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Canadian export interests and challenges from the Pacific 1985

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CANADIAN EXPORT INTERESTS AND CHALLENGES FROM THE PACIFIC By DONALD PETER RICHARDS B.A., McGill University, 1964 LL.B., The University of Toronto, 1968 A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTERfoF ARTS in THE FACULTY OF GRADUATE STUDIES (School of Community and Regional Planning) We accept this thesis as conforming to the required standard THE UNIVERSITY OF BRITISH COLUMBIA April 1985 (c) Donald Peter Richards, 1985 In presenting this thesis in partial fulfilment of the requirements for an advanced degree at the University of British Columbia, I agree that the Library shall make i t freely available for reference and study. I further agree that permission for extensive copying of this thesis for scholarly purposes may be granted by the head of my department or by his or her representatives. It is understood that copying or publication of this thesis for financial gain shall not be allowed without my written permission. Department of Graduate Studies (School o f Community and Regional Planning) The University of British Columbia 1956 Main Mall Vancouver, Canada V6T 1Y3 „ 24 A p r i l 1985 Date K E-6 (3/81) .ABSTRACT From early c o l o n i a l times the Canadian economy, highly dependent on exports, has developed a p l u r a l i s t economic system i n a generally congenial i n t e r n a t i o n a l environment. Since 1970 however, the Canadian economy has been challenged, a l b e i t at the margins, by unfamiliar impacts l a r g e l y o r i g i n a t i n g i n the P a c i f i c economy. The i n s t i t u t i o n a l reactions of relevant Canadian export i n t e r e s t s - defined as the fede r a l government, p r o v i n c i a l governments and a small number of Canadian firms - have, on the whole, proved inadequate to these challenges. This inadequacy threatens Canadian domestic prosperity and constrains economic and p o l i t i c a l options i n t e r n a t i o n a l l y . This study hypothesizes that an adequate response to these new challenges depends on i n s t i t u t i o n a l adaptation w i t h i n and among Canadian export i n t e r e s t s . Six p r i n c i p l e s are advanced to promote t h i s adaptation: 1. the p r i o r i t y of economic considerations; 2. the legitimate r o l e of government; 3. f u l l p r o v i n c i a l p a r t i c i p a t i o n ; 4. coordination by the national government; 5. an aut h o r i t a t i v e voice f o r each i n t e r e s t ; 6. better sharing and use of information. The s i x p r i n c i p l e s are applied i n three case studies. The f i r s t concerns the i n t e r n a t i o n a l marketing challenge posed by the Japanese general trading company (soga shosha), and the Canadian government's i n i t i a t i v e to create a Canadian trading corporation. The a p p l i c a t i o n of the s i x p r i n c i p l e s suggests an a l t e r n a t i v e proposal, the Canadian Commercial Centre, i n which Canadian export i n t e r e s t s develop and share information i n a way which recognizes the appropriate r o l e of each and the o b l i g a t i o n of a l l to a t t a i n a greater coherence. The second case study concerns the recent Western Liq u i d Natural Gas (WLNG) project which featured a new form of investment (the mi n i o r i t y i n t e r e s t j o i n t venture coupled with a long-term supply contract) i n which a consortium of Japanese buyers represented by a Japanese general trading company sought to reach agreement with an uncoordinated c o l l e c t i o n of Canadian firms and governments. The lack of coherence among these Canadian i n t e r e s t s was at le a s t a contributing f a c t o r i n the loss of an opportunity to expand and d i v e r s i f y Canadian LNG markets. The a p p l i c a t i o n of the s i x p r i n c i p l e s to the WLNG case y i e l d s an a l t e r n a t i v e Canadian approach inv o l v i n g the early establishment of a committee of au t h o r i t a t i v e o f f i c i a l s from the relevant Canadian i n t e r e s t s , and a new coordinating r o l e f o r a fe d e r a l agency l i k e the (now disbanded) Mini s t r y of State f o r Economic and Regional Development and the Federal Economic Development Coordinator. i i i The f i n a l case study concerns the challenge to trade and investment represented by the movement to a P a c i f i c economic community, notably the P a c i f i c Economic Community concept (PECC). The current reactions of such i n s t i t u t i o n s as the Canadian committee of the P a c i f i c Basin Economic Council and the federal Department of External A f f a i r s are assessed, leading to the recommendation that the Canadian government should involve a wider constituency of current and p o t e n t i a l Candian export i n t e r e s t s i n an educational p o l i c y process which may bear on Canada's future prosperity and p o l i t i c a l r e s i l i e n c e . i v TABLE OF CONTENTS Page Abstract Table of Contents L i s t of Tables L i s t of Figures Chapter 1 - Introduction 1 1. Prologue 2. Problem Statement 3. Methodology Chapter 2 - The Challenged: Canadian Export Interests 6 1. Introduction 2. Canadian Export Interests and Their Goals (a) The Public Sector (b) The Private Sector 3. The Recent Organization of Canadian Export Interests (a) Intra-Interest Relations ( i ) The National Government ( i i ) P r o v i n c i a l Governments - Alberta ( i i i ) Industries and Firms (b) Inter-Interest Relations ( i ) Federal-Business Relations ( i i ) I n t e r p r o v i n c i a l Relations ( i i i ) Federal-Business Relations ( i v ) Provincial-Business Relations 4. Summary Chapter 3 - The Challenges: The Japanese General Trading Company and the P a c i f i c Economic Community Concept 32 1. Introduction 2. The General Trading Company and the P a c i f i c Economy 3. The Evolving P a c i f i c Economy (a) Elements of the Evolving P a c i f i c Economy ( i ) Business ( i i ) Economic Research ( i i i ) S t r ategic 4. Summary i i i v v i v i i V Chapter 4 - P r i n c i p l e s f o r Canada's I n s t i t u t i o n a l Response 49 to the P a c i f i c Challenges 1. Introduction 2. Rationalism and Organization Development 3. P r i n c i p l e s of Legitimacy (1) The P r i o r i t y of Economic Considerations (2) The Legitimate Role of Government (3) F u l l P r o v i n c i a l P a r t i c i p a t i o n (4) Coordination by the National Government 4. P r i n c i p l e s of Communication (1) An Authoritative Voice f o r Each Export Interest (2) Better Sharing and Use of Information 5. A p p l i c a t i o n of P r i n c i p l e s to Case Studies Chapter 5 - Case Study 1: The Marketing Challenge 65 1. Canadian Reaction: the Canadian Trading Corporation 2. A Better Response: the Canadian Commercial Centre Chapter 6 - Case Study 2: The Investment Challenge 73 1. Introduction 2. The Western Liq u i d Natural Gas (WLNG) Case (a) Japanese Interests (b) Canadian Interests (c) An Assessment of Canadian Reactions 3. A Better Response to the WLNG Situation Chapter 7 - Case Study 3: The P a c i f i c Economic Community Challenge 95 1. Regional Theory 2. The P a c i f i c Economic Community Concept (PECC) 3. Reactions of Canadian Export Interests to the Attempted Elaboration of the P a c i f i c Economy 4. A Better Response to PECC Chapter 8 - Conclusion 110 1. Findings 2. Recommended Further Research Notes 116 Bibliography 118 v i LIST OF TABLES I. Themes addressed by the P a c i f i c Trade and Development 43 Conferences (PACTAD) I I . The Corporate and P o l i c i e s Planning Styles of A l l o c a t i v e 60 Planning I I I . Major Regulatory Requirements for Western LNG Project 76 IV. Keys to LNG Project Development 80 V. I n s t i t u t i o n s contacted by the Department of External 106 A f f a i r s , January-March 1984 VI. Compliance with the Six P r i n c i p l e s i n each of the Case 111 Studies v i i LIST OF FIGURES 1. Model of Transactive Planning 63 2. Scheme for the Western LNG Project 77 3. The F i s c a l Regime of the Petroleum Industry under 82 the National Energy Program 4. Organization Chart f o r the Department of Regional 93 I n d u s t r i a l Expansion (DRIE) 5. Models of International Region Building 97 6. Trade among P a c i f i c Economies (1979) on the 108 Basis of Salience Scores - 1 - CHAPTER 1 - INTRODUCTION 1. Prologue Exports are c e n t r a l to the pursuit of a materially prosperous and c u l t u r a l l y d i s t i n c t Canadian p o l i t y . Canada exports 29% of i t s GNP compared to 13% f o r Japan and 21% for the United Kingdom, often regarded as 'export or die' economies. Without f a l l i n g i n t o too great a r e l i a n c e on the 'staples theory' (Innis, 1933), i t may be s a i d that the prosperity of the Canadian economy has i n large measure been based on the export of a succession of raw materials ( f i s h , p e l t s , timber, cereals, ores and energy) demanded by foreign, often metropolitan, economies. This pattern has so affected succeeding generations of Canadian immigrants, each usually associated with the staple dominant at the time of t h e i r a r r i v a l , that i t has become part of the Canadian psyche. Individuals, industry and governments have been formed within t h i s environment which, combined with Canada's r e l a t i v e l y small domestic market, has produced a national economy e x t r a o r d i n a r i l y dependent on foreign demand. In the past, Canadian export i n t e r e s t s have generally responded to challenges from economic cultures i n which t h e i r decision-makers were partners, a l b e i t j u n i o r partners. Canadian decision-makers were successively mostly French-, B r i t i s h - and American-oriented when such systems as mercantilism, imperial free trade, p o r t f o l i o investment, and d i r e c t total-ownership foreign investment succeeded each other as leading forces i n Canadian economic l i f e . This f a m i l i a r i t y with dominant North A t l a n t i c economic patterns informed the evolution of a complex weave of federalism and - 2 - business-government r e l a t i o n s i n Canada. C o n f l i c t between the i n t e r n a t i o n a l system and dominant Canadian attitudes and organization was minimal; the Canadian e l i t e understood the components and the rules of the greater game. In the past 20 years a new set of challenges from unfamiliar cultures has confronted Canadian decision-makers, most of whom were schooled i n the i n t e r n a t i o n a l Anglo-American school of l i b e r a l l a i s s e z - f a i r e economics. These new challenges were numerous. They included dealing with a v a r i e t y of Asian and American 'development sta t e s ' (Johnson, 1982) l i k e Japan and Mexico; with 'Confucian' states (Hofheinz and Calder, 1982) l i k e Japan, South Korea and China; and with regional groupings l i k e ASEAN (Crone, 1983). They also included coping with the r i s k of f o r e i g n resource- or labour-substituting advanced technologies on the one hand, and labour-intensive standardized technologies i n low wage countries on the other. There are nonetheless two challenges which have tended to incorporate the e f f e c t s of others, and which are p a r t i c u l a r l y s i g n i f i c a n t i n t h e i r impact on the r e a l i z a t i o n of the goals of Canadian export i n t e r e s t s i n P a c i f i c markets. These are (1) the Japanese general trading company, which has l a r g e l y defined the present nature of the P a c i f i c economy, and (2) current attempts at an elaboration of an economic community, which are contributing to the d e f i n i t i o n of the P a c i f i c economy of the future. Canadian decision-makers are badly equipped, i n terms of a t t i t u d e , information and organization, to respond adequately to the ' P a c i f i c challenges'. This i s unfortunate since many see the A s i a - P a c i f i c region as the global centre f o r economic growth into the twenty-first - 3 - century (McGee, 1983). Canadians must learn to perform better i n the P a c i f i c economy, or be faced with the consequences of f a i l u r e : a decline of l i v i n g standards and, ultimately, of an expensive n a t i o n a l sovereignty. 2. Problem Statement The purposes of t h i s thesis are: (1) to i d e n t i f y weaknesses i n the i n s t i t u t i o n a l reactions of major Canadian export i n t e r e s t s to a number of r e l a t i v e l y recent challenges i n the P a c i f i c economy, and (2) to suggest responses to remedy some of these weaknesses. This thesis argues that there are f e a s i b l e , better a l t e r n a t i v e s to the confrontational and uncoordinated approach which has characterized export planning i n Canada among senior governments, and between the pu b l i c and private sectors generally. An 'adequate response' by the managers of Canadian export i n t e r e s t s to the implications of these P a c i f i c challenges w i l l be one which advances t h e i r p a r t i c u l a r goals; these are at present l a r g e l y centred on revenue. This response w i l l d i f f e r from current ad hoc reactions i n being dependent on correlated changes i n a t t i t u d e among decision-makers and reorganization within and among decision-making u n i t s . 3. Methodology Chapters 2 and 3 define the main terms of the problem statement. Chapter 2 defines 'Canadian export i n t e r e s t s ' and assesses the r e l a t i o n s among them over the past decade with p a r t i c u l a r emphasis on matters r e l a t i n g to P a c i f i c trade. Chapter 3 assesses the challenges to Canadian export i n t e r e s t s . - 4 - The f i r s t section delineates the c h a r a c t e r i s t i c s ( p a r t i c u l a r l y the trading and i n v e s t i n g c h a r a c t e r i s t i c s ) of the Japanese general trading company, contrasting these with aspects of other multinational companies. The second section assesses the various elements which have contributed to the concept of ' P a c i f i c economic community' over the past twenty years. Drawing on the empirical lessons of Chapters 2 and 3 as w e l l as on the planning theories of a number of Canadian and American analysts, Chapter 4 proposes s i x planning p r i n c i p l e s which may be applied to improve the i n d i v i d u a l and c o l l e c t i v e performance of Canadian export i n t e r e s t s . Four of these p r i n c i p l e s c a l l on each of Canada's various export in t e r e s t s to acknowledge the r i g h t of the others to perform c e r t a i n functions i n the formulation of export p o l i c y and programs. The four p r i n c i p l e s of legitimacy are: (1) the p r i o r i t y of economic considerations, (2) the c e n t r a l r o l e of government, (3) the f u l l p a r t i c i p a t i o n of p r o v i n c i a l governments, and (4) the n a t i o n a l government's r e s p o n s i b i l i t y to coordinate. The other p r i n c i p l e s concern communication. They are: (1) that each export i n t e r e s t speak with a s i n g l e a u t h o r i t a t i v e voice and (2) that there be established a better sharing and use of information. Each of Chapters 5, 6 and 7 i s a case study of the challenges confronting Canadian export i n t e r e s t s . Each case study includes a r e c i t a l of s a l i e n t elements, a c r i t i c a l a p p l i c a t i o n of the s i x p r i n c i p l e s , and a proposed a l t e r n a t i v e approach based on these p r i n c i p l e s . Chapter 5 ('The Marketing Challenge') investigates the reactions of Canadian export i n t e r e s t s to the trading challenge of the Japanese - 5 - general trading company i n a case study of the federal government's abortive Canadian Trading Corporation. An a l t e r n a t i v e response, Canadian Commercial Centres i n P a c i f i c markets, i s proposed on the basis of the planning p r i n c i p l e s . Chapter 6 ('The Investment Challenge') examines the f a i l e d Western Li q u i d Natural Gas project as exemplifying the reaction of Canadian export i n t e r e s t s to the investment challenge of the Japanese general trading company. A p p l i c a t i o n of the s i x p r i n c i p l e s leads to an a l t e r n a t i v e i n s t i t u t i o n a l arrangment f o r t h i s kind of complex megaproject. Chapter 7 ('The P a c i f i c Economic Community Challenge') describes the current leading v e r s i o n of the P a c i f i c community, the P a c i f i c Economic Community concept. Inadequacies i n the recent reactions of Canadian export i n t e r e s t s are i d e n t i f i e d and remedies proposed. Most of the material In t h i s paper i s drawn from secondary sources located i n the UBC l i b r a r y system; from government documents from Ottawa, Toronto, Edmonton and V i c t o r i a ; and from The Globe and Mail (hereafter 'GM'), The F i n a n c i a l Post (hereafter 'FP') and the Far Eastern Economic Review (hereafter 'FEER') over a period of eighteen months beginning i n mid-1983. The case studies are greatly a s s i s t e d by information from interviews conducted i n Vancouver, Ottawa and Toronto; those i n Ontario were made possible by a t r a v e l grant from the Max B e l l Foundation. In what follows, Japanese names are given i n the Japanese manner; that i s , family name f i r s t . - 6 - CHAPTER 2 - THE CHALLENGED: CANADIAN EXPORT INTERESTS 1. Introduction This chapter defines the protagonists of the t h e s i s — t h o s e Canadian i n t e r e s t s whose a c t i v i t i e s and interactions must improve to achieve adequate responses to the opportunities presented by new, l a r g e l y Japanese, challenges to Canada's export economy. Af t e r defining Canadian export i n t e r e s t s f o r the purposes of the th e s i s , t h i s chapter continues with an assessment of some recent i n t e r r e l a t i o n s between the major Canadian export i n t e r e s t s — t h e federal government, some p r o v i n c i a l governments, and a number of fi r m s . 2. Canadian Export Interests and t h e i r Goals Canadian export i n t e r e s t s w i l l be defined as those engaged i n current decision-making which d i r e c t l y and c e n t r a l l y a f f e c t s Canadian export capacity i n the P a c i f i c economy. This means governments and firms, but not a l l governments and not a l l firms. (a) The Public Sector Section 91(2) of the Canada Constitution Act gives the na t i o n a l government 'exclusive l e g i s l a t i v e authority' over 'the regulation of trade and commerce' and Ottawa i s generally acknowledged to be the sole locus of Canadian sovereignty. These factors alone are s u f f i c i e n t f o r considering Ottawa a Canadian decision-maker i n the P a c i f i c . Section 92(13) gives the p r o v i n c i a l l e g i s l a t u r e s j u r i s d i c t i o n i n 'property and c i v i l r i g h t s i n the province' and, through a 1982 amendment (se c t i o n 92A), i n 'non-renewable natural resources, f o r e s t r y resources and e l e c t r i c a l energy' except where i n c o n f l i c t with a national law. - 7 - Moreover, many of the provinces have been pursuing an active f o r e i g n trade promotion p o l i c y which, however much i t offends the n a t i o n a l government's claim to exclusive representation of Canadian sovereignty or confuses non-Canadians, adds weight to the consideration of Canadian provinces as decision-makers i n the P a c i f i c economy. Not a l l provinces are equally active i n exports or export promotion i n the P a c i f i c economy. Among those that are can be numbered B r i t i s h Columbia, Alberta and Ontario; .the Government of Alberta w i l l provide the p r o v i n c i a l focus In what follows. The use of the simple word 'government' should not mask the increasing complexity of the national and p r o v i n c i a l l e v e l s of administration. As Cairns (1977:703-704) writes: The m i n i s t r i e s , departments, agencies, bureaus, and f i e l d o f f i c e s to which they (government bureaucracies) d a i l y report constitute p a r t i a l l y self-contained e n t i t i e s , valued f o r t h e i r own sake, and possessed of t h e i r own l i f e and i n t e r e s t s . Their minimum desire i s f o r a steady l e v e l of a c t i v i t y . T y p i c a l l y , however, they seek to enlarge the scope of t h e i r functions. I f the environment of f e r s new opportunities f o r expansion i n emergent problem areas they w i l l compete with other bureaucracies f o r the prizes of status and growth offered by enhancement of t h e i r a c t i v i t y . . . . These pyramids of bureaucratic power and ambition are capped by p o l i t i c a l a u t h o r i t i e s also possessed of p r o t e c t i o n i s t and expansionist tendencies. The eleven governments of the f e d e r a l system endow the incumbents of p o l i t i c a l o f f i c e with the primary task of defending and advancing the basic i n t e r e s t s of c r u c i a l sectors of the p r o v i n c i a l or n a t i o n a l economy and so c i e t y . I f a l l of these agencies have bureaucratic maintenance as an i n d i v i d u a l goal, c o l l e c t i v e l y (as governments) they seek revenue ( i n such forms as taxes and r o y a l t i e s ) from exports to the P a c i f i c , or elsewhere. In a period of large d e f i c i t s and economic stagnation, governments require revenue as never before to support t h e i r operations, including large transfer and s o c i a l i n f r a s t r u c t u r e programs - 8 - i n such areas as health, education, unemployment benefits and welfare, without which t h e i r continuance would be threatened. This revenue goal i s c l e a r l y p r i o r to job creation, f o r example, since even very high unemployment i s le s s l i k e l y to unseat governments and c i v i l servants than i s a general curtailment of services adversely a f f e c t i n g a greater number of voters. The Government of B r i t i s h Columbia i s perhaps unique i n i t s e x p l i c i t adoption of t h i s p r i o r i t y (GM, 3 May 1984: BC1): The Government's wide-ranging blueprint f o r economic growth stresses increasing exports, reducing costs, removing 'barriers' to the labour market and cutting regulations. Government involvement 'should be directed away from simply subsidizing jobs and income and toward wealth-creating a c t i v i t i e s , ' says the report on r e v i v i n g B.C.'s f a l t e r i n g economy. Since a l l c o n s t i t u t i o n a l power, including that r e l a t i n g to export promotion, i s divided between the na t i o n a l government and the p r o v i n c i a l governments and since public-sector export decision-makers and resources are concentrated i n these governments, there i s no reason to consider as export i n t e r e s t s Canadian regions not t e r r i t o r i a l l y congruent with the provinces. Thus, whatever the merit of considering Canada's four western provinces, or three p r a i r i e provinces, as a region; or of s e l e c t i v e closure and t e r r i t o r i a l r e l a t i o n s h i p s (Friedmann and Weaver, 1979:7); or of d e f i n i n g Canada as parts of s i x North American nations, each based on 'a d i s t i n c t prism through which i t views the world' (Garreau, 1981:2), the f a c t i s that current governmental power resides i n Canada's eleven senior governments. This r e a l i t y also excludes c i t i e s or urban regions. Whatever t h e i r economic importance i n the production and organization of export a c t i v i t y (Jacobs, 1984), t h e i r governments, being c o n s t i t u t i o n a l - 9 - creatures of the provinces, are too p o l i t i c a l l y and f i s c a l l y dependent to be considered 'Canadian export i n t e r e s t s ' i n t h i s t h e s i s . (b) The Private Sector In the private sector i t i s c l e a r that r e l a t i v e l y few firms constitute Canadian export i n t e r e s t s i n the sense of being s i g n i f i c a n t decision-making u n i t s i n export promotion. These firms are t y p i c a l l y very large because of the scale usually required f o r competitive export a c t i v i t y . Whatever the future success of 'threshold firms' (as Steed (1983) describes those smaller firms with a p o t e n t i a l l y competitive product but l i m i t e d resources committed to export marketing), i t should be acknowledged that they cannot f i g u r e among Canadian export i n t e r e s t s since the exports of a l l small firms w i l l continue to be only a small f r a c t i o n of the t o t a l Canadian p i c t u r e . Figures from the f e d e r a l Secretariat of Small Business suggest that of the 11,500 firms surveyed i n 1979, the smallest 5300 had aggregate sales of about $5 b i l l i o n , of which $221 m i l l i o n (4.5%) was earned by exports. By contrast, 5000 medium-sized operations had aggregate sales of $28.4 b i l l i o n , of which $3.5 b i l l i o n (12.4%) came from exports, while the thousand largest firms had $145 b i l l i o n i n sales, $31 b i l l i o n (27.5%) i n exports. The importance of exports by smaller firms cannot be said to reside i n t h e i r sales or revenue p o t e n t i a l , but i n t h e i r t y p i c a l l y higher value added and i n the recognized capacity of small industry to create employment, i n contrast to labour-shedding larger industry. Related to t h e i r r e l a t i v e s i z e i s the f a c t that, owing to the high degree of concentration of Canadian industry (GM, 5 May 1984: 14), firms that may be counted as Canadian export in t e r e s t s are very few i n - 10 - number. In global terms, the f i f t y leading export firms i n Canada account f o r half the country's export of goods ($45.5 b i l l i o n of $91.3 b i l l i o n i n 1983) while the top ten (Note 1) account f o r 30% (The F i n a n c i a l Post 500, 1984: 125). Most of these exports were i n the primary sector; that i s , i n forest products, energy (petroleum and e l e c t r i c i t y ) , minerals, and cereals. Only thirte e n of the leading f i f t y Canadian exporters could be said to export f i n i s h e d products (automobiles, aerospace, communications, urban transport, farm machinery, s t e e l , chemicals and food products), mostly to the United States. By the same token, i t i s a few large Canadian f i n a n c i a l and other corporations that account f o r most of Canada's revenue ($17 b i l l i o n i n 1983) from fo r e i g n i n v i s i b l e s such as i n t e r e s t , dividends and r o y a l t i e s . The managers of exporting firms share many of the bureaucratic motivations of t h e i r counterparts i n the public sector. There i s , however, a major d i s t i n c t i o n between the government and the f i r m . I f government decison-makers are ultimately answerable to t h e i r various p l u r a l i s t i c e l e c t o r a t e s , corporate managers are responsible to t h e i r owners, whether few or (as i n some publicly-traded firms) many i n number. This means that, even more single-mindedly than government leaders, the managers of exporting firms are interested i n revenue, a major element i n p r o f i t s and so of a supportive ownership. A r e l a t e d d i f f e r e n c e i s that, i n the public sector, a l l voters and t h e i r representatives, however constrained by foreign circumstances, are resident i n Canada and at le a s t one of i t s provinces, whereas corporate owners and decision-makers are often foreign. Twenty-two of Canada's f i f t y leading exporters (already q u a l i f i e d above as 'Canadian - 11 - export i n t e r e s t s ' ) have foreign ownership. Most of these firms are engaged i n the export of energy, and i n d u s t r i a l and a g r i c u l t u r a l raw materials; only eight ( i n c l u d i n g four operating under the Auto Pact of 1965) are engaged i n the export of manufactured goods. Thirty-three of the f i f t y largest foreign-owned firms i n Canada, however, are e s s e n t i a l l y engaged i n s a t i s f y i n g Canadian demand f o r internationally-promoted goods and ser v i c e s . Regardless of the hopes of t h e i r Canadian managers and of Canadian governments, or of the promise of world product mandates, i t i s u n l i k e l y that the fo r e i g n d i r e c t o r s of these firms contemplate a r o l e f o r them i n the augmentation of Canadian exports. I t i s accordingly d i f f i c u l t to consider these firms as even p o t e n t i a l Canadian export i n t e r e s t s . Also to be excluded as Canadian export i n t e r e s t s are pr i v a t e non-business sector i n d i v i d u a l s and i n s t i t u t i o n s with a stake, but no d i r e c t decision-making power, i n the question of Canadian exports to P a c i f i c markets. These include labour, consumers, and researchers, both i n d i v i d u a l l y and c o l l e c t i v e l y through t h e i r unions and associations. They can attempt to a f f e c t exports through s t r i k e s or boycotts or reports, f o r example, but t h e i r p a r t i c i p a t i o n i s neither regularized nor c e n t r a l and t h e i r influence i s normally transmitted through one or more of the major i n t e r e s t s ; that i s , through the large exporting firms, or p r o v i n c i a l or n a t i o n a l governments. 3. The Recent Organization of Canadian Export Interests (a) Intra-Interest Relations ( i ) The National Government The national government has f o r more than a decade approached - 12 - export planning with a c e n t r a l i s t i n t e n t i o n and a r a t i o n a l i s t approach. This has led to i n t e r n a l contradictions i n Ottawa, to say nothing of the e f f e c t beyond the nat i o n a l c a p i t a l . The government's p o l i c y was to d i r e c t the other Canadian export i n t e r e s t s - the p r i v a t e sector i n p a r t i c u l a r - i n a drive to e s t a b l i s h increased and d i v e r s i f i e d exports i n the P a c i f i c . The prime minister and other ministers i n i t i a t e d r e c i p r o c a l v i s i t s i n the region, s e t t i n g a r h e t o r i c a l challenge to Canadian firms to pursue opportunities which were often asserted rather than demonstrated. S t a i r s (1981:98) has s u c c i n c t l y stated two of the weaknesses of t h i s approach: The d i v e r s i f i c a t i o n strategy i s prima f a c i e an a t t r a c t i v e one, and i n broad o u t l i n e i s l i k e l y to remain a permanent feature of Canadian foreign p o l i c y . At the same time, i t suffers from ... disadvantages or u n c e r t a i n t i e s . The f i r s t i s that i t u l t i m a t e l y r e l i e s f o r i t s success on the a c t i v e support of private organizations and i n d i v i d u a l s , and hence i s not f u l l y under the administrative control of the government. P u b l i c p o l i c y i n i t i a t i v e s can seek to make opportunities a v a i l a b l e , can attempt to ensure that Canadians are aware of them, and through tax incentives and the l i k e can t r y to make them appear more a t t r a c t i v e . In the f i n a l analysis, however, a great deal must be l e f t to the p r i v a t e sector, which may not be very responsive. The second l i m i t a t i o n i s that i t also depends on the w i l l i n g co-operation of the t h i r d p a r t i e s - that i s , the governments and the relevant constituencies of the targeted s t a t e s . . . . Meanwhile, i n i t s f a s c i n a t i o n with organization and with c e n t r a l agencies, the Privy Council O f f i c e under Michael P i t f i e l d engineered the protracted amalgamation i n t o the Department of External A f f a i r s (DEA) of the Trade Commissioners Service (TCS) of the Department of Industry, Trade and Commerce when the i n d u s t r i a l components of that ministry were joined to the Department of Regional Economic Expansion to form the Department of Regional I n d u s t r i a l Expansion. The purpose - 13 - of the int e g r a t i o n was to give organizational substance to the government's goal (enunciated i n DEA, 1970) that diplomacy promote Canadian b i l a t e r a l i n t e r e s t s , notably economic growth through exports. There are c o n f l i c t i n g i n t e r p r e t a t i o n s of the new external a f f a i r s super ministry. According to Dewitt and K i r t o n (1983:229): By 1982, the f o r e i g n p o l i c y decision-making process w i t h i n Ottawa's executive branch had i n large measure developed the autonomous force, i n t e r n a l pluralism, s t r u c t u r a l co-ordinative mechanisms, and defined conception of the national i n t e r e s t that the complex n e o - r e a l i s t perspective p r e d i c t s . . . Only with the d e f i n i t i o n within Ottawa of the concepts and applications of b i l a t e r a l i s m and the emergence of External A f f a i r s as a de facto ministry of state was the natio n a l i n t e r e s t endowed with autonomous, transcending, and enduring force, (p. 232) Others agree with C o l i n Campbell (quoted i n FP, 15 October 1983:16): 'The l a t e 1960s,' says Campbell, 'saw the s t a r t of an age of r e v i t a l i z a t i o n of bureaucracy. With that, there was a tremendous self-confidence and a sense that i f you get the machinery r i g h t , y o u ' l l improve government's del i v e r y of ser v i c e s . There c l e a r l y has been a f a i l u r e of t h i s type of process ( i n Canada).' Notwithstanding i n t e g r a t i o n , External A f f a i r s s t i l l shares the f e d e r a l f i e l d i n trade r e l a t i o n s with a number of other agencies. Among these are the Canadian International Development Agency (which retains i t s i d e n t i t y ) and the Canadian Wheat Board, responsible f o r foreign sales of most western Canadian cereals. Moreover, on the p o l i c y side, the International Economic Relations D i v i s i o n of the Department of Finance 'ensures that Finance's i n t e r e s t s are safeguarded i n i n t e r n a t i o n a l trade and investment, two f i e l d s with - 14 - operational arms l a r g e l y i n other departments or quasi-autonomous agencies' (Campbell, 1983:155). Finance d i f f e r s from the US and B r i t i s h treasuries i n one important respect. In the United States, the O f f i c e of the US Trade Representative takes the lead i n p o l i c y development and negotiations; i n the United Kingdom, the Treasury y i e l d s many of these r e s p o n s i b i l i t i e s to the Department of Trade. Finance, however, has succeeded i n maintaining the upper hand i n these matters. For instance, i t always contributes the senior o f f i c i a l or minister to the Canadian delegation at i n t e r n a t i o n a l panels such as the recent M u l t i l a t e r a l Trade Negotiations i n Geneva. And the finance ministry's International Programs D i v i s i o n focuses on p o l i c y concerning government trade-development operations. I t contains units responsible f o r export financing, i n t e r n a t i o n a l development, and f i n a n c i a l i n s t i t u t i o n s ' ( i b i d : 156). DEA's most important l i a i s o n among Ottawa's export-related bureaucracies, however, i s with the Department of Regional I n d u s t r i a l Expansion (DRIE). DEA's 24 P a c i f i c rim diplomatic posts (14 of them i n the west P a c i f i c ) are n o t i o n a l l y connected back through DEA and DRIE i n Ottawa to the l a t t e r ' s regional executive d i r e c t o r s i n each of the ten p r o v i n c i a l c a p i t a l s . I t i s along t h i s lengthy chain that data on foreign demand and Canadian supply c a p a b i l i t y are expected to pass. This routing i n fraught with b a r r i e r s . Indeed, according to the FP_ (18 February 1984: 2): There i s an admission that External cannot e f f e c t i v e l y work i n the trade area without DRIE. For instance, i f a foreign post makes a sourcing request, the telex goes i n i t i a l l y to External, but the 'action copy' goes to DRIE, whose o f f i c i a l s are responsible f o r working on the request.... As one source puts i t : 'There's no doubt that the people at DRIE are doing a l o t of work that used to be done i n the - 15 - i n t e r n a t i o n a l trade section of ITC (Industry, Trade and Commerce).1 The new status quo i s not without i t s irony. In the old days, there was External and the i n t e r n a t i o n a l trade section of ITC. Today, there's External and the i n t e r n a t i o n a l trade dimension of DRIE. The di f f e r e n c e i s that i n the e a r l i e r system, Canada's o f f i c i a l s abroad had a d i r e c t l i n e to the domestically based trade commissioners and the industry sector experts who worked i n the same department.... But t a l k of interdependence j u s t serves to h i g h l i g h t the p o t e n t i a l weakness of the DRIE-External connection. The problem i s not j u s t one of making sure o f f i c i a l s communicate. On the broader l e v e l of p o l i c y , i t ' s a matter of ensuring the r i g h t connections between trade and f o r e i g n p o l i c y and domestic i n d u s t r i a l p o l i c y . There i s p o t e n t i a l for c o n f l i c t rather than cooperation. This l a s t remark points to a planning problem of the f i r s t order, which French (1980:153), c i t i n g Phidd and Doern (1968:115), picks up: With an elaborate formal c e n t r a l decision-making process, and a m u l t i p l i c i t y of planning and evaluation groups, the Trudeau government r a r e l y faced e x p l i c i t l y the f a c t 'that the p o l i t i c a l meaning of co-ordination can only be contemplated when one acknowledges that such co-ordination involves i n part the temporary v i c t o r y of one or two...objectives over other values and objectives, the use of one or more instruments over other instruments, and the r e l a t i v e triumph of one department over another and of one or more ministers over others'. This lack of d i r e c t i o n i s epitomized by DEA's 'Canadian Trade P o l i c y f o r the 1980s' (DEA, 1983). O r i g i n a l l y drafted i n August 1982, i t was patched and broadened to incorporate a l l points of view and was approved by cabinet only i n August 1983. The trade p o l i c y paper was not a major planning document (FP, 20 August 1983: 4), but rather a r e c i t a t i o n of the whole f i e l d of export p o l i c y . I t can hardly be said to represent any progress i n the pursuit of c e r t a i n p o l i c y . - 16 - (11) P r o v i n c i a l Governments - Alberta Province b u i l d i n g has become accepted behaviour f or even the poorest Canadian provinces (Breton, 1981:67): Recent decades have ....witnessed entrepreneurial tendencies on the part of i n s t i t u t i o n a l actors i n d i f f e r e n t regions... Resources, which are ... under p r o v i n c i a l j u r i s d i c t i o n , constitute [an] area f o r i n s t i t u t i o n b u i l d i n g and growth i n r e l a t i o n to i n d u s t r i e s based or rel a t e d to the extraction and/or processing of resources, government agencies, research and development organizations, and educational programmes. Because resources are based i n a p a r t i c u l a r t e r r i t o r y , they are p a r t i c u l a r l y important f o r regional i n s t i t u t i o n b u i l d i n g . They also can generate enormous p r o f i t s , which the state, under whose j u r i s d i c t i o n they f a l l , can appropriate through r o y a l t i e s and taxes and which can be used for growth either through pr i v a t e or p u b l i c channels. In t h i s environment a number of provinces have begun to supplement the national government's trade p o l i c i e s and a c t i v i t i e s i n the P a c i f i c . Although only about 6% of i t s exports by value are sold i n the non -U.S. P a c i f i c (as compared with about one-third f o r B r i t i s h Columbia), the government of Alberta has proved the pace-setter i n t h i s regard; a review of i t s a c t i v i t i e s since 1970 indicates the furthest advance of p r o v i n c i a l i n i t i a t i v e s i n that market. This a c t i v i t y has been f a c i l i t a t e d by the province's r e l a t i v e homogeneity i n terms of both resources and p o l i t i c s . The government's export goals are c l o s e l y r e l a t e d to i t s i n d u s t r i a l goals, p a r t i c u l a r l y i n a period of stagnation i n the domestic Canadian market. This stagnation a f f e c t s even the province's dominant petroleum sector, a non-renewable source of wealth whose eventual depletion makes f o r perceived v u l n e r a b i l i t y . In i t s e f f o r t to d i v e r s i f y i t s export production, the p r o v i n c i a l government - 17 - has emphasized food processing, further upgrading of natural resources ( e s p e c i a l l y petrochemicals), tourism, and the promotion of high technology industry (Jenkin, 1983:53). The p o l i t i c a l s t a b i l i t y of the province has permitted Premier Lougheed's Conservative government to d i r e c t p r o v i n c i a l export p o l i c y since 1971. The premier claims (Lougheed, 1983:5) to have seen Alberta through i t s f i r s t phase i n i n t e r n a t i o n a l trade through the appointment of a f u l l time Minister f o r International Trade with whom Alberta business people t r a v e l on missions, and agents general ( i n Hong Kong and Tokyo (responsible f or Japan and Korea), with one currently contemplated f o r Singapore) to monitor p o t e n t i a l and to f a c i l i t a t e the marketing e f f o r t of the private sector. Moreover, i n i t s e f f o r t to at l e a s t hold i t s market share i n grain and vegetable o i l s , and to gain new sales and investment i n petrochemicals and o i l and gas equipment and technology, Lougheed's Alberta has twinned with sub-national j u r i s d i c t i o n s having s i m i l a r resource endowments i n Japan (Hokkaido), China (Heilonjiang) and South Korea (Gangweon). This 'back door' approach (GM, 8 May 1984) recognizes that trade i s mutual and that countries l i k e China and Japan may be uncomfortable with t h e i r large trade d e f i c i t s with Canada. For 22 days i n A p r i l 1984 the Chinese, with the support of the Alb e r t a government, mounted i n Edmonton the largest exhibit of Chinese goods ever assembled outside China (GM, 23 A p r i l 1984: IB8). About 100 Canadian companies also displayed products f o r possible export. While administrative r e s p o n s i b i l i t y i s f a i r l y widespread among a number of m i n i s t r i e s - notably International Trade, Economic Development, A g r i c u l t u r e , and Intergovernmental A f f a i r s ( t h i s l a s t - 18 - taking a coordinating r o l e v i s - a - v i s the Asian agencies-general and the three twinnings), the p o l i c y basis f o r Alberta's P a c i f i c export i n i t i a t i v e s l i e s f i r m l y i n the premier's o f f i c e . This c e n t r a l d i r e c t i o n i s not uni v e r s a l among Canadian provinces and i t does not necessari l y imply coordination with national p o l i c y or programs, or prevent mutually damaging c o n f l i c t with other provinces with s i m i l a r resource endowments. Chapter 6 w i l l describe and analyse both of these l i a b i l i t i e s i n a p a r t i c u l a r case. t ( i i i ) Industries and Firms If 'government' i s i n i t i a l l y organized from above in t o i t s constituent bureaucracies, the private sector of Canadian export i n t e r e s t s i s composed of many government-like firms, many of them competing or mutually i n d i f f e r e n t . Firms are free to form associations from the bottom up to pursue shared purposes, but the dependence of trade associations on a v a r i e t y of constituent firms means that these groupings are usually able to lobby governments only i n common defence against a shared danger (as with the Canadian Forest Industries Council formed i n 1984 to combat threatened U.S. duties on Canadian softwood lumber) or on such broad issues as the promotion of free trade. Broadly speaking, the large primary and t e r t i a r y firms (the backbone of private Canadian export i n t e r e s t s ) favour increasing free trade since t h i s w i l l tend to open for e i g n markets to the export a c t i v i t i e s which t y p i c a l l y constitute a large f r a c t i o n of t h e i r revenues and p r o f i t s . The large secondary sector firms, on the other hand, r e l y i n g t y p i c a l l y on the domestic market f o r want eit h e r of competitiveness, resources, or export mandates from fo r e i g n owners, are often intent on barring the - 19 - threatening entry of both labour-intensive and advanced technology imports from other P a c i f i c countries. (b) Inter-Interest Relations There are those who maintain that c o n f l i c t among such groups as those here c a l l e d Canadian export i n t e r e s t s arises from language- and region-based struggles f o r organizational power (Breton and Breton, 1980:2). Others claim that the question turns more on economic motives (e.g., revenue or income) or on l e g a l i s t i c c o n s t i t u t i o n a l i n t e r p r e t a t i o n , whatever the mix, r e l a t i o n s between and among Canadian export i n t e r e s t s operate at four l e v e l s : (1) the public i d e o l o g i c a l l e v e l - the preserve of p o l i t i c i a n s and corporate spokespersons—both categories often elected, a l b e i t by d i f f e r e n t constituencies; (2) non-public s o c i a l r e l a t i o n s among government ministers, corporate leaders and senior p u b l i c o f f i c i a l s ; (3) non-public i n s t i t u t i o n a l i z e d r e l a t i o n s among government ministers, corporate leaders and senior p u b l i c o f f i c i a l s ; (4) non-public program l e v e l r e l a t i o n s among government and corporate o f f i c i a l s . S p e c i f i c instances of these l e v e l s w i l l be introduced i n the following consideration of f e d e r a l - p r o v i n c i a l , i n t e r p r o v i n c i a l , federal-business and provincial-business r e l a t i o n s . ( i ) F e d e r a l - P r o v i ncial Relations T y p i c a l of recent f e d e r a l - p r o v i n c i a l incoherence was the contest between Ottawa and Edmonton over the 1980 National Energy Program which Carmichael and Stewart (1983:52-53) c r i t i c i z e as crowding out the concerns of other interested p a r t i e s (notably the petroleum industry), - 20 - as characterized by delay, uncertainty and u n p r e d i c t a b i l i t y , and as contributing to undue secrecy and extraordinary complexity i n public p o l i c y formulation. This secrecy did nothing, however, to disguise the acrimony of public polemics led by cabinet ministers on both sides. In t h i s kind of heated exchange of non-information, personal r e l a t i o n s among the various government e l i t e s can mitigate or exacerbate c o n f l i c t on tech n i c a l problems i n i n d u s t r i a l or trade issues. The differ e n c e i n qu a l i t y of the r e l a t i o n s between former Prime Minis t e r Trudeau and Premiers Davis and H a t f i e l d , on the one hand, and between Mr. Trudeau and Messrs. Lougheed, Bennett, Peckford and Levesque on the other were not e n t i r e l y dependent on perceived j u r i s d i c t i o n a l c o n f l i c t and not e n t i r e l y independent of pe r s o n a l i t y . There are few s o l i d l y established i n s t i t u t i o n s to bring the eleven sets of Canadian ministers and o f f i c i a l s together. Many agree that open m i n i s t e r i a l conferences of eleven during the 'executive federalism' of the Trudeau era were a f a i l u r e . By l a t e 1983 most of the eleven governments eschewed them as exercises i n grandstanding by others. The approaching fe d e r a l e l e c t i o n was also on the premiers' mind as they refused to accept the Ontario suggestion that Ottawa be pushed f o r a F i r s t M i n i s t e r s ' conference on the economy. Several premiers f e l t such an event would only give the f e d e r a l L i b e r a l s a n a t i o n a l platform f o r e l e c t i o n e e r i n g . (FP, 20 August 1983: 4) [A]s f a r as Ottawa i s concerned such gatherings belong to a by-gone era. No longer w i l l the L i b e r a l government preside over s t e r i l e , n a t i o n a l l y t e l e v i s e d conferences where f o r 10 premiers playing to the home crowd, problem-solving means di s s e c t i n g f e d e r a l p o l i c i e s and demanding larger p r o v i n c i a l powers. (FP, 31 December 1983: 23) - 21 - \ Academic analysts seem to concur. Brown and Eastman (1981:183) asserted, with reference to the 1978 F i r s t Ministers Conferences on the Economy with t h e i r i n d u s t r i a l and trade implications, that 'there seemed to be constant tension between the imperatives of the open media event, public education, p o l i t i c a l grandstanding and statesmen-like compromises, and the substantive p o l i c y objective of designing a medium term economic strategy.' Moreover (p. 182): There remain s i g n i f i c a n t i n s t i t u t i o n a l obstacles to open and useful f e d e r a l and p r o v i n c i a l consultation i n such a forum. Within bureaucracies there were differences i n approach; some feder a l o f f i c i a l s and p o l i t i c a n s were much more w i l l i n g to confer with t h e i r p r o v i n c i a l counterparts (and more convinced of the need to) than others. Since 1970 most Canadian governments have established some agency of intergovernmental a f f a i r s . Yet these arrangements are not a f e d e r a l - p r o v i n c i a l panacea, since many m i n i s t r i e s i n a l l governments have f e d e r a l - p r o v i n c i a l coordination u n i t s . At the national l e v e l , f o r instance: We ... see that, as with the other broad functions of c e n t r a l agencies, f e d e r a l - p r o v i n c i a l r e l a t i o n s f a l l within the domain of one i n s t i t u t i o n designed p r i m a r i l y to c o n t r o l i t . Yet, other c e n t r a l i n s t i t u t i o n s are involved as w e l l . For example, without the expertise and the knowledge generated by Finance i n the area of economic, f i s c a l , and tax p o l i c y , conduct of f e d e r a l - p r o v i n c i a l r e l a t i o n s i s impossible. At the decision-making table, whether i n cabinet committee, i n an intergovernmental committee, or i n an interdepartmental committee, Finance presents i t s case and i t s p a r t i c u l a r point of view which i s maintenance of the country's economic s t a b i l i t y . Such a view may not always mesh with the more de l i c a t e and i l l u s o r y requirements of p o l i t i c a l s t a b i l i t y , nor with the short-term t a c t i c s and scenarios which FPRO (the Federal-Provincial Relations O f f i c e ) may want to employ to gain a p o l i t i c a l advantage over one or more provinces. (Campbell and Szablowski, 1979:50) - 22 - These disharmonies were apparent, too, at the f e d e r a l - p r o v i n c i a l l e v e l i n the 1978 F i r s t Ministers Conference on the Economy. In addition to the dilemma of the p u b l i c p o l i t i c s already referred to: [a] second but re l a t e d cleavage within governments was between finance o f f i c i a l s and the growing bureaucracy s p e c i f i c a l l y organized to conduct intergovernmental relations....One finance o f f i c i a l explained: 'When finance ministers meet, they usually have eleven budgets s t a r i n g them i n the face, and they have pretty hard, s p e c i f i c 'macro' decisions to be made, and they're concerned with the general outlook of the Canadian economy f o r the next 12-18 months. That's a decision making m i l i e u which operates with r e a l deadlines and s p e c i f i c economic decisions ( i n terms of instruments i f not impact). Whereas my perception of intergovernmental a f f a i r s i s that you're hardly ever getting down to that kind of s p e c i f i c i t y or that kind of deadline, and you're dealing often with very general issues!' (Brown and Eastman, 1981:61) And i n the words of a western o f f i c i a l : 'The b a t t l e i s between Finance and FPRO. To a l e s s e r extent we have the same kind of tensions i n t h i s government. Finance has t r a d i t i o n a l l y had broad r e s p o n s i b i l i t i e s i n t h i s area, but i t ' s i n e v i t a b l e that the intergovernmental bureaucracies, with even broader mandates, and a p o l i t i c a l s e n s i t i v i t y , w i l l play a greater r o l e . Economic development p o l i c i e s are broad i n t h e i r scope and intergovernmental people have a better grasp of t h i s than Finance t r a d i t i o n a l l y has had.' (Brown and Eastman, 1981:62) This p o t e n t i a l f o r c o n f l i c t between the p o l i t i c a l economists and the f i s c a l economists i s a very important aspect of f e d e r a l - p r o v i n c i a l trade r e l a t i o n s . At the program l e v e l , however, there i s greater harmony between fed e r a l assistance ( i n trade i d e n t i f i c a t i o n , promotion and financing) and supplementary p r o v i n c i a l e f f o r t s . As Hayter (1983:30) says: 'Federal and p r o v i n c i a l export programs appear to be administered i n a s p i r i t of cooperation.' Simeon (1978:8) concurs: 'Often these negotiations are cooperative and harmonious, e s p e c i a l l y - 23 - when the r e l a t i o n s h i p s are between program professionals at each l e v e l . ' ( i i ) I n t e r p r o v i n c i a l Relations Even compared to f e d e r a l - p r o v i n c i a l r e l a t i o n s , r e l a t i o n s between and among Canadian provinces are undeveloped. This i s because the former concern shared c o n s t i t u t i o n a l i n t e r e s t s that can c o n f l i c t ; furthermore, these i n t e r e s t s r e l a t e to a s i n g l e t e r r i t o r y i n two g u i s e s — t h e p r o v i n c i a l t e r r i t o r y qua province and qua f e d e r a l region. I n t e r p r o v i n c i a l r e l a t i o n s , on the other hand, concern the narrower band of i n t e r e s t s that resemble more i n t e r n a t i o n a l than f e d e r a l - p r o v i n c i a l r e l a t i o n s . In sum, regularized personal, i n s t i t u t i o n a l and program r e l a t i o n s at the p o l i t i c a l and bureaucratic l e v e l s are v i r t u a l l y non-existent among the provinces. I n t e r p r o v i n c i a l r e l a t i o n s r e l a t i n g to trade are of i n t e r e s t to the extent that provinces compete f o r exports or f o r foreign investment i n t h e i r t e r r i t o r i e s , or that provinces combine to press shared export goals on Ottawa. S p e c i f i c problems of i n t e r p r o v i n c i a l trade r e s t r a i n t s such as those a f f e c t i n g labour ( f o r example, d i f f e r i n g labour standards, s t r i c t pension p o r t a b i l i t y r u l e s , and p o l i c i e s favouring l o c a l employment) and c a p i t a l ( f o r instance, p r e f e r e n t i a l tax schemes and l o c a l ownership requirements) seem peripheral to the purpose of t h i s paper, however exhaustively studied by researchers (see Safarian, 1980; and Trebilcock- e t _ a l , 1983) or excoriated by f e d e r a l m i n i s t e r s . They assume more relevance to the extent that they may c o l l e c t i v e l y be ' i n h i b i t i n g Canada's a b i l i t y to b u i l d world-scale companies that can t h r i v e i n an i n c r e a s i n g l y competitive i n t e r n a t i o n a l market.' (GM, 27 - 24 - September 1983: B3). There are three annual conferences of p r o v i n c i a l premiers: national ( a l l ten provinces), Western (WPC) (four provinces) and Maritimes (three provinces). Their main c h a r a c t e r i s t i c s are t h e i r discontinuous nature and t h e i r opportunity f o r publicity-motivated 'Ottawa bashing'. The 1983 n a t i o n a l and the 1984 western conferences emphasized export questions. In August 1983 the ten premiers met i n Toronto. As the FP (20 August 1983: 4) saw i t : I t ' s not d i f f i c u l t f o r the p r o v i n c i a l 10 to agree that more needs to be done to promote foreign trade, i n part because i t ' s the f e d e r a l government that must provide much of the action and expenditure needed i n the f i e l d . And i t ' s an area i n which Ottawa has not shone i n the past year. At the WPC of May 1984, too, the four western premiers c a l l e d f o r , among other things: increased trade promotion and marketing e f f o r t s , i ncluding greater f e d e r a l - p r o v i n c i a l co-ordination and communication i n trade f a i r s and missions; competitive export financing; the encouragement of competitive export consortia; recognition that trade i n the P a c i f i c rim i s a Canadian p r i o r i t y ; an economic climate that encourages i n t e r n a t i o n a l investment; resistance to import quotas on automobiles and other n o n t a r i f f b a r r i e r s ; and quick action i n developing duty-free zones i n western Canada (FP, 19 May 1984). As usual, these demands were made to Ottawa, the j u r i s d i c t i o n a l and f i s c a l b a r r i e r to the West's aspirations; l i t t l e was offered by way of bargaining, and no d i f f i c u l t p r o v i n c i a l trade-offs were advanced. ( i i i ) Federal-Business Relations Federal-business r e l a t i o n s , too, work at the p o l i t i c a l / r h e t o r i c a l l e v e l . At i t s worst, t h i s i s marked by a public belligerency from - 25 - business champions under the banner of economic r a t i o n a l i t y , free enterprise and i n t e r n a t i o n a l harmony of i n t e r e s t s . This i s countered by a scepticism about c a p i t a l i s m from government leaders advancing the claims of s o c i a l j u s t i c e , planning and nationalism. As Reich (1983:234) puts i t i n the American case: Because neither government nor business can admit to the intimacy of t h e i r r e l a t i o n s h i p , both sides treat i t as an i l l i c i t a f f a i r , hiding i t from public view and thereby undermining the chances f o r those aspects of the r e l a t i o n s h i p that do promote p o s i t i v e adjustment to earn c u l t u r a l legitimacy. This assessment, modified, applies to Canada where state and private enterprise have long been engaged i n mutually-enriching a c t i v i t i e s . Moreover, the s h r i l l n e s s of totemic debate blinds ideologues to the fact that both pos i t i o n s , however overstated, hold large grains of t r u t h . Items from the Canada West Foundation (1983:26) and the Department of External A f f a i r s (1982:158), re s p e c t i v e l y , i l l u s t r a t e t h i s : The sources of delays and cancellations (to mega-projects) which are of p a r t i c u l a r concern to the authors of t h i s study are those which a r i s e from economic uncertainty caused by rapid, p o l i t i c a l l y motivated s h i f t s i n government p o l i c y , and j u r i s d i c t i o n a l disputes between fed e r a l and p r o v i n c i a l governments. Canadian companies s t r i v e to show a maximum return on investment, and there have been no incentives f o r them to upgrade t h e i r products p r i o r to export to Japan. In part due to the Japanese metal-pricing structure, i t has been more p r o f i t a b l e from an i n d i v i d u a l company's standpoint, to export material i n raw form than to attempt the more d i f f i c u l t (and less p r o f i t a b l e ) marketing route of pursuing metal and fabricated product s a l e s . Personal r e l a t i o n s among members of the corporate and p o l i t i c a l - 26 - and o f f i c i a l e l i t e s play a large r o l e . These r e l a t i o n s depend on the s i z e and l o c a t i o n of the industry, and are also associated with s o c i a l class - with c e r t a i n schools, u n i v e r s i t i e s and clubs which tend to form and house the corporate and state e l i t e s . (Clement, 1975: 224-269). Personality and image matter: Business...appeared so r e l i e v e d to see the end of A l l a n MacEachen's reign as Finance minister, i t seemed ready to swallow almost anything. I t s subsequent tolerance of Marc Lalonde s t i l l seems strange, given h i s authorship of the much-disliked National Energy Program, but h i s desire to co-operate and consult with business seems to have done the t r i c k . (FP, 31 December 1983: 13) By l a s t summer Marc Lalonde seemed to have wholly transformed himself i n the eyes of business. No longer s o c i a l - p o l i c y a c t i v i s t and energy-policy i n t e r v e n t i o n i s t , he had become Ottawa's recovery a r c h i t e c t , and arguably, the most powerful Finance minister the c a p i t a l has seen for several decades. But despite the accolades and the gradual thaw i n business-government r e l a t i o n s - a l l v i t a l i n the f a l t e r i n g government's game-plan f o r e l e c t o r a l resurgence - something more was needed. Enter Roy MacLaren, the then up-and-coming L i b e r a l backbencher from Toronto with r e a l Bay St. connections. Named to the cabinet l a s t August as minister of state i n the Finance Department, MacLaren i s a former advertising executive and part-owner of Canadian Business magazine, and his mandate i s to provide a d i r e c t l i n k between Toronto's f i n a n c i a l community, and the cabinet table. (FP, 17 December, 1983: 9) At the i n s t i t u t i o n a l l e v e l (Clement, 1975:349): Government and business come together on a number of fronts i n Canada but one of the most e f f e c t i v e i s through advisory councils and associations...created by both business and government....Through these e l i t e forums, and i n a va r i e t y of other ways, government and industry r e l a t e to one another and discover each other's views, form a l l i a n c e s and plan strategies of development not open to the great majority of people. - 27 - The Canadian committee of the P a c i f i c Basin Economic Council (PBEC) i s one such advisory c o u n c i l . I t sees a threefold r o l e : advising Canadian governments; informing Canadian companies on developing or expanding t h e i r a c t i v i t y i n the P a c i f i c region; and representing Canadian business i n i n t e r n a t i o n a l f o r a such as PBEC International (PBEC, 1984B). As f o r the f i r s t aim, the Committee sees i t s e l f as the o f f i c i a l p rivate sector advisor to the Canadian government on Canada's r e l a t i o n s with the P a c i f i c region. In that capacity, i t meets with o f f i c i a l s of the federal government and, on occasion, various p r o v i n c i a l governments, to discuss issues a f f e c t i n g Canada's trade, economic and p o l i t i c a l r e l a t i o n s h i p with P a c i f i c countries (PBEC, 1984B). The f e d e r a l government, f o r i t s part, has found i n PBEC 'a means f o r the expression of views to governments i n d i v i d u a l l y and j o i n t l y ' (DEA, 1970:19). Members of PBEC Canada have regular access to c e r t a i n f e d e r a l o f f i c i a l s ; there are, for example, consultations before and a f t e r each annual PBEC International meeting. In ad d i t i o n to information b u l l e t i n s and seminars (often co-sponsored by the Department of External A f f a i r s and l o c a l chambers of commerce) i n manufacturing centres across Canada, the Canadian Committee's most prominent information a c t i v i t y has been the sponsorship of the second P a c i f i c Rim Opportunities Conference (Toronto 1982) and i t s leading co-sponsorship (with eight other business associations and the governments of Canada and Alberta) of the t h i r d such Conference (Calgary 1983) following the fed e r a l government's f i r s t conference i n Vancouver i n 1980. These conferences provide, i n t e r a l i a , an opportunity f o r interested Canadian business people to meet Canadian trade commissioners without leaving Canada. - 28 - A number of Canadian firms and i n d i v i d u a l professionals have supported PBEC from i t s beginnings. There were roughly 130 member firms i n 1984, most of them from the t e r t i a r y sector ( f i n a n c i a l , l e g a l , accounting, engineering, transportation and insurance) and almost h a l f based i n Vancouver. The primary sector accounted f o r about 15 firms - most of them among Canada's corporate giants - and the manufacturing sector f o r roughly an equal number; few of the l a t t e r , however, were among the country's larger firms or were sub s i d i a r i e s of foreign companies. PBEC Canada's board i n 1984 was composed of three members from primary industry (Alcan, Inco, Nova) and 11 with a t e r t i a r y a f f i l i a t i o n (Including three large banks, three large transportation companies and the Vancouver Stock Exchange). The Canadian committee of PBEC was o r i g i n a l l y sponsored by, and i s s t i l l c l o s e l y a f f i l i a t e d with, the Canadian Chamber of Commerce and the Canadian Manufacturers Association, each of which has a d i r e c t o r on PBEC's board (PBEC, 1984A). In contrast with the personal and ' s o c i a l ' dimension, the o f f i c i a l , p u blic organization of federal-business r e l a t i o n s has not advanced very f a r . The government-industry consultation i n 1978 i l l u s t r a t e s the d i f f i c u l t i e s . Brown and Eastman (1981:178) have i d e n t i f i e d some of these as the absence of any s i n g l e business organization to l e g i t i m a t e l y represent the private sector and the lack of authority of those national bodies that do e x i s t , f o r reasons of foreign ownership, the cleavages between large and small business, and the regional dispersion of business. They also point out that the 'North American p o l i t i c a l and s o c i a l climate i s not as conducive to public intervention i n the economy as are some European s o c i e t i e s ' and - 29 - 'that governments have not been overly anxious to seek extensive consultation. They (governments) are also responsible to many i n t e r e s t groups which l i e outside of 'big' business and labour and which are h o s t i l e to 'corporatlst' i n s t i t u t i o n s . One must also note that corporatist mechanisms do not f i t e a s i l y i n t o the framework of parliamentary government, cabinet s o l i d a r i t y and bureaucratic r e s p o n s i b i l i t y ' (op. c i t : 179). F i n a l l y , there are fe d e r a l government programs to a s s i s t small and medium firms overcome imperfections i n export marketing. Among these are programs to match foreign demand to Canadian supply (the Business Opportunities Sourcing System <BOSS>); to promote trade and investment (pro-actively through the Trade Promotional Projects Program <PPP> and re a c t i v e l y through the Program f o r Export Market Development <PEMD> and CIDA's I n d u s t r i a l Cooperation Program <ICP>); and to help finance exports (the Export Development Corporation <EDC>) (Hayter, 1983). There i s also the domestic I n d u s t r i a l and Regional Development Program (IRDP) with i t s p o t e n t i a l to stimulate the production of exports (DRIE, 1984). (i v ) Provincial-Business Relations Considerations of the foregoing section apply, mutatis mutandis, to the r e l a t i o n s between p r o v i n c i a l governments and business, with the difference that p r o v i n c i a l governments, p a r t i c u l a r l y those that see private enterprise as the engine of p r o v i n c i a l development, can encourage, through various p o l i c y instruments, e s p e c i a l l y close r e l a t i o n s with firms i n t h e i r t e r r i t o r y . This i s c l e a r l y the case with the p r o l i f e r a t i n g number of p r o v i n c i a l Crown corporations and other - 30 - quasi-autonomous commercial e n t i t i e s ; i t can also be so with such sectors as B r i t i s h Columbia's dominant forest products industry or Alberta's giant petroleum industry. (M)any provinces are developing t h e i r own consultation mechanisms. There i s the danger, described by Alan Cairns, that r i v a l governments w i l l seek to bind important economic i n t e r e s t s to them, i n networks of dependency, and that as a re s u l t private i n t e r e s t s w i l l f i n d themselves again caught between competing economic and governmental systems. (Brown and Eastman, 1981:189) 4. Summary Some of the weaknesses i n the organization of Canadian export i n t e r e s t s may now be apparent. At the federal l e v e l , there has been a la r g e l y unsuccessful d i r i g i s t e P a c i f i c export campaign which has attracted few new adherents. Organizationally, the fe d e r a l government has confused the re l a t i o n s h i p between trade and i n d u s t r i a l r e s p o n s i b i l i t i e s by creating new m i n i s t r i e s of External A f f a i r s , and Regional and I n d u s t r i a l Expansion, while at the same time esta b l i s h i n g a supposed super f o r e i g n ministry which s t i l l shares c r i t i c a l elements of commercial and trade p o l i c y with other r i v a l agencies (notably Finance). Some provinces have shown an equal lack of coordination i n t h e i r P a c i f i c export a c t i v i t i e s (see Vancouver Sun, 3 September 1984:1, on the case of B r i t i s h Columbia) and even those with some measure of central d i r e c t i o n are capable of disregard of the imperative of trade-offs i n a fede r a l system, or of the maintenance of the Canadian common market. - 31 - S i m i l a r l y , for reasons of ownership, regionalism, or disparaties i n s i z e and focus, Canadian firms, even those q u a l i f i e d i n t h i s chapter as Canadian export i n t e r e s t s , d i s p l a y a remarkable lack of perceived shared i n t e r e s t - often l e a s t of a l l (as i n the B.C. Northeast Coal case) within the same industry. Coherent Canadian planning has not been helped by the public polemics of p o l i t i c a l and corporate spokesmen, even i n national forums t h e o r e t i c a l l y intended to advance common a t t i t u d e s . Nor has i t been advanced by a p r o l i f e r a t i o n of f e d e r a l - p r o v i n c i a l coordinating bodies which have compounded the problems of scoping agendas and i d e n t i f y i n g appropriate time frames. The picture i s not, of course, e n t i r e l y bleak. On the p o s i t i v e side, quiet personal diplomacy among p o l i t i c i a n s and senior o f f i c i a l s i n e l i t e forums and s o c i a l milieux, however flawed from the standpoint of p a r t i c i p a t o r y democracy, can (as with the p a t r i a t i o n of the constitution) achieve r e s u l t s . And there are heartening instances of cooperation at the program l e v e l , as i n the f e d e r a l - p r o v i n c i a l - p r i v a t e sector harmony i n organizing marketing assistance to threshold exporting firms. On the whole, however, while Canada's organizational regime may speak w e l l f o r the country's p l u r a l i s m and prosperous post-war capacity f o r wasteful attitudes and organization, i t says l i t t l e f o r an a b i l i t y to respond i n competitive times to unfamiliar i n i t i a t i v e s from abroad. The next chapter describes two important challengers - the trading and i n v e s t i n g Japanese general trading company, and the western P a c i f i c ' s concept of a P a c i f i c economic community. Both require a rethinking and reorganization of Canadian export i n t e r e s t s . - 32 - CHAPTER 3 - THE CHALLENGES: THE JAPANESE GENERAL TRADING COMPANY AND THE PACIFIC ECONOMIC COMMUNITY CONCEPT 1. Introduction This chapter describes two P a c i f i c challenges to Canada's export in t e r e s t s i n the P a c i f i c . Taken with Chapter 2, i t completes the s e t t i n g f o r the three case studies. The f i r s t part of t h i s chapter exposes the c r u c i a l elements of the Japanese general trading company. Of p a r t i c u l a r i n t e r e s t are i t s e s s e n t i a l trading nature and i t s recent investment phase. The second part concerns the long-term challenge to Canadian export i n t e r e s t s posed by the evolution of the disparate commercial, fu n c t i o n a l and s t r a t e g i c elements of the P a c i f i c economic community concept. 2. The General Trading Company and the P a c i f i c Economy As i t s ancient i n s u l a r people have developed a unique i n d u s t r i a l culture, Japan has l a t e l y become the dynamo of the P a c i f i c economy. Yet, f o r a l l modern Japan's importance, few of i t s i n s t i t u t i o n s have any s i g n i f i c a n t impact outside Japan. The towering exception, without which the Japanese and even the P a c i f i c economies would not be as they are, i s the Japanese general trading company (GTC) or sogo shosha. The trading company i s neither a new nor a Japanese invention, whenever manufacturers have not wished to devote adequate resources to marketing ( f o r example, because of a preference to concentrate on production) or have not been able to do so (for instance, by reason of an ignorance of foreign markets too great to be economically overcome), trading companies have arisen to f i l l some of the gap between producer - 33 - and consumer. Trading companies are more l i k e l y to t h r i v e i n markets of many producers and many buyers and where products are undifferentiated except f o r p r i c e and require no a f t e r - s a l e s service (Yoshihara Kunio, 1982:170-171). Manufacturers are more l i k e l y to r e l y on t h e i r own marketing devices i n markets of many producers and few buyers, and of few producers, e s p e c i a l l y when buyers are also few i n number. Trading companies make t h e i r l i v i n g by c o l l e c t i n g fees on transactions. In a competitive market t h i s l i v i n g depends on the product of a large volume of transactions and a competitive fee structure. Trade on t h i s scale r e s t s on the e f f i c i e n t c o l l e c t i o n and manipulation of data r e l a t i n g to the supply and demand of as many commodities as possible. And t h i s information aspect depends i n i t s turn on the q u a l i t y and l o c a t i o n of traders, and on communications technology. There i s no shortage of trading companies. Japan i s said to have about 6000 of them (Young, 1979:13) and Canada about 640 (FP, March 31, 1984: S3). What constitute a league by themselves are the GTCs, of which Japan has 16 (the Big Nine of which compete i n three d i v i s i o n s determined by sales - Note 2), while Canada, f o r example, has none. A number of related c h a r a c t e r i s t i c s d i s t i n g u i s h the GTC from*other trading companies. F i r s t i s the sheer volume of turnover based on large information networks. The average GTC i s said to employ over 2,000 s p e c i a l i s t s (with an average of 15 years of experience) trading over 20,000 items i n about 150 overseas o f f i c e s (Cappiello, 1982:20). Second i s the GTC's f i n a n c i a l power. GTCs are very highly leveraged ( i n f i s c a l 1981, f o r example, the Big Nine had a debt: - 34 - equity r a t i o of nearly 8:1), a c h a r a c t e r i s t i c made possible by t h e i r r e l a t i o n s h i p to enterprise groups (keiretsu) centred on f r i e n d l y banks and by the orderly borrowing from other banks (even i n r i v a l groups) which t h i s permits. These banks and t h e i r GTCs co-exist symbiotically. GTCs get c a p i t a l f o r trade f a c i l i t a t i o n ; for example, the establishment of foreign a f f i l i a t e s , c r e d i t management, and overseas investments and loans. The banks gain group a f f i l i a t e s f o r the more e f f i c i e n t c i r c u l a t i o n of t h e i r deposits and an experienced 'hands-on' GTC intermediary i n loans to commercial t h i r d p a r t i e s . (Yoshihara Kunio, 1982:174-183) A t h i r d c h a r a c t e r i s t i c of the Japanese GTC i s the support and 'guidance' i t receives from the Japanese government (Yoshihara Kunio, 1982: e s p e c i a l l y 274-293). From the e a r l i e s t days of the M e i j i period, the Japanese government bureaucracy - whether c i v i l i a n or m i l i t a r y - has used the GTC to advance the evolving nat i o n a l goals of what i s now c a l l e d ' i n d u s t r i a l strategy' (Reich, 1983; Johnson, 1984). These goals have included, se q u e n t i a l l y , the promotion of labour-intensive exports, m i l i t a r y imperialism, investment i n labour—intensive industry outside Japan, and global sourcing of raw materials and energy. This r e l a t i o n s h i p between government and industry, while not always harmonious, has been f a c i l i t a t e d by the general respect most Japanese accord the country's leaders, including the corporate e l i t e who are u s u a l l y part of an 'old-boy' u n i v e r s i t y network and have themselves often 'descended' from the senior government bureaucracies (amakudari) (Japan C u l t u r a l I n s t i t u t e , 1979). A fourth d i s t i n g u i s h i n g aspect of the GTC i s i t s a g i l i t y i n creating the trade on which i t s p r o f i t a b i l i t y and (given i t s high debt: - 3 5 - equity r a t i o ) very existence depend. The GTC i s threatened by stagnant economies since those producers on which i t r e l i e s have then occasion to use i d l e production resources to replace i t s trading network with t h e i r own. Recent examples of GTC a g i l i t y are t h e i r advances i n t o countertrade, and into third-country trade; that i s , i n t o deals where neither buyer nor s e l l e r i s resident i n Japan. New s k i l l s are continually required and developed. This f l e x i b i l i t y , not usual i n organizations as large as GTCs, i s dictated by t h e i r f i f t h c h a r a c t e r i s t i c , one often overlooked by foreign observers: t h e i r v u l n e r a b i l i t y i n the face of very keen competition. The 1920s and the period since 1975, i n p a r t i c u l a r , have seen GTCs collapse under debt as the r e s u l t of poor management s t r a t e g i e s or bad c r e d i t r i s k s . Firms amalgamate with some r e g u l a r i t y , usually within the same enterprise group as t h e i r main banker. Current conditions of trade stagnation threaten even members of the Big Nine (FEER, 29 March 1984:89). The g l o b a l sourcing strategy of the GTCs, e s p e c i a l l y since the f i r s t o i l shock, i l l u s t r a t e s a l l f i v e c h a r a c t e r i s t i c s . By 1973 GTCs were no longer able to secure stable supply on spot markets or from areas of p o l i t i c a l or labour unrest, or of inadequate i n f r a s t r u c t u r e . Increasingly aware of the threat t h i s raised to Japan's industry, exports and l i v i n g standards, the Japanese government ( l e d by the Mi n i s t r y of International Trade and Industry together with u t i l i t i e s , banks, and heavy and consumer i n d u s t r i e s ) encouraged GTCs to accelerate the quest f o r i n d u s t r i a l raw materials and energy. The GTCs had already i n f a c t i n i t i a t e d these operations because of t h e i r capacity to use GTC services i n mammoth and accordingly very p r o f i t a b l e transactions. Adding to t h e i r human s k i l l s , the GTCs made contacts and - 36 - organized production i n resource-rich countries around the P a c i f i c basin. They were not the f i r s t mulinationals or even the f i r s t trading companies to have done so. European trading firms had shown the way since the seventeenth century, reaching a peak i n the high imperial age, even i n Japan (Yoshihara Kunio, 1982:184). But, i n many ways, the methods of the Japanese GTCs, dependent on t h e i r trade goals and organization, d i f f e r e d from those with which P a c i f i c governments and t h e i r companies were f a m i l i a r ; these differences presented a novel challenge to trading partners, in c l u d i n g Canadians. In the f i r s t place, the GTC was not interested i n c o n t r o l l i n g ownership of production f a c i l i t i e s . Indeed, since t h e i r object was trade and since t h e i r resources disposable overseas were li m i t e d ( p a r t i c u l a r l y before the r e l a x a t i o n of Japanese exchange controls around 1970), the GTCs (and other large Japanese firms) were content to o f f e r loans and/or minority i n t e r e s t j o i n t ventures with l o c a l firms. Even t h i s minority r i s k was often shared with other normally competing GTCs. This arrangement had the a d d i t i o n a l advantages of providing a lower p o l i t i c a l p r o f i l e i n s e n s i t i v e foreign j u r i s d i c t i o n s than that of the complete ownership preferred by v e r t i c a l l y - i n t e g r a t e d manufacturing multinationals, while affording the same access to the producing indus- try's information. This information proved useful to the GTC i n i t s frequent r o l e as buyer or coordinating agent f o r the buyer which was t y p i c a l l y a group of Japanese firms i n the same industry. To sum up: Japanese investors seem to prefer j o i n t ventures. Why? One reason i s that some Japanese investors do not have adequate funds...(Second) a partner i n the host country can be useful i n many ways...(Third) inexperience on the part of Japanese investors i s also a f a c t o r . (Yoshihara, 1978:44) - 37 - These, however, seem p a r t i a l answers. The key may l i e i n Yoshihara's l a t e r remark i n discussing the e l e c t r o n i c s industry. The w i l l i n g n e s s of Japanese firms to invest under a joint-venture arrangement i s somewhat puzzling to those of us who believe that complete ownership i s , i n general, a better corporate strategy than j o i n t venture. Complete ownership, f o r example, prevents d i s c l o s u r e of proprietary knowledge....But t h i s problem does not a r i s e i f the l e v e l of technology to be transferred i s low (or, a f o r t i o r i , there i s no such transfer)....In t h i s case, i t i s s u f f i c i e n t to assume that the overseas a f f i l i a t e operates under i n s t r u c t i o n s from the parent company. (Yoshihara, 1978:167-168) Another contrast with the strategy of the wholly-owned subsidiary of the manufacturing-based multin a t i o n a l f i r m i s that i t s transfer p r i c i n g i s replaced i n the Japanese model by the long-term purchase contract. These contracts, t y p i c a l l y f o r 20 to 25 years and at a f i x e d p r i c e , s u i t a l l i n t e r e s t s d i r e c t l y concerned - the producers f o r t h e i r apparent guarantee of a f i x e d return on investment, the Japanese consumer f o r a more guaranteed r e g u l a r i t y of supply and p r i c e , and the GTC f o r sustained trade on which s u r v i v a l depends. Being based i n shared i n t e r e s t s and mutual dependence, these contracts constitute informal partnerships subject to renegotiation (often under 'mutual cooperation and understanding' clauses) as demand v a r i e s . According to a number of observers (including Drysdale, 1983), t h i s partnership w i l l work well as long as the negotiating strengths of s e l l e r and buyer are roughly equal and as long as government intervention, based on shorter-terra p o l i t i c a l considerations, can be avoided. - 38 - 3. The Evolving P a c i f i c Economy The i n t e r n a t i o n a l corporate economy i s not only a current phenomenon; i t i s also the basis from which or i g i n a t e a number of concepts about the d i r e c t i o n of an evolving P a c i f i c economic environment, inv o l v i n g some degree of integration and i n s t i t u t i o n a l i z a t i o n . The past two decades have witnessed a growing debate over concepts variously termed the P a c i f i c 'economy', 'rim', 'basin', or 'community'. These terms, and others l i k e them, have reached the status of c l i c h e , widely used but not c l e a r l y understood. Yet they spring from quite s p e c i f i c and interested v i s i o n s of a future P a c i f i c economy. The middle ground between pan-Pacific r e g i o n a l i s t s and b i l a t e r a l sub-regionalists has long been occupied by a number of senior Japanese and Aus t r a l i a n s , f o r the most part economists, operating at the p o l i c y i n t e r f a c e of the worlds of business, academia and government. I t i s l o g i c a l that Japan and A u s t r a l i a provide the s o i l from which ideas on an evolved P a c i f i c economy or P a c i f i c community should f i r s t emerge. Respectively the i n d u s t r i a l exporter and the developed resource exporter par excellence, i n s u l a r Japan and the i s l a n d continent A u s t r a l i a are P a c i f i c states i n a sense which none of the other major P a c i f i c trading economies i s . The United States, Canada, the U.S.S.R. and China abut the P a c i f i c - i n such c i t i e s as Los Angeles, Vancouver, Vladivostok and Shanghai, but t h e i r c a p i t a l s and t h e i r 'brains' have long been elsewhere. Washington, Ottawa, Moscow and Peking have t r a d i t i o n a l l y had t h e i r p r i o r i t i e s i n land-locked continental questions and/or i n Europe. Japan and A u s t r a l i a , whatever t h e i r d i s s i m i l a r i t i e s , are P a c i f i c states before a l l e l s e : t h e i r major centres of population front on i t , t h e i r economies depend on i t , and t h e i r h i s t o r i e s over the past century have increasingly emphasized t h e i r dependence; the abrupt d i s s o l u t i o n of the Japanese and B r i t i s h empires l e f t both i s o l a t e d i n a post-1945 world which was centred on the distant North A t l a n t i c . (a) Elements of the Evolving P a c i f i c Economy ( i ) Business The P a c i f i c Basin Economic Council (PBEC) represents a group of P a c i f i c i n t e r e s t s which has evolved from the Australia-Japan Business Cooperation Committee founded i n 1961. The backgrounds of i t s founders, S i r Edward Warren, once chairman of the A u s t r a l i a n Coal Association, and of the Coal and A l l i e d Property Limited, and Nagano Shigeo, once honourary chairman of the Nippon Steel Corporation and president of both the Japan and Tokyo Chambers of Commerce and Industry, suggest the Council's i n i t i a l and continuing t i e s with industry e l i t e s i n those states i n which i t has members. In 1968 PBEC held i t s f i r s t meeting i n Sydney with Member Committees from Japan, A u s t r a l i a , New Zealand, Canada and the United States. A Regional Member Committee [which i n 1983 consisted of ASEAN, Hong Kong, the P a c i f i c Islands, Mexico, and a L a t i n American Regional D i v i s i o n ( i n c l u d i n g Peru and Ch i l e ) ] has since been formed. South Korea and Taiwan were granted Member Committee status i n 1984. A r t i c l e 1 of the PBEC Covenant gives as i t s p r i n c i p a l objectives the strengthening of the business enterprise system, the improvement of business environments, the generation of new business opportunities and r e l a t i o n s h i p s , and the increase of i n t e r n a t i o n a l trade and investment (PBEC, 1983:64). According to the Santiago Resolution (PBEC, 1983:62): - 40 - PBEC pursues i t s purposes i n three p r i n c i p a l ways. The f i r s t i s to provide an i n t e r n a t i o n a l forum for an exchange of views among businessmen of the P a c i f i c Basin and other nations on topics a f f e c t i n g development of the region. The second i s to provide advice and counsel to governments and i n t e r n a t i o n a l agencies on basic economic business matters a f f e c t i n g the P a c i f i c Basin. The t h i r d i s to provide information to other organizations concerned with P a c i f i c development and cooperation to ensure that p r i v a t e sector views play a r o l e i n the contemporary dialogue about P a c i f i c a f f a i r s . . . . T h e private sector must play a role i n developing a suitable business environment. I t must increase i t s understanding of the i n t e r a c t i o n between domestic and i n t e r n a t i o n a l p o l i t i c a l and economic forces. I t needs to promote better government-to-government policy coordination and to improve private sector-government l i a i s o n programs, (emphasis added) To r e a l i z e i t s objectives PBEC i s directed by a rather unwieldy Steering Committee whose chairman i s the International President. The Steering Committee appoints an i n t e r n a t i o n a l director-general to head recently formed International s e c r e t a r i a t . PBEC Canada has had a measure of success i n representing Canadian business i n i n t e r n a t i o n a l f o r a . A number of senior Canadian corporate p e r s o n a l i t i e s have been members of PBEC International's executive ( J . H. Stevens, the Chairman of Canada Wire and Cable, was International President i n 1983-84, f o r example) and have achieved a place i n what E r i c Trigg of Alcan c a l l s the P a c i f i c 'mafia' (Woods, 1983:44). ( i i ) Economic Research A more or less purely academic strand of the P a c i f i c economic evolution began when then Japanese Foreign Minister Miki Takeo asked Dr. Kojima Kiyoshi to follow up h i s 1965 paper on a ' P a c i f i c Economic Community' with a survey of the extent of regional i n t e r e s t i n such a community. Dr. Kojima, professor of i n t e r n a t i o n a l economics at Tokyo' Hitotsubashi University, was an e a r l y proponent of a P a c i f i c Free Trad - 41 - Area (PAFTA) whose design involved the a b o l i t i o n of trade b a r r i e r s among the f i v e advanced i n d u s t r i a l countries (AICs) of the P a c i f i c and t a r i f f concessions to the region's less developed countries (LDCs) and newly i n d u s t r i a l i z i n g countries (NICs). While the PAFTA concept formed the basis of Miki's foreign p o l i c y , i t was opposed by many of Japan's Asian neighbours. The region's developing states were attracted neither by a plan which s t i r r e d fears of Japanese hegemony nor by a meaningless free trade region which would be simply a part of a wider gl o b a l free trade system. These reservations have been s u c c i n c t l y stated by two senior south-east Asian leaders, the Malaysian Foreign M i n i s t e r and the M i n i s t e r of Economic Planning f o r the P h i l i p p i n e s : A P a c i f i c community concept that promises l i t t l e beyond the freezing of the present i n t e r n a t i o n a l d i v i s i o n of labour and the entrenchment of the current p o l i t i c a l and m i l i t a r y d i v i s i o n s of the developed North w i l l be quite d i s t a s t e f u l to ASEAN. (Ghazali Shafie, 1981:78) And: i f the United States and Japan 'are pursuing a p o l i c y of an open, global and m u l t i l a t e r a l i n t e r n a t i o n a l trading system' and hence cannot pursue p r e f e r e n t i a l r e l a t i o n s , 'one wonders how s p e c i a l a region the P a c i f i c i s , e s p e c i a l l y i f i t i s only a part (perhaps even a minor part) of the g l o b a l r e l a t i o n s of the P a c i f i c countries' ( S i c a t , 1982:58). Nor would PAFTA necessarily favour smaller AICs: Trade l i b e r a l i z a t i o n between the United States, Japan, Canada, A u s t r a l i a , and New Zealand could be substantial and immediate, but as i t proceeded major problems would be confronted. Japan would benefit greatly from wider access to the other markets, while i t s own would remain r e l a t i v e l y protected by c u l t u r a l factors and by the well-established neomercantilist - 42 - o r i e n t a t i o n of the business-government partnership. The unfavorable balance i n U.S. trade with Japan would grow but U.S. exports to Canada, A u s t r a l i a and New Zealand would increase. Unless protected, moreover, e f f i c i e n t moderately sized i n d u s t r i e s i n those smaller economies would be absorbed or eliminated by U.S. and Japanese firms. (Boyd, 1982:251) PAFTA was dealt a f i n a l blow by Japanese ' i n t e r n a t i o n a l i s t s ' who maintained that Japan's best strategy was to emulate the U.S. as a global trader committed to an open and universal economic system, not an inward-looking European Community-type free trade region. In 1968 Dr. Kojima convened the f i r s t P a c i f i c Trade and Development Conference (PACTAD) i n Tokyo; t h i s session l a i d to rest the PAFTA concept. Since then, there have been twelve PACTAD meetings of economists i n various AIC, ASEAN and NIC c i t i e s around the P a c i f i c - two each i n Japan, A u s t r a l i a , Canada and the United States; one each i n New Zealand, South Korea, Thailand, the P h i l i p p i n e s and Mexico. Each meeting has had a theme (See Table I ) ; these themes and the p a r t i c u l a r venues seem to have determined the n a t i o n a l i t i e s and economic s p e c i a l i z a t i o n s of those who accept i n v i t a t i o n s to attend. In 1981, for example, the theme 'renewable resources' drew representation to Vancouver from t h i r t e e n countries and three i n t e r n a t i o n a l organizations (English and Scott, 1982:5). Since 1978 a l l P a c i f i c states (including China, Taiwan, B r a z i l , Venezuela and the USSR) except the Central American republics, Columbia and the Indochinese states have been represented at least once. As with PBEC International, however, there i s a core of i n d i v i d u a l s and i n s t i t u t i o n s i n regular attendance. As PACTAD evolved from Dr. Kojima's free trade o r i e n t a t i o n to broad substantive economic topics, some of the core p a r t i c i p a n t s nurtured an in t e r e s t i n an o f f i c i a l i n t e r n a t i o n a l i n s t i t u t i o n a l i z a t i o n of the - 43 - TABLE I THEMES ADDRESSED BY THE PACIFIC TRADE AND DEVELOPMENT CONFERENCES (PACTAD) Year Theme 1968 A l t e r n a t i v e trade arrangements 1969 Role of developing countries 1970 Foreign d i r e c t investment 1971 Obstacles to trade 1973 Adjustment p o l i c i e s 1974 Transfer of technology 1975 Island economies and ocean resources 1976 Trade and employment 1977 Mineral resources 1979 ASEAN 1980 Advanced developing countries 1981 Renewable resources 1983 Energy 1984 F i n a n c i a l services Adapted from: L. Woods, ' P o l i t i c a l Science Sets S a i l : the P a c i f i c Community Concept', 1983, table 9, page 38. - 44 - P a c i f i c economy. In 1979-1980 these i n t e r e s t s matured i n the shape of two concepts under the respective aegis of the East A s i a - P a c i f i c Subcommittee of the United States Senate Foreign Relations Committee, and Japanese Prime Minister Ohira Masayoshi. The U.S. Senate sponsored-report, 'An Organization f o r P a c i f i c Trade and Development (OPTAD): an Exploratory Concept Paper' by Peter Drysdale of the Au s t r a l i a n National University's (ANU) School of General Studies and Hugh P a t r i c k of Yale University's Economic Growth Center, proposed a structure l i k e that of the Organization for Economic Cooperation and Development (OECD) with a Council of Ministers and permanent s e c r e t a r i a t format; unlike the OECD, however, OPTAD would include developing as well as developed states and would avoid a large bureaucracy. OPTAD would be a consultative body with periodic summits and would formulate j o i n t p o l i c i e s on issues r e l a t i n g to P a c i f i c economic interdependence. The OPTAD report suggested the establishment of ad hoc task forces of p r o f e s s i o n a l experts to inves t i g a t e a number of areas: trade restructuring ( i n c l u d i n g the adjustment process and re l o c a t i o n of resource- and energy-using i n d u s t r i e s ) ; free and f a i r trade; the financing of regional development (i n c l u d i n g the use of c a p i t a l markets and the untying of aid); foreign d i r e c t investment (including a code f o r such investment); resource and energy security (including s t a b i l i z a t i o n programs); and the issues of trade with communist s t a t e s . The Japanese i n i t i a t i v e , under the i n i t i a l chairmanship of Dr. Okita Saburo (before he moved to the foreign m i n i s t e r s h i p ) , was prepared by a number of Japanese academics. The 'Report of the P a c i f i c Basin Cooperation Concept' (PBCC) proposed an open 'cooperative - 45 - organization' with a wide membership - a modified OECD to ensure the r e a l i z a t i o n of the P a c i f i c region's f u l l p o t e n t i a l . As the impact of i n d u s t r i a l growth of the P a c i f i c region's newly i n d u s t r i a l i z i n g and developing countries gains i n i n t e n s i t y , a forum w i l l be needed for more e f f e c t i v e debate and cooperation on North-South i n d u s t r i a l adjustment. (U.S. Congress, 1981:42) The p r i n c i p a l tasks of a P a c i f i c Basin I n d u s t r i a l P o l i c y Consultative Forum would be: ...to increase the transparency of mutual i n d u s t r i a l a c t i v i t i e s and p o l i c i e s and f o s t e r common understanding of them through exchange of information, and also to formulate a structure of dynamic i n t e r n a t i o n a l d i v i s i o n of labor around the region....The Forum's a c t i v i t i e s should i n i t i a l l y center on information exchange, surveys and research. Eventually, however, i t should be developed into a p o l i c y - o r i e n t e d body, ( i b i d . ) But nothing came of these proposals. Although the OPTAD report proposed that the United States take the lead i n e s t a b l i s h i n g regular i n t e r n a t i o n a l summits, Congressional and State Department support was hesitant, p a r t l y f o r reasons of deference to ASEAN f e e l i n g s . The Government of Japan too was u n w i l l i n g to appear to be r a i l r o a d i n g the smaller economies of the P a c i f i c region. In J u l y 1982, South Korean President Chun Doo Hwan c a l l e d f o r a heads-of-government meeting of P a c i f i c rim countries 'to discuss matters of mutual concern and consult on ways and means to expand mutual cooperation' (English, 1983:340), but nothing came of t h i s e i t h e r and the prospect f o r the i n s t i t u t i o n a l i z a t i o n of the P a c i f i c at the government l e v e l withered. The notion of task forces, however, survived. - 46 - (111) S t r a t e g i c There i s a t h i r d element i n the evolving P a c i f i c economic tapestry, though i t i s more l i k e the loom's frame that the commercial warp and economic weft j u s t assessed. This s t r a t e g i c element i s interested i n the longer term and the wider focus of the balance of i n t e r - s t a t e power, a balance i n which trade and Investment, and economic order and e f f i c i e n c y , play only a p a r t i a l , i f important, r o l e along with such other f a c t o r s as the m i l i t a r y and 'national r e s i l i e n c y ' . Strategy i s the province of governments and t h e i r researchers, i t s shape i s fo r e i g n p o l i c y i n the most comprehensive sense, and i t s means are diplomacy and war. If i t was the Japanese and the Australians who took the lead i n corporate and economic research e f f o r t s to elaborate the P a c i f i c economy, i t has been Americans who have stressed the s t r a t e g i c f a c t o r . The U.S. government, with i t s gl o b a l i n t e r e s t s and i t s long m i l i t a r y and commercial h i s t o r y i n the P a c i f i c , cannot ignore the security issues ( f o r i t s e l f and i t s a l l i e s ) r a i s e d by present and possible power configurations i n that vast region. A recent example has been the U.S.-Japan r e l a t i o n s h i p with i t s important security aspects. (The Williamsburg economic summit of June 1983) coincided with the ascendancy of a ' P a c i f i c basin' group i n the Reagan administration which argues that US and Japanese i n t e r e s t s converge on a broader range of i n t e r n a t i o n a l economic issues than do those of the US and Europe. US Secretary of State George Shultz, a prime mover of the P a c i f i c lobby, set the stage at Williamsburg, and (Japanese Prime Minister) Nakasone did not disappoint him: the summit demonstrated ( i n , i n t e r a l i a , endorsing a new global round f o r GATT) how the i n t e r n a t i o n a l agenda can be shaped i n t h e i r common interests once the two P a c i f i c powers - which together comprise 35% of the g l o b a l economy - cooperate....This i s a broader view than that of the hawks i n the US trade bureaucracy, f o r whom beef and c i t r u s exports symbolize the US h i s t o r i c a l mission to open the Japanese market. (FEER, 14 J u l y 1983:55) (parentheses added) - 47 - And, demonstrating the supremacy and inclusiveness of the security perspective over the shorter-term trade and economic pos i t i o n s : (As a r e s u l t of the American president's v i s i t to Japan i n mid-November 1983, Reagan and Nakasone) l a i d the groundwork fo r c l o s e r cooperation on a number of issues, e s p e c i a l l y mutual s e c u r i t y . I f each man can stay i n o f f i c e f o r another term, US-Japan re l a t i o n s could become s u b s t a n t i a l l y d i f f e r e n t from e a r l i e r t i e s . E s s e n t i a l l y , Reagan has l i s t e n e d to Secretary of State George Shultz, US Ambassador to Japan Mike Mansfield and others who take the big-picture approach to US fo r e i g n p o l i c y . These p o l i c y planners see Japan, not China, as the nation best suited to f u r t h e r i n g American i n t e r e s t s i n A s i a . . . . I f Reagan and Nakasone have t h e i r way, (the) bond w i l l be based much more on p o l i t i c a l - m i l i t a r y i n t e r e s t s than i n the past....Economic differences w i l l p e r s i s t and probably widen, but the White House and sections of the US State Department w i l l not l e t trade disputes transcend the US-Japan security a l l i a n c e . (JEER, 24 November 1983:14) (parentheses added) This s t r a t e g i c awareness plays a major part i n U.S. academic consideration of the region (Krause, 1981; Niksch, 1983). The P a c i f i c Basin Project of the Georgetown Center for Strategic and International Studies i s a good example i n that i t : seeks to place the s t r a t e g i c and economic s i g n i f i c a n c e of the A s i a n - P a c i f i c nations i n t o g l o b a l perspective, with s p e c i a l reference to the emerging i d e n t i t y of the regional ' P a c i f i c Basin Community' concept....The project, begun i n 1978, i s m u l t i d i s c i p l i n a r y i n approach, concentrating on the interplay among p o l i t i c a l , economic, and security factors a f f e c t i n g the A s i a n - P a c i f i c region and the interconnections of that region with the United States. The objective i s to promote mutual understanding and provide information and analysis f o r p o l i c y discussions i n Washington that concern the i n d i v i d u a l nations of A s i a and the P a c i f i c Basin and m u l t i l a t e r a l movements toward regional cooperation. (CSIS, 1983:1) Other states i n the P a c i f i c , such as A u s t r a l i a , Korea and Taiwan, though by no means able to ignore questions of regional security, have been able to pursue other values more a c t i v e l y under the umbrella of American s e c u r i t y than they otherwise could have. The s o c i a l i s t states - 48 - of the P a c i f i c have shown varying degrees of h o s t i l i t y to the presence and p o t e n t i a l of American m i l i t a r y power, while s t i l l other states, notably those of ASEAN, have courted American presence to a degree dependent on t h e i r perceptions of the threats from other contending regional or gl o b a l powers. As the former Malaysian fo r e i g n minister's remarks (supra) make clear , t h i s a t t r a c t i o n - r e p u l s i o n has made such states wary of subscribing to concepts or i n s t i t u t i o n s i n which the p o l i t i c a l / s t r a t e g i c element was suspected. Indeed, uncertainty as to what governmental commitment might e n t a i l i n terms of future consequences has stayed the hands of a l l P a c i f i c governments, not least of a l l Canada's (see Chapter 7 i n f r a ) . Apprehension about being seen e i t h e r to take too d i r e c t i v e a lead or to be dragged along i n a powerful tow has meant that even the most anodyne suggestions have generally f a i l e d to e l i c i t p u blic support from currently a c t i v e , as opposed to r e t i r i n g or a s p i r i n g , national leaders. 4. Summary This chapter has i d e n t i f i e d two challenges to Canadian export success. Following on from, and contrasting with, Chapter 2's analysis of weaknesses i n the organization of Canadian export i n t e r e s t s , the exposition of these challenges sets the stage f o r a delin e a t i o n of p r i n c i p l e s by which Canadian export i n t e r e s t s may achieve the coherence to perform better. - 49 - CHAPTER 4 - PRINCIPLES FOR CANADA'S INSTITUTIONAL RESPONSE TO THE PACIFIC CHALLENGES 1. Introduction This chapter proposes s i x p r i n c i p l e s which may be used a n a l y t i c a l l y and normatively to move from an inadequate i n s t i t u t i o n a l reaction by Canadian export i n t e r e s t s to a more coherent and e f f e c t i v e response to the recent P a c i f i c challenges to Canadian export performance. These p r i n c i p l e s are divided i n t o two sets - those of legitimacy and those of communication. The four p r i n c i p l e s of legitimacy derive i n the main from recent Canadian experience and the consideration of that experience by Canadian analysts (for example: Brown and Eastman (1981), Cairns (1977), Campbell (1983), Carmichael and Stewart (1983), French (1980), Phidd and Doern (1978), Simeon (1978), S t a i r s (1981), and V e i l l e u x (1979). The p r i n c i p l e s advocate (1) that primacy i n formulating Canadian export p o l i c y and programs be given to economic considerations, (2) that the Important r o l e of senior Canadian governments be recognized i n t h i s formulation, (3) that the f u l l r o l e of p r o v i n c i a l governments be acknowledged, e s p e c i a l l y when natural resources are involved, and (4) that the government i n Ottawa coordinate the Canadian p o s i t i o n by acting as a nation a l government, not j u s t as one contending government i n a fed e r a l s t a t e . The two p r i n c i p l e s of communication are also rooted i n recent Canadian experience, drawing on the analysis of Canadian and American theorists (among the l a t t e r : Cohen (1969), Friedmann (1973), Friedmann and Hudson (1974) and Johnson (1982)). These p r i n c i p l e s propose (1) - 5 0 - that each complex Canadian export i n t e r e s t speak with a s i n g l e a u t h o r i t a t i v e voice and (2) that better sharing and use of information be developed among Canadian export i n t e r e s t s . 2. Rationalism and Organization Development Friedmann and Hudson (1974) p o s i t rationalism and organizational development as two major post-1945 planning t r a d i t i o n s . Rationalism, e x p l i c i t l y embraced by the Trudeau governments from 1968 to 1984, i s defined as 'a set of methods designed to prepare information i n such a way that decisions can be made more r a t i o n a l l y ' (1974:8) through the s e t t i n g of goals, the formulation of a l t e r n a t i v e s , the p r e d i c t i o n of outcomes, and the evaluation of these a l t e r n a t i v e s i n r e l a t i o n to the goals and the outcomes. Many of the weaknesses a t t r i b u t e d to r a t i o n a l - ism apply to the Trudeau era's i n i t i a t i v e s within the f e d e r a l bureaucracies and among the bureaucracies of the other Canadian export i n t e r e s t s . A major problem was that of coordination - the i n a b i l i t y to implement Ottawa's decisions once taken. Another was disregard f o r the fa c t that 'the future does not u n r o l l incrementally but i n a d i s j o i n t e d ser i e s of c r i s e s , breakthroughs, and transformations' (Friedmann and Hudson, 1974:8). Or, i n the words of a senior Ottawa o f f i c i a l (quoted i n McCall-Newman, 1982:34): 'Like so many ideas that the Trudeauites conceived, (the new government machinery) was completely r a t i o n a l but deeply i m p r a c t i c a l . I t was based on the b e l i e f that you could construct a system and then force not only people but events to f i t themselves into i t . ' Instead of rationalism, t h i s chapter r e l i e s on the t r a d i t i o n of organization development whose operating p r i n c i p l e (according to Friedmann and Hudson (1974:10)) i s that 'planning could not be - 51 - meaningfully separated from implementing action' and that 'any l a s t i n g change i n process and structure must come from wi t h i n the organization and involve far-reaching changes i n awareness, a t t i t u d e s , behaviour and values on the part of i t s constituents.' In t h i s paper 'the organization' i s taken as being that within and among Canadian export i n t e r e s t s as defined i n Chapter 2 . Chapter 2 suggests the complexity of these Canadian export i n t e r e s t s , a l l of d i f f e r i n g s i z e s and locations, a l l with d i f f e r e n t p o l i c i e s and f i n a n c i a l c a p a c i t i e s . This v a r i e t y of i n t e r e s t s must provide the basis f o r planning a more adequate response to the challenges set out i n Chapter 3 . The current dispensation has h i s t o r y and defenders; i t cannot be wished or commanded away f o r purposes of l n t e l l e c t u r a l , p o l i t i c a l or commercial expediency. Nonetheless, i t i s susceptible to the ap p l i c a t i o n of concepts which might further the in t e r e s t s of i t s decision-makers. This Chapter proposes an o v e r a l l goal - coherence - and s i x p r i n c i p l e s which could take hold i n a country i n c r e a s i n g l y aware of the interdependence of i t s parts i n a time c a l l i n g f o r better responses to a reduced number of opportunities. Coherence can be defined as the q u a l i t y of being l o g i c a l l y consistent, w e l l - k n i t , clea r and i n t e l l i g i b l e . In the present context t h i s means that participants i n a f r a g i l e f e d e r a l economy ought not sustain r e l a t i o n s approximating those of r i v a l sovereign states. Relations among Canadian export i n t e r e s t s must take place i n a more consensual context than at present; a l l Canadian i n t e r e s t s must increasingly coordinate t h e i r goals and methods i n order to present a more coherent p o s i t i o n i n foreign trade. - 52 - Coherence i s , of course, e a s i e r to propound than to r e a l i z e . There i s a loop consisting of cooperative attitudes and coordinated organization. Most theorists underline the importance of a t t i t u d e . Cohen (1969:3) suggests that enlightened s e l f - i n t e r e s t form the basis of a cooperative psychological environment. Such perceived s e l f - i n t e r e s t underpins and issues from what are c a l l e d here p r i n c i p l e s of legitimacy. Cooperative organization r e s t s on p r i n c i p l e s which may be e s s e n t i a l l y c o n s t i t u t i o n a l , f i s c a l or p o l i t i c a l (power-based). Without denying the relevance of these bases of organization, t h i s thesis r e l i e s on p r i n c i p l e s of communication as those upon which the coordination of Canadian economic i n t e r e s t s should be founded. Since the goal of greater coherence consists of elements of better attitudes and better organization, the s i x p r i n c i p l e s of t h i s chapter are divided i n t o two categories: p r i n c i p l e s of legitimacy and p r i n c i - ples of communication. The four p r i n c i p l e s of legitimacy assert an appropriate r o l e f o r each of the three major sets of Canadian export i n t e r e s t s : the private sector, and the p r o v i n c i a l and fe d e r a l govern- ments. The two p r i n c i p l e s of communication r e l a t e , f i r s t , to a u t h o r i t a t i v e communication by each i n t e r e s t , and, second, to improved communication among Canadian i n t e r e s t s . These p r i n c i p l e s can be applied a n a l y t i c a l l y to c r i t i c i z e inade- quate past and present organization and normatively to suggest adequate response. Both kinds of a p p l i c a t i o n w i l l be undertaken i n the case studies of Chapters 5, 6 and 7. The s i x p r i n c i p l e s are based i n the strengths and weaknesses of Canadian planning experience as interpreted by planning theory. Some of t h i s theory i s Canadian i n that i t has - 53 - been developed with reference to Canadian experience. Some i s foreign i n the sense that i t was elaborated i n response to other (American, Japanese or French) conditions and issues. C l e a r l y , the Canadian system, d i f f e r e n t i n many aspects even from those countries most s i m i l a r to i t , cannot hope to copy wholly the theory or p r a c t i c e of another place. Johnson (1984:6) warns that the 'United States cannot and should not copy Japan's i n d u s t r i a l p o l i c i e s . The r e s p o n s i b i l i t i e s , endowments and p o l i t i c a l i n s t i t u t i o n s of the two countries d i f f e r too much f o r that.' And Cohen (1969:30) makes clear that 'the power structure i n which French planning operates determines the nature of the planning process.' Yet, a l e r t to inappropriate or contradictory a l i e n elements, Canadian planners may p r o f i t a b l y consider lessons from abroad as w e l l as these from t h e i r own experience and s i t u a t i o n . 3. P r i n c i p l e s of Legitimacy Whether the public polemic originates i n a corporate boardroom, a government cabinet or an intergovernmental a f f a i r s bureaucracy, i t must be acknowledged that the p o l i t i c i z a t i o n of r e l a t i o n s among Canadian export i n t e r e s t s i s not simply a l i m i t e d bargaining t a c t i c . I t i s also a symptom of and, through p o s i t i v e feedback, a cause of the rending of the natio n a l community. I f each Canadian export i n t e r e s t i s to achieve i t s goals i n harmony with each other (and i s not to f a i l to achieve them i n harmony with non-Canadian i n t e r e s t s ) , i t i s necessary f o r each of them to recognize the capacity of the others to thwart; or, put another way, each must recognize the legitimate r o l e of the other Canadian export i n t e r e s t s . - 54 - (1) The P r i o r i t y of Economic Considerations The f i r s t p r i n c i p l e i s acceptance that the decision to produce and market goods and services f o r export should prima f a c i e be one f o r private enterprise to take on the basis of economic considerations. This p r i n c i p l e i s founded i n the current disrepute of p u b l i c sector interventions which have been c r i t i c i z e d as being too c o s t l y f o r t h e i r economic and s o c i a l returns. These interventions have included subsidies to i n d u s t r i e s with l i m i t e d linkages to the depressed regional economies i n t o which government p o l i c y set them (Weaver and Gunton, 1982); subsidies to uncompetitive, t r a d i t i o n a l 'smoke-stack' industries; and very high subsidies to wasteful ' s t r a t e g i c ' , high-technology i n d u s t r i e s , often Crown corporations. Since many private companies have benefitted from patently uneconomic arrangements, the f i r s t p r i n c i p l e i s not an unconditional l e g i t i m i z a t i o n of whatever the pr i v a t e sector characterizes as desira b l e . The t e s t i s , rather, whether the production or marketing arrangement i n question i s economic i n terms of such c l a s s i c tests as appropriate scale, p r o f i t a b l e marketing and e f f i c i e n t use of factors of production. (2) The Legitimate Role of Government The second p r i n c i p l e i s acceptance (subject to the f i r s t p r i n c i p l e ) of the legitimacy of a government r o l e i n i n d u s t r i a l and export p o l i c i e s . In the pursuit of values sometimes r e l a t e d to economics and commerce and sometimes to other p o l i t i c a l or s o c i a l considerations, national and p r o v i n c i a l governments have become progressively and - 55 - i n e x t r i c a b l y involved i n everything, whatever the nineteenth century shibboleths of free enterprise or the equally hoary l e g a l i t i e s of the c o n s t i t u t i o n . What we have seen i s thus not so much c e n t r a l i z a t i o n or d e c e n t r a l i z a t i o n as the expansion of both l e v e l s of government. One r e s u l t of that i s that i t i s d i f f i c u l t to f i n d any f i e l d of public p o l i c y today i n which both l e v e l s of government are not deeply involved. (Simeon, 1978:8) (3) F u l l P r o v i n c i a l P a r t i c i p a t i o n The t h i r d p r i n c i p l e concerns the legitimate and reasonable rights of Canadian provinces to p a r t i c i p a t e f u l l y as Canadian export i n t e r e s t s . This p r i n c i p l e has a basis i n the r e a l i t y of the evolution of the Canadian federation: L'accroissement de l'interdependance des niveaux de gouvernement fut accompagne d'une dimunition de leur autonomic En e f f e t , l'interdependance implique que l e s niveaux de gouvernement doivent necessairement se concerter s ' i l s veulent agir de fa^on coh^rente. S ' i l s refusaient d'harmoniser et de coordonner leurs actions, c e l l e s - c i pourraient s'opposer ou se contradire, devenant a i n s i i n u t i l e s ou inefficaces....L'autonomie p r o v i n c i a l e a i n s i que son c o r o l l a i r e , l'autonomie f e d ^ r a l e , n'existent plus.... En perdant leur autonomie, l e s gouvernements ont perdu leur capacite de decider en toute independance dans des domaines bien c i r c o n s c r i t s . Mais a cause de l'interdependance des fonctions de l ' E t a t moderne, i l s ont l a p o s s i b i l i t e de p a r t i c i p e r aux grandes decisions dans des domaines ou i l s ^ t a l e n t a u t r e f o i s absents. ( V e i l l e u x , 1979:42-43) As an Alberta o f f i c i a l put i t ( C l i f f o r d , 1981:7): While regulation of i n t e r n a t i o n a l trade and commerce i s c l e a r l y a f e d e r a l prerogrative, the promotion of trade i s an area where both p r o v i n c i a l and f e d e r a l governments can play an a c t i v e r o l e . Indeed, (as demonstrated f o r A l b e r t a i n Chapter 2) the a c t i v i t i e s of - 56 - those provinces ( B r i t i s h Columbia, Alberta, Ontario and Saskatchewan) with the greatest export p o t e n t i a l i n the P a c i f i c can hardly be denied. The fed e r a l government has been unable to s a t i s f y the v a r i e t y of economic i n t e r e s t s i n Canada's constituent provinces and regions with a nation a l economic p o l i c y . At the same time, because of t h e i r greater economic and p o l i t i c a l homogeneity, a number of Canadian provinces have evolved in d u s t r i a l - e x p o r t strategies (whose ori g i n s are explained i n Davenport et a l . , 1982:35), with more d e t a i l , coherence and p o l i t i c a l support than has been possible at the f e d e r a l l e v e l . The t h i r d p r i n c i p l e does not mean that p r o v i n c i a l governments may advance ind u s t r i a l - e x p o r t p o l i c i e s which erode the Canadian common market or that they should engage i n such devices as beggar-my-neigh- bour subsidies to a t t r a c t f o r e i g n investment from other provinces. (4) Coordination by the National Government The fourth p r i n c i p l e of legitimacy i s i n many ways the most important and the most subtle: that the national government's proper ro l e i s to coordinate i n a creative manner the various, but not i n v a r i a b l y c o n f l i c t u a l , Canadian export i n t e r e s t s as defined i n t h i s thesis while also heeding those other 'residual' export i n t e r e s t s mentioned i n Section 2 of Chapter 2. This p r i n c i p l e does not relegate the fed e r a l government to being the headwaiter f o r the provinces (or other i n t e r e s t s ) as P.M. Trudeau, arguably the autocrat of the nationa l breakfast table, once warned. What i t may e n t a i l i s : a d i s t r i b u t i o n of powers that much more c l e a r l y r e s t r i c t s the fe d e r a l government to what Is c l e a r l y national i n such areas as foreign p o l i c y , defence, regional income d i s t r i b u t i o n , a maintenance of the common economic market, and some of those powers that are required f o r improvement of our economic stance i n the world....(Simeon, 1978:23) (emphasis added) - 57 - This view of the r o l e of the national government i s challenged by Rexford Tugwell, an American progenitor of conjunctive planning (Weaver, 1984). Tugwell's formula of a s t r a t e g i c interference by the state i n the service of values i n a h o l i s t i c society demands too much from f e d e r a l , p l u r a l i s t i c Canada. Yet the words of h i s f i f t h l e c t u r e (1958) on 'The Place of Planning i n Society' ( P a d i l l a , 1975) bear consideration: The t r u t h i s that i n a technological society...., the one inescapable imperative i s that each a c t i v i t y s h a l l derive from a well-conceived whole, rather than that separately undertaken a c t i v i t i e s s h a l l be thought of as adding up to a whole. The additive conception makes any coordination impossible. And i t seemed i n e v i t a b l e that the believers i n minimum s t r a t e g i c controls would f i n d i n time - when the period of e b u l l i e n t production to be paid f o r c a r e l e s s l y by i n f l a t i o n was over - that t h i s was so. Their f i s c a l devices would not be enough to insure the continuous a c t i v i t y of a system whose parts did not supplement each other, did not, as a matter of f a c t , make a defensible whole, (p. 120) The Canadian relevance of t h i s passage i s that the Canadian government must create the 'well-conceived whole' from elements of other Canadian export i n t e r e s t s and from those other Canadian i n t e r e s t s ('threshold firms', f o r example) which i t wishes to promote. I t i s important, as Tugwell suggests, that coordination need not mean the mere addi t i o n of parts or a mindless countervailing; coordination i n the Canadian context should mean the arrangement of Canadian export i n t e r e s t s i n a r e l a t i o n s h i p which permits an e f f i c i e n t and harmonious working together. The n a t i o n a l government has a number of advantages In i t s r o l e as creative coordinator of Canadian i n t e r e s t s - i t s superior c o n s t i t u t i o n a l capacity to r a i s e money through taxation, i t s a b i l i t y to regulate i n a wide v a r i e t y of i n t e r - s e c t o r a l , i n t e r p r o v i n c i a l and - 58 - in t e r n a t i o n a l contexts, and, not l e a s t of a l l , i t s superior administrative and technical assets. A l l three permit the 'buying' of compliance from otherwise r e c a l c i t r a n t p r o v i n c i a l governments or indu s t r i e s or firms. The advantage i n human c a p i t a l also permits some of the strategies to be proposed i n the next se c t i o n . 4. P r i n c i p l e s of Communication The two p r i n c i p l e s of communication presuppose a growing acceptance of the p r i n c i p l e s of legitimacy. Coherent communication, whose antonym Is dissonance, can only proceed when Canadian export i n t e r e s t s accept l i m i t s on t h e i r own legitimate areas of a c t i v i t y . (1) An Au t h o r i t a t i v e Voice f o r each Export Interest The f i r s t p r i n c i p l e of communication f o r an improved Canadian export posture i s that there be an aut h o r i t a t i v e coordinating agent f o r each of the Canadian economic i n t e r e s t s . This i n t r a - i n t e r e s t coherence would meet both French's c r i t i c i s m (expressed i n Chapter 2) that e f f e c t i v e planning requires the concentration, not the d i f f u s i o n , of power i n each planning u n i t , and Johnson's point (1984:12) that the ro l e of government (or, i n Canada's case, governments) i n export promotion ought to be an e x p l i c i t attempt to coordinate i t s multifarious a c t i v i t i e s and expenditures to develop various industries f o r global competitiveness. This p r i n c i p l e i s d i f f i c u l t to r e a l i z e . Quite apart from i n t e r - m i n i s t e r i a l i n f i g h t i n g and over-lapping j u r i s d i c t i o n s , cabinets, which are at l e a s t n o t i o n a l l y subject to ce n t r a l d i r e c t i o n , often f i n d i t p o l i t i c to pursue, or to permit the pusuit of, contradictory or Inconsistent d i r e c t i o n s by subordinate - 59 - agencies. The s i t u a t i o n of firms and industries i s even more problematic. Unlike governments, i n d u s t r i e s are composed of units ( f i r m s ) , whose coherence i s u s u a l l y merely c l a s s i f i c a t o r y ( i n the sense, f o r instance, of the auto industry, the coal industry, the engineering profession). In a free enterprise approximation, firms i n a s i n g l e industry compete with each other (prime example, Northeast Coal) and t h e i r associations (as suggested i n Chapter 2) are weak, sin g l e - i s s u e groupings. (2) Better Sharing and Use of Information The second p r i n c i p l e i s that Canadian export i n t e r e s t s share and use information i n new ways. Steps must be taken to move from what John Friedmann c a l l s a corporate type to a p o l i c i e s type of planning (see Table I I ) . This implies turning from bargaining among Canadian export i n t e r e s t s to r e s t r u c t u r i n g the environment f o r decisions through p o l i c y announcements, inducements and information (Friedmann 1973:75). Cohen's work on educative and i n d i c a t i v e planning i s germane here. Educative planning has a number of apparent goals. One of them i s to introduce a more common a t t i t u d i n a l and methodological world-view among top business people and senior c i v i l servants through p a r t i c i p a t i o n i n forums on such questions as government p o l i c i e s and a c t i v i t i e s , i n d u s t r i a l organization and foreign competition (Cohen 1969:3). The Canadian seeds f o r the kinds of forums Cohen speaks of are already planted (see Brown and Eastman, 1981), but require c u l t i v a t i o n . As important i n encouraging coherence as approaches to a common perception i s the sharing of information that Cohen (1969:10) c a l l s i n d i c a t i v e planning. This would have representatives of major - 60 - TABLE II THE CORPORATE AND POLICIES PLANNING STYLES OF ALLOCATIVE PLANNING Corporate Planning P o l i c i e s Planning D i s t r i b u t i o n of Power Fragmented Weakly c e n t r a l i z e d Method of Implementation Bargaining Mixed F i e l d Controls - general rules - inducements - information Predominant Forms of Control Normative Compliance Restructuring of the decision environment Predominant Orientation toward Processes P o l i c i e s C h a r a c t e r i s t i c Role of Technical Experts Negotiator and Broker Advisor Adapted from: John Friedmann, Retracking America, table 1, page 71. - 61 - Canadian export i n t e r e s t s construct giant market-research projects f o r the main export sectors. Indicative planning features the c o l l e c t i o n and organization of information which i s more complete and comprehensive than any sing l e i n t e r e s t could access on i t s own; th i s information i s also s i g n i f i c a n t In that i t i s consistent and av a i l a b l e to a l l . At present Canada i s f a r from a system l i k e i n d i c a t i v e planning. Each Canadian export i n t e r e s t has j e a l o u s l y guarded information from other i n t e r e s t s . For reasons of competitive production or marketing strategy, p u b l i c r e l a t i o n s , p o l i t i c a l s e n s i t i v i t y , i n d i f f e r e n c e , mistrust or bad w i l l , Canadian export i n t e r e s t s r e g u l a r l y deny each other data, often a v a i l a b l e to non-Canadian i n t e r e s t s , which would a s s i s t each i n i t s planning. These improvements i n communications strategy and technique have organizational implications. Planning Canada's export p o l i c i e s and t h e i r implementation i n the P a c i f i c economy, as elsewhere, w i l l require more coordination, not j u s t consultation, than has existed i n peacetime among Canadian industry and governments. P e r i o d i c gatherings are not the only, or the best, means to t h i s end. The senior bureaucracies of the Canadian export i n t e r e s t s should be In regular, face-to-face contact. This would mean, f o r example, the l o c a t i o n of senior federal coordinating o f f i c i a l s i n p r o v i n c i a l c a p i t a l s and i n d u s t r i a l centres across the country. Communications on the export economy should be exercised at the l e v e l of p a r t i c u l a r i n d u s t r i e s and p a r t i c u l a r projects; t h i s would involve j o i n t on-site planning by senior l i n e o f f i c i a l s from the fed e r a l government and affected corporations and provinces. One way to strengthen mutual understanding, consultation and coordination l i e s i n the formation of a pool of expertise i n the f i e l d - 62 - of i n d u s t r i a l - e x p o r t policy-making and implementation through encouraging c r o s s - p o l l i n a t i o n of personnel across the now r e l a t i v e l y impermeable b a r r i e r s of various governments and i n d u s t r i e s . Contemporary Canada, which cannot r e l y as has post-war Japan or as a less p l u r a l i s t i c Canada once did (Granatstein, 1982) on a cadre of mandarins, should s t r i v e to approximate t h i s community through secondments, transfers and exchanges of senior and, e s p e c i a l l y , middle ranking o f f i c i a l s . This process has long existed at the summits of government and industry, and has occurred spontaneously at lower l e v e l s as r e l a t i v e l y h i ghly-trained f e d e r a l o f f i c i a l s , f o r example, have 'devolved' to p r o v i n c i a l and i n d u s t r i a l bureaucracies. I t now needs to be pursued consciously by decision-makers i n a l l Canadian export i n t e r e s t s to ensure that the views of each are understood and, i f possibl e , shared by a l l . In some ways t h i s c r o s s - p o l l i n a t i o n i s an instance of Friedmann's transactive planning concept i n the sense of being a continuous mutual learning among 'migrating' o f f i c i a l s (the planners) and Canadian export i n t e r e s t s (the c l i e n t s ) . Transactive planning can be defined ( a f t e r Friedmann, 1973), as a s t y l e applicable to both a l l o c a t i v e planning (concerned with actions a f f e c t i n g the d i s t r i b u t i o n of l i m i t e d resources among competing users) and innovative planning (concerned with actions that produce s t r u c t u r a l changes i n the pattern of i n s t i t u t i o n a l arrangements that guides the processes of change i n society) i n which processes of mutual learning ( i n which knowledge of the planning expert i s re l a t e d to the personal knowledge of the c l i e n t s ) are c l o s e l y integrated with an organized capacity and wil l i n g n e s s to act. Figure 1 gives a schematic representation of the transactive s t y l e . - 63 - FIGURE 1 - A MODEL OF TRANSACTIVE PLANNING CENTERS OF RESEARCH THE GUIDANCE SYSTEM CLIENT & PLANNER I** 1 •XI O z PLANNERS CONTRIBUTE 9 concepts * theory ° analysis * processed knowledge * new perspectives * systematic search procedures CLIENTS CONTRIBUTE * intimate knowledge of context ' realistic alternatives * norms 0 priorities * feasibility judgments * operational details Source: John Friedmann, Retracking America, F igure 7, p . 187. - 64 - 5 . A p p l i c a t i o n of P r i n c i p l e s to the Case Studies Chapter 3 has delineated two challenges to Canadian exports: the GTC challenge as trader and as coordinator of investment i n Canada; and the evolution of the P a c i f i c economic community concept. The f i n a l three chapters w i l l suggest, on the basis of the p r i n c i p l e s of t h i s chapter, an alternate approach to each of these challenges. None of what follows i s p a r t i c u l a r l y r a d i c a l . A number of complex, l a r g e l y i n e r t i a l Canadian export systems already e x i s t . They are not u t t e r l y inadequate and i n any case there can be no s t a r t i n g de novo. Proposals made i n the following chapters are therefore l a r g e l y incremental and suggestive. - 65 - CHAPTER 5 - CASE STUDY 1: THE MARKETING CHALLENGE 1. Canadian Reaction: The Canadian Trading Corporation By 1980, some Canadians saw merit i n emulating the success of the Japanese general trading company i n promoting exports and investment opportunities. A number of analysts proposed the establishment of a Canadian sogo shosha. Tsurumi (1980:85) i n f a c t recommended that Canada create at l e a s t two competing government trading companies i n order to complete the e x i s t i n g export assistance services of Canadian government. The l a s t Trudeau government was i n t e r e s t e d . In mid-1980 the House of Commons established a s p e c i a l committee con s i s t i n g of seven members of parliament and a research s t a f f . The committee considered f i v e options f o r the establishment of a Canadian trading company. These were (1) trading houses owned by banks with t h e i r massive finances and f a c i l i t i e s , (2) s u b s i d i a r i e s established by multinational corporations, (3) strengthened e x i s t i n g trading houses, (4) a government-owned trading company (possibly based on the government-to-government Canadian Commercial Corporation), and (5) a trading company j o i n t l y owned by government and private i n t e r e s t s . In the end, the committee decided on the f i f t h option, a major Canadian Trading Corporation (CTC) with a $300 m i l l i o n equity base, funded up to 50% by the f e d e r a l government 'with the rest held by perhaps 10 private sector investors' drawn i n p a r t i c u l a r from the banks and large i n t e r n a t i o n a l businesses (House of Commons, 1982:49). The corporation would provide a complete set of trade-related services covering both general trade (market - 66 - i n t e l l i g e n c e , marketing and sales, procurement, transportation, storage and service, f i n a n c i a l support and government-to-government transactions) and c a p i t a l projects (marketing and sal e s , deal-making and project management). Since the committee's decision ignored i t s own recognition that i t had 'not met any members of the Canadian business community eager to take the lead, or f o r that matter even to get involved i n the development of a major trading house i n Canada' (p. 35), i t was hardly s u r p r i s i n g that i t encountered opposition i n the private sector (FP_, 31 March 1984:S3). Compelled to shelve the proposal which he had supported, Trade M i n i s t e r Lumley established a government task force under Tom Burns, former president of the Canadian Export Association, to study ways of promoting Canadian exports through strengthening p r i v a t e trading houses i n Canada (DEA, 1984). While unsuccessful with i t s natio n a l trading corporation, the f e d e r a l government was able to secure the establishment ( u n t i l i t s a b o l i t i o n by the Conservative government i n early 1985) of the Canadian A g r i c u l t u r a l Export Corporation. Canagrex, a Crown corporation, was to supplement the Canadian Wheat Board's export marketing monopoly i n western Canadian wheat, oats and barley, and the Canadian Dairy Commission's r e s p o n s i b i l i t y f o r the export of milk products, by engaging i n export a c t i v i t i e s , not i n c o n f l i c t with those of the pr i v a t e sector, i n such commodities a poultry, soybeans, f i e l d crops, f r u i t and vegetables (GM, 25 July 1983:B7). With both the CTC and Canagrex, there was hardly any consultation with the provinces and they were assigned no r o l e i n e i t h e r agency. Of the s i x p r i n c i p l e s , the one most transgressed, however, was 'the - 67 - p r i o r i t y of economic considerations' (See Table VI - 'Compliance with the Six P r i n c i p l e s i n each of the Case Studies'). Both the CTC and Canagrex met with heavy opposition from the sectors they were intended to r e l y on because of the fe d e r a l government's i n a b i l i t y to communicate e f f e c t i v e l y with business even a f t e r having heard the views of hundreds of corporate representatives. Nor was the economic need f o r the establishment of a massive new Canadian Trading Corporation ever made c l e a r . Given the paucity of p o t e n t i a l Canadian export goods and services not already marketed by Crown corporations or giant firms, the current d i f f i c u l t i e s experienced by already established GTCs (FEER, 29 March 1984:89) and the e a r l y t r a v a i l s of the U.S.A.'s f i r s t GTC, Sears World Trade (FEER, 19 A p r i l 1984:72), i t might have been concluded that 'new' Canadian export i n t e r e s t s could best be served by the competition among e x i s t i n g trading companies, Canadian and non-Canadian. Canadian trading houses, f o r example, handle 13% of t o t a l Canadian exports and 40% of those to non-U.S. markets (DEA, 1984:6), and a number of Canadian advanced technology manufacturing firms (among them Telidon and M i c r o t e l , a unit of B.C. Telephone) have entered Asian marketing agreements with Japanese GTCs ( i n the two cases c i t e d , with M i t s u i and Nichimen, r e s p e c t i v e l y (GM, 5 A p r i l 1984:B10)). Another breach of the p r i n c i p l e s of legitimacy was the fe d e r a l government's ultimate f a i l u r e to serve the 'residual i n t e r e s t ' of those threshold firms ignored by other Canadian export i n t e r e s t s (not l e a s t of a l l by the giants of the ex t r a c t i v e , manufacturing and f i n a n c i a l services sectors), and of those provinces which cannot or w i l l not e s t a b l i s h t h e i r own o f f i c e s i n the a t t r a c t i v e markets of the P a c i f i c . - 68 - 2. A Better Response: the Canadian Commercial Centre The trading success of the Japanese GTC misled some Canadian analysts into b e l i e v i n g that i t was necessary to r e p l i c a t e the model i n order to duplicate i t s success. Yet, as shown i n Chapter 3, the strength of the GTC i s rooted i n the q u a l i t y and l o c a t i o n of i t s traders i n t h e i r gathering, manipulation and use of information on demand and supply. 'No other f a c t o r i n trade i s more important than market i n t e l l i g e n c e ' (House of Commons 1982:55). And although t h i s i s an area i n which most Canadian firms and ind u s t r i e s are d e f i c i e n t , i t i s not necessary to create a GTC to improve Canadian performance. Smaller firms are more l i k e l y than l a r g e r ones to have committed t h e i r resources to production at the expense of marketing. Canadian governments have t r i e d to remedy t h i s deficiency through subsidized marketing programs and the provision of trade o f f i c i a l s at home and abroad. But some observers have complained that the government system tends to emphasize Canadian supply rather than foreign demand, and to work with aggregated data which conceal opportunities f o r smaller Canadian firms. Moreover, Canadian trade o f f i c i a l s may be constrained by the diplomatic environment of the embassies i n which they work. They may, f o r example, be reluctant to pursue opportunities f o r p a r t i c u l a r firms and unable to secure timely information on l o c a l and third-country competition to p o t e n t i a l Canadian exports. To respond to these c r i t i c i s m s , there may be a case f o r e s t a b l i s h i n g a new element i n the array of Canadian export agencies: the 'Canadian commercial centre'. Canadian commercial centres (CCCs) would be o f f i c e s detached from Canadian embassies i n markets i n which the business culture constitutes - 69 - a considerable b a r r i e r to Canadian exporters; i n which p o t e n t i a l markets f o r Canadian products e x i s t i n a m u l t i p l i c i t y of p r i v a t e , quasi-public and government i n s t i t u t i o n s ; and i n which competition i s p a r t i c u l a r l y keen. These centres would be cooperative marketing i n s t i t u t i o n s i n l i n e with the p r i n c i p l e s set out i n Chapter 4 ; there would be an appropriat balance of private and public sector r e s p o n s i b i l i t i e s , a coordinating agent f o r each of the export i n t e r e s t s , and a more coherent Canadian approach to the c o l l e c t i o n and sharing of information on export and investment opportunities. Canadian commercial centres would consist of a permanent core of f e d e r a l , p r o v i n c i a l and corporate o f f i c i a l s from those export i n t e r e s t wishing to maintain a presence i n a p a r t i c u l a r market. They would als provide a home base f o r other private and p u b l i c o f f i c i a l s with an i n i t i a l or p a r t i a l i n t e r e s t i n i d e n t i f y i n g or developing p a r t i c u l a r niches. A l l these Canadian representatives would work together i n an environment i n which exchange of information on such matters as business culture, contacts, opportunities and other commercial i n t e l l i g e n c e could be on a more permanent and consistent basis than i s now p o s s i b l e . The performance of Canadian trade o f f i c i a l s i n CCCs would benefit from detachment from the diplomatic and the p o l i t i c a l and economic reporting functions of the embassy. The careers of trade o f f i c i a l s would depend s o l e l y on performance i n advancing Canadian export and investment i n t e r e s t s . Yet that performance would continue to be a s s i s t e d by intimate access to the embassy's information and analysis on economic developments i n the host country. Moreover, trade - 70 - o f f i c i a l s i n CCCs would be more accessible to l o c a l private i n t e r e s t s who might be more comfortable dealing with an o f f i c e not so obviously associated with government. P r o v i n c i a l trade promoters i n CCCs would gain through regular communication with f e d e r a l and private sector colleagues, through savings (foreign operations are notoriously expensive) and through asso c i a t i o n with a recognizably Canadian operation. Similar advantages would accrue to those private firms which chose a more s i g n i f i c a n t and c o s t - e f f e c t i v e presence than that afforded by occasional v i s i t s , and a cheaper and p o t e n t i a l l y more productive one than that derived from a s i n g l e - f i r m o f f i c e . The centres would be part of an evolving array of t r a i n i n g and i n t e l l i g e n c e f a c i l i t i e s f o r Canadian marketers. They would supplement market t r a i n i n g programs of the major Canadian corporations, the various governments, and u n i v e r s i t i e s and community colleges. In supplementing the i n t e l l i g e n c e gathering and i n t e r p r e t a t i o n e f f o r t s of a l l Canadian export i n t e r e s t s (with p a r t i c u l a r emphasis on the small and medium fi r m ) , they would c l o s e l y approximate Cohen's concepts of educative and i n d i c a t i v e planning set out i n Chapter 4 . The structure, management and funding of the Canadian centres could be t a i l o r e d to the requirements of each case. Core funding and s t a f f i n g would be the r e s p o n s i b i l i t y of the Department of External A f f a i r s . Core s t a f f i n g would consist of trade o f f i c i a l s and locally-engaged commercial and secretarial/support s t a f f versed i n the languages and s k i l l s of both Canadian and l o c a l business. Core funding would come from a l l o c a t i o n s which currently support commerical a c t i v i t y i n Canadian embassies. - 71 - The nature of p r o v i n c i a l and corporate p a r t i c i p a t i o n would determine refinements to the management and funding of the centres. The head of the centre, whether from the p u b l i c or private sector, would work i n close l i a i s o n with the Canadian ambassador. Non-core funding could be based on subscriptions from major 'tenants', and user-pay formulas could be established f o r le s s regular p a r t i c i p a n t s . How Canadian commercial centres would r e l a t e to each other or to a c e n t r a l organization i n Canada should attend the evaluation of a p i l o t centre or two. Such organizational aspects might r e l y on Chapter 4's p r i n c i p l e s of communication. A number of P a c i f i c rim c a p i t a l s would be appropriate locations f o r CCCs by reason of c u l t u r a l b a r r i e r s to Canadian penetration, r e l a t i v e prosperity, v a r i e t y of i n s t i t u t i o n s , or ' f i t ' of domestic resource endowments and import patterns with the product of Canadian manufacturing or services firms. In sum, Canadian commercial centres would: 1. t r a i n p a r t i c i p a n t s i n the business culture(s) of the host country, (inc l u d i n g out-of-house language and business programs); 2. apply embassy information on current macro-economic and s t r u c t u r a l conditions and trends to p a r t i c u l a r opportunities i n the host country; 3. i d e n t i f y demand niches r e l a t i n g to the p a r t i c u l a r export i n t e r e s t s of p a r t i c i p a t i n g firms and governments; 4. i d e n t i f y l o c a l and third-country competition to Canadian opportunities; 5. serve as an alternate home base f o r a l l Canadian export i n t e r e s t s regardless of s i z e or sector. As such, commercial centres would s a t i s f y the p r i n c i p l e s enunciated i n Chapter 4. They would meet a need of some current and p o t e n t i a l - 72 - business and p r o v i n c i a l export i n t e r e s t s while benefiting from the coordination and nurturing of the fed e r a l government. They would e s t a b l i s h a r a t i o n a l balance between the f e d e r a l government's trade promotion and other diplomatic functions, at l e a s t i n the f i e l d . And a model information network would unite a l l those Canadian export i n t e r e s t s which might benefit from cooperation i n a p a r t i c u l a r f o r e i g n market. - 73 - CHAPTER 6 - CASE STUDY 2: THE INVESTMENT CHALLENGE 1. Introduction For the twenty-five years following the end of the Second World War, Canadian mineral and energy deposits were successful i n a t t r a c t i n g American and (to a l e s s e r extent) European multinational c a p i t a l , t y p i c a l l y i n the form of completely-owned s u b s i d i a r i e s . By 1975, however, dwindling i n t e r n a t i o n a l demand, the high cost Canadian environment, and increasing i n t e r n a t i o n a l competition had gr e a t l y reduced opportunities f o r new large-scale development and production. In t h i s s i t u a t i o n the response of cash-starved, debt-ridden Canadian primary industry and governments to Japanese j o i n t venture investment and long-term contracts was understandably p o s i t i v e ; i n i t s absence the future of the t r a d i t i o n a l Canadian staples cow seemed precarious indeed. In addition, the organization of consumers i n Japan resolved the p e c u l i a r d i f f i c u l t i e s of marketing i n that country whose economy i s noted f o r i t s t a r i f f and even more formidable n o n - t a r i f f b a r r i e r s to imports (Ross, 1979). Nonetheless, the general trading company (GTC) approach described i n Chapter 3 found the various Canadian export i n t e r e s t s unprepared to respond i n a coherent manner. As demonstrated i n Chapter 2, the affec t e d companies, p r o v i n c i a l governments, and the federal government had both l i t t l e recent h i s t o r y of cooperation and i n s u f f i c i e n t i n s t i t u t i o n a l machinery to defuse the p o t e n t i a l f o r p o l i t i c a l c o n f l i c t which t h e i r varying i n t e r e s t s generated. There i s also evidence that ) they shared an incomplete understanding of the complexity of the motivations of the various Japanese i n t e r e s t s represented by the sing l e - 74 - GTC negotiator, and that they paid too l i t t l e heed to the i n t e r n a t i o n a l economic environment i n which negotiations took place. The most important f a i l u r e was t h e i r i n a b i l i t y or unwillingness to gauge future costs and benefits even within t h e i r i n d i v i d u a l j u r i s d i c t i o n s , to say nothing of n a t i o n a l l y . 2. The Western L i q u i d Natural Gas (WLNG) Case The story of the Western project centred at Grassy Point i n north-west B r i t i s h Columbia provides a current example of the v i t a l i t y of Canadian plu r a l i s m and of the concomitant lack of p r e d i c t a b i l i t y and r e l i a b i l i t y i n Canadian economic planning. A l l elements of Canadian industry and government, and of the Japanese sourcing strategy referred to i n Chapter 3, are found i n th i s project which taps i n t o the core of current Canadian (and Japanese) economic planning. In 1979 Nissho Iwai (NIC), Japan's s i x t h largest GTC i n terms of sales, undertook a j o i n t study with Dome Petroleum of Calgary and the next year reached a p o s i t i v e conclusion on the f e a s i b i l i t y of shipping Canadian LNG to Japan. By 1981 NIC had organized f i v e of Japan's major u t i l i t i e s (Note 3) i n t o a sales contract with the Western LNG (WLNG) project (whose manager and major element then was Dome with 80% of the equity, 10% each being held by NIC Resources <NICR> - a totally-owned Canadian subsidiary of NIC - and Union O i l of Calgary) to buy on a take-or-pay cost-insurance-freight basis 2.9 m i l l i o n metric tons of LNG per year f o r 20 years. In July 1982, the B r i t i s h Columbia government announced that i t had chosen Western LNG over two other GTC-related projects (one invo l v i n g Petrocan, Westcoast Transmission and Mit s u i ; the other Carter Energy, Noranda Gas, Daewoo Corporation of Korea and - 75 - Japan's Sumitomo and Marubeni Corporations) because of WLNG's secure p o s i t i o n i n the Japanese market, i t s promised return to the province, i t s a t t r a c t i v e concessional financing from Japan and i t s 'state of readiness' (McClelland, 1982). Then began Dome's long and ultimately vain attempt to secure the cooperation of gas producers, regulatory agencies and governments i n B.C. and Alberta, and the National Energy Board (see Table III f o r a l i s t of the major regulatory requirements f o r the Western LNG p r o j e c t ) , while r e s t r a i n i n g the growing impatience of i t s NICR partner and the Japanese customers. In the event Dome f a i l e d as project manager to persuade e i t h e r Alberta to commit gas to the project or ( p a r t l y because of the continuing unsettled state of i t s debt renegotiations) other Canadian firms to commit equity to WLNG. Dome handed over the management ro l e to Union O i l and NICR i n l a t e June 1984. While the story of WLNG may have a successful sequel with a new Canadian LNG company (Note 4), a summing-up of WLNG i s now pos s i b l e . To begin, a sketch of the various i n t e r e s t s i n the project w i l l demonstrate the complexity, p a r t i c u l a r l y of the Canadian process. (Figure 2 gives a schematic representation of these i n t e r e s t s . ) (a) Japanese Interests The Government of Japan, led by the planning of the M i n i s t r y of International Trade and Industry, was interest e d i n the project as part of an energy p o l i c y which emphasized d i v e r s i f i c a t i o n i n two senses - away from o i l , and by source. (MITI, 1982; and Nemetz and Vertinsky, 1984). Chubu E l e c t r i c , which was to take 55% of the project's product, - 76 - TABLE III MAJOR REGULATORY REQUIREMENTS FOR WESTERN LNG PROJECT 1. NATIONAL ENERGY BOARD Energy forecast and determination of export p o l i c y Review of i n d i v i d u a l project applications Individual project l i c e n s i n g C e r t i f i c a t e of pu b l i c convenience and necessity C e r t i f i c a t e to operate 2 . BRITISH COLUMBIA UTILITIES COMMISSION Gas a l l o c a t i o n process Energy forecast and determination of export p o l i c y Gas removal c e r t i f i c a t e Energy project c e r t i f i c a t e Energy operation c e r t i f i c a t e 3 . ALBERTA ENERGY RESOURCES CONSERVATION BOARD Energy forecast Export l i c e n s e Source: Nissho-Iwai Corporation FIGURE 2 - PROJECT SCHEME (THE SCHEME FOR THE WESTERN LNG PROJECT) Japanese Buyers, Chubu E l e c t r i c Kyushyu E l e c t r i c Chugoku E l e c t r i c Osaka Gas To ho Gas Japanese Lender The Export-Import Bank C i tv Banks l C . I . F . Sel ler! Jo int venture between Dome and NICR IF.O.B. Se l ler Transporter Dome-NICR Shipping Company |Ship Owner) "Dome Gas Suppl ier TCPL CCPL |Gas Producer, JA1 berta B r i t i s h Columbia P ipe l ine Transporter WCTC Japanese National O i l Corporat ion L e g e n d : h e a v y l i n e - p r i n c i p a l c o n t r a c t s ( p r o d u c t f l o w ) r e g u l a r 1 i n e - o t h e r c o n t r a c t u a l r e l a t i o n s h i p s d o t t e d l i n e - l o a n g u a r a n t e e A b b r e v i a t i o n s : Dome - Dome P e t r o l e u m NICR - N i s s h o - I w a i R e s o u r c e s I n c . TCPL - T r a n s C a n a d a P i p e l i n e NOVA - NOVA, an A l b e r t a C o r p o r a t i o n BCPC - B r i t i s h C o l u m b i a P e t r o l e u m C o r p . WCTC - W e s t C o a s t T r a n s m i s s i o n BCRIC - B . C . R e s o u r c e s I n v e s t m e n t C o r p . C . I . F . - c o s t - i n s u r a n c e - f r e i g h t F . O . B . - f r e e on b o a r d S o u r c e : N i s s h o - I w a i C o r p o r a t i o n - 78 - and the other u t i l i t i e s shared MITI's desire and, moreover, favoured LNG's clean, e f f i c i e n t properties (Gale, 1981). The u t i l i t i e s urged an ea r l y completion of Western LNG to permit d e l i v e r i e s to expensive new re c e i v i n g terminals by mid-1987; two of Chubu's 'requests' to be s a t i s f i e d before October 31, 1984, were that Dome obtain gas removal permits from the B.C. and Alberta governments and that i t conclude an agreement to finance and b u i l d the necessary p i p e l i n e . (GM, 31 March 1984:B1) The Japanese u t i l i t i e s had a further need: to be assured that Dome, which has sustained enormous reverses since the conception of the project (Foster, 1983), was a f i n a n c i a l l y r e l i a b l e partner. This requirement explains Chubu's further 'requests' that Dome secure i t s banks' approval f o r the refinancing of i t s $6 b i l l i o n debt, and that i t obtain a d d i t i o n a l partners i n Western LNG to reduce i t s equity and attendant r i s k to the project. For reasons of GTC p r o f i t a b i l i t y set out i n Chapter 3, Nissho Iwai, Dome's jun i o r j o i n t venture partner, needed the income Western LNG would provide. In i t s r i v a l r y with the other GTCs, NIC's reputation was also at stake. That LNG projects are p a r t i c u l a r l y d i f f i c u l t to organize and coordinate i s generally recognized: The LNG s e c t o r . . . i s i n a s p e c i a l p o s i t i o n because of the massive commitments which both buyers and s e l l e r s have to make to get even the smallest d e l i v e r y system working. Pipelin e s take years to construct and years to pay f o r . Any upset i n the energy or economic balance can e a s i l y delay a project or force i t s promoters to cancel i t f o r good. (FEER, 15 October 1982, page 69) And NIC recognizes that: Not every proposal leads to success, as we can t e l l from experience. Many projects are stymied f o r some inherent reason - i n s u f f i c i e n c y of gas supply or consumer demand, d i f f i c u l t y of transportation or f a c i l i t i e s construction, lack - 79 - of government approval for gas export, or other f a c t o r s . We've done f e a s i b i l i t y studies f o r many LNG projects since the 1960s....Yet many were unable to progress beyond the study stage f o r some reason. (NIC, n.d.:7) NIC sets out 'seven keys to success' for an LNG pro j e c t . The timely coordinated turning of these keys i s the tes t by which i t s GTC expertise can be judged. Table IV i l l u s t r a t e s the p o s t - f e a s i b i l i t y study progress of Western LNG i n terms of NIC's seven keys. To 'lose' Western LNG and i t s Japanese customers to the r i v a l GTCs, M i t s u i and M i t s u b i s h i , with t h e i r 6 m i l l i o n ton per year North West Shelf project i n A u s t r a l i a (FP, 12 March 1984:23), would be embarrassing to NIC. And there were other r i s k s . NIC's expenditure i n promoting the project was r e l a t i v e l y small, but GTCs must be mindful that the only major GTC to face bankruptcy since 1945, Ataka Corporation, was the immediate v i c t i m of miscalculations i n another Canadian mega-project, the Newfoundland r e f i n e r y at Come-by-Chance (Yoshihara Kunio, 1982:144; Young, 1979:226). (b) Canadian Interests Dome Petroleum's agenda was a long one. F i r s t and foremost, a succes s f u l Western LNG project would have a s s i s t e d i n i t s struggle to recover f i n a n c i a l l y by providing revenue i n the l a t e 1980s and ea r l y 1990s to replace that l o s t from anticipated d e c l i n i n g returns on i t s conventional o i l properties (FP, 21 January 1984:12). To ensure Western LNG's v i a b i l i t y , Dome had to keep the construction costs f o r the l i q u e f a c t i o n plant and terminal (costed at $1.7 b i l l i o n ) , the 550-mile p i p e l i n e ($0.7 b i l l i o n ) and shipping, and the cost of gas stocks, to a minimum, while at the same time securing various p r o v i n c i a l and fede r a l approvals. S p e c i f i c a l l y , Dome had to: - 80 - TABLE IV KEYS TO LNG PROJECT DEVELOPMENT (mid-1984) 1. Project economics - dependent on elements 2A, 6 and 7A 2A. A v a i l a b i l i t y of Gas reserves - p h y s i c a l l y a v a i l a b l e ( p o l i t i c a l l y dependent on 7A and economically dependent on the Alberta producers) 2B. A v a i l a b i l i t y of LNG Technology - OK (provided by Nissho Iwai Corp.) 3. Ocean Transportation - question of $1 b i l l i o n financing of f i v e c a r r i e r s (probably Japanese) - question of Canadian content (N.E.B.)' 7A 4. Committed Purchasers - u n t i l at l e a s t 31 October 1984 (Japanese u t i l i t i e s and f i n a n c i a l i n s t i t u t i o n s ) 5. Appropriate Financing - u n t i l at le a s t 31 October 1984 (Japanese u t i l i t i e s ) 6. Optimum Project Structure - depends on replacement of Dome's equity i n the project 7A. Wholesale support of Exporting governments - B.C. - OK - Canada - probably OK - Alberta - not OK 7B. Wholesale support of Importing governments - Japan - OK Source: adapted from Nissho-Iwai Corporation, n.d. - 81 - 1. maintain the patient forebearance of the Japanese u t i l i t i e s (which were not only the customers, but also guarantors of the $2 b i l l i o n loan f o r the plant, terminal and p i p e l i n e ) by meeting Chubu's four requests, v i z : - obtaining a gas removal permit from the Government of Alberta [that from B.C. had already been secured (GM, 14 A p r i l 1984:B2); - concluding an agreement with Westcoast Transmission of Vancouver on the financing and construction of the pipeline; - reducing i t s equity p o s i t i o n from 80% to something l i k e 30%, probably through the involvement of some of the p a r t i c i p a t i n g gas producers; - persuading Canadian and foreign banks (notably the Canadian Imperial Bank of Commerce and Citibank) to agree to the res t r u c t u r i n g and refinancing of i t s debt; 2. obtain a c e r t i f i c a t e of public convenience and necessity from the fed e r a l National Energy Board; and 3. obtain the assent of Alberta and B.C. gas producers to provide WLNG with about h a l f each of the t o t a l of 3.2 t r i l l i o n cubic feet of gas required over 20 years. For producers, the issue was simply to keep the netback from WLNG sales greater than or equal to the netback from gas sales i n the United States. Figure 3 i l l u s t r a t e s the f i s c a l regime and Note 5 the ca l c u l a t i o n s involved. The evidence suggests that the larger multinationals ( i n the Canadian Petroleum Association) held back, hoping f o r a r i s e i n the U.S. domestic p r i c e and/or a slackening of Canadian government regulation of gas pri c e s to the American market [This deregulation began on November 1, 1984 (GM, 14 July 1984:Bl)]. A number of smaller independent producers (represented by the Independent Petroleum Association of Canada) may, however, have been prepared to r i s k long-term netbacks f o r mid-term cash flow. Dome's o f f e r to take 90% of i t s WLNG requirements at 55% of the U.S. border p r i c e during the gas industry's slack summer months (GM, 31 August 1983:Bl) may also have been a t t r a c t i v e to the smaller firms. Although i t s Energy Resource Conservation Board approved the export - 82 - FIGURE 3 - THE FISCAL REGIME OF THE PETROLEUM INDUSTRY UNDER THE NATIONAL ENERGY PROGRAM Wellhead Price Operating Costs Provincial Royalties Federal Income Tax' Provincial Income Tax X , Petroleum and Gas Y Revenues Tax (PGRT) Petroleum Incentives Program (PIP) Canadian ownership of: 0-75% on provincial lands 0-50% on Canada Lands* 75%* on provincial lands 50%+ on Canada Lands* for Reinvestment in Exploration and Development . "Depending on eligibility for write-offs, allowances, and so on. ''Depletion allowances on qualifying expenditures will be net of incentive payments. Sources: Canadian Petroleum Association, Submission to the National Energy Board Hearing on Energy Supply/Demand. Vol. 3 (Calgary, 1980); De- partment of Energy. Mines and Resources, The National Energy Pro- gram. 1980 (Ottawa. 1980), p. 40. Source: E .A. Carmichael and J . K . Stewart , Lessons from the National Energy Program, Chart 2, page 25 - 83 - of A l b e r t a gas f o r the WLNG project i n terms of i t s a v a i l a b i l i t y , and although the project would have d i v e r s i f i e d Alberta's market f o r gas away from exclusive r e l i a n c e on the United States (where Canadian imports constitute only 4% of the market), the Government of Alber t a seemed to share the desire of i t s major producers to await Canadian deregulation and better American p r i c e s . I t too had no wish to see Alb e r t a producers jeopardize American contracts or market share through the granting of more favourable wellhead p r i c e s to a project which, i n terms of t o t a l gas exports, would represent only 20% of Alberta's export market. The Government's resistance was reinforced by i t s reluctance to accept the low returns to the province i n terms of r o y a l t i e s and taxes that i t believed the contract p r i c e with Japanese consumers coupled with WLNG's high f i x e d costs would e n t a i l . There was also a p o l i t i c a l element with roots dating to the c o n f l i c t with Ottawa over the National Energy P o l i c y i n 1980, and a corresponding readiness to await a new fe d e r a l government more sympathetic to Alberta's p o s i t i o n on energy matters (FP, 12 May 1984:21). The B.C. Government would l i k e l y have shared Alberta's concerns had i t been more confident of markets f o r i t s surplus gas and had the project, with i t s construction and other m u l t i p l i e r s , not been i n B.C. The project was also consistent with the S o c i a l Credit Government's t r a d i t i o n a l penchant f o r regional development through major energy pr o j e c t s . This t r a d i t i o n from the W. A. C. Bennett era ( M i t c h e l l , 1983) had been most recently exemplified by the North-East Coal Project i n which the p r o v i n c i a l government staked $500 m i l l i o n i n r a i l i n f r a s t r u c t u r e costs f o r a private sector j o i n t venture i n v o l v i n g - 84 - M i t s u i and a number of Canadian mining firms (McDonnell, 1983). In the WLNG case the project was to assume the transmission costs; the province's f a c i l i a t i o n was l i m i t e d to deregulation of the supply of gas through the B r i t i s h Columbia Petroleum Commission, and an undertaking to supply nearly h a l f of the gas required rather than the quarter o r i g i n a l l y projected. The Government of Canada generally welcomed the WLNG project which represented market d i v e r s i f i c a t i o n and growth i n Canada's second largest export. The government also e x p l i c i t l y counted on mega-projects to be the engine of economic growth i n the period from the budget of November 1981 to that of A p r i l 1983, and fore i g n j o i n t ventures provided most of the few mega-projects of the la t e 1970s and earl y 1980s. Moreover, WLNG involved Dome, a high p r o f i l e o f f s p r i n g of the government's National Energy Program of 1980. On the other hand, since the foreign investment i n the WLNG project was not such as to come within the Foreign Investment Review Agency's d e f i n i t i o n of 'control', there was no opportunity f o r the Agency to assess t h i s investment by the standard of ' s i g n i f i c a n t benefit to Canada' with such c r i t e r i a as backward and forward linkages, exports, employment and revenue. I t f e l l to another f e d e r a l agency, the National Energy Board (NEB) to assert the fe d e r a l government's nationa l and ' n a t i o n a l i s t ' i n t e r e s t s . The NEB i s l a r g e l y independent but subject to administrative d i r e c t i o n from the minister of Energy, Mines and Resources who answers f o r i t i n Parliament. In addition to i t s r e s p o n s i b i l i t y to advise the national government on the development and use of energy resources, the NEB has a duty to regulate s p e c i f i c areas of the gas industry (as w e l l as other energy industries) i n the p u b l i c - 85 - i n t e r e s t . I t does t h i s through the issue, with Cabinet approval, of c e r t i f i c a t e s f o r , i n t e r a l i a , the construction and operation of i n t e r p r o v i n c i a l p i p e l i n e s and licenses f o r the export of gas (see Table I I I ) . Among the NEB's, i n t e r e s t s i n the WLNG project were regulatory r e s p o n s i b i l i t i e s i n the tec h n i c a l , socio-economic, environmental and economic areas. Hearings, held i n October 1983, approved Dome's agreement to provide f o r payments i n excess of $20 m i l l i o n over 25 years to the Lax Kw'alaam band near Grassy Point. The Board's i n t e r e s t i n the economics of the project was reserved pending approvals by the producers and the p r o v i n c i a l governments. The NEB, i n an unprecedented step (GM, 21 November 1983:B9), became engaged with the question of the f i v e s p e c i a l i z e d ships required to transport LNG from the WLNG terminal i n B.C. to Japanese r e c e i v i n g terminals. Dome and NICR, through t h e i r j o i n t shipping company, had i n i t i a l l y planned to lease e x i s t i n g c a r r i e r s , hoping to keep the project's r e s p o n s i b i l i t y f o r the costs of transport to a minimum; f i v e new ships would cost them about $1 b i l l i o n . This plan miscarried when Japanese buyers i n s i s t e d that only new c a r r i e r s could assure the sec u r i t y required f o r the handling of such v o l a t i l e product i n the densely populated ports of Japan. The desire of the Japanese government f o r construction i n Japanese ship yards, depressed by lack of demand and by Korean and Taiwanese competition, may also have been a f a c t o r . In any event, there was strong i n d i c a t i o n (GM, 21 November 1983:B9) that such leaseable ships as Dome sought were not i n f a c t a v a i l a b l e . At the i n s t i g a t i o n of the Canadian shipping community, the NEB entered the debate by i n s i s t i n g on Canadian content i n the - 86 - construction, supply and operation of the v e s s e l s . Although actual construction i n Canada seemed u n l i k e l y , two Canadian groups with connections i n Norway and the U.S., r e s p e c t i v e l y , bid f o r one or more of the ships, and at l e a s t one of the Japanese contenders f o r the project's ship construction spoke of the i n c l u s i o n of Canadian technology i n i t s plans. In th i s regard, i t i s i n t e r e s t i n g to note that Kawasaki Heavy Industries, a member of an enterprise group headed by Nissho Iwai's second banker, seemed to have had an ea r l y i n s i d e track with the project's shipping company. (c) An Assessment of Canadian Reactions The fundamental issues i n the WLNG case were, of course, economic. In i n t e r n a t i o n a l terms these issues were the importance of forecasts of the demand i n the dominant American export market which aff e c t e d forecasts as to what that market would pay, and the urgency of the Japanese demand which conditioned the p r i c i n g formula proposed by the Japanese buyers. In Canadian terms: the intimately related question of short- and long-terra returns to Canadian LNG producers r e s u l t i n g from a dec i s i o n to commit production to WLNG. In corporate terms: the v i a b i l i t y of Dome as manager i n the p r o j e c t . These economic questions alone would have determined whether WLNG could proceed. Complicating these basic private sector considerations were shortcomings that seemed to f a l l mostly w i t h i n the two communications p r i n c i p l e s of Chapter 4 : namely, that each Canadian export i n t e r e s t should speak with a s i n g l e coordinated voice, and that there should be improved sharing of perceptions, experience and information among such i n t e r e s t s (see Table VI - 'Compliance with the Six P r i n c i p l e s - 87 - i n each of the Case Studies') The representatives of the Canadian primary sector (Dome and the gas producers), secondary sector (shipping concerns based i n Toronto and Montreal) and t e r t i a r y sector (notably the Canadian Imperial Bank of Commerce and three other banks) have a l l demonstrated a rigorous i n t e r e s t i n revenue. Yet the shared project i n t e r e s t between Dome and i t s banks i n r e t i r i n g Dome's debt proved incompatible with that of the gas producers and the Canadian shipping suppliers and yards. Alberta and B.C., too, were at p o t e n t i a l loggerheads because of B.C.'s a d d i t i o n a l i n t e r e s t i n securing the jobs and other benefits of plant and p i p e l i n e construction. For Its part, the fede r a l government, i n advancing i t s own i n t e r e s t s i n terms of gas sales taxes and of seeing Dome [ i t s wounded NEB champion (Foster, 1983)] recover without jeopardizing the f e d e r a l banking system, came up against Alberta's own revenue i n t e r e s t s and i t s concerns i n the U.S. export market. And there were rel a t e d c o n f l i c t s a r i s i n g from d i f f e r i n g i n d u s t r i a l and export p o l i c i e s . For example, while both governments espoused d i v e r s i f i c a t i o n of export markets, i t i s cl e a r that the Alberta economy, dependent as i t i s on gas exports, had more to lose should WLNG go ahead and miscarry economically. Moreover, the n a t i o n a l and B.C. governments had greater i n t e r e s t s i n promoting linkages to other sectors (eg. plant and p i p e l i n e construction, and shipbuilding and provisioning) than did the government of A l b e r t a . F i n a l l y , the project must be seen i n the highly v i s i b l e and p o l i t i c i z e d context of competing p r o v i n c i a l and national d i r e c t i o n s i n energy p o l i c y generally. These non-market factors made f o r the worst kind of planning environment, one based i n competition f o r l i m i t e d revenue, i n d i f f e r i n g - 88 - negotiating s t y l e s , and i n lack of shared information, perceptions or goals. For a l l the pretensions to coordination of Nissho Iwai or Dome or the na t i o n a l government, the Government of Alberta's p o s i t i o n , for example, was p r a c t i c a l l y unheeded by a l l of them. This was dysfunctional i n terms of t h e i r own i n t e r e s t s since Alberta had the capacity to deny the p r o j e c t . The major flaw i n Canadian public planning p o l i c y and p r a c t i c e was i t s f a i l u r e to determine the o v e r - a l l benefits and costs of WLNG to the Canadian economy and Canadian society i n a more coordinated, r a t i o n a l manner. I t would be unreasonable to expect a rapid and e n t i r e l y smooth convergence of the disparate i n t e r e s t s represented i n t h i s case. The se t t i n g , a p a r t i a l consequence of the r o l e of the GTC i n the Japanese and P a c i f i c economies, i s as complex as has ever confronted Canadian export planning. The point i s not whether i t was f e a s i b l e f o r governments to w i l l WLNG int o existence i n the face of overwhelming economic ' f a c t s ' . Nor i s the issue whether Canadian p l u r a l i s t i c and fed e r a l p o l i t i c s should be scrapped. The issue i s a parochial lack of awareness - astonishing i n a country with a small domestic market, l i m i t e d i n t e r n a t i o n a l p o l i t i c a l influence, and a h i s t o r y of foreign-directed exports - of the larger context i n which Canadian export i n t e r e s t s operate. In sum, while a l l senior Canadian governments and firms seem to have been protecting t h e i r c o n s t i t u t i o n a l and constituency prerogatives with vigour, t h e i r narrow approaches were c o l l e c t i v e l y dysfunctional i n the context of the world scramble f o r markets and Canada's ominously shrinking share of them. I t i s possible that Canadian i n t e r e s t s do not share enough common - 89 - goals and attitudes to act with the coherence that one must expect of a v i a b l e national economy. This deficiency may be r e c t i f i e d by a d r a s t i c decline of Canadian l i v i n g standards leading to pressure from an ele c t o r a t e or ownership (where t h i s i s Canadian) more interes t e d i n protecting a common weal than that of any of the constituent p a r t s . But, i n the absence of collapse or a revolutionary re-education of Canadian export decision-makers, i t i s c l e a r that these decision-makers require appropriate methods and i n s t i t u t i o n s with which to communicate, e s t a b l i s h shared p r i o r i t i e s and plan together. 3. A Better Response to the WLNG S i t u a t i o n A p p l i c a t i o n of Chapter 4's p r i n c i p l e s to the Western LNG case suggests a number of appropriate responses among Canadian export i n t e r e s t s . Immediately NIC and Dome agreed on the economic f e a s i b i l i t y of an LNG plant i n Canada (necessarily i n B r i t i s h Columbia, Canada's only province with P a c i f i c p orts), Dome (as project manager) and the governments of B r i t i s h Columbia and Canada ought to have begun to work together. This i n t e r a c t i o n ought to have involved a committee composed of senior executives delegated to speak f o r the various sub-units of a l l three export i n t e r e s t s . And immediately i t became c l e a r that A l b e r t a gas was e s s e n t i a l to the success of the project, that province ought to have been added to the committee. A problem i n the recognition of the r o l e of the private sector a r i s e s i n t h i s formula of Canadian consultation when the management of the project f e l l to Canadian su b s i d i a r i e s (Union O i l , a 100% American-owned firm) and NICR (100% owned by Nissho Iwai) (GM, 30 June 1984:B5). There may be grounds f o r maintaining distance from the - 90 - foreign-owned subsidiary u n t i l senior l e v e l s of government have worked out a Canadian negotiating p o s i t i o n , possibly through a kind of f e d e r a l - p r o v i n c i a l screening process. The important element, again, i s that Canadian i n t e r e s t s determine a j o i n t p o s i t i o n before entering i n t o negotiations with non-Canadian i n t e r e s t s . In assessing the r e l a t i o n s h i p between the senior Canadian governments i n the WLNG case, recognition should be given to the p r o v i n c i a l ownership of the resource. There i s a hopeful precedent of the f e d e r a l government's willingness to work i n partnership with the provinces i n the General Development Agreements (GDA) under DREE, and the successor Economic and Regional Development Agreements (ERDA) administered by DRIE. The major difference between GDAs and the approach recommended here i s that the primary goal of cooperation here i s export-related e f f i c i e n c y rather than the promotion of regional equity. Since p r o v i n c i a l economic and s o c i a l planning would on balance d i r e c t the recommended arrangement, however, the regional development element might be more e f f e c t i v e l y promoted than i t was with DREE's often uneconomic and i n e f f e c t i v e regional development subsidies. In pursuit of the p r i n c i p l e s of communication, the f e d e r a l components of the approach proposed here could be a ministry of industry (DRIE) composed of sections i n Ottawa responsible f o r a l l major sectors ( i n c l u d i n g natural gas) and o f f i c i a l s resident i n p r o v i n c i a l c a p i t a l s working i n close l i a i s o n with counterparts both i n p r o v i n c i a l m i n i s t r i e s of industry and i n the private sector. Remarkably, the e s s e n t i a l federal i n s t i t u t i o n a l framework has already been created but not yet been given the appropriate mandate. In 1982 the f e d e r a l government established the M i n i s t r y of State f o r - 91 - Economic and Regional Development (MSERD) to coordinate regional economic development p o l i c y formulation. MSERD's minister was to chair the Cabinet Committee on Economic and Regional Development responsible f o r the management of the government's economic development and energy expenditures, and to ensure that Canada's regional d i v e r s i t y was considered i n a l l economic development decisions (MSERD, 1984). MSERD set up i n each province an o f f i c e headed by a Federal Economic Development Coordinator (FEDC) whose duties included coordinating f e d e r a l economic development a c t i v i t i e s i n the province ( i n t e r a l i a , by c h a i r i n g a committee of the fed e r a l economic development o f f i c i a l s i n the province), promoting cooperation with the p r o v i n c i a l government, and consulting business, labour, municipal governments and other economic development groups. There i s l i t t l e evidence of the effectiveness of the FEDCs. One observer i n Edmonton (GM, 3 J u l y 1984:8) seemed to regard the incumbent there as no more than a Trudeau government response to a lack of other p o l i t i c a l representation i n Alberta. His appointment two years ago spearheaded the bureaucracy's response to a unique p o l i t i c a l s i t u a t i o n , i t s attempt to create a high-powered f a c i l i t a t o r who could cut through or around the o l d established l i n e s and report d i r e c t l y to the fede r a l Cabinet. To some extent at l e a s t the experiment seems to be working. The two p o l i t i c a l sides (Ottawa and Edmonton) are gearing up fo r another, po s t - e l e c t i o n energy b a t t l e . But i n the meantime they have s u c c e s s f u l l y concluded a s e r i e s of long-range agreements i n other areas, touted here as the r e b i r t h of co-operative federalism. By several accounts, the...experiment has come to be thought of as rather e s s e n t i a l , t h i s i n a region leery of Ottawa, but where a proposed p r o v i n c i a l power project on the Upper Slave River has provoked the statutory i n t e r e s t of 25 d i f f e r e n t f e d e r a l agencies. - 92 - The r o l e of the B.C. and Alberta FEDCs i n the Western LNG case i s not cl e a r ; they came l a t e i n the f a l l of 1982 to a process, normally acrimonious, which had begun several years e a r l i e r . Nor i s the future of the FEDCs c l e a r with the d i s s o l u t i o n of MSERD by the Turner government as one of i t s f i r s t acts. FEDCs were integrated i n t o DRIE where t h e i r future may be e i t h e r v e s t i g i a l or t r a n s i t i o n a l . The f e d e r a l Department of Regional I n d u s t r i a l Expansion (DRIE) was also intended to respond more e f f e c t i v e l y to regional conditions. Its regional Executive Direc t o r s were made responsible for both i n d u s t r i a l development and export trade promotion (see Figure 4). As with the FEDCs there i s l i t t l e evidence of the effectiveness of t h i s s t i l l f l e d g l i n g operation. And as l i t t l e c e r t a i n t y of i t s future. Should these organizational innovations (FEDC and the DRIE regional d i r e c t o r ) survive, the fundamental question w i l l remain whether t h i s f e d e r a l machinery i s intended to do more than organize elements i n Ottawa's regional i n d u s t r i a l and economic p o l i c y , while at the same time underlining the v i s i b i l i t y of a large and legitimate presence i n each of the provinces. Or whether they can evolve into the kind of neo-cooperative federalism suggested by the p r i n c i p l e s set out i n Chapter 4. Associated questions are whether the p r o v i n c i a l governments are prepared to display a s o l i d a r i t y beyond t h e i r occasional j o i n t communiques (re f e r r e d to i n Chapter 2) which make demands f o r the transf e r or use of powers from Ottawa without any suggestion of r e c i p r o c i t y , and whether they are prepared to enter into a more pragmatic r e l a t i o n s h i p with the c e n t r a l government. And, f i n a l l y , the question to be put to Canadian corporations i s whether they w i l l - 93 - Figure 4 ORGANIZATION CHART FOR THE DEPARTMENT OF REGIONAL ECONOMIC EXPANSION DEPARTMENT OF REGIONAL INDUSTRIAL EXPANSION MINtSTER OF STATE SMALL BUSINESSES AND TOURISM r ~ FEDERAL BUSINESS DEVELOPMENT BANK NATIVE ECONOMIC DEVELOPMENT BOARD CANADIAN PATENTS AND DEVELOPMENT LIMITED *CPDL* FORE1QN INVESTMENT REVIEW AQCHCV *FIRA DEPUTY MINISTER ASSOCIATE DEPUTY MINISTER CANADIAN INDUSTRIAL RENEWAL BOARD TEXTILE ANO CLOTHINQ BOARD CAPE BRETON DEVELOPMENT CORPORATION ' D E V C O ' "7 I . I I __j 1 . AOM SMALL BUSINESS AND SPECIAL PROJECTS ADM TOURISM ADM POLICY COMPTROLLER •HUMAN RESOURCES • COMMUNICATIONS • INTERNAL AUOIT • LEOAL SERVICES •CORPORATE COOfi- OlNATION BUREAU EXEC DIRECTOR. REOIONAL AND INDUSTRIAL PROGRAM AFFAIRS ADM CAPITAL AND INDUSTRIAL GOODS AOM CONSUMER GOODS. SERVICES ANO RESOURCE PROCESSING NEWFOUNDLAND EXEC DIRECTOR. REOIONAL AND •INDUSTRIAL 'DEVELOPMENT P R I N C E E D W A R D I S L A N D EXEC DIRECTOR. REGIONAL AND INDUSTRIAL DEVELOPMENT NOVA SCOTIA EXEC DIRECTOR. REGIONAL AND INDUSTRIAL DEVELOPMENT NEW BRUNSWICK EX EC "DIRECTOR. REGIONAL AND INDUSTRIAL DEVELOPMENT EXEC OIRECTOR. REGIONAL AND INDUSTRIAL DEVELOPMENT EXEC DIRECTOR. REOIONAL AND INDUSTRIAL DEVELOPMENT EXEC OIRECTOR. REGIONAL AND INDUSTRIAL DEVELOPMENT SASKATCHEWAN EXEC DIRECTOR. REGIONAL AND INDUSTRIAL DEVELOPMENT EXEC DIRECTOR. REOIONAL AND INDUSTRIAL DEVELOPMENT B R I T I S H C O L U M B I A EXEC OIRECTOR. REGIONAL AND INDUSTRIAL DEVELOPMENT Executive Asaist int 10O60 fcS-2 D i r e c t o r . S t r a t e g i c '1 anning and Evaluation H. WALKER D i r e c t o r . Indust r ia l Operations T . TURNER 10001 EX-1 Source: DRIE - 94 - display both the good corporate c i t i z e n s h i p and the p r a c t i c a l sense to accept the legitimate r o l e of government i n Canada. - 95 - CHAPTER 7 - CASE STUDY 3: THE PACIFIC ECONOMIC COMMUNITY CHALLENGE 1. Regional Theory Regional theory o f f e r s no sure guidance to the planning and formation of i n t e r n a t i o n a l regional economies. The various theories - functionalism, neofunctionalism, and the communications approach - are 'pretheories i n that they exhibit l i t t l e t h e o r e t i c a l power of explanation and p r e d i c t i o n ' (Duffy and Feld, 1980:508). In the absence of theory, Duffy and Feld suggest that 'another and perhaps more i n t r i g u i n g a l t e r n a t i v e l i e s i n the construction of a p r e t h e o r e t i c a l causal model, based upon the nat i o n a l i n t e r e s t s of the chief actor of the i n t e g r a t i v e process, the nation state.' One of Duffy and Feld's operational concepts r e l a t e s to nation states, the chief actors i n regional integration, defined as national governments. There i s an assumption that government decision-making i s r a t i o n a l and coherent i n the sense that i t furthers the national i n t e r e s t and the s u r v i v a l of the government, both domestically and i n t e r n a t i o n a l l y . Another concept concerns the na t i o n a l i n t e r e s t which i s based not only on the achievement of i n t e r n a t i o n a l power and prestige, but must also consider the continued s o c i a l and economic health of the state... (p. 511) These concepts, the nation state and i t s i n t e r e s t s , are fundamental to the development of the P a c i f i c economy. What matters, then, i s not simply the p o l i t i c a l importance of the issue which may serve as the juncture f o r i n i t i a t i n g an i n t e g r a t i o n network, but how the decision makers of each p o t e n t i a l member state consciously or unconsciously impose a set of p r i o r i t i e s to foreign or domestic p o l i c y objectives, (p. 512) - 96 - The current elaboration of the P a c i f i c economy seems to have recognized the i m p r a c t i c a b i l i t y of the 'supranational frameworks' posited by functionalism and neo-functionalism, and to r e l y instead on conferences of i n c r e a s i n g l y important national groups (including o f f i c i a l components from the respective n a t i o n a l governments) which w i l l promote common p o l i c i e s (once these have been hammered out i n various task forces) to those same national governments (see Figure 5 for a schematic representation of the f u n c t i o n a l i s t , n e o f u n c t i o n a l i s t and the PECC P a c i f i c models f o r region b u i l d i n g ) . 2. The P a c i f i c Economic Community Concept (PECC) A Japanese and an A u s t r a l i a n were, predictably, responsible f o r an attempt at synthesis of some of the various strands i n the elaboration of the P a c i f i c economy. This attempt resolved the contentious issues of supra-national i n s t i t i t i o n s and s e c u r i t y by ignoring them; i t was, nonetheless, an e f f o r t to make previous e f f o r t s i g n i f i c a n t by making i t legitimate and relevant. In 1980 Japanese Prime Minis t e r Ohira and A u s t r a l i a n Prime Minister Fraser co-sponsored at the A u s t r a l i a n National U n i v e r s i t y (ANU) (with ANU Chancellor S i r John Crawford and Dr. Okita Saburo as co-chairmen) a P a c i f i c Community Seminar whose t r i p a r t i t e national delegations were composed of businesspeople, academics, and government o f f i c i a l s i n a private capacity. The delegations, agreeing that an exploration of the r a t i o n a l e , format and agenda f o r a new P a c i f i c consultative system should be undertaken, established a P a c i f i c Cooperation Committee to oversee the work of task forces charged with the pragmatic study of a l i m i t e d number of issues. In June 1982 the P a c i f i c Economic - 97 - FIGURE 5 - MODELS OF INTERNATIONAL REGION BUILDING FUNCTIONALIST MODEL Supra-national Commission \ capacity increasing competence National Governments pressure \ j strengthening o f soc io-psychologica l community NEOFUNCTIONIST MODEL Supra-national Commission - s p i l l - o v e r - i n f l u e n c e National Governments community interest o f various groups TRIPARTITE PACIFIC MODEL community interest o f various groups: business economists ! : National Committee Country A P a c i f i c Economic Cooperation Conference 3̂ 7 National Committee Country B National Government A National Government B business economists community interest P o l i c y Process for T r i p a r t i t e P a c i f i c Model ( s o l i d l i n e ) : 1. d i f f e r i n g pol icy inputs 2. negotiated pol icy recommendation 3. common agreed pol icy 4 . advice on acceptance of common agreed p o l i c y 5. diplomatic negotiation of internat ional economic environment Membership of National Committees i s indicated by broken l i n e Source : L. Woods, ' P o l i t i c a l Science Sets S a i l : The P a c i f i c Community Concept ' , page 9 ( f o r F u n c t i o n a l i s t and Neofunct iona l is t Diagrams) - 98 - Cooperation Committee (PECC), meeting i n Bangkok (a s i g n i f i c a n t venue given previous ASEAN reticence at being involved i n such meetings), with t r i p a r t i t e representation from twelve delegations - the f i v e P a c i f i c AICs, the f i v e ASEAN states, South Korea and the Western P a c i f i c - i n i t i a t e d , and designated r e s p o n s i b i l i t y f o r , four task forces, one each f o r the manufacturing trade (Korea and i t s Development I n s t i t u t e ) , i n t e r n a t i o n a l investment (Japan), food and a g r i c u l t u r a l trade (the Thai P a c i f i c Cooperation Committee), and mineral resource trade and development (Australia's ANU). The most recent PECC was held i n Indonesia (again an ASEAN venue) i n November 1983 and consisted of t r i p a r t i t e representation from the f i v e AICs, South Korea and the ASEAN states plus delegations from Mexico, Chile, Peru, France and the PEC Committee i n T a i p e i . The task force themes were further elaborated and some re-assigned - f i s h e r i e s development (assigned to Canada, s p e c i f i c a l l y to Dr. Gordon Munro of the University of B r i t i s h Columbia), consultative arrangements i n minerals and energy (to Australia/ANU and PBEC), i n d u s t r i a l complementation ( i . e . , the question of what manufacturing each P a c i f i c country should emphasize) and trade negotiations (to Korea's KDI), technology trans f e r through investment (USA, Japan and Singapore), and f i n a n c i a l resources and services (USA, Japan and Indonesia) (PECC, 1983). Observers agreed that t h i s t h i r d PECC was the most us e f u l i n breaking the conceptual and r h e t o r i c a l i n e r t i a of the past. As a consequence of these developments, the focus of the elaboration of the P a c i f i c economy i s becoming sharper. The d i v i s i v e issue of membership has been l a r g e l y resolved, and that of supranational organization l a r g e l y overtaken. In the question of - 99 - membership, only the P a c i f i c Trade and Development Conference [PACTAD: see page 42], with i t s s t r i c t l y economic research focus, can be said to have represented the whole P a c i f i c region, and that only s p o r a d i c a l l y . PBEC has moved to incorporation of the two leading NICs, South Korea and Taiwan (and hence the exclusion of China) i n addi t i o n to the o r i g i n a l f i v e AICs. A marginal ASEAN p a r t i c i p a t i o n has been arranged through a Regional Member Committee which also contains representation from Hong Kong, the P a c i f i c Islands, Mexico, Peru and C h i l e . Thus, PBEC International (see page 39) i s composed of eight membership committees - f i v e AICs (Japan, the United States, Canada, A u s t r a l i a and New Zealand), two NICs (South Korea and Taiwan) and one LDC (the und i f f e r e n t i a t e d regional committee). The PECC r e f l e c t s the t r i p a r t i t e business, academic and government p a r t i c i p a t i o n of the f i v e AICs, the f i v e ASEAN states and Korea. Here, Taiwan's status ( i n the form of the 'Chinese PEC Committee i n Taipei') i s that of observer, a s i t u a t i o n shared by three L a t i n American states - Ch i l e , Mexico and Peru - and France, by v i r t u e of i t s P a c i f i c t e r r i t o r i e s . Neither PBEC nor PECC, with t h e i r s i m i l a r loose and f l u i d i n t e r n a t i o n a l structures of conferences, steering committees, and task forces (for PECC) or s p e c i a l committees (for PBEC) seems p a r t i c u l a r l y interested at t h i s stage i n a modified organization such as that proposed f o r OPTAD or PBCC (see page 44). Their emphasis i s on national organization and e f f o r t coupled with increasing ' i n t e r n a t i o n a l ' communication taking place between as w e l l as during roughly annual conferences. This paucity of i n t e r n a t i o n a l organization i s even more evident i n PACTAD's case. I f they d i f f e r from PACTAD i n some respects, PECC and, i n i t s wake, - 1 0 0 - PBEC, have been quick to adopt i t s focus on themes, with the difference that t h e i r s are becoming increasingly s p e c i f i c and s a l i e n t i n terms of economic planning and development i n the P a c i f i c . Once i n t e r n a t i o n a l agreement has been reached on p a r t i c u l a r p o l i c y recommendations, these are to be promoted by each national committee to t h e i r respective national governments. This aim i s made e x p l i c i t i n the f i n a l documentation of both PECC's and PBEC's 1983 meetings i n B a l i and Santiago. PECC's Steering Committee recommended: (2) that the governments concerned should give f u l l consideration to a set of s p e c i f i c measures which were i d e n t i f i e d i n the area of trade and other economic p o l i c i e s . (PECC, 1983) And from PBEC's Santiago Resolution: PBEC pursues i t s purposes i n three p r i n c i p a l ways....The second i s to provide advice and counsel to the governments and in t e r n a t i o n a l agencies on basic economic (and) business matters a f f e c t i n g the P a c i f i c Basin. (PBEC, 1983:62) There i s recent evidence that PBEC International i s s e n s i t i v e to the need to remain i n the forefront of P a c i f i c evolution i n the face of PECC's in c r e a s i n g l y s p e c i f i c a c t i v i t y . PBEC's International President may now, at the request of at l e a s t three of the eight Member Committees, appoint s p e c i a l committees, and, on the recommendation of the International Vice-president, appoint program chairmen to develop s p e c i a l topics f o r the General Meetings. E r i c Trigg, an important figure i n both PBEC and PECC, has added a note of caution to t h i s rapid mobilization (PBEC, 1983:23): - 101 - PBEC, however, should not t r y to 'out academic' the academics, nor should we confuse the t r i p a r t i t e process (of PECC) with our established government l i a i s o n programs. Thus, the proper stance f o r PBEC at t h i s time i s one of involvement to help shape the t r i p a r t i t e dialogue i n t o one that u s e f u l l y p a r a l l e l s PBEC's own program of a c t i v i t y . Each step of that involvement can be measured by the accomplishment of the previous step. He has also proposed that ' s p e c i f i c c r i t e r i a ' be brought to the attention of the P a c i f i c Economic Community's Bangkok Conference. These c r i t e r i a included: - studies should c l e a r l y r e l a t e to the P a c i f i c Region and concern themselves with problems there that are u n l i k e l y to be solved i n other ways i f no s p e c i a l work i s done... - work should not be undertaken simply to provide papers to le c t u r e governments on p o l i c i e s and issues that have already been dealt with at length i n other forums... - any reports submitted must be written i n clear terms and must recognize the r e a l i t i e s of governments. And they should be clear about what industry countries might gain or lose, i n d i c a t i n g i n p a r t i c u l a r where the larger countries stand i n r e l a t i o n to the smaller ones. 3. Reactions of Canadian Export Interests to the Attempted Elaboration of the P a c i f i c Economy The evolution of the P a c i f i c economy moves in c r e a s i n g l y from the dissemination of basic information and conceptualizing to the i d e n t i f i c a t i o n of s p e c i f i c issues on which consensus i s sought. What planning challenges does t h i s d i r e c t i o n pose to Canada's na t i o n a l government, the major ' P a c i f i c ' p r o v i n c i a l governments, and the relevant Canadian primary, secondary and t e r t i a r y i n d u s t r i a l sectors? J . Hugh Stevens, President of PBEC International i n 1983-84, has s u c c i n c t l y enunciated the challenge to Canadian business i n t e r e s t s (PBEC, 1983:63): - 102 - The c r e d i b i l i t y of PBEC's message to governments i s linked d i r e c t l y to the q u a l i t y of membership. I f PBEC i s not representative of our respective business communities, we l i m i t our a b i l i t y to examine problems and develop s o l u t i o n s . Each of us, therefore, must p a r t i c i p a t e i n the appropriate processes leading to the strengthening of membership and participation, (emphasis added) PBEC's Canadian membership i s s t i l l small and 'personal' i n the sense that firms are t y p i c a l l y represented by v i r t u e of the a c t i v i t y of one or two of t h e i r senior executives. In these terms, the primary (mineral, energy and forestry) exporting sector i s r e l a t i v e l y w ell represented, but the a g r i c u l t u r a l much less so. This i s probably because so much of the export of a g r i c u l t u r a l products i s done by Crown corporations. The t e r t i a r y sector i s also widely represented i n an array ranging from major banks to small law firms. I t i s the manufacturing sector - large, threshold, and small, Canadian-owned as well as f o r e i g n - c o n t r o l l e d - which i s greatly under-represented i n PBEC Canada. This i s probably a r e f l e c t i o n of two f a c t o r s : the sector's general lack of i n t e r e s t or success i n exporting i t s products to the P a c i f i c , and PBEC's pronounced i n t e r e s t i n free trade and the reduction of p r o t e c t i o n i s t commercial p o l i c y . P a c i f i c Rim Opportunity Conferences, whatever t h e i r p u b l i c i t y value, are i n s u f f i c i e n t to greatly enlarge PBEC's membership. To be more comprehensive, PBEC Canada must at l e a s t recognize e x p l i c i t l y and speak to the p r o t e c t i o n i s t i n t e r e s t s of a sizeable component of Canadian industry. The vehicles f o r achieving Stevens' c a l l f o r strengthened membership and p a r t i c i p a t i o n may be the Canadian Chamber of Commerce and the Canadian Manufacturers Association, both of which - 103 - sponsor PBEC Canada. The academic and research communities should also be subject to Stevens' exhortation to widen p a r t i c i p a t i o n i n P a c i f i c matters. A small group of economists form the core of Canadian s c h o l a r l y representation at PACTAD and PECC. The planning of even economic communities can no more be l e f t only to economists, however legitimate t h e i r leading r o l e , than the organization of commerce can be l e f t only to some business people. There are too many other a f f e c t e d i n t e r e s t s . The i n t e r e s t s of p r o v i n c i a l governments i n the elaboration of the P a c i f i c economy are met only through representations to, or l i m i t e d representation on, the o f f i c i a l element of the t r i p a r t i t e business, academic and government arrangement organized by the fed e r a l Department of External A f f a i r s . This marginality may r e f l e c t as much a general p r o v i n c i a l lack of understanding of, or of credence i n , the PECC process as a respect f o r Ottawa's paramountcy i n i n t e r n a t i o n a l a f f a i r s . Whatever i t s cause, i t i s c e r t a i n l y at odds with the active P a c i f i c s t r a t e g i e s of a number of Canadian provinces. The n a t i o n a l government's response to the economic planning of the P a c i f i c i s conditioned by i t s p o s i t i o n on the s t r a t e g i c issue - avoidance. There appears to be a general f e e l i n g among Ottawa decision-makers that the p o l i t i c a l and other costs of endorsing any formal P a c i f i c community might w e l l outweigh any conceivable benefit. The major reasons f o r t h i s aversion are a t o t a l r e l i a n c e on the U.S. m i l i t a r y i n the P a c i f i c , a d i s i n c l i n a t i o n to contribute to P a c i f i c m i l i t a r y s e c u r i t y , and an unwillingness i n the complex b i l a t e r a l r e l a t i o n s h i p with Washington to r i s k U.S. displeasure over issues of P a c i f i c s e c u r i t y and other matters on which the Canadian government - 104 - might espouse a p o s i t i o n at variance with Washington's. There are elements here reminiscent of Canadian p o l i c y on membership i n the Organization of American States. The c o r o l l a r y of t h i s i s that Canadian p o l i c y i n the P a c i f i c i s e s s e n t i a l l y b i l a t e r a l ; t h i s too i s i n l i n e with the d i r e c t i o n of Canadian fo r e i g n p o l i c y since 1968 (External A f f a i r s , 1970; and Dewitt and K i r t o n , 1983), as well as with the pragmatic view that 'there can be no such thing as a p o l i c y f o r the P a c i f i c Rim' (Holmes, 1982:11). A concomitant to b i l a t e r a l i s m i s support for the least s p e c i f i c forms of pan-Pacific regionalism. This approach i s exemplified by the response of W. T. Delworth, then Assistant Under-Secretary of State for External A f f a i r s , to a question as to the timing of a P a c i f i c community (Donnelly and Falkenheim, 1981:55): I give i t about another decade. I think i t w i l l come about i n a very ad hoc, unstructured way. I think i t w i l l end up looking very much l i k e a kind of Commonwealth meeting i n the P a c i f i c , a kind of town meeting. I think i t i s not going to have a b i g mandate, or a charter of r i g h t s b u i l t i n t o a c o n s t i t u t i o n . I think i t w i l l be a habit of t a l k i n g together at senior l e v e l s about whatever i t i s that i s bugging the community, and not an organization with a formal mandate such as the OECD. Notwithstanding the f e d e r a l preference for b i l a t e r a l i s m , and the arguments that Canada's export expectations i n the P a c i f i c are l i m i t e d and that e f f o r t should be concentrated on s e c t o r a l free-trade negotiations with the United States (DEA, 1983), a few Canadian o f f i c i a l s have been increasingly a c t i v e i n PECC as i t has evolved and as other countries, notably the United States, have shown greater i n t e r e s t . The o f f i c i a l s i n Canada's most recent t r i p a r t i t e formula (1983) were two External A f f a i r s o f f i c e r s (one at the assistant deputy - 105 - minister and the other at director-general l e v e l ) , one ADM each from the f e d e r a l m i n i s t r i e s of Transport, and Energy, Mines and Resources, and an ADM from the Mini s t r y of Industry and Small Business of the Government of B r i t i s h Columbia. The range of i n t e r e s t s which the fed e r a l government must r e f l e c t , however, i s much wider. The fed e r a l government has a r o l e not j u s t f o r economic matters pertaining to the P a c i f i c , but also i s responsible f o r the diplomatic representation of i t s own and the provinces' views on the s o c i a l , economic and c u l t u r a l implications of i t s P a c i f i c p o l i c y that f a l l w ithin i t s and t h e i r c o n s t i t i t i o n a l powers. This i s a t a l l order. There i s , however, evidence that the fed e r a l government can respond to i t s r e s p o n s i b i l i t i e s . In early 1984 the A s i a and P a c i f i c Branch of the Department of External A f f a i r s canvassed a wide range of i n t e r e s t s (see Table V) as to points of view on the d i r e c t i o n and context of Canadian involvement with Japan. Future e f f o r t s must consciously canvas and inform an ever wider range of Canadian i n t e r e s t s on the subject of the P a c i f i c as a whole. 4. A Better Response to PECC Of the three case studies of t h i s t h e s i s , the a p p l i c a t i o n of the planning p r i n c i p l e s of Chapter 4 i s easiest i n the matter of the economic framework of the P a c i f i c (See Table VI - 'Compliance with the Six P r i n c i p l e s i n each of the Case Studies'). The p r i v a t e sector has taken a leading r o l e i n l i n e with the f i r s t p r i n c i p l e of legitimacy and has shown an awareness of the importance of improving membership numbers and q u a l i t y i n l i n e with the f i r s t p r i n c i p l e of communication. What i s c l e a r l y l a c k i n g i n the PECC process i s an assertion by Canada's - 106 - TABLE V INSTITUTIONS CONTACTED BY THE DEPARTMENT OF EXTERNAL AFFAIRS JANUARY - MARCH 1984 M i n i s t r i e s of the National Government - Regional I n d u s t r i a l Expansion - Energy, Mines and Resources - F i s h e r i e s and Oceans - A g r i c u l t u r e - Finance M i n i s t r i e s of P r o v i n c i a l Governments - Alb e r t a - Federal and Intergovernmental A f f a i r s - Economic Development - Energy and Natural Resources - A g r i c u l t u r e - Tourism and Small Business - B r i t i s h Columbia - Intergovernmental A f f a i r s - Industry and Small Business - Energy - Tourism - Ontario - Industry and Trade - Quebec - various - others - met as a group Business - Canadian Manufacturers Association - various A l b e r t a firms i n canola, coal, a l f a l f a , tourism, food processing - petro-chemicals: S h e l l , Dupont, Alberta Gas - Royal Bank of Canada Labour - International Woodworkers of America - S o l i d a r i t y (B.C.) Research - Economic Council of Canada - Science Council of Canada - U n i v e r s i t y of Toronto/York U n i v e r s i t y Centre f o r Modern East A s i a - U n i v e r s i t y of B r i t i s h Columbia, I n s t i t u t e of Asian Research - Laval U n i v e r s i t y - Canada-Japan Trade Council - Brookings I n s t i t u t i o n Others - Canadian Embassy, Tokyo - U.S. State Department - 107 - senior governments of t h e i r proper place; i n p a r t i c u l a r , the national government seems reluctant to accept the c a l l of the fourth p r i n c i p l e of legitimacy to coordinate the i n t e r e s t s of a l l relevant Canadian p a r t i e s . I t i s in c r e a s i n g l y d i f f i c u l t to maintain that the fed e r a l government's representation i n the t r i p a r t i t e PECC process i s informal or u n o f f i c i a l . PECC i s formulating studies and e t a b l i s h i n g ' s p e c i f i c measures...in the area of trade and other i n t e r n a t i o n a l p o l i c i e s ' (PECC 1983), and there i s strong evidence that PECC and PBEC wish to promote these proposed p o l i c i e s with P a c i f i c rim governments. Canadian government representatives must not lapse into behaving as i f the PECC process has not a very serious p o t e n t i a l . However 'informal' PECC may appear, i t i s composed of a mix of quite highly-placed o f f i c i a l s , business people and researchers who, p a r t i c u l a r l y i n the absence of other m u l t i l a t e r a l regional f o r a , may i n c e r t a i n circumstances e s t a b l i s h the parameters of the P a c i f i c environment with a l l the economic, s o c i a l , regional and p o l i t i c a l domestic consequences that such an environment would e n t a i l . The Canadian government may choose to r e j e c t these parameters, but, i f the region's powerful governments accept them, the P a c i f i c economic environment may be set notwithstanding Canadian r e j e c t i o n . As Hayter shows (Figure 6), Canada i s not very a r t i c u l a t e d i n t o the present P a c i f i c economy as i t i s . The Canadian government (through the Department of External A f f a i r s ) has a r e s p o n s i b i l i t y to lead by s o l i c i t i n g and coordinating the views of other f e d e r a l i n s t i t u t i o n s and the p r o v i n c i a l governments, of labour, s o c i a l and consumers groups, and of those firms, i n d u s t r i e s , academics and researchers not represented i n the PECC - 108 - FIGURE 6 - TRADE AMONG PACIFIC ECONOMIES (1979) ON THE BASIS OF SALIENCE SCORES 1 Sofivnc* »€©*• potitrv* tn both d>«*t»»ori» — — Solium:* Kor* pc*itiv* in direction indicoted C = Conodo US = United Slates M = Mexico CA = Central Americo (El Solvodor, Guatamola, Costa Rica, Nicaragua. Panama, Honduras) S = South America (Columbia, Ecuador, Peru, Chile) N = New Zealand A = Australia AS = ASEAN (Malaysia, Singapore. Thailand, Indonesia, Philippines) H = Hong Kong CH = China K = S.Korea J — Japan Source: Roger Hayter, 'Canada's P a c i f i c Basin Trade and i t s Impl icat ions fo r the Export o f Manufactures in B .C . and A l b e r t a ' , Figure 1, page 5a - 109 - process - and then representing t h i s coordinated stance i n t e r n a t i o n a l l y . There i s a place for an energetic p o l i t i c s and diplomacy i n the formulation of the proposed p o l i c i e s . D.A. Ross of UBC's I n s t i t u t e of International Relations (1982) maintains that, while there i s as yet no compelling evidence that Canada's future prosperity w i l l be dependent on the evolution of the P a c i f i c ' s economic processes (and that Ottawa w i l l accordingly maintain ' t r a d i t i o n a l scepticism' towards even q u a s i - i n s t i t u t i o n a l i z e d m u l t i l a t e r a l r e l a t i o n s h i p s ) , there i s much to recommend a f a r more a c t i v i s t approach to problems of P a c i f i c s e c u r i t y . The A p r i l 1985 PECC meeting i n Seoul and subsequent meetings may be stages i n the refinement of the guidelines f o r the future P a c i f i c economy. PBEC Canada, Canadian p o l i t i c a l economists and, p a r t i c u l a r l y , the Canadian government have a r e s p o n s i b i l i t y to ensure that Canadian representation at Seoul i s informed by the views of the widest possible range of Canadian i n t e r e s t s . How t h i s can be done e f f e c t i v e l y i s as c e n t r a l an issue i n Canadian national, regional and s e c t o r a l export planning as are planning questions r a i s e d by resource exports or the marketing of Canadian goods and s e r v i c e s . I f Canadian export expertise i s dedicated e x c l u s i v e l y to the premises of free trade with the United States, Canada may f i n d i t s P a c i f i c option relegated to continuing marginality or determined by f a r fewer voices than i t should be. This w i l l only matter i f Canadians are content to subscribe to the consequences of economic continentalism without considering the advantages of v i a b l e a l t e r n a t i v e s . - no - CHAPTER 8 - CONCLUSION Findings The case studies of Chapters 5, 6 and 7 y i e l d some p a r t i c u l a r and general f i n d i n g s . (a) Case Study 1 - The Marketing Challenge: Findings 1. Canadian export i n t e r e s t s lack adequate organization to achieve optimal performance i n marketing Canadian goods and se r v i c e s . 2. An adequate response would r e l y p r i n c i p a l l y on the second p r i n c i p l e of communication which c a l l s f o r a better sharing and use of information by Canadian export i n t e r e s t s (see Table V I ) . I t would also depend on two p r i n c i p l e s of legitimacy: cost-effectiveness f o r both the pri v a t e and public sector involvements ( p r i n c i p a l 1) and coordination of a national e f f o r t by the fe d e r a l government ( p r i n c i p l e 4 ) . 3. The Canadian deficiency i n marketing can be e a s i l y corrected through small-scale innovative concepts ( l i k e the Canadian Commercial Centre model proposed i n Chapter 5) to provide a d d i t i o n a l components where there are gaps i n the e x i s t i n g range of Canadian marketing agencies. (b) Case Study 2 - The Investment Challenge: Findings 1. Canadian export i n t e r e s t s also lack an adequate cooperative organization to secure the foreign investment which would generate sales of natural gas i n markets other than the United States. - Ill - TABLE VI COMPLIANCE WITH THE SIX PRINCIPLES IN EACH OF THE CASE STUDIES Canadian General Trading Company Western L i q u i d Natural Gas Case P a c i f i c Economic Community Concept PRINCIPLES OF LEGITIMACY 1. P r i o r i t y of Economic Considerations LOW 2. Role of Government LOW 3. F u l l P r o v i n c i a l P a r t i c i p a t i o n LOW 4. Coordination by National Government LOW LOW LOW PRINCIPLES OF COMMUNICATION 1. A u t h o r i t a t i v e Voice f o r each export i n t e r e s t LOW 2. Better Sharing and Use of Information LOW LOW LOW Empty C e l l s are within acceptable l i m i t s r e l a t i v e to low compliance c e l l s . - 112 - 2. While economic considerations of cost and p r i c e might always have prevented the r e a l i z a t i o n of the Western LNG project, the disarray among Canadian export i n t e r e s t s denied them the f l e x i b i l i t y to manipulate any 'window of opportunity' i n i n t e r n a t i o n a l energy prices to t h e i r separate and mutual advantages. 3 . To have enjoyed t h i s 'window of opportunity', the a p p l i c a t i o n of" the fourth p r i n c i p l e of legitimacy - coordination by the national government - would have acknowledged the p o l i t i c a l and c o n s t i t u t i o n a l importance of the Alberta government ( i n l i n e with the t h i r d p r i n c i p l e of legitimacy) i n a matter r e l a t i n g to the resource base of that province's economy. 4. Moreover, the sharing among Canadian firms and governments of information r e l a t i n g to Japanese goals and the domestic and i n t e r n a t i o n a l energy environments ( i n l i n e with the second p r i n c i p l e of communication) would doubtless have been important i n securing a j o i n t Canadian p o s i t i o n . (c) Case Study 3 - The P a c i f i c Economic Community Concept Challenge; Findings 1. Canadian export i n t e r e s t s have f a i l e d to e s t a b l i s h a mechanism through which a thorough nation a l consideration could be made of the consequences f o r Canada of various scenarios r e s u l t i n g from the continuing elaboration of the P a c i f i c economy. 2. This f a i l u r e could i n c e r t a i n circumstances have profound negative consequences f o r the Canadian economy and p o l i t y . 3 . This f a i l u r e could be corrected i f each Canadian export i n t e r e s t ( e s p e c i a l l y the P a c i f i c Basin Economic Council and the f e d e r a l - 113 - government) established an authori t a t i v e voice ( i n accordance with the f i r s t p r i n c i p l e of communication); and i f a l l Canadian export i n t e r e s t s acknowledged the legitimate r o l e of government, or (put another way) i f the f e d e r a l government assumed i t s r e s p o n s i b i l i t y (under the fourth p r i n c i p l e of legitimacy) to lead and coordinate a national response. (d) General Findings 1. While each of the case studies shows a d i f f e r e n t set of de f i c i e n c i e s as f a r as the s i x p r i n c i p l e s are concerned (see Table VI), they combine to demonstrate that the Canadian export system i s generally d e f i c i e n t i n a number of ways. 2. The most serious general deficiency r e l a t e s to the second p r i n c i p l e of communication. In none of the three case studies (and l e a s t of a l l i n the c r i t i c a l WLNG case) did Canadian export i n t e r e s t s share or use information i n a s a t i s f a c t o r y manner. 3. Related to the d e f i c i e n t sharing of information i s the clear f a i l u r e of the national government to i d e n t i f y i t s proper coordinating r o l e i n any of the three cases. 4. To achieve a greater n a t i o n a l coordination, the f e d e r a l government should not (as i n the P a c i f i c Community case) define i t s r o l e as peripheral; i t should not (as i n the Canadian General Trading Company case) define i t s r o l e as i f Canada were a unitary state or a command economy; and i t should not (as i n the WLNG case) betray the (not always i n e f f a b l e ) national i n t e r e s t i n a single-minded pursuit of i t s own i n t e r e s t s . - 114 - 2. Recommendations f o r Future Research The general recognition of the inadequacy of the proposed Canadian General Trading Company has reduced i t as an i n t e r e s t i n g object of further research. The apparent ascendancy of economic considerations since l a t e 1983 and the recent p r o l i f e r a t i o n of appropriately scaled marketing innovations (see, f o r example, DEA, 1984) suggest that many of the next steps are being taken. The P a c i f i c Economic Community Concept has a daunting number of variables and, barring major changes i n i n t e r n a t i o n a l p o l i t i c s and economics, i t may have l i t t l e importance i n i t s present form. These factors make i t d i f f i c u l t to specify useful immediate research on t h i s question. The Western L i q u i d Natural Gas case, on the other hand, i s incontestably c e n t r a l to Canadian export performance. Whether or not the Port Simpson project goes ahead, i t would be i n s t r u c t i v e to know more about the r e l a t i o n s within and among relevant Canadian export i n t e r e s t s during WLNG's b r i e f h i s t o r y . This could be effected through interviews of the decision-makers i n the pr i v a t e sector (for example, i n Nissho-Iwai Corporation Resources, Dome Petroleum, Union O i l , the Canadian Petroleum Association, and the Independent Petroleum Association of Canada) and the public sector ( f o r instance, Energy, Mines and Resources Canada, the Government of Alberta (notably the Premier's o f f i c e ) , and the Government of B r i t i s h Columbia ( i n c l u d i n g the M i n i s t r y of Energy, Mines and Petroleum Resources)) as to what they wanted, what they knew, and with whom they were i n contact at each statge of WLNG's h i s t o r y . I t would also be i n t e r e s t i n g to know what information and contacts they now wish they had had. - 115 - This exercise would give i n s t i t u t i o n a l meat to the bones of the s i x p r i n c i p l e s and to the sinews of the general i n s t i t u t i o n a l proposals made i n Chapter 6. The purpose of the research would be that Canadian export i n t e r e s t s might i n future be better organized f o r coherence and success i n s i m i l a r circumstances. - 116 - NOTES 1. (Page 10) The F i n a n c i a l Post 500 for Summer 1984 gives the ten leading export firms (with t o t a l exports i n $ m i l l i o n and exports as percent of t o t a l sales) as: 1. General Motors of Canada $9,107 m. 66% 2. Canadian Wheat Board 4,649 m. 85% 3. Ford Motor of Canada 3,850 m. 45% 4. Chrysler Canada 2,727 m. 63% 5. Canadian P a c i f i c 2,271 m. 18% 6. Alberta and Southern Gas 1,327 m. 83% 7. MacMillan Bloedel 1,057 m. 52% 8. M i t s u i & Co. (Canada) 986 m. 59% 9. Nova 971 m. 25% 10. Mitsubishi Canada 846 m. 69% 2. (Page 33) Tsurumi (1960:6) c i t e s Mitsubishi and M i t s u i as 'Class A' soga shoshas; C. Itoh, Marubeni, Sumitomo and Nissho-Iwai a 'Class B'; and Kanematsu-Gosho, Tomen and Nichimen as 'Class C'. 3. (Page 74) The f i v e Japanese u t i l i t i e s were the Chubu E l e c t r i c Power, Chugoku E l e c t r i c Power, Kyushu E l e c t r i c Power, Toho Gas and Osaka Gas Companies. The withdrawal from negotiations of Osaka Gas i n January 1985 may have fundamentally undermined the economics of the p r o j e c t . 4. (Page 75) Since mid-1984 the Canadian consortium, renamed Canada LNG Corporation, has been restructured to add Pan-Alberta Gas L t d . of Calgary, Suncor Inc. of Toronto and Westcoast Transmission Co. Ltd. of Vancover to Union O i l and NIC Resources Inc. With the granting of a gas removal permit by the Government of Alberta, the main issues i n March 1985 (according to GM, 9 March:B4 and 19 March:B3) r e l a t e d to p r i c e and loan guarantees, the Japanese u t i l i t i e s i n s i s t e d that p r i c e escalation over the 20-year term of the contract be t i e d to LNG prices i n Japan, where there was evidence of an LNG glut and strong competition from other energy sources. Canadian suppliers, on the other hand, held to tyi n g e s c a l a t i o n to the U.S. border p r i c e , expected to r i s e i n the next few years. Both formulas probably required that Canadian governments relax t h e i r tax and royalty revenue on LNG to be exported as part of the p r o j e c t . The Japanese u t i l i t i e s also required that the Canadian Government guarantee Japanese loans to the consortium. This requirement seems to have replaced (and toughened) the e a r l i e r Japanese desire to have Petro-Canada j o i n the project as an earnest of the Canadian Government's commitment to i t . Given the importance of these demands and the previous h i s t o r y of f a i l e d communication, i t seemed u n l i k e l y that agreement could be attained before the l a t e s t i n a series of Japanese deadlines - March 31, 1985. - 117 - 5. (Page 81) The formula was: Nl Pi Ci - Ti and N2 P2 C 2 - T 2 where: i s the netback from WLNG sales N 2 i s the netback from gas sales i n the United States Pi i s h a l f the p r i c e of Arabian and Indonesian crude o i l landed i n Japan plus h a l f P 2 P 2 i s the p r i c e of Canadian gas delivered to the U.S. border, a p r i c e i n early 1984 supported by Ottawa and Edmonton, and much above the U.S. domestic p r i c e Ci are the (high) f i x e d and va r i a b l e costs of WLNG C 2 i s the cost of gas f o r export to the U.S. T i and T 2 are r o y a l t i e s and taxes to p r o v i n c i a l and fede r a l governments - 118 - BIBLIOGRAPHY Boyd, G. (1982). ' P a c i f i c Region Building', Region B u i l d i n g i n the P a c i f i c . New York: Pergamon Press. Breton, A. and R. Breton (1980). Why Disunity?: An Analysis of L i n g u i s t i c and Regional Cleavages i n Canada. Montreal: The I n s t i t u t e f o r Research on Public P o l i c y . Breton, R. (1981). 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