f backward l i n k a g e s from t h e s t a p l e  sector.  122  F i r s t , we can t r y t o ensure t h a t r e s o u r c e ing  i n d u s t r i e s are patronizing e x i s t -  Canadian equipment m a n u f a c t u r e r s t o the f u l l e s t degree p o s s i b l e ; t h a t  i s , make sure t h a t e x i s t i n g c a p a c i t y i s b e i n g used. d i r e c t i o n have been made through t h e e s t a b l i s h m e n t c i a l procurement p o l i c i e s f o r a l l m e g a - p r o j e c t s .  Efforts i n this o f f e d e r a l and p r o v i n -  I n B.C., f o r example,  the p r o v i n c i a l procurement p o l i c y a t t e m p t s t o ensure t h a t a l l B.C. companies supplying the required resource  equipment a r e a b l e t o b i d f o r the c o n t r a c t s  stemming from major r e s o u r c e projects.'''  However, these p o l i c i e s a r e o n l y  newly e s t a b l i s h e d (1981) and a r e n o t e n f o r c e a b l e , as i n d i c a t e d by t h e example o f the^purchase o f s t a c k e r - r e c l a i m e r s from Japanese m a n u f a c t u r e r s i n s t e a d o f Canadian s u p p l i e r s (an i n t e r e s t i n g t o p i c f o r f u r t h e r study would be an e x a m i n a t i o n o f t h e e f f e c t s o f these new procurement p o l i c i e s f o r Canadian s u p p l i e r s ) . Second, government p o l i c y c o u l d encourage g r e a t e r development o f Canadian i n p u t m a n u f a c t u r e r s ; t h a t i s , attempt t o i n c r e a s e Canadian c a p a c i t y . Based on my r e s e a r c h f i n d i n g s and the c o n c l u s i o n t h a t few of the i n p u t s t o m i n i n g a r e d o m e s t i c a l l y manufactured, I w i l l t r y t o develop t h i s  idea  f u r t h e r and o u t l i n e the b a s i c components o f such a s t r a t e g y . I t i s o b v i o u s l y i m p o s s i b l e a t t h i s stage t o c a p t u r e a l l o f the backw a r d l y - l i n k e d a c t i v i t y and manufacture a l l o f t h e i n p u t s t o m i n i n g i n Canada. Such an attempt would r e q u i r e a massive r e - d i r e c t i o n of investment c a p i t a l , would take y e a r s t o come t o f r u i t i o n , and i s u n l i k e l y t o produce a v i a b l e i n d u s t r y which c o u l d e f f e c t i v e l y compete w i t h e x p e r i e n c e d established operations  elsewhere.  and w e l l -  Y e t t h e r e does e x i s t a l a r g e market f o r  m i n i n g machinery and economic p l a n n e r s  should ensure t h a t Canadian i n d u s t r y  i s b e t t e r p r e p a r e d t o take advantage o f t h i s market  opportunity.  123  One way  to a c c o m p l i s h t h i s would be to i d e n t i f y a r e a s where Canadian  c a p a c i t y i s weak or underdeveloped and p r o v i d e s t a t e a i d to f a c i l i t a t e growth.  T h i s would be a s e l e c t i v e p r o c e s s f o c u s i n g o n l y on those s e c t o r s  where i t i s f e l t t h a t Canadian c a p a c i t y c o u l d be v i a b l y d e v e l o p e d ; the p r o c e s s of p r o d u c t i d e n t i f i c a t i o n and development  would be based on c l o s e  c o n s u l t a t i o n between the m i n i n g i n d u s t r y and the equipment m a n u f a c t u r e r s w i t h government s e r v i n g to i n i t i a t e and f a c i l i t a t e the i n t e r a c t i o n .  Such  a s t r a t e g y would have t h r e e g e n e r a l components: (1) the  To be e f f e c t i v e t h i s s t r a t e g y would r e q u i r e a f i r m d e c i s i o n on  p a r t of government and i n d u s t r y t h a t i t i s b o t h d e s i r a b l e and w o r t h -  w h i l e to a c t i v e l y develop a g r e a t e r p o r t i o n of b a c k w a r d l y - 1 i n k e d a c t i v i t y i n Canada.  The m i n i n g i n d u s t r y must be c o g n i z a n t of the b e n e f i t s to be  e x p e r i e n c e d from p r o x i m i t y to i n p u t m a n u f a c t u r e r s ( f o r example, g r e a t e r f a c i l i t y i n a c q u i r i n g replacement p a r t s , r e p a i r s , and s e r v i c e ) . ments a l s o s t a n d t o b e n e f i t from such development i n d u s t r i a l growth, and i n c r e a s e d t a x revenue. to be f i r m l y committed  Govern-  through job c r e a t i o n ,  As such b o t h p a r t i e s have  to t a k e l o n g - t e r m a c t i o n , f o r h a l f h e a r t e d and p i e c e -  meal e f f o r t s a r e i n e f f e c t u a l . (2)  As p a r t of the p r o c e s s of c o n s u l t a t i o n between the v a r i o u s  p l a y e r s , the m i n i n g companies would be c a l l e d upon to p r o v i d e i n f o r m a t i o n c o n c e r n i n g the s e c t o r s where Cana*dian goods and s e r v i c e s were not c o m p e t i t i v e or were not a v a i l a b l e .  T h i s would be f o l l o w e d by d i s c u s s i o n w i t h  equipment m a n u f a c t u r e r s to determine i n which of these areas Canadian c a p a c i t y c o u l d be developed or improved.  The r o l e of government would  be  to i n i t i a t e and m a i n t a i n communication between the two p a r t i e s and to p r o v i d e f i n a n c i a l a i d to n a s c e n t equipment m a n u f a c t u r e r s where needed. s h o u l d be n o t e d t h a t i n i d e n t i f y i n g these a r e a s i t may w e l l be n e c e s s a r y  It  124  to ensure t h a t the goods have e x p o r t p o t e n t i a l . market f o r m i n i n g  Although  the Canadian  s u p p l i e s i s l a r g e i n t o t a l , the market f o r i n d i v i d u a l 2  i n p u t s may (3)  be s m a l l and thus f o r e i g n markets w i l l have to be pursued. F i n a l l y , t h e r e would need to be a f i r m commitment by the  i n d u s t r y to buy from the new  Canadian equipment manufacturers  s t a r t - u p phase and p r o v i d e feedback on performance so t h a t the c o u l d become e f f i c i e n t p r o d u c e r s .  P a t r o n i z a t i o n of domestic  mining  i n the  initial  operations manufacturing  c a p a c i t y d u r i n g i t s i n f a n c y i s c r u c i a l i n g i v i n g the o p e r a t i o n the e x p e r i ence needed to become c o m p e t i t i v e . of Swan Wooster w h i c h was  T h i s i s w e l l i l l u s t r a t e d by the example  o n l y a s m a l l Vancouver-based e n g i n e e r i n g  u n t i l awarded the c o n t r a c t to b u i l d Roberts Bank. the company v a l u a b l e e x p e r i e n c e and  i t i s now  firm  T h i s o p p o r t u n i t y gave  one of the major w o r l d com-  p a n i e s d e s i g n i n g and b u i l d i n g b u l k commodity h a n d l i n g t e r m i n a l s . The n o t i o n of equipment buyer and m a n u f a c t u r e r c o n s u l t a t i o n i n i t i a t e d and overseen by government c o u l d a l s o be a p p l i e d to the r e s e a r c h and ment of new  equipment and t e c h n o l o g y  r e l e v a n t to mining.  develop-  N i c k e l et a l . , i n  t h e i r study of the Canadian m i n i n g i n d u s t r y , suggest the f o l l o w i n g : More c o o p e r a t i o n between m i n i n g and i t s s u p p l i e r s might prove u s e f u l , p a r t i c u l a r l y g i v e n the s t r u c t u r e of the i n n o v a t i v e process i n mining. T y p i c a l l y the d e f i n i t i o n of the problem comes from the m i n i n g company; the supply f i r m then d i r e c t s i t s research e f f o r t s accordingly.3  I n a t t e m p t i n g to develop  f o r w a r d l i n k a g e s from the s t a p l e s e c t o r  one  must be more c a u t i o u s about making a g e n e r a l statement p r o m o t i n g s t a t e i n t e r v e n t i o n f o r t h e r e may alone cannot overcome.  be a number of problems which government p o l i c y  As Payne n o t e s , f u r t h e r r e s o u r c e p r o c e s s i n g may  p o l i t i c a l l y r e l a t i v e l y easy to encourage v i a j o i n t - v e n t u r e s or s u b s i d i e s  be  125  but i n s p i t e of s i g n i f i c a n t e f f o r t , no government i n B.C.  has y e t been  4 p a r t i c u l a r l y s u c c e s s f u l i n t h i s end.  There are d i f f e r e n t c o n s t r a i n t s  a s s o c i a t e d w i t h d i f f e r e n t m i n e r a l s and w i t h the v a r i o u s stages i n r e s o u r c e p r o c e s s i n g ; the a b i l i t y of government t o encourage f o r w a r d v a r y a c c o r d i n g to the n a t u r e of these c o n s t r a i n t s . ^ s t a p l e region producing  linkages w i l l  In the case of a  f o r Japan i t i s c l e a r l y the n a t u r e of market demand  which i n h i b i t s f u r t h e r domestic p r o c e s s i n g and  i t i s d o u b t f u l that govern-  ment i n t e r v e n t i o n c o u l d change t h i s . Thus c a r e f u l case by case a n a l y s i s i s r e q u i r e d to i d e n t i f y the f a c t o r s i n h i b i t i n g forward  linkages.  Government should i n t e r v e n e o n l y i n s i t u a t i o n s  where such a c t i o n can c l e a r l y p l a y a r o l e i n a l l e v i a t i n g those c o n s t r a i n t s . Furthermore, forwardly-1inked clearly viable.  a c t i v i t y should be encouraged o n l y when i t i s  A f e d e r a l d i s c u s s i o n paper on m i n e r a l p o l i c y concurs  stating: ... because of the g e n e r a l l e v e l of t a x e x p e n d i t u r e s and o t h e r s u b s i d i e s , governments s h o u l d determine whether the p u b l i c c o s t of j o b c r e a t i o n i n s m e l t i n g and r e f i n i n g i s w o r t h w h i l e ; . . . f o r each c a s e , o t h e r o p p o r t u n i t i e s t h a t pay a h i g h e r s o c i a l r a t e of r e t u r n and g e n e r a t e g r e a t e r employment a t lower p u b l i c c o s t should be c o n s i d e r e d . ^  T h i s p o i n t must be kept i n mind when a d v o c a t i n g v e n t i o n to encourage b o t h backward and f o r w a r d of such a c t i v i t y must r e p r e s e n t  greater state i n t e r -  linkages.  The  development  the b e s t use of s c a r c e c a p i t a l  resources.  An over-emphasis on investment i n l i n k e d a c t i v i t i e s must not l e a d to the growth of i n e f f i c i e n t i n d u s t r y f o r which a r e g i o n has no advantage.  I n the case of the B.C.  comparative  c o a l i n d u s t r y , f o r example, my f i n d i n g s  suggest t h a t a t t e m p t s to manufacture more domestic m i n i n g  equipment would  encounter a number of o b s t a c l e s and t h a t coke p r o d u c t i o n i s not  feasible.  126  In such i n s t a n c e s e f f o r t s to develop d i r e c t i o n to pursue.  l i n k a g e s may  not be the b e s t  policy  I n s t e a d , a t t e n t i o n s h o u l d be f o c u s e d on s t a t e i n t e r -  v e n t i o n to b e t t e r manage the s t a p l e i n d u s t r y and a l l e v i a t e the p a r t i c u l a r problems posed by f o r e i g n r e s o u r c e procurement s t r a t e g i e s . the B.C.  I n the case of  c o a l i n d u s t r y and those s t a p l e r e g i o n s dependent on the e x p o r t of  r e s o u r c e s to Japan, the development of an a p p r o p r i a t e p o l i c y should have t h r e e aims:  (1)  to s t r e n g t h e n the b a r g a i n i n g p o s i t i o n of the r e s o u r c e  sellers  and ensure adequate r e t u r n s f o r the r e g i o n a l r e s o u r c e , (2)  to p r o p e r l y p l a n the e x t e n t and r a t e of growth of the s t a p l e industry,  (3)  and  to c o l l e c t wherever p o s s i b l e the r e s o u r c e r e n t s generated  and  i n v e s t t h i s income to b e n e f i t the people of the p r o v i n c e ,  who  are u l t i m a t e l y the owners of the  resource.  We need t o respond to the Japanese m u l t i p l e - s o u r c i n g s t r a t e g y which r e s u l t s i n competing s u p p l i e r s b e i n g p l a y e d o f f a g a i n s t each o t h e r .  This  problem becomes p a r t i c u l a r l y acute when competing s t a p l e r e g i o n s emerge w i t h i n the same p r o v i n c e as i s p r e s e n t l y the case f o r c o a l i n B r i t i s h Columbia.  Our p o s i t i o n as r e s o u r c e s e l l e r s i n P a c i f i c Rim  strengthened side.  t r a d e must be  by a c h i e v i n g g r e a t e r c o o r d i n a t i o n and c o n t r o l of the  To do so we w i l l have to counter  i n s t i t u t i o n a l purchasing  supply arrange-  ments p r a c t i s e d by the Japanese w i t h changes i n the o r g a n i z a t i o n of s t a p l e producers.  One way  would be to form what might be termed a  c a r t e l " composed of a l l the producers industry.  "resource  i n the p r o v i n c i a l o r n a t i o n a l s t a p l e  T h i s would l e s s e n c o m p e t i t i o n and a l l o w r e s o u r c e s u p p l i e r s to  n e g o t i a t e the terms of s a l e to the Japanese as one u n i t e d group.  Apparently  127  t h i s has been p r a c t i s e d by c o a l p r o d u c e r s  i n New  South Wales, A u s t r a l i a .  F u r t h e r r e s e a r c h a n a l y z i n g the e f f e c t i v e n e s s of t h i s s t r a t e g y f o r those p r o d u c e r s would be h e l p f u l i n d e v e l o p i n g an a p p r o p r i a t e p o l i c y to manage the B.C.  coal industry.  A second o p t i o n would be t o e s t a b l i s h a government m a r k e t i n g board oversee developments i n the s t a p l e i n d u s t r y and purchase the output g each p r o v i n c i a l producer  to be r e - s o l d to the Japanese.  to  from  I n t h i s way  the  c o a l p r o d u c e r s , f o r example, would be r e p r e s e n t e d as one  s e l l i n g unit with  a s e t p r i c e a t which i t i s w i l l i n g t o s e l l i t s p r o d u c t .  The aim would be  t o c o u n t e r the monopoly p r i c i n g p r a c t i s e d by the Japanese and attempt a c h i e v e a b e t t e r r e t u r n f o r our r e s o u r c e s .  Government involvement  to  in  r e s o u r c e m a r k e t i n g would p r o v i d e s e l l e r s w i t h g r e a t e r l e v e r a g e i n b a r g a i n i n g and h e l p r a i s e such t r a d e i s s u e s to a l e v e l of i n t e r n a t i o n a l  diplomacy.  T h i s would f o r c e the Japanese to be more c a u t i o u s i n o v e r e x t e n d i n g c o n t r a c t s and then c u t t i n g back on them.  The p o s s i b i l i t y of g r e a t e r communication  w i t h competing r e s o u r c e s e l l e r s l o c a t e d i n o t h e r c o u n t r i e s s h o u l d a l s o be c o n s i d e r e d i n t h i s e f f o r t t o a c h i e v e g r e a t e r c o o r d i n a t i o n on the  supply  side. A government m a r k e t i n g board would h e l p r e a l i z e the second p o l i c y f o r i t would be r e s p o n s i b l e f o r o v e r s e e i n g the pace and t i m i n g of r e s o u r c e p r o j e c t s as w e l l as expansions This should prevent competing s u p p l i e r s .  aim  new  i n the c a p a c i t y of e x i s t i n g v e n t u r e s .  the development of excess c a p a c i t y and emergence of The board c o u l d a l s o c o l l e c t and exchange p r o d u c t i o n  i n f o r m a t i o n and conduct market a n a l y s i s ; f o r example, b e f o r e any major c o n t r a c t i s s i g n e d , market r e s e a r c h conducted  by the board must  new  determine  t h a t t h e r e i s s u f f i c i e n t l o n g - t e r m demand t o w a r r a n t p r o d u c t i o n so t h a t r e s o u r c e s e l l e r s do not f a l l prey to Japanese e f f o r t s to c r e a t e o v e r -  128  capacity.  Such a c t i o n would r e p r e s e n t an attempt to respond to the  sophis-  t i c a t i o n of i n f o r m a t i o n g a t h e r i n g systems on the p a r t of the Japanese by g r e a t e r o r g a n i z a t i o n and  s h a r i n g of i n f o r m a t i o n on the supply s i d e .  The  board should a l s o make every e f f o r t to encourage market d i v e r s i f i c a t i o n and a v o i d dependence of the s t a p l e i n d u s t r y on the Japanese market. F i n a l l y , h a v i n g attempted b e t t e r o r g a n i z a t i o n of the s t a p l e i n d u s t r y and a strengthened  b a r g a i n i n g p o s i t i o n to earn h i g h e r r e t u r n s f o r our  r e s o u r c e s , we must ensure t h a t these r e t u r n s are used to a l l e v i a t e some of the problems a s s o c i a t e d w i t h s t a p l e economies.  Resource r e n t s should  used t o a v o i d o v e r - c o n c e n t r a t i o n on the s t a p l e s e c t o r and  be  the economic  f l u c t u a t i o n s a s s o c i a t e d w i t h changes i n e x t e r n a l demand, the e f f e c t s of which are p a r t i c u l a r l y severe industry.  The  i n those communities dependent on the s t a p l e  research f i n d i n g s presented  here i n d i c a t e t h a t we  r e l y on f o r e i g n or domestic c o n t r o l l e r s of r e s o u r c e v e n t u r e s  cannot  t o i n v e s t the  income from s t a p l e a c t i v i t y i n promoting economic d i v e r s i f i c a t i o n .  The  development of an a p p r o p r i a t e p o l i c y to b e t t e r manage the s t a p l e i n d u s t r y must i n c l u d e s t a t e i n t e r v e n t i o n to c a p t u r e r e s o u r c e r e n t s and d i r e c t  this  c a p i t a l toward p u r s u i t s which would p r o v i d e g r e a t e s t b e n e f i t to the p r o v i n c i a l economy as a whole.^ There are a number of ways by which t h i s may  be done.  some of the p o s s i b i l i t i e s i n c l u d i n g the t a x i n g of r e s o u r c e  Gunton o u t l i n e s companies where  taxes are s e t e i t h e r as a p e r c e n t a g e of the p r o f i t generated,  a percentage  of t o t a l revenue, or as a r o y a l t y on the q u a n t i t y of r e s o u r c e  produced.^  A l t e r n a t i v e l y , Payne suggests d i r e c t p u b l i c e n t r e p r e n e u r s h i p  where crown  c o r p o r a t i o n s are d i r e c t l y i n v o l v e d i n m i n e r a l e x p l o r a t i o n , p r o d u c t i o n , marketing  so t h a t the s t a t e can c r e a t e and r e t a i n the r e n t s from  development.''"''"  As to how  and  resource  these r e n t s s h o u l d then be used, the g e n e r a l  aim  129  would be t o d i v e r s i f y t h e economy away from the dominant s t a p l e e x p o r t and attempt t o a c h i e v e g r e a t e r  s o c i a l and economic s t a b i l i t y i n those p a r t i c u l a r  communities dependent on s t a p l e p r o d u c t i o n .  I t i s d i f f i c u l t t o be more  s p e c i f i c a t t h i s p o i n t ; d e t a i l e d s u g g e s t i o n s would r e q u i r e c a r e f u l a n a l y s i s of t h e p r o v i n c i a l economy and i t s v a r i o u s r e g i o n s  t o determine economic  o p p o r t u n i t i e s which c o u l d be developed t o p r o v i d e  v i a b l e long-term, p r o f i t -  generating,  B.  and j o b - c r e a t i n g  projects.  C o n c l u d i n g Comments I n d i s c u s s i n g t h e l i m i t a t i o n s of t h i s study c e r t a i n problems were  encountered i n t e s t i n g some of t h e hypotheses and p r o d u c i n g  conclusive  e v i d e n c e c o n c e r n i n g t h e i m p l i c a t i o n s of t h e Japanese r e s o u r c e procurement strategy. cerning  One of t h e main d i f f i c u l t i e s was i n t e s t i n g t h e h y p o t h e s i s con-  t h e i m p l i c a t i o n s of domestic c o n t r o l of the s t a p l e s e c t o r f o r the  development of backward l i n k a g e s . straightforward  In a t h e o r e t i c a l context i t i s quite  t o suggest a r e l a t i o n s h i p between these two f a c t o r s but i t  i s more c h a l l e n g i n g  t o a c t u a l l y show t h i s e m p i r i c a l l y .  The attempt was  c o m p l i c a t e d by t h e f a c t t h a t t h e case study,chosen does n o t r e p r e s e n t a c l e a r example of a d o m e s t i c a l l y  controlled staple sector.  The c o a l  t r y of the E l k V a l l e y i n c l u d e s b o t h f o r e i g n and d o m e s t i c a l l y  indus-  controlled  companies; f u r t h e r m o r e , one of these (B.C. C o a l ) has o n l y r e c e n t l y come under domestic c o n t r o l w h i l s t a n o t h e r (Byron Creek C o l l i e r i e s ) was r e c e n t l y purchased by f o r e i g n i n t e r e s t s .  T h i s posed a problem when a t t e m p t i n g t o  t e s t the f i r s t h y p o t h e s i s which compared p u r c h a s i n g p a t t e r n s and  foreign controlled firms.  of domestic  Only one of t h e f o u r companies has a s t r o n g  h i s t o r y of domestic ownership and t h a t company ( F o r d i n g C o a l L t d . ) complete t h e forms r e g a r d i n g  source of i n p u t s .  d i d not  B.C. C o a l L t d . completed  130  the forms but may s t i l l be f o l l o w i n g t h e p u r c h a s i n g i t s previous  f o r e i g n owner.  p a t t e r n s e s t a b l i s h e d by  I t i s f o r these reasons and the f a c t t h a t the  sample s i z e i s e x t r e m e l y s m a l l t h a t the r e s u l t s of t h i s p a r t of the study comparing p u r c h a s i n g  patterns are not p a r t i c u l a r l y u s e f u l .  There was a l s o a problem i n a t t e m p t i n g ing  to l i n k the evidence concern-  t h e development of backward l i n k a g e s back t o the q u e s t i o n of domestic  c o n t r o l of t h e s t a p l e s e c t o r .  F o r example, how can one i s o l a t e the f a c t o r s  r e s p o n s i b l e f o r the underdevelopment of domestic i n p u t m a n u f a c t u r i n g f o r c o a l mining?  To what e x t e n t has f o r e i g n c o n t r o l of p a r t of t h e c o a l  c o n t r i b u t e d t o t h i s and t o what e x t e n t would a s t r o n g e r c o n t r o l change t h i s s i t u a t i o n ?  industry  degree o f domestic  I d e a l l y , t o examine the r e l a t i o n s h i p between  domestic c o n t r o l of a s t a p l e i n d u s t r y and t h e development of d e s i r e d  linkage  e f f e c t s one would need t o compare the l i n k a g e s generated by an i n d u s t r y w i t h a s t r o n g h i s t o r y of domestic c o n t r o l w i t h those stemming from an i n d u s t r y under c l e a r and l o n g - t e r m f o r e i g n c o n t r o l . S i m i l a r problems i n p r o v i d i n g c o n c l u s i v e e v i d e n c e were encountered when examining t h e i m p l i c a t i o n s of the Japanese m u l t i p l e - s o u r c i n g and  the e f f e c t s of c o n s o r t i u m r e s o u r c e  purchasing.  strategy  I t i s d i f f i c u l t to  produce h a r d d a t a which e f f e c t i v e l y " p r o v e s " t h a t Japanese r e s o u r c e p l a y s u p p l i e r s o f f a g a i n s t each o t h e r o r t h a t o p e r a t i o n s r e g i o n stand suppliers.  t o be a f f e c t e d by changes i n t h e c o m p e t i t i v e  i n each  buyers  supplying  p o s i t i o n of o t h e r  I n s t e a d I had t o r e l y on statements from the r e s o u r c e  suppliers  themselves and d e s c r i p t i o n s of p a s t i n c i d e n t s where a s u p p l i e r may have b e n e f i t t e d o r s u f f e r e d from the b e h a v i o u r of i t s c o m p e t i t o r s . f o l l o w s t h e o r e t i c a l l y that consortium resource  purchasing  Likewise i t  on t h e p a r t of  the Japanese a l l o w s monopoly p r i c i n g ; however, i t i s f a r more d i f f i c u l t t o i l l u s t r a t e i n q u a n t i t a t i v e terms how a b e t t e r r e s o u r c e  p r i c e c o u l d be  131  obtained  i f s u p p l i e r s were a b l e to d e a l w i t h i n d i v i d u a l Japanese  resource  buyers. F i n a l l y , data l i m i t a t i o n s i n h i b i t e d the c a l c u l a t i o n of f i s c a l and  the r e s o u r c e  r e n t component generated by the E l k V a l l e y c o a l i n d u s t r y .  I t would have been i n t e r e s t i n g t o d i s c o v e r the s i z e of r e n t s b e i n g (although  due  generated  to the c u r r e n t downturn the r e n t s would not be l a r g e ) and  economic s e c t o r s and invested.  linkages  geographic r e g i o n s  Nevertheless  i n which t h i s income was  i t i s f e l t t h a t the s u r r o g a t e  the  subsequently  examples do  illustrate  t h a t we cannot depend on f o r e i g n or domestic c o n t r o l l e r s of s t a p l e i n d u s t r i e s to i n v e s t the income g e n e r a t e d from the e x p l o i t a t i o n of a commonly-held resource  i n ways which would a l l e v i a t e the problems of s t a p l e economies  and  generate more s u s t a i n e d r e g i o n a l economic development. I t should be p o i n t e d out t h a t my  p o l i c y s u g g e s t i o n s are  i n n a t u r e and r e q u i r e f u r t h e r r e s e a r c h .  The  preliminary  aim of the study was  not  to  produce p o l i c y recommendations but r a t h e r to i n v e s t i g a t e the i m p l i c a t i o n s of the Japanese r e s o u r c e  procurement s t r a t e g y f o r s t a p l e r e s o u r c e  However, h a v i n g concluded t h a t the s t r a t e g y produces a number of problems and  challenges  f o r staple regions  regions. new  i t seemed u s e f u l to o f f e r some  p r e l i m i n a r y s u g g e s t i o n s which might form the b a s i s f o r f u r t h e r p o l i c y d i s c u s s i o n and i n v e s t i g a t i o n . Another a r e a f o r f u r t h e r r e s e a r c h study i s a thorough a n a l y s i s of the new staples region being created  i n northern  suggested by the f i n d i n g s of northeast B.C.  c o a l p r o j e c t and  my  the  We need t o c l o s e l y m o n i t o r  t h i s p r o j e c t over the next few y e a r s to determine i f the p r e d i c t i o n s of t h i s study and o t h e r s prove t r u e .  I f so, f u r t h e r e v i d e n c e c o n c e r n i n g  i m p l i c a t i o n s of the Japanese r e s o u r c e  procurement s t r a t e g y and  e f f e c t i v e p o l i c y a c t i o n w i l l be g e n e r a t e d .  The  the  the need f o r  r o l e p l a y e d by Japanese  132  minority  i n v e s t o r s i n a r e s o u r c e p r o j e c t was n o t d i r e c t l y addressed i n my  study and i s more i m p o r t a n t i n the n o r t h e a s t p r o j e c t where Japanese i n t e r e s t s c o n t r o l about 40 p e r c e n t of the l a r g e s t m i n i n g company, Q u i n t e t t e 12 Coal L t d .  A study of n o r t h e a s t c o a l s h o u l d i n c l u d e an e x a m i n a t i o n of t h e  r o l e and i n f l u e n c e of t h e Japanese p a r t n e r s  i n the j o i n t - v e n t u r e ; f o r  example, how much i n p u t do they have i n t o p r o d u c t i o n  decisions  concerning  items such as equipment p u r c h a s e s , mine c a p a c i t y , and r e s o u r c e p r i c e ? F i n a l l y , we need t o b e t t e r m o n i t o r the e x t e n t and n a t u r e o f Japanese investment i n B.C. as w e l l as the e f f e c t s of h a v i n g many of our r e s o u r c e i n d u s t r i e s dependent on the Japanese market. a n a l y t i c a l and p o l i c y o r i e n t e d r e s e a r c h economic t i e s l i n k i n g B.C. and Japan.  There appears t o be l i t t l e  b e i n g conducted on the i m p o r t a n t T h i s study r e p r e s e n t s  an a d d i t i o n  to t h a t work and h o p e f u l l y a u s e f u l one i n i t s attempt t o o u t l i n e some o f the i m p l i c a t i o n s of Japanese involvement i n the c o a l i n d u s t r y i n s o u t h e a s t e r n B.C. and  We need t o examine o t h e r s t a p l e i n d u s t r i e s such as f o r e s t r y  f i s h i n g t o see i f t h e c h a r a c t e r i s t i c s of Japanese involvement a r e  s i m i l a r and i f the r e s u l t s of t h i s involvement c o r r o b o r a t e presented here.  Such r e s e a r c h  the f i n d i n g s  would add t o our knowledge base and a i d i n  the development of e f f e c t i v e p o l i c y t o b e t t e r manage our s t a p l e i n d u s t r i e s and  respond t o t h e problems posed by t h e Japanese r e s o u r c e procurement  strategy.  Without such a c t i o n s t a p l e r e g i o n s  doomed t o c o n t i n u e o v e r - e x p a n d i n g c a p a c i t y  such as t h e E l k V a l l e y a r e  i n response t o i n f l a t e d Japanese  demand, competing i n t e n s e l y t o s e l l t o a m o n o p o l i s t i c  b u y e r , and then  i n c u r r i n g a l l t h e c o s t s of c o n t r a c t c u t backs i n i t i a t e d by t h a t b u y e r .  133  FOOTNOTES  1.  M i n i s t r y of I n d u s t r y and S m a l l B u s i n e s s Development 1982: communicat i o n .  2.  P.E. N i c k e l e t a l . , Economic Impacts and L i n k a g e s o f t h e Canadian M i n i n g I n d u s t r y ( K i n g s t o n : Centre f o r Resource S t u d i e s , Queens U n i v e r s i t y , 1978), p. 118; and F o r d i n g C o a l L t d . 1982: p e r s o n a l communication.  3.  N i c k e l e t a l . , p. 122.  4.  Raymond W. Payne, "Coping w i t h t h e Japanese C o n n e c t i o n : Lessons the M i n i n g I n d u s t r y i n B.C." (Paper p r e s e n t e d t o t h e Canadian R e g i o n a l S c i e n c e A s s o c i a t i o n , Vancouver, June 1983), p. 33.  5.  N i c k e l e t a l . , p. 125.  6.  Canada, Energy, Mines and Resources, M i n e r a l P o l i c y - A D i s c u s s i o n Paper, 1981, p. 109.  7.  Ben Smith, "The Japanese C o n n e c t i o n - N e g o t i a t i n g A Two-Way S t r e e t , " i n A u s t r a l i a ' s Resources F u t u r e , ed. P e t e r H a s t i n g s and Andrew F a r r a n (Melbourne: Thomas N e l s o n P a r t y L t d . , 1978), p. 125.  8.  Payne, p. 36.  9.  personal  from  I b i d . , p. 35.  10.  Thomas I . Gunton, R e s o u r c e s , R e g i o n a l Development and P u b l i c P o l i c y : A Case Study of B r i t i s h Columbia (Ottawa: Canadian C e n t r e f o r P o l i c y A l t e r n a t i v e s , 1982), p. 23.  11.  Payne, p. 35, 36.  12.  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Trade and Commerce  Trade and Commerce  "Westshore T e r m i n a l s L t d . "  n.d.  W h i t e l y , Don. "Methanol p l a n t opens t o a rough f u t u r e . " 16 September 1982. Worobec, A l e x a n d r a , ed. Canadian Mines Handbook, 1982-83. N o r t h e r n Miner P r e s s L t d . , 1982.  Vancouver  Sun,  Toronto:  W r i g h t , R i c h a r d . " F o r e i g n Investment Between N e i g h b o u r s : Canada and Japan." Canadian P e r s p e c t i v e s on Economic R e l a t i o n s w i t h Japan. E d i t e d by K e i t h A . J . Hay. M o n t r e a l : I n s t i t u t e f o r Research on P u b l i c P o l i c y , 1980. Y o s h i n o , M.Y. "Japanese F o r e i g n D i r e c t Investment." The Japanese Economy i n I n t e r n a t i o n a l P e r s p e c t i v e . E d i t e d by I s i a h Frank. B a l t i m o r e : Johns Hopkins U n i v e r s i t y P r e s s , 1975.  APPENDIX A: Coal Mining Statistics for Elk Valley Region, 1898-1979. (production figures are in tonnes; employment figures include both wage earners and salaried employees)  (A) Coal Production  1  Coke Production  1898  1899  1900  1901  1902  1903  1904  9,334  103,000  206,803  379,355  393,961  589,888  662,685  361  30,000  65,915  111,683  107,837  149,764  218,857  n.a.  n.a.  n.a.  n.a.  111,701  173,949  168,980  n.a.  n.a.  n.a.  n.a.  101,776  146,010  118,188  2  Volume of coal for Canadian markets Volume of coal for U.S. Volume of coal for Japan  _  _  _  _  _  _  _  Volume of coal for other foreign markets Volume of coke for  _  _  _  _  _  _  _  Canadian markets Volume of coke for U.S. (B) Number employed  n.a.  n.a.  n.a.  n.a.  81,073  122,006  119,004  n.a.  n.a.  n.a.  n.a.  26,764  27,758  97,690  n.a.  450  477  989  984  1,271  1,439  APPENDIX A (continued)  1905  1906  1907  1908  2  1909  1910  1911  2  Coal Production  831,933  720,449  876,731  883,205  923,865  1,365,119  442,057  Coke Production  256,125  189,385  206,541  234,869  245,017  215,696  66,005  Volume of coal for Canadian markets  148,939  150,793  218,221  200,908  136,406  182,578  95,139  Volume of coal for U.S.  246,002  230,863  291,410  266,829  353,389  751,087  204,894  145,044  134,646  140,987  206,413  205,391  204,947  66,034  113,337  53,400  59,890  34,196  40,478  8,730  1,267  1,490  1,745  2,290  2,524  2,427  3,111  2,427  Volume of coal for Japan Volume of coal for other foreign markets Volume of coke for Canadian markets  Volume of coke for U.S.  Number employed  APPENDIX A (continued)  Coal Production  1  Coke Production  1912  1913  1914  1915  1916  1917  1918  1,261,212  1,331,725  955,183  852,572  882,270  551,751  732,864  264,333  286,045  234,577  240,421  240,121  129,499  164,080  231,076  287,410  140,094  82,594  75,319  73,797  77,642  551,742  527,620  389,383  370,020  386,953  225,847  342,218  Volume of coal for Canadian markets Volume of coal for U.S. Volume of coal for Japan  -  Volume of coal for other foreign markets Volume of coke for  -  Canadian markets Volume of coke for U.S. Number employed  -  _  _  _  -  -  _  _  -  213,041  236,465  177,853  215,982  207,413  116,252  147,725  50,257  50,626  54,313  24,597  34,377  12,711  17,404  2,410  2,666  2,397  1,748  1,674  1,481  2,327  APPENDIX A (continued)  1919  1920  1921  1922  1923  1924  558,806  847,389  759,755  554,361  740,531  273,518  854,480  Coke Production  57,067  67,792  59,434  41,400  58,919  30,615  75,185  Volume of coal for Canadian markets  65,927  205,076  104,261  138,735  236,796  128,861  431,206  373,348  479,342  495,331  333,451  353,725  70,674  249,436  48,996  35,805  41,878  25,742  34,818  22,687  53,153  8,134  31,718  18,092  15,524  23,564  8,232  21,936  1,369  1,582  1,774  1,538  1,434  1,147  1,466  (A) Coal Production  1  Volume of coal for U.S.  2  1925  Volume of coal for Japan Volume of coal for other foreign markets Volume of coke for Canadian markets Volume of coke for U.S.  (B) Number employed  APPENDIX A (continued)  Coal Production  1  Coke Production  1926  1927  1928  1929  1930  1931  1932  848,448  907,519  1,001,523  886,706  689,236  661,426  587,875  92,137  86,855  61,964  n.a.  65,848  65,264  29,452  418,724  445,478  587,548  474,607  456,933  481,051  466,126  197,233  271,995  240,023  231,655  76,752  43,023  27,665  Volume of coal for Canadian markets Volume of coal for U.S. Volume of coal for Japan  -  Volume of coal for other foreign markets Volume of coke for  -  Canadian markets Volume of coke for U.S. Number employed  -  '  -  -  -  -  -  -  -  65,841  63,936  48,002  n.a.  43,176  48,592  16,597  26,296  21,919  13,902  n.a.  22,672  16,672  12,855  1,431  1,494  1,621  1,503  1,252  1,211  1,001  APPENDIX A (continued)  Coal Production  1  Coke Production Volume of coal for Canadian markets Volume of coal for U.S.  1933  1934  1935  1936  1937  1938  477,677  627,619  407,110  470,606  459,136  434,068  561,958  5,906  21,887  24,375  30,392  43,012  48,814  48,501  409,237  505,079  338,200  362,210  319,318  293,364  384,706  18,588  23,532  23,091  38,565  43,018  47,400  57,820  Volume of coal for Japan Volume of coal for other foreign markets  _  _  _  _  _  _  _  _  _  _  _  1939  _ _  Volume of coke for Canadian markets Volume of coke for U.S. Number employed  451  15,278  8,812  15,706  18,933  25,283  26,531  4,455  6,609  15,563  14,686  24,079  23,531  21,970  698  754  819  606  628  693  732  APPENDIX A (continued)  1940  1941  1942  1943  1944  776,518  1,026,053  1,047,713  927,482  1,120,665  869,647  862,669  60,437  82,325  86,454  78,585  74,036  63,188  69,638  548,412  731,015  719,333  600,428  745,197  587,282  557,032  Volume of coal for U.S.  74,690  84,632  126,580  154,239  156,225  111,928  108,094  Volume of coal for Japan  -  -  Volume of coal for other foreign markets ' Volume of coke for  -  Coal Production  1  Coke Production  1945  1946  Volume of coal for Canadian markets  Canadian markets Volume of coke for U.S. Number employed  -  -  -  -  -  -  -  38,862  52,588  55,230  43,247  38,702  35,176  32,688  21,575  29,737  31,224  35,338  35,334  28,012  36,950  731  921  864  1,150  1,179  1,067  1,083  APPENDIX A (continued)  1947  1948  1949  1950  1951  1,162,426  1,289,185  1,238,576  1,138,389  1,249,501  1,198,293  Coke Production  106,523  103,371  151,141  136,740  172,449  177,266  Volume of coal f o r Canadian markets  735,851  798,485  1,242,979  752,953  811,733  761,470  Volume of coal f o r U.S.  133,219  192,045  105,442  72,362  77,936  60,601  Volume of coke f o r Canadian markets  41,965  39,601  83,893  78,028  92,984  104,908  Volume of coke f o r U.S.  64,558  63,770  67,248  68,712  79,465  77,533  1,215  1,326  1,129  1,176  1,101  1,045  Coal Production  1  1952  Volume of coal f o r Japan Volume of coal f o r other foreign markets  Number employed  APPENDIX A (continued)  Coal Production  1  Coke Production  1953  1954  1955  1956  1957  1958  1959  1,255,620  1,169,788  1,164,438  1,302,584  994,635  691,642  597,540  166,579  172,635  183,946  198,675  148,805  161,241  129,162  816,696  783,785  686,678  793,601  585,767  333,575  256,494  62,169  36,296  116,447  93,499  91,767  68,300  40,097  Volume of coal for Canadian markets Volume of coal for U.S. Volume of coal for Japan Volume of coal for other foreign markets  _  _  _  _  _  _  62,683  -  -  -  -  -  -  99,757  90,857  117,945  128,276  77,026  87,515  69,683  66,822  81,778  66,946  70,399  71,779  73,726  59,479  1,147  1,095  1,136  1,048  995  725  724  Volume of coke for Canadian markets Volume of coke for U.S. Number employed  APPENDIX A (continued)  1960  1961  1962  1963  1964  Coal Production  743,979  932,191  823,785  883,303  1,050,286  1,058,446  1,058,679  Coke Production  139,041  160,703  152,885  154,843  149,759  167,271  173,336  Volume of coal for Canadian markets  179,925  253,300  197,584  188,809  243,719  288,844  202,859  20,128  9,041  3,610  1,799  2,055  998  1,171  272,729  375,487  331,095  367,331  393,491  402,693  376,249  72,304  89,034  79,703  76,770  76,218  96,059  94,192  66,737  71,669  73,182  78,073  73,541  71,212  79,144  786  797  630  611  607  562  522  Volume of coal for U.S. Volume of coal for Japan  1965  1966  Volume of coal for other foreign markets Volume of coke for Canadian markets  Volume of coke for U.S.  Number employed  APPENDIX A (continued)  1967 ' 2  Coal Production  1  Coke Production  3  946,224 n.a.  1968  1969  1970  1971  1972  1973  1,107,258  1,084,940  3,480,631  5,602,000  6,552,155  7,772,070  n.a.  n.a.  n.a.  4  2  n.a.  n.a.  n.a.  Volume of coal for Canadian markets  252,061  244,586  231,557  430,497  74,367  70,781  74,690  10,266  660  37,581  11,083  754  302  224  Volume of coal for Japan  407,198  449,845  326,184  1,786,855  4,063,778  5,695,028  7,306,327  Volume of coal for other foreign markets Volume of coke for  -  128,785  207,101  38,876  Volume of coal for U.S.  Canadian markets Volume of coke for U.S. Number employed  n.a.  n.a.  n.a.  n.a.  n.a.  n.a.  n.a.  n.a.  n.a.  n.a.  n.a.  n.a.  n.a.  n.a.  1,270  1,457  1,969  2,180  446  544  695  APPENDIX A (continued) 1974 (A)  Coal ProductionsCoke Production  8,531,941  1975 9,542,100  1976' 7,498,155  1977 8,580,418  1978  1979  9,093,776  10,583,425  n .a.  n .a.  n.a.  n.a.  194,420  490,125  301,432  312,987  10,514  2,877  321  1,783  Volume of coal for Japan  7,630,659  7,706,993  6,429,299  6,865,306  7,019,275  7,911,170  Volume of coal for other foreign markets  459,786  465,005  640,215  1,089,118  1,676,941  1,720,428  Volume of coke for Canadian markets  n .a.  n .a.  n .a.  n .a.  n .a.  n .a.  Volume of coke for U.S.  n.a.  n.a.  n.a.  n .a.  n.a.  n.a.  2,498  2,647  2,627  2,868  2,983  Volume of coal for Canadian markets Volume of coal for U.S.  (B) Number employed NOTES:  SOURCES:  n .a. 463,970  n .a. 773,026  3,791  n.a.  These are "raw coal" production figures; some of this coal i s then used to produce coke. A year when mine disasters or strikes affected production. Coke was s t i l l produced from 1967-1981 but the production figures do not appear in the Annual .Reports of the Minister of Mines and Petroleum Resources. Coal production figures changed i n 1972 from "raw coal" to "clean coal" masking major changes in production levels between 1971 and 1972. Compiled from: B.C., Department of Mines, Annual Report of the Minister of Mines, 1898-1959 editions and Department of Mines and Petroleum Resources, Minister of Mines and Petroleum Resources Annual Report, 1960-1977 editions, and Department of Energy, Mines and Petroleum Resource. Annual Report of the Ministry of Energy, Mines and Petroleum Resources, 1977-1979 editions.  154  APPENDIX  B  MAIN STAGES INVOLVED IN THE MINING AND PREPARATION OF COAL  Surface Coal Mining (a)  First drilling  and b l a s t i n g o c c u r s t o expose the c o a l seams.  Large r o t a r y d r i l l s  produce b l a s t h o l e s which a r e f i l l e d w i t h  e x p l o s i v e s to loosen the rock (b)  overburden.  Trucks and e l e c t r i c s h o v e l s (e.g. a 200 tonne t r u c k matched w i t h a 25 c u b i c y a r d e l e c t r i c s h o v e l ) a r e used t o h a u l t h e loosened r o c k t o d i s p o s a l a r e a s .  (c)  C o a l r e c o v e r y b e g i n s and b u l l d o z e r s a r e used t o move the c o a l to  a loading point.  There t h e c o a l i s loaded onto 100 o r 200  tonne t r u c k s by f r o n t - e n d l o a d e r s .  The t r u c k s t r a n s p o r t the  c o a l t o a c e n t r a l b r e a k e r s t a t i o n where i t i s crushed and sent on a conveyor b e l t t o s t o r a g e s i l o s a t the p r e p a r a t i o n plant. (d)  Throughout t h e m i n i n g p r o c e s s h a u l roads must be m a i n t a i n e d t o keep equipment and t i r e  c o s t s a t a minimum.  Underground C o a l M i n i n g - -  Machines known as c o n t i n u o u s miners  (equipped w i t h s p i n n i n g  c y l i n d e r s o r d i s k s studded w i t h m e t a l t e e t h ) a r e used t o c u t t u n n e l s which a r e then supported by s t e e l a r c h e s .  Hydraulic  m o n i t o r s u s i n g a h i g h p r e s s u r e water j e t d i s l o d g e the c o a l which i s then c a r r i e d away i n s t e e l flumes t o a d e w a t e r i n g p l a n t on the s u r f a c e .  155  (3)  P r e p a r a t i o n P l a n t Procedure The raw c o a l i s conveyed on b e l t s from the s t o r a g e s i l o s t o the wash p l a n t where i t i s screened and washed t o produce c l e a n c o a l . The c o a l i s then d r i e d and conveyed to c l e a n c o a l s i l o s from which i t i s loaded onto u n i t t r a i n s d e s t i n e d f o r R o b e r t s Bank. Residue from the washing procedure i s dumped i n t o a d j a c e n t settling  SOURCE:  ponds.  C o a l A s s o c i a t i o n of Canada, C o a l i n Canada, n.d. and K a i s e r Resources, " C o a l M i n i n g and P r o c e s s i n g i n B r i t i s h Columbia," n.d.  156  APPENDIX  C  MAIN STAGES INVOLVED IN THE HANDLING OF COAL AT ROBERTS BANK PORT  (a)  T r a i n reaches p o r t and e n t e r s t h e dumping s t a t i o n where the c o n t e n t s of each u n i t c a r a r e a u t o m a t i c a l l y dumped.  A r o t a r y dumper w i t h a  r e m o t e l y - c o n t r o l l e d i n d e x i n g arm l i f t s each c a r and empties t h e c o a l onto a hopper.  C o a l i s then t r a n s p o r t e d on a conveyor b e l t t o one  of t h e s t o c k p i l i n g a r e a s , o r the s h i p l o a d i n g system. (b)  I f the c o a l i s b e i n g s t o c k p i l e d t h e conveyor b e l t s w i l l f e e d the c o a l t o one o f t h r e e huge s t a c k e r r e c l a i m e r s which can s t o c k p i l e c o a l a t the r a t e o f 4,000 tonnes an h o u r .  (c)  The s t a c k e r r e c l a i m e r s a r e a l s o used t o r e c l a i m c o a l and convey i t t o any of the t h r e e s h i p l o a d e r s which then l o a d the c o a l d i r e c t l y onto the s h i p ' s h o l d .  SOURCE:  Westshore T e r m i n a l s L t d . , "Westshore T e r m i n a l s L t d . " n.d.  APPENDIX  D  INTERVIEW QUESTIONS  For each p i e c e of equipment p l e a s e i n d i c a t e on the accompanying forms the l o c a t i o n of your s u p p l i e r and the l o c a t i o n where the p i e c e was o r i g i n a l l y manufactured.  (e.g. l o c a l E l k V a l l e y r e g i o n , o u t s i d e E l k  V a l l e y b u t w i t h i n n a t i o n a l economy, USA, or e l s e w h e r e ) . For each o f t h e r e t a i l and commercial s e r v i c e s r e l a t e d t o m i n i n g p l e a s e i n d i c a t e on t h e accompanying form t h e l o c a t i o n o f your supplier  (e.g. l o c a l E l k V a l l e y r e g i o n , o u t s i d e E l k V a l l e y b u t w i t h i n  B.C., o u t s i d e  B.C. b u t w i t h i n Canada, o r e l s e w h e r e ) .  At what stage o f p r o c e s s i n g i t leaves the E l k V a l l e y ? processing  i s t h e c o a l mined by your company when What p o s s i b i l i t i e s a r e t h e r e f o r f u r t h e r  w i t h i n the l o c a l region?  What a r e t h e a t t i t u d e s o f the  Japanese p u r c h a s e r s toward f u r t h e r p r o c e s s i n g ? How many c o u n t r i e s  do you supply w i t h c o a l and what percentage o f  t o t a l p r o d u c t i o n goes t o each? long-term contract?  I s a l l the c o a l you mine s o l d on  Who a r e your l o n g - t e r m c o n t r a c t s w i t h ?  l o n g does each c o n t r a c t  l a s t and what a r e the terms of each  w i t h r e g a r d t o p r i c e and q u a n t i t y ?  How contract  Who s e t s t h e p r i c e and q u a n t i t y  of t h e c o a l and how o f t e n do these f i g u r e s change? What have your annual p r o d u c t i o n l e v e l s been f o r each y e a r o f operation?  Do you f e e l t h a t l o n g - t e r m c o n t r a c t s w i t h t h e Japanese  engender s t a b i l i t y o f p r o d u c t i o n and s t a b i l i t y of p r i c e ?  How have  your o p e r a t i o n s been a f f e c t e d by the r e c e n t c u t backs by Japanese purchasers?  Have t h e r e been any c u t backs b e f o r e now?  158  What i s the s i z e o f your l a b o u r f o r c e and how has i t changed f o r each year o f o p e r a t i o n ?  How has l a b o u r been a f f e c t e d by r e c e n t  cut backs i n c o n t r a c t s by t h e Japanese? Who a r e your major c o m p e t i t o r s  f o r t h e Japanese market?  How does  t h e i r c o a l q u a l i t y , l a b o u r c o s t , r e s o u r c e p r i c e , and t r a n s p o r t c o s t compare w i t h y o u r s ?  What do you t h i n k o f the B.C. l a b o u r s i t u a t i o n ?  Are you aware o f any a t t e m p t s on t h e p a r t o f t h e Japanese t o p l a y one  s u p p l i e r a g a i n s t another?  position?  I f s o , how does t h i s a f f e c t your  What f e a t u r e s of t h e B.C. supply s i t u a t i o n do you t h i n k  the Japanese buyers f i n d a t t r a c t i v e ?  Do you make any s p e c i a l  e f f o r t s t o p r o v i d e u n i n t e r r u p t e d supply t o your Japanese customers? I s i t p o s s i b l e f o r a c o n t r a c t t o n o t be renewed because a s u p p l i e r i s not competitive?  How f a r can s i g n e d c o n t r a c t s be c u t ?  What i s t h e d i f f e r e n c e between customers who n e g o t i a t e and those who n e g o t i a t e as a c o n s o r t i u m ?  individually  How does i t a f f e c t your  p o s i t i o n t o be n e g o t i a t i n g w i t h a p o w e r f u l and u n i t e d Japanese consortium?  I n p u t s Used:  Open P i t Equipment 200 tonne t r u c k s 100 tonne t r u c k s 350 tonne t r u c k s 170 tonne t r u c k s Water t r u c k s 35 t o n t r u c k s C o a l bucket f r o n t end l o a d e r s Rock bucket f r o n t end l o a d e r s Hydraulic shovel 25 c u . y a r d e l e c t r i c  shovels  15 cu. y a r d e l e c t r i c  shovels  8 cu. y a r d e l e c t r i c Rotary  shovels  drills  C r a w l e r & rubber t i r e Graders Main  conveyors  Truck boxes Hydraulic cylinders  dozers  Location of Manufacturer  Manufactured  Location of Supplier  159  Underground Equipment Continuous miners Pipes Flumes H y d r a u l i c monitor Shuttle cars Belt  conveyors  S t e e l arches Feeder-breaker Supply v e h i c l e s Pumps Double-deck  v i b r a t i n g screens  S l u r r y pumps Gland water pumps Emergency pumps Compressors Exhaust f a n s Pipe couplings Screens Underground t r a n s f o r m e r s  Location of Manufacturer  M a n u f a c t u r e d I n p u t s Used:  Location of Supplier  160  I n p u t s Used:  P r e p a r a t i o n P l a n t Equipment Breakers Heavy media b a t h HM c y c l o n e s Froth flotation  cells  Hydro c y c l o n e s Magnetic s e p a r a t o r s Centrifuges Desliming screens Clean c o a l screens Refuse screens Vacuum f i l t e r s Vacuum pumps A b r a s i v e s l u r r y pumps Heavy media pumps Sump pumps G e n e r a l pumps Scrubber pumps Rotary breaker Conveyor b e l t s Raw c o a l  silos  Exhaust f a n s f o r d r y e r Rotary crusher B e l t feeders Clean coal Refuse b i n  silos  Location of Manufacturer  Manufactured  Location of Supplier  161  I n p u t s Used:  A n c i l l a r y Equipment M o b i l e cranes Conveyor h o u s i n g tubes Transformers E l e c t r i c cable & couplings E l e c t r i c motors High p r e s s u r e p i p e s High s t r e n g t h s t e e l Bins Hoppers Chutes Cables  culverts  Location of Manufacturer  Manufactured  Location of Supplier  162  I n p u t s Used:  Wear P a r t s Toothed b u c k e t s Blade  buckets  Drill  bits  Tracks Gearing & d r i v e s Wear p l a t e s Skirting Transmissions Wire rope D i e s e l engines & p a r t s Electrical  components  Belting Hydraulics & hosing Rubber  tires  Power u n i t  components  C u t t e r heads & components Electric  motors  Transmission  -  Location of Manufacturer  Manufactured  Location of Supplier  163  Compactors Water Boom  trucks trucks  Pickups Crewcabs Fuel  trucks  Lube  trucks  Line  trucks  Ambulances Tow  trucks  Fire  trucks  Tire  trucks  Dewatering  trucks  Mobile  pumps  Mobile  welders  Compressors Backhoe Towerlights Lubrication Fork  lifts  stations  Location of Manufacturer  Supplier  Road E q u i p m e n t R e q u i r e m e n t s :  Location of  164  R e t a i l & Commercial S e r v i c e s Related to mining: Catering Welding Machining Engine r e b u i l d i n g Hydraulics rebuilding Auto/truck r e p a i r I n d u s t r i a l equipment s u p p l y Brake s e r v i c e C o n c r e t e c o n s t r u c t i o n forms & a c c e s s o r i e s Ready-mix c o n c r e t e C o n t r a c t o r s equipment r e p a i r , s u p p l y Crane r e n t a l d e l i v e r y s e r v i c e E l e c t r i c motor r e p a i r F i r s t a i d equipment & s u p p l i e s Furnace c l e a n i n g & r e p a i r Heating  contractors  Plumbing c o n t r a c t o r s Insulation contractors Mechanical contractors Paint  contractors  Excavating contractors Drilling  contractors  Electric  contractors  Machinery d i s t r i b u t i o n , l e a s e , r e n t a l Radio communications equipment & systems Sand & g r a v e l Haulage Tool sharpening Security services Steam c l e a n i n g & thawing Sandblasting  Location of Supplier  165  R e t a i l & Commercial S e r v i c e s Related to mining: (continued) Tire sales & service Towing  Location of Supplier  166  167  APPENDIX E:  FORMS COMPLETED BY B.C. COAL REGARDING SOURCING OF INPUTS AND SERVICES 1  4-1  4-1  O  c u  O CD •H "rl  Manufactured  I n p u t s Used:  4-1 r H CD (X  o a. O  3  i-l co  Open P i t Equipment  a o  •H . 4-1  cfl  CU M  3  4H  3  a c O CD •4 s Canada & USA  200 tonne t r u c k s  local  100 tonne t r u c k s  local  350 tonne t r u c k s  local  170 tonne t r u c k s  local  Water t r u c k s  local  35 t o n t r u c k s  local  C o a l bucket f r o n t end l o a d e r s  local  Rock bucket f r o n t end l o a d e r s  local  Canada USA Canada USA Canada USA Canada USA  Hydraulic shovel  local  France  Canada & USA Canada & USA Canada &  25 c u . y a r d e l e c t r i c  shovels  local  USA  15 c u . y a r d e l e c t r i c  shovels  local  USA  30 c u . y a r d e l e c t r i c  shovels  local  USA  local  USA  local  USA  Graders  local  USA  Main  local  USA  Truck boxes  local  USA  Hydraulic cylinders  local  Spain  Rotary  drills  C r a w l e r & rubber t i r e  dozers  conveyors  Summary:  100 p e r c e n t s u p p l i e d through l o c a l E l k V a l l e y s u p p l y o u t l e t s ; a p p r o x i m a t e l y 50 p e r c e n t manufactured i n Canada and 50 p e r c e n t manuf a c t u r e d i n USA.  & & & &  Manufactured Inputs Used: Underground Equipment  Location of Manufacturer  Location of Supplier  168  Canada & USA  U.K. & USA  Pipes  Japan  Japan  Flumes  Canada  Canada  Hydraulic monitor  Japan  Japan  Shuttle cars  USA  USA  Belt conveyors  Canada & UK Japan  Canada & UK Japan  Steel arches  U.K.  U.K.  Feeder-breaker  USA  USA  Supply vehicles  U.K. & USA  U.K. & USA  Pumps  Canada & USA, Japan  Canada & USA, Japan  Double-deck vibrating screens  USA  Spain  Slurry pumps  USA  USA  Gland water pumps  USA  USA  Emergency pumps  USA  USA  Compressors  USA  USA  Exhaust fans  USA & U.K.  USA & U.K.  Pipe couplings  Canada  Canada  Screens  USA  USA  Underground transformers  UK  UK  Continuous miners  Summary: Very l i t t l e supplied in local or national economy; mostly manufactured i n USA, U.K., and Japan.  I n p u t s Used:  Location of Manufacturer  Manufactured  Location of Supplier  169  P r e p a r a t i o n P l a n t Equipment Breakers  USA  USA  Heavy media b a t h  USA  USA  HM c y c l o n e s  USA  USA  Vancouver  USA  Hydro c y c l o n e s  USA  USA  Magnetic s e p a r a t o r s  USA  USA  Centrifuges  USA  USA  Desliming screens  Canada  USA  Clean coal  Vancouver  USA  Vancouver  USA  Vacuum f i l t e r s  USA  USA  Vacuum pumps  Canada  Canada  A b r a s i v e s l u r r y pumps  Canada  USA  Heavy media pumps  Canada  USA  Sump pumps  Canada  USA  G e n e r a l pumps  Canada & USA  Canada & USA  Scrubber pumps  Canada  USA  Rotary breaker  USA  Conveyor b e l t s  Canada  USA Canada & USA, Japan  Froth f l o t a t i o n  Refuse  cells  screens  screens  Raw c o a l  ?  silos  Exhaust f a n s f o r d r y e r  Vancouver  Canada  Rotary crusher  Canada  Canada  B e l t feeders  Canada  Canada  Clean coal Refuse b i n  Summary:  silos  ?  Canada  ?  Canada  About 50 p e r c e n t a v a i l a b l e from Canadian (but n o t l o c a l ) s u p p l i e r s : almost a l l manufactured i n USA.  Location of Manufacturer  M a n u f a c t u r e d I n p u t s Used:  Location of Supplier  170  A n c i l l a r y Equipment M o b i l e cranes  Canada  USA  Conveyor h o u s i n g tubes  local  Canada  Transformers  Canada  Canada  E l e c t r i c cable & couplings  local Canada & Japan  USA USA & U.K.  Canada  Canada  Canada  Canada  Bins  Vancouver  Canada  Hoppers  Vancouver  Canada  Chutes  Vancouver  Canada  Cables  Canada  Canada  Electric  motors  High pressure pipes High s t r e n g t h s t e e l  Summary:  culverts  About 50 p e r c e n t a v a i l a b l e from p r o v i n c i a l s u p p l i e r s and a l l a v a i l a b l e from Canadian s u p p l i e r s ; about 50 p e r c e n t manufactured i n Canada and 50 p e r c e n t i n USA.  I n p u t s Used:  Wear P a r t s  Location of Manufacturer  Manufactured  Location of Supplier  171  Toothed b u c k e t s  local  USA & Canada  Blade  buckets  local  USA  Drill  bits  B.C.  USA  Tracks  Canada  Gearing & d r i v e s  local  USA USA &  Wear p l a t e s  local  Canada  Skirting  local  Canada  Transmissions  local  Canada  Wire rope  local  Canada  D i e s e l engines & p a r t s  local  USA  E l e c t r i c a l components  local  Belting  local  Hydraulics & hosing  local  Rubber t i r e s  local  Power u n i t components C u t t e r heads & components E l e c t r i c motors  local Saskatchewan Calgary  USA Canada, UK,Japan Canada Canada, USA, Japan Canada, USA USA  Transmission  local  Summary:  A p p r o x i m a t e l y a l l l o c a l l y s u p p l i e d ; about 75 p e r c e n t manufactured i n USA and 25 p e r cent i n Canada.  Canada  Canada USA  Location of Manufacturer  Road Equipment Requirements:  Location of Supplier  172  Compactors  local  USA  Water t r u c k s  Canada  USA  Boom t r u c k s  local  Canada  Pickups  local  Canada  Crewcabs  local  Canada  Fuel  trucks  local  Canada  Lube t r u c k s  local  Canada  Line  local  Canada  Ambulances  local  Canada  Tow t r u c k s  local  Canada  Fire  Canada  Canada  Tire trucks  local  Canada  Dewatering t r u c k s  local  USA  M o b i l e pumps  local  USA  Mobile welders  local  Compressors  local  USA Canada, USA  Backhoe  Canada  Towerlights  Vancouver Vancouver  Lubrication stations  Canada  USA  Fork  Canada  USA  trucks  trucks  lifts  Summary:  About 100 p e r c e n t l o c a l l y s u p p l i e d ; about 50 p e r c e n t manufactured i n Canada and 50 p e r c e n t i n USA.  USA  Location of Supplier  173  R e t a i l & Commercial S e r v i c e s Related to mining: Catering  Vancouver  Welding  B.C.  Coal & l o c a l  Machining  B.C.  Coal & l o c a l  Engine r e b u i l d i n g  B.C.  Coal & l o c a l  Hydraulics rebuilding  local  Auto/truck  B.C.  repair  I n d u s t r i a l equipment  supply  local  Brake s e r v i c e C o n c r e t e c o n s t r u c t i o n forms & Ready-mix  B.C. accessories  concrete  Contractors  equipment r e p a i r , supply  B.C.  E l e c t r i c motor r e p a i r  B.C.  F i r s t a i d equipment & s u p p l i e s  local  Furnace c l e a n i n g & r e p a i r  local  Heating  local  Plumbing c o n t r a c t o r s  local  Insulation contractors  local  Mechanical contractors  local  Paint  local  contractors contractors  Coal & l o c a l Coal &  Calgary  local  Drilling  contractors  Alberta  Electric  contractors  local  Machinery d i s t r i b u t i o n , l e a s e , r e n t a l  local  Radio communications equipment & systems  local  Sand & g r a v e l  local  Haulage  local  Tool  B.C.  sharpening  Calgary  local local  contractors  Coal &  local  Crane r e n t a l d e l i v e r y s e r v i c e  Excavating  Coal  Security services  local  Steam c l e a n i n g & thawing  local  Sandblasting  B.C.  Coal  Coal & l o c a l  174  CD  4-1  o U  O  3  o o a, o 3  R e t a i l & Commercial S e r v i c e s Related to mining: (continued)  hJ  local & Vancouver & Calgary  Towing  B.C. C o a l  NOTES:  SOURCE:  About 100 p e r c e n t l o c a l l y  O rt  U-l  OO  Tire sales & service  Summary:  4J  3  available,  T h i s i n f o r m a t i o n i s summarized from the d a t a r e c e i v e d from B.C. C o a l L t d . I t i s e x t r e m e l y d i f f i c u l t t o be a b s o l u t e l y a c c u r a t e about t h e source o f each p i e c e o f equipment and i t s components b u t i t i s f e l t t h a t t h i s i n f o r m a t i o n i s a good i n d i c a t i o n of t h e sources o f B.C. C o a l ' s i n p u t s and s e r v i c e s as of 1982. B.C. C o a l L t d . 1982: p e r s o n a l communication.  175  APPENDIX F:  FORMS COMPLETED BY WESTSHORE TERMINALS LTD. REGARDING SOURCING OF INPUTS AND SERVICES 1  w  m co o H  UJ  O  3  C w o  oi  4-1  t-J  HJ  3 CO  •H  tu O o  Equipment Used:  4J  O tt!  -t-l  u-i 3  Cu CL,  C  ni ,-J  S  Major Equipment R o t a r y dumper  USA  Conveyor b e l t s  Canada  Japan/USA  Canada  Canada/ Japan  62-metre boom s t a c k e r  reclaimer  Trimmer  Canada  Shiploaders  Canada  Pumping system  Canada  Tank t r u c k s  Canada  H i g h volume pumps  local & USA  Wear P a r t s For e x c a v a t o r s and s t a c k e r r e c l a i m e r s ; Tracks  USA & local  Bucketwheel t e e t h  local  Idlers  local & USA  Belting  local, Japan & USA  E l e c t r i c a l components  local & USA  For conveyor b e l t s ; Idlers  Canada & USA  Sections  Canada  Wear p l a t e s  Canada  Skirting  Canada  D r i v e s and g e a r i n g  Canada & USA  Belting  Canada & USA & Japan  Canada/ Germany  Others: A u x i l i a r y conveyors  Canada  Bins  Canada  Hoppers  Canada  Chutes  Canada  Electric  Motors  Electric control  Canada & USA systems  Canada & USA  Toothed b u c k e t s  Canada  Blade buckets  Canada  Transmissions  Canada  Wire rope  Canada  D i e s e l engine and p a r t s  Canada & USA  Location of Manufacturer  Location of Supplier  176  Catering  local  Welding  local  Machining  local  Engine r e b u i l d i n g  local  Auto/truck repair  local  I n d u s t r i a l equipment  supply  local  Brake s e r v i c e  local  Compressors  local  Compressors  local  C o n t r a c t o r s equipment r e p a i r , supply  local  Crane r e n t a l  local  service  E l e c t r i c motor r e p a i r  local  Mechanical contractors  local & provincial  Electrical  local & provincial  contractors  Machinery d i s t r i b u t i o n , l e a s e , r e n t a l  local  Radio communications equipment and systems  local  Tool sharpening  local  Security  services  local  Steam c l e a n i n g and thawing  local  F i r s t a i d equipment and s u p p l i e s  local  NOTES:  SOURCE:  Location of Manufacturer  R e t a i l and Commercial S e r v i c e s :  Location of Supplier  177  ^This i n f o r m a t i o n i s summarized from t h e d a t a r e c e i v e d from Westshore T e r m i n a l s L t d . U n f o r t u n a t e l y i t i s i n c o m p l e t e because I f a i l e d t o d i f f e r e n t i a t e between t h e l o c a t i o n o f t h e manufact u r e r and the s u p p l i e r a t t h e time of t h e i n t e r v i e w . Westshore T e r m i n a l s 1982: p e r s o n a l communication.  

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