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Japan's government and steel industry policies towards coking coal procurement : the implications of.. 1985

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JAPAN'S GOVERNMENT AND STEEL INDUSTRY POLICIES TOWARDS COKING COAL PROCUREMENT: THE IMPLICATIONS OF INDUSTRIAL RESTRUCTURING FOR THE NORTHEAST COAL PRQJECT By CHRISTOPHER EDWARD CATLIFF B.A., The U n i v e r s i t y o f B r i t i s h C o lumbia, 1985 A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF ARTS i n THE FACULTY OF GRADUATE STUDIES (Department of P o l i t i c a l S c i e n c e ) We a c c e p t t h i s t h e s i s as c o n f o r m i n g t o t h e r e q u i r e d s t a n d a r d THE UNIVERSITY OF BRITISH COLUMBIA December 19 8 5 ©Christopher Edward C a t l i f f , 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 it 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 The University of British Columbia 1956 Main Mall Vancouver, Canada V6T 1Y3 Date /$f6 DE-6(3/81) A b s t r a c t J a p a n ' s r e c e n t e c o n o m i c s u c c e s s o r what has o f t e n been t e r m e d " t h e J a p a n e s e M i r a c l e " has been a r e s u l t o f p e r c e p t i v e i n d u s t r i a l p o l i c i e s and i m p o r t and e x p o r t s t r a t e g i e s p u r s u e d by b o t h government and i n d u s t r y t o g e t h e r . B i l a t e r a l t r a d e s u r p l u s e s have b r o u g h t a b o u t a l l e g a t i o n s f r o m t r a d i n g p a r t n e r s t h a t J a p a n ' s t r a d i n g p r a c t i c e s a r e " u n f a i r " . W h i l e t h i s s t u d y does n o t e x p l i c i t l y examine s u c h a b r o a d and s u b j e c t i v e a c c u s a t i o n , i t does a n a l y s e d i s t i n c t J a p a n e s e p o l i c i e s i n t h e c o n t e x t o f t h e s t e e l i n d u s t r y and i t s o v e r s e a s p r o c u r e m e n t o f c o k i n g c o a l f o r s t e e l p r o d u c t i o n . The c a s e o f J a p a n ' s l a s t m a j o r o v e r s e a s c o a l v e n t u r e , t h e N o r t h e a s t C o a l P r o j e c t , i s p r e s e n t e d t o p r o v i d e a n s wers t o f o u r q u e s t i o n s w h i c h f o r m t h e b a s i c themes o f t h e p a p e r . How do t h e J a p a n e s e seek s e c u r e s u p p l i e s o f c o k i n g c o a l ? Do t h e J a p a n e s e seek l o w e r p r i c e s by e n c o u r a g i n g e x c e s s s u p p l y ? What c o n d i t i o n s a f f e c t i n g c o a l demand have c h a n g e d s i n c e J a n u a r y 19 81 when t h e c o a l c o n t r a c t s were s i g n e d ? F i n a l l y , w i l l t h e J a p a n e s e a b i d e by t h e terms o f t h e s e c o n t r a c t s t h e y s i g n e d i n 1981? T h r o u g h a f o c u s on t h e p r o c e s s and s u b s t a n c e o f J a p a n e s e c o a l p r o c u r e m e n t p o l i c y , i t s a p p l i c a t i o n i n t h e c a s e o f n o r t h - e a s t c o a l , and i t s r e s p o n s e t o u n e x p e c t e d l y a d v e r s e m a r k e t c o n - d i t i o n s , f i v e p r o p o s i t i o n s a r e d e v e l o p e d . F i r s t , J a p a n p e r s u a d e s f o r e i g n e r s t o commit t h e m s e l v e s t o t h e d e v e l o p m e n t and e x p o r t o f r e s o u r c e s t h r o u g h q u a s i - i n t e g r a t i o n . Second, t h e g o v e r n m e n t and f i r m s w i t h i n t h e s t e e l s e c t o r c o o r d i n a t e a l l p r o c u r e m e n t o f c o k i n g c o a l . T h i r d , J a p a n w i l l pay a premium t o e n s u r e s e c u r i t y of i t s c o a l supply. Fourth, s t r u c t u r a l s h i f t s w i t h i n the Japanese economy and changing world market c o n d i t i o n s w i l l cause a lower demand f o r coking c o a l than f o r e c a s t ; a n d f i n a l l y , the Japanese w i l l not break e x i s t i n g c o n t r a c t s i f they p e r c e i v e t h a t t h a t w i l l undermine t h e i r access to resources and export markets. i v TABLE OF CONTENTS A b s t r a c t i i Table of Contents i v Acknowledgements v Chapter I I n t r o d u c t i o n 1 Chapter I I Japanese I n d u s t r i a l P o l i c i e s and Import S t r a t e g i e s - I n t r o d u c t i o n 11 - The Government-Business R e l a t i o n s h i p and I n d u s t r i a l P o l i c y 13 - Q u a s i - I n t e g r a t i o n 20 - Coordinated Procurement 24 - D i v e r s i f i c a t i o n 31 Chapter I I I The N e g o t i a t i o n s of the Northeast Coal P r o j e c t - I n t r o d u c t i o n 34 - The N e g o t i a t i o n of the Northeast Coal P r o j e c t 35 Chapter IV Japanese A c t i o n s Since S i g n i n g the C o n t r a c t s - Increased Japanese Involvement 55 - The C o n t r a c t s 59 - Recession and R e n e g o t i a t i o n 62 Chapter V Japanese I n d u s t r i a l P o l i c i e s and T h e i r I m p l i c a t i o n s f o r Northeast Coal 74 Chapter VI W i l l the Japanese Honour the Terms of The Contracts? 85 Chapter VII C o n c l u s i o n s 94 Footnotes 103 B i b l i o g r a p h y 123 Appendices 126 V Acknowledgements I am indebted to many people f o r t h i s undertaking. I r e c e i v e d v a l u a b l e a s s i s t a n c e and m a t e r i a l s f o r r e s e a r c h i n g t h i s study from the Japanese Consulate i n Vancouver, the Japan E x t e r n a l Trade O r g a n i z a t i o n (JETRO) and B.C. Hydro L t d . I wish to thank Joyce and Mi c h a e l C a t l i f f , Mark Zacher and W i l l i a m Wray f o r t h e i r h e l p f u l e d i t i n g and c r i t i c i s m s . I t was P r o f e s s o r Wray's f a s c i n a t i n g course on the modern h i s t o r y of Japanese b u s i n e s s t h a t i n s p i r e d t h i s venture. He provided hundreds of newspaper c l i p p i n g s spanning t h i r t e e n years t h a t made the case study a l l the more p l a u s i b l e . F i n a l l y , I wish to express my deepest a p p r e c i a t i o n to Diana Winkler whose t y p i n g , suggestions and support as w e l l as her a t t i t u d e towards p r o c r a s t i n a t i o n ensured t h i s p r o j e c t moved s w i f t l y and smoothly. - 1 - Chapter I I n t r o d u c t i o n The Japanese government has always had e x t e n s i v e involvement i n Japan's economic r e l a t i o n s with other n a t i o n s . Besides m o n i t o r i n g s p e c i f i c i n t e r n a t i o n a l t r a d i n g arrangements, the government of Japan has been adept at implementing i n d u s t r i a l p o l i c i e s . Such i n d u s t r i a l p o l i c i e s have a f f e c t e d t r a d i n g r e - l a t i o n s h i p s g r e a t l y . By f o l l o w i n g s t r a t e g i e s of export pro- motion and import s u b s t i t u t i o n of manufactured goods, the Japanese have c r e a t e d an i n d u s t r i a l s t r u c t u r e r e l i a n t on o t h e r n a t i o n s ' raw m a t e r i a l s and, as w e l l , t h e i r domestic markets. In the r e c e n t past, Japan's t r a d i n g r e l a t i o n s h i p w i t h Canada has g e n e r a l l y c o n s i s t e d of importing raw r e s o u r c e s and p r o c e s s - i n g them i n t o manufactured goods which are then exported back to Canada. The government of Canada has viewed t h i s unbalanced t r a d i n g r e l a t i o n s h i p with concern. In both the past and present, the Canadian government has sought to i n h i b i t imports from Japan i n manufactured goods. A r e c e n t case i n v o l v e s Canadian quotas on imports of Japanese automobiles. The f e d e r a l govern- ment has to date been u n s u c c e s s f u l i n i t s ambitious plans to g r e a t l y i n c r e a s e Canada's exports of f u l l y - m a n u f a c t u r e d goods to Japan, which i n 1981 accounted f o r o n l y f o u r percent of exports to Japan.^ The government of B r i t i s h Columbia, which has j u r i s - d i c t i o n over i t s n a t u r a l r e s o u r c e s , has s t r i v e n t o m aintain - 2 - exports of l a r g e q u a n t i t i e s of primary goods. For the past twenty years, s u c c e s s i v e p r o v i n c i a l l y - s p o n s o r e d t r a d e missions have v i s i t e d Japan p e d d l i n g such raw r e s o u r c e s as lumber, f i s h and c o a l . Japan r e c e i v e s approximately 25% of the t o t a l of 2 B r i t i s h Columbia's e x p o r t s . In f a c t , d u r i n g the 1970's, Japan became the world's l a r g e s t importer of raw m a t e r i a l s . Yet by 1982, s u p p l y i n g commodities t o the dynamic Japanese economy became extremely c o m p e t i t i v e . Other c o u n t r i e s which were s u f f e r i n g severe b i l a t e r a l trade d e f i c i t s w i t h Japan used f i r e - s a l e p r i c e s and a l l the p o l i t i c a l p r e s s u r e they c o u l d muster t o persuade the Japanese t o buy t h e i r commodities. Increased c o m p e t i t i o n c r e a t e d problems f o r B r i t i s h Columbia. Many of i t s exports o f raw m a t e r i a l s to Japan were "demand-controlled", t h a t i s , the m a j o r i t y of t h e i r output went to t h a t market o n l y . Such i s the case w i t h the province's c o a l exports, which co n t i n u e t o be almost e n t i r e l y dependent on the Japanese s t e e l i n d u s t r y . N e g o t i a t i o n s to supply c o a l to Japan are not determined simply by the amount or p r i c e of c o a l i n B r i t i s h Columbia. Instead, the p r o v i n c e ' s c o a l s a l e s depend on events w i t h i n the Japanese s t e e l i n d u s t r y and on d e c i s i o n s made by s t e e l - e x e c u t i v e s and Japanese government o f f i c i a l s . T h i s s i t u a t i o n i s r e f l e c t e d most c l e a r l y i n the 1981 ch o i c e of a Japanese s t e e l consortium t o s i g n a f i f t e e n year c o n t r a c t to purchase 115 m i l l i o n tons o f c o a l from n o r t h e a s t e r n B r i t i s h Columbia when t h i s c o a l was c l e a r l y both more expensive and more d i f f i c u l t to b r i n g to ti d e w a t e r than c o a l from e x i s t i n g s u p p l i e r s i n s o u t h e a s t e r n B.C. and A u s t r a l i a . - 3 - The reasons f o r t h i s seemingly p a r a d o x i c a l d e c i s i o n of the Japanese to buy n o r t h e a s t c o a l were many and v a r i e d . However, two f a c t o r s were c r i t i c a l d u r i n g the key d e c i s i o n - making p e r i o d i n 1980. F i r s t l y , t h a t w h i l e n o r t h e a s t c o a l was expensive, i t p r o v i d e d an a d d i t i o n a l supply source w i t h a separate i n f r a s t r u c t u r e as a hedge a g a i n s t c o s t l y d i s r u p t i o n s of supply. In 1980 the s t e e l i n d u s t r y was s e v e r e l y t r a u m a t i z e d by labour s t r i f e i n i t s major c o a l s u p p l i e r s , the U.S., Poland and A u s t r a l i a . Secondly, a f t e r more than a year o f d i f f i c u l t n e g o t i a t i o n s with the n o r t h e a s t e r n B.C. c o a l companies, a con- sensus f i n a l l y emerged w i t h i n the Japanese s t e e l i n d u s t r y t h a t an a d d i t i o n a l supply source was necessary i f Japan was to remain committed to i t s ambitious switch-over from expensive o i l - f i r e d s t e e l m i l l s to cheaper c o a l - f i r e d s t e e l m i l l s . The d e c i s i o n to procure n o r t h e a s t c o a l was to be a c o s t l y mistake. N e i t h e r the Japanese s t e e l e x e c u t i v e s and gov- ernment o f f i c i a l s on the one hand, nor the Canadian c o a l companies and the f e d e r a l and p r o v i n c i a l governments on the other hand f o r e - saw the d e v a s t a t i n g and prolonged r e c e s s i o n t h a t began i n earnest i n l a t e 1981, a f t e r the c o a l d e a l was a l r e a d y secured. Indeed, the d e c i s i o n by both s i d e s t o commit b i l l i o n s o f d o l l a r s towards the Northeast Coal P r o j e c t was p r e d i c a t e d on the b e l i e f t h a t the Japanese s t e e l i n d u s t r y would continue to grow. But during the three years the mega-project was b e i n g b u i l t , the r e c e s s i o n brought about a severe drop i n world-wide s t e e l demand as planned i n d u s t r i a l expansion, which used s t e e l as i t s c h i e f b u i l d i n g - 4 - b l o c k , was d r a s t i c a l l y c u r t a i l e d . P r o t e c t i o n i s t sentiment i n the form of trade b a r r i e r s , e s p e c i a l l y i n the U n i t e d S t a t e s and the European Economic Community, f u r t h e r reduced Japanese s t e e l exports. The success o f _ t h e Japanese economy has i n the p a s t been l a r g e l y due to i t s a b i l i t y to adapt to such e x t e r n a l changes i n the i n t e r n a t i o n a l economic environment and r e s t r u c t - ure i t s major e x p o r t i n g i n d u s t r i e s a c c o r d i n g l y . I t i s most l i k e l y then, t h a t the Japanese economy w i l l again adapt to the c o n s t r a i n t s p l a c e d on i t by changing i n t e r n a t i o n a l economic c o n d i t i o n s . Caught up i n s h i f t i n g market c o n d i t i o n s beyond i t s c o n t r o l i s the Northeast Coal P r o j e c t . On 7th January 1984, the f i r s t Japanese f r e i g h t e r loaded w i t h c o a l from the Northeast Coal P r o j e c t s a i l e d from the newly-created p o r t f a c i l i t y a t P r i n c e George, B.C. Because many of the assumptions t h a t had l e d the Japanese s t e e l i n d u s t r y to commit b i l l i o n s of d o l l a r s to n o r t h e a s t c o a l were no l o n g e r v a l i d , the l a r g e s t mining p r o j e c t i n Canadian h i s t o r y was immed- i a t e l y mired i n c o n t r o v e r s y . The d e c l i n i n g demand f o r s t e e l had caused a g l u t i n the market f o r m e t a l l u r g i c a l (met) or c oking c o a l c a u s i n g a world-wide drop i n i t s p r i c e . A s i m i l a r g l u t e x i s t e d i n the market f o r thermal c o a l . Coking c o a l i s used to produce s t e e l , w h i l e thermal c o a l i s used l a r g e l y f o r e l e c t r i c power g e n e r a t i o n . While the Japanese had c o n t r a c t e d to procure mostly c o k i n g c o a l from n o r t h e a s t B.C., a d d i t i o n a l small but s i g n i f i c a n t purchases of thermal c o a l had been c o n t r a c t e d by the Japanese. The l a t t e r was s u c c e s s f u l d u r i n g the 1980 n e g o t i a t i o n s i n f o r c i n g con- c e s s i o n s on p r i c e i n r e t u r n f o r an i n c r e a s e d volume of c o a l - 5 - purchases. In 1984, the Japanese sought t o a l t e r the terms of the c o n t r a c t s they had signed three years e a r l i e r , by once- again n e g o t i a t i n g a f u r t h e r r e d u c t i o n i n the p r i c e of the c o a l . Teck C o r p o r a t i o n ' s Bullmoose Mine and Denison Mines Ltd.'s Q u i n t e t t e Coal Company were adamant t h a t the c o n t r a c t e d p r i c e and volume be maintained because o f the l a r g e debt and high s t a r t up c o s t s of t h e i r o p e r a t i o n s . The Japanese c o n s i d e r e d i t to be unacceptable t h a t they should c o n t i n u e to pay t h i r t y per- cent above market p r i c e f o r n o r t h e a s t c o a l . Because of the $2.9 b i l l i o n i n p u b l i c funds i n v e s t e d by the p r o v i n c i a l and f e d e r a l governments, the s i t u a t i o n became p o l i t i c a l l y charged. B r i t i s h Columbians became extremely concerned t h a t the downward pressure on the p r i c e o f c o a l would f o r c e the p r o v i n c i a l c a b i n e t to waive r o y a l t i e s and surcharges so as to p r o t e c t the p r o j e c t ' s v i a b i l i t y and the government's p o l i t i c a l f u t u r e . These r o y a l t i e s and sur- charges were the o n l y guaranteed r e t u r n on the taxpayer's i n v e s t - ment. The s a r d o n i c phrase, "the Japanese get the c o a l , we get the h o l e " became very popular among B r i t i s h Columbians a t t h i s time. They began a s k i n g , "Were we duped by the Japanese?" The case o f the Northeast Coal P r o j e c t r a i s e s a number of important q u e s t i o n s about both the nature of the Japanese decision-making process on i n t e r n a t i o n a l economic i s s u e s and the substance and e v o l u t i o n s of Japanese p o l i c y towards the pro- curement of n a t u r a l r e s o u r c e s . With r e g a r d to process, do Japan- ese s t e e l f i r m s c o l l a b o r a t e and a c t as one purchaser when - 6 - dealing with overseas suppliers? If so, what are the conditions that make for variously-sized, divergent s t e e l corporations that operate i n a free market system to suborn t h e i r own interests to :the i n t e r e s t s of t h e i r i n d u s t r i a l sector as a whole? With regard to substance, what are the general Japanese strategies towards resource procurement? Is the p r i o r i t y of Japanese pro- curement of overseas coal the actual price of the coal or the assurance of security of supply? Has t h i s been consistent? Answers to the question How did the negotiations for north- east coal s t a r t , develop and change over time and w i l l the Jap- anese continue to honour the terms of the contract? should shed l i g h t on the evolving nature of Japanese i n d u s t r i a l p o l i c i e s . In the context of these questions raised, Chapters II and III of t h i s analysis focus on the process and substance of the Japanese i n d u s t r i a l p o l i c i e s and import strategies that culminated i n the negotiation of the Northeast Coal Project. Three theses emerge from these chapters. F i r s t , Japan seeks to persuade foreign governments and industries to commit themselves to the development and export of resources through long-term contracts. Secondly, the government and firms within the s t e e l sector coordinate t h e i r procurement of coking coal, acting as a single unit buyer to increase t h e i r bargaining p o s i t i o n . F i n a l l y , Japan has been w i l l i n g to pay a premium for ensuring the security of supply of those e s s e n t i a l materials that f u e l i t s economy. By following a p o l i c y of d i v e r s i f i c a t i o n , that i s , multiple sourcing, Japan has striv e n to avoid the traumatic - 7 - i n t e r r u p t i o n s of supply t h a t became so e v i d e n t d u r i n g the 1970's. Yet Japan's heightened concern f o r s e c u r i t y of supply d u r i n g the 1970's and e a r l y 1980"s has been overshadowed r e c e n t l y by a n x i e t y over access to f o r e i g n markets f o r i t s i n d u s t r i a l products. Because of Japan's mounting b i l a t e r a l trade s u r p l u s e s and the p e r c e p t i o n t h a t i t has used u n f a i r t r a d i n g p r a c t i c e s , Japan's manufactured goods have become i n c r e a s i n g l y unwelcome i n many c o u n t r i e s , e s p e c i a l l y i n i t s l a r g e s t market, the U n i t e d S t a t e s . The i n c r e a s i n g interdependence of n a t i o n a l economies and the emergence of more c o s t - e f f i c i e n t s t e e l p r o d u c t i o n i n the n e w l y - i n d u s t r i a l i z i n g c o u n t r i e s have caused the Japanese t o be concerned not o n l y w i t h i n d u s t r i a l c o m p e t i t i o n and the r i s e of p r o t e c t i o n i s m , but a l s o w i t h the n e gative s o c i a l c o s t s such r a p i d i n d u s t r i a l i z a t i o n has had on the Japanese people and t h e i r environment. Consequently, and as a r e s u l t of other f a c t o r s to be d i s c u s s e d i n Chapters IV and V, an i n d u s t r i a l r e s t r u c t u r i n g , a s h i f t away from heavy t o " h i - t e c h " i n d u s t r i e s i s t a k i n g p l a c e . Two f u r t h e r theses may be p o s i t e d . The f i r s t i s t h a t i n d u s t r i a l r e s t r u c t u r i n g and concern over p r o t e c t i o n i s m w i l l cause a lower demand f o r c o k i n g c o a l than f o r e c a s t . The second a d d i t i o n a l t h e s i s , developed i n Chapter VI, i s t h a t while the Japanese seek low p r i c e s through m u l t i p l e s o u r c i n g , they w i l l not break e x i s t i n g c o n t r a c t s i f they b e l i e v e t h a t w i l l undermine t h e i r access to r e s o u r c e s and export markets. In other words they w i l l endeavor to m a i n t a i n a balance between t h e i r needs f o r resources and t h e i r need f o r market ac c e s s . 8 - The scant l i t e r a t u r e on Japanese procurement of Western Canadian c o a l r a i s e s c o n f l i c t i n g and alarming arguments. As a c o r o l l a r y t o the above p r o p o s i t i o n s , the f o l l o w i n g con- c l u s i o n s are r e j e c t e d . The f i r s t and most widely accepted n o t i o n i s t h a t "the Japanese government has attempted to c r e a t e a buyer's market... by e x p l i c i t l y encouraging c o n s t r u c t i o n o f new (export p r o j e c t s ) v i a the simple expedient of exaggerating 3 Japan's f u t u r e demand." A l l e g a t i o n s have been r a i s e d t h a t the Japanese have encouraged the development of major c o a l p r o j e c t s — such as the Northeast Coal P r o j e c t i n B.C. — i n order t o f l o o d the c o a l market i n hopes t h a t p r i c e s would become depressed. I t appears t h a t there may be some c r e d i b i l i t y to the a l l e g a t i o n s , as Japan has cut m e t a l l u r g i c a l c o a l demand by up to 35 per c e n t . o f a l l import c o n t r a c t s i n l a t e 1982. Heather Gibb, i n her study Re-Examining "Japan Inc.": Japanese C o a l Procurement and Western Canadian C o a l , r e j e c t s t h i s " c o n s p i r a c y theory". "Such an argument i m p l i c i t l y assumes t h a t t h e r e e x i s t s some m o n o l i t h i c government-business board o f d i r e c t o r s of Japan Inc. which determines long-term procurement strategy.""* Evidence w i l l be p r o v i d e d i n t h i s case study to show t h a t w h i l e there does e x i s t a government-buisness monolith f o r c o a l procurement t h a t c o u l d c o n s p i r e to encourage over- expansion, t h i s simply d i d not occur. The study of nort h e a s t c o a l w i l l b o l s t e r the c u r r e n t b e l i e f , f i r s t p o s i t e d by Joseph D'Cruz, t h a t t o s e l l e r s o f - 9 - coking c o a l the Japanese s t e e l i n d u s t r y , through a p o l i c y of coordinated procurement, r e p r e s e n t s a l a r g e m o n o l i t h i c buyer where there e x i s t s no p o s s i b i l i t y of p l a y i n g one purchaser o f f a g a i n s t another. But c o n v e r s e l y , the Japanese have h i s t o r i c a l l y taken advantage of the c o m p e t i t i o n t h a t e x i s t s between c o a l mining companies and c o a l e x p o r t i n g c o u n t r i e s . The case study w i l l c o n v i n c i n g l y d i s p r o v e D'Cruz's second c o n c l u s i o n t h a t , s u p p l i e r s w i t h i n a p a r t i c u l a r country were t r e a t e d as a homogenous group and each country group r e c e i v e d d i f f e r e n t treatment. The p r i c e p a i d to a s u p p l i e r depended on the country i n which the s u p p l i e r was l o c a t e d . Because of the " s p e c i a l nature" of the Northeast Coal P r o j e c t , i t has r e c e i v e d f a r d i f f e r e n t treatment than other c o a l mines i n southeastern B r i t i s h Columbia. Other q u e s t i o n a b l e c o n c l u s i o n s have been drawn by the p r i n t media i n B r i t i s h Columbia and have gained wide cur- rency i n the p u b l i c mind p r i n c i p a l l y , t h a t the Japanese s t e e l m i l l s have broken the terms of the c o n t r a c t on the p r i c e of n o r t h e a s t e r n c o a l . Another unwarranted c o n c l u s i o n " i s t h a t the p r o v i n c i a l government o f B.C. "arm-twisted" the unenthus- i a s t i c Japanese buyers i n t o a d e a l and i s g u i l t y of " f r a u d - u l e n t m i s r e p r e s e n t a t i o n . " 7 T h i s study i s by no means meant to be an apology f o r the B.C. government's d e c i s i o n to back the Northeast Coal P r o j e c t . But by a n a l y s i n g i n depth the key decision-making p e r i o d p r i o r to the Japanese s i g n i n g of the c o a l c o n t r a c t s , i t i s c l e a r t h a t both the Japanese and Canadian s i d e s f o r e c a s t not only an i n c r e a s i n g need f o r met. c o a l , but - 10 - a l s o e v e r - r i s i n g energy c o s t s . Of a l l the now-lofty d i s s e n t e r s of the mega-project, on both s i d e s o f the P a c i f i c Ocean, who argued t h a t f o r v a r i o u s reasons the Northeast C o a l P r o j e c t should not go ahead, none foresaw i t s major c u r r e n t problem the slump i n p r i c e s f o r raw m a t e r i a l s brought about by the r e c e s s i o n . - 11 - Chapter II Japanese I n d u s t r i a l and Import P o l i c i e s I n t r o d u c t i o n Japanese d i r e c t investment i n Western Canadian c o a l p r o d u c t i o n began i n 1973. I t appeared to come about more through chance than d e l i b e r a t e s t r a t e g y . In 1968, M i t s u b i s h i T r a d i n g Co. L t d . , r e p r e s e n t i n g nine Japanese s t e e l m i l l s , agreed to purchase from K a i s e r Resources L t d . of Vancouver f o r t y - f i v e m i l l i o n tons of coking c o a l over a f i f t e e n year period.''" The c o a l was to be shipped from Sparwood i n southeastern B r i t i s h Columbia, through the newly c r e a t e d bulk t e r m i n a l at Roberts Bank. Since the Sparwood mine proved to be uneconomic due to low p r i c e s and h i g h s t a r t up c o s t s , M i t s u b i s h i asked the Japan S t e e l F e d e r a t i o n f o r an i n f u s i o n of c a p i t a l t o save the p r o j e c t . As a r e s u l t , i n 197 3 Nippon Kokan K.K. l e d a consortium of Japanese s t e e l and t r a d i n g companies i n t o a $27.5 m i l l i o n pur- 2 chase of e q u i t y (30.2%) i n K a i s e r Resources L t d . Since t h a t time, investment i n B.C. has f o l l o w e d a d e l i b e r a t e s t r a t e g y . I t has been to procure an a l t e r n a t e source of c o a l , not o n l y to secure Japan's supply but a l s o to c r e a t e more c o m p e t i t i o n w i t h Japan's e x i s t i n g sources. Japanese p a r t i c i p a t i o n has been e s s e n t i a l to almost a l l c o a l mining o p e r a t i o n s i n Western Canada. In s e v e r a l of these p r o j e c t s Japanese companies have provided loans and i n - 12 - o t h e r s t h e y have h e l d m i n o r i t y e q u i t y p o s i t i o n s . B.C. c o k i n g c o a l m ines e x i s t s o l e l y b e c a u s e o f J a p a n e s e demand f o r t h e i r p r o d u c t . " I t i s t h e p u r c h a s e c o n t r a c t s , more tharr. t h e a c t u a l f i n a n c i n g p r o v i d e d , w h i c h e n s u r e t h e v i a b i l i t y o f t h e m i n i n g p r o j e c t . J a p a n ' s M i n i s t r y o f I n t e r n a t i o n a l T r a d e and I n d u s t r y has been t h e f o r e m o s t m i n i s t r y r e s p o n s i b l e f o r p r o v i d i n g a p o l i c y framework f o r J a p a n e s e a c t i o n s a b r o a d . T h e s e s t r a t e g i e s g u i d e t h e J a p a n S t e e l F e d e r a t i o n ( t h e o r g a n i z a t i o n o f J a p a n e s e s t e e l c o m p a n ies) i n t h e i r i n v e s t m e n t s and p u r c h a s e s a b r o a d . The J a p a n e s e s t e e l i n d u s t r y i s d o m i n a t e d by f i v e p r o d u c e r s who t r y t o s h a r e e q u a l a c c e s s t o raw m a t e r i a l s o v e r s e a s . L a r g e t r a d i n g f i r m s l i k e M i t s u b i s h i , C. I t o h and M a r u b e n i c u l t i v a t e b u s i n e s s t i e s w i t h c l i e n t s t e e l f i r m s by p r o c u r i n g raw m a t e r i a l s f o r them. U t i l i z i n g t h e i r shrewd t r a d e r s ' s k i l l and o r g a n i z i n g a b i l i t y , t h e y p r o c u r e r e s o u r c e s a r o u n d t h e w o r l d w i t h t h e know- l e d g e t h a t t h e y have g u a r a n t e e d p u r c h a s e r s a t home i n t h e J a p a n e s e s t e e l f i r m s . J a p a n ' s i n d u s t r i a l and i m p o r t s t r a t e g i e s s h a p e d t h e i n d u s t r i a l boom o f t h e 1960's and 1970's, o f t e n t ermed " t h e J a p a n e s e M i r a c l e . " One a s p e c t o f t h i s boom was J a p a n ' s o v e r t a k i n g t h e U n i t e d S t a t e s i n f r e e w o r l d s t e e l p r o d u c t i o n . D a n i R o d r i k has c o n c l u d e d t h a t p a r a d o x i c a l l y , " J a p a n has b een a b l e t o p r o c u r e much o f h e r raw m a t e r i a l s d u r i n g t h e 1960's and 197 0's a t more f a v o u r a b l e t e r m s t h a n has t h e U n i t e d S t a t e s , e v e n t h o u g h t h e l a t t e r c o u n t r y had t i g h t e r l i n k s t o i t s s u p p l y s o u r c e s . " - 13 - The Government-Business R e l a t i o n s h i p and I n d u s t r i a l P o l i c y Japanese p o l i c i e s concerning the a c q u i s i t i o n of raw m a t e r i a l s have been c o n s i s t e n t through i t s modern h i s t o r y . They have placed a high n a t i o n a l p r i o r i t y on supplying the resource needs of the homeland. A latecomer to the rank of i n d u s t r i a l i z e d n a t i o n s , Japan has had to confront the entrenched p o s i t i o n s abroad of the great m u l t i n a t i o n a l s of other advanced c o u n t r i e s . Because of i t s latecomer status and group-oriented c u l t u r e , Japan has developed a j o i n t process of p o l i c y f o r m u l a t i o n between the government and the leading i n d u s t r i a l / c o r p o r a t e groups. Government involvement i n commerce has always been extensive. I t took the form, i n the l a t e nineteenth century, of government s u b s i d i e s and encouragement f o r i n f a n t s t r a t e g i c i n d u s t r i e s l i k e s t e e l and s h i p b u i l d i n g . Such i n d u s t r i e s were considered " t r i g g e r i n d u s t r i e s " because of t h e i r b e n e f i c i a l s p i n - o f f s f o r other s e c t o r s l i k e c o a l mining and e l e c t r i c a l machinery. A few powerful z a i b a t s u (or v e r t i c a l l y - i n t e g r a t e d f i n a n c i a l / i n d u s t r i a l c l i q u e s ) rose to dominate the Japanese economy. Pro- p e l l e d by t h e i r growing need f o r markets and resources, the ex- pansionary m i l i t a r y government invoked the N a t i o n a l M o b i l i z a t i o n Law i n 1938 t o coordinate c e n t r a l planning of the domestic econ- omy and the c o l o n i e s . In 1945, the U.S. occupation f o r c e s d i s - banded the z a i b a t s u and enacted laws that would prevent such omnipotent c o r p o r a t i o n s from ever again c o n t r o l l i n g the nation's economic l i f e . Chaos ensued u n t i l the e a r l y 1950's when the - 14 - Japanese government i n i t i a t e d p o l i c i e s t o r a t i o n a l i z e key s e c t o r s of the economy such as the s t e e l , c o a l , chemical, e l e c t r i c a l power and s y n t h e t i c f i b e r i n d u s t r i e s . Under " a d m i n i s t r a t i v e guidance", the government — c h i e f l y through the M i n i s t r y of I n t e r n a t i o n a l Trade and Industry (MITI) — encouraged c o o p e r a t i o n among i n d u s t r i e s i n p r i c i n g and the r e s e a r c h and development of process technology. Mergers were encouraged; c a r t e l s were formed; and i n d u s t r i e s were s u b s i d i z e d and p r o t e c t e d from c o m p e t i t i v e imports. Supply sources overseas and f o r e i g n markets were developed w i t h a view to the long term. A l l t h i s was done under the a e g i s of i n d u s t r i a l and f i n a n c i a l a s s o c i a t i o n s and the formal and i n f o r m a l c o n t r o l of MITI. 6 Although the t r a d i t i o n a l z a i b a t s u had been disbanded, new r e o r g a n i z e d i n d u s t r i a l groupings arose. These groupings were comprised of massive c o r p o r a t i o n s , h o r i z o n t a l l y and v e r t i c a l l y l i n k e d . The c o r p o r a t i o n s were u s u a l l y centered on a bank, and many had such t r a d i t i o n a l z a i b a t s u names as M i t s u i and M i t s u b i s h i . Japanese c o r p o r a t i o n s , or more s p e c i f i c a l l y c o r p o r a t e e x e c u t i v e s , can i n f l u e n c e government p o l i c i e s i n both a broad and s p e c i f i c sense. The term z a i k a i r e f e r s to a power e l i t e , a group of major i n d u s t r i a l and f i n a n c i a l l e a d e r s who r e p r e s e n t the i n t e r e s t s o f the business community as a whole r a t h e r than the i n t e r e s t s of the i n d i v i d u a l i n d u s t r i e s . I n d i v i d u a l z a i k a i members devote c o n s i d e r a b l e time to one or more of the l a r g e r economic o r g a n i z a t i o n s : The F e d e r a t i o n of Economic O r g a n i z a t i o n s (Keidanren); - 15 - t h e J a p a n C o m m i t t e e f o r E c o n o m i c D e v e l o p m e n t ( K e i z a i D o y u k a i ) ; t h e Chamber o f Commerce and I n d u s t r y ( N i p p o n Shoko K a i g a i s h o ) ; 7 and t h e F e d e r a t i o n o f B u s i n e s s M a n a g e r s ( N i k k e i r e n ) . Z a i k a i i n c o n c e r t w i t h M I T I and t h e M i n i s t r y o f F i n a n c e f o r m u l a t e e f f e c t i v e s t r a t e g i e s t o d i r e c t t h e economy a s a w h o l e . I n c o n t r a s t t o z a i k a i , t h e r e a r e c o r p o r a t e e x e c u t i v e s c a l l e d g y o k a i t h a t r e p r e s e n t s p e c i f i c i n d u s t r i a l i n t e r e s t s . G y o k a i a d j u s t c o m p e t i t i v e i n t e r e s t s among i n d i v i d u a l c o r p o r a t i o n s w i t h i n t h e i r s e c t o r , f o r m i n g a c o n s e n s u s so a s t o l o b b y t h e e c o n o m i c m i n i s t r i e s w i t h one v o i c e . A d m i n i s t r a t i v e g u i d a n c e i s c a r r i e d o u t a t t h e g y o k a i l e v e l w h e r e t h e c l o s e s t t i e s b e t w e e n t h e b u r e a u c r a c y and i n d i v i d u a l i n d u s t r i e s e x i s t . G y o k a i c o l l e c t a n d d i s b u r s e p o l i t i c a l c o n t r i b u t i o n s . P u b l i c l y t h e y c o n t r i b u t e t o t h e L i b e r a l D e m o c r a t i c P a r t y t h r o u g h a f u n d - r a i s i n g o r g a n - i z a t i o n (Konum K y o k a i ) . P r i v a t e l y , g y o k a i c o n t r i b u t e t o i n d i v - i d u a l LDP p o l i t i c i a n s who a r e s y m p a t h e t i c t o t h e i r i n d u s t r y ' s g i n t e r e s t s o r who a r e c o n t e n d e r s f o r p a r t y l e a d e r s h i p . "The most p o w e r f u l and b e s t e s t a b l i s h e d g y o k a i a r e s t e e l , e l e c t r i c i t y a nd 9 b a n k i n g . " An i n f o r m a l a s p e c t o f M I T I ' s c o n t r o l l i e s i n t h e a m a k a d u r i ( l i t e r a l l y , d e s c e n d e n t s f r o m h e a v e n ) , t h e n e t w o r k o f r e t i r e d h i g h - l e v e l b u r e a u c r a t s t h a t a s s i s t p r i v a t e c o r p o r a t i o n s . D u r i n g t h e 1 9 5 0 ' s and 1960's M I T I , a s o r g a n i z e r o f t h e economy, i n f o r m a l l y c o n t r o l l e d m o s t i n d u s t r i e s t o t h e e x t e n t t h a t t h e y n e e d e d a p p r o v a l t o e x p a n d t h e i r c a p a c i t y , d e v e l o p new t e c h n o l o g y - 16 - or export overseas. MITI's formal s a n c t i o n l a y i n i t s c o n t r o l over f o r e i g n exchange, c r e d i t a l l o c a t i o n through the Japan Development Bank, t a r i f f and n o n - t a r i f f b a r r i e r s , i n t e r n a t i o n a l investment, overseas markets, and r e s e a r c h and development.MITI d i r e c t l y s u b s i d i z e d s t r a t e g i c and d e s i g n a t e d i n d u s t r i e s l i k e s t e e l . In 1970, MITI o r c h e s t r a t e d a merger of Japan's number one and two s t e e l companies to form the world's l a r g e s t s t e e l f i r m , Nippon S t e e l Corp. A c c o r d i n g to Lawrence Franko, :"since the debut of postwar Japanese economic p l a n n i n g , the s t e e l i n d u s t r y has been the s e c t o r and Nippon S t e e l the company, c l o s e s t t o the I n d u s t r i a l S t r u c t u r e Committee of M I T I . " 1 0 I t appears however, t h a t w i t h the r a p i d i n t e r n a t i o n - a l i z a t i o n and success of the Japanese economy, MITI's power and c o n t r o l over events has been weakened. I t s o r i g i n a l mandate to p r o t e c t s t r u g g l i n g companies from cheap f o r e i g n imports, to r a t i o n - a l i z e b u s i n e s s e s so they may compete worldwide and to a p p o r t i o n s e l e c t amounts of r a r e f o r e i g n c a p i t a l i s now out of date, p a r t - i c u l a r l y w i t h r e s p e c t to the p a c e - s e t t i n g i n d u s t r y of s t e e l . With i n d u s t r i a l s t r u c t u r e moving from the t r a d i t i o n a l l i g h t and heavy i n d u s t r i e s t o the newer s e r v i c e , i n f o r m a t i o n and "high-tech" i n d u s t r i e s , o t h e r m i n i s t r i e s have become preeminent i n t h e i r spheres of i n t e r e s t and now c o n f l i c t w i t h MITI. Ten to f i f t e e n years ago, the Japanese became v e r y concerned over the p o l l u t i o n and c o n g e s t i o n heavy i n d u s t r y was c a u s i n g . They demanded more s o c i a l p o l i c y and l e s s emphasis on the r a p i d economic growth - 17 - t h a t was seen as d e s t r o y i n g t h e i r environment,and endangering t h e i r q u a l i t y of l i f e . MITI responded by a d j u s t i n g i t s p o l i c i e s and q u i c k e n i n g i n d u s t r i a l r e s t r u c t u r i n g away from e n e r g y - i n t e n s i v e and p o l l u t i n g i n d u s t r i e s . Chapter V d e t a i l s the p o l i c i e s o f r e s t r u c t u r i n g t h a t have occ u r r e d w i t h i n the s t e e l i n d u s t r y . S u f f i c e i t t o say t h a t c o o r d i n a t i o n s t i l l e x i s t s between gov- ernment and the s t e e l i n d u s t r y . W h i l e the c o r p o r a t e component of the government-business r e l a t i o n s h i p i n c r e a s i n g l y p l a y s a g r e a t e r r o l e i n t r a d e p o l i c y , events such as the OPEC o i l c r i s e s and the onset of g l a r i n g t r a d e imbalances have regenerated much 12 of M I T I 1 s power. MITI has used t h i s power to i n t e r v e n e i n b u s i n e s s d e c i s i o n s and o v e r r i d e any r e s i s t a n c e t o i t s p o l i c i e s . For example, i n 1979, without i n v o k i n g the a u t h o r i t y o f any e x p l i c i t law or s t a t u t e , the Japanese government suddenly imposed guide- l i n e s on the sogo shosha ( t r a d i n g companies) to prevent them from completing l u c r a t i v e d e a l s f o r imported o i l from the i n t e r - n a t i o n a l spot market. In another i n t e r v e n t i o n , the government compelled the M i t s u i conglomerate to ma i n t a i n and e v e n t u a l l y l o s e i t s m u l t i - b i l l i o n d o l l a r investment i n a v a s t I r a n i a n p e t r o - 1 3 chemicals complex long a f t e r the f i r m wished to withdraw. On the o t h e r hand, Japanese f i r m s on o c c a s i o n can be d i v i s i v e and w i l l f u l , r e s i s t i n g " a d m i n i s t r a t i v e guidance" and t a k i n g an independent course. N e v e r t h e l e s s , these episodes are f a r l e s s common wit h r e s p e c t to f o r e i g n i s s u e s than domestic ones. While - 18 - the Japanese bureaucracy e x e r t s c o n s i d e r a b l e power over i n d u s t r y , i t i s r e s t r a i n e d by a tendency to reach d e c i s i o n s through a < n a t i o n a l consensus. Ez r a Vogel has d e s c r i b e d the r e l a t i o n s h i p thus: MITI g e n e r a l l y works i n harmony wit h the consensus i n an i n d u s t r i a l s e c t o r or i n the b u s i n e s s community as a whole. In a g i v e n i n d u s t r i a l s e c t o r there e x i s t s a s o c i a l community of l e a d i n g f i r m s whose o p i n i o n s c a r r y g r e a t weight w i t h p o l i t - i c i a n s , bankers, and other businessmen. Everyone assumes t h a t the companies i n an. . i n d u s t r i a l s e c t o r and the c o r r e s - ponding branch of MITI have s u f f i c i e n t c o n t i n u i t y i n p e r s o n n e l to maintain, i n e f f e c t an i n s t i t u t i o n a l memory. Coop- e r a t i v e companies are e v e n t u a l l y r e - warded, uncooperative ones punished.... Whatever i m p l i c i t s a n c t i o n s are convey- ed i n g r a n t i n g or w i t h h o l d i n g g o o d w i l l , i t i s the maintenance of g o o d w i l l t h a t c o n s c i o u s l y motivates the company l e a d e r s . Since MITI g e n e r a l l y a c t s i n c o n c e r t w i t h the i n d u s t r i a l s e c t o r o r g a n i z a t i o n of the b u s i n e s s community, i t can o r d i n a r i l y count on the support of the m a j o r i t y of f i r m s i n d i s c i p l i n i n g an u n r e l i a b l e mem- ber. Indeed, many d e c i s i o n s made by MITI might more p r o p e r l y be viewed as MITI e n u n c i a t i o n of a consensus among the most s i g n i f i c a n t a c t o r s . T h i s approach to decision-making n e i t h e r avoids nor circumvents o p p o s i t i o n but a l l o w s a l l a f f e c t e d p a r t i e s to p a r t i c i p a t e . The process i s q u i t e o f t e n prolonged. When eventual consensus i s achieved, i t may be the r e s u l t of a wearing down of the o p p o s i t i o n , o r , an ambiguous compromise. N e v e r t h e l e s s , consensus i s an i n d i s p e n s a b l e p r e c o n d i t i o n f o r Japanese a c t i o n . T h i s n a t i o n a l c h a r a c t e r i s t i c i s found w i t h i n both business f i r m s and government agencies as w e l l as i n d i s c u s s i o n s and n e g o t i a t i o n s between them. - 19 - G e n e r a l l y the p r i v a t e s e c t o r r e s p e c t s the p o s i t i o n and c a p a c i t y of the governmental bureaucracy. The F e d e r a t i o n of Economic O r g a n i z a t i o n s , Keidanren, has been the key organ- i z a t i o n of the business s i d e . I t s membership i n c l u d e s p u b l i c and q u a s i - p u b l i c c o r p o r a t i o n s such as the Bank of Japan, the Japan Development Bank and Japan N a t i o n a l Railways. P r i m a r i l y though, Keidanren i s a p r i v a t e b u s i n e s s o r g a n i z a t i o n . S e v e r a l hundred of the most preeminent c o r p o r a t e e x e c u t i v e s from a l l key s e c t o r s comprise i t s d i r e c t o r s h i p , and c o n s u l t a t i o n w i t h the government c o n s t i t u t e s i t s c e n t r a l f u n c t i o n . Informal con- s u l t a t i o n occurs as a matter o f course. Formal m a n i f e s t a t i o n of the c o n s u l t a t i v e process appears p e r i o d i c a l l y i n the r e p o r t s of " d e l i b e r a t i o n c o u n c i l s " . These r e p o r t s , u n l i k e the h e u r i s t i c and i n v e s t i g a t i v e Royal Commissions of Canada, d e f i n e the frame- work w i t h i n which Japanese b u s i n e s s and government should i d e a l l y a c t . Most o f t e n , d e l i b e r a t i o n c o u n c i l r e p o r t s spark l e g i s l a t i o n or s t e e r key governmental agencies and c r e d i t i n s t i t u t i o n s i n t o " t a r g e t t i n g " c e r t a i n s e c t o r s and s p e c i f i c f i r m s f o r support and o t h e r s e c t o r s or f i r m s f o r " j e t t i s o n i n g " . J e t t i s o n i n g r e f e r s to the s c r a p p i n g of a i l i n g i n d u s t r i e s t h a t s u f f e r from excess cap- a c i t y , d e c l i n i n g p r o f i t s and l o s s of c o m p e t i t i v e n e s s . The dynamic nature of the economy permits s t r a t e g i e s t h a t e x p l o i t Japan's comparative advantage as i t f o l l o w s the e v e r - e v o l v i n g i n t e r n a t i o n a l d i v i s i o n of labour. Herein l i e s the q u i n t e s s e n c e of Japanese i n d u s t r i a l p o l i c y . - 20 ~ Q u a s i - I n t e g r a t i o n J a p a n , t h e s o l e i n d u s t r i a l i z e d n a t i o n w i t h o u t s i g n i f i c a n t d o m e s t i c r a w r e s o u r c e s f o r i t s s t e e l i n d u s t r y , l e a d s t h e f r e e w o r l d i n p r o d u c t i o n and e x p o r t s o f s t e e l . The r e a s o n f o r t h i s p a r a d o x i s 'in p a r t , t h e \ c o o p e r a t i o n b e t w e e n i n d u s t r y , g o v e r n m e n t and t r a d i n g h o u s e s . T h i s h a s c r e a t e d a d i s t i n c t p r o c u r e m e n t s y s t e m . C a n a d i a n , U.S. and e v e n S o v i e t s t e e l f i r m s r e l y on u p s t r e a m o p e r a t i o n s , w h i c h t h e y own o r c o n t r o l , f o r m o s t o f t h e i r raw m a t e r i a l s I n t h i s way a v e r t i c a l l y - i n t e g r a t e d f i r m t r a n s f e r s p r o d u c t s f r o m one d i v i s i o n o r s u b s i d i a r y t o a n o t h e r w i t h o u t t h e m e d i a t i o n o f t h e m a r k e t . J a p a n e s e s t e e l f i r m s d i f f e r f r o m t h e s e v e r t - i c a l l y - i n t e g r a t e d o p e r a t i o n s b u t do n o t , c o n v e r s e l y , r e l y o n o p e n m a r k e t p u r c h a s e s . I n s t e a d m o s t c o a l and p i g i r o n i s b o u g h t f r o m s e l l e r s w i t h whom t h e y h a v e c r e a t e d a l o n g t e r m l i n k a g e o f a q u a s i - i n t e g r a t i v e n a t u r e . To t h e d e g r e e t h a t l o n g - t e r m c o n t r a c t s r e s t r i c t t h e c h o i c e o f t r a d i n g p a r t n e r s , t h e s e c o n t r a c t s f o r m a l i n k a n a l a g o u s t o v e r t i c a l - i n t e g r a t i o n . A c r i t i c a l d i f f e r e n c e , h o w e v e r , i s t h a t p r i c e s and v o l u m e s a r e s e t by i n t e r - f i r m t r a n s f e r s o f m a t e r i a l s . Q u a s i - i n t e g r a t i o n i n c l u d e s : ( i ) l o n g t e r m c o n t r a c t s t h a t t i e p a r t i c u l a r s u p p l i e r s t o J a p a n e s e s t e e l f i r m s f o r many t r a n s a c t i o n s ; ( i i ) t e c h n o l o g i c a l i n t e g r a t i o n t h r o u g h a d a p t a t i o n o f a c u s t o m i s e d b u l k l o g i s t i c a l s y s t e m t o s u p p l y t h e J a p a n e s e s t e e l i n d u s t r y ; ( i i i ) l o n g - t e r m " s o f t " l o a n s f r o m g o v e r n m e n t - b a c k e d f i n a n c i a l i n s t i t u t i o n s i n J a p a n t o a s s i s t i n p o r t , m i n e and o t h e r i n f r a s t r u c t u r e c o s t s ; - 21 -r and ( i v ) m i n o r i t y e q u i t y i n v e s t m e n t b y s t e e l f i r m s a n d t r a d i n g h o u s e s i n o v e r s e a s m i n i n g o p e r a t i o n s . A s h a s b e e n m e n t i o n e d , M I T I ' s i n t e r e s t i n t h e s t e e l i n d u s t r y a n t e d a t e s W o r l d War I I . T h r o u g h o f f i c i a l p a p e r s and s t a t e m e n t s , M I T I h a s i n d i c a t e d many t i m e s t h e c e n t r a l r o l e o f t h i s t r i g g e r i n d u s t r y i n i t s p o l i c y p l a n n i n g p r o c e s s . I n 1946, t h e s t e e l i n d u s t r y was e a r m a r k e d a s one o f f i v e m a j o r s e c t o r s t o be a c c o r d e d p r i o r i t y . M I T I w o r k e d w i t h t h e s t e e l - m a k e r s i n m a t t e r s o f c a p i t a l i n v e s t m e n t , p r o d u c t i o n , e x p o r t s , p r i c e s and t h e p u r c h a s i n g o f r e s o u r c e s . ^ The s u c c e s s o f t h e J a p a n e s e s t e e l i n d u s t r y c a n be t r a c e d t o v a r i o u s s t a t e - o f - t h e - a r t r e f i n e m e n t s i n p r o c u r e m e n t and p r o d u c t i o n t h a t b e g a n a f t e r t h e K o r e a n War. The f i r s t s t e p was t h e a d a p t a t i o n and i m p r o v e - ment o f W e s t e r n t e c h n o l o g i e s i n o r d e r t o c u t down t h e u s e o f raw m a t e r i a l s . T h e s e t e c h n o l o g i e s w e r e (and a r e ) c o n t i n u a l l y b e i n g i m p r o v e d . B u t s u p r i s i n g l y f o r a f r e e m a r k e t s o c i e t y , t h e t e c h n o l o g y was o p e n l y s h a r e d among f i r m s t h r o u g h t h e m e c h a n i s m o f i n d u s t r y a s s o c i a t i o n s a n d t h r o u g h a d m i n i s t r a t i v e g u i d a n c e . By 1 9 5 3 , t h e i r r a t e o f r a w m a t e r i a l u s a g e became t h e l o w e s t i n t h e w o r l d , c o n t r i b u t i n g s i g n i f i c a n t l y t o a n i n t e r - n a t i o n a l c o m p a r a t i v e a d v a n t a g e i n s t e e l p r o d u c t i o n . Soon a f t e r t h e s t e e l f i r m s a p p r o a c h e d a p o s i t i o n o f d i m i n i s h i n g r e t u r n s t h r o u g h e c o n o m i e s i n t h e u s e o f r a w m a t e r i a l s , t h e y b e g a n c o n c e n t r a t i n g on r e d u c i n g t h e s h i p p i n g c o s t s o f t h e s e r e s o u r c e s . The m i l l s and t h e i r a g e n t s b e g a n i n s i s t i n g o n a n FOB p r i c e a t t h e s u p p l i e r ' s p o r t (a s i g n i f i c a n t f e a t u r e i n c o n - t r a c t s f o r B.C. c o a l ) . T h i s p r o c e d u r e became p o l i c y . S e c o n d l y , - 22 - t h e y moved away f r o m c h a r t e r i n g v e s s e l s and b e g a n b u i l d i n g c u s t o m i z e d b u l k c a r r i e r s , t h e r e b y a r r a n g i n g f o r s h i p p i n g t o be i n d e p e n d e n t o f t h e s u p p l y c o n t r a c t . N e x t , c u s t o m i z e d b u l k u n l o a d i n g f a c i l i t i e s w e r e e r e c t e d c l o s e t o t h e t i d e w a t e r l o c a t i o n o f t h e i r m i l l s . E q u i v a l e n t b u l k l o a d i n g f a c i l i t i e s and h i g h v o l u m e i n t e r n a l t r a n s p o r t n e t w o r k s w e r e e n c o u r a g e d i n t h e s u p p l y i n g c o u n t r i e s . I n i t i a l l y t h e s t e e l m a k e r s p r o v i d e d f i n a n c i a l a s s i s t a n c e t o d e v e l o p i n g c o u n t r i e s s u p p l y i n g i r o n o r e ; c o k i n g c o a l i m p o r t s came m a i n l y f r o m t h e U n i t e d S t a t e s w h i c h d i d n o t r e q u i r e f i n a n c i a l a s s i s t a n c e f o r t h i s t y p e o f i n f r a s t r u c t u r e . By t h e 1 9 6 0 ' s , h o w e v e r , t h e m i l l s w e r e p r o v i d i n g s i m i l a r a s s i s t a n c e i n c o a l p o r t d e v e l o p m e n t t o A u s t r a l i a . I n many c a s e s t h e J a p a n e s e p r o v i d e d l o n g - t e r m l o a n s , t e c h n i c a l a s s i s t a n c e i n p r o j e c t p l a n n i n g , o r p u r c h a s e d m i n o r i t y e q u i t y i n t e r e s t s i n new c o a l and i r o n o r e m i n i n g p r o j e c t s d e s i g n e d t o c o n t r i b u t e t h r o u g h t h e l o g i s t i c a l s y s t e m . T h i s e n s u r e d t h e s y s t e m o p e r a t e d a t n e a r c o n s t a n t c a p a c i t y . The d e v e l o p m e n t o f a n i n t e g r a t e d l o g i s t i c a l s y s t e m d e a l i n g w i t h h i g h v o l u m e s o f m a t e r i a l s e n a b l e d t h e m i l l s t o c u t s h i p p i n g c o s t s i n h a l f . An a d d e d b e n e f i t o f e q u i t y p o s i t i o n s i n m i n i n g o p e r a t i o n s i n s u p p l y i n g c o u n t r i e s was t h a t i t r e d u c e d t h e r i s k o f n a t i o n a l - i z a t i o n w h i c h became s o p r e v a l e n t d u r i n g t h e boom y e a r s f o r c o m m o d i t i e s . T h r o u g h q u a s i - i n t e g r a t i o n t h e r e was s u f f i c i e n t r e s i d u a l c o n t r o l t o a v o i d t h e need f o r f u l l o w n e r s h i p . B u t t h e l e v e r a g e t h a t l o n g - t e r m c o n t r a c t s , i n t e g r a t e d l o g i s t i c a l s y s t e m s a n d e q u i t y f i n a n c i n g o f f e r e d t h e J a p a n e s e was i n s u f f i c i e n t i f a - 23 - s u p p l i e r w i s h e d t o f l o u t t h e t e r m s o f a c o n t r a c t a n d b i d up 17 v a r i o u s b u y e r s when a " s e l l e r ' s m a r k e t " e x i s t e d . To combat t h i s e v e n t u a l i t y , t h e J a p a n e s e f o l l o w a p o l i c y o f c o o r d i n a t e d p r o c u r e m e n t . - 24 - C o o r d i n a t e d P r o c u r e m e n t E n c o u r a g e d b y a d m i n i s t r a t i v e g u i d a n c e and f a c i l i t a t e d b y J a p a n ' s b u s i n e s s and c u l t u r a l e n v i r o n m e n t , c o o r d i n a t e d a c t i o n amongst c o m p a n i e s h a s become n o r m a l f o r some J a p a n e s e i n d u s t r i e s . T h i s h a s b e e n p a r t i c u l a r l y t r u e i n t h e s t e e l i n d u s t r y w h ere i n t e r - f i r m c o o r d i n a t i o n f o r c o a l p r o c u r e m e n t h a s b e e n so w i d e s p r e a d t h a t an a p p a r e n t monopsony 18 h a s d e v e l o p e d . Monopsony o r b u y e r ' s m o n o p o l y i s "an i m p o r t - a n t c h a r a c t e r i s t i c p r o b a b l y u n i q u e t o J a p a n e s e i n d u s t r i a l 19 o r g a n i z a t i o n . " C o a l s u p p l i e r s , p a r t i c u l a r l y t h o s e t h a t s e l l m o s t o f t h e i r o u t p u t t o J a p a n , v i e w t h e s t e e l i n d u s t r y t h e r e a s a s i n g l e e n t i t y , and f o r good r e a s o n . O v e r 9 5 % o f a l l s t e e l p r o d u c t i o n i s c o n c e n t r a t e d i n f i v e f i r m s , o f w h i c h N i p p o n S t e e l C o r p . a l o n e p r o d u c e s 4 5 % . N i p p o n S t e e l ' s t o p management c o n s i s t s o f many f o r m e r g o v e r n - ment o f f i c i a l s who w e r e p r e v i o u s l y r e s p o n s i b l e f o r d i r e c t i n g t h e s t e e l i n d u s t r y . " I t s l e a d e r s h i p r o l e i s w i d e l y a c c e p t e d i n t h e s t e e l i n d u s t r y , and f e w m a j o r d e c i s i o n s a r e made b y t h e o t h e r f o u r m a j o r s w i t h o u t o b t a i n i n g i n f o r m a l a p p r o v a l f r o m 21 N i p p o n S t e e l ' s management" T h i s s i t u a t i o n p r o m o t e s i n t e r - f i r m c o o r d i n a t i o n . i n h i s a u t h o r i t a t i v e w o r k , N e g o t i a t i n g C o a l C o n t r a c t s w i t h t h e J a p a n e s e S t e e l I n d u s t r y : The C o o r d i n a t e d P r o c u r e m e n t S y s t e m , J o s e p h D'Cruz d r a w s t h e c o n c l u s i o n t h a t : t h e J a p a n e s e S t e e l i n d u s t r y o p e r a t e s a s a s i n g l e c u s t o m e r u n i t i n i t s d e a l i n g s w i t h t h e o v e r s e a s c o k i n g c o a l s u p p l i e r s . C u s t o m e r r e l a t e d f a c t o r s a r e c o n s t a n t f o r a l l s u p p l i e r s . - 25 - Q u a s i - i n t e g r a t i o n b y i t s e l f d o e s n o t i n t r i n s i c a l l y c r e a t e a s i t u a t i o n o f monopsony. A g a i n p e c u l i a r l y J a p a n e s e f a c t o r s a r e a t w o r k . T h e r e a r e e i g h t m e c h a n i s m s t h a t l i m i t t h e a b i l i t y o f t h e c o k i n g c o a l s u p p l i e r s t o p i t one s t e e l m i l l a g a i n s t a n o t h e r . The most i m p o r t a n t o f w h i c h i s t h e u s e o f " d e s i g n a t e d n e g o t i a t o r s " . One n o m i n a t e d f i r m n e g o t i a t e s w i t h e v e r y s u p p l i e r i n a p a r t i c u l a r c o u n t r y a s a r e p r e s e n t a t i v e f o r t h e e n t i r e J a p a n e s e s t e e l i n d u s t r y . N i p p o n S t e e l i s d e s i g n a t e d n e g o t i a t o r f o r A u s t r a l i a a n d t h e U.S.S.R., w i t h t h e " a s s i s t i n g n e g o t i a t o r " b e i n g Sumitomo and N i p p o n K o k a n K a i s h a (N.K.K.) r e s p e c t i v e l y . F o r t h e U.S., w h i c h s u p p l i e s most o f t h e i n d u s t r y ' s s p o t m a r k e t p u r c h a s e s , N i p p o n S t e e l i s t h e de f a c t o n e g o t i a t o r i n a s much a s i t s c o n t r a c t s s e t t h e b e n c h m a r k p r i c e . N i p p o n K o k a n K a i s h a , a s s i s t e d b y Kobe S t e e l , i s t h e d e s i g n a t e d n e g o t i a t o r f o r C a n a d a o f w h i c h more w i l l be s a i d i n C h a p t e r I I I . I n o t h e r w o r d s , t h e same i n d i v i d u a l s a r e c h a r g e d w i t h e x p l o i t i n g c o m p e t i t i o n among s u p p l i e r s w i t h i n a g i v e n c o u n t r y . T h i s h a s t h e e f f e c t o f harm- o n i z i n g s u p p l y a r r a n g e m e n t s , t h e r e s u l t b e i n g t h a t a l l s e l l e r s o f a g i v e n q u a l i t y o f c o a l r e c e i v e t h e same p r i c e . A s e c o n d a r r a n g e m e n t i s t h a t e a c h o f t h e m a j o r s t e e l f i r m s u s e s c o a l f r o m e a c h m a j o r s u p p l i e r . The J a p a n e s e m i l l s b l e n d v a r i o u s c o a l s t o a c h i e v e a c o n s t a n t and c o s t - e f f e c i e n t i n p u t f o r t h e i r b l a s t f u r n a c e s . E a c h f i r m makes d e t a i l e d r e p o r t s - 2 6 - o f t h e d i f f e r e n t c o a l s a n d i s e n c o u r a g e d t o s h a r e t h e s e r e c o r d s w i t h o t h e r m i l l s , m o s t o f t e n t h r o u g h p r o f e s s i o n a l a s s o c i a t i o n s . W i t h a j o i n t e v a l u a t i o n o f t h e r e l a t i v e a d v a n t - a g e o f e a c h b r a n d o f i m p o r t e d c o a l , t h e m i l l s a g r e e u p o n t h e t o n n a g e s and p r i c e s o f e a c h c o a l s o u r c e t o be p r o c u r e d b y t h e i r d e s i g n a t e d n e g o t i a t o r s . A t h i r d o r g a n i z a t i o n a l a r r a n g e m e n t i s t h a t o f i n t e r - f i r m c o n s e n s u s i n d e c i s i o n m a k i n g on w h a t amounts s h o u l d be p u r c h a s e d a nd f r o m w h i c h c o u n t r i e s . The s u p p l i e r s ' o n l y s p o k e s - p e r s o n a t t h e s e c r u c i a l d e c i s i o n - m a k i n g s e s s i o n s i s t h e d e s - i g n a t e d c o o r d i n a t o r , who must s i m u l t a n e o u s l y make t h e p i t c h f o r t h e c o a l m i n i n g c o m p a n i e s w h i l e d e f e n d i n g o r j u s t i f y i n g a n y s p e c i a l c o n c e s s i o n s made on p r i c e , t o n n a g e s o r c o n t r a c t t e r m s . A f o u r t h m e c h a n i s m o f t h e c o o r d i n a t e d p r o c u r e m e n t s y s t e m i s t h e a r e a o f f i n a n c i a l a s s i s t a n c e . U s i n g s u c h f u n d s a s p o s t a l s a v i n g s d e p o s i t s , p u b l i c p e n s i o n c o n t r i b u t i o n s and i n s u r a n c e p r e m i u m s , " J a p a n e s e s t y l e " g o v e r n m e n t - b a c k e d f i n a n c i n g 23 p r o v i d e s l o a n s w h e r e p r o j e c t r i s k i s h i g h . O v e r s e a s i n v e s t - ment p r o j e c t s o f t e n r e q u i r e enormous s t a r t - u p c o s t s o r t h e r e may be c o n s i d e r a b l e t i m e b e f o r e t h e y y i e l d ~ a r e t u r n . T h e s e c a n n o t be f i n a n c e d a d e q u a t e l y o n t h e o p e n m a r k e t . I f deemed t o be i n t h e n a t i o n a l i n t e r e s t t h e y w i l l be f i n a n c e d by t h e J a p a n D e v e l o p m e n t Bank, t h e E x p o r t I m p o r t Bank o f J a p a n , and o t h e r g o v e r n m e n t a l f i n a n c i a l i n s t i t u t i o n s . To p e r f o r m t h i s f u n c t i o n a d e q u a t e l y , t h e s e b a n k s m a i n t a i n d e p a r t m e n t s d e v o t e d e n t i r e l y t o t h e a n a l y s i s o f t h e s t e e l i n d u s t r y ' s p u r c h a s e o f r a w m a t e r i a l s . - 27 " C o n s e n s u s h a s c h a r a c t e r i s t i c a l l y b e e n s t r o n g e s t when a f o r m a l l y r e c o g n i z e d d e s i g n a t e d i n d u s t r y i s i n v o l v e d and f o r e i g n e c o n o m i e s a r e t o be c o n f r o n t e d . When a s p e c i a l e n t r e p r e n e u r i a l p u s h f r o m t h e g o v e r n m e n t h a s b e e n s e e n t o be n e c e s s a r y f o r f o r e i g n t r a d e o r i n v e s t m e n t , M I T I h a s had l i t t l e d i f f i c u l t y i n a u t h o r i z i n g and c r e a t i n g a new p u b l i c l y c o n t r o l l e d o r g a n i z a t i o n a l t o o l . I n t h e c a s e o f o v e r s e a s c o a l p r o c u r e m e n t t h e New E n e r g y D e v e l o p m e n t O r g a n i z a t i o n (NEDO) p r o v i d e s v a r i o u s f o r m s o f g o v e r n m e n t a s s i s t a n c e . I n o r d e r t o p r o m o t e t h e d e v e l o p m e n t o f o v e r s e a s m i n e s NEDO o f f e r s s u b s i d i e s o f u p t o 50% o f t h e c o s t s o f l o c a t i n g p r o j e c t s and up t o 66.7% o f t h e e x p e n d i t u r e s f o r t h e b a s i c s u r v e y , i n c l u d i n g d r i l l i n g . M o r e o v e r , NEDO p r o v i d e s l o a n s o f up t o 7 0% o f e x p l o r a t i o n e x p e n d i t u r e s a t a f a v o u r a b l e i n t e r e s t r a t e , and p r o v i d e s l o a n g u a r a n t e e s f o r d e v e l o p m e n t c o s t s u p t o 50% f o r E x p o r t - I m p o r t 24 Bank l o a n s , and up t o 1 0 0 % o f o t h e r b a n k l o a n s . A f i f t h m e c h a n i s m f o r c o o r d i n a t e d p r o c u r e m e n t i s t h e r o l e p l a y e d b y M I T I a s a l r e a d y d i s c u s s e d . A Raw M a t e r i a l s P r o c u r e m e n t S e c t i o n f o r a n a l y s i s a n d p l a n n i n g e x i s t s w i t h i n M I T I ' s S t e e l I n d u s t r y B u r e a u . A j o i n t g o v e r n m e n t - i n d u s t r y c o m m i t t e e was e s t a b l i s h e d i n 1949 t o f o r m a l l y c o o r d i n a t e t h e p u r c h a s e o f c o k i n g c o a l and i r o n o r e . B e s i d e s t h e a b o v e - m e n t i o n e d t o o l s o f a d m i n i s t r a t i v e g u i d a n c e — f i n a n c e and s u b s i d y — M I T I h a s p l a y e d a n i n f l u e n t i a l r o l e i n a s s i s t i n g t h e s t e e l i n d u s t r y i n n e g o t i a t i o n s w i t h t h e g o v e r n m e n t s o f - 28 - s u p p l y i n g c o u n t r i e s . I t s r o l e h a s b e e n m o s t o b v i o u s i n d e a l i n g w i t h t h e c o m m u n i s t g o v e r n m e n t s o f C h i n a , P o l a n d and t h e S o v i e t U n i o n , w h e r e d i r e c t g o v e r n m e n t - t o - g o v e r n m e n t r e l a t i o n s a r e c r u c i a l . B u t d u r i n g t h e l a s t t w e n t y y e a r s , w e s t e r n g o v e r n m e n t s , p a r t i c u l a r l y A u s t r a l i a , h a v e i n c r e a s i n g l y become i n v o l v e d i n what i s t e r m e d " r e s o u r c e d i p l o m a c y " . F o r e x a m p l e , d u r i n g t h e 1 9 7 0 ' s , t h e A u s t r a l i a n g o v e r n m e n t t h r o u g h t h e M i n i s t r y o f I n d u s t r i e s became h e a v i l y i n v o l v e d i n t h e n e g o t i a t i o n s f o r c o a l c o n t r a c t s i n o r d e r t o m a x i m i z e t h e b e n e f i t s o f e x p o r t s o f n o n - r e n e w a b l e r e s o u r c e s . , I n r e s p o n s e , M I T I h a s d e f l e c t e d much o f t h e A u s t r a l i a n g o v e r n m e n t ' s p r e s s u r e on s t e e l f i r m s by l i n k i n g t h e o u t c o m e o f n e g o t i a t i o n s t o o t h e r a r e a s w i t h i n i t s s p h e r e o f i n t e r e s t . To t h i s e n d , M I T I was p a r t l y r e s p o n s i b l e i n 197 6 f o r a b o l i s h i n g a two y e a r o l d t a x on A u s t r a l i a n c o a l e x p o r t s . G e n e r a l l y t h e g o v e r n - ment p r e f e r s t o r e m a i n b e h i n d t h e s c e n e s i n c o a l c o n t r a c t n e g o t i a t i o n s . Much o f J a p a n ' s e x p o r t s u c c e s s h a s b e e n d u e t o t h e i r a b i l i t y t o c o o r d i n a t e i n t o c a r t e l s , l i k e OPEC, w h i c h c a n p l a n s t r a t e g y e f f e c t i v e l y . B u t s u c h o r g a n i z a t i o n s s u f f e r by n o t b e i n g a b l e t o make q u i c k d e c i s i o n s . B e c a u s e o f t h e s l o w p r o c e s s o f c o n s e n s u s b u i l d i n g i n J a p a n e s e d e c i s i o n - m a k i n g , a s i x t h o r g a n i z a t i o n a l a r r a n g e m e n t i s e m p l o y e d . The J a p a n e s e t r a d i n g company o r s o g o s h o s h a , w i t h t e l e x t e r m i n a l s i n o f f i c e s a r o u n d t h e w o r l d , p r o v i d e a n i n v a l u a b l e s e r v i c e . T h e i r mandate i s t o p u t i n t o e f f e c t , p r o m p t l y a n d e f f e c t i v e l y , t h e s t r a t e g i e s hammered o u t i n b o a r d r o o m s a nd m i n i s t r y o f f i c e s . The t r a d i n g h o u s e s a c t i v e l y s e e k o u t p o t e n t i a l s u p p l i e r s t h r o u g h o u t t h e w o r l d . They m o n i t o r m i n i n g c o n c e s s i o n s , d e v e l o p m e n t s w i t h i n m i n i n g f i r m s , a n d new e n t r a n t s i n t h e c o a l m i n i n g b u s i n e s s . W h i l e t h e d e s i g n a t e d n e g o t i a t o r w o r k s o u t t h e t e r m s o f c o n t r a c t s a n d a n n u a l p r i c e a n d t o n n a g e r e q u i r e m e n t s , t h e s o g o s h o s h a m a i n t a i n o v e r s e a s o f f i c e s w h e r e t h e y k e e p i n f r e q u e n t p e r s o n a l c o n t a c t w i t h t h e s u p p l i e r s and h a n d l e t h e d a y - t o - d a y p a p e r w o r k . T h e r e i s a n i n f o r m a l a r r a n g e m e n t b e t w e e n t h e s o g o s h o s h a a n d t h e s t e e l c o m p a n i e s . Once a t r a d i n g f i r m h a s e s t a b l i s h e d a p o t e n t i a l s u p p l i e r , a n d h a s b e e n a p p o i n t e d b y t h e d e s i g n a t e d n e g o t i a t o r a s t h e d e s i g n a t e d t r a d i n g a g e n t , r i v a l f i r m s w i l l n o t c o m p e t e f o r t h a t b u s i n e s s . I f t h e d e s i g n a t e d n e g o t i a t o r f e e l s t h e t r a d i n g company i s t o o s m a l l t o c o n d u c t t h e s u p p l y a r r a n g e m e n t e f f e c t i v e l y , a l a r g e r h o u s e w i l l be a s k e d t o a s s i s t , t h o u g h t h e f o r m e r w i l l r e m a i n n o m i n a l l y i n c h a r g e . The n a m i n g o f a t r a d i n g f i r m i s made f o r m a l when i t s a p p o i n t m e n t i s i n c l u d e d i n t h e B a s i c A g r e e m e n t and s u b s e q u e n t l y a p p e a r s i n l o n g - t e r m c o n t r a c t s . When a p o t e n t i a l s u p p l i e r v i s i t s s t e e l m i l l e x e c u t i v e s a n d g o v e r n m e n t o f f i c i a l s i n J a p a n f o r n e g o t i a t i o n s , a l l c o n t a c t s a r e a r r a n g e d b y t h e t r a d i n g h o u s e . The same i s t r u e when t h e d e s i g n a t e d n e g o t i a t o r v i s i t s t h e s u p p l i e r ' s c o u n t r y . G e n e r a l l y , t h e t r a d i n g f i r m p a y s t h e s u p p l y i n g c o a l c o m p a n i e s on b e h a l f - 30 - 25 o f t h e i r c l i e n t s , t h e s t e e l m i l l s . N e e d l e s s t o s a y , u n d e r t h i s f o r m u l a , i t i s e x t r e m e l y d i f f i c u l t f o r a c o a l company t o p l a y o f f one t r a d i n g h o u s e a g a i n s t a n o t h e r o r e v e n t o s w i t c h f i r m s . A s e v e n t h a r r a n g e m e n t o f c o o r d i n a t e d p r o c u r e m e n t i s i n t h e f i e l d o f t e c h n i c a l a s s i s t a n c e . Q u i t e o f t e n J a p a n e s e m i n i n g c o m p a n i e s and m i n i n g e q u i p m e n t f i r m s a r e b r o u g h t i n u n d e r t h e a u s p i c e s o f t h e t r a d i n g company t o p r o v i d e t r a i n i n g , t e c h n i c a l h e l p o r p l a n t a n d e q u i p m e n t t o t h e c o a l s u p p l i e r . The sogo s h o s h a s u p e r v i s e s t h e r e l a t i o n s h i p b e t w e e n t h e c o a l s u p p l i e r a n d J a p a n e s e c o m p a n i e s a n d r e p o r t s o n t h e r e l a t i o n - s h i p t o t h e s t e e l m i l l s . F i n a l l y , d u r i n g t h e 1 9 7 0 ' s t h e J a p a n e s e g o v e r n m e n t h e l p e d t h e s t e e l i n d u s t r y s e t up a s t o c k p i l e a s s o c i a t i o n b y 2 6 l e n d i n g f u n d s a t p r e f e r e n t i a l r a t e s . A d r a w b a c k o f q u a s i - i n t e g r a t i o n i s t h a t i t c o m m i t s t h e b u y e r o v e r a l o n g p e r i o d t o some minimum q u a n t i t y o f p u r c h a s e s , i r r e s p e c t i v e o f t h e b u y e r ' s n e e d . W h i l e t h e U.S. c r e a t e d s t o c k p i l e s i n t h e 1 9 4 0 ' s i n r e s p o n s e t o a p e r c e i v e d s t r a t e g i c n e e d , J a p a n m a i n t a i n s i t s s t o c k p i l e s e x p l i c i t y f o r s t a b i l i z i n g p u r p o s e s . A c c o r d i n g l y t h e s t o c k p i l e a s s o c i a t i o n may r e l e a s e c o k i n g c o a l o r i r o n o r e i n t i m e s o f h i g h demand and may p u r c h a s e t h e s e c o m m o d i t i e s when t h e s t e e l i n d u s t r y i s o v e r c o m m i t t e d . S t o c k p i l e s , a l o n g w i t h t h e p o l i c i y o f d i v e r s i f i c a t i o n , p r o v i d e g r e a t e r s e c u r i t y o f s u p p l y , a c o n c e r n h e i g h t e n e d d u r i n g t h e t u m u l t u o u s d e c a d e o f t h e 1 9 7 0 ' s . 31 - D i v e r s i f i c a t i o n I n a d d i t i o n t o q u a s i - i n t e g r a t i o n a nd c o o r d i n a t e d p r o c u r e m e n t , a t h i r d s t r a t e g y i s d i v e r s i f i c a t i o n . To u n d e r - s t a n d t h i s p o l i c y i t i s n e c e s s a r y t o m e n t i o n J a p a n ' s g e o g r a p h y and p o s t - w a r d e v e l o p m e n t s . G i v e n i t s s m a l l l a n d a r e a , p o o r n a t u r a l r e s o u r c e s , l a r g e p o p u l a t i o n a nd t h e s i z e o f i t s economy, J a p a n c a n n e v e r become s e l f - s u f f i c i e n t i n r e s o u r c e s u p p l y . I n a d d i t i o n t o t h e o b v i o u s s u s c e p t i b i l i t y o f a n y n a t i o n w i t h f e w r e s o u r c e s a n d a l a r g e p o p u l a t i o n , t h e J a p a n e s e economy d e v e l o p e d a d a n g e r o u s l y v u l n e r a b l e i n d u s t r i a l s t r u c t u r e d u r i n g t h e p o s t - w a r p e r i o d when raw m a t e r i a l s w e re c h e a p . The r a p i d e c o n o m i c g r o w t h i n t h e l a t e 1 9 5 0 ' s a n d t h r o u g h o u t t h e 196 0's came a b o u t t h r o u g h e m p h a s i s o n t h e r e s o u r c e - h u n g r y h e a v y a n d c h e m i c a l i n d u s t r i e s . J a p a n became t h e w o r l d ' s l a r g e s t i m p o r t e r o f r a w m a t e r i a l s . P a r a d o x i c a l l y t h i s s i t u a t i o n b e n e f i t t e d J a p a n . A s a h a v e - n o t m a r i t i m e n a t i o n , J a p a n was n o t c o m p e l l e d t o p u r c h a s e c o s t l y o r i n f e r i o r d o m e s t i c m a t e r i a l s b u t c o u l d t a k e a d v a n t a g e o f t h e c h e a p e s t s o u r c e s i n t h e w o r l d . The U.S. e x p o r t embargo on s o y b e a n s a n d t h e A r a b c u t b a c k s i n o i l i n 1973 g a v e a m p l e w a r n i n g t o J a p a n ' s p o l i c y - 27 m a k e r s . When o i l q u a d r u p l e d i n p r i c e t h a t y e a r , t h e c o s t o f c o k i n g c o a l d o u b l e d by 1974. U.S. s u p p l i e r s c u r t a i l e d t h e i r d e l i v e r i e s f a r b e l o w c o n t r a c t e d t o n n a g e s and i n s t e a d s o l d t h e i r p r o d u c t i o n o n t h e s p o t m a r k e t . I n many c a s e s , t h e U.S. m i n e s ' s p o t m a r k e t s a l e s w e r e b o u g h t by t h e i r c o n t r a c t e d b u y e r who was t r y i n g t o o v e r c o m e h i s s h o r t f a l l . The J a p a n e s e s t e e l m i l l s - 32 - were s t u n g b y A m e r i c a n d u p l i c i t y . S i m i l a r e v e n t s o c c u r r e d w i t h r e g a r d t o o t h e r c o m m o d i t i e s f o r c i n g a J a p a n e s e r e s p o n s e . The p o l i c y o f d i v e r s i f i c a t i o n h a s two p a r t s , b o t h r e l e v a n t t o t h e demand f o r B.C. c o a l . I n 1974, J a p a n i n i t i a t e d a d i v e r s i f i c a t i o n p o l i c y i n o r d e r t o l e s s e n r e l i a n c e o n i m p o r t e d o i l . I n 1980, J a p a n b e g a n a d i v e r s i f i c a t i o n o f s o u r c e s . L i k e many o t h e r i n d u s t r i a l n a t i o n s , J a p a n r e s p o n d e d t o t h e c r i s i s i n p r i c e and s u p p l y s t a b i l i t y o f e n e r g y b y s e a r c h i n g f o r a l t e r - n a t i v e f u e l s . What d i s t i n g u i s h e d J a p a n , h o w e v e r , was t h e i n - t e n s i t y , b r e a d t h and d e t e r m i n a t i o n o f i t s r e s p o n s e t o i n t e r n a t i o n - a l e n e r g y a n d e c o n o m i c r e a l i t i e s . M I T I i n s t a n t l y c r e a t e d new p u b l i c c o r p o r a t i o n s t o o v e r s e e a s h i f t t o c o a l , n u c l e a r p o w e r , n a t u r a l g a s , g e o - t h e r m a l a n d s o l a r e n e r g y a s w e l l a s h y d r o - e l e c t r i c p o w er. C o a l was s e e n a s t h e e a s i e s t t o i m p l e m e n t and became t h e most s u c c e s s f u l a l t e r n a t i v e . B e s i d e s t h e q u e s t i o n o f s u p p l y , e n e r g y - s a v i n g t e c h n i q u e s w e r e p u t i n t o e f f e c t f o r i n d u s t r i a l p r o d u c t i o n . B u t c o n s e r v a t i o n e f f o r t s w e r e n o t l i m i t e d t o i n d u s t r i a l r e s t r u c t u r i n g . J a p a n ' s e x p o r t p r o d u c t s became w o r l d - r e n o w n e d f o r t h e i r e n e r g y e f f i c i e n c y . J a p a n ' s s t e e l i n - d u s t r y -began s h i f t i n g f r o m o i l - f i r e d t o c o a l - f i r e d b l a s t f u r n a c e s , S i m i l a r i l y , e l e c t r i c u t i l i t i e s a n d t h e cement i n d u s t r y b e g a n s w i t c h i n g f r o m o i l t o t h e r m a l c o a l d e s p i t e t h e l a t t e r ' s p r o b l e m s o f b u l k and d u s t . Soon a f t e r t h e s e c o n d o i l c r i s i s and l a r g e l y a s a r e s u l t o f d i s r u p t i o n i n t h e s u p p l y o f c o k i n g c o a l and t h e p e r - - 33 - c e p t i o n o f b e i n g o v e r - d e p e n d e n t on A u s t r a l i a , J a p a n i n i t i a t e d a p o l i c y o f d i v e r s i f i c a t i o n o f s o u r c e . S o u t h A f r i c a had c h e a p c o a l b u t i t s m i n e s w e r e p r i m a r i l y l o c k e d i n t o t h e E u r o p e a n m a r k e t a n d s u p p l y was t h e r e f o r e t i g h t . C o a l f r o m C h i n a and t h e S o v i e t U n i o n was c h e a p and c l o s e b u t was n o t v i e w e d a s s e c u r e . C o a l f r o m t h e e a s t e r n U.S. was e x p e n s i v e and s u f f e r e d t h e d r a w b a c k o f h i g h t r a n s p o r t a t i o n c o s t s . C o a l f r o m W e s t e r n C a n a d a o f f e r e d t h e b e s t a l t e r n a t i v e s . F o r a b r e a k - d o w n o f J a p a n e s e c o k i n g c o a l s u p p l i e r s s e e F i g u r e 2, A p p e n d i x 1. J a p a n ( c o n s i d e r s ) d i v e r s i f i c a t i o n o f t h e s u p p l i e r s o f n a t u r a l r e s o u r c e s a s t h e k e y t o t h e p o l i c y f o r r e s o u r c e s e c u r i t y . I t i s n o t , h o w e v e r , a mere d i v e r s i f i c a t i o n h a v i n g numerous s u p p l i e r s , b u t t h e s u p p l i e r s h a v e b e e n l i m i t e d t o t h r e e o r f o u r i n o r d e r t o r e a l i z e t h e e x t e n s i v e - s c a l e o f development„and t h e e c o n o m i e s o f b u l k t r a n s a c t i o n . J a p a n e s e i n v e s t m e n t i n W e s t e r n C a n a d i a n c o a l m i n e d e v e l o p m e n t o f f e r e d t h e J a p a n e s e i n v e s t o r s ( i ) p o t e n t i a l l y a t t r a c t i v e p r i c e b e n e f i t s ; ( i i ) a hedge a g a i n s t s u d d e n p r i c e i n c r e a s e s o r s u p p l y r e s t r i c t i o n s ; and ( i i i ) r i s k r e d u c t i o n t h r o u g h a c o l l a b o r a t i o n w i t h s e v e r a l e n t e r p r i s e s . B u t w h a t t h e J a p a n e s e w e r e most i n t e r e s t e d i n w e r e new and s e p a r a t e r a i l a n d p o r t f a c i l i t i e s . - 34 ^ C h a p t e r I I I The N e g o t i a t i o n o f t h e N o r t h e a s t C o a l P r o j e c t I n t r o d u c t i o n S u c c e s s f u l p e r f o r m a n c e i n i n t e r n a t i o n a l n e g o t i a t i o n s , o f " w i n n i n g " , r e s u l t s f r o m an e f f e c t i v e a p p l i c a t i o n o f b a r g a i n i n g p ower. B a r g a i n i n g power c a n be d e f i n e d a s t h e c a p a c i t y t o g e n e r a t e i n t e n d e d n e g o t i a t i n g o u t c o m e s . B a r g a i n i n g power a n d , b y e x t e n s i o n , " s u c c e s s " d e p e n d on a g o v e r n m e n t ' s a b i l i t y t o s h a p e t h e n e g o t i a t i n g e n v i r o n m e n t t h r o u g h s e l e c t e d s t r a t e g i e s a n d t a c t i c s t o s u i t i t s p r e a r r a n g e d o b j e c t i v e s . A n e g o t i a t i n g s t r a t - e g y i s an o v e r a l l b a r g a i n i n g d e s i g n , a g e n - e r a l p l a n f o r a d v a n c i n g d i s c u s s i o n s t h r o u g h s u c c e s s i v e s t a g e s t o w a r d some d e s i r e d c o n - c l u s i o n . The t e c h n i q u e s o f t h e J a p a n e s e g o v e r n m e n t — a p p e a l s f o r u n i t y and m a n e u v e r i n g w i t h i n t h e d e c i s i o n - m a k i n c ? s t r u c t u r e i n h i b i t s s p e e d y b a r g a i n i n g . T h i s c h a p t e r f o c u s e s on J a p - anese 1, s t r a t e g i e s i n t h e i r a p p l i c a t i o n t o t h e n e g o t i a t i o n o f t h e N o r t h e a s t C o a l P r o j e c t . W h i l e t h e J a p a n e s e g o v e r n m e n t h a s s e t up a p a r t i c u l a r l y s u c c e s s f u l n e g o t i a t i n g s t r a t e g y f o r c o a l p r o c u r e m e n t , i t r e m a i n s l a r g e l y u n i n v o l v e d i n a n y a c t u a l n e g o t i a t - 2 i o n s . One r e a s o n f o r t h e b e h i n d - t h e - s c e n e s s t a n c e o f M I T I i s t h e J a p a n e s e d e s i r e t o do b u s i n e s s w i t h r e l i a b l e t r a d i n g p a r t n e r s , w h i l e a v o i d i n g d i r e c t c o n t a c t s b e t w e e n n a t i o n a l g o v e r n m e n t s . "The J a p a n e s e f e a r t h a t d i r e c t g o v e r n m e n t - t o - g o v e r n m e n t d e a l s may i n j e c t d i s r u p t i v e p o l i t i c a l c o n s i d e r a t i o n s i n t o t h e e c o n o m i c s o f c o a l s u p p l y " ? - 35 ~ The N e g o t i a t i o n o f t h e N o r t h e a s t C o a l P r o j e c t J a p a n e s e i n v o l v e m e n t i n B r i t i s h C o l u m b i a n m e t a l l u r i c a l c o a l b e g a n i n 1968, when M i t s u b i s h i a n d K a i s e r R e s o u r c e s n e g o t i a t e d a l o n g - t e r m a g r e e m e n t . By 19 73 c o k i n g c o a l f r o m B r i t i s h C o l u m b i a 4 a n d A l b e r t a c o n s t i t u t e d a b o u t 20% o f J a p a n e s e o v e r s e a s s u p p l i e s . F rom 1970 - 1 9 8 2 , J a p a n p r o v i d e d 87% o f t h e m a r k e t f o r W e s t e r n 5 C a n a d i a n s u p p l i e r s . T h r o u g h o u t t h i s p e r i o d t h e B.C. g o v e r n m e n t t r i e d u n s u c c e s s f u l l y t o p e r s u a d e N i p p o n K o k a n t o b u i l d a l a r g e s t e e l m i l l i n B r i t i s h C o l u m b i a . I n 1976, N.K.K. p r e s i d e n t H i s a o M a k i t a , t h e m a j o r spokesman f o r J a p a n e s e b u s i n e s s i n C a n a d a , l e d a b u s i n e s s m i s s i o n w h i c h r e p o r t e d t h a t C a nada was a " p a r a d i s e f o r l a z y w o r k e r s " , h a d a s m a l l s a t u r a t e d m a r k e t a n d c o s t l y r e s t r i c t i o n s on f o r e i g n i n v e s t m e n t ^ J a p a n e s e f i n a n c i n g a n d i n v e s t m e n t , t h e m i s s i o n r e p o r t e d , s h o u l d r e m a i n s o l e l y i n r e s o u r c e d e v e l o p m e n t . When t h e B r i t i s h C o l u m b i a n S o c i a l C r e d i t P a r t y r e t u r n e d t o power i n 197 5, i t was a n x i o u s t o p r o m o t e t h e d e v e l o p m e n t o f t h e n o r t h e a s t e r n s e c t o r o f t h e p r o v i n c e . The p r o v i n c i a l g o v e r n - ment l o o k e d t o J a p a n t o p u r c h a s e some o f t h e o u t p u t o f t h e v a s t n o r t h e r n c o a l d e p o s i t s . D u r i n g t h e 1976 J a p a n e s e b u s i n e s s m i s s i o n t o V a n c o u v e r , NKK's H i a s o M a k i t a s t i p u l a t e d t h a t J a p a n e s e p a r t - i c i p a t i o n was c o n t i n g e n t o n t h e p r o v i n c i a l g o v e r n m e n t f i r s t b u i l d - i n g new t r a n s p o r t a t i o n and t o w n s i t e i n f r a s t r u c t u r e f o r t h e p r o - p o s e d new c o a l f i e l d s i n t h e n o r t h e a s t . The J a p a n e s e s t e e l - m a k e r s w e r e r e l u c t a n t t o commit t h e m s e l v e s t o any new B.C. c o n t r a c t s a t t h i s t i m e a s t h e y w ere d e v e l o p i n g A u s t r a l i a n c o a l o n a l a r g e - 36 - s c a l e . S i n c e t h e J a p a n e s e a p p e a r e d u n i n t e r e s t e d , a n d B.C. o f f i c i a l s b e l i e v e d t h a t t e n m i l l i o n t o n s t h r o u g h p u t p e r y e a r was n e e d e d t o make t h e p r o j e c t v i a b l e , o t h e r m a r k e t s w e r e c o u r t e d . I n 1979, N o r c o R e s o u r c e s L t d . o f V a n c o u v e r a n n o u n c e d a b i l l i o n d o l l a r , t w e n t y - f i v e y e a r c o n t r a c t w i t h T a i w a n Power Company. However, t h e f e d e r a l C o n s e r v a t i v e s , t e m p o r a r i l y i n p o w e r , r e f u s e d t o s t a r t on t h e p l a n n e d R i d l e y I s l a n d c o a l p o r t a t P r i n c e R u p e r t u n t i l t h e r e was a n a s s u r a n c e o f a t l e a s t f o u r g m i l l i o n t o n s t h r o u g h p u t a y e a r . D e s p i t e an a g r e e m e n t f o r Q u i n t e t t e C o a l L t d . t o s u p p l y t h e g o v e r n m e n t o f Rumania w i t h t w e n t y - f i v e m i l l i o n t o n s o f c o a l o v e r t w e n t y - f i v e y e a r s , i t became i n c r e a s i n g l y o b v i o u s t h a t w i t h o u t f i r m commitments : f r o m t h e J a p a n e s e , t h e a m b i t i o u s N o r t h e a s t p r o j e c t c o u l d n o t become a r e a l i t y . The Q u i n t e t t e p r o p e r t y e a s t o f A n z a c , B.C. was i n i t i a l l y h e l d b y D e n i s o n M i n e s L t d . ( 3 8 . 2 5 % ) , M i t s u i M i n i n g O v e r s e a s Company and T o k y o T r a d i n g Co. ( 2 2 . 5 % e a c h ) , a n d I m p e r i a l O i l ( 1 6 . 7 5 % ) . I n a l e t t e r o f i n t e n t t o D e n i s o n M i n e s , t h e two J a p a n e s e i n t e r e s t s h a d a g r e e d t o p u r c h a s e up t o f i v e m i l l i o n t o n s o f c o a l p e r annum, b u t t h i s was v i e w e d a s i n s u f f - i c i e n t t o w a r r a n t t h e h i g h i n f r a s t r u c t u r e c o s t s . I n O c t o b e r 1 9 7 9 , P e r m i e r B e n n e t t a nd E c o n o m i c D e v e l o p m e n t M i n i s t e r Don P h i l l i p s v i s i t e d J a p a n , b u t w e r e u n s u c c e s s f u l i n o b t a i n i n g any f u r t h e r c o m m i t t m e n t f r o m t h e s t e e l f i r m s . I n 198 0, a s e r i o u s c o n f l i c t o f o p i n i o n emerged w i t h i n t h e J a p a n e s e s t e e l i n d u s t r y o v e r f u r t h e r p u r c h a s e s o f c o k i n g c o a l . - 37 ~ I t became v e r y d i f f i c u l t f o r NKK t o a c q u i r e a n y u n d e r t a k i n g f r o m t h e m i l l s w i t h r e g a r d t o t h e j i o r t h e a s t m e g a p r o j e c t . On November 13, 1979 t h e m i l l s had d e c i d e d t o do n o t h i n g and i g n o r e d a J a n u a r y 1, 1980 d e a d l i n e , i m p o s e d by b o t h n o r t h e a s t m i n i n g c o m p a n i e s , B u l l m o o s e and Q u i n t e t t e . T h e r e was l i t t l e ' ; p r e s s u r e on t h e s t e e l - m a k e r s a s t h e p r o j e c t e d u p t u r n i n s t e e l demand f o r 198 0 was d o w n g r a d e d s l i g h t l y . The m i l l s h a d t h r e e f u r t h e r c o n c e r n s ; t h e p r i c e o f t h e c o a l , t h e p r i c e e s c a l a t i o n f o r m u l a o f t h e c o n t r a c t a n d , f i n a l l y , t h e l a c k o f d e t a i l s o n t h e c o s t o f t h e i n f r a s t r u c t u r e . The J a p a n e s e o f f e r s t o o d a t $ 7 5 / t o n a s t h e g u a r a n - t e e d i n i t i a l p r i c e f o r t h e c o a l s h i p m e n t s t o b e g i n O c t o b e r 19 8 3 . B u t D e n i s o n a n d T e c k a s k e d f o r "3 o r 4 d o l l a r s more"7° The m i l l s r e f u s e d t o go a b o v e $ 7 5 / t o n a s t h e y f e a r e d t h a t w o u l d e s c a l a t e w o r l d c o k i n g c o a l p r i c e s , e s p e c i a l l y t h o s e o f s o u t h - e a s t e r n B r i t i s h C o l u m b i a . The s t e e l - m a k e r s f e l t t h e y w e r e l e a v i n g t h e m s e l v e s o p e n t o s e v e r e p r i c e i n c r e a s e s t h r o u g h t h e " p r i c e e s c a l a t i o n c l a u s e " o f t h e c o n t r a c t . The p r e v a i l i n g v i e w was t h a t t h e r e was i n s u f f i c i e n t t e c h n i c a l d a t a c o n c e r n i n g t h e i n f r a s t r u c t u r e c o s t s . The d a t a t h a t was g i v e n t o t h e m i l l s was v i e w e d w i t h s k e p t i c i s m . F o r e x a m p l e , a " s p u r " t r a c k t o c o n n e c t t h e m i n e s t o t h e m a i n C a n a d i a n N a t i o n a l r a i l l i n e was v a r i o u s l y e s t i m a t e d t o c o s t b e t w e e n $215 m i l l i o n ( V i c t o r i a ' s a p p r a i s a l ) and $700 m i l l i o n (a s o g o s h o s h a ' s " g u e s s t i m a t e " ) 3-1 H i g h e r t h a n e n v i s i o n e d - 38 _ c o s t s c o u l d make t h e J a p a n e s e p a y d e a r l y u n d e r t h e p r i c e e s c a l a t i o n c l a u s e b e i n g o f f e r e d b y t h e c o a l m i n i n g c o m p a n i e s . A number o f t h e s t e e l m i l l s d i s l i k e d t h e p r e s s u r e f r o m NKK and t h e B.C. g o v e r n m e n t t o s i g n a B a s i c A g r e e m e n t . T h e s e m i l l s w i s h e d t o s u s p e n d a l l t h o u g h t o f s i g n i n g a c o n t r a c t a t l e a s t t h r o u g h 1 9 81 and 198 2, u n t i l more i n d e p t h t e c h n i c a l e v a l u a t i o n s had b e e n w o r k e d o u t w i t h t h e m i n e o p e r a t o r s . I n J a n u a r y 198 0, a t m e e t i n g s o f t h e s t e e l - m a k e r s NKK e x p r e s s e d t h e i r c o n c e r n a b o u t t h e r e p e r c u s s i o n s w h i c h a p o s t p o n e m e n t w o u l d h a v e on J a p a n ' s c o m m e r c i a l r e l a t i o n s w i t h C a n ada a n d p a r t i c u l a r l y w i t h B r i t i s h C o l u m b i a , i n v i e w o f t h e f e d e r a l a n d p r o v i n c i a l e f f o r t s t o l i n e up t h e f i n a n c i n g f o r t h e a m b i t i o u s mega p r o j e c t . The s t e e l f i r m s c o n s i d e r e d two o p t i o n s : ( i ) make a c o u n t e r - o f f e r a b o v e $ 7 5 / t o n a n d resume n e g o t i a t i o n s , o r ( i i ) r e j e c t t h e B.C. o f f e r s b u t l e a v e t h e d o o r o p e n f o r f r e s h n e g o t i a t i o n s i n t h e f u t u r e . The J a p a n e s e s t e e l m i l l s c h o s e t h e l a t t e r o p t i o n f o r t h e f o l l o w i n g r e a s o n s . They were s t i l l v e r y much a t t r a c t e d b y a new l o n g - t e r m s o u r c e o f s u p p l y w i t h an i n d e - p e n d e n t r a i l a n d p o r t f a c i l i t y . O t h e r c o k i n g and t h e r m a l c o a l p r o j e c t s c o u l d be p l a n n e d t h e r e . The J a p a n e s e a p p e a r e d t o l a c k c o n s e n s u s on t h e p r o j e c t a n d a s one s o u r c e p u t i t , " t h e y s i m p l y c o u l d n ' t a g r e e t o s c r a p n e g o t i a t i o n s . T h e r e i s a w i d e d i v i s i o n . . 12 o f o p i n i o n a m o n g s t t h e m i l l s " . B e s i d e s , t h e m i l l s saw l i t t l e g a i n i n s c r a p p i n g t h e n e g o t i a t i o n s . The o p i n i o n i n V a n c o u v e r was t h a t t h e J a p a n e s e w e r e p u r s u i n g t h e i r u s u a l n e g o t i a t i n g t a c t i c - 39 " o f n o t b r e a k i n g o f f n e g o t i a t i o n s a l t o g e t h e r , b u t p a t i e n t l y 13 w a i t i n g f o r t h e o t h e r s i d e t o make c o n c e s s i o n s , a f o r m o f s i l e n t p r e s s u r e . N i p p o n K o k a n , t o r e f u t e t h o s e c l a i m s , p r e p a r e d and i m p l e m e n t e d a p u b l i c r e l a t i o n s c a m p a i g n t o s e e k C a n a d i a n u n d e r s t a n d i n g o f t h e J a p a n e s e d i f f i c u l t i e s . P r o b a b l y t h e g r e a t e s t r e a s o n f o r t h e c h o i c e o f o p t i o n ( i i ) was t h e l a c k o f p r e s s u r e 14 on t h e J a p a n e s e b e c a u s e o f a s t a g n a n t w o r l d demand f o r s t e e l . H owever, f o r e c a s t e d demand r e v e r s e d d r a m a t i c a l l y i n t h e l a t e w i n t e r m onths o f 198 0 when r e p o r t a f t e r r e p o r t p r e d i c t e d 15 a n u p t u r n i n 198 2. The r e v i s e d demand f o r e c a s t p r o v i d e d t h e n e c e s s a r y momentum f o r t h e p r o - N o r t h e a s t C o a l f a c t i o n s w i t h i n t h e i n d u s t r y . A h i g h l e v e l m i s s i o n f r o m J a p a n , h e a d e d b y N i p p o n K o k a n , met w i t h t h e B.C. p r o v i n c i a l c a b i n e t and s t a t e d t h a t t h e y n e e d e d a c o n t r a c t s h o r t l y f o r 5 t o 8 m i l l i o n t o n s o f met. c o a l p e r y e a r . The J a p a n e s e r e i t e r a t e d t h a t t h e y w e r e n o t d e p e n d e n t on B.C. and t h a t i t s u i t e d t h e m t o buy h e r e o n l y a s l o n g a s t h e p r i c e was a d v a n t a g e o u s , d e l i v e r y was r e l i a b l e , and o n l y a s a n a l t e r n a t i v e t o o t h e r s o u r c e s . E c o n o m i c D e v e l o p m e n t M i n i s t e r P h i l l i p s emerged f r o m t h e t a l k s s t a t i n g , " t h e c o a l d e a l now l o o k s more p o s i t i v e t h a n i t h a s i n t h e l a s t t h r e e y e a r s . " One NKK e x e c u t i v e e x p l a i n e d , " l a s t y e a r we w e r e i n no p o s i t i o n t o make a n y l o n g - t e r m c o m m i t m e n t s . Now we a r e , b u t i t d e p e n d s o n t h e 17 i n f r a s t r u c t u r e b e i n g t h e r e . T i m i n g i s c r u c i a l " . . N e g o t i a t i o n s r e a c h e d a c r i t i c a l s t a g e w i t h a f i n a l a g r e e m e n t d e p e n d i n g on a l a r g e f e d e r a l s u b s i d y , o r some a l t e r - - 40 - n a t i v e s u c h a s J a p a n e s e f i n a n c i n g , t o f i n a n c e t r a n s p o r t a t i o n c o n s t r u c t i o n t o t i d e w a t e r a t P r i n c e R u p e r t . T h e r e was p r e s s u r e f r o m t h e m i l l s t o f i n a l i z e t h e d e a l s o t h a t d e l i v e r i e s c o u l d be made by t h e m i d 1 9 8 0 ' s i n a n t i c i p a t i o n o f t h e e x p e c t e d u p t u r n i n s t e e l demand. The m i l l s i n s i s t e d t h a t o t h e r w i s e t h e y w o u l d 18 n o t be i n t e r e s t e d f o r a n o t h e r f i v e y e a r s , i f a t a l l . T e r u j i Nomura, e x e c u t i v e V i c e - P r e s i d e n t o f M i t s u i C a n a d a L t d . , a n n o u n c e d t h a t "B.C. must a c t now", i n o f f e r i n g a n a c c e p t a b l e p r i c e , a s t h e N o r t h e a s t C o a l p r o j e c t w o u l d be t h e l a s t c h a n c e f o r a m a j o r met. c o a l d e a l . "The J a p a n e s e s t e e l i n d u s t r y w i l l grow by o n l y 3 t o 5 p e r c e n t p e r y e a r b e c a u s e t h e y h a v e a l r e a d y h i t t h e 19 p e a k and a r e l e v e l l i n g o f f " . I t i s c l e a r t h a t n e i t h e r t h e J a p a n e s e n o r t h e C a n a d i a n s w a n t e d t h e n e g o t i a t i o n s t o f a i l a t t h i s p o i n t . Y e t n e i t h e r w i s h e d t o p a y f o r t h e n e c e s s a r y b u t c o s t l y i n f r a s t r u c t u r e . The s i t u a t i o n was t o be r e s o l v e d by a h i g h l e v e l summit m e e t i n g i n V a n c o u v e r . D e s p i t e r e p e a t e d i n v i t a t i o n s , s u c c e s s i v e J a p a n e s e P r i m e M i n i s t e r s had v o i c e d no i n t e r e s t i n v i s i t i n g C a n a d a a f t e r t h e " f a n t a s t i c b r e a k t h r o u g h " o f t h e T r u d e a u - T a n a k a communique o f 197 4 w h i c h u s h - 20 e r e d i n a "new e r a i n J a p a n - C a n a d a r e l a t i o n s " . B u t i n May, 1980 P r i m e M i n i s t e r O h i r a and F o r e i g n M i n i s t e r O k i t a h e l d t a l k s on n o r t h e a s t c o a l w i t h P r i m e M i n i s t e r T r u d e a u and E x t e r n a l A f f a i r s M i n i s t e r M a c G u i g a n . O p t i m i s m p r e v a i l e d b u t e a c h s i d e a t t a c h e d 'tough s t r i n g s " t o t h e i r p o s i t i o n s . P r i m e M i n i s t e r T r u d e a u i n d - i c a t e d t h a t t h e i n f r a s t r u c t u r e p r o b l e m c o u l d be s o l v e d i f J a p a n - 41 - b o u g h t a n $800 m i l l i o n CANDU r e a c t o r . P r i m e M i n i s t e r O h i r a r e p l i e d t h a t t h e i n d e p e n d e n t A t o m i c E n e r g y C o m m i s s i o n had d e c i d e d t h e p r e v i o u s y e a r t h a t i t d i d n o t w a n t t o i n t r o d u c e CANDUs i n t o J a p a n f o r t h e t i m e b e i n g , b u t t h a t t h e d e c i s i o n c o u l d be s u b j e c t t o c h a n g e i n t h e f u t u r e . The " c h a n g e " o c c - u r r e d a mere t w e l v e h o u r s l a t e r when i n T o k y o , M I T I a n n o u n c e d a $3.5 m i l l i o n r e n e w e d s t u d y o f t h e CANDU. P r i m e M i n i s t e r O h i r a c o m m i s e r a t e d w i t h C a n a d i a n c a l l s f o r more m a n u f a c t u r e d e x p o r t s t o J a p a n , b u t he f e l t t h a t t h e b e s t way f o r J a p a n t o a s s i s t i n t h a t a r e a w o u l d be t o i n c r e a s e i t s i n v e s t m e n t i n C a n a d a . F o r t h a t e v e n t u a l i t y t o come a b o u t "Canada m u s t f u r t h e r d e v e l o p i t s r o a d s , p o r t s and h a r b o u r f a c i l i t i e s a n d f o s t e r 21 s t a b l e i n d u s t r i a l r e l a t i o n s " , he s a i d . T h us t h e O h i r a - T r u d e a u c o n f e r e n c e f a i l e d t o end t h e s t a l e m a t e o v e r i n f r a s t r u c t u r e c o s t s . The B r i t i s h C o l u m b i a n g o v e r n m e n t f e l t b e t r a y e d by t h e f e d e r a l g o v e r n m e n t . P r e m i e r B e n n e t t a c c u s e d t h e L i b e r a l s o f b e i n g " a n t i - w e s t e r n " and w o r s e . F o r t h e i r p a r t t h e J a p a n e s e a n n o u n c e d a f i n a l d e a d l i n e o f 1 5 t h J u n e 1980 and s a t b a c k and w a t c h e d t h e f e d e r a l and p r o v i n c i a l g o v e r n m e n t s w r a n g l e o v e r who s h o u l d p a y f o r t h e c o n s t r u c t i o n o f a 115 k i l o m e t r e s p u r - l i n e l i n k i n g t h e m i n e s t o t h e m a i n CNR l i n e . No p r i c e n e g o t i a t i o n s c o u l d t a k e p l a c e u n t i l t h e s p u r - l i n e was a s s u r e d and f r e i g h t r a t e s o u t l i n e d t o t h e c o a l c o m p a n i e s . The C a n a d i a n g o v e r n m e n t a g r e e d t o c o n t r i b u t e $100 - 42 - m i l l i o n t o b u i l d t h e n e c e s s a r y f a c i l i t i e s a t P r i n c e R u p e r t a s p a r t o f i t s f e d e r a l r e s p o n s i b i l i t y f o r p o r t s and h a r b o u r s . The CNR o f f e r e d t o c o n t r i b u t e $210 m i l l i o n f o r e i g h t new c o a l t r a i n s and $75 m i l l i o n t o u p g r a d e i t s m a i n l i n e f r o m C h e t w y n d t o P r i n c e R u p e r t t o h a n d l e t h e i n c r e a s e d t r a f f i c . The f e d e r a l and B.C. g o v e r n m e n t s had r e a c h e d a t e n t a t i v e a g r e e m e n t w h e r e b y t h e n a t i o n a l g o v e r n m e n t w o u l d i n c r e a s e t h e i r c o n t r i b u t i o n by $70 m i l l i o n p r e s u m a b l y f o r t h e r a i l l i n k . What was a t i s s u e was Don P h i l l i p s ' e s t i m a t e t h a t t h e m a s s i v e t u n n e l l i n g and r a i l c o n s t r u c t i o n w o u l d c o s t a mere $215 m i l l i o n . NKK and t h e c o a l c o m p a n i e s e s t i m a t e d t h e s e " p o l i t i c a l f i g u r e s " t o be a b o u t 50% 22 o f r e a l c o s t . M o r e o v e r , F e d e r a l E c o n o m i c D e v e l o p m e n t M i n i s t e r Bud O l s o n (on i n s t r u c t i o n f r o m t h e P r i m e M i n i s t e r ) i n s i s t e d t h a t a n y a d d e d f e d e r a l commitment w o u l d be l i n k e d t o B.C. r e q u e s t s f o r 23 f e d e r a l c o m p e n s a t i o n f o r t h e F o o t h i l l s n a t u r a l g a s p i p e l i n e . The p r o v i n c i a l g o v e r n m e n t was s t a l l i n g t h i s p r o j e c t , d e m a n d i n g $275 m i l l i o n f o r s o c i a l a n d e n v i r o n m e n t a l damages c r e a t e d b y t h e c o n s t r u c t i o n o f t h e p i p e l i n e . N e i t h e r g o v e r n m e n t w o u l d budge on 24 t h i s i s s u e a n d t h e c o a l t a l k s b r o k e down. I n t h e f e w f r a n t i c d a y s p r e c e d i n g t h e J a p a n e s e J u n e 15 d e a d l i n e , t h e f o l l o w i n g e v e n t s t o o k p l a c e . The CNR a n n o u n c e d t h a t i n b u i l d i n g t h e s p u r - l i n e i t w o u l d i n s i s t o n a g u a r a n t e e d 20% r e t u r n o n i t s c a p i t a l i n v e s t m e n t i n p e r p e t u i t y . The P r e m i e r v i e w e d t h i s a s u s u r i o u s and vowed t o "go i t a l o n e " . B e n n e t t b o l d l y a n n o u n c e d t h a t t h e ( h e a v i l y i n - d e b t e d ) B r i t i s h C o l u m b i a R a i l w a y (BCR) w o u l d b u i l d t h e s p u r - l i n e - 43 - w i t h p r o v i n c i a l f i n a n c i n g t o come f r o m a p r o v i n c i a l b o n d 25 i s s u e . F u r t h e r f i n a n c i n g c o u l d come f r o m n a t u r a l g a s r e v e n u e s , a l t h o u g h t h e U.S. m a r k e t was d r y i n g up and t h e f e d e r a l g o v e r n - ment was p r o p o s i n g an e x p o r t t a x o f 10 p e r c e n t . S u c h q u e s t i o n s a s w h a t r a i l w a y w o u l d b u i l d t h e s p u r - l i n e , how much i t w o u l d c o s t and who w o u l d p a y f o r i t , r e m a i n e d a m y s t e r y . B u t t h e c o a l c o m p a n i e s w e r e g i v e n f i g u r e s b y b o t h g o v e r n m e n t s s o t h a t t h e y c o u l d p r e s e n t o f f e r s t o J a p a n e s e s t e e l m i l l s . T h e s e f i g u r e s i n c l u d e d : ( i ) a $ 4 / t o n s u r c h a r g e f o r t h e t o w n s , r o a d s and h y d r o ; ( i i ) a $15 - $ 1 6 / t o n f r e i g h t r a t e ; ( i i i ) \a $ 3 . 5 0 / t o n p o r t c h a r g e ; a n d ( i v ) a 3.5% p r o v i n c i a l r o y a l t y o n t h e m i n e h e a d p r i c e d To u n d e r s t a n d / t h e s u b s e q u e n t p r i c e n e g o t i a t i o n s t h a t t o o k p l a c e i n T o k y o , t h e p r e s s u r e s o n t h e B.C. g o v e r n m e n t and t h e c o n t e x t o f t h e J a p a n e s e d e c i s i o n - m a k i n g d u r i n g t h i s t i m e d e s e r v e m e n t i o n . B e s i d e s t h e c o n s t r a i n t s i n t r o d u c e d b y t h e CNR and t h e f e d e r a l c a b i n e t , t h e o p p o s i t i o n i n t h e L e g i s l a t i v e A s s e m b l y a nd t h e V a n c o u v e r a n d D i s t r i c t L a b o u r C o u n c i l w e r e d e m a n d i n g t h a t t h e c o a l d e a l be a b a n d o n e d b e c a u s e t h e r e w o u l d 27 be "no r e t u r n t o t h e p e o p l e o f B.C." E d g a r K a i s e r , a p r o m i n e n t B.C. b u s i n e s s m a n and c h a i r m a n a nd c h i e f e x e c u t i v e o f f i c e r o f K a i s e r R e s o u r c e s L t d . , a s o u t h e a s t e r n B.C. c o a l company, a n n o u n c e d t o t h e p r e s s t h a t t h e g o v e r n m e n t w o u l d n e v e r s u b s i d i z e t h e e x p o r t o f a n o n - r e n e w a b l e r e s o u r c e . He a d d e d t h a t w i t h o u t e v e n u t i l i z i n g - 44 ~ t h e i r u n t a p p e d r e s e r v e s , s o u t h e a s t e r n m i n e s c o u l d e a s i l y s u p p l y 2 8 t h e i n c r e a s e d J a p a n e s e r e q u i r e m e n t s and a t a f a r c h e a p e r p r i c e . E v e r y o n e c o n c e r n e d , i n c l u d i n g t h e J a p a n e s e , a g r e e d w i t h t h i s v i e w — b u t t h e J a p a n e s e w a n t e d a s w e l l t o p r o m o t e t h e c r e a t i o n o f a $ new s u p p l y l i n e a c r o s s n o r t h e r n B.C. A r e p o r t b y t h e S o u t h - e a s t e r n B.C. C o u n c i l o f M a y o r s d e c l a r e d " t h e s e l l i n g p r i c e ( o f N. E. C o a l ) w o u l d h a v e t o be h e a v i l y s u b s i d i z e d . . . . A t t h e moment t h e y ( t h e J a p a n e s e ) a r e p a y i n g w o r l d p r i c e s w h i c h r a n g e f r o m $50 - $7 0 / t o n d e p e n d i n g o n t h e q u a l i t y o f t h e c o a l . T h e r e i s e v e r y i n d i c a t i o n t h a t t h e J a p a n e s e a r e n o t p r e p a r e d t o pay a premium 29 i n o r d e r t o g a m a c c e s s t o new s u p p l i e s o f coal'.' B e c a u s e o f h i g h p r i c e s , t h i s r e p o r t a r g u e d , t h e s t e e l m i l l s had r e c e n t l y r e b u f f e d A u s t r a l i a n p r o p o s a l s f o r two new c o a l m i n e s . T h i s l o g i c was f l a w e d . The J a p a n e s e had r e j e c t e d t h e new A u s t r a l i a n p r o - p o s a l s , n o t b e c a u s e o f p r i c e , b u t b e c a u s e t h e y w i s h e d t o l e s s e n t h e i r d e p e n d e n c e t h e r e . C o a l a n d g o v e r n m e n t o f f i c i a l s i n A u s t - r a l i a a n d J a p a n i n s i s t e d t h a t t h e s t e e l f i r m s w o u l d n o t p a y more t h a n c u r r e n t w o r l d p r i c e s ( $ 5 0 - $ 7 0 / t o n ) . L o o k i n g c l o s e l y a t t h i s c h o r u s o f s e l f - i n t e r e s t e d r h e t o r i c one c a n c o n c l u d e t h a t t h e A u s t r a l i a n s and t h e s o u t h e a s t e r n B.C. c o a l m i n e s w e r e c o n c e r n e d t o d e r a i l t h e n o r t h e a s t m e g a p r o j e c t . The J a p a n e s e , f o r t h e i r p a r t , w e r e m e r e l y a d v a n c i n g t h e i r p o s i t i o n i n t h e B.C. p r e s s , a t a c t i c t h e y w e r e t o u s e e f f e c t i v e l y many t i m e s . ( I n c o n t r a s t , B.C. n e g o t i a t o r s o f t e n r e f u s e d t o make a n y comment t o t h e p r e s s w i t h t h e r e s u l t t h a t many p u b l i c c o n c e r n s a b o u t t h e p r o j e c t w e r e n o t d i s p e l l e d . ) - 45 - B u t w i t h o u t s a y i n g s o t h e J a p a n e s e w e r e p r e p a r e d t o pay a premium f o r d i v e r s i f i c a t i o n o f s u p p l y . And i n a d d i t i o n t o r e d u c i n g d e p e n d e n c e on t h e s o u t h e a s t o f B.C., t h e m i l l s w o u l d b e n e f i t f r o m a new s u p e r p o r t a t R i d l e y I s l a n d t h a t was 24 h o u r s l e s s s t e a m i n g t i m e t o Yokohama t h a n R o b e r t s Bank. J a p a n E c h o , a w e e k l y i n d u s t r i a l n e w s l e t t e r s u b s c r i b e d t o by c o a l c o m p a n i e s t h r o u g h o u t t h e w o r l d , s t a t e d t h a t t h e p o l i c y o f t h e s t e e l m i l l s was now t o n e g o t i a t e c o n t r a c t s t o t h e $ 8 0 / t o n 30 l e v e l . The J a p a n e s e l e n t C h i n a $U.S. 2 b i l l i o n i n 1 9 7 9 , h a l f o f w h i c h was t o be u s e d t o d e v e l o p new c o a l m i n e s . A s w e l l , i n 1980, t h e J a p a n e s e and C h i n e s e n e g o t i a t e d a p r i c e i n c r e a s e o f 31 25 p e r c e n t . The J a p a n e s e r e c o g n i z e d t h a t e v e r y c o a l p r o d u c i n g c o u n t r y h a s some c o a l f i e l d s t h a t c o u l d be d e v e l o p e d e a s i l y and c h e a p l y b u t t h a t s u b s e q u e n t d e v e l o p m e n t , be i t i n A u s t r a l i a , C a n a d a o r C h i n a , w o u l d be more d i f f i c u l t a n d t h e r e f o r e more e x p e n s i v e . I n a l m o s t a l l i n s t a n c e s , b e c a u s e o f h i g h c a p i t a l and s t a r t - u p c o s t s , t h e c o a l f r o m new m i n e s i s more e x p e n s i v e t h a n t h a t f r o m m a t u r e m i n e s . The s t e e l m i l l s p r e f e r r e d t o s t a g g e r t h e d e v e l o p m e n t o f c o a l m i n e s , n o t t o w a i t u n t i l t h e l o w c o s t f i e l d s w e r e e x h a u s t e d b e f o r e f a c i n g v e r y h i g h c o s t s f r o m t h e n e x t g e n e r a t i o n o f m i n e s . A f t e r t h e J u n e 198 0 summit w h e r e t h e m a j o r i n d u s t r i a l d e m o c r a c i e s p l e d g e d t o s l a s h o i l i m p o r t s , M I T I by 1981 had s w i t c h e d t e n o i l - f i r e d power s t a t i o n s t o t h e r m a l c o a l - f i r e d p l a n t s . A s a r e s u l t o f t h e s e c o n d o i l c r i s e s , t h e 1980 and 1981 f o r e c a s t s f o r p r o j e c t e d t h e r m a l c o a l u s e w e r e e x c e s s i v e l y o p t i m i s t i c . H i d e o Y o k o t a , p r e s i d e n t o f S e k i t e n S h i g e n K a i h a t s u , a M I T I - s p o n s e r e d t h e r m a l c o a l p r o c u r e m e n t and 32 d e v e l o p m e n t company, g a v e f i g u r e s f o r t h e p r e d i c t e d i n c r e a s e . He s t a t e d t h a t t h e r m a l c o a l i m p o r t s w o u l d jump f r o m t h e i r 197 8 l e v e l o f l e s s t h a n a m i l l i o n t o n s t o a r o u n d 16 m i l l i o n t o n s . i n 1 9 8 5, 42 m i l l i o n t o n s i n 1990 and 66 m i l l i o n i n 1 9 9 5 . 3 3 By t h e t u r n o f t h e c e n t u r y e s t i m a t e d i m p o r t s w o u l d r e a c h t h e 120- 130 m i l l i o n mark. Y o k o t a r e i t e r a t e d , " T h e r e i s no way we w i l l r e l y t o o h e a v i l y on one s u p p l i e r . D i v e r s i f i c a t i o n i s o u r a i m and t h i s w i l l i n c l u d e C a n a d a , C h i n a , S o u t h A f r i c a a nd t h e U.S." H i n d s i g h t shows t h a t t h e s t e e l m i l l s a nd t h e i r c o o r - d i n a t o r w e r e c o m m i t t e d t o d i v e r s i f i c a t i o n , p e r c e i v e d t h e need f o r more t h e r m a l and met. c o a l and w e r e p l e a s e d a t t h e q u a l i t y and t e c h n i c a l d a t a o f B.C.'s n o r t h e a s t e r n c o a l r e s e r v e s . W h i l e t h e J a p a n e s e w e r e p r e p a r e d t o p a y h i g h e r p r i c e s , t h e y i n i t i a l l y t r i e d t o l e v e r t h e p r o v i n c i a l g o v e r n m e n t i n t o o p e n i n g up i t s h i g h e r - c o s t f i e l d s w h i l e s e l l i n g t h e c o a l a t t h e same p r i c e a s t h a t f r o m t h e e x i s t i n g f i e l d s i n t h e s o u t h e a s t . No d o u b t , i t was t h e i r i n t e n t i o n t o p r e s s u r e A u s t r a l i a and C h i n a t o o f f e r c o m p a r a b l e p r i c e s f o r t h e i r new m i n e s . B u t when t h e c o a l c o m p a n i e s a r r i v e d i n T o k y o on 2 6 t h J u n e 198 0 , T e c k and D e n i s o n o f f e r e d NKK a p r i c e o f $84 and $ 8 6 / t o n , r e s p e c t i v e l y . (NKK r e p o r t e d t h e s e p r o p o s a l s t o t h e J a p a n S t e e l F e d e r a t i o n w h i c h i n A u g u s t 1980 made a c o u n t e r o f f e r o f - 47 - 35 $75 - $ 7 7 / t o n ) . I n d i s c u s s i o n s t h e s t e e l f i r m s had r a i s e d t h e i r c o n c e r n s t h a t t h e B.C. g o v e r n m e n t was p u s h i n g a h e a d on p o l i t i c a l r a t h e r t h a n on e c o n o m i c g r o u n d s . One s t e e l i n d u s t r y s o u r c e was q u o t e d a s s a y i n g "The J a p a n e s e d o n ' t want t o be 3 6 w h i p p i n g b o y s i n any f u t u r e e l e c t i o n campaign'.' Q u e s t i o n s r a i s e d b y t h e m i l l s w e r e : ( i ) Why i s the p r o v i n c i a l g o v e r n m e n t o b s e s s e d w i t h d e v e l o p i n g t h e n o r t h when i t i s n o t c l e a r i t c a n r e c o v e r c o s t s ? ; ( i i ) Would t h e n e x t e l e c t i o n be f o u g h t o n a s u b s i d i z e d c o a l i s s u e ? ; a n d ( i i i ) Would a c h a n g e i n g o v e r n m e n t j e o p a r d i z e t h e c o n t r a c t s ? M o r e o v e r , t h e s t e e l m e n w e r e n o t c o n v i n c e d t h a t B r i t i s h C o l u m b i a c o u l d r e c o v e r c o s t s , l e t a l o n e make a p r o f i t , and d i d n o t want s h o r t f a l l s t o be p a s s e d on t o 37 them t h r o u g h h e f t y p r i c e i n c r e a s e s . E c o n o m i c D e v e l o p m e n t M i n i s t e r P h i l l i p s h a d i n t i m a t e d t h a t , - i n c a l c u l a t i n g t h e r e t u r n o n i n v e s t m e n t , he was l o o k i n g a t s u c h r e v e n u e s a s p e r s o n a l and c o r p o r a t e i n c o m e t a x , s a l e s t a x and t h e w h o l e e c o n o m i c m u l t i p l i e r e f f e c t o f d e v e l o p i n g t h e c o a l f i e l d s . On 14 J u l y 198 0, a c o n s o r t i u m o f f o u r B r a z i l i a n s t e e l f i r m s a n d t h e n i n e l a r g e s t J a p a n e s e m i l l s l e d by NKK e x p r e s s e d t h e i r i n t e r e s t i n p u r c h a s i n g " l a r g e a m o u n t s " o f met. c o a l f r o m S o u t h e a s t B.C.'s G r e e n h i l l s a n d F o r d i n g c o a l m i n e s i f t h e R o b e r t s Bank s u p e r p o r t c o u l d be e x p a n d e d f r o m i t s p r e s e n t 10 m i l l i o n t o n 3 8 c a p a c i t y t o 40 m i l l i o n t o n s . The c o n t e n t i o n t h a t t h e J a p a n e s e i n t e n d e d t h i s p r o c l a m a t i o n a s a p r e s s u r e t a c t i c on t h e N o r t h e a s t p r o j e c t i s d u b i o u s . I t i s more l i k e l y t h a t i t was a r e s p o n s e t o - 48 - t h e c o n t i n u e d d i s r u p t i o n i n P o l i s h s u p p l i e s b r o u g h t a b o u t by t h e S o l i d a r i t y s t r i k e s . N e v e r t h e l e s s , P h i l l i p s d e c l a r e d t h e n e x t d a y t h a t e x p a n s i o n i n t h e s o u t h e a s t w o u l d n o t a f f e c t t h e n o r t h e r n m e g a p r o j e c t . S i n c e t h e s p u r - l i n e c o s t s w e r e r a i s e d f r o m $215 m i l l i o n t o $315 m i l l i o n , P h i l l i p s p r o p o s e d a $ 5 / t o n r a i l s u b s i d y ($3 and $ 2 / t o n f r o m t h e f e d e r a l a n d 39 p r o v i n c i a l g o v e r n m e n t s r e s p e c t i v e l y ) . O t t a w a r e j e c t e d t h i s n o t i o n r e s t a t i n g t h a t t h e c u r r e n t c o a l - c o s t q u o t e s a l r e a d y r e f l e c t e d " s i g n i f i c a n t t a x p a y e r p a r t i c i p a t i o n i n t r a n s p o r t a t i o n a n d o t h e r i n f r a s t r u c t u r e a n d d o n ' t r e p r e s e n t f u l l y c o s t e d p r i c e s . . . ( a n y ) j o i n t a d d i t i o n a l n o n - r e c o v e r a b l e a s s i s t a n c e . . . 40 i s u n a c c e p t a b l e t o t h e t h e t a x p a y e r s o f C a n a d a " . M o r e o v e r t e v e n w i t h a $ 5 / t o n s u b s i d y , t h e c o a l c o m p a n i e s w o u l d h a v e t o s h a v e a n a d d i t i o n a l $ 5 / t o n o f f t h e i r own m a r g i n t o r e a c h t h e $74 - 7 6 / t o n r a n g e a c c e p t a b l e t o t h e J a p a n e s e . T h r e e t i m e s i n t h e p r e v i o u s two y e a r s t h e s t e e l m i l l s h a d a p p e a r e d r e a d y t o s h e l v e t h e N o r t h e a s t p r o j e c t i n d e f i n i t e l y . I n 1 9 7 9 , t h e y c o n t i n u e d n e g o t i a t i o n s b e c a u s e o f t h e i r d e s i r e f o r a n a l t e r n a t e s o u r c e o f s u p p l y a n d s w i t c h o v e r t o t h e r m a l c o a l power g e n e r a t i o n i n t h e wake o f t h e s e c o n d o i l c r i s i s . I n l a t e J a n u a r y 1 9 8 0 , t h e i r i n t e r e s t i n t h e p r o j e c t i n c r e a s e d d r a m a t i c a l l y , d e s p i t e t h e s u s p i c i o u s d a t a on i n f r a s t r u c t u r e c o s t s , b e c a u s e o f a n e x t r e m e u p s w i n g i n p r o j e c t e d s t e e l demand. T h e n , i n A u g u s t 1980 i n s p i t e o f t h e i r c o n c e r n s o v e r t h e p o l i t i c a l c o m p l i c a t i o n s o f s u b s i d i z e d c o a l , t h e y t o o k a - 49 - more f a v o r a b l e a p p r o a c h t o t h e m e g a p r o j e c t . The r e a s o n was s i m p l y a d i s r u p t i o n i n s u p p l y . The J a p a n e s e h ad s u f f e r e d a " s h o k k u " ( s h o c k ) f r o m A u s t r a l i a a t t h e same t i m e a s P o l a n d ' s c o a l e x p o r t s w e re i n t e r r u p t e d . Two t h i r d s o f A u s t r a l i a ' s 47% s h a r e o f J a p a n ' s c o a l i m p o r t s came f r o m Q u e e n s l a n d ; a nd t h e Q u e e n s l a n d m i n e r s h a d w a l k e d o f f t h e j o b . They w e r e s t r i k i n g f o r t a x i n c e n t i v e s f o r r e m o t e a r e a l i v i n g . ) A few weeks l a t e r , d o c k w o r k e r s i n New S o u t h W a l e s s t r u c k a s w e l l . B e c a u s e o f t h e s e s t r i k e s , t h e m i l l s w e r e f o r c e d t o r e p l e n i s h t h e i r s t o c k s b y p u r c h a s i n g o v e r two m i l l i o n t o n s o f e x p e n s i v e s p o t m a r k e t c o a l f r o m C a n a d a and t h e U n i t e d S t a t e s . The m i l l s w e r e b i t t e r a t h a v i n g t o b e a r a l l t h e c o s t s o f t h e A u s t r a l i a n s t r i k e s . F u r t h e r b a d news came when t h e New S o u t h W a l e s m i n e - o w n e r s a n n o u n c e d t h a t r e g r e t t a b l y t h e y w o u l d h a v e t o r e d u c e c o n t r a c t e d s a l e s v o l u m e s o f b o t h s t e a m i n g a nd c o k i n g c o a l , i n c l u d i n g some c o v e r e d b y n e w l y n e g o t i a t e d c o n t r a c t s , b e c a u s e t h e t o n n a g e s f a r e x c e e d e d t h e h a n d l i n g c a p a c i t y o f s t a t e p o r t s . T h i s p r o m p t e d t h e J a p a n S t e e l F e d e r a t i o n t o l e c t u r e t h e g o v e r n m e n t o f 41 A u s t r a l i a on t h e i m p o r t a n c e o f k e e p i n g i t s h o u s e i n o r d e r . S u c h a r a r e move f r o m t h e J a p a n e s e , who a v o i d c o n f r o n t a t i o n , was t a n t a m o u n t t o an u l t i m a t u m . I n a s u p p o s e d l y c o n f i d e n t i a l r e p o r t t h e F u e l a n d M e t a l D e p a r t m e n t o f N i p p o n S t e e l a n a l y z e d t h e s t r u c t u r e o f U . S . , C a n a d i a n 42 and A u s t r a l i a n s t r i k e s . N i p p o n S t e e l f o u n d t h a t A u s t r a l i a n w o r k s t o p p a g e s w e r e ' u n p r e d i c t a b l e a n d i n c r e a s i n g a t an a l a r m i n g r a t e . - 50 - A u s t r a l i a n u n i o n s f e l t t h e y w e r e i n a s t r o n g b a r g a i n i n g p o s i t i o n b e c a u s e o f t h e r e s o u r c e boom. C o n v e r s e l y , C a n a d i a n and A m e r i c a n s t o p p a g e s w e r e l e s s f r e q u e n t and u s u a l l y t i e d t o t r i e n n i a l r e v i s i o n s o f l a b o u r c o n t r a c t s . The r e p o r t c o n c l u d e d t h a t J a p a n was d a n g e r o u s l y d e p e n d e n t on A u s t r a l i a n met. c o a l s u p p l i e s , b u t had l i t t l e c h a n c e t o d i v e r s i f y . I t was s u g g e s t e d t h a t t h e U.S. c o u l d s u p p l y a l t e r n a t i v e c o a l b u t i t w o u l d h a v e t o be s h i p p e d f r o m t h e e a s t c o a s t t h e r e b y r a i s i n g t r a n s p o r t a t i o n c o s t s . I m p o r t s f r o m C a n a d a p o s e d p r o b l e m s o f d i s t a n c e and l a c k o f i n f r a s t r u c t u r e t h a t i n c r e a s e d c o s t s . The d e b a t e c o n t i n u e d w i t h i n t h e S t e e l F e d e r a t i o n a s t o t h e e x t e n t J a p a n s h o u l d buy more e x p e n s i v e C a n a d i a n c o a l , m e r e l y a s i n s u r a n c e a g a i n s t s t r i k e s ( e g . A u s t r a l i a n ) , and r i s k t h e d i s r u p t i o n o f t h e g l o b a l p r i c e n e t w o r k . The s t e e l c o m p a n i e s made t h r e e d e c i s i o n s i n t h e summer o f 198 0. T h e y c o n t i n u e d t o s p u r n t h e p l e a s o f t h e A u s t r a l i a n c o a l c o m p a n i e s t o s i g n c o m p e t i t i v e l y p r i c e d l o n g - t e r m c o n t r a c t s . S e c o n d l y , t h e y s i g n e d l o n g - t e r m a g r e e m e n t s i n p r i n c i p l e f o r a p p - r o x i m a t e l y f i v e m i l l i o n toms p e r annum w i t h s o u t h e a s t e r n B.C.'s 43 G r e e n h i l l s a n d L i n e C r e e k m i n e s and A l b e r t a ' s G r e g g R i v e r m i n e . F i n a l l y , T s u n e j i Nemoto, m a n a g i n g d i r e c t o r o f NKK, l e d a n o t h e r h i g h l e v e l m i s s i o n t o B r i t i s h C o l u m b i a t o s e e i f t h e N o r t h e a s t p r o j e c t c o u l d be r e s o l v e d . The m i l l s f e l t t h e y c o u l d n o t w a i t a n y l o n g e r i f c o a l was t o be s h i p p e d by J a n u a r y 1984. The c o n c e r n - 51 ~ o f many s t e e l m i l l s a b o u t f i n a n c i n g was r e s o l v e d a f t e r t a l k s w i t h t h e c o a l c o m p a n i e s a nd o f f i c i a l s f r o m O t t a w a and V i c t o r i a . O t h e r m i l l s r e m a i n e d p e r t u r b e d a t t h e c o a l p r i c e and f r e i g h t r a t e . Nemoto p e r s o n a l l y l o b b i e d C.N. t o r e d u c e i t s f r e i g h t r a t e w i t h o u t i m m e d i a t e e f f e c t . I t a p p e a r e d t h a t t h e J a p a n e s e w e r e p r e p a r e d t o a c c e p t t h e r o c k - b o t t o m o f f e r o f $ 7 5 / t o n i f t h i s p r i c e w e r e t o be k e p t 44 s t a b l e f o r a r e a s o n a b l e t i m e . The s t e e l - m a k e r s w e re unhappy t h a t t h e s t a r t i n g p r i c e o f Q u i n t e t t e c o a l was o n l y b e i n g p e g g e d f o r t h e f i r s t 18 months o f t h e p r o p o s e d f i f t e e n y e a r c o n t r a c t and t h a t t h e B.C. i n t e r e s t s w a n t e d 60% o f t h e s h i p m e n t s t o be c o v e r e d by a c o s t e s c a l a t i o n c l a u s e . The J a p a n e s e demanded a t h r e e y e a r h o l d on p r i c e s , a n d a r e d u c t i o n on t h e e s c a l a t i o n p o r t i o n t o b e t w e e n 40 a n d 50 p e r c e n t . T e c k a nd D e n i s o n s u g g e s t e d i n f o r m a l l y t h a t t h e i n i t i a l p r i c e m i g h t be r e d u c e d o r pegged l o n g e r i f t h e J a p a n e s e w e r e w i l l i n g t o t a k e more o f a n e q u i t y 45 s h a r e i n t h e d e v e l o p m e n t . The m i l l s d i d n o t t a k e up t h i s o f f e r d e s p i t e t h e f a c t t h a t t h e J a p a n e s e e q u i t y h o l d e r s , a s w e l l a s t h e t r a d i n g f i r m s i n v o l v e d i n t h e d e a l ( Tokyo B o e k i a n d N i s s h o I w a i ) w e r e a n x i o u s t h a t t h e p r o j e c t s u c c e e d . NKK, i n a n a t t e m p t t o e n d t h e d e a d l o c k , t r i e d t o g e t a n a g r e e m e n t on t h e m i n e h e a d 46 p r i c e a l o n e , l e a v i n g t r a n s p o r t a t i o n c o s t s t o be s e t t l e d l a t e r . As s t a t e d i n C h a p t e r H o f t h i s s t u d y , i s o l a t i n g m i n e h e a d c o s t s was c o n t r a r y t o p r o c u r e m e n t p o l i c y s i n c e t h e e a r l y 1 9 7 0 ' s . The move was u n s u c c e s s f u l . The d e a d l o c k r e m a i n e d , e x a c e r b a t e d by t h e end o f A u s t r a l i a n s t r i k e s a n d s h r i n k i n g f o r e c a s t s f o r J a p a n ' s 47 l o n g - t e r m s t e e l p r o d u c t i o n . The m i l l s r e v e r t e d t o a h a r d l i n e a t t i t u d e on p r i c e . The p e s s i m i s t s among t h e b l a s t - f u r n a c e o p e r a t o r s ( K a w a s a k i S t e e l and Sumitomo M e t a l ) d i s a g r e e d w i t h M I T I ' s o p t i m i s t i c p r o j e c t i o n s o f f u t u r e s t e e l demand. T h e s e c r i t i c s f o r e s a w an a c c e l e r a t e d s c a l i n g down o f t h e i n d u s t r y i n l i n e w i t h i n t e r n a t i o n a l c o m p e t i t i o n f r o m n e w l y i n d u s t r i a l i z i n g c o u n t r i e s ( N I C ' s ) , w h e r e t h e y h a d i n v e s t e d h e a v i l y i n s t e e l p r o d u c t i o n . M o r e o v e r , t h e y d i d n o t h a v e f a i t h i n t h e p o l i c y o f c o n v e r s i o n t o c o k i n g c o a l a s a number o f m i l l s w e r e s u c c e s s - f u l l y e x p e r i m e n t i n g w i t h an e f f i c i e n t o i l - c o a l m i x t u r e . T hey w e r e i n f a v o u r o f d i v e r s i f i c a t i o n o f s o u r c e b u t l o o k e d t o C h i n a , w h i c h a s a s u p p l i e r had t h e a d d e d b e n e f i t o f c o u n t e r a c t i n g J a p a n ' s e m b a r r a s s i n g b i l a t e r a l t r a d e s u r p l u s . A c c o r d i n g t o D i c k Hermann, V i c e - P r e s i d e n t a n d c h i e f n e g o t i a t o r f o r D e n i s o n M i n e s L t d . , t h e d i s s e n t i n g f a c t i o n a s k e d i f i t was p o s s i b l e f o r t h e d e a l t o be p o s t p o n e d f o r two y e a r s . B u t Don P h i l l i p s s a i d he c o u l d n o t g u a r a n t e e t h e same c o n d i t i o n s two y e a r s h e n c e and t h a t s i n c e t h e two l e v e l s o f g o v e r n m e n t had g i v e n t h e i r f i n a l p o s i t i o n (no $ 5 / t o n 48 s u b s i d y ) , t h e J a p a n e s e must a b i d e by a 20 J a n u a r y 1981 d e a d l i n e . E v i d e n t l y t h e m i l l s w e i g h e d t h e p r o s and c o n s and a r r i v e d a t a c o n s e n s u s . T w e l v e s t e e l and g a s c o m p a n i e s a g r e e d , t h e d a y b e f o r e t h e d e a d l i n e , t h a t t h e y w o u l d p u r c h a s e a t l e a s t 49 94 m i l l i o n t o n s o v e r a 15 y e a r p e r i o d s t a r t i n g i n J a n u a r y 198 4. NKK's T s u n e j i Nemoto c o n f i r m e d l a t e r t h a t t h e m i l l s f i n a l f i g u r e was t o be 115 m i l l i o n t o n s , f a r g r e a t e r t h a n t h e v o l u m e o r i g i n a l l y o f f e r e d b y t h e m i n e s . T h i s i n c l u d e d a n a d d i t i o n a l 1.38 m i l l i o n t o n s o f t h e r m a l c o a l p e r • a n n u m t o be p u r c h a s e d f r o m Q u i n t e t t e by M i t s u i a n d T o k y o B o e k i , a move i n t e n d e d t o s w e e t e n t h e d e a l f o r B.C. The a d d e d v o l u m e a n d t h e f i f t e e n y e a r t e r m made i t p o s s i b l e f o r Q u i n t e t t e ' t o a g r e e t o a $ 7 5 / t o n p r i c e ( 7 5 . 5 0 / t o n f o r T e c k ) f 5 3 % o f t h a t b e i n g c o v e r e d b y a n e s c a l a t i o n c l a u s e . I n t o t a l t h e J a p a n e s e had a g r e e d t o p u r c h a s e 7.7 m i l l i o n t o n s o f c o a l e a c h y e a r f o r f i f t e e n y e a r s w i t h t h e p o s s i b i l i t y o f e x t e n d i n g t h e t e r m t o t w e n t y y e a r s . C i t i n g t h i s i n c r e a s e d v o l u m e a s t h e r e a s o n , B . C . R a i l and t h e CNR a n n o u n c e d t h a t t h e y w o u l d d r o p t h e f r e i g h t r a t e f r o m $15.86 t o $13.86 p e r t o n . 5 0 3 e c a u s e o f t h e s e e m i n g a b o u t - f a c e and t h e q u i c k d e c i s i o n by- t h e s t e e l m i l l s t o s i g n a d e a l f o r n o r t h e a s t c o a l , t h e b e l i e f a r o s e , p e r h a p s f u e l l e d b y s e l f - s e r v i n g p o l i t i c i a n s , t h a t t h e f e d e r a l and p r o v i n c i a l government's " u l t i m a t u m o n p u b l i c f i n a n c i n g j e l l e d ( t h e ) c o a l d e a l . . . B o t h O t t a w a and B.C. d u g i n t h e i r h e e l s and made i t c l e a r t h e r e was no more p u b l i c money a v a i l a b e . . . Once t h e y ( t h e m i l l s ) g o t t h a t c l e a r , t h e d e a l was m a d e " ? 1 T h i s was a m i s - c o n c e p t i o n . The m a j o r i t y o f J a p a n e s e m i l l s w e r e e a g e r t o p u r c h a s e N o r t h e a s t c o a l a t t h e c u r r e n t m a r k e t p r i c e , b u t w o u l d pay more f o r d i v e r s i f i c a t i o n o f s u p p l y . A l l e g a t i o n s t h a t t h e y w e r e a l l t h e w h i l e i n t e n t on s t r i k i n g a d e a l , b u t m e r e l y p l a y i n g a s t a l l i n g game s o a s t o f o r c e C a n a d i a n s t o i n c r e a s e s u b s i d i e s , i g n o r e s many o f t h e s t e e l - m a k e r s c o n c e r n s . T h e i r d i s t r e s s o v e r t h e p o l i c i t - i c i z a t i o n o f t h e p r o j e c t a n d t h e i r f e a r t h a t i t m i g h t n o t be e c o n o m i c a l l y v i a b l e w e r e r e a l c o n c e r n s . They w e r e r e a l e n o u g h t o p e r s u a d e t h e J a p a n e s e t o add a n e x t r a m i l l i o n t o n s p e r annum t o t h e p r o j e c t . M o r e l i k e l y t h e J a p a n e s e g o v e r n m e n t and f a c t i o n s w i t h i n t h e S t e e l F e d e r a t i o n f i n a l l y r e a c h e d a n a t i o n a l c o n s e n s u s (a p r o l o n g e d p r o c e s s d e s c r i b e d i n C h a p t e r If,) . T h i s was i n l i n e w i t h t h e i r own d e a d l i n e f o r r e c e i v i n g c o a l s h i p m e n t s b y J a n u a r y 1984, f o r t h e e x p e c t e d u p t u r n i n s t e e l p r o d u c t i o n . T h e i r f i n a l c o n c e r n , c o s t o v e r r u n s i n t h e b u i l d i n g of. t h e n e c e s s a r y i n f r a s t r u c t u r e ( e s p e c i a l l y t h e 17 kms. o f t u n n e l - l i n g n e e d e d f o r t h e BCR s p u r - l i n e ) was a l l a y e d i n t h e a c t u a l c o n - t r a c t f i n a l i z e d i n A u g u s t 1 9 8 1 . A t J a p a n e s e i n s i s t e n c e t h e e s c a - l a t e d ; p o r t i o n o f t h e p r i c e o f t h e c o a l was t o be t i e d s o l e l y t o a c o m p l e x i n f l a t i o n - a d j u s t e d f o r m u l a o f l a b o u r , f u e l a n d m a t e r i a l 52 c o s t s a n d r e v i e w e d e v e r y f o u r y e a r s . T h i s was a p r o v i s i o n t h a t w o u l d h a v e s t a g g e r i n g i m p l i c a t i o n s l a t e r when t h e e s c a l a t e d p r i c e f a r o u t p a c e d t h e m a r k e t p r i c e . - 55 ~ C h a p t e r IV J a p a n e s e A c t i o n s S i n c e S i g n i n g t h e C o n t r a c t s I n c r e a s e d J a p a n e s e I n v o l v e m e n t F o r t h e s e c o n d h a l f o f 1981 and t h e f i r s t h a l f o f 1982, t h e J a p a n e s e s t e e l c o n s o r t i u m w e r e e n t h u s i a s t i c a b o u t t h e N o r t h e a s t C o a l P r o j e c t . T h e y r e m a i n e d b u l l i s h o v e r f u t u r e t h e r m a l c o a l r e q u i r e m e n t s a n d a n t i c i p a t e d a h e f t y s t e e l r e v i v a l by 1 985. The s t e e l - m a k e r s w e r e c o n c e r n e d t h a t w o r l d w i d e i n f r a - s t r u c t u r e b o t t l e n e c k s w e r e " m u f f l i n g t h e c o a l boom". 1 Many c o a l p o r t s w e r e s t i l l o p e r a t i n g i n t h e pre-OPEC e r a , when t h e demand f o r c o a l was d e c l i n i n g . Now, c o n g e s t i o n i n most l e a d i n g c o a l p o r t s had f o r c e d e x p o r t e r s t o t u r n down p o t e n t i a l c u s t o m e r s . T h o s e p o r t s i n A u s t r a l i a a n d S o u t h A f r i c a t h a t had e x p a n d e d a t c o n s i d e r a b l e c o s t i n t h e l a t e 197O's w e r e a g a i n o p e r a t i n g a t f u l l c a p a c i t y . C o m p o u n d i n g t h i s d i l e m m a was t h e f a c t t h a t many c o a l p o r t s a n d t h e r a i l w a y s s e r v i c i n g them had l i t t l e money t o e x p a n d t h e i r f a c i l i t i e s . S u c h was t h e c a s e i n B r i t i s h C o l u m b i a . The J a p a n e s e s t e e l m i l l s w e r e c o n c e r n e d a b o u t t h e p r o j e c t ' s f u t u r e i n v i e w o f f e d e r a l - p r o v i n c i a l d i s p u t e s o v e r f i n a n c i n g , t h e s i t i n g o f 2 t h e c o a l l o a d i n g p o r t and m i n i n g m e t h o d s t o t h e a d o p t e d . M o r e - o v e r E s s o R e s o u r c e s C a n a d a L t d . , c i t i n g c a s h f l o w p r o b l e m s d r o p p e d o u t o f Q u i n t e t t e C o a l , o f f e r i n g i t s s i x p e r c e n t e q u i t y t o t h e r e m a i n i n g s h a r e h o l d e r s ( D e n i s o n , T o k y o B o e k i , M i t s u i 3 a n d C h a r b o n n a g e s d e F r a n c e ) . - 56 ~ S t e e l o f f i c i a l s i n M I T I w e r e q u o t e d a s s a y i n g t h e g o v e r n m e n t w o u l d p r o m o t e "more a c t i v e p a r t i c i p a t i o n i n t h e 4 p r o j e c t t h a n m e r e l y b e i n g b u y e r s o f t h e c o a l p r o d u c e d " . A c c o r d i n g l y , N i s s h o I w a i , t h e t r a d i n g h o u s e r e s p o n s i b l e f o r T e c k ' s B u l l m o o s e m i n e and a c t i n g a s t h e a g e n t f o r t h e s i x l a r g e s t s t e e l m i l l s , p u r c h a s e d a t e n p e r c e n t s t a k e i n t h e m i n e f o r a p p r o x i m a t e l y $10 m i l l i o n . The s o g o s h o s h a a n n o u n c e d t h a t i t p l a n n e d s h o r t l y t o i n c r e a s e i t s e q u i t y t o 3 0%. I n r e t u r n f o r i t s i n v e s t m e n t t h e t r a d i n g f i r m w o u l d g a i n a g u a r a n t e e d r i g h t t o c o a l i n p r o p o r t i o n t o i t s e q u i t y i n t e r e s t S i n c e N i s s h o I w a i w o u l d h a n d l e t h e r e m a i n d e r o f t h e c o a l i n a n y e v e n t , i t s c a s h i n f u s i o n m e r e l y s e c u r e d i t s c u r r e n t p o s i t i o n and g a v e i t a d d i t i o n a l a c c e s s t o a number o f o t h e r y e t - t o - b e d e v e l o p e d c o a l f i e l d s i n t h e n o r t h e a s t . R e s p o n d i n g t o q u e s t i o n s a b o u t M I T I ' s d i v e r s i f i c a t i o n p o l i c y c o n c e r n i n g o i l , c o a l a nd l i q u e f i e d n a t u r a l g a s , a n e x e c u t i v e f r o m N i s s h b - I w a i s t a t e d , ''Western C a n a d a i s t h e p l a c e t o b e . B.C. and A l b e r t a o f f i c i a l s a r e more r e s p o n s i v e t o o u r r e q u e s t s f o r s p e e d y r e s o u r c e d e v e l - opment and i n f r a s t r u c t u r e r e q u i r e m e n t s t h a n a r e m o s t governments'.' I n C h a p t e r TL,xt was n o t e d t h a t t h e J a p a n e s e s o g o s h o s h a e n c o u r a g e m i n i n g e q u i p m e n t f i r m s t o b i d a g g r e s s i v e l y f o r i n f r a s t r u c t u r e c o n s t r u c t i o n c o n t r a c t s . T h i s was t h e c a s e w i t h t h e N o r t h e a s t C o a l P r o j e c t . M i t s u b i s h i Heavy I n d u s t r i e s (Canada) L t d . was a w a r d e d a $19 m i l l i o n c o n t r a c t t o b u i l d t h e s t a c k e r - r e c l a i m e r s a t t h e new R i d l e y I s l a n d s u p e r p o r t d e s p i t e a b i d f r o m a C a n a d i a n cortpany and much c r i t i c i s m o f t h e l a c k o f C a n a d i a n c o n t e n t . B u t t h e c r i t i c s ' w i s h f o r more C a n a d i a n C o n t e n t d i d n o t a p p l y t o - 57 - f i n a n c i n g . By J u n e 1 9 8 2 , t h e r a p i d e s c a l a t i o n i n i n t e r e s t r a t e s t h a t o c c u r r e d i n C a n a d a t h r e a t e n e d t o j e o p a r d i s e t h e p r o j e c t . C a p i t a l c o s t s i n s p e n t d o l l a r s f o r t h e f i r s t p h a s e 7 o f t h e p r o j e c t w e r e $2.9 b i l l i o n . The J a p a n e s e r e s p o n d e d t o t h e need f o r a d d i t i o n a l f i n a n c i n g i n two ways. T w e l v e J a p a n e s e c o m p a n i e s t o o k a n a d d i t i o n a l 1 0 % s h a r e i n Q u i n t e t t e C o a l r a i s i n g J a p a n e s e e q u i t y h o l d i n g s t o 38%. D e s p i t e c o n c e r n s o v e r t h e e c o n o m i c s o f t h e p r o j e c t f r o m t h e s m a l l d i s s e n t i n g f a c t i o n ( a g a i n K a w a s a k i S t e e l and Sumitomo M e t a l ) , N K K 1 s Nemoto c o n v i n c e d e v e r y o n e t h a t B.C. had b e e n g e n e r o u s i n i t s d e a l i n g w i t h J a p a n . C i t i n g t h e C a n a d i a n and p r o v i n c i a l g o v e r n m e n t s ' i n v e s t m e n t i n i n f r a s t r u c t u r e , t h e p r o v i n c i a l a p p o i n t m e n t o f a c o a l c o o r d i n a t o r t o f a c i l i t a t e t h e p r o j e c t , a nd t h e J a p a n e s e c o n c e p t o f g i r i ( r e t u r n i n g f a v o u r s t h a t h a v e b e e n r e c e i v e d ) Nemoto u r g e d t h e i n v e s t m e n t i n a d d - i t i o n a l e q u i t y t o h e l p t h e f i n a n c i n g o f t h e p r o j e c t . NKK a t t a c h e d a c o n t r o v e r s i a l demand. W h i l e D e n i s o n s t i l l h e l d h a l f t h e s h a r e s , i t w o u l d a c t u a l l y h a v e o n l y a management r o l e t h e e q u i v a l e n t o f 30% e q u i t y . The J a p a n e s e w o u l d e f f e c t i v e l y c o n t r o l t h e p r o j e c t t h r o u g h t h e i r 38% h o l d i n g . The m i l l s i n s i s t e d o n t h i s c o n d i t i o n n o t o n l y b e c a u s e t h e y w a n t e d a v o i c e i n f u t u r e e x p a n s i o n , b u t more i m p o r t a n t l y t o b l o c k D e n i s o n f r o m r a i s i n g t h e b a s i c c o n t r a c t p r i c e o f t h e c o a l t o meet d e v e l o p m e n t c o s t o v e r r u n s . D e n i s o n M i n e s a g r e e d t o t h i s c o n d i t i o n a f t e r J a p a n e s e a s s u r a n c e s t h a t i t w o u l d r e m a i n t h e o n - s i t e manager d u r i n g b o t h c o n s t r u c t i o n a n d o p e r a t i o n o f t h e m i n e . - 58 - A f u r t h e r a d j u s t m e n t w i t h i n t h e J a p a n e s e e q u i t y s h a r e o c c u r r e d when a t r a d i n g company , Sumitomo C o r p . , v o l u n t e e r e d t o p u r c h a s e f r o m M i t s u i M i n i n g and T o k y o B o e k i a 5% i n v e s t m e n t i n an e f f o r t t o o v e r c o m e t h e r e s i s t a n c e o f one o f i t s a f f i l i a t e d c o m p a n i e s , Sumitomo M e t a l , w h i c h was among t h e m o s t g v o c a l i n o p p o s i n g t h e e q u i t y p a r t i c i p a t i o n . I n e f f e c t t h e J a p a n e s e S t e e l F e d e r a t i o n n o t j u s t N i p p o n K o k a n , was now b a c k i n g t h e p r o j e c t . T h i s e n a b l e d Q u i n t e t t e C o a l L t d . t o b o r r o w an a d d i t i o n a l $950 m i l l i o n a t a f a v o u r a b l e r a t e f r o m a c o n s o r t i u m o f s e v e n b a n k s ( m o s t l y J a p a n e s e ) . The l o n g - t e r m p r i m e i n t e r e s t r a t e i n J a p a n a t t h a t t i m e was 8.5% a b o u t 9 h a l f t h e C a n a d i a n p r i m e r a t e . I n t e r e s t p a y m e n t s w e r e s e t l o w e n o u g h t o make t h e Q u i n t e t t e p r o j e c t p r o f i t a b l e . Or s o i t was t h o u g h t . I n t h e F a l l o f 1 9 8 2 , f i f t y - f i v e i n t e r n a t i o n a l b a n k s p u t i n p l a c e a n a d d i t i o n a l $1.7 b i l l i o n o f p r i v a t e p e r m a n e n t f i n a n c i n g a c o n s i d e r a b l e v o t e o f c o n f i d e n c e . - 59 - The C o n t r a c t s F r om 1983 t o 1985 t h e N o r t h e a s t C o a l P r o j e c t became t h e c e n t r e o f c o n t r o v e r s y b e t w e e n t h e J a p a n e s e s t e e l i n d u s t r y a n d t h e c o a l c o m p a n i e s , B u l l m o o s e and Q u i n t e t t e . The f o c u s o f t h e d i s p u t e was t h e i n t e r p r e t a t i o n o f t h e t e r m s o f t h e c o n t r a c t s s i g n e d b y t h e s e p a r t i c i p a n t s i n 1 9 8 1 . B e c a u s e t h e C o a l c o m p a n i e s and t h e B.C. g o v e r n m e n t h a v e e n d e a v o r e d t o k e e p t h e t e r m s o f t h e c o n t r a c t s s e c r e t t h e y h a v e n o t b e e n e a s y t o d i s c o v e r a n d much c o n f u s i o n h a s r e s u l t e d . The m a i n s u b j e c t h e a d i n g s i n c o a l c o n t r a c t s c o n c e r n t h e t i m e p e r i o d , a n n u a l q u a n t i t i e s , b a s e p r i c e , p r i c e e s c a l a t i o n f o r m u l a , s p e c i f i c a t i o n s f o r t h e a c t u a l c o a l a n d p e n a l t y s c h e d u l e s . G e n e r a l l y , t h e r e i s l i t t l e d i f f e r e n c e b e t w e e n t h e " o l d " c o n t r a c t s s i g n e d f r o m t h e m i d 197 0 ' s t o t h e e a r l y 1980's w i t h S o u t h e a s t e r n B.C. and A l b e r t a c o a l m i n e s and t h e "new" c o n t r a c t s s i g n e d w i t h t h e m i n e s i n t h e n o r t h e a s t o f B r i t i s h C o l u m b i a . The c o n t r a c t p e r i o d h a s u s u a l l y b e e n 15 y e a r s . I n t h e e a r l y 1 9 7 0 ' s t h e J a p a n e s e p a i d a m i n e h e a d p r i c e a n d n e g o t i a t e d f r e i g h t r a t e s s e p a r a t e l y w i t h t h e CPR. The m i n e h e a d p r i c e was n e g o t i a t e d i n U.S. d o l l a r s w i t h a s e t e s c a - l a t i o n f o r m u l a . I n t h e m i d 1 9 7 0 ' s , t h e J a p a n e s e c h a n g e d t h e f o r m o f t h e c o n t r a c t s b y p u t t i n g t h e o n u s o f n e g o t i a t i o n a c c e p t a b l e r a i l r a t e s o n t h e m i n e s . A l l new c o n t r a c t s c o n t a i n e d an FOB p o r t p r i c e i n C a n a d i a n d o l l a r s . I n 1 9 7 7 , t h e e s c a l a t i o n f o r m u l a was a b a n - d o n e d i n f a v o u r o f a n n u a l n e g o t i a t i o n on p r i c e s and v o l u m e s . - 6 0 - * But because o f t h e i r " s p e c i a l nature", the Northeast B.C. mines r e v e r t e d to the o r i g i n a l p r a c t i c e of n e g o t i a t i n g a base p r i c e and e s c a l a t i o n formula b e f o r e c o n s t r u c t i o n on i n f r a s t r u c t u r e commenced. Q u i n t e t t e n e g o t i a t e d a base p r i c e of $7 5.00 per ton FOB R i d l e y I s l a n d as of 1 A p r i l 198 0. Teck r e c e i v e d a base p r i c e of $75.50/ton. Of t h i s o r i g i n a l p r i c e 53% or $40/ton was allowed to e,scalate i n accordance w i t h an abstruse c a l c u l a t i o n based on government i n f l a t i o n i n d i c e s f o r wages, m a t e r i a l s and equipment. By A p r i l 1, 1982, the p r i c e had e s c a l a t e d to $89.98/ ton and by January 1984, when the f i r s t shipments were l e a v i n g R i d l e y I s l a n d i t was almost $100/ton. (For a break-down of Q u i n t e t t e ' s c o n t r a c t see Appendix 2). C o n t r a r y to popular b e l i e f there are no "take-or-pay" c l a u s e s i n any Japanese c o a l c o n t r a c t s . For the Northeast B.C. mines p r i c e reviews occur a t s p e c i f i c i n t e r v a l s . For example, Q u i n t e t t e w i l l have reviews on 1 s t A p r i l 1987, 1991 and 1995. Industry sources s t i p u l a t e t h a t w h i l e the agreements s p e c i f y both p r i c e and volume, they are not f i r m , i r o n - c l a d c o n t r a c t s . The Japanese cannot be f o r c e d to accept q u a n t i t i e s p r o v i d e d f o r i n the c o n t r a c t . and the mines cannot be f o r c e d to s h i p those q u a n t i t i e s . While the p r i c e f o r n o r t h e a s t c o a l e s c a l a t e s a t s e t r a t e s and i s "guaranteed" u n t i l at l e a s t 1987, t h e r e are c l a u s e s , !that e x i s t t h a t allow e i t h e r s i d e to open up the p r i c e f o r n e g o t i a t i o n i f the e s c a l a t e d p r i c e i s o u t - o f - l i n e w i t h t h a t of other Western Canadian c o a l s " . 1 0 Herein l i e s the ambiguity - 61 ~ t h a t c a u s e d t h e r e c e n t s t r a i n i n g o f r e l a t i o n s b e t w e e n t h e c o a l m i n i n g c o m p a n i e s and t h e p r o v i n c i a l and f e d e r a l g o v e r n - ment on t h e one hand and t h e J a p a n e s e s t e e l c o n s o r t i u m and M I T I o n t h e o t h e r . R e c e s s i o n a n d R e n e g o t i a t i o n The c o n t r a c t t e r m s w o u l d h a v e c o n t i n u e d t o s a t i s f y b o t h s i d e s i f t h e u n d e r l y i n g a s s u m p t i o n s had h e l d t r u e . However, t h e a s s u m p t i o n t h a t e n e r g y p r i c e s w o u l d c o n t i n u e t o r i s e i n - d e f i n i t e l y d i d n o t h o l d t r u e . The s o f t n e s s i n w o r l d o i l m a r k e t s s l o w e d down t h e r a t e o f c o n v e r s i o n s f r o m o i l - f i r e d t o c o a l - f i r e d f u r n a c e s f o r s t e e l - m a k i n g a n d power g e n e r a t i o n . S e c o n d l y , t h e a s s u m p t i o n t h a t i n t e r n a t i o n a l e c o n o m i e s w o u l d c o n t i n u e t o g row, o r a t l e a s t m a i n t a i n e x i s t i n g l e v e l s o f d e m a n d , . p r o v e d t o be w i s h f u l t h i n k i n g . I n s t e a d , a w o r l d - w i d e r e c e s s i o n s e t i n , t h e d e p t h o f w h i c h w o u l d h a v e b e e n c o n s i d e r e d u n i m a g i n a b l e i n 1980. B e c a u s e o f t h i s r e c e s s i o n , w o r l d - w i d e s t e e l p r o d u c t i o n p l u m m e t t e d J a p a n ' s s t e e l o u t p u t f e l l f r o m 107 m i l l i o n t o n s i n 198 0 t o 93 m i l l i o n t o n s i n 19827/''" I n l a t e 1 9 8 2 , t h e J a p a n S t e e l F e d e r a t i o n c u t i t s m e t a l l u r g i c a l c o a l demand b y 3 5 % , c r e a t i n g a l m o s t o v e r - 12 n i g h t a s e v e r e s i t u a t i o n o f o v e r s u p p l y . F rom A p r i l t o S eptem- b e r 1 9 8 3 , t h e " b i g - f i v e " s t e e l - m a k e r s i n J a p a n r e c o r d e d a l o s s o f $U.S.43 m i l l i o n d e s p i t e m a s s i v e s a l e s o f t h e i r s e c u r i t i e s p o r t f o l i o s . I r o n i c a l l y , a t t h e p r e c i s e t i m e when t h e J a p a n e s e s t e e l i n d u s t r y was i n an u n p r e c e d e n t e d s l u m p and a g l u t o f c o a l e x i s t e d , t h e U n i t e d S t a t e s p u t h e a v y p r e s s u r e o n t h e J a p a n e s e t o buy A m e r i c a n c o a l . The U.S. was i r r i t a t e d by t h e p e r c e i v e d "dumping" o f s t e e l p r o d u c t s and a g l a r i n g b i l a t e r a l t r a d e i m - b a l a n c e . U.S. S p e c i a l T r a d e R e p r e s e n t a t i v e W i l l i a m B r o c k won a s u p e r f i c i a l c o m m i t m e n t f r o m t h e M i n i s t e r o f I n t e r n a t i o n a l T r a d e - 63 _ and I n d u s t r y ( MITI) S o s u k e Uno " t o i n c r e a s e p u r c h a s e s o f U.S. 14 c o a l i n t h e f u t u r e " . P r e s i d e n t Reagan i n a m e e t i n g w i t h P r i m e M i n i s t e r N a k a s o n e t i e d e n e r g y e x p o r t s t o J a p a n t o i n c - r e a s e d U.S. i m p o r t s o f J a p a n e s e a u t o m o b i l e s . D e s p i t e MITl's< s t a t e m e n t , t h e s t e e l i n d u s t r y was i n no p o s i t i o n t o p u r c h a s e U.S. c o a l o v e r and a b o v e c u r r e n t c o n - t r a c t s . To c ombat i t s c o n d i t i o n o f o v e r c o m m i t m e n t t h e S t e e l F e d e r a t i o n t o o k i m m e d i a t e a c t i o n . I t s t o p p e d p u r c h a s e s o f c o a l f r o m s u p p l i e r s w i t h whom i t had no c o n t r a c t u a l o b l i g a t i o n a n d e q u i t y p a r t i c i p a t i o n ( l a r g e l y A m e r i c a n a n d A l b e r t a n p r o d u c e r s ) . W i t h t h o s e m a t u r e m i n e s w i t h w h i c h t h e y had l o n g - t e r m c o n t r a c t s w i t h a n n u a l n e g o t i a t i o n s , t h e s t e e l - m a k e r s b a r g a i n e d l a r g e r e d u c t i o n s i n t o n n a g e s (20 - 30%) and p r i c e (10 - 2 0 % ) . T h i r d l y , t h e s o g o s h o s h a b e g a n t o s e l l t h e i r e x c e s s c o a l o n t h e i n t e r - n a t i o n a l s p o t m a r k e t , i n some c a s e s a t a l o s s . I n b i t t e r n e g o t i a t i o n s w i t h A u s t r a l i a ' s two "new m i n e s " , Qaky G r e e k a n d German C r e e k , N i p p o n S t e e l , a s d e s i g n a t e d n e g - o t i a t o r , was a b l e t o r o l l b a c k p r i c e s s u b s t a n t i a l l y . B e c a u s e new m i n e s h a v e l a r g e s t a r t - u p c o s t s t h e i r c o a l i s more e x p e n s i v e . Y e t t h e J a p a n e s e w e r e s u c c e s s f u l i n r e d u c i n g Oaky C r e e k ' s p r i c e 15 f r o m $US60.32 t o $US56.50. (The e s c a l a t e d p r i c e o f t h e n o r t h e a s t B.C. m i n e s was a b o u t $US 75.00 a t t h i s t i m e ) . Added p r e s s u r e was now p u t on t h e f i v e new W e s t e r n C a n a d i a n m i n e s Q u i n t e t t e , B u l l m o o s e , G r e e n h i l l s , L i n e C r e e k and G r e g g R i v e r . - 64 - I n t h e s o u t h e a s t , d e s p i t e a t o u g h s t a n c e and p r o - l o n g e d b a r g a i n i n g , t h e m i n e s w e r e f o r c e d t o a c c e p t p r i c e r o l l - b a c k s . From a 1982 p r i c e o f $ 8 2 / t o n , t h e J a p a n e s e won a s e r i e s o f a n n u a l p r i c e c u t s s o t h a t by 1985 a l l s o u t h - e a s t e r n m i n e s w e r e s e l l i n g t h e i r c o a l a t $ 6 9 / t o n . E a c h y e a r t h e C a n a d i a n s a n d A u s t r a l i a n s had i n f o r m a l l y b a n d e d t o g e t h e r a t t e m p t i n g t o p r e s e n t a u n i t e d b a r g a i n i n g p o s i t i o n . However, t h e J a p a n e s e a l w a y s n e g o t i a t e d f i r s t w i t h t h e U n i t e d S t a t e s , who j e a g e r t o i n c r e a s e t h e i r v o l u m e o f s a l e s , w o u l d s e t t l e f o r an i n e x p e n s i v e p r i c e , t h e r e b y u n d e r m i n i n g t h i s m a k e s h i f t c a r t e l . I n 1984 a n d 1985, m o s t s o u t h e a s t e r n m i n e s had d e - manded p r i c e i n c r e a s e s t o o f f - s e t t h e i r i n c r e a s e d p r o d u c t i o n c o s t s , b u t t o no a v a i l . L a y - o f f s r e s u l t e d a s t o n n a g e s w e r e c u t ( i n some i n s t a n c e s up t o 50% o f 1982 s h i p m e n t s ) 1 6 J o s e p h D'Cruz i n h i s s t u d y o f J a p a n e s e c o a l p r o - c u r e m e n t c o n c l u d e d t h a t " s u p p l i e r s w i t h i n a p a r t i c u l a r c o u n t r y w e r e t r e a t e d a s a homogenous g r o u p . . . The p r i c e p a i d t o a s u p p l i e r d e p e n d e d on t h e c o u n t r y i n w h i c h t h e s u p p l i e r was l o c a t e d " . W r i t i n g i n 1 9 7 9 , D ' C r u z ' s t h e s i s was c o r r e c t . H owever, t h e c a s e s t u d y o f n o r t h e a s t c o a l shows c l e a r l y t h a t t h e J a p a n e s e h a v e t r e a t e d t h i s p r o j e c t d i f f e r e n t l y , n o t o n l y i n o r d e r t o g u a r a n t e e t h e m s e l v e s a d i v e r s i f i e d s o u r c e , b u t a l s o b e c a u s e o f t h e p o l i t i c i z a t i o n o f t h e p r o j e c t . W r i t i n g i n 1 9 8 3 , e v e n t h e a u t h o r i t a t i v e H.N. H a l v o r - s o n a g r e e d w i t h t h e D'Cruz t h e s i s : - 6 5 " T h i s s t u d y f o r e c a s t s e x i s t i n g N o r t h - e a s t B.C. s h i p p e r s w i l l o b t a i n t h e c o n t r a c t e d p r i c e o f a b o u t $ 9 5 / t o n FOB f o r 1983 o n l y f o r p o l i t i c a l r e a - s o n s a n d b e c a u s e s h i p m e n t s w i l l be s m a l l . The p r i c e s i n s u b s e q u e n t y e a r s w i l l be t h e same a s ^ h o s e p r e - v a i l i n g i n t h e s o u t h e a s t . A s t h e n o r t h e a s t c o a l s h i p m e n t s commenced o n s c h e d u l e 7 t h J a n u a r y 1984, t h e J a p a n e s e made no s e c r e t o f t h e f a c t t h a t t h e y r e g a r d e d t h e $ 1 0 0 / t o n p r i c e a s e x h o r b i t a n t . However, t h e y , made no f o r m a l r e q u e s t f o r a p r i c e r e d u c t i o n f o r f e a r o f t h e s t o r m i t w o u l d c r e a t e . C o a l company e x e c u t - i v e s and E c o n o m i c D e v e l o p m e n t M i n i s t e r Don P h i l l i p s r e p e a t - e d l y d e c l a r e d t o an a t t e n t i v e p u b l i c t h a t " c o a l p r i c e s w i l l n e v e r be r e d u c e d " . One J a p a n e s e s t e e l e x e c u t i v e was q u o t e d a s s a y i n g , We w i l l h a v e t o p r o c e e d c a u t - i o u s l y b e c a u s e t h i s c a n n o t be a l l o w e d t o d e v e l o p i n t o a m a j o r p o l i t i c a l i s s u e . A l l we c a n do i s c o n v i n c e t h e C a n a d i a n s o f t h e v e r y good r e a s o n s b e h i n d o u r d e - s i r e t o r e n e g o t i a t e t h e p r i c e f o r - m u l a t o c o n f o r m w i t h p r e v a i l i n g b u s i n e s s c o n d i t i o n s . I t was t h e J a p a n e s e c o n s o r t i u m t h a t h a d i n s i s t e d o n t h e a c t u a l p r i c e f o r m u l a , a p o i n t n o t l o s t o n N i p p o n S t e e l . A f t e r much i n f i g h t i n g w i t h i n t h e J a p a n S t e e l F e d e r a t i o n , N i p p o n S t e e l s u c c e e d e d i n s h u f f l i n g o f f t h e c h i e f s u p p o r t e r o f n o r t h - e a s t c o a l , T s u n e j i Nemoto o f NKK, t o a l o w l y s u b s i d i a r y . I n a p a r a l l e l move N i p p o n S t e e l a p p o i n t e d i n h i s p l a c e i t s t o u g h c o a l p r i c e n e g o t i a t o r , Mr. T e r a n i s h i , who h a d j u s t r e t u r n e d - 66 f r o m A u s t r a l i a . T e r a n i s h i was a p p o i n t e d p r e s i d e n t o f N i t t - e t s u S h o j i , a N i p p o n S t e e l t r a d i n g company s u b s i d i a r y t h a t was t o become t h e i m p o r t a g e n t f o r 10% o f t h e o u t p u t o f t h e 20 f i v e new W e s t e r n C a n a d i a n m i n e s . D e s p i t e h a v i n g o n l y a 10% s t a k e , N i p p o n S t e e l , w o u l d now have added l e v e r a g e i n c o a l p r i c e n e g o t i a t i o n s w i t h t h e n o r t h e a s t m i n e s . The f i r s t t a c t i c o f t h e J a p a n e s e was t o make t h e i r p o s i t i o n w i d e l y known t o t h e w e s t e r n C a n a d i a n p u b l i c . Ken B e l l , b u s i n e s s w r i t e r o f t h e P r o v i n c e newspaper o b s e r v e d l a t e r , Funny i s n ' t i t , t h a t most o f t h e doom and gloom s t o r i e s a b o u t n o r t h - e a s t c o a l seem t o o r i g i n a t e i n T o k y o . . . B u t t h a t 1 s t h e way o f c o a l n e g o t i a t i o n s w i t h t h e J a p a n e s e . The s t a g e i s s e t i n t h e p r e s s b e f o r e n e g o t i a t i o n s e v e n b e g i n . It's no wonder t h a t a c o u n t r y w i t h no r e s o u r c e s o f i t s own c a n be so success- f u l w i t h t h o s e o f o t h e r c o u n t r i e s . The p u b l i c p o s i t i o n t a k e n by t h e m i l l s was t h a t t h e r e was an u n d e r s t a n d i n g between t h e p r o v i n c i a l government, c o a l comp- a n i e s and t h e s t e e l - m a k e r s t h a t t h e e s c a l a t e d p r i c e was t e n t - a t i v e , p e n d i n g f i n a l s e t t l e m e n t o f a $ 1 4 / t o n r o l l b a c k ( h a l f t h e d i f f e r e n c e b etween t h e e s c a l a t e d p r i c e and t h e m a r k e t p r i c e ) . B u t t h e r e d u c t i o n t o $ 8 4 / t o n w o u l d be r e t r o a c t i v e t o t h e d a t e o f t h e f i r s t s h i p m e n t s and be s e t t l e d as s o o n as p o l i t i c a l l y f e a s i b l e . As f o r volume, NKK i n d i c a t e d t o Q u i n - t e t t e t h a t b e c a u s e o f t h e i r overcommitment t h e m i l l s c o u l d o n l y a c c e p t 170,000 t o n s / m o n t h f o r M a r c h and A p r i l 1984, d e s p i t e t h e f a c t t h a t t h e c o n t r a c t c a l l e d f o r 200,000 t o n s / m o n t h . - 67 - T h i s c a u s e d a p u b l i c f u r o r e i n B r i t i s h C o l u m b i a and t h e p r o v i n c i a l g o v e r n m e n t was p u t on t h e d e f e n s i v e . U n d e r q u e s t i o n i n g f r o m t h e New D e m o c r a t i c P a r t y i n t h e l e g i s - l a t u r e , Don P h i l l i p s r e s p o n d e d , " I c a n t e l l y o u t h a t we w i l l be g e t t i n g o u r r o y a l t i e s a n d t h a t I h a v e b e e n a s s - u r e d b y t h e J a p a n e s e s t e e l i n d u s t r y t h a t t h e r e w i l l be no 22 c u t b a c k s i n tonnages','. The i s s u e became moot when i t was f o u n d t h a t b e c a u s e o f p r o d u c t i o n p r o b l e m s Q u i n t e t t e c o u l d o n l y s h i p 60% o f t h e 170,000 t o n s r e q u e s t e d . The p r o d u c t i o n p r o b l e m s a t Q u i n t e t t e r e l a t e d t o t h e u n a n t i c i p a t e d l e v e l s o f r o c k f o u n d w i t h t h e c o a l , h i g h l e v e l s o f a s h w i t h i n t h e c o a l and t h e ne e d t o p u r c h a s e a d d i t i o n a l m a c h i n e r y t o s o l v e t h e s e p r o b l e m s . W h i l e t h e s e d i f f i c u l t i e s w o u l d e v e n t u a l l y be s o r t e d o u t by l a t e 1985, t h e m e d i a , a n d b y e x t e n s i o n t h e p u b l i c , w e r e n o t a s s u a g e d b y Q u i n t e t t e C o a l L t d . ' s a s s u r - a n c e s i n 1984. i n F e b r u a r y 1984, s e c u r i t i e s f i r m M i d l a n d - D o h e r t y L t d . r e l e a s e d an o v e r l y ^ p e s s i m i s t i c r e p o r t t h a t p r o j e c t e d t h a t N o r t h e a s t C o a l w o u l d l o s e o v e r a b i l l i o n d o l l a r s by t h e t i m e t h e c o n t r a c t p e r i o d was h a l f o v e r . The p r o j e c t i o n was b a s e d on v o l u m e s t h a t w e r e 70% o f t h e c o n t r a c t a n d a t a p r i c e o f $ 8 4 / t o n . By 1990, Q u i n t e t t e w o u l d l o s e $717.31 m i l l i o n a n d B u l l m o o s e $223.46 m i l l i o n . E v e n i f t h e m i n e s w e r e t o r u n a t c a p a c i t y a n d s e l l t h e i r c o a l a t t h e f u l l e s c a l a t e d p r i c e , t h e r e p o r t s t a t e d , D e n i s o n w o u l d l o s e a b o u t h a l f a s much - 68 - money and T e c k a t h i r d a s much — b u t t h e y w o u l d s t i l l l o s e . Any c u t s i n p r i c e a n d t o n n a g e s w o u l d h a v e a d e v a s t a t i n g e f ~ f e e t on r o y a l t i e s and r a i l r e v e n u e s f o r t h e g o v e r n m e n t s and t h e i r c r o w n c o r p o r a t i o n s , t h e C a n a d i a n N a t i o n a l R a i l w a y a n d t h e B r i t i s h C o l u m b i a R a i l w a y . The r e p o r t c o n c l u d e d t h a t t h e 24 B.C. g o v e r n m e n t m u s t " i n v o k e i t s t a k e - o r - p a y c l a u s e " . I t i s h e r e t h a t much o f t h e c o n f u s i o n o v e r t h e c o a l c o n t r a c t s a r o s e . W h i l e t h e r e e x i s t e d no t a k e - o r - p a y c l a u s e b e t w e e n t h e c o a l c o m p a n i e s and t h e i r J a p a n e s e b u y e r s , t h e r e d i d e x i s t a t a k e - o r - p a y c l a u s e i n t h e c o n t r a c t b e t w e e n t h e c o a l comp- a n i e s and BCR. I n t h e months t o come b o t h Don P h i l l i p s and P r e m i e r B e n n e t t r e i t e r a t e d t h a t t h i s c l a u s e w o u l d p r o t e c t t h e r a i l w a y ' s r e t u r n . S i n c e t h e s t e e l m i l l s w e r e e q u i t y h o l d e r s i n t h e two c o a l c o m p a n i e s , t h e y w e re i n e f f e c t com - m i t e d t o n o r t h e a s t c o a l . Bob H a l l b a u e r , v i c e - p r e s i d e n t o f T e c k r e s p o n d e d t o t h e M i d l a n d - D o h e r t y s t u d y c a l l i n g i t , a l o a d o f g a r b a g e . We a r e n o t g o i n g t o a c c e p t a p r i c e c u t . T h a t r e q u i r e s an a c t o f God o r an e a r t h - q u a k e . The c o n t r a c t s a r e v a l i d u n - l e s s we a g r e e t o n e g o t i a t e . 2 5 C l i f f o r d F r a m e , c h a i r m a n and p r e s i d e n t o f Q u i n t e t t e C o a l c o n c u r r e d , w h e n e v e r y o u h a v e an a g r e e m e n t t h e r e i s a l w a y s a n o p p o r t u n i t y t o d i s c u s s p r i c e s , b u t t h e r e i s no r e q u i r e m e n t f o r u s t o g i v e a p r i c e r e d u c t i o n a n d we h a v e no i n t e n t i o n o f g i v i n g a p r i c e r e d u c t i o n . ° - 69 - I r o n i c a l l y , the report, actually an amalgamation of worst-case scenarios and fac t u a l errors, helped switch public anxiety from the B.C. government and the coal companies to the steel-makers. The Japan Steel Federation sent a team of negotiators, including Nippon Steel's Teranashi, but ostensibly led by Nemoto's replacement, Ko Ono, managing direct o r of the raw materials department of Nippon Kokan. The mission l e f t Tokyo amid an intense debate within the federation "over the a d v i s a b i l i t y of tryi n g to continue the the negotiations at a time when prospects for a settlement 27 appear so dim". As predicted, the negotiators returned to Tokyo after winning no concessions from the mining companies. Because of the recession (and other events to be described i n Chapter V) the steel-makers needed to reduce both the volume and price of t h e i r coking coal supply. Negotiations with t h e i r other suppliers were " d i f f i c u l t " when they continued to pay such a high price for northeast coal. Because of trade f r i c t i o n , the U.S. was demanding more coal sales. Yet while Japan's coal suppliers were clamouring for more, not less, sales, they were also watching Northeast Coal to see whether the Steel Federation would keep to i t s word. In June 198 4, Ko Ono returned to Vancouver where he held a press conference; (we) w i l l take 100% of the contracted tonnage even though our production i s not quite up to what we had expected a few years ago when we decided to open the mines. We are asking some of the other mines, not only i n Canada but i n other countries, to ship less tonnage... In accordance with the pro- vis i o n s i n (this) contract, we are - 70 - a s k i n g f o r a p r i c e r e v i e w . . . . A c o n t r a c t i s a c o n t r a c t , I t h i n k i t ' s t h e s a n e a l l o v e r The d i s c u s s i o n s a r e g o i n g o n now. Our d i f f e r e n c e s a r e n o t f a r a p a r t . The J a p a n e s e became e n c o u r a g e d when T e c k o f f e r e d a $ 7 / t o n markdown t o $ 9 3 / t o n . However, T e c k t i e d i t s o f f e r t o a q u a n t i t a t i v e i n c r e a s e i n t o n n a g e o f 300,000 t o n s / y e a r . The J a p a n e s e r e p l i e d t h a t t h e l a s t t h i n g t h e y n e e d e d was more c o a l a n d o v e r - p r i c e d c o a l a t t h a t . B u t t h e s t e e l - m a k e r s w e r e a n x i o u s , n o t o n l y a b o u t t h e e x h o r b i t a n t p r i c e o f n o r t h - e a s t c o a l a t a t i m e when s e v e r e a u s t e r i t y m e a s u r e s w e r e n e e d e d t o r e m a i n c o m p e t i t i v e , b u t a l s o o v e r t h e p r e c e d e n t s u c h h i g h p r i c e s (by now 45% o v e r t h e m a r k e t p r i c e ) w o u l d s e t w i t h o t h e r s u p p l i e r s . C o n s e q u e n t l y , t h e S t e e l F e d e r a t i o n a n d T e c k s a t down t o " t o u g h b u t c o u r t e o u s " n e g o t i a t i o n s . T e c k e v e n t u a l l y a g r e e d t o a $10 p r i c e r e d u c t i o n t o $ 9 0 / t o n f o r a two y e a r p e r i o d i n r e t u r n f o r t h e i n c r e a s e d v o l u m e . K e i t h S t e e v e s , v i c e - p r e s i d e n t o f T e c k , s t a t e d l a t e r , "when we s a t down t o r e - n e g o t i a t e , we knew t h e y w e r e s u f f e r i n g , a n d t h e y r e a l i z e d we h a d 29 a p r o b l e m f i n a n c i n g a m i n e " . A c c o r d i n g t o T e c k ' s a n n u a l r e p o r t , t h e 1 5 % i n c r e a s e d t o n n a g e " v i r t u a l l y o f f s e t t h e i m p a c t o f t h e p r i c e r e d u c t i o n o f t h e m i n e ' s e a r n i n g s " I n f a c t , T e c k b o a s t e d a $5 m i l l i o n p r o f i t f o r f i s c a l y e a r 1984. Now NKK s q u a r e d - o f f a g a i n s t t r o u b l e - c h i l d Q u i n t e t t e . B u t Q u i n t e t t e o f f i c i a l s i n s i s t e d o n t h e c u r r e n t p r i c e o f $ 1 0 0 / t o n u n t i l a t l e a s t 1 9 8 7 , when t h e y w o u l d f a c e p o s s i b l e r e n e g o t i a i o n u n d e r t h e t e r m s o f t h e c o n t r a c t . I n t h i s c a s e , v o l u m e c o u l d n o t - 71 - be a dded t o i n d u c e a r e d u c t i o n i n p r i c e a s Q u i n t e t t e was s u f f - e r i n g f r o m p r o d u c t i o n s h o r t f a l l s ( 2 2 % i n 1 9 8 4 ) . I n p u r c h a s i n g t h e n e c e s s a r y e q u i p m e n t t h a t a l l o w e d i t l : t o i n c r e a s e i t s p r o - d u c t i o n t o c o n t r a c t e d l e v e l s , D e n n i s o n t e c h n i c a l l y d e f a u l t e d o n i t s l o a n s . A c l a u s e i n Q u i n t e t t e Coal's c r e d i t a g r e e m e n t w i t h a c o n s o r t i u m o f i n t e r n a t i o n a l b a n k s s p e c i f i e d a d e b t - t o - r e v e n u e r a t i o . I n F e b r u a r y 1 9 8 5 , i t was e x c e e d e d . Q u i n t e t t e ' s l e n d e r s g r a n t e d a r e p r i e v e a s w i t h o u t i t t h e y w o u l d h a v e e n d e d up o w n i n g t h e m i n e . B u t t h e i n t e r n a t i o n a l b a n k s now became p r i v y t o a n y p r i c e n e g o t i a t i o n s . I n 1 9 8 5 , i n t e r e s t a l o n e a c c - o u n t e d f o r $ 2 5 / t o n o f p r o d u c t i o n . I t c o s t a n o t h e r $25 t o g e t t h e c o a l t o p o r t and a b o u t $3 t o l o a d . T h i s l e f t o n l y $41 f o r m i n i n g , h a u l i n g , w a s h i n g , d e p r e c i a t i o n and f u r t h e r d e v e l - opment. From t h i s l a t t e r amount, t h e s t e e l - m a k e r s had a s k e d 31 f o r a $ 1 0 / t o n r e d u c t i o n and t h e b a n k s n e e d e d d e b t - r e p a y m e n t . B o t h D e n n i s o n a n d t h e i n t e r n a t i o n a l b a n k s a g r e e d t h a t m a j o r p r i c e c u t s w o u l d h a v e t o be t i e d t o a l o w - i n t e r e s t , yen-denom- i n a t e d r e f i n a n c i n g p a c k a g e t o be p u t f o r t h b y t h e J a p a n e s e S t e e l F e d e r a t i o n . I t was a t t h i s p o i n t t h a t r u m o u r s b e g a n s u r f a c i n g i n t h e m e d i a t h a t Q u i n t e t t e was n o t p a y i n g i t s r o y a l t i e s a n d s u r - 32 c h a r g e s t o t h e B.C. g o v e r n m e n t . P r e m i e r B e n n e t t c a t e g o r i c a l l y 33 d e n i e d t h i s a c c u s a t i o n . Then C l i f f o r d Frame and D i c k Hermann ( p r e s i d e n t and v i c e - p r e s i d e n t o f D e n n i s o n M i n e s L t d . ) r e s i g n e d a m i d s p e c u l a t i o n t h a t t h e y w e r e s c a p e g o a t s t o a s s u a g e t h e J a p - a n e s e s t e e l - m a k e r s . - 72 - F i n a l l y , i n M a r c h 1 9 8 5 , a f t e r a y e a r o f n e g o t i a t - i o n s , t h e J a p a n e s e s u c c e e d e d i n w i n n i n g a p r i c e r e d u c t i o n o f $ 8 . 5 0 / t o n t o $ 9 1 . 7 2 / t o n . B u t t h e r e v i s i o n was n o t t o be r e t r o a c t i v e a n d w o u l d l a s t o n l y 30 d a y s . On A p r i l 1, 1 9 8 5 , b e c a u s e o f t h e p r i c e e s c a l a t i o n c l a u s e i n t h e o r i g i n a l c o n - 34 t r a c t , t h e p r i c e r o s e t o $ 9 4 . 1 5 / t o n . The p r i c e o f t h e r m a l c o a l r e m a i n e d c o n s t a n t a t $ 3 6 / t o n . Of t h e $125 m i l l i o n t h e J a p a n e s e w i l l s a v e b y t h e p r i c e r e d u c t i o n s w i t h T e c k and Q u i n t e t t e ; c o n s i d e r a b l e sums h a v e gone b a c k i n t o t h e Q u i n t e t t e 35 p r o j e c t i n t h e f o r m o f new e q u i t y . C u r r e n t l y i t a p p e a r s t h a t more money may be n e e d e d t o k e e p Q u i n t e t t e f r o m f a l t e r i n g . O p i n i o n s o f t h e f u t u r e o f n o r t h e a s t c o a l r a n g e f r o m t h o s e p e s s i m i s t s who b e l i e v e t h e o n l y t h i n g t h a t w i l l s a v e t h e m e g a p r o j e c t i s g o v e r n m e n t s u b s i d y , t o t h o s e o p t i m i s t s who b e l i e v e i t i s f a r t o o e a r l y t o j u d g e t h e c o a l d e v e l o p m e n t p r o j e c t . W h a t e v e r t h e c a s e t h e N o r t h e a s t C o a l P r o j e c t i s i r r - e v o c a b l y e n t w i n e d w i t h d e v e l o p m e n t s w i t h i n t h e J a p a n e s e s t e e l • A 4 . 36 i n d u s t r y . F o r e x a m p l e , t h e o n l y new c o a l s u p p l y c o n t r a c t t o be s i g n e d i n W e s t e r n Canada s i n c e 1 9 8 1 , was a 1985 a g r e e m e n t f o r "weak c o k i n g c o a l " . I n 1 9 8 5 , t e c h n o l o g i c a l b r e a k t h r o u g h s i n t h e J a p a n e s e s t e e l i n d u s t r y p e r m i t t e d a f a r h i g h e r p r o p o r - t i o n o f t h i s l e s s e x p e n s i v e c o a l i n t h e c o k i n g b l e n d . Weak c o k i n g c o a l i s o n l y a s l i g h t l y b e t t e r g r a d e t h a n t h e r m a l c o a l . N i p p o n S t e e l , NKK, Sumitomo C o r p . a nd K a w a s a k i S t e e l c o n t r a c t e d - 73 - t o p u r c h a s e a f i r m 4 00,000 t o n s o f weak c o k i n g c o a l a t $US 3 9 / t o n , f o r one y e a r o n l y , f r o m W e s t a r M i n i n g L t d . ' s 37 B a l m e r m i n e i n s o u t h e a s t e r n B.C., J a p a n e s e e n t h u s i a s m f o r t h e N o r t h e a s t C o a l P r o j e c t h a s w a i n e d s i n c e m i d 198 2. Members o f t h e C a n a d i a n p u b l i c a n d some a c a d e m i c s b e l i e v e t h a t t h e J a p a n e s e s t e e l i n d u s t r y d e l i b e r a t e l y d r e a t e d a g l u t o f c o k i n g c o a l t o d e p r e s s p r i c e s . B u t v i e w i n g J a p a n e s e p e r f o r m a n c e s o l e l y b y t h e i r t o u g h n e g o t i - a t i o n s w i t h W e s t e r n C a n a d i a n c o a l p r o d u c e r s , d o e s n o t g i v e a f u l l — a p p r a i s a l o f t h e m o t i v a t i o n s b e h i n d t h e J a p a n e s e s t e e l i n d u s t r y ' s a c t i o n s . C h a p t e r V - 74 - J a p a n e s e I n d u s t r i a l P o l i c i e s and T h e i r I m p l i c a t i o n s f o r N o r t h e a s t C o a l The p r e s e n t r e c e s s i o n h a s c a u s e d t h e s t e e l m i l l s l i k e o t h e r c o r p o r a t i o n s , t o r e c o g n i z e a new e c o n o m i c r e a l i t y . The r e c e s s i o n h a s s e v e r e l y c u r t a i l e d s t e e l demand a n d t h e med i u m - t e r m p r o j e c t i o n i s f o r t h i s t o c o n t i n u e . A s a r e s u l t , a c o n t i n u i n g g l u t o f c o k i n g c o a l i s e x p e c t e d . T h e r e a r e s i x f a c t o r s o t h e r t h a n a p r o l o n g e d r e c e s s i o n w h i c h w i l l a f f e c t J a p a n e s e met. c o a l demand. T h e s e a r e : ( i ) t h e p o l i c y o f t h e J a p a n e s e s t e e l i n d u s t r y t o c o n t r a c t f o r e x c e s s c o a l s u p p l y ; ( i i ) t h e s u b s t a n t i a l i n t e r - f i r m c o m p e t i t i o n w i t h i n t h e J a p a n e s e s t e e l i n d u s t r y w h i c h h a s r e s u l t e d i n an o v e r - e x p a n - s i o n o f c a p a c i t y ; ( i i i ) a c c e l e r a t e d r e s t r u c t u r i n g w i t h i n t h e i n d u s t r y a n d t a r g e t t i n g o f "new m a t e r i a l s " ; ( i v ) c o m p e t i t i o n f r o m t h e N I C ' s ; (v) t h e end o f t h e u n d e r v a l u e d y e n ; and ( v i ) t h e i n c - r e a s i n g p r o t e c t i o n i s m o f w o r l d m a r k e t s . B e f o r e n o r t h e a s t c o a l came o n s t r e a m , c o a l s h i p m e n t s f r o m B.C. t o J a p a n had n e v e r r e a c h e d t h e i r c o n t r a c t e d v o l u m e s . The h i g h e s t r a t i n g was i n 1978 when 96% o f t h e a g r e e d q u a n t i t y was s h i p p e d f r o m W e s t e r n C a n a d a . B u t f r o m 1 970-1982, t h e a v e r a g e v o l u m e d e l i v e r e d was 82% o f t h e c o n t r a c t e d t o n n a g e ? L a b o u r d i s r u p t i o n s a n d p r o d u c t i o n p r o b l e m s w e r e t h e mos t p r e v a l e n t c a u s e s f o r u n d e r - s h i p m e n t . The J a p a n e s e r e s p o n d e d by o v e r - o r d e r i n g b y a s much a s 30% a s a m a r g i n o f s a f e t y . The s e v e r e and c o s t l y d i s r u p t i o n s i n 1980 and 1981 b r o u g h t a b o u t by s t r i k e s i n A u s - - 75 - t r a l i a , t h e U n i t e d S t a t e s a n d P o l a n d and i n f r a s t r u c t u r e b o t t l e n e c k s i n A u s t r a l i a and S o u t h A f r i c a f o r c e d t h e J a p a n - e s e t o c o n t r a c t f u t u r e o v e r - c o m m i t r r i e n t s . I t a p p e a r s t h a t t h e c u r r e n t g l u t a n d e c o n o m i c u n c e r t a i n t y h a s c a l m e d l a b o u r ' s demands s i g n i f i c a n t l y , b u t t h i s o n l y a d d s t o t h e p r o b l e m o f o v e r - c a p a c i t y . "Even i f e x i s t i n g c o n t r a c t s a r e n o t r e n e w e d , J a p a n s t i l l h a s t o o much c o a l u n d e r c o n t r a c t u n t i l a t l e a s t 1 990"? D u r i n g t h e 1 9 7 0 ' s , t h e J a p a n e s e and w o r l d s i t u a t i o n i n s t e e l was one o f s u r p l u s c a p a c i t y ( s e e f i g u r e 1, A p p e n d i x 3 ) . Y e t v i g o r o u s e f f o r t s t o c o n s e r v e e n e r g y , t o s w i t c h f r o m o i l - f i r e d t o c o a l - f i r e d f u r n a c e s and t o u n d e r t a k e c a p i t a l i n v e s t - ment f o r t h e r a t i o n a l i z a t i o n o f o p e r a t i o n s e n a b l e d t h e J a p a n - e s e i n d u s t r y t o m a i n t a i n i t s " c o m p e t i t i v e e d g e " i n i n t e r n a t i o n a l m a r k e t s . T h i s was a t a t i m e when o t h e r m a t e r i a l s i n d u s t r i e s i n J a p a n w e r e s u f f e r i n g a s t r u c t u r a l r e c e s s i o n a n d U.S. and German s t e e l c o m p a n i e s w e r e a b a n d o n i n g t h e i r a i l i n g i n d u s t r i e s and 3 d i v e r s i f y i n g i n t o " g r o w t h s e c t o r s " . B u t by 1985, d e s p i t e c o n t i n u e d t e c h n o l o g i c a l i m p r o v e - m e n t s a n d m a j o r r a t i o n a l i z a t i o n e f f o r t s , t h e J a p a n e s e s t e e l i n d u s t r y was s t i l l s u f f e r i n g f r o m s e v e r e o v e r c a p a c i t y . One m a j o r r e a s o n was t h a t u n l i k e t h e c a s e w i t h c o a l p r o c u r e m e n t , t h e r e a r e no c o o r d i n a t e d p r o d u c t i o n a g r e e m e n t s among t h e p r o - d u c e r s . " E x c e s s i v e c o m p e t i t i o n " h a s d e c r e a s e d s t e e l p r i c e s , b u t demand h a s n o t r i s e n c o r r e s p o n d i n g l y . The demand s t r u c t u r e o f t h e J a p a n e s e s t e e l i n d u s t r y i s a p p r o x i m a t e l y 7 0% d o m e s t i c - 76 - and 30% o v e r s e a s s a l e s ( l a r g e l y t o t h e U.S.) 1- D o m e s t i c a l l y , t h e s h i p b u i l d i n g i n d u s t r y i s b e g i n n i n g t o be j e t t i s o n e d a nd t h e a u t o m o b i l e i n d u s t r y h a s b e e n d e m a n d i n g t h i n n e r , h i g h e r - a l l o y e d s t e e l s h e e t , ( s e e F i g u r e 2, A p p e n d i x 3 ) . W i t h t h e l o n g - t e r m movement f r o m t h e s t e e l - c o n s u m i n g h e a v y i n d u s t r i e s t o w a r d s t h e s e r v i c e a n d " d o w n s t r e a m i n d u s t r i e s " i n t h e U n i t e d S t a t e s a n d J a p a n " l a r g e v o l u m e g r o w t h c a n n o t be e n v i s a g e d i n t h e 4 f o r e s e e a b l e f u t u r e . " The J a p a n e s e s t e e l i n d u s t r y h a s r e c e n t l y become s t r u c t u r a l l y d e p r e s s e d . I n r e c e n t y e a r s J a p a n e s e i n d u s t r i a l p o l i c y h a s b e e n t o j e t t i s o n t h e e x c e s s c a p a c i t y o f m a t u r e i n d u s t r i e s a f t e r t h e i r p r o d u c t c y c l e o r c o m p a r a t i v e a d v a n t a g e has d i m i n i s h e d . T h a t i s t o s a y , many r e s o u r c e s ( s u c h a s c a p i t a l a nd l a b o u r ) a r e w i t h - d r a w n f r o m i n d u s t r i e s w h i c h a r e no l o n g e r a c h i e v i n g e x p o r t g r o w t h so t h a t t h o s e r e s o u r c e s may be t a r g e t e d t o o t h e r a r e a s d e s i g n a t e d b y M I T I t o be f u t u r e g r o w t h s e c t o r s . E x a m p l e s o f i n d u s t r i e s t h a t w e r e o n c e a c c o r d e d t o p p r i o r i t y a nd t h e n j e t t i s o n e d i n c l u d e p r o d u c t s w h i c h r e q u i r e d an e x c e s s i v e l a b o u r component home c e r a m i c s , t o y s , g a r m e n t s and b a s i c t e x t i l e s a nd most r e c e n t l y , p r o d u c t s w h i c h r e q u i r e d e x c e s s i v e raw m a t e r i a l s a n d e n e r g y p u l p a n d p a p e r , p e t r o c h e m i c a l s and a l u m i n u m . However, t h e s e i n d u s t r i e s do n o t c o m p l e t e l y w i t h e r away. W h i l e t h e i r e x p o r t p o t e n t i a l e n d s , t h e g o v e r n m e n t o f t e n p r o t e c t s " j e t t i s o n e d " i n - d u s t r i e s t h r o u g h t a r i f f a n d n o n - t a r i f f b a r r i e r s s o t h e y may c o n - t i n u e t o s u p p l y t h e d o m e s t i c m a r k e t u n c h a l l e n g e d by f o r e i g n . . 5 c o m p e t x t i o n . - 7 7 - I n 198 5, Yoh K u r o s a w a , P r e s i d e n t o f t h e I n d u s t r i a l Bank o f J a p a n s a i d , v a r i o u s i n d u s t r i e s i n J a p a n w i l l c o n t i n u e t o d i v e r s i f y i n t o down- s t r e a m b u s i n e s s e s , a n d t h e s o c i e t y a s a w h o l e w i l l be more e n e r g y - s a v i n g , t h u s c h a n g i n g t h e n a t u r e o f o u r i n d u s t r i a l s t r u c t u r e . . . . S t r u c t u r a l c h a n g e i n J a p a n e s e i n d - u s t r y w i l l h a v e much i m p a c t o n t h e s t r u c t u r e o f J a p a n e s e t r a d e w i t h C a n a d a . The s t e e l i n d u s t r y ' s r e c e n t r e s t r u c t u r i n g e f f o r t s h a v e i n c l u d e d t h e b u i l d i n g o f " m i n i - s t e e l " p l a n t s t h a t u s e s t e e l s c r a p , s t e e l b i l l e t s o r p r e - r e d u c e d i r o n p e l l e t s . T h e s e p l a n t s u s e e l e c t r i c e n e r g y r a t h e r t h a n i r o n o r e and c o k i n g c o a l . T e c h n o l o g i c a l i m p r o v e m e n t s h a v e a l l o w e d . t h o s e r e m a i n i n g c o a l - f i r e d f u r n a c e s t o u s e an i n c r e a s i n g p r o p o r t i o n o f weak c o k i n g c o a l ( as m e n t i o n e d i n C h a p t e r I V ) . Huge q u a n t i t i e s o f s t e e l s c r a p a r e a v a i l a b l e i n any " p o s t - i n d u s t r i a l i z i n g " c o u n t r y . I n J a p a n s u f f i c i e n t s c r a p e x i s t s t o s u p p o r t a g r o w i n g p r o p o r - t i o n o f s t e e l p r o d u c t i o n . S t e e l p r o d u c e d f r o m s c r a p and e l e c t - t r i e f u r n a c e s r e q u i r e s a s m a l l c a p i t a l i n v e s t m e n t and now y i e l d s l o w e r c o s t s a n d h i g h e r p r o d u c t i v i t y r a t e s t h a n c o n v e n t i o n a l 7 b l a s t f u r n a c e o p e r a t i o n s . K a w a s a k i S t e e l C o r p . , one o f t h e two o p p o n e n t s o f t h e N o r t h e a s t C o a l P r o j e c t w i t h i n t h e S t e e l F e d e r a t i o n , h a s i n v e s t e d h e a v i l y i n B r a z i l i a n s t e e l p r o d u c t i o n . B e s i d e s m a r k e t i n g t h e f i n i s h e d p r o d u c t t o o t h e r c o u n t r i e s , K a w a s a k i S t e e l w i l l i m p o r t s e m i - p r o c e s s e d s t e e l b i l l e t s f o r t h e i r home m a r k e t , t h e r e b y a v o i d i n g t h e n e e d f o r i r o n o r e o r met. c o a l . The g o v e r n m e n t - 78 " o f B r a z i l i s a l s o t y i n g i t s e x p o r t o f i r o n o r e t o J a p a n t o i t s e x p o r t o f f i n i s h e d s t e e l . O t h e r c o u n t r i e s l i k e V e n e z u e l a w h i c h a r e r i c h i n i r o n o r e and n a t u r a l g a s a r e e x p o r t i n g p r e - r e d u c e d i r o n p e l l e t s t o J a p a n . The t r e n d i s c l e a r . B e c a u s e t r a n s p o r t a t i o n o f b u l k y p r i m a r y r e s o u r c e s f r o m t h e i r s o u r c e t o t h e p r o c e s s i n g n a t i o n c o m p r i s e s a l a r g e p r o p o r t i o n o f t h e t o t a l c o s t o f t h e f i n i s h e d p r o d u c t , t h i s i s s e e n a s a n a r e a w h e r e c o s t - e f f e c t i v e s a v i n g s c a n be made. T h e r e f o r e , more s e m i - p r o c e s s i n g i s b e i n g done c l o s e r t o t h e s o u r c e o f i r o n o r e , e s p e c i a l l y when t h a t c o u n t r y p o s s e s s e s a b u n d a n t e n e r g y a n d / o r l o w e r wage r a t e s . A n o t h e r t r e n d i s t h e t a r g e t i n g by M I T I o f s o - c a l l e d "new m a t e r i a l s " s u c h a s f i n e c e r a m i c and h i g h - m o l e c u l e compounds w h i c h a r e e x p e c t e d t o h a v e w i d e a p p l i c a t i o n s i n t h e t r a d i t i o n a l m a r k e t s o f s t e e l , s u c h a s a u t o m o b i l e s , c o n s t r u c t i o n , c i v i l e n g i n e e r i n g and m a c h i n e r y i n d u s t r i e s . F o r t h o s e s t e e l f i r m s whose p r o d u c t i o n r e m a i n s i n J a p a n , " t h e t r i g g e r o f t h e c o m i n g age — and t h e k e y t o s u r v i v i n g i t — i s t e c h n o l o g i c a l i n n o - 8 v a t ion'.' "The p a t t e r n o f s t e e l demand h a s c h a n g e d f r o m one o f 9 q u a n t i t i v e g r o w t h t o one o f q u a l i t a t i v e i m p r o v e m e n t " ( s e e F i g . 4, A p p e n d i x 3 ) . S m o k e s t a c k i n d u s t r i e s s u c h a s s t e e l a r e d i v e r s i f - y i n g , t a k i n g a d v a n t a g e o f " h i g h - t e c h " a d v a n c e s w i t h new s u b - s t a n c e s t h a t a r e l i g h t e r , s t r o n g e r and more r e s i s t a n t t o temp- e r a t u r e , p r e s s u r e a n d c o r r o s i o n . J a p a n ' s s t e e l i n d u s t r y i s e x p - e c t e d t o be a l e a d e r i n t h i s f i e l d , o n t h e s t r e n g t h o f i t s t e c h n o l o g i c a l e x p e r t i s e i n e v a l u a t i n g t h e p h y s i c a l p r o p e r t i e s o f b a s i c m a t e r i a l s . A m a s s i v e r e s e a r c h a n d d e v e l o p m e n t e f f o r t h a s b e e n i m p l e m e n t e d u n d e r t h e a e g i s o f t h e i n d u s t r y a s s o c i a t i o n s and M I T I . The J a p a n e s e h a v e b e e n f a r and away t h e l e a d e r s i n m a r k e t i n g e n e r g y - s a v i n g t e c h n o l o g y , and s e l l t o f i r m s i n b o t h t h e i n d u s t r i a l i z e d and n e w l y - i n d u s t r i a l i z e d c o u n t r i e s ( U I C s ) . J a p a n e s e p r o d u c e r s s t i l l h a v e t h e l o w e s t c o s t p o s i t i o n i n e x i s t i n g m i l l s . H owever, i n n e w l y b u i l t p l a n t s , f i r m s i n t h e NIC c o u n t r i e s o f A s i a a r e t h e l o w e s t c o s t p r o d u c e r s ( s e e f i g . 3 A p p e n d i x 3 ) . J a p a n e s e s t e e l f i r m s h a v e w i d e s p r e a d e q u i t y o w n e r s h i p a n d i n v o l v e m e n t w i t h t h e N I C ' s s t e e l f i r m s . E m p h a s i s has b e e n on l i c e n s i n g a n d t e c h n o l o g i c a l a s s i s t a n c e , e q u i p m e n t s a l e s , e n g i n e e r i n g s e r v i c e s a n d management c o n t r a c t s . N i p p o n S t e e l a l o n e h a d 134 e n g i n e e r i n g , t e c h n o l o g y , management o r e q u i p m e n t s u p p l y c o n t r a c t s w i t h 71 c o m p a n i e s i n 26 c o u n t r i e s ( i n 1 9 7 9 ) . T h a t same y e a r , N i p p o n S t e e l ' s e n g i n e e r i n g d i v i s i o n e m p l o y e d 4,000 p e o p l e a nd a c c o u n t e d f o r 1 0 % o f t o t a l company i 10 s a l e s . The p o l i c y o f NIC p r o m o t i o n c a r r i e d o u t b y N i p p o n S t e e l i s c l e a r l y i n l i n e w i t h M I T I ' s d e c l a r e d l o n g - t e r m p o l i c y o f j e t t i s o n i n g t h e s u r p l u s c a p a c i t y o f t h e e n e r g y - c o n s u m i n g and p o l l u t i n g s t e e l i n d u s t r y . (One p r o b l e m i n j e t t i s o n i n g s u r p l u s c a p a c i t y i s t h a t t h o s e a s s e t s p r o v i d e c o l l a t e r a l t o an i n d u s t r y t h a t h a s h i s t o r i c a l l y had a h i g h d e b t - e q u i t y r a t i o . - ) I n 197 0, t h e s t r a t e g y was a 20 y e a r p l a n t o " r i d e t h e i n t e r - n a t i o n a l p r o d u c t l i f e c y c l e " , t h e n d i s e n g a g e a s p r o d u c t s and - 80 - t e c h n o l o g i e s m a t u r e d a n d s t a n d a r d i z e d t o t h e p o i n t w h e r e N I C s , w i t h a c c e s s t o t h e c a p i t a l a n d r e s o u r c e s w o u l d become more c o m p e t i t i v e . By i n v e s t i n g i n t h e N I C s , e s p e c i a l l y i t s f o r m e r c o l o n i e s o f T a i w a n and K o r e a , J a p a n g a i n e d a c c e s s t o c h e a p l a b o u r , w h i c h i t c o u l d n o t g e t a t home. I t m a n u f a c t u r e d g o o d s i n t h e s e c o u n t r i e s f o r e x p o r t t o o t h e r c o u n t r i e s o f t h e w o r l d . F o r t h e N I C s , J a p a n e s e i n v e s t m e n t meant a t r a n s f e r o f c a p i t a l a s w e l l a s p r o d u c t i o n and management t e c h n o l o g y , e f f e c t i v e l y p r o v i d i n g w h a t t h e s e s o c i e t i e s l a c k e d . A s t h i s p r o c e s s c o n t i n u e s , t h e N I C s 1 i n d u s t r i a l s t r u c t u r e s i n c r e a s i n g l y r e s e m b l e t h o s e o f J a p a n . T h e i r p r o d u c t s h a v e b e g u n t o c o m p e t e w i t h J a p a n e s e p r o d u c t s i n t h e i n t e r n a t i o n a l m a r k e t , c a u s i n g some c o n s i d e r a b l e a n x i e t y a t home, n o t o n l y a t " b e i n g c a u g h t up w i t h " by i t s n e i g h b o u r s , b u t a l s o by t h e s o - c a l l e d "boomerang" e f f e c t . T h i s r e f e r s t o t h e s y m b i o t i c r e l a t i o n - s h i p b e t w e e n a d o m i n a n t a n d a r e c e i v i n g s o c i e t y w h i c h e v e n t u a l l y r e d o u n d s t o t h e a d v a n t a g e o f t h e f o r m e r l y w e a k e r p a r t n e r . When t h e e c o n o m i e s o f J a p a n and i t s n e i g h b o r i n g N I C s w e r e i n a com- p l e m e n t a r y r e l a t i o n s h i p J a p a n ' s l a b o u r i n t e n s i v e i n d u s t r i e s , s u c h a s t e x t i l e s and v a r i o u s m a n u f a c t u r e d g o o d s , g r a d u a l l y l o s t t h e i r m a r k e t s t o t h e s e c o u n t r i e s . B u t a t t h e t i m e , d u r i n g t h e 196 0's and 1 9 7 0 ' s , J a p a n i t s e l f was g r o w i n g r a p i d l y and c o u l d c o p e w i t h c o m p e t i t i o n b y r e a d j u s t i n g i t s i n d u s t r i a l s t r u c t u r e . "The e x - p e r i e n c e o f S o u t h K o r e a , T a i w a n and J a p a n s e r v e s t o d e m o n s t r a t e - 81 - t h e v a l i d i t y o f J o s e p h S c h u m p e t e r ' s n o t i o n t h a t t h e more d y n a m i c e c o n o m i c e x p a n s i o n i s , t h e more c y c l i c a l e c o n o m i c a c t i v i t y becomes. B u t J a p a n ' s economy, r e a c h i n g m a t u r i t y , c a n no l o n g e r be r e a d j u s t e d a s f l e x i b l y a s i n t h e d a y s when i t e n - j o y e d a h i g h g r o w t h r a t e . The OECD ( O r g a n i z a t i o n f o r E c o n o m i c C o o p e r a t i o n a n d D e v e l o p m e n t ) , M I T I and t h e l e a d i n g b a n k s i n J a p a n h a v e a l l p r e d i c t e d t h a t J a p a n ' s y e a r l y g r o w t h r a t e w i l l r e m a i n b e t w e e n 2 - 5 % u n t i l 1 9 9 0 . G r o w t h i n s t e e l i s p r e d i c t - 12 ed t o d e c l i n e 1 - 2 % a n n u a l l y a f t e r 1986. T h o s e i n d u s t r i e s b e i n g d e v e l o p e d by t h e N I C s , s u c h a s s t e e l , p e t r o c h e m i c a l s , m a c h i n e r y , s h i p b u i l d i n g and c a r s , h a v e b e e n t h e m a j o r p i l l a r s o f t h e J a p a n e s e economy. T h e r e a r e f e w e r new p r o d u c t i o n a r e a s w h i c h c a n r e p l a c e them i n t h e f u t u r e . V e r y s o o n t h e c a p i t a l c o s t o f t h e n e w l y - b u i l t p l a n t a n d e q u i p m e n t o f t h e N I C s w i l l be d e p r e c i a t e d . A l o n g w i t h c h e a p e r l a b o u r , t h i s w i l l e n s u r e a s i z e a b l e , c o m p a r a t i v e a d v a n t - age o v e r J a p a n . M o r e o v e r , NIC and t h i r d w o r l d p r o d u c e r s t e n d t o "dump" s t e e l o n w o r l d m a r k e t s f o r c a s h f l o w and employment p u r p o s e s . The a d v a n c e m e n t o f t h e A s i a n N I C s i n m a j o r f i e l d s o f i n d u s t r y now p o s e a t h r e a t t o J a p a n . J a p a n e s e s t e e l - m a k e r s f e a r f u l o f more c o m p e t i t i o n f r o m K o r e a n m i l l s t h e y h e l p e d b u i l d , a r e h o l d i n g b a c k on f u r t h e r t e c h n i c a l e x c h a n g e s , a n d a r e b e l i e v e d t o h a v e p r e s s u r e d d o m e s t i c buyer; ̂  a g a i n s t t a k i n g K o r e a n s t e e l . - 82 " I n d e e d , sogo s h o s h a h a v e s e t up s p e c i f i c l o n g - t e r m i m p o r t a r r a n g e m e n t s , a s o r t o f r e a r g u a r d a c t i o n , t o e n s u r e t h a t K o r e a n s t e e l i m p o r t s w i l l s t a y b e l o w a n i n f o r m a l m a r k e t - 14 s h a r e o f 10%. S t e e l i m p o r t s , i n g e n e r a l , w i l l u n d o u b t e d l y c o n t i n u e t o r i s e ( s e e f i g . 1, A p p e n d i x 3) b e c a u s e e x t r e m e i n t e r n a t i o n a l p r e s s u r e i s b e i n g a p p l i e d o n J a p a n t o o p e n i t s m a r k e t t o more f o r e i g n g o o d s . A m a j o r t e n e t o f t h i s s t u d y i s t h a t d u r i n g t h e p e r i o d when t h e J a p a n e s e S t e e l F e d e r a t i o n was d e c i d i n g t o i n v e s t i n t h e N o r t h e a s t C o a l P r o j e c t , s e c u r i n g l o n g - t e r m a c c e s s t o s u p p l i e s o f raw m a t e r i a l s was t h e i r p r e m i e r c o n c e r n . T h a t i s no l o n g e r t h e c a s e . The p a r a m o u n t c o n c e r n o f J a p a n e s e e c o n o m i c p o l i c y t o d a y i s s e c u r i n g l o n g - t e r m a c c e s s t o m a r k e t s i n w h i c h i t c a n s e l l i t s p r o d u c t s . A c c o r d i n g t o t h e J a p a n S t e e l F e d e r a t i o n t h e m a j o r r e a s o n f o r t h e c o n t i n u e d s l u m p i n s t e e l e x p o r t s d u r i n g 1985 was d e c r e a s e d s h i p m e n t s t o t h e U.S. b r o u g h t a b o u t b y a v o l u n t a r y e x p o r t r e s t r a i n t i n t h e f a c e o f 15 p r o t e c t i o n i s t s e n t i m e n t i n t h e U.S. C o n g r e s s . T h i s i s a s e n - t i m e n t u n l i k e l y t o d i m i n i s h i n t h e n e a r f u t u r e b e c a u s e o f J a p a n ' s r e c o r d U.S. $50 b i l l i o n p l u s b i l a t e r a l t r a d e s u r p l u s . E c o n o m i s t C h a r l e s K i n d l e b e r g e r h a s d e c l a r e d , " f r e e t r a d e i s t h e h y p o c r i s y o f t h e e x p o r t i n t e r e s t , t h e c l e v e r d e v i c e o f t h e c l i m b e r who k i c k s t h e l a d d e r away when he h a s a t t a i n e d t h e summit o f g r e a t - n e s s " . Many d e v e l o p m e n t t h e o r i s t s , "new e c o n o m i s t s " , a n d U.S. c o n g r e s s m e n now s h a r e K i n d l e b e r g e r ' s v i e w 1 ^ - 83 ~ To combat g r o w i n g w o r l d p r - o t e c t i o n i s m , J a p a n 1 s g o v e r n m e n t and s t e e l i n d u s t r y h a v e e m b a r k e d on two s t r a t e g i e s r e l e v a n t t o demand f o r J a p a n ' s s t e e l a nd h e n c e r e l e v a n t t o J a p a n ' s c o k i n g c o a l demand. I n S e p t e m b e r 198 5, t h e Bank o f J a p a n and f o u r o f t h e w o r l d ' s l a r g e s t c e n t r a l b a n k s i n t e r - v e n e d i n t h e i n t e r n a t i o n a l c u r r e n c y m a r k e t i n a c o n c e r t e d e f f o r t 17 t o s t r e n g t h e n t h e y e n a g a i n s t t h e U.S. d o l l a r . The J a p a n e s e m o t i v e was t o s t r u c t u r a l l y i n h i b i t t h e i r e x p o r t s a n d m o l l i f y p r o t e c t i o n i s t s e n t i m e n t i n t h e U n i t e d S t a t e s . W h i l e t h e Bank o f J a p a n h a s m a i n t a i n e d h i g h i n t e r e s t r a t e s t o i n c r e a s e t h e v a l u e o f t h e y e n , i t i s t o o e a r l y t o t e l l what t h e e x a c t l o n g - t e r m e f f e c t s w i l l b e . What i s s i g n i f i c a n t i s t h a t t h e p o s t - war e r a o f t h e a r t i f i c i a l l y d e v a l u e d y e n , a c a t a l y s t t o t h e i r e x p o r t g r o w t h , seems t o be o v e r . W i t h a n i n f l a t e d y e n , demand 18 f o r s t e e l e x p o r t s w i l l d r o p . S e c o n d l y , J a p a n ' s c o n c e r n f o r " h a r m o n i o u s i n t e r n a t i o n a l - e c o n o m i c r e l a t i o n s " h a s p r o m p t e d a r e a p p r a i s a l o f t r a d i t i o n a l i n d u s t r i a l p o l i c y . No l o n g e r w i l l t h e g r e a t p r o p o r t i o n o f w o r l d p r o d u c t i o n o c c u r s o l e l y w i t h i n t h e c o u n t r i e s b e n e f i t i n g f r o m a c o m p a r a t i v e a d v a n t a g e . A c c e s s t o m a r k e t s i s t h e m a j o r r e a s o n why o n e - t h i r d o f J a p a n ' s t o t a l o v e r s e a s i n d u s t r i a l i n v e s t m e n t i s now b e i n g c h a n n e l l e d i n t o t h e U n i t e d S t a t e s . T oday e v e r y m a j o r U.S. s t e e l - m a k e r h a s a t e c h n o l o g y - s h a r i n g a g r e e m e n t w i t h one o r more J a p a n e s e s t e e l f i r m s . G i g a n t i c r e s c u e o p e r a t i o n s h a v e t a k e n p l a c e w h e r e b y J a p a n e s e s t e e l f i r m s h a v e p u r c h a s e d 50% e q u i t y and management r i g h t s t o r e o p e n o b s o l e s c e n t U.S. s t e e l w o r k s (eg., K a w a s a k i S t e e l and C a l i f o r n i a S t e e l I n d u s t r i e s , NKK and N a t i o n a l - 84 - S t e e l and Sumitomo M e t a l and L T V ) . I n e a c h c a s e , two r e a s o n s w e r e c i t e d b y t h e J a p a n e s e c o m p a n i e s . T h e s e w e r e " t h e c o n - v i c t i o n t o r e s o l v e t r a d e d i s p u t e s " a n d " t h e c h a n c e t o make an i m p o r t a n t c o n t r i b u t i o n t o t h e l o c a l economy t h r o u g h new 19 j o b s c r e a t e d by t h e r e o p e n i n g " ( s i c ) . I n c r e a s e d p r o d u c t i o n i n t h e U.S. r e p r e s e n t s a d e c l i n e i n demand f o r n o r t h e a s t c o a l , a s i t i s s a f e t o assume A m e r i c a n c o a l w i l l be u s e d . T h i s c h a p t e r h a s d e t a i l e d J a p a n e s e p o l i c i e s s u c h a s : ( i ) o v e r - c o n t r a c t i n g o f c o a l s u p p l y ; ( i i ) r a t i o n a l i z a t i o n o f s t e e l c a p a c i t y i n l i n e w i t h i n d u s t r i a l r e s t r u c t u r i n g ; a n d ( i i i ) o v e r s e a s i n v e s t m e n t i n t h e N I C s a s a r e s u l t o f c o m p a r - a t i v e a d v a n t a g e and i n t h e U n i t e d S t a t e s a s a r e s u l t o f t r a d e f r i c t i o n . A r e d u c e d and s h r i n k i n g demand f o r J a p a n e s e s t e e l h a s b e e n t h e r e s u l t . W i t h a g l u t o f c o k i n g c o a l and s u c h i n e x p e n s i v e a l t e r n a t i v e s , one w o n d e r s i f t h e J a p a n e s e w i l l r e m a i n c o m m i t t e d t o n o r t h e a s t c o a l a n d h o n o u r t h e t e r m s o f t h e c o n t r a c t s t h e y s i g n e d i n 1 9 8 1 . - 85 ~ C h a p t e r V I W i l l t h e J a p a n e s e H o n o u r t h e Terms o f t h e C o n t r a c t s ? I t i s d i f f i c u l t f o r q u a s i - i n t e g r a t i o n t o r e m a i n u n c h a n g e d i f m a r k e t c o n d i t i o n s d e p a r t d r a m a t i c a l l y f r o m t h e assumptions on w h i c h t h e y w e r e made. S u c h a g r e e m e n t s w i l l n o r m a l l y r e q u i r e m e c h a n i s m s f o r a d a p t i v e s e q u e n t i a l r e n e g o t i a t i o n i n o r d e r t o r e m a i n s t a b l e . The h i s t o r y o f l o n g - t e r m c o n t r a c t i n g shows few i n s t a n c e s w h e r e q u a s i - i n t e g r a t i o n h a s b r o k e n down b e c a u s e o f t h e r e l u c t a n c e o f one p a r t y t o r e n e g o t i a t e . I n J a p a n ' s d o m e s t i c c o n t e x t , when t h e t e r m s o f a c o n t r a c t d e p a r t d r a m a t i c a l l y f r o m m a r k e t c o n d i t i o n s , l i t i g a t i o n i s r a r e l y t h e r e s u l t . M o s t o f t e n / s u p p l i e r s a r e w i t h i n t h e c o r p o r a t e f a m i l y o f t h e i r b u y e r s ; t h a t i s , t h e y h a v e some m u t u a l s t o c k - h o l d i n g s . I n s u c h a c a s e t h e s i t u a t i o n i s r e s o l v e d h a r m o n i o u s l y . When t h e r e a r e no i n v e s t m e n t l i n k a g e s , t h e s t r o n g e r company, t h a t i s , t h e one w i t h t h e s u p e r i o r b a r g a i n i n g p o s i t i o n , w i n s 1 I n t h e 1 9 7 0 ' s , t h e J a p a n e s e r e n e g o t i a t e d c o p p e r a n d i r o n o r e c o n t r a c t s when c y c l i c a l c h a n g e s i n s u p p l y and demand as w e l l a s i n f l a t i o n a n d c u r r e n c y f l u c t u a t i o n s c a u s e d f r i c t i o n b e t w e e n J a p a n e s e i m p o r t e r s a n d t h e i r c o n t r a c t e d f o r e i g n e x p o r t e r s . S i n c e 1 9 7 2 , a t v a r i o u s t i m e s t h e J a p a n e s e h a v e r e a c t e d t o s t e e l o v e r c a p a c i t y and n e g o t i a t e d r e d u c t i o n s i n c o n t r a c t e d t o n n a g e s w i t h A u s t r a l i a . - A u s t r a l i a n p r o d u c e r s h a v e had l i t t l e c h o i c e b u t t o c a p i t u l a t e t o J a p a n e s e demands, i n t h e f a c e o f t h e l a t t e r ' s - 86 " monopsony b a r g a i n i n g power. As t h e E c o n o m i s t s u g g e s t e d w i t h h e a v y i r o n y , " b e g g a r s c a n n o t be c h o o s e r s , u n l e s s , o f c o u r s e , 2 t h e y a r e J a p a n e s e " . N e v e r t h e l e s s , i n none o f t h e s e c a s e s d i d J a p a n e s e a c t i o n s b a n k r u p t t h e i r s u p p l i e r s . I n 1976 - 1977, a n o t e w o r t h y c a s e i n v o l v e d t h e p r o - 3 c u r e m e n t o f s u g a r f r o m A u s t r a l i a b y J a p a n e s e t r a d i n g c o m p a n i e s . The J a p a n e s e s o g o s h o s h a s i g n e d s t a n d a r d - f o r m c o m m o d i t i e s c o n t r a c t s w h i c h w e r e s u b j e c t t o B r i t i s h l a w and t o t e r m s s e t by t h e L o n d o n S u g a r E x c h a n g e . The J a p a n e s e s i g n e d a s t a n d a r d m u l t i - y e a r c o n t r a c t and a p p e n d e d a n o t e s t a t i n g t h a t t h e c o n t r a c t p r i c e a nd t o n n a g e s w o u l d be r e v i e w e d e v e r y y e a r . The c o n t r a c t s w e r e s i g n e d a t a t i m e when t h e p r i c e o f s u g a r was a t a n a l l t i m e h i g h . S u b s e q u e n t l y , s u g a r p r i c e s d e c l i n e d d r a s t i c a l l y . The J a p a n e s e c o m p a n i e s d i s c o v e r e d t h a t t h e i r c o m p e t i t o r s , who w e r e n o t t i e d i n t o l o n g - t e r m c o n t r a c t s , w e r e u n d e r s e l l i n g them i n t h e d o m e s t i c J a p a n e s e m a r k e t . The t r a d i n g c o m p a n i e s a f t e r a c c e p t i n g some d e l i v e r i e s a t t e m p t e d t o r e n e g o t i a t e t h e c o n t r a c t w i t h t h e A u s t r a l i a n s u p p l i e r s . The s u p p l i e r s c l a i m e d t h e y h a d l e g a l a n d v a l i d c o n t r a c t e d p r i c e s a n d r e f u s e d t o l o w e r p r i c e s o r t o n n a g e s . M o r e o v e r , a s t h e c o n t r a c t s w e r e on a C I F b a s i s , t h e y c o n t i n u e d s e n d i n g s h i p s l o a d e d w i t h s u g a r w h i c h b e g a n t o c r o w d Yokohama H a r b o u r . The s o g o s h o s h a , a p p a r e n t l y c o n f i d e n t o f t h e i r b a r g a i n i n g power, r e f u s e d t o a c c e p t o r p a y f o r t h e s u g a r u n t i l a new p r i c e was a g r e e d . The Q u e e n s l a n d g o v e r n m e n t , whose p o l i t i c a l s u p p o r t c o n s i s t e d l a r g e l y o f a g r i c u l t u r a l - 87 - i n t e r e s t s , v i g o r o u s l y took up the cause o f the A u s t r a l i a n sugar companies , e f f e c t i v e l y c o u n t e r i n g the b a r g a i n i n g power 4 ' o f the Japanese . Both the Japanese and A u s t r a l i a n f e d e r a l governments t h e n en tered the d i s p u t e . But even a t the g o v e r n m e n t - t o - g o v e r n - ment l e v e l no agreement was r e a c h e d . The s i t u a t i o n became acr imonious and i t was agreed t h a t the mat ter s h o u l d be taken to a r b i t r a t i o n and be d e c i d e d by the I n t e r n a t i o n a l Chamber o f Commerce under the terms o f the "London c o n t r a c t s " . I t was r e s o l v e d t h e r e . The c o n t r a c t s were s e t a s i d e . But i n r e t u r n , the t r a d i n g companies p a i d the f u l l p r i c e f o r the d e l i v e r e d sugar i n a d d i t i o n to p a y i n g heavy compensat ion . The lesson: , f o r the Japanese from t h i s case was t h a t the i n j e c t i o n o f the A u s t r a l i a n s t a t e and f e d e r a l governments i n t o the commerc ia l s e t t i n g e f f e c t i v e l y c o u n t e r e d the b e n e f i t o f c o o r d i n a t e d procurement . The same may be s a i d to be t r u e w i t h the case o f N o r t h e a s t C o a l . In the p r e s e n t c o n t r o v e r s y t h e r e are two i s s u e s — tonnage and p r i c e . With r e g a r d to tonnage , the Japanese r e a l i z e t h a t on the s t r e n g t h o f the l o n g - t e r m c o a l c o n t r a c t s the p r o v i n c i a l and f e d e r a l governments i n v e s t e d p u b l i c funds to c r e a t e the n e c e s s a r y i n f r a s t r u c t u r e . In many o t h e r r e s o u r c e - e x t r a c t i n g p r o j e c t s around the w o r l d , p a r t i c u l a r l y A u s t r a l i a , the Japanese had t o f i n a n c e i n f r a s t r u c t u r e c o n s t r u c t i o n . J a p a n ' s monopsony power was a c c e n t u a t e d i n A u s t r a l i a because o f the fragmented p o l i t i c a l s y s t e m o f t h a t c o u n t r y . The s t a t e g o v e r n m e n t s o f A u s t r a l i a , whose r e v e n u e s d e r i v e d f r o m r o y a l t i e s r e l a t e d t o q u a n t i t i e s p r o d u c e d and n o t t o o v e r a l l p r o f i t a b i l i t y w e r e c o n c e r n e d a b o u t t h e v o l u m e s p u r c h a s e d by t h e J a p a n e s e . C o n s e q u e n t l y t h e y w e r e l e s s l i k e l y t o p u t up a f i g h t a g a i n s t l o w c o a l p r i c e s , t o t h e 5 d i s m a y o f t h e f e d e r a l g o v e r n m e n t w h i c h l e v i e d t a x e s o n p r o f i t s . I n t h e C a n a d i a n c a s e , t h e d i r e c t p a y - b a c k t o b o t h g o v e r n m e n t s i s by way o f c a p i t a l s u r c h a r g e s , r o y a l t i e s , f r e i g h t c o s t s and p o r t t h r o u g h p u t c h a r g e s . A l l t h e s e a r e i r r e v o c a b l y t i e d t o t h e v o l u m e o f c o a l s h i p p e d f r o m t h e m i n e s i t e t o t h e w a i t i n g s h i p s a t R i d l e y I s l a n d . Any d i s c u s s i o n a b o u t r e d u c i n g t h e minimum g u a r a n t e e d v o l u m e , t h a t i s r e d u c i n g t h e p a y - b a c k t o t h e two g o v e r n m e n t s , w i l l i m m e d i a t e l y i n v o l v e t h o s e g o v e r n m e n t s . B o t h g o v e r n m e n t s w i l l do t h e i r u t m o s t t o p r o t e c t t h e p u b l i c f u n d s t h e y h a v e i n v e s t e d . A s s t a t e d i n C h a p t e r s I I and I I I , t h e J a p a n e s e d i s l i k e i n v o l v i n g f o r e i g n g o v e r n m e n t s i n s u c h a c o m m e r c i a l v e n t u r e b e c a u s e t h e y " i n j e c t d i s r u p t i v e p o l i t i c a l c o n s i d e r a t i o n s i n t o t h e e c o n o m i c s o f c o a l s u p p l y " . I n t h e T e c k c a s e , when t h e p r i c e was r e d u c e d t h e J a p a n e s e c o m p e n s a t e d w i t h v o l u m e . The v o l u m e o f c o a l c o n t r a c t e d f r o m t h e n o r t h e a s t d o e s n o t r e p r e s e n t a n a c u t e l o n g - t e r m p r o b l e m f o r t h e s t e e l i n d u s t r y p e r s e . I n any c a s e , n o r t h e a s t c o a l i s b l e n d e d w i t h o t h e r c o a l s . D e s p i t e t h e f a c t t h a t i n 1984 t h e J a p a n e s e had c o n t r a c t e d a b o u t 80 m i l l i o n t o n s o f c o k i n g c o a l , t h e y n e e d e d o n l y 60 m i l l i o n t o n s 6 N e v e r t h e l e s s t h e s o g o s h o s h a w e r e a b l e t o s e l l t h e e x c e s s c o a l t o c o u n t r i e s t o w h i c h t h e y h a v e t r a d i n g l i n k s a nd whose s t e e l i n d u s t r y was e x p a n d i n g , n o t a b l y T a i w a n , K o r e a and B r a z i l . I f i n t h e f u t u r e , t h e g l u t o f met. c o a l c o n t i n u e s , t h e s t e e l m i l l s c a n r e d u c e t o n n a g e f r o m c e r t a i n o t h e r m i n e s whose r e s u l t i n g l o w e r v o l u m e s w i l l n o t p l a c e them i n f i n a n c i a l j e o p a r d y . U n f o r t u n a t e l y , i t i s c l e a r t h a t J a p a n e s e e l e c t r i c p ower c o m p a n i e s f a v o u r l i q u e f i e d n a t u r a l g a s o v e r n u c l e a r e n e r g y and t h e r m a l c o a l . B u t e v e n i f t h e o p t i m i s t i c p r o j e c t i o n s o f t h e r m a l c o a l u s e a r e r e a l i z e d , t h e r m a l c o a l w i l l n o t be a p a n a c e a f o r t h e n o r t h e a s t p r o j e c t . T h e r m a l c o a l p r i c e s a r e v e r y l o w ( a b o u t $30 - $ 3 5 / t o n ) and t h e m a r g i n o f p r o f i t e v e n l o w e r . M o r e o v e r , t h e r e i s a n a b u n d a n t s u p p l y o f b e t t e r q u a l i t y t h e r m a l c o a l a t c h e a p e r p r i c e s w i t h l o w e r f r e i g h t r a t e s a v a i l - a b l e i n s o u t h e a s t e r n B.C., A u s t r a l i a a n d S o u t h A f r i c a . S o u t h A f r i c a w i t h i t s l o w wage component e f f e c t i v e l y s e t s t h e w o r l d s p o t m a r k e t p r i c e a n d s e t s i t v e r y l o w . E v e n a f t e r t h e w o r l d economy h a s h a d a n e x t e n d e d p e r i o d o f g r o w t h , marked i n c r e a s e s i n p r i c e s a r e u n l i k e l y b e c a u s e o f b u r g e o n i n g n a t i o n a l s t o c k - p i l e s a n d t h e e normous o v e r s u p p l y o f c a p a c i t y — f r o m e x i s t i n g , n e w l y - c o n s t r u c t e d a n d t e m p o r a r i l y - c l o s e d m i n e s . F o r t h i s r e a s o n , F r a n c e , t h e s e c o n d l a r g e s t i m p o r t e r o f t h e r m a l c o a l a f t e r J a p a n , h a s n o t r e n e w e d any c o n t r a c t s f o r s u p p l y . F e e l i n g no l o n g - t e r m t h r e a t t o p r i c e o r s u p p l y , t h e y have o p t e d t o d e p e n d e n t i r e l y o n t h e s p o t m a r k e t . " W o r l d p r i c e s a r e s o l o w t h a t e a s t c o a s t U.S. u t i l i t i e s a r e p u r c h a s i n g o f f s h o r e r a t h e r 7 t h a n U.S. c o a l " . N e e d l e s s t o s a y , t h e J a p a n e s e w i l l now c o n s i d e r - -90 p r i c e a s t h e d e t e r m i n i n g f a c t o r i n a n y new p u r c h a s e s o f e i t h e r met. o r t h e r m a l c o a l . W i t h r e g a r d t o p r i c e f o r n o r t h e a s t c o a l , t h e J a p a n - e s e e s t a b l i s h e d a c o n t r a c t e d p r i c e a s a r e s u l t o f p r i v a t e c o m m e r c i a l n e g o t i a t i o n b e t w e e n b u y e r a nd s e l l e r . B e c a u s e o f t h e i r c o n c e r n f o r c o s t o v e r r u n s t h e y e s t a b l i s h e d t h e i r own f o r m u l a f o r e s c a l a t i n g t h e p r i c e o f t h e c o a l . The s t e e l - m a k e r s n e g o t i a t e d t h e c o n t r a c t s w i t h f u l l k n o w l e d g e o f t h e p o t e n t i a l c o s t s o f t h e p r o j e c t , w h i c h a c t u a l l y f i n i s h e d u n d e r b u d g e t . No one was t a k e n b y s u r p r i s e . On t h e s t r e n g t h o f t h e c o n t r a c t t e r m s , g o v e r n m e n t s , i n t e r n a t i o n a l b a n k s a n d many c o m p a n i e s i n v e s t e d i n n o r t h e a s t c o a l . The p r o b l e m was t h a t i n t h e s c r a m b l e t o s e c u r e s u p p l i e s o f met. c o a l f o r t h e p r o s p e r o u s d a y s t o come, b o t h t h e J a p a n e s e and C a n a d i a n s h ad b e e n o v e r l y o p t i m i s t i c . Ap- p e n d i x 4 shows t h e J a p a n e s e a nd C a n a d i a n f o r e c a s t s f o r J a p a n e s e s t e e l p r o d u c t i o n ( h e n c e met. c o a l demand) i n r e l a t i o n t o a c t u a l p r o d u c t i o n d u r i n g t h e p e r i o d when t h e mega p r o j e c t was b e i n g n e g o t i a t e d . I t i s i n t e r e s t i n g t o remember t h a t a t t h a t t i m e t h e C a n a d i a n g o v e r n m e n t was p r e d i c t i n g t h a t by 198 5 t h e p r i c e o f o i l w o u l d be $ 8 0 / b a r r e l and g o l d w o u l d be o v e r $ 2 0 0 0 / o u n c e . D e s p i t e t h e i r m i s t a k e , t h e J a p a n e s e w i l l n o t c o n t i n u e t o p a y a p r i c e f o r n o r t h e a s t c o a l f a r a b o v e t h e m a r k e t p r i c e , when t h e c o n t r a c t s t i p u l a t e s t h a t t h e y may r e n e g o t i a t e "when t h e e s c a l a t e d p r i c e i s o u t o f l i n e w i t h o t h e r W e s t e r n C a n a d i a n c o a l . . T h i s d o e s n o t mean t h a t t h e y w i l l f o r c e a p r i c e t h a t w i l l e n d a n g e r - 91 " t h e p r o j e c t o r t h e i r own i n v e s t m e n t i n i t . As N o r t h e a s t C o a l c o o r d i n a t o r Ron B a s f o r d h a s s t a t e d , " t h a t c l e a r l y i s n o t i n 8 t h e C a n a d i a n i n t e r e s t — i t i s n o t i n t h e J a p a n e s e i n t e r e s t . " The J a p a n e s e s t r a t e g y h a s b e e n e x p l a i n e d i n game t h e o r y t e r m s . By c o m m i t t i n g c a p i t a l , J a p a n e s e i n v e s t - o r s a r e i n e f f e c t r e d u c i n g t h e i r ex p o s t i n c e n t i v e s t o b a c k down f r o m l o n g - t e r m c o n t r a c t s , g i v e n t h e i r i n t e r e s t i n e a r n i n g an a d e q u a t e y i e l d o n t h e i r i n - v e s t m e n t . T h i s s e l f - i n f l i c t e d l i m i t - a t i o n on t h e i r f r e e d o m o f a c t i o n n a r r o w s down t h e n e g o t i a t i o n s e t and makes a c o o p e r a t i v e o u t c o m e more l i k e l y . T h i s i n t u r n i n c r e a s e s t h e e x a n t e i n c e n t i v e s o f t h e o t h e r p l a y e r s ( b a n k s and e x p o r t i n g c o u n t r i e s ) t o p a r t i c i p a t e i n t h e game. C u r r e n t l y t h e r e a r e a d d e d i n c e n t i v e s f o r t h e J a p a n e s e t o m a i n t a i n t h e i r c o m m i t m e n t t o v o l u m e and p r i c e . I r o n i c a l l y , t h e same p r o b l e m t h a t h a s c a u s e d t h e s t e e l i n d u s t r y t o i n v e s t o v e r s e a s w i l l h e l p s a v e t h e N o r t h e a s t C o a l P r o j e c t . T r a d e f r i c t i o n h a s c a u s e d t h e m o s t s e r i o u s r i f t e v e r w i t h i n t h e z a i k a i . The m a t u r e h e a v y i n d u s t r i e s s u c h a s s t e e l a n d c h e m i c a l , whose e x p o r t d e p e n d e n c i e s a r e now r e l a t i v e l y l i g h t and who p r i d e them- s e l v e s o n p l a c i n g t h e n a t i o n ' s i n t e r e s t b e f o r e t h e i r own, h a v e come o u t i n f a v o u r o f b r o a d - r a n g i n g v o l u n t a r y e x p o r t c o n t r o l s . Y o s h i h i r o I n a y a m a ( c h a i r m a n o f K e i d a n r e n ) h a s a n n o u n c e d a p h i l o s o p h y o f o r d e r l y m a r k e t i n g . B u t E i j i T o y o d a ( c h a i r m a n o f T o y o t a a n d v i c e - c h a i r m a n o f K e i d a n r e n ) and T a k a s h i I s h i h a r a ( c h a i r m a n o f N i s s a n and K e i s a i D o y u k a i ) h a v e b r o k e n r a n k s a r g u i n g t h a t " t h e r u l e s h o u l d a l w a y s be f r e e t r a d e . V o l u n t a r y c o n t r o l s a r e a n a c t o f s u i c i d e . . L i k e o p i u m , v o l u n t a r y c o n t r o l s weaken n o t o n l y t h e c o n t r o l l e r s ' economy b u t a l s o t h o s e o f i m p o r t e r s . " 1 0 The a u t o i n d u s t r y h a s c h a m p i o n e d t h e c a u s e o f o t h e r g r o w t h s e c t o r s s u c h a s c o m m u n i c a t i o n s and e l e c t r o n i c s t h a t d e p e n d on f r e e a n d c l e a r a c c e s s t o W e s t e r n m a r k e t s . The d e s i r e o f t h e s e g r o w t h i n d u s t r i e s t o c o n t i n u e t h e i r l u c r a t i v e e x p o r t s t o C a n a d a has g i v e n t h e C a n a d i a n g o v e r n m e n t i n c r e a s e d b a r g a i n - i n g l e v e r a g e i n d e a l i n g w i t h t h e J a p a n e s e . The p r o t e c t i o n o f J a p a n e s e a u t o i m p o r t s was p r e s u m a b l y t h e r e a s o n f o r r e c e n t J a p a n e s e i n v e s t m e n t i n C a n a d a ' s " a u t o b e l t " . The M i n i s t e r f o r E x t e r n a l A f f a i r s , J o e C l a r k , h a s a l r e a d y h i n t e d a t a c l o s e r e l a t i o n s h i p b e t w e e n t h e N o r t h e a s t C o a l P r o j e c t and a u t o i m p o r t s . The J a p a n e s e know t h a t f o r t h e N o r t h - e a s t C o a l D e v e l o p m e n t p r o j e c t a n d o t h e r s t o c o l l a p s e ( i t ) w o u l d u n d e r - c u t t h o s e i n t h i s c o u n t r y who h a v e a r g u e d s o s u c c e s s f u l l y f o r t h e o p e n - i n g up o f J a p a n e s e - C a n a d i a n T r a d e — w o u l d p r o v i d e t h e v o i c e s o f p r o - t e c t i o n i s m i n t h i s a n d o t h e r c o u n t r j ^ s w i t h t h e v e r y a m m u n i t i o n t h e y w a n t . I n t h e c o u r s e o f t h e r e c e n t J a p a n - C a n a d a t r a d e f r i c t i o n o v e r a u t o m o b i l e s , Don P h i l l i p s l o b b i e d f e d e r a l T r a d e M i n i s t e r Ed Lumley o n b e h a l f o f t h e J a p a n e s e . He s a i d , " t h e B.C. g o v e r n m e n t b e l i e v e s i t i s u n r e a s o n a b l e t o e x p e c t J a p a n t o c u t e x p o r t v o l u m e s 12 j u s t b e c a u s e t o t a l a u t o s a l e s a r e down i n C a n a d a . " J a p a n e s e i n d u s t r i e s h a v e i n v e s t e d m i l l i o n s i n c e n t r a l C a n a d a t o g a i n m a r k e t a c c e s s a n d t o w i n new p o l i t i c a l f r i e n d s . I t i s u n l i k e l y t h e y w i l l d e s e r t t h e i r o l d f r i e n d s . The J a p a n e s e w i l l c o n t i n u e t o p a y a p r e m i u m f o r n o r t h - e a s t c o a l i f w o r l d p r i c e s r e m a i n d e p r e s s e d . I t i s c l e a r t h a t t h e i r d e s i r e f o r a c o o p e r a t i v e o u t c o m e i s a t l e a s t a s i m p o r t a n t a s t h e a m b i g i o u s t e r m s o f t h e n o r t h e a s t c o a l c o n t r a c t s . The - 93 - u l t i m a t e p r i c e w i l l a l m o s t c e r t a i n l y d e p e n d on t h e l o w e s t l e v e l n e e d e d t o m a i n t a i n t h e v i a b i l i t y o f t h e p r o j e c t . I n t h e l a s t a n a l y s i s , t h e p r o j e c t w i l l n o t be s a c r i f i c e d t o m a r k e t p r i c e . - 94 - C h a p t e r V I I C o n c l u s i o n s A t t h e o u t s e t o f t h i s s t u d y a number o f q u e s t i o n s w e r e r a i s e d . F o r i n s t a n c e , how do t h e J a p a n e s e s e e k s e c u r e s u p p l i e s o f c o a l ? Do t h e y s e e k l o w p r i c e s by c r e a t i n g a n e x c e s s s u p p l y ? What c o n d i t i o n s h a v e c h a n g e d s i n c e t h e c o a l c o n t r a c t s w e r e s i g n e d a n d how do t h e y a f f e c t n o r t h e a s t c o a l ? F i n a l l y , w i l l t h e J a p a n e s e a b i d e by t h e t e r m s o f t h e c o n t r a c t ? I n a n s w e r t o t h e f i r s t q u e s t i o n , t h e J a p a n e s e s e e k s e c u r e s u p p l i e s o f c o a l t h r o u g h t h e s t r a t e g i e s d e s c r i b e d h e r e i n a s c o o r d i n a t e d p r o c u r e m e n t , q u a s i - i n t e g r a t i o n and d i v e r s i f i c a t i o n . C o o r d i n a t e d p r o c u r e m e n t i s a J a p a n e s e b u s i n e s s m e thod o f g r o u p i n g t o g e t h e r f o r t h e b e n e f i t s o f monopsony p u r c h a s i n g , j o i n t b a r g a i n i n g and r i s k s h a r i n g . The g o v e r n m e n t o f J a p a n , c h i e f l y t h r o u g h M I T I h a s b e e n i n s t r u m e n t a l i n g u i d i n g t h i s c o n c e n s u a l a p p r o a c h i n c o a l p r o c u r e m e n t . I t i s s u g g e s t e d h e r e t h a t J a p a n - e s e m u l t i - n a t i o n a l s t e e l c o m p a n i e s h a v e n o t a c t e d a s t r u e m u l t i - n a t i o n a l s b u t a s " n a t i o n a l i s t i c " c o m p a n i e s o p e r a t i n g w o r l d - w i d e . The d e c i s i o n s o f t h e s t e e l c o m p a n i e s t o i n v e s t i n p r o d u c t i o n i n t h e U.S. s t e e l s e c t o r d e s p i t e i t s l o w p r o d u c t i v i t y was m o t i v a t e d by a d e s i r e t o a s s u a g e A m e r i c a n p r o t e s t s a t J a p a n e s e t r a d i n g p r a c t i c e s . T h i s c a s e s t u d y c o n f i r m s t h e c u r r e n t b e l i e f t h a t i n t i m e s o f l o w demand t h e J a p a n e s e g i v e s p e c i a l c o n s i d e r a t i o n t o t h o s e s u p p l i e r s w i t h w h i c h t h e y a r e q u a s i - i n t e g r a t e d , e s p e c i a l l y i f t h e y h a v e an e q u i t y i n v e s t m e n t . D i v e r s i f i c a t i o n w i l l c o n t i n u e t o be a c o r n e r s t o n e o f J a p a n ' s p o l i c y o f s e c u r i t y - 95 - o f s u p p l y . I n 1 985, a r a i l s t r i k e i n New S o u t h W a l e s was a d e c i d i n g f a c t o r i n p u r c h a s i n g weak c o a l f r o m s o u t h e a s t e r n B.C. However, t h e J a p a n e s e w i l l now p a y more a t t e n t i o n t o p r i c e as t h e k e y f a c t o r i n any f u r t h e r p u r c h a s e s . B e c a u s e o f t h e g l u t , t h e p e n d u l u m h a s now swung f r o m c o n c e r n o v e r s u p p l y t o c o n c e r n o v e r p r i c e . One c a n e x p e c t f u t u r e p u r c h a s e s t o be e i t h e r on t h e s p o t m a r k e t o r f r o m s u p p l i e r s w i t h whom q u a s i - i n t e g r a t i o n a l r e a d y e x i s t s b e c a u s e new m i n e s w h i c h s u f f e r f r o m h i g h e r c a p i t a l c o s t s a r e more e x p e n s i v e . I n d e e d no new c o n t r a c t s f o r r e g u l a r c o k i n g c o a l h a v e b e e n s i g n e d b y t h e s t e e l - m a k e r s s i n c e 1 9 8 1. Any f u t u r e c o n t r a c t s w i l l be o f a s h o r t - t e r m d u r a t i o n , t h e y s a y . T h i s s t u d y c o n t r a d i c t s t h e c o n s p i r a c y t h e o r y t h a t t h e J a p a n e s e p l o t t e d t o p r o m o t e t h e N o r t h e a s t C o a l P r o j e c t i n o r d e r t o c r e a t e a g l u t o f c o k i n g c o a l t o d e p r e s s w o r l d p r i c e s . 1 T h i s c o n s p i r a c y t h e o r y i s r e f u t e d on a number o f g r o u n d s . The J a p a n e s e , l i k e o t h e r r e s o u r c e p u r c h a s e r s , h a v e a l w a y s o v e r b o u g h t b y a m a r g i n o f a b o u t 20% b e c a u s e o f c h r o n i c d e l i v e r y s h o r t f a l l s . None o f t h e p a r t i e s i n v o l v e d , i n c l u d i n g t h e C a n a d i a n g o v e r n m e n t s , t h e i n t e r n a t i o n a l b a n k s o r t h e c o a l c o m p a n i e s , f o r e s a w a p r o l o n g e d r e c e s s i o n . The g l u t o f c o a l was c a u s e d n o t b y o v e r e x p a n s i o n , b u t by r e d u c e d s t e e l demand. The J a p a n e s e c o n t i n u e d t o pump money i n t o t h e p r o j e c t e v e n a f t e r t h e r e c e s s i o n s t a r t e d a n d a g l u t e x i s t e d . I t was t h e c o n t i n u e d r e c e s s i o n t h a t b r o u g h t l o w e r s t e e l demand and h a s t e n e d i n d u s t r i a l r e s t r u c t u r i n g , e s p e c i a l l y a f t e r t h e p r o j e c t e d u p t u r n i n 1985 - 96 - f a i l e d t o m a t e r i a l i z e . Whenever M I T I h a s i n c r e a s e d i t s demand f o r e c a s t i t h a s g i v e n g r e a t e r b a r g a i n i n g l e v e r a g e t o i t s s u p p l i e r s . I n 1983, when M I T I f o r e c a s t a s h a r p r e c o v e r y f o r 1984 ( w h i c h d i d n o t m a t e r i a l i z e ) , A u s t r a l i a n and C a n a d i a n s u p p l i e r s ( e x c e p t f o r n o r t h e a s t c o a l ) s u c c e s s - f u l l y r e b u f f e d J a p a n e s e demands f o r a c h e a p e r p r i c e . I f t h e i n t e n t o f t h e J a p a n e s e h a d b e e n t o c r e a t e a g l u t o f c o a l t h e y c o u l d h a v e m e r e l y e n c o u r a g e d a d d i t i o n a l p r o j e c t s i n A u s t r a l i a and s o u t h e a s t e r n B.C. t h e r e b y a v o i d i n g t h e c o s t - l i n e s s t o t h e m s e l v e s o f t h e n o r t h e a s t d e v e l o p m e n t . A l t h o u g h J a p a n h a s b e n e f i t t e d f r o m t h e o v e r - s u p p l y i n m e t a l l u r g i c a l c o a l i n t e r m s o f p r i c e , t h e g l u t h a s n o t b e e n e n t i r e l y w i t h o u t c o s t . J a p a n ' s c o m p e t i t o r s , t h e N I C s , w h i c h a r e n o t t i e d i n t o e x p e n s i v e l o n g - t e r m c o n t r a c t s h a v e b e n e f i t t e d a n d h a v e i n - c r e a s e d t h e i r c o m p e t i t i v e p o s i t i o n v i s - a - v i s t h e J a p a n e s e . I r o n i c a l l y , t h e f o r m u l a w h i c h h a s p u s h e d t h e p r i c e o f n o r t h e a s t c o a l f a r a b o v e t h e m a r k e t l e v e l was p u t i n t o t h e c o n t r a c t s a t t h e i n s i s t e n c e o f t h e J a p a n e s e . I f t h e J a p a n e s e h a d r e a l l y e x p e c t e d a g l u t o f c o a l t o e x i s t i n t h e m i d 1 9 8 0 ' s , t h e y w o u l d n o t h a v e i n s i s t e d on t h e p r e c i s e e s c a l a t i o n f o r m u l a t h a t w o u l d c o s t them m i l l i o n s o f d o l l a r s and make them l e s s c o m p e t i t i v e . H e a t h e r G i b b a l s o d o e s n o t a c c e p t t h e c o n s p i r a c y t h e o r y b u t o f f e r s a s an e x p l a n a t i o n t h e J a p a n e s e d e s i r e f o r d i v e r s i f i c a t i o n and t h e p r o p o s i t i o n t h a t t h e J a p a n e s e a r e i n c a p a b l e o f c o o r d i n a t i n g a d e c e p t i o n . She c o n c l u d e s t h a t , - 97 - by e x a m i n i n g Japan's a p p r o a c h t o p r o c u r i n g m e t a l l u r g i c a l and t h e r m a l c o a l , t h e " J a p a n Inc." a p p e l l a t i o n i s a m i s l e a d i n g d e s c r i p t i o n o f t h e n a t u r e o f d e c i s i o n - m a k i n g i n J a p a n . The v i e w t h a t a t r i u m v i r a t e o f t o p b u s i n e s s , p o l i t i c a l a n d b u r e a u c r a t i c o f f i c i a l s e f f e c t i v e l y d e t e r m i n e s p o l i c y , ' i g n o r e s t h e o b v i o u s : e a c h s e c t o r i s n o t a m o n o l i t h . G i b b s t a t e s t h a t , c o n t r a r y t o p a s t W e s t e r n p e r c e p t i o n s , J a p a n d o e s n o t a c t l i k e one g i a n t c o r p o r a t i o n , and d e t a i l s e x a m p l e s o f b u s i n e s s - g o v e r n m e n t d i f f e r e n c e s i n g e n e r a l . I n one c e l e b r a t e d e x a m p l e i n t h e 1 9 6 0 s , Sumitomo b r i e f l y r e f u s e d t o f o r e g o a p o r t i o n o f i t s s h a r e o f t h e s t e e l e x p o r t m a r k e t f o r t h e "common g o o d " d e s p i t e a d m i n i s t r a t i v e g u i d a n c e . H owever, C h a p t e r I I o f t h i s p a p e r , s u p p o r t e d by t h e c a s e - s t u d y i n C h a p t e r s I I I and I V , c l e a r l y shows t h a t f o r c o a l p r o c u r e - ment, c o o r d i n a t e d a c t i o n r e m i n i s c e n t o f t h e J a p a n I n c . s t e r e o - t y p e s i l l e x i s t s . G i b b d o e s n o t r e f u t e t h i s . I n s t e a d , s h e c i t e s d i s a g r e e m e n t s b e t w e e n M I T I a n d i n d i v i d u a l s t e e l c o m p a n i e s a b o u t t h e i r m a r k e t p r o p o r t i o n s f o r f i n i s h e d s t e e l p r o d u c t s a s w e l l a s d e b a t e w i t h i n t h e S t e e l F e d e r a t i o n o v e r c o a l p r o c u r e - ment. D e s p i t e t h e o f t e n i n t e n s e d e b a t e among s t e e l c o m p a n i e s , i n e v e r y c a s e a u n i t e d p o s i t i o n i s p u t t o t h e c o a l m i n i n g c o m p a n i e s i n t h e e n d . I n s h o r t , w h i l e t h e J a p a n e s e S t e e l F e d e r a t i o n h a s t h e a b i l i t y t o c o n s p i r e t o o v e r c o m m i t i t s e l f t o c o k i n g c o a l , i t s i m p l y d i d n o t i n t h i s c a s e . I n f a c t , t h e J a p a n e s e do n o t g e n e r a l l y w i s h t o s t r a i n t h e r e l a t i o n s h i p w i t h - 98 - t h e i r t r a d i n g p a r t n e r s f o r f e a r o f u n d e r m i n i n g c r u c i a l a c c e s s t o t h e i r m a r k e t s . F o r t h i s r e a s o n , J a p a n e s e c o m p a n i e s have i n v e s t e d b i l l i o n s o f d o l l a r s o v e r s e a s . Why t h e n d i d t h e J a p a n e s e i n v e s t i n n o r t h e a s t c o a l ? The c a s e s t u d y h a s shown t h a t d u r i n g t h e k e y d e c i s i o n - m a k i n g p e r i o d j u s t a f t e r t h e s e c o n d o i l c r i s i s , d i v e r s i f i c a t i o n was t h e m o s t f u n d a m e n t a l c o n c e r n . I n d e c i d i n g w h e r e t o i n v e s t , t h e m i l l s s e t t l e d o n n o r t h e a s t e r n B.C., f e e l i n g c o n f i d e n t e nough t o s i g n a l o n g - t e r m c o n t r a c t w i t h s u f f i c i e n t v o l u m e t o make t h e p r o j e c t v i a b l e . The r e a s o n s w e r e : ( i ) t h e m i l l s w o u l d n o t h a v e e n o u g h c o k i n g c o a l by 1 9 8 3 , f o r c i n g them t o w ork b e l o w c a p a c i t y ; ( i i ) t h e y w o u l d a c q u i r e a s e p a r a t e p o r t a n d r a i l i n f r a s t r u c t u r e w i t h a d i f f e r e n t r a i l company and a p o r t c l o s e r t o J a p a n t h a n R o b e r t s Bank; ( i i i ) o t h e r p o r t s w e r e o v e r - e x t e n d e d by t h e i n c r e a s e d demand f o r c o a l ; ( i v ) s t r i k e s i n A u s t r a l i a , P o l a n d a n d t h e U.S. w e r e d i s r u p t i n g t h e i r s u p p l y ; (v) s t r i k e s i n C a nada were r a r e r a n d more p r e d i c t a b l e ; ( v i ) t h e p r o v i n c i a l g o v e r n m e n t was now i n v o l v e d i n s o u t h e a s t B.C. t h r o u g h B.C.R.I.C.; ( v i i ) U.S. c o a l w o u l d l i k e l y h a v e t o be s h i p p e d f r o m t h e e a s t c o a s t w i t h h i g h t r a n s p o r t c o s t s ; (An i n v e s t m e n t now i n n o r t h e a s t c o a l m i g h t a l l o w t h e m i l l s t o d e f l e c t U.S. p r e s s u r e t o buy i t s c o a l l a t e r a s t h e s t e e l m i l l s w o u l d a l r e a d y h a v e e n o u g h c o a l u n d e r c o n t r a c t ) ; ( v i i i ) g r e a t e r p o t e n t i a l s u p p l i e s i n t h e n o r t h e a s t c o u l d be u s e d a s a l e v e r a g a i n s t o t h e r s u p p l i e r s i n p r i c e n e g o t i a t i o n s ; a n d ( i x ) t h e m i l l s c o u l d n o t a g r e e t o s c r a p t h e n e g o t i a t i o n s a s NKK a n d Kobe S t e e l w e r e - 99 - c o n v i n c e d o f t h e p r o j e c t ' s m e r i t . I t seems s o e a s y t o c r i t i c i z e t h e c o a l p r o j e c t now t h a t c h a n g i n g m a r k e t c o n d i t i o n s h a v e p u s h e d i t t o t h e b r i n k o f i n s o l v e n c y . The most c r u c i a l p e r i o d f o r any new r e s o u r c e p r o j e c t i s when p r o d u c t i o n b e g i n s , when d e b t s e r v i c i n g a n d s t a r t up c o s t s a r e t h e most o n e r o u s . N o r t h - e a s t c o a l f a c e d b o t h t h e r e c e s s i o n a nd p r o d u c t i o n p r o b l e m s a t Q u i n t e t t e d u r i n g t h i s v u l n e r a b l e p e r i o d . The r e c e s s i o n a n d t h e r e s u l t a n t p r o t e c t i o n i s m t h a t s w e p t t h e w o r l d i n t h e m i d 1980s h a s f o r c e d t h e J a p a n e s e t o a d a p t by a c c e l e r a t i n g a r e s t r u c t u r i n g o f t h e i r s t e e l i n d u s t r y and s c r a p p i n g much o f t h e i r o v e r c a p a c i t y , t h e r e b y r e d u c i n g t h e i r c o a l demand. D e c r e a s e d w o r l d demand f o r s t e e l h a s c u t i n t o J a p a n ' s m a r k e t - s h a r e w h i l e t h e c o m p e t i t i v e s t e e l i n d u s t r i e s o f t h e NICs a r e m a i n t a i n i n g p o s i t i v e g r o w t h . C u r r e n t l y , two o t h e r s t o r m c l o u d s , n o t as y e t m e n t i o n e d , l o o m on t h e h o r i z o n . The v e r y r e a l p r o s p e c t o f a b r e a k - u p o f OPEC a n d a s u b s t a n t i a l r e d u c t i o n i n t h e p r i c e o f o i l w i l l f u r t h e r p r e s s u r e t h e p r i c e o f n o r t h e a s t c o a l . S e c o n d l y , t h e M i n i n g A s s o c i a t i o n o f Canada h a s w a r n e d o f t h e n e g a t i v e i m p a c t a C a n a d i a n - A m e r i c a n f r e e t r a d e a g r e e m e n t m i g h t 4 h a v e o n B r i t i s h C o l u m b i a ' s c o a l i n d u s t r y . They a r g u e t h a t i f C a n a d a w e r e t o p l a c e i t s e l f u n d e r t h e A m e r i c a n p r o t e c t i o n i s t u m b r e l l a , o r i f i t d e c i d e d t o buy more goods f r o m t h e U.S. - 100 - t h a n f r o m J a p a n , t h e n J a p a n m i g h t r e t a l i a t e by r e d u c i n g i t s p u r c h a s e s o f c o a l . Two o t h e r a r e a s n e e d t o be e x p l o r e d by f u r t h e r s t u d y . The f i r s t i s t h e d e g r e e t o w h i c h g o v e r n m e n t s o f r e s o u r c e - e x p o r t i n g c o u n t r i e s c a n m i t i g a t e t h e p r e s s u r e s o f J a p a n ' s monopsony power. T h i s s t u d y h a s shown t h a t i n some c a s e s , g o v e r n m e n t s c a n a d d t o t h e b a r g a i n i n g l e v e r a g e o f t h e i r r e s o u r c e e x p o r t i n g c o m p a n i e s . A s e c o n d i m p o r t a n t q u e s t i o n i s t h e e x t e n t t o w h i c h t h e n e w l y - i n d u s t r i a l i z i n g c o u n t r i e s w i l l a b s o r b t h e s l a c k e n e d demand f o r n o r t h e a s t c o a l . I t h a s b e e n s u g g e s t e d t h a t some N I C s may b y p a s s t h e " i r o n - a g e " a n d t a r g e t new m a t e r i a l s . Some N I C s h a v e c o a l d e p o s i t s o f t h e i r own. J a p a n w i l l c o n t i n u e i t s a m b i t i o u s i n d u s t r i a l r e s t r u c t u r i n g a n d t h e m a r k e t f o r n o r t h e a s t c o a l w i l l c o n t i n u e t o become s e v e r e l y d e p r e s s e d . New p u r c h a s e r s must be s o u g h t o u t by 1987, when t h e J a p a n e s e w i l l r e v i e w t h e n o r t h e a s t c o a l c o n t r a c t s . B u t f i n d i n g new c o a l b u y e r s w i l l r e m a i n e x t r e m e l y p r o b l e m a t i c a s l o n g a s t h e w o r l d p r i c e r e m a i n s l o w a n d w o r l d demand f o r s t e e l s t a y s d e p r e s s e d , a s i t u a t i o n t h i s s t u d y f i n d s t o be t h e most l i k e l y s c e n a r i o . How g o o d a r e t h e c o n t r a c t s ? T h i s c a s e - s t u d y h a s shown them t o be s l i g h t l y a m b i g u o u s b e c a u s e t h e y d i d n o t make s u f f i c i e n t p r o v i s i o n s f o r r e n e g o t i a t i o n s i n t h e e v e n t o f a p r o l o n g e d r e c e s s i o n . B u t a s J e a n S o r e n s e n , a n a l y s t f o r - 101 - t h e C a n a d i a n M i n i n g J o u r n a l , h a s s a i d , t h e c o n t r a c t s a r e a s good an any a g r e e m e n t i n t o d a y ' s r o l l e r c o a s t e r w o r l d o f h i g h f i n a n c e . . . The c a s u a l n e w s p a p e r r e a d e r may see ( t h e c o n - t r a c t s ) as one o f t h e m a i n c o n - t r i b u t o r s t o t h e woes o f t h e c o a l i n d u s t r y . I n f a c t , a s any a s t u t e o b s e r v e r c a n t e l l y o u , t h e c o n t r a c t s a r e p r e c i s e l y t h e r e a s o n t h e i n d u s t r y i s p r o b a b l y t h e h e a l t h i e s t i n B.C.'s t r o u b l e d m i n i n g s e c t o r . I m a g i n e t h e p l i g h t o f a new met. c o a l p r o d u c e r w i t b . no s u c h c o n t r a c t t o f a l l b a c k o n . E q u a l l y a s i m p o r t a n t a s t h e c o n t r a c t s i s t h e d e s i r e o f e a c h s i d e t o r e a c h a n e q u i t a b l e o u t c o m e . The b a l a n c e s h e e t shows t h a t q u a s i - i n t e g r a t i o n h a s b e e n f a r more b e n e f i c i a l t h a n d e t r i m e n t a l f o r t h e J a p a n e s e s t e e l i n d u s t r y e s p e c i a l l y f o r s e c u r i n g c o a l s u p p l y . I n g e n e r a l , o v e r t h e l a s t 30 y e a r s , J a p a n h a s p r o c u r e d i t s raw m a t e r i a l s ( i n c l u d i n g c o a l ) a t a more f a v o u r a b l e r a t e t h a n t h e o t h e r a d v a n c e d w e s t e r n n a t i o n s . Thus J a p a n may w i s h t o m a i n t a i n t h e c o n v e n t i o n s o f a s y s t e m w h i c h p r o t e c t s one s i d e o r t h e o t h e r d u r i n g p r i c e f l u c t u a t i o n s . D u r i n g 1980 when t h e d e c i s i o n t o i n v e s t i n t h e N o r t h e a s t C o a l P r o j e c t was made, s e c u r i n g a n o t h e r s o u r c e o f s u p p l y was t h e m a j o r i n c e n t i v e . S u p p o s e d l y , t h a t s t i l l a p p l i e s . As one M i t s u i e x e c u t i v e t o l d t h e a u t h o r , " t h e ( e x t r a ) $ 2 1 / t o n i s f o r i n s u r a n c e premium." N e v e r t h e l e s s , t h e r e i s a l i m i t t h e J a p a n e s e a r e w i l l i n g t o p a y f o r d i v e r s i f i c a t i o n . The N o r t h e a s t C o a l P r o j e c t , c o n c e i v e d i n boom t i m e s , w i l l c o n t i n u e t o be t r o u b l e d i n l o w g r o w t h , p r o t e c t i o n i s t t i m e s . Of n e c e s s i t y , t h o s e t r o u b l e s w i l l c o n t i n u e t o be - 102 - t a c k l e d b y t h e J a p a n e s e and t h e i r C a n a d i a n c o u n t e r p a r t s i n a s p i r i t o f c o o p e r a t i o n . The J a p a n e s e w i l l b a c k o u t o f t h e p r o j e c t , d e s t r o y i n g i t s e c o n o m i c v i a b i l i t y , o n l y i f t h e h i g h c o s t o f p u r c h a s i n g n o r t h e a s t c o a l a s o p p o s e d t o l o w e r c o s t a l t e r n a t i v e s comes t o o u t w e i g h b o t h t h e i r e q u i t y i n v e s t m e n t a n d t h e p o l i t i c a l r e p e r c u s s i o n s t h a t w o u l d f o l l o w . C u r r e n t l y , t h a t i s h i g h l y u n l i k e l y . - 103 - FOOTNOTES C h a p t e r 1 F o o t n o t e s f r o m pp. 1 - 9 1. G o v e r n m e n t o f C a n a d a , D e p a r t m e n t o f E x t e r n a l A f f a i r s , C a n a d a ' s E x p o r t D e v e l o p m e n t P l a n F o r J a p a n , ( O t t a w a , Queen's P r i n t e r , 1 9 8 2 ) , p. 28. 2. P r o v i n c e o f B r i t i s h C o l u m b i a , M i n i s t r y o f I n t e r n a t i o n a l T r a d e a n d I n v e s t m e n t , P a c i f i c R i m E x p o r t M a r k e t s , ( V i c t o r i a , Queen's P r i n t e r , 1 9 8 5 ) , p. 58. 3. Q u o t e d f r o m P. Nemetz and I . V e r t i n s k y , J a p a n a n d t h e I n t e r - n a t i o n a l M a r k e t f o r LNG, ( V a n c o u v e r , I n s t i t u t e o f A s i a n R e s e a r c h , U.B.C. F e b . 1 9 8 4 ) , p. 11; s e e a l s o P. Nemetz and I . V e r t i n s k y , "The J a p a n e s e a n d LNG; L o o k i n g f o r t h e R e a l M a r k e t " , E q u i t y , ( J u n e 1 9 8 5 ) , p. 20; P. Nemetz, I . V e r t i n s k y a n d P. V e r t i n s k y , J a p a n ' s E n e r g y S t r a t e g y a t t h e C r o s s r o a d s , ( V a n c o u v e r , I n s t i t u t e o f A s i a n R e s e a r c h , U . B . C , Nov. 1 9 8 3 ) , p. 1 1 ; J a c q u e l i n e Maund, "The I m p l i c a t i o n s o f t h e J a p a n e s e R e s o u r c e P r o c u r e m e n t S t r a t e g y f o r S t a p l e R e s o u r c e R e g i o n s : An E x a m i n a t i o n o f C o a l M i n i n g i n S o u t h e a s t e r n B.C.", (MA T h e s i s , D e p t . o f G e o g r a p h y , U . B . C , A p r i l 1 9 8 4 ) , p. i i i ; a n d K. B a y l i s a n d S. H a n d e l s m a n , " I n t e r n a t i o n a l T r a d e i n C o a l " , ( L o s A n g e l e s , S o c i e t y o f M i n i n g E n g i n e e r s , F e b . 1984) p. 2. 4. K r i s t i E. V a r a n g u , D e v e l o p m e n t O p t i o n s f o r B.C. C o a l , ( C a l g a r y , C a n a d i a n E n e r g y R e s e a r c h I n s t i t u t e , 1 9 8 3 ) , p. 43. 5. H e a t h e r G i b b , R e - E x a m i n i n g " J a p a n I n c . " : J a p a n e s e C o a l P r o c u r e m e n t a n d W e s t e r n C a n a d i a n C o a l , ( V a n c o u v e r , I n s t i t u t e o f A s i a n R e s e a r c h , U . B . C , 1 9 8 4 ) , p. 54. 6. J o s e p h D ' C r u z , N e g o t i a t i n g C o a l C o n t r a c t s w i t h t h e J a p a n e s e S t e e l I n d u s t r y : The C o o r d i n a t e d P r o c u r e m e n t S y s t e m , (Van- c o u v e r , I n s t i t u t e o f A s i a n R e s e a r c h , U . B . C , 1 9 8 4 ) , p. 62. - 104 - Footnotes from pp. 9 - 15 7. M a r j o r i e N i c h o l s , "Mega Gamble Hasn't Paid O f f " , Vancouver Sun, January 26, 1985, p. A4; see a l s o Stan Persky, Benneitt I I , (Vancouver, New S t a r , 1983), Chapter 5. Chapter 2 1. Frank Langdon, The P o l i t i c s o f Canadian-Japanese Economic R e l a t i o n s , (Vancouver, U.B.C. Pr e s s , 1983) p. 126; and " K a i s e r - M i t s u b i s h i C o a l P r o j e c t i n West Canada Said i n Trouble", Japan Times, J u l y 25, 1972, p. 3. 2. "Japan Steps Up Canada Investment", Japan Times, May 2, 1973, p. 6. 3. Richard N. Wright, Japanese Business i n Canada, (Montreal, I n s t i t u t e f o r Research on P u b l i c P o l i c y , 1984), p. 69. 4. Dani Rodrik, "Managing Resource Dependency: The U.S. and Japan in. the Markets for'Copper.,. I r o n Ore and Bauxite", World Development, V o l . 10, No. 7, (1983) p. 542. 5. C h i k a r a H i g a s h i , Japanese Trade P o l i c y Formulation, (New York, Praeger, 1983). 6. See the a u t h o r i t a t i v e Chalmers Johnson, MITI and the Japanese M i r a c l e : Growth of I n d u s t r i a l P o l i c y , 1925 - 1975, (Stanford, S t a n f o r d U n i v e r s i t y P r e s s , 1982). 7. Sadako Ogata, "The Business Community and Japanese F o r e i g n P o l i c y " , R. A. S c a l a p i n o , The F o r e i g n P o l i c y of Modern Japan, (Los Angeles, C a l i f . Univ. Press, 1977), pp. 175-205. 8. While the LDP has held power c o n t i n u o u s l y s i n c e 1955, the b u r e a u c r a t i c - i n d u s t r i a l complex which i s e s s e n t i a l l y i t s - 105 - F o o t n o t e s f r o m p p . 1 5 - 23 power b a s e , w i l l be t h e f o c u s o f t h i s p a p e r . 9. O g a t o , p. 17 6. The s t e e l a n d e l e c t r i c i t y i n d u s t r i e s a r e t h e s e c t o r s w h i c h i m p o r t c o a l . 10. L. F r a n k o , The T h r e a t o f J a p a n e s e M u l t i n a t i o n a l s , ( T o r o n t o , J o h n W i l e y , 1 9 8 3 ) , p . 1 1 3 . 1 1 . T o s h i m a s u T s u r u t a , "A C r i t i c i s m o f C a r t e l s i n A i l i n g I n d u s t r i e s " , E c o n o m i c E y e , V o l . 4, No.2, J u n e 1 9 8 3 , pp. 6-9. 12. C h a l m e r s J o h n s o n , "The I n t e r n a t i o n a l i z a t i o n o f t h e J a p a n e s e Economy", C a l i f o r n i a Management R e v i e w , S p r i n g 1 9 8 3 , pp. 5-6. 13. Raymond V e r n o n , Two H u n g r y G i a n t s : The U.S. and J a p a n i n T h e i r Q u e s t f o r O i l and O r e s , ( C a m b r i d g e , M a s s . , H a r v a r d U n i v e r s i t y P r e s s , 1 9 8 3 ) , p. 84. , 14. E z r a V o g e l , J a p a n a s Number One, (New Y o r k , Harper. C o l o p h o n B o o k s , 1 9 7 9 ) , pp. 75 - 76. 1 5 . See C h a l m e r s J o h n s o n , M I T I a nd t h e J a p a n e s e M i r a c l e . T h i s w o r k p u t s J a p a n ' s i n d u s t r i a l p o l i c y i n h i s t o r i c a l p e r s p e c t i v e . 16. F r e i g h t c h a r g e s "as a s h a r e o f t h e l a n d e d c o s t o f J a p a n e s e i r o n o r e f e l l b y more t h a t 50% b e t w e e n 1956 - 1976, a l t h o u g h t h e a v e r a g e s h i p p i n g d i s t a n c e i n c r e a s e d b y a l m o s t 1,000 m i l e s i n t h e same p e r i o d . " D a n i R o d r i k , " M a n a g i n g R e s o u r c e D e p e n d e n c y " , p. 550. 1 7 . M o s t o f t h e i n f o r m a t i o n c o n t a i n e d i n t h i s s e c t i o n o n q u a s i - i n t e g r a t i o n a n d t h e f o l l o w i n g s e c t i o n o n c o o r d i n a t e d p r o - c u r e m e n t i s a n amalgam o f t h e a b o v e - m e n t i o n w o r k s b y V o g e l , F r a n k o , a n d J o h n s o n a n d e s p e c i a l l y V e r n o n , R o d r i k a nd D ' C r u z . - 106 - F o o t n o t e s f r o m pp. 2 3 - 3 0 18. See t h e s e c t i o n "A P e c u l i a r i t y o f J a p a n e s e I n d u s t r i a l O r g a n i z a t i o n - M o n o p s o n y " , i n M i y o h e i S h i n o h a r a , I n d u s t r i a l G r o w t h , T r a d e a n d Dynamic P a t t e r n s i n t h e J a p a n e s e Economy, ( T o k y o , T o k y o U n i v e r s i t y P r e s s , 1 9 8 2 ) , pp. 40 - 45. 19. I b i d . p. 43, S h i n o h a r a was P r e s i d e n t o f t h e E c o n o m i c R e s e a r c h I n s t i t u t e o f t h e E c o n o m i c P l a n n i n g A g e n c y o f t h e J a p a n e s e g o v e r n m e n t . 20. N i p p o n S t e e l News, No. 156, ( N i p p o n S t e e l C o r p . T o k y o , A p r i l , 1 9 8 3 ) , p. 2. 21. J o s e p h D ' C r u z , N e g o t i a t i n g C o a l C o n t r a c t s w i t h t h e J a p a n e s e S t e e l I n d u s t r y : The C o - o r d i n a t e d P r o c u r e m e n t S y s t e m , 4 9 ^ 22. D ' C r u z ' s o t h e r c o n c l u s i o n , w h i c h w i l l be c o n t e s t e d i n C h a p t e r IV o f t h i s p a p e r , i s t h a t : s u p p l i e r s w i t h i n a p a r t i c u l a r c o u n t r y w e r e t r e a t e d a s a homogenous g r o u p a n d e a c h c o u n t r y g r o u p r e c e i v e d d i f f - e r e n t t r e a t m e n t . The p r i c e p a i d t o a s u p p l i e r d e p e n d e d on t h e c o u n t r y i n w h i c h t h e s u p p l i e r was l o c a t e d . I b i d . p. 62. 23. H i r o m i t s u I s h i , " R e f o r m i n g J a p a n ' s G o v e r n m e n t - B a c k e d F i n a n c i n g / " E c o n o m i c E y e , M a r c h 1984, p. 20. ' 24. I n t e r n a t i o n a l E n e r g y A g e n c y , R e v i e w o f I.A.E. C o u n t r i e s : 1983 ( P a r i s , OECD, 1 9 8 4 ) , pp. 263 - 264. 25. I n t e r e s t i n g l y , t h e t r a d i n g f i r m s make an a l m o s t i n c o n s e q u e n t i a l c o m m i s s i o n o n c o a l i m p o r t s . From 1946 - 1970, t h e c o m m i s s i o n was 100 y e n p e r t o n ( a p p r o x . 40 c e n t US),-see D ' C r u z , p. 55. H o w e v e r , t h e i r e x i s t s a l i n k a g e , a n i n f o r m a l a g r e e m e n t w i t h t h e s t e e l m i l l s w h e r e b y t h e s o g o s h o s h a ' s s h a r e o f t h e - 107 - F o o t n o t e s f r o m pp. 30 - 34 h i g h l y l u c r a t i v e e x p o r t o f s t e e l p r o d u c t s w o u l d be i n p r o p o r t i o n t o t h e i r s h a r e o f raw m a t e r i a l i n p u t s . The s o go s h o s h a a r e t h u s e n c o u r a g e d t o d e v e l o p new s o u r c e s o f i m p o r t e d raw m a t e r i a l b e c a u s e o f t h i s l i n k a g e b e t w e e n m a r k e t s h a r e f o r i m p o r t s a n d e x p o r t s . F o r a n i n t e r e s t i n g a n a l y s i s o f J a p a n ' s c o r p o r a t e p r e o c c u p a t i o n w i t h m a r k e t s h a r e , s e e S. S c h l o s s t e i n , T r a d e War; G r e e d , Power a n d I n d u s t r i a l P o l i c y on O p p o s i t e S i d e s o f t h e P a c i f i c , (New Y o r k , Conqdon & Weed, 1 9 8 4 ) , pp. 158 - 164. 26. See V e r n o n , -'Two, H u n g r y G i a n t s , p. 1 0 3 . 27. One c a n e a s i l y u n d e r s t a n d J a p a n ' s c o n c e r n o v e r t h e s e s u p p l y e m b a r g o s . J a p a n r e l i e d o n t h e U n i t e d S t a t e s f o r 85% o f i t s s o y b e a n i m p o r t s . I n 1 9 7 2 , 7 6.3% o f J a p a n ' s e n e r g y r e q u i r e - m e nts w e r e met by o i l , o f w h i c h 99.7% came f r o m s o u r c e s a b r o a d . s e e T e r u t o m a Ozawa, M u l t i n a t i o n a l i s m J a p a n e s e S t y l e ; The P o l i t i c a l Economy o f O u t w a r d D e p e n d e n c y , ( P r i n c e t o n , P r i n c e t o n U n i v e r s i t y P r e s s , , 1 9 7 9 ) , p. 162. 28. I b i d . p. 1 6 3 . C h a p t e r I I I 1. M i c h a e l B l a k e r , " P r o b e , P u s h and P a n i c : The J a p a n e s e T a c t i c a l S t y l e i n I n t e r n a t i o n a l N e g o t i a t i o n s " , i n R o b e r t S c a l a p i n o , e d . , F o r e i g n P o l i c y o f M o d e r n J a p a n , p. 55. 2. The J a p a n e s e g o v e r n m e n t ' s i n v o l v e m e n t i n o v e r s e a s i n v e s t m e n t " t a k e s t h e f o r m o f a d m i n i s t r a t i v e g u i d a n c e . W h i l e t h e e x t e n t o f e c o n o m i c c o o p e r a t i o n w i t h f o r e i g n e n t i t i e s i s d i c t a t e d a n d s a n c t i o n e d b y t h e J a p a n e s e g o v e r n m e n t and i t s r e s p e c t i v e m i n i s t r i e s , t h e s e g o v e r n m e n t a l a g e n c i e s do n o t p l a y and a c t i v e r o l e i n a c t u a l n e g o t i a t i o n s . . . I t c o u l d be a s s u m e d , h o w e v e r , t h a t t h e r e s p e c t i v e m i n i s t r i e s a r e b r i e f e d a b o u t t h e p r o g r e s s o f s u c h n e g o t i a t i o n s " . See R o s a l i e L. Tung,"How t o N e g o t i a t e w i t h t h e J a p a n e s e " , '.. C a l i f o r n i a Management R e v i e w , Summer 1984, p. 65. - 108 - F o o t n o t e s f r o m pp. 34 - 39 T h i s was t h e c o n c l u s i o n o f a WESTPO ( W e s t e r n U.S. G o v e r n o r ' s P o l i c y O f f i c e r ) ,, R e p o r t . . . " W e s t e r n S t a t e s P l a n n i n g J a p a n e s e - S t y l e C o a l Company", V a n c o u v e r Sun, J u l y 10, 1980, p. D7. F r a n k L a n g d o n , " P r o b l e m s o f C a n a d a - J a p a n E c o n o m i c D i p l o m a c y i n t h e 1960's a n d 1 9 7 0 ' s " , i n K e i t h A . J . Hay, e d . , C a n a d i a n P e r s p e c t i v e s o n E c o n o m i c R e l a t i o n s w i t h J a p a n , ( M o n t r e a l , R e s e a r c h on P u b l i c P o l i c y I n s t i t u t e , 1 9 7 9 ) , p. 77. H.N. H a l v o r s o n C o n s u l t a n t s L t d . , F o r e c a s t o f C o a l M i n i n g A c t i v i t y t o 2002, (B.C. H y d r o a n d Power A u t h o r i t y , M a r c h 1 9 8 3 ) , p. 20. K l a u s P r i n g s h e i m , 'Comment" i n K e i t h A. J . Hay, e d . , C a n a d i a n P e r s p e c t i v e s , p. 93. G e o r g e F r o e h l i c h , " C o a l . . . . I s J a p a n e s e C o n n e c t i o n F a l t e r i n g ? " V a n c o u v e r Sun, Nov. 17, 1976, p. 36. F r a n k L a n g d o n , The P o l i t i c s o f C a n a d i a n - J a p a n e s e E c o n o m i c R e l a t i o n s 1952 - 1 9 8 3 , p . 1 2 9 . I b i d . p. 128. Rod N u t t , " J a p a n e s e L e t D e a d l i n e P a s s i n C o a l T a l k s " , V a n c o u v e r Sun, J a n . 2, 1 9 8 0 , p. D l . The a c t u a l c o s t o f t h e s p u r - l i n e was a p p r o x i m a t e l y $500 m i l l i o n . See A p p e n d i x I f o r a map o f t h e a r e a a n d p r o p o s e d s p u r - l i n e . G e o f f M u r r a y ( T o k y o ) , " S t e e l M i l l s C o n s i d e r O p t i o n s " , V a n c o u v e r S u n , J a n . 16, 1980, p. D6. A c c o r d i n g t o c o a l company e x e c u t i v e s a n d c o a l c o n s u l t a n t s See I b i d . p. D6. - 109 " F o o t n o t e s f r o m p p . 39 - 42 14. Governmental f o r e c a s t i n g as t o p r o j e c t e d demand i s extremely problematic and w i l l be d i s c u s s e d more f u l l y l a t e r i n Chapter VI, 15. Japanese s t e e l p r o d u c t i o n f o r 1979, was the t h i r d h i g h e s t ever a t 111.75 m i l l i o n m e t r i c tons. Vancouver Sun, Jan. 21, 1980, p. C l l . 16. " P h i l l i p s Says Japanese C o a l Deal Hinges on R a i l L i n e s " , Vancouver Sun, A p r i l 29, 1980, p. D5. 17. I b i d . 18. Rod Nutt, "Japanese C o a l Deal Awaits R a i l Subsidy", Vancouver Sun, May 3, 1980, p. CI. 19. " P i e c e s o f C o a l D e a l ' F a l l i n g i n t o P l a c e 1 " , V a n c o u v e r S u n , May 17, 1 9 8 0 , pp. A l , A 2 . 20. K l a u s P r i n g s h e i m , " C o m m e n t " p . 93. 21. "Tough S t r i n g s A t t a c h e d t o C o a l D e a l w i t h J a p a n " , V a n c o u v e r Sun, May 7, 1980, pp. A l , A 2 . 22. Rod N u t t , "PM W i l l i n g t o H e l p B.C. o n C o a l f i e l d s " , V a n c o u v e r Sun, May 10, 1 9 8 0 , p. C I . 23. " B e n n e t t D e n i e s T r o u b l e i n T a l k s o n C o a l D e a l " , V a n c o u v e r S u n , May 9, 1 9 8 0 , p. A2; a n d " C o a l D e a l C a l l e d P i p e Dream", V a n c o u v e r Sun, May 9, 1980, p. F l . 24. K e i t h S p i c e r , " B e h i n d t h e C o a l D e a l : B l a c k m a i l " , V a n c o u v e r Sun, J u n e 6, 1 9 8 0 , p. A5; D e r H o i Y i n , " O t t a w a S u b s i d y o f C o a l A c c o r d ' I m p r o b a b l e ' " , V a n c o u v e r S u n , May 8, 1 9 8 0 , p. E10; and " T r u d e a u , B e n n e t t C a n ' t A g r e e o n B.C. C o a l F i e l d D e v e l o p m e n t " , V a n c o u v e r Sun, May 6, 1 9 8 0 , p. A l . - n o - F o o t n o t e s f r o m pp. 4 2 - 4 7 25. The B.C. g o v e r n m e n t was a l s o c o n c e r n e d t h a t t h e CNR p l a n n e d l i n e w o u l d go t h r o u g h t h e f l o o d r e s e r v e o f t h e p r o p o s e d B.C. H y d r o M a c G r e g o r V a l l e y dam. See " C o n f u s i o n S u r r o u n d s C o a l D e a l " , V a n c o u v e r S un , J u n e 16, 1980, pp. A l , A2. 26. "$71 - $ 7 5 - a - t o n C o a l B a i t F o r J a p a n e s e D e a l " , V a n c o u v e r S u n , J u n e 1 8 , 198 0, pp. A l , A2. 27. P e t e r C o m p a r e l l i , " L a b o u r C o u n c i l O b j e c t s t o C o a l D e a l " , V a n c o u v e r S u n , J u n e 1 8 , 1980, p. A 1 0 . 28. " S o u t h e a s t e r n C o a l P r o d u c t i o n D i v o r c e d From N.E. P r o j e c t " , V a n c o u v e r S u n , J u l y 1 5 , 1 9 8 0 , P. A8. 29. "$71 - $ 7 5 - a - t o n C o a l B a i t F o r J a p a n e s e D e a l " , V a n c o u v e r Su n , J u n e 1 8 , 1 9 8 0 , pp. A l , A2. 30. I b i d . 3 1 . Rod N u t t , "An E x t r a $11 a t o n Would S u i t C a n a d a F i n e " , V a n c o u v e r S u n , May 9, 1 9 8 0 , p. F l ; s e e a l s o M i c h a e l V a l p y , " B u y i n g D e a r a n d S e l l i n g C h e a p " , V a n c o u v e r Sun, J u n e 1 9 , 1 9 8 0 , P. A4. 32. G e o f f M u r r a y , " J a p a n E n d u r e s C h a o s i n S w i t c h From O i l Power t o C o a l " , V a n c o u v e r S u n , J u l y 8, 1 9 8 0 , p. D 8. 33. I b i d . By 1982 t h e p r o j e c t i o n s o f t h e r m a l c o a l w e r e e v e n g r e a t e r ( e . g . 56 m i l l i o n t o n s i n 1 9 9 0 ) , s e e I n s t i t u t e o f E n e r g y E c o n o m i c s E n e r g y a n d J a p a n , ( T o k y o , A p r i l 1 9 8 2 ) , p. 35. 34. I b i d . 35. Rod N u t t , " O t t a w a ' s R e f u s a l t o A i d C o a l P r o j e c t Draws F i r e i n B.C.", V a n c o u v e r Sun, A u g u s t 7, 1 9 8 0 , p. C5. - I l l - F o o t n o t e s f r o m pp. 47 - 50 36. Rod N u t t , "B.C. C o a l T a l k s O f f To A S h a k y S t a r t " , V a n c o u v e r Sun, J u n e 26, 1980 37. " N o r t h e a s t C o a l D e v e l o p m e n t ' R e a l l y a S u p e r D e a l ' f o r B.C.", V a n c o u v e r Sun, Aug. 1, 1 9 8 0 , p. A 1 2 ; " C o a l Company S e e k s C a s h A i d O v e r P r i c i n g " , V a n c o u v e r S u n , J u l y 9, 1 9 8 0 , p. A 2 ; and " H i g h R a i l R a t e s To B l a m e i f J a p a n e s e C o a l D e a l F a i l s " , V a n c o u v e r Sun , J u l y 1 0, 1980, p. A10. 38. P e t e M c M a r t i n , " J a p a n e s e a n d B r a z i l i a n S t e e l G i a n t s ' V e r y I n t e r e s t e d ' i n K o o t e n a y C o a l " , V a n c o u v e r S un , J u l y 14, 1980, p. A l . 39. Rod N u t t , " O t t a w a ' s R e g u s a l To A i d C o a l P r o j e c t Draws F i r e i n B.C.", V a n c o u v e r Sun, A u g . 7, 1980., p. C5. 40. Rod N u t t , "$200 M i l l i o n S u b s i d y B a r e d " , V a n c o u v e r S u n , A u g u s t 1 3 , 1980, p. F 6 . 4 1 . " C o o l A u s s i e Wind T u r n s J a p a n t o B.C.", V a n c o u v e r Sun, A u g . 19, 1 9 8 0 , p. C5. 42. " J a p a n e s e R e v i e w C o a l P o l i c y " , V a n c o u v e r Sun, S e p t . 14, 1 9 8 0 , p. D7. 43. The m i l l s became e x t r e m e l y c o n c e r n e d a b o u t t h e t a k e o v e r by B r i t i s h C o l u m b i a R e s o u r c e s I n v e s t m e n t C o r p o r a t i o n (BCRIC) o f K a i s e r R e s o u r c e s , w h i c h c o n t r o l l e d t h e G r e e n h i l l s a n d B a l m e r M i n e s , t h e l a r g e s t p r o d u c e r s i n t h e s o u t h e a s t . The J a p a n e s e c o n s o r t i u m o f m i l l s a n d t r a d i n g c o m p a n i e s t h a t owned 40% o f K a i s e r R e s o u r c e s , d e c i d e d t o k e e p t h e i r s h a r e s . W h i l e BCRIC was n o m i n a l l y a p u b l i c l y - t r a d e d company, t h e J a p a n e s e f e l t i t w o u l d be s u s c e p t i b l e t o p o l i t i c a l p r e s s u r e . T h e y f e a r e d V i c t o r i a m i g h t i n f l u e n c e f u t u r e e x p a n s i o n i n t h e s o u t h e a s t ; s e e " M i l l s S e e n K e e p i n g K a i s e r S h a r e s " , V a n c o u v e r Sun, S e p t . 9/80 p. D5. - 112' - F o o t n o t e s f r o m pp. 51 - 53 44. D e r H o i Y i n , " C o a l M i n e O f f i c i a l s E x p e c t e d i n T o k y o t o C o n c l u d e T a l k s , V a n c o u v e r Sun, S e p t . 9, 1980 , p. D 5; and " S q u a b b l i n g O v e r C o a l D e l a y i n g I n v e s t m e n t " , V a n c o u v e r Sun, S e p t . 16, 1980, p. F l . 45. G e o f f M u r r a y , "Government 'Not I n t e r e s t e d ' i n J a p a n e s e E q u i t y i n B.C. C o a l " , V a n c o u v e r Sun, O c t . 16, 1 9 8 0 , p. H i . 46. Rod N u t t , " F a t e o f C o a l D e v e l o p m e n t Hangs i n B a l a n c e " , V a n c o u v e r Sun, S e p t . 2 5 , 1980, p. H i . The d e s i g n a t e d s h o s h a f o r Q u i n t e t t e w e r e T o k y o B o e k i a n d o n l y l a t e r Sumitomo (30%) . F o r B u l l m o o s e i t was N i s s h o I w a i . 47. G e o f f M u r r a y , " P r o d u c t i o n D r o p s S p a r k J a p a n e s e R e t h i n k o f C o a l N e e d s " , V a n c o u v e r S u n , O c t . 12, 1980, p. D3; G e o f f M u r r a y , " J a p a n e s e S a i d C o n s i d e r i n g S h e l v i n g C o a l T a l k s : : , V a n c o u v e r S u n , Nov. 25, 1 9 8 0 , p. D2; a n d " J a p a n e s e R e b u t t I n C o a l C o n t r a c t T a l k s " , V a n c o u v e r Sun, O c t . 1, 1 9 8 0 , p. H I . 48. " J a n u a r y T a r g e t D a t e R e p o r t e d f o r J a p a n - B . C . C o a l C o n t r a c t " , V a n c o u v e r Sun,Dec. 24, 1 9 8 0 , p. A2; Rod N u t t , " C o a l F i r m N e g o t i a t o r G i v e s a n I n s i d e r ' s V i e w " , V a n c o u v e r Sun, F e b . 20, 1 9 8 1 , p. C I . 49. Rod N u t t , " E a r l y S i g n i n g S e e n F o r B.C. C o a l P a c t " , V a n c o u v e r S u n , J a n . 24, 1 9 8 1 , p. A 2 ; Ros O b e r l y n , " P h i l l i p s A n n o u n c e s D e a l W i t h J a p a n " , V a n c o u v e r Sun, J a n . 23, 1 9 8 1 , pp. A l , A2; a n d G e o f f M u r r a y , " J a p a n e s e F i r m s C o n f i r m 94 M i l l i o n Ton C o a l D e a l " , V a n c o u v e r Sun, J a n . 26, 1981,p. B9. 5 0 . , "Lower F r e i g h t R a t e s f o r B.C. C o a l " , E n e r g y A n a l e c t s , A p r i l 3, 19 8 1 , p. 6. - 113. - F o o t n o t e s f r o m pp. 5 3 - 5 6 51. See " U l t i m a t u m o f P u b l i c F i n a n c i n g J e l l e d C o a l D e a l P e r r a u l t s a y s " , V a n c o u v e r S u n , J a n . 2 7, 1 9 8 1 , p. A2. 52. Rod N u t t , "B.C. C o a l P a c t B a s e d o n C o m p l e x F o r m u l a " , V a n c o u v e r Sun, J u n e 12, 1 9 8 1 , p. D I . I r o n i c a l l y , t h e two m a j o r t u n n e l s (9 kms. a n d 6 kms.) t h r o u g h t h e R o c k y M o u n t a i n s t h a t c a u s e d t h e g r e a t e s t c o n c e r n , came i n on b u d g e t a n d a h e a d o f s c h e d u l e . C h a p t e r IV 1. " S p e c i a l R e p o r t : I n f r a s t r u c t u r e B o t t l e n e c k s M u f f l e C o a l Boom", E n e r g y A n a l e c t s , A p r i l 1 0 , 1 9 8 1 , p. 5. 2. A l a n D a n i e l s , " H a r b o r s B o a r d ' J e o p a r d i z i n g ' B.C. C o a l D e a l " , V a n c o u v e r Sun, S e p t . 1 6 , 19 8 1 , p. D l ; a n d Rod N u t t , " D e n i s o n B r e a k s O f f T a l k s o n C o a l P o r t O w n e r s h i p " , V a n c o u v e r S u n , S e p t . 16, 1 9 8 1 , p. D l . 3. Rod N u t t , " E s s o Q u i t t i n g Q u i n t e t t e " , V a n c o u v e r Sun, J u l y 17, 1981 , p. D l . 4. " J a p a n e s e F i r m B uys S t a k e i n B.C. C o a l " , V a n c o u v e r S u n , O c t o b e r 26, 1 9 8 1 , p. F 6 ; s e e a l s o Rod N u t t , " T r a d i n g H o u ses L i n k W e s t ' s R e s o u r c e s a n d J a p a n " , V a n c o u v e r S u n , November 2 1 , 1 9 8 1 , p. H2. 5. " S i g n s o f a J a p a n - C a n a d a R e s o u r c e s Honeymoon", E n e r g y A n a l e c t s , O c t . 9, 1 9 8 1 , pp. 1-3; D u r i n g t h i s same p e r i o d N i s s h o - I w a i a g r e e d t o i n v e s t $150 m i l l i o n i n a n LNG p r o j e c t u n d e r t a k e n by Dome P e t r o l e u m a t G r a s s y P o i n t , B.C. t o be b u i l t b y K a w a s a k i Heavy I n d u s t r i e s (Canada) L t d . Dome l a t e r w i t h d r e w . 6. Rod N u t t , ''There's No T u r n i n g B a c k , P h i l l i p s S a y s o f C o a l P l a n s " , V a n c o u v e r Sun, F e b . 27, 1982, p. C 3 ; " P e p i n I n s i s t s C o a l P o r t - 114 F o o t n o t e s f r o m pp. 57 - 6 3 ' W i l l Be 53-PCT. C a n a d i a n ' " , V a n c o u v e r Sun, M a r c h 2, 1 9 8 2 , p. C9; a n d Rod N u t t , " M i t s u b i s h i To D i s c u s s S h a r i n g o f Work", V a n c o u v e r Sun , M a r c h 5, 1982, p. B5. 7. A c c o r d i n g t o a r e p o r t b y P r i c e - W a t e r h o u s e A s s o c i a t e s s e e " S t u d y P r o j e c t s C o s t s a n d B e n e f i t s o f D e v e l o p i n g N o r t h - e a s t B.C. C o a l " , E n e r g y A n a l e c t s , May 15, 1 9 8 1 , p. 3. 8. G e o f f M u r r a y , " J a p a n e s e To Run B.C. M i n e " , V a n c o u v e r Sun , J u n e 2 3 , 1 9 8 2 , p. D l . F o r a l i s t o f J a p a n e s e p a r t i c i p a t i o n i n Q u i n t e t t e C o a l L t d . s e e A p p e n d i x 2. 9. Rod N u t t , " J a p a n e s e C o n c e p t S a v e s NE B.C. C o a l D e a l " , V a n c o u v e r S u n , J u l y 3, 1 9 8 2 , pp. A l , A2; a n d Ros O b e r l y n , " P r o f i t F o r e c a s t on C o a l D e a l M i s l e a d i n g " , V a n c o u v e r Sun, J u l y 15, 1 9 8 2 , p. D l . 10. Ff. N. H a l v o r s o n C o n s u l t a n t s L t d . , F o r e c a s t o f C o a l M i n i n g A c t i v i t y t o 2 0 0 2 , (B.C. H y d r o a n d Power A u t h o r i t y , M a r c h 1 9 8 3 ) , p . 96. 11. " P r i c e s Down, B u t K i n g C o a l K e e ps E x p a n d i n g " , E n e r g y A n a l e c t s , J u n e 10, 1 9 8 3 , pp. 1-2. 12. " S t u d y E x a m i n e s B.C. C o a l D e v e l o p m e n t O p t i o n s " , I b i d . p. 7. 13. " S u r p l u s C o a l W o r r i e s J a p a n ' s S t e e l M i l l s " , V a n c o u v e r S u n, O c t . 25, 1 9 8 3 , p. D l ; s e e a l s o " L e s s C o a l N e e d e d: J a p a n P l a n s E n e r g y C u t s " , V a n c o u v e r Sun, O c t . 13, 1983, p. D8. 14. "The m a i n p u r p o s e o f P.M. T r u d e a u ' s v i s i t t o J a p a n t h i s y e a r (1983) was t o p l e a d w i t h N a k a s o n e n o t t o g i v e i n t o U.S. p r e s s u r e f o r m a j o r p u r c h a s e s o f c o a l " A n d rew H o r v a t t , " J a pan-U.S. A u t o P a c t T h r e a t e n s " , V a n c o u v e r S un , November 2, 1983, p. C9. - .115 " F o o t n o t e s f r o m pp. 6 3 - 6 8 15. Rod N u t t , " J a p a n ' s C o a l D e a l s U n d e r F i r e " , V a n c o u v e r Sun, November 25, 1 9 8 3 , p. B6. 16. " W o r k e r s S h o c k e d " , The P r o v i n c e , O c t . 2 1 , 1 9 8 5 , p. 3; s e e a l s o | :U.S. Terms Key t o C o a l A c c o r d s " , V a n c o u v e r Sun, November 20, 1984, p. D3. 17. J o s e p h D ' C r u z , N e g o t i a t i n g C o a l C o n t r a c t s , p. 62. 18. H. N. H a l v o r s o n C o n s u l t a n t s L t d . , (Op. C i t . ) , p. 52. H a l v o r s o n i s r e f e r r i n g t o t h e 250,000 t o 300,000 t o n s o f c o a l s t o c k p i l e d a t R i d l e y I s l a n d i n l a t e 1983. J a p a n e s e t a n k e r s d i d n o t a c t u a l l y t a k e away t h e i r c o a l u n t i l J a n . 7, 1984 s e e " J a p a n e s e T a n k e r s L o a d F i r s t R i d l e y C o a l " , V a n c o u v e r Sun, J a n . 9, 1984, p. B10. 19. G e o f f M u r r a y , "B.C.'s H a r d C o a l L i n e U p s e t s M i l l s i n J a p a n " , V a n c o u v e r Sun, S e p t . 2 1 , 1 9 8 3 , p. C8; s e e a l s o G e o f f M u r r a y , " J a p a n e s e A g r e e To Pay B.C. C o a l P r i c e F o r Now", V a n c o u v e r S u n , D e c . 27, 1 9 8 3 , p. D7. 20. Rod N u t t , " N i p p o n S t e e l To G e t S a y i n C a n a d i a n C o a l P r i c e s " , V a n c o u v e r S u n , A u g u s t 9, 1 9 8 3 , p. D l . 2 1 . Ken B e l l , " C o a l Rumours S u i t J a p a n " , T h e P r o v i n c e , M a r c h 18, 1984, p. 32. 22. " N o r t h e a s t C o a l S a l e s ' A s s u r e d ' " , V a n c o u v e r Sun, F e b . 1, 1984, P. • B5. 23. Rod N u t t , "$1 B i l l i o n L o s s F o r e c a s t F o r N o r t h e a s t B.C. C o a l " , V a n c o u v e r Sun, F e b . 3, 1984, p. B7; s e e a l s o Rod N u t t , " R e p o r t On L o s s H e l p s C o a l M i n e s I n J a p a n e s e T a l k s " , V a n c o u v e r Sun,. F e b . 7, 1984, p. C I . 24. I b i d . - 1 1 6 - F o o t n o t e s f r o m pp. 6 8 - 7 1 25. "Gloomy C o a l R e p o r t C a l l e d ' G a r b a g e ' " , V a n c o u v e r Sun, F e b r u a r y 4, 1984, p. H I . 26. " J a p a n e s e S t e e l L e a d e r C l a i m s T a l k s P r o g r e s s To C u t C o a l P r i c e " , V a n c o u v e r Sun, J u n e 8, 1984, p. B7. 27. " J a p a n e s e Send C o a l P r i c e Team t o V a n c o u v e r " , V a n c o u v e r S u n , F e b r u a r y 4, 198 4, p. A 2 . A t t h i s t i m e , i n a s a t t e m p t t o d i f f u s e W e s t e r n c r i t i c i s m o v e r J a p a n e s e t r a d i n g p r a c t i c e s , M I T I i n v i t e d f o r e i g n b u s i n e s s m e n , i n c l u d i n g some s o u t h e a s t e r n B.C. m i n i n g e x e c u t i v e s , t o become e x p e r t w i t n e s s e s t o t h e d e l i b e r a t i o n c o u n c i l s t h a t h e l p s e t J a p a n e s e i n d u s t r i a l p o l i c y . Rod N u t t , " F o r e i g n e r s t o G a i n V o i c e o n J a p a n ' s P o l i c i e s " , V a n c o u v e r Sun, M a r c h 15, 1984, p. F 7 . 28. " J a p a n e s e S t e e l L e a d e r C l a i m s T a l k s P r o g r e s s t o C u t C o a l P r i c e s " , V a n c o u v e r Sun, J u n e .8, 1984, p. B7; s e e a l s o "New M i n e s M u s t C u t P r i c e s " , V a n c o u v e r Sun, J u n e 4, 1984, p. B8. 29. J e a n S o r e n s e n , " C o n t r a c t s f o r B.C. C o a l ; The J a p a n e s e Have a T r a d i t i o n o f S t i c k i n g By Them — W i t h Some A d j u s t m e n t s , " C a n a d i a n M i n i n g J o u r n a l , (Don M i l l s , O n t a r i o ) , J u n e 1 9 8 5 , p. 21. 30. I b i d . , pp. 2 0 - 2 1 . 3 1 . " T r o u b l e P l a g u e d Q u i n t e t t e R e a c h i n g T a r g e t s " , i n I b i d . , p. 24; s e e a l s o "Debt T h r e a t S h a k e s Q u i n t e t t e " , V a n c o u v e r S u n , F e b . 1, 1 9 8 5 , p. C6. 32. M a r j o r i e N i c h o l s , "Mega-Gamble H a s n ' t P a i d O f f " , V a n c o u v e r Sun, J a n . 26, 1 9 8 5 , p. A4. 33. "The C o a l H o l e " , V a n c o u v e r Sun, M a r c h 23, 198 5, p. A4; and B r i a n L e w i s , " Q u i n t e t t e ' I s P a y i n g ' " , The P r o v i n c e , M a r . 2 1 , 1 9 8 5 , p. 24. - 117 ~ F o o t n o t e s f r o m pp. 72 - 76 34. " C o a l P r i c e P e a c e " , The P r o v i n c e , A p r i l 2, 1 985, p. 17. 35. " D e n i s o n p o n d e r i n g Q u i n t e t t e F u t u r e A s J a p a n e s e F o r c e C o a l P r i c e C u t " , E n e r g y A n a l e c t s , A p r i l 1, 1985, pp. 1 - 2 . 36. See M. N i c h o l s , (Op. C i t . ) , and Ken B e l l , "N E C o a l Too E a r l y t o B u r y " , The P r o v i n c e , May 1 0 , 1 9 8 5 , p. 33. 37. " W e s t a r S i g n s F i r s t C a n a d i a n D e a l W i t h J a p a n e s e F o r Weak C o k i n g C o a l " , E n e r g y A n a l e c t s , M a r c h 1 1 , 1985, p. 4. C h a p t e r V 1. K. N. H a l v o r s o n , F o r e c a s t o f C o a l M i n i n g A c t i v i t y t o t h e Y e a r 2002, p. 20. 2. I b i d . , p. 38. 3. See S. S c h l o s s s t e i n , T r a d e W a r s ; C h a p t e r s 4, 17, and 18 a n d R u p r e c h t V on Dram, ( D i r e c t o r o f German S t e e l F e d e r a t i o n ) , "German S t e e l I n d u s t r y B e a r s t h e B r u n t o f t h e C r i s i s " , J o u r n a l o f J a p a n e s e T r a d e a nd I n d u s t r y , November, 198 2, p. 37. 4. H i d e o Y a g i , " S t e e l i n g t o M a i n t a i n L e a d " , J o u r n a l o f J a p a n e s e T r a d e a n d I n d u s t r y , J a n u a r y 1 9 8 5 , p. 22; s e e a l s o " S t e e l E x p o r t P r i c e s D r o p ; P r o f i t s I n e v i t a b l y F o l l o w " , O r i e n t a l E c o n o m i s t , J u l y 1 9 8 5 , p. 28. 5. See J o n W o r o n o f f , W o r l d T r a d e War, (New Y o r k , P r a e g e r , 1 9 8 4 ) , p. 197; H i r o y a Ueno, " I n d u s t r i a l P o l i c y : I t s R o l e a nd L i m i t s " , J o u r n a l o f J a p a n e s e T r a d e a n d I n d u s t r y , J u l y 1983, p. 36; and R i c h a r d S a m u e l s , "The I n d u s t r i a l D e s t r u c t u r i n g o f t h e J a p a n e s e A l u m i n u m I n d u s t r y " , P a c i f i c A f f a i r s , F a l l 1983; and R o b e r t U r i o , , ;The D e c l i n i n g I n d u s t r i e s o f J a p a n : A d j u s t m e n t a n d R e l o c a t i o n " , J o u r n a l o f I n t e r n a t i o n a l A f f a i r s , Summer 1984. - 118 - Footnotes from pp. 77 - 81 6. Yoh Kurosawa, "Patterns of Canada-Japan Trade; The Impact of I n d u s t r i a l R e s t r u c t u r i n g " , Speaking of Japan, March 1985, p. 27; For s i m i l a r remarks r e g a r d i n g A u s t r a l i a - Japan t r a d e see Katsuo Otsuka, Economic Growth and Changes i n the I n d u s t r i a l S t r u c t u r e : A u s t r a l i a and Japan, (Tokyo, I n t e r n a t i o n a l Dev- elopment Centre of Japan, Tokyo, 1983). 7. ' C a p i t a l Investment Trends i n the Japanese S t e e l Industry',' S t e e l Today and Tomorrow, (Tokyo), Sept. 1983, p. 1. 8. Kazuo Matsunaga, " T e c h n o l o g i c a l Innovation and the I n d u s t r i a l S t r u c t u r e " , J o u r n a l of Japanese Trade and I n d u s t r y , Jan. 1985, p. 20; see a l s o " S t e e l and the Advent of New I n d u s t r i a l M a t e r i a l s " , i n Japan's Iron and S t e e l I n d u s t r y 1984 Handbook, (Tokyo, Japan S t e e l F e d e r a t i o n , 1984), p. 86- and MITI, V i s i o n of I n t e r n a t i o n a l Trade and Industry P o l i c i e s For The Fu t u r e , (Tokyo, 1980), p. 62, and "Out-Roared by MITI", The Economist, January 19, 1985, p. 66. 9. "New S t e e l to Meet Changing Needs", S t e e l Today and Tomorrow, March 1983, p. 2. 10. L. Franko, p . 113. 11. M. S h i n o h a r a , I n d u s t r i a l Growth,p. i x ; see a l s o Bruce Cummings, "The O r i g i n s and Development of the Northeast A s i a n P o l i t i c a l Economy: I n d u s t r i a l S e c t o r s , Product C y c l e s and P o l i t i c a l Consequences", I n t e r n a t i o n a l O r g a n i z a t i o n , Winter, 1984; and Nagatoshi Suzuki, "Economic R e l a t i o n s With The NICs", J o u r n a l o f Japanese Trade and Industry, March 1982. 12. Thomas Walkom, "Economic Growth i s Slowed i n E f f o r t t o Curb Trade S u r p l u s " , Report on Japan, Globe and M a i l , Oct. 28, 1985, p. C3. - 119 - F o o t n o t e s f r o m pp. 8 1 - 8 4 J . B. T r e e c e , " J a p a n ' s P r o t e c t i o n i s m D i v e r t s A s i a n Goods t o / t h e U.S.", W a l l S t r e e t J o u r n a l , M a r c h 4, 1 9 8 5 , p. 25. I b i d . , T r e e c e m e n t i o n s t h a t some i m p o r t e r s have b e e n c a u g h t u n l o a d i n g K o r e a n s t e e l a t n i g h t i n t o u nmarked t r u c k s . The U.S., w e l l - s e a s o n e d o n t h i s i s s u e , somewhat e f f e c t i v e l y i n h i b i t e d t h e s a l e o f s t e e l p l a n t and t e c h n o l o g y by U.S. f i r m s by c u t t i n g - o f f U.S. E x p o r t - I m p o r t Bank c r e d i t and i n v e s t - ment i n s u r a n c e a g a i n s t p o l i t i c a l r i s k s . I r o n i c a l l y , i t was J a p a n t h a t f i l l e d t h e vacuum. " S t e e l E x p o r t s S l u m p " , The P r o v i n c e , O c t . 29, 1985, p. 30; a n d S t u a r t A u e r b a c h , " J a p a n e s e Warned t o Open Up M a r k e t s o r F a c e T r a d e War", M a n c h e s t e r G u a r d i a n W e e k l y , M a r c h 17, 1 9 8 5 , p. 17 C h a r l e s K i n d l e b e r g e r , The W o r l d i n D e p r e s s i o n 1 9 2 9 - 1 9 3 9 , ( B e r k e l y , U n i v . o f C a l i f . Pres_s,. 1973) , p. 25; s e e a l s o R o n a l d A n d e r s o n , " J a p a n e s e Ought t o G e t C r e d i t F o r S e e i n g Where I n t e r e s t L i e s " , G l o b e a n d M a i l , Nov. 1, 1985, p. B2; T a i s u k e U s a m i ( V i c e - P r e s i d e n t o f K a w a s a k i S t e e l ) "The U.S. S t e e l I n d u s t r y a n d t h e J a p a n e s e S t e e l I n d u s t r y " , S t e e l T o d a y , J u n e 1 9 8 5 , p. 10; A r t P i n e , "The D o l l a r Boon; B i g U.S. T r a d e D e f i c i t i s P r o v i n g a B o n a n z a F o r Many C o u n t r i e s ' ' , W a l l S t r e e t J o u r n a l . M a r c h 1, 198 5, pp. 1 and 7; and " J a p a n t o I n t r o d u c e P r o g r a m t o Open M a r k e t s " , G l o b e and M a i l , J u l y 30, 1985, p. B8 Thomas Walkom, p. 63. R e l a t i v e e x c h a n g e r a t e i s a m a j o r r e a s o n why t h e J a p a n e s e p r e f e r A u s t r a l i a n t o C a n a d i a n c o a l . J a p a n ' s i n t e r e s t r a t e s h a v e b e e n k e p t a r t i f i c i a l l y h i g h i n r e l a t i o n t o t h e i r i n - f l a t i o n r a t e . T h e y a r e n o t h i g h c o m p a r e d w i t h c u r r e n t (Dec. 1985) i n t e r e s t r a t e s i n C a n a d a and t h e U.S. " D i r e c t I n v e s t m e n t i n U.S. E n t e r p r i s e s " , S t e e l T o d a y and Tomorrow, M a r c h 198 3 , p. 1 1 ; s e e a l s o C h a r l e s B r a d f o r d , - 1 2 0 - F o o t n o t e s f r o m pp. 85 - 87 "U.S. S t e e l I n d u s t r y a t C r o s s r o a d s " , J a p a n J o u r n a l o f T r a d e and I n d u s t r y , Nov. 1982, p. 37. C h a p t e r VI 1. Commenting on t h e l a c k o f c o r p o r a t e l i t i g a t i o n i n J a p a n D e r e k Bok, P r e s i d e n t o f H a r v a r d U n i v e r s i t y s a i d , " I n J a p a n , a c o u n t r y o f h a l f o u r s i z e , 30% more e n g i n e e r s g r a d u a t e e a c h y e a r t h a n i n a l l t h e U.S. B u t J a p a n b o a s t s a t o t a l o f l e s s t h a n 15,000 l a w y e r s w h i l e A m e r i c a n u n i v e r s i t i e s g r a d u a t e 35,000 l a w y e r s e v e r y y e a r . As t h e J a p a n e s e p u t i t so s u c c i n c t l y : ' E n g i n e e r s make t h e p i e grow l a r g e r . L a w y e r s o n l y d e c i d e how t o c a r v e i t up'". New Y o r k T i m e s , A p r i l 22, 1983, p. 6; s e e a l s o , S. S c h l o s s s t e i n , T r a d e Wars, pp. 150-153; Much o f t h e i n f o r m a t i o n i n t h i s s e c t i o n d e r i v e s f r o m i n t e r v i e w s t h e a u t h o r h e l d w i t h M a l c o l m S m i t h , P r o f e s s o r o f J a p a n e s e Law a t U.B.C. Law S c h o o l , Don F r a s e r , P r e s i d e n t o f B a l f o u r G u t h r i e (Canada) L t d . , Ron B a s f o r d , f o r m e r c o a l c o o r d i n a t o r f o r N o r t h e a s t C o a l , James M a t k i n , p r e s i d e n t and CEO o f t h e B u s i n e s s C o u n c i l o f B.C.; and G l e n S k o l b y and W a l l y M a l k i n s o n o f t h e M i n i s t r y o f I n d u s t r y and S m a l l B u s i n e s s D e v e l o p m e n t i n V i c t o r i a . 2. " J a p a n I n c . Goes S h o p p i n g " , The E c o n o m i s t , O c t . 2, 1976, p. 9 2 . see a l s o D a n i R o d r i k , p. 551. 3. H i d e t a t s u F u r u t a t e , " J a p a n and A u s t r a l i a Expand T r a d e w i t h Some P r o b l e m s " , B u s i n e s s J a p a n , (Tokyo) November 1977, pp. 22-25. 4. A c c o r d i n g t o M a l c o l m S m i t h , t h e Q u e e n s l a n d government had c o a x e d many f a r m e r s t o s w i t c h f r o m s h e e p t o b e e f so as t o t a k e a d v a n t a g e o f t h e l u c r a t i v e J a p a n e s e m a r k e t . Soon a f t e r , t h e J a p a n e s e imposed a t a r i f f on i m p o r t e d b e e f f r o m New Z e a l a n d a n d A u s t r a l i a . The Q u e e n s l a n d government was s p o i l i n g f o r a c o n f r o n t a t i o n . - 121 " F o o t n o t e s f r o m pp. 8 8 - 9 6 5. "The J a p a n e s e g o v e r n m e n t had M I T I a s i t s s o l e n e g o t i a t o r , w h e r e a s s i x " A u s t r a l i a n " g o v e r n m e n t s c u t e a c h o t h e r s ' t h r o a t s i n o f f e r i n g t h e b e s t d e a l t o J a p a n e s e b u y e r s " s e e E. Gough W h i t l a m , ( f o r m e r A u s t r a l i a n P r i m e M i n i s t e r ) , A P a c i f i c C o m m u n i t y , ( C a m b r i d g e , H a r v a r d U n i v e r s i t y P r e s s , 1 9 8 1 ) , p. 83. 6. J e a n S o r e n s e n , C o n t r a c t s f o r B.C: C o a l , p. 25. 7. H.N. H a l v o r s o n , U p d a t e : F o r e c a s t o f Power C o n s u m p t i o n By t h e B.C. C o a l M i n i n g I n d u s t r y , ( V a n c o u v e r , B.C. H y d r o and Power A u t h o r i t y , 1 9 8 4 ) , p. .19. 8. Ron B a s f o r d , " N o r t h e a s t C o a l D e v e l o p m e n t : Some L e s s o n s and C o n c l u s i o n s " , ( s p e e c h t o t h e C a n a d i a n C l u b o f V a n c o u v e r , F e b r u a r y 8, 1984) p. 10. 9. D a n i R o d r i k , p. 559. 10. " R i f t i n t h e Z a i k a i M o n o l i t h " , O r i e n t a l E c o n o m i s t , A u g . 1 9 8 5 , p. 3. 1 1 . Ron B a s f o r d , p. 11; s e e a l s o " C l a r k U r g e s J a p a n To Keep C a n a d i a n C o a l i n M i n d " , G l o b e a n d M a i l , Dec. 20, 1984, p. 8. 12. B r i a n K i e r a n , "B.C. O p p o s e s S u r c h a r g e o n J a p a n e s e V e h i c l e s " , V a n c o u v e r S u n, A p r i l 1 2 , 1982, p. B9. C h a p t e r V I I 1. s e e C h a p t e r One F o o t n o t e s 3 and 4 f o r l i s t o f s t u d i e s t h a t p r e s c r i b e t o t h i s t h e o r y . 2. A s h l e y F o r d , " R a k i n g O v e r The C o a l s ; The J a p a n e s e S t e e l I n d u s t r y Has O p t e d F o r P o l i t i c a l C a u t i o n i n a R e s o u r c e s - P r i c e D i s p u t e w i t h C a n a d a " , F a r E a s t e r n E c o n o m i c R e v i e w , Nov. 8, 1 9 8 4 , p. 89- 90. - 122 - F o o t n o t e s f r o m pp. 97 - 101 3. H e a t h e r G i b b , R e - E x a m i n i n g J a p a n I n c o r p o r a t e d , p. 5 1 . 4. S p e c i a l J o i n t C o m m i t t e e on C a n a d a ' s I n t e r n a t i o n a l R e l a t i o n s , I n t e r i m R e p o r t P e r t a i n i n g t o B i l a t e r a l T r a d e w i t h t h e U.S., ( O t t a w a , Queen's P r i n t e r , A u g u s t 1 9 8 5 ) , p. 29. 5. J e a n S o r e n s e n , C o n t r a c t s f o r B.C. C o a l , p. 20. - 123 - SELECTED BIBLIOGRAPHY B l a k e r , M. Japanese I n t e r n a t i o n a l N e g o t i a t i n g S t y l e , New Y o r k , C o l u m b i a U n i v e r s i t y P r e s s , 1977. B r a d f o r d , C . "U.S. S t e e l I n d u s t r y a t C r o s s r o a d s " , Japan J o u r n a l o f T r a d e a n d I n d u s t r y , November 198 2, pp. 35 - 40. Cumming, B. "The O r i g i n s a n d D e v e l o p m e n t o f t h e N o r t h e a s t A s i a n P o l i c i t a l Economy: I n d u s t r i a l S e c t o r s , P r o d u c t C y c l e s and P o l i c i t a l C o n s e q u e n c e s " , I n t e r n a t i o n a l r Q r g a n i z a t i o n W i n t e r , 1 9 8 4 , pp. 10 - 46. D ' C r u z , J . N e g o t i a t i n g C o a l C o n t r a c t s w i t h t h e Japanese: S t e e l I n d u s t r y : The C o o r d i n a t e d P r o c u r e m e n t S y s t e m , V a n c o u v e r , I n s t i t u t e o f A s i a n R e s e a r c h , U.B.C. 1984. F o r d , A. " R a k i n g O v e r t h e C o a l s ; The Japanese S t e e l I n d u s t r y Has O p t e d F o r P o l i t i c a l C a u t i o n i n a R e s o u r c e s - P r i c e D i s p u t e w i t h C a n a d a " , F a r E a s t e r n E c o n o m i c R e v i e w , November 8, 198 4, pp. 89 - 90. F r a n k o , L. The T h r e a t o f Japanese M u l t i n a t i o n a l s , T o r o n t o , John W i l e y & S o n s , 1 9 8 3 . G i b b , H. R e - e x a m i n i n g "Japan I n c . " : Japanese C o a l P r o c u r e m e n t and W e s t e r n C a n a d i a n C o a l , V a n c o u v e r , I n s t i t u t e o f A s i a n R e s e a r c h , U.B.C. 1984. H a l v o r s o n , H.N. F o r e c a s t o f C o a l M i n i n g A c t i v i t y t o 2002, V a n c o u v e r , B./C. H y d r o a n d Power A u t h o r i t y , M a r c h 1983. — U p d a t e : F o r e c a s t o f Power C o n s u m p t i o n ByzThe B . C . : C o a l M i n i n g I n d u s t r y , V a n c o u v e r , B.C. H y d r o and Power A u t h o r i t y , M a r c h 1984. Hay, K . A . J . C a n a d i a n P e r s p e c t i v e s o n E c o n o m i c R e l a t i o n s w i t h J a p an, M o n t r e a l , R e s e a r c h o n P u b l i c P o l i c y I n s t i t u t e , 1 9 7 9 . H i g a s h i , C. Japanese T r a d e P o l i c y F o r m u l a t i o n , New Y o r k , P r a e g e r , 1 9 8 3 . I s h i , H. " R e f o r m i n g Japan's G o v e r n m e n t - B a c k e d F i n a n c i n g " , E c o n o m i c E y e , M a r c h 1 9 8 4 , pp. 17 - 25. Johnson, C. M I T I a n d t h e Japanese M i r a c l e ; The G r o w t h o f I n d u s t r i a l P o l i c y , 1925 - 1 9 7 5 , S t a n f o r d , S t a n f o r d U n i v e r s i t y P r e s s , 1 9 8 2 . "The I n t e r n a t i o n a l i z a t i o n o f t h e Japanese Economy", C a l i f o r n i a Management R e v i e w , S p r i n g 1 983, pp. 5 - 38. - 124 " K u r o s a w a , Y. " P a t t e r n s o f C a n a d a - J a p a n T r a d e ; The I m p a c t o f I n d u s t r i a l R e s t r u c t u r i n g " , S p e a k i n g o f J a p a n , M a r c h 1 9 8 5 , pp. 21 - 35. L a n g d o n , F. The P o l i t i c s o f C a n a d i a n - J a p a n e s e E c o n o m i c R e l a t i o n s , V a n c o u v e r , U.B.C. P r e s s , 1 9 8 3 . M a t s u n a g a , K. " T e c h n o l o g i c a l I n n o v a t i o n a n d t h e I n d u s t r i a l S t r u c t u r e " , J o u r n a l o f J a p a n e s e T r a d e and I n d u s t r y , J a n u a r y 1 9 8 5 , pp. 17 - 21. M I T I V i s i o n o f I n t e r n a t i o n a l T r a d e and I n d u s t r y P o l i c i e s F o r The F u t u r e , T o k y o , M I T I , 1 9 8 0 . Nemetz, P., V e r t i n s k y , I . and V e r t i n s k y , P. J a p a n ' s E n e r g y S t r a t e g y a t t h e C r o s s r o a d s , V a n c o u v e r , I n s t i t u t e o f A s i a n R e s e a r c h , U . B . C , November 1 9 8 3 . O t s u k a , K. E c o n o m i c G r o w t h a n d C h a n g e s i n t h e I n d u s t r i a l S t r u c t u r e : A u s t r a l i a and J a p a n , T o k y o , I n t e r n a t i o n a l D e v e l o p m e n t C e n t r e o f J a p a n , 1 983. Ozawa, T. M u l t i n a t i o n a l i s m J a p a n e s e S t y l e ; The P o l i t i c a l Economy o f O u t w a r d D e p e n d e n c y , P r i n c e t o n , P r i n c e t o n U n i v e r s i t y P r e s s , 1 9 7 9 . R o d r i k , D. " M a n a g i n g R e s o u r c e D e p e n d e n c y : The U.S. and J a p a n i n t h e M a r k e t s f o r C o p p e r , I r o n O r e and B a u x i t e " , W o r l d D e v e l o p m e n t , V o l u m e 1 0 , No. 7, ( 1 9 8 3 ) . S e k i g u c h i , S. J a p a n e s e D i r e c t F o r e i g n I n v e s t m e n t , New J e r s e y , A l l a n h e a d & Company, 1979. S c a l a p i n o , R. e d . The F o r e i g n P o l i c y o f M o d e r n J a p a n , L o s A n g e l e s , L o s A n g e l e s U n i v e r s i t y P r e s s , 1977. S c h l o s s s t e i n , S. T r a d e War: G r e e d , Power and I n d u s t r i a l P o l i c y On O p p o s i t e S i d e s o f t h e P a c i f i c , New Y o r k , Congdon a n d Weed, 1984. S h i n o h a r a , M. I n d u s t r i a l G r o w t h , T r a d e a n d D y n a m i c P a t t e r n s i n The J a p a n e s e Economy, T o k y o , T o k y o U n i v e r s i t y P r e s s , 1 9 8 2 . S o r e n s e n , J . " C o n t r a c t s f o r B.C. C o a l ; The J a p a n e s e Have a T r a d i t i o n o f S t i c k i n g By Them — W i t h Some A d j u s t - m e n t s " , C a n a d i a n M i n i n g J o u r n a l , J u n e 1 9 8 5, p. 20 - 27. S u z u k i , N. " E c o n o m i c R e l a t i o n s W i t h The N I C s " , J o u r n a l o f " J a p a n e s e . T r a d e and I n d u s t r y , M a r c h 1982, pp. 31 - 36. - 125 - T s u r u m i , Y. M u l t i n a t i o n a l Management: B u s i n e s s S t r a t e g y and G o v e r n m e n t P o l i c y , C a m b r i d g e , M a s s . , B a l l i n g e r P u b l i s h i n g Co., 1 9 7 7 . T s u r u t a , T. "A C r i t i c i s m o f C a r t e l s i n A i l i n g I n d u s t r i e s " , E c o n o m i c E y e , V o l . 4, No. 2 , ( J u n e 1 983) pp. 6 - 10. Tung, R. "How t o N e g o t i a t e W i t h t h e J a p a n e s e " , C a l i f o r n i a Managemeht R e v i e w , Summer 1 9 8 4 , pp. 49 - 75. Ueno, H. " I n d u s t r i a l P o l i c y : I t s R o l e a n d L i m i t s " , J o u r n a l o f J a p a n e s e T r a d e a n d I n d u s t r y , J u l y 1 9 8 3 , pp. 23 - 28. U r i o , R. "The D e c l i n i n g I n d u s t r i e s o f J a p a n : A d j u s t m e n t a n d R e l o c a t i o n " , J o u r n a l o f I n t e r n a i t o n a l A f f a i r s , Summer 1984, pp. 67 - 84. V a r a n g u , K. D e v e l o p m e n t O p t i o n s f o r B.C. C o a l , C a l g a r y , C a n a d i a n E n e r g y R e s e a r c h I n s t i t u t e , 1 9 83. V e r n o n , R. Two H u n g r y G i a n t s : The U.S. and J a p a n i n t h e Q u e s t f o r O i l and O r e s , C a m b r i d g e , M a s s . , H a r v a r d U n i v e r s i t y P r e s s , 1 983. V o g e l , E. J a p a n a s Number One, New Y o r k , H a r p e r C o l o p h o n B o o k s , 1 9 7 9 . W o r o n o f f , J . W o r l d T r a d e War, New Y o r k , P r a e g e r , 1984. W r i g h t , R. J a p a n e s e B u s i n e s s i n C a n a d a , M o n t r e a l , I n s t i t u t e f o r R e s e a r c h o n P u b l i c P o l i c y , 1984. Yago, H. " S t e e l i n g t o M a i n t a i n L e a d " , J o u r n a l o f J a p a n e s e T r a d e a nd I n d u s t r y , J a n u a r y 1 9 8 5 , pp. 20 - 23. **** B e s i d e s t h e a b o v e b o o k s and j o u r n a l s , t h e f o l l o w i n g p e r i o d i c a l s and d a i l y n e w s p a p e r s p r o v i d e d a n a b u n d a n c e o f i n f o r m a t i o n on t h i s t o p i c : N i p p o n S t e e l News V a n c o u v e r Sun E n e r g y A n a l e c t s G l o b e a nd M a i l S t e e l T oday and Tomorrow W a l l S t r e e t J o u r n a l O r i e n t a l E c o n o m i s t - 126 - A p p e n d i x 1 F i g . 1 - Map o f N o r t h e a s t C o a l P r o j e c t F i g . 2 - I m p o r t s o f C o k i n g C o a l by A r e a , 1973-1983 A u s t r a l i a USA Canada Others * 1973 A3.3% 30.5% 19.1% 7.1% 1979 45.7% 24.8% 18.9% 10.5% 1980 A1.A% 31.9% 17.2% 9.5% 1981 43.9% 33.9% 14.1% 8.1% 1982 39.0% 37.5% 14.9% 8.7% 1983 46.6% 26.1% 17.6% 9.7% * I n c l u d e s S o u t h A f r i c a , USSR , P o l a n d , PRC o t h e r s S o u r c e : The J a p a n I r o n and S t e e l F e d e r a t i o n , The S t e e l I n d u s t r y o f J a p a n 1984, ( T o k y o ) , p. 12. - 127 - A p p e n d i x 2 15-Year Contract of Quintette Coal (Basic Agreement Signed i n January 1981, F i n a l Agreement i n August 1981) Mine Operator: Q u i n t e t t e Coal Co. ( c a p i t a l i z e d at C$23,874,290 as of June 30, 1982). Denison Coal Ltd. 50.0% M i t s u i Mining Overseas Development Co. 12.5% Tokyo Boeki Ltd. 10.5% Charbonnages de France 12.0% Sumitomo Corp. 5.00% Nippon Ste e l Corp. 3.84% Nippon Kokan K.K. 1.62% Kawasaki Ste e l Corp. • 1.50% Sumitomo Metal I n d u s t r i e s Ltd. 1.49% Kobe Steel Ltd. 0.88% Ni s s h i n Steel Co., Ltd. 0.29% Nakayama Stee l Works Ltd. 0.20% Godo Steel Co. Ltd. 0.07% M i t s u b i s h i Chemical Co. 0.11% Managing Co.: Denison Mines Ltd. Japanese Importer: Tokyo Boeki Ltd. Contract Period: 14.5 years from October 1, 1983 throuah March 31, 1998. Contract Tonnage: Total 69,550,000 M/T f o r 14.5 years, - 1,050,000 M/T i n f i s c a l 1983 (October 1983 - March 1984), 3.5 m i l l i o n M/T i n f i s c a l 1984, and f i v e m i i l i o n M/T y e a r l y from f i s c a l 1985. Note: ±5%. Guaranteed Sp e c i f i c a t i o n s : T.M. 8.0% niax. ; Ash 9.5% (t o l e r a n c e 0.5%); V.M. 20 - 26%; T.S. 0.50% max.; C.S.N. 5 - 7 ; Size 50 mm x 0. Note: P e n a l t i e s = C$1.40 per one percent ash; C$1.00 per 0.1 percent s u l f u r . S t a r t P r i c e as of A p r i l ' 1 , 1980: C$75.00 F0BT Ridley Island per M/T. As of A p r i l 1, 1982, the p r i c e stood at C$89.98 F0BT (C$82.98' F0BT as of A p r i l 1, 1981). E s c a l a t a b l e P o r t i o n of S t a r t P r i c e : C$40.00 (about 53%). E s c a l a t o r Components: Wages at mines and r a i l w a y s , m a t e r i a l s and equipment c o s t s , r o y a l t i e s , f i x e d asset taxes, port dues, etc. E s c a l a t i o n Formula: E s c a l a t i o n amount of mine and railway costs i s c a l c u l a t e d from the predetermined amounts of e s c a l a t o r components m u l t i p l i e d by the rate of increases i n the government's i n d i c e s of wages and m a t e r i a l s and equipment costs announced every three months. R o y a l t i e s , port dues and other components are escalated by the amounts a c t u a l l y , increased, r e s p e c t i v e l y . Time f o r Reviewal of S t a r t P r i c e : A p r i l 1, 1987, A p r i l 1, 1991, and A p r i l 1, 1995. Coal Terminal Charge at Ri d l e y I s l a n d : C. S3'. 00 per M/T ( t i l l 1987), as of A p r i l 1, 1980. S o u r c e : H . N . H a l v o r s o n , F o r e c a s t o f C o a l M i n i n g . J^cjtjLyJLty, t o 2 002. A p p e n d i x 3 - 128 - F.CJ.-4 Production Indices for Ordinary and Specialty Steel Products (1973 = 100) - 150 r 140 120 -Existing - -Newiy-bui l t - •500 United 400 States WZA United w Germony/ States Benelux 300 200 •100 -0 W Germany/ Benelux uzm Japon VZZA SCO- Other Asia 400- Integrated plants produ- cing hot rolled products. For existing plants no allowance made for depreciation and interest. 1970 '71 72 73 74 75 76 77 78 79 '80 '81 Figure 3 Production costs in existing and newly built steel plants (1978 S per tonne). Fig. l Trend of Crude Steel Supply and Demand and Output Capacity 2 160 140 Iri1-i-i!wi - i - v ^ i \ A ; _ ? , ° B ' manufacturing capacity _ 120.^ 100 20 - Z:^:-;•••>• - v - ^ ^ > ^ v / ^ v " ~:'J*-• .-^iii^^y; Crude .steel prodi«ettoj¥̂ 5Wbsl?S;- l!Si-j??^v - V " v.. ' Apparent consumption of crude steel ^-Ip--;..;'. i r.' (domestic demand) i ^ ^ ' - v - i ' ? ' . ' Imports _ _ - >? A V X? A*> A* A * & & .<£> Fig. 2 Ordinary Steel Consumption Demand by Industry S o u r c e s : J o u r n a l o f J a p a n e s e T r a d e a n d I n d u s t r y ; S t e e l Today P R O D U C T I O N 180- COMPARISON OF ACTUAL JAPANESE CRUDE STEEL PRODUCTION WITH FORECASTS BY JAPANESE AGENCIES AND THE B.C. AND CANADIAN GOVERNMENTS - r A C T U A L - • J A P A N E S E F O R E C A S T B . C . A N D C A N A D I A N G O V E R N M E N T F O R E C A S T V I C T O R I A / O T T A W A J A N 1977 J A P A N , , F E B 1983 A C T U A L — r - 73 -1— 79 I 1 80 81 FISCAL YEARS 82 84 !972 74 75 76 77 78 83 85 86 87 88 I 89 1990 S o u r c e : H . N . H a l v o r s o n

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