PIDP Pacific Islands Development Program

Multinational Corporations in the Pacific Tuna Industry

II l ! h 1 R@ I • ' 1:-. 1:1;+x!' • s . 1: Ii

by

Salvatore Camitini, Th.D.

aEast-West Center • 1777 East-West Road • H nii 1u1u. Hawaii 96848 rh3!)I h1I4I ^$i:

Salvatore Ccxaitini, Ph.D.

April. 1987

David J. DouIman Project Director multinational Corporations in the Pacific is Industry Pacific Islands Develognent Progran East-West Center 1777 East-West Road Honolulu, Hawaii 96848 U.S.A. SALVATORE ODMITINI is a professor of economics and resource economics, specializing in fisheries ewnanics, at the University of Hawaii at Manoa. Dr. Ccmitini has extensive research and consultation experience in Southeast Asia, Korea, and related to fisheries development, especially ti.z a fisheries. Page

Foreword ...... 0 ...... , ...... v Abbreviations and acronyms ...... vii Abstract ...... ix Terms of reference ...... xi Introduction ...... 1 Code of conduct ...... 3

Trading activity within the corporate structure ...... 0.000..,.. 5 Range of operations ...... 5 Tuna trading operations ...... 6 Profitability of tuna trading ...... 7 Market position ...... 9 Tuna trading arrangements and agreements ...... 9 Tuna s up?1y sources ...... 10 Market share ...... 11

Market factors ...... _ ...... 0...... 13 Impact of Japanese trading companies in the tuna trade ...... 15 Conclusion ...... 17 Appendix 1. Independent trading companies versus manufacturers' subsidiaries ...... 19 Appendix 2. Code of conduct of general trading companies ...... 21 Appendix 3. Sales and financial ratios of four largest Japanese general trading nan.ies ...... 25 Notes ...... 27 References ...... 29

Pacific Islands Development Program - iii Pacific Islands Developnent Program - iv At its inaugural meeting in Pago Pago in 1981, the Pacific Islands Development Program was directed by the Standing Committee of the Pacific Islands Conference to evaluate the potential beneficial role of multinational corporations in the Pacific islands region. In 1984, the Standing Committee again addressed the question of multinational corporations and approved this study to be undertaken on a sectoral basis, with the tuna industry being the first sector to be examined.

The tuna industry was selected as the first sector for investigation by the Standing Committee because the tuna fishery and industry in the Pacific islands region affects all countries and territories. The broad objectives of the tuna sectoral study are (1) to analyze the current and future role of multinational corporations in the tuna industry in the Pacific islands region, and (2) to evaluate the potential contribution these corporations could make to industry development in the region. This is the first time that a comprehensive study of the tuna industry in the Pacific islands region will focus on regional and international issues affecting the industry from the perspective of all island countries.

A proposal outlining the tuna sectoral study was drawn up in 1984. This was done in consultation with the Forum Fisheries Agency and research commenced in January 1985. The study will produce a range of technical reports that will address issues critical to the developnent, management and expansion of tuna industries in the Pacific islands region.

This report, prepared by Dr. Salvatore Canitini, examines Japanese trading companies and their activities in the global tuna market. The report emphasizes that the trading companies are primarily interested in provision of intermediation services rather than investment in production in the tuna industry.

The Pacific Islands Development Program's tuna study is financially supported by the East-West Center, the United Nations Developnent Progratrme, the Australian Development Assistance Bureau, and the United States Agency for International Development.

David J. Doulman, Ph.D. Project Director Multinational Corporations in the Pacific Tuna Industry

Pacific Islands Development Program - v Pacific Islands Development Program - vi EEC European Econanic Coitununity

NSI{K Kaigai Gyogyo Kabushiki Kaisha (Overseas Fishing Company Ltd)

KMIDC Korea Marine Industry Developnent Corporation

MITI Japanese Ministry of International Trade and Industry

NI KATSUREN Federation of Japan Tuna Fisheries Co-operative Associations

PAFtO Pacific Fishing Company Ltd.

Pacific Islands Development Program - vii Pacific Islands Development Program - viii The activities of general trading companies are related primarily to international marketing and procurement of axruiodities together with trade-supportive activities such as trade financing, market research, warehousing and shipping. Thus, they provide essentially the infrastructural services that support independent or semi-independent productive and extractive activities. These features characterize the trading companies' network of affiliated ventures and trading arrangements and are now recognized as a new form of international business organization.

The trading companies primary interest in direct and indirect investments in overseas resource development ventures with foreign partners is creation and protection of the commercial right to intermediate whereby, either through an equity or a debtor-creditor relationship, foreign producers are obli gated to sell the product through intermediation of a particular trading company to whom they pay a commission.

Early activities in tuna trading involved the trading companies in commercial oruiithtents and joint ventures of various types, but their real intention is always to increase trading activity with products which have good market prospects and instead of being a real part of production as such. In this regard, the current tuna market situation, either for the sashimi trade or for the canning/processing trade, is not conducive to, nor currently lends itself, to either direct or indirect investment interest of the types which were prevalent in the earlier growth period.

The immediate prospect of entry into the Japanese market is not bright on any account. The sashimi market is currently saturated, especially for red meat tuna generally found around the middle latitudes of the Pacific and efforts are being made to forestall any further increases in imports to Japan. Japanese skipjack landings have increased substantially, especially from purse seiners. The appreciation of the yen has caused canned and frozen tuna exports to decline and together with recent imports have resulted in a tendency towards oversupply on the domestic market.

The trading companies may finance new fisheries development projects, if promising, but the current recession in the tuna industry, which is felt to be structural and deep-seated, would make few, if any, proj ects financially attractive. The general pessimism in the tuna industry is pervasive and has not escaped the sensitive feelers of the trading companies.

Under current market conditions, the only solid interest expressed by Japanese trading companies in any extension of Pacific islands tuna trading activities is in tuna transshipment. The reason, obiiously, is that this type of trading precludes any long term capital oamnibnent on the part of the trading company and allows them to perform their real role as intermediaries in tuna trading. If tuna prices eventually do recover, the trading companies will, most likely, again look favorably to various forms of long term capital involvement on the production side of the tuna trade.

Pacific Islands Development Program - ix Pacific Islands Development Prograt -- x i!^JI"J^M^

The purpose of this study is to describe and analyze the role of Japanese trading companies in the world tuna industry. Particular attention shall be focused on, but not limited to, the following four themes. Where applicable these themes shall be discussed in relation to their effect on, and implications for, tuna operations in the Pacific islands region. 1. Industry Overview. This section shall describe tuna operations since 1975 of Japanese trading companies such as C. Itch, Manubeni, and Mitsubishi Shoji. Tb meet this objective, this section shall include, anong other issues:

(a) assessment of company position with respect to corporate social responsibility, industrial ethics and philosophy of operation.

(b) Description of tuna processing activity within the overall corporate structure of each company.

(c) Level of trading activity conducted within the Pacific island region.

(d) Analysis of profitability of tuna related trading and activity.

2. Market Position. This section shall describe the overall conditions under which tuna are traded. Rnphasis shall be on:

(a) Agreements (contractual or otherwise) between Japanese trading companies and Japanese or other fishing companies.

(b) Sources of raw-tuna supply for Japanese trading companies.

(c) Relative market shares of the various trading companies. 3. Market Factors. This section will provide an analysis of economic or other factors which determine market conditions for the various Japanese trading companies.

4. Implications for the Pacific islands region. This section shall review the findings of the study and apply the results to tuna operations in the Pacific islands region. IInphasi s shall be one:

(a) Analyzing the present and potential impact of Japanese trading company activities on tuna operations in the Pacific islands region.

(b) Investigating development alternatives and prospective problems and potentials for the Pacific island region based on experience of Japanese trading companies.

Pacific Islands Development Program - xi Pacific Islands Develognent Program - xii In Japan there are literally thousands of specialized trading firms, called sermon shosa, which function in either domestic distribution or in the export or import of a limited product line. They are generally representative of domestic wholesale distributors or of the many export or import funs in the world.

The large trading companies, called sggo shosha are specialists not only in the export and import business but link these activities with distributional activities in various product and service markets in Japan. The Japanese Ministry of International Trade and Industry (MITI) differentiates the large trading companies from wholesalers, retailers, department stores, manufacturers and others, by their overwhelming weight in Japan's foreign trade.

In the words of one Japanese expert: rt: "For a trading company to be a , it had to deal with many products (not concentrating in one product group, such as textiles or steel) , engage in both export and import, have officers in various parts of the world, and wield considerable power in the spheres of marketing and finance. These criteria still serve as a rough guide to differentiate sogo shosha from ordinary trading companies...

"...In addition to meeting the criteria listed above, for a trading company to become a sogc shosha, it has to be engaged in offshore trade, undertake various activities (such as warehousing, transportation, resource development, manufacturing, etc.) to complement its trading activities, c mmand large financial resources, play a leadership role in industrialization, etc." (Kunio 1982:10-11)

There is another distinction between sogo shosbashosha and ordinary trading companies. The latter are sometimes subsidiaries of manufacturing companies (Appendix 1) . Among the 30 top trading companies, eight are manufacturer subsidiaries and three function as either satellite companies or sales outlets of the other larger trading companies. Consequently, 19 companies out of the 30 top companies are truly independent trading companies. Among the 19 companies, the first nine are classified as sggo shosha and the remaining nine as ordinary trading companies. How are these two groups distinguished? As already indicated: one difference is size, a second is a diversified sales composition, and a third is the share of foreign trade in the overall sales of the particular company.

Nine general trading companies account for approximately one-half of Japan's export and import activities in terms of value. 'Their major sources of revenue are (1) exports of plants/machinery and iron/steel; (2) imports of fuels (petroleum, gas such as LFG and alternative ener gy, e.g., coal and uranium ore) ; (3) imports of raw materials including ore of ferrous and non-ferrous metals; and (4) imports of foodstuffs, including tuna (Industrial Groupings of Japan 1982:476) .

Actually, defining a soap shosha and categorizing its activities has proven to be an elusive task for researchers. This is because these large

Pacific Islands Development Program - 1 Japanese companies, "share patterns of business strategy, operations, and organization that are very different from those of other types of business firms.... and do not fit into any of the conventional categories.

"...the vacuum in knowledge and understanding of the soao shosha is the inevitable outcome of the nature of their commercial operations, where confidentiality and secrecy are often important to business success. But a much more important source of the knowledge gap is the complexity of the institution and the consequent difficulty in grasping its essential nature. Moreover there is a lack of readily available models, concepts, or analogs with which simply and accurately to characterize the institution." (Yoshino and L if son 1986:2-3).

The gpW shosha differ f ran other companies and even multinational corporations in that they are primarily trade-oriented, not user or manufacturer-oriented. Thus, they function as intermediaries, or problem solvers, seeking to bridge the gap between supply and demand for goods and services in trade deals between parties.

Pacific Islands Development Program - 2 There is a general code of business conduct which is generally acknowledged by Japanese general trading companies and issued by the Japan Foreign Trade Council which relates to corporate social responsibility, industrial ethics, and philosophy of operation (Appendix 2) .

According to this code, Japanese general trading companies take both a private and a social view of their function in domestic and international society. That is, they view themselves as instrumental in promoting economic development, or affluence, in the national and world economies. Because of their historic mission and unique role in the changing social and economic environment, they should take measures to exercise self-control because of "the social influence of their business activities and the greatness of their responsibility." (Japan Foreign Trade Council Inc 1973)

More specific functions and fields of activities which might relate to tuna trading and tuna industry development are given in Chapter 2 of the code. In section (1) , for example, in the process of collecting and disseminating information on corrQnodities all over the world, general trading companies have a social responsibility to attempt to stabilize commodity prices as a contribution to the general welfare.

In sections (2) and (3) , they are charged with having not only a distribution function but also an "organizer" function which could promote development of industries and enterprises in lesser developed regions and thus "contribute to the harmonious development of the world and the improvement of welfare of domestic and international people."

Chapter 3 deals with relations with other enterprises and industries. They should strive to "coexist and coprosper" with other enterprises, especially small business. In addition, their management standard should adhere to the "principles of orderly competition and fair trade."

Chapter 4 on self controls and regulation deals specifically with industrial ethics. General trading companies should adhere to "not only legal regulations but also to the international trust and business ethics.., and are to make efforts in fairness and stabilization of business transactions."

Chapter 5 on establishing mutual trust with society deals generally with the philosophy of their operation. in order to gain public understanding and recognition of the impact of their business activities "efforts are to be made to establish, one by one whenever possible, common measures concerning items which are desirable to be unified among public information like reports on settlement of accounts."

Pacific Islands Development Program - 3 Pacific Islands Develognent Progran - 4 Range of operations

The four largest Japanese companies that have extensive dealings in tuna trading are: (Mitsubishi Shoji) with total sales as of March, 1986 of $94.6 billion; Mitsui & Co. (Mitsui Bussan) with total sales as of March, 1986 of $100 billion; C. Itch & Co., Ltd. ( Shoji) with sales as of March, 1986 of $86.5 billion, and Marubeni Corporation with sales as of March, 1986 of $77.8 billion (Appendix 3) (Frundt and Domike l9:65-75). According to Forbes magazine these four compan ies are among the top six of the 200 largest foreign companies (Forbes 1984:134) .

Although they engage in numerous types of business and diversified business ventures, their core business is still trading. Their activities include independent buying and selling, as well as functioning as trade intermediaries between buyers and sellers.

Each trading company handles between 10,000 to 20,000 products (Young 1979: 4) . They are mainly large-volixne, first-stage wholesale traders of industrial raw materials, agricultural and fishery products, and standardized intermediate products (e.g., steel, synthetic fiber, and fertilizer) . They con duct simple one-way trade and two-way seller-buyer transactions. They naturally prefer to handle the latter so as to maximize sales and trading for basic raw materials and provision of equipment and supplies.

They are in effect, trading conglomerates, not manufacturing conglomerates. Although they have hundreds of small subsidiaries and large joint venture operations in Japan and the outside world engaging in resources exploitation and development, manufacturing and processing, construction, financing and leasing, and subcontracting, their primary objective in all these activities is to support the core business of buying and selling and to generate and promote new business opportunities. The trading comp hies do not function for purposes of development and manufacturing alone.

The broad range of services the trading companies provide to aistamers and the vast resources they control, are targeted to support and expand their core trading business. Thus, a majority of their subsidiaries and ventures are in sales, warehousing, transportation, and other service industries.

Because of dynamic shifts of exports and imports from and to Japan over time the general trading companies are said to have "sensor tentacles" stretched throughout the economy seeking exportable products and becoming aware of importable products, e.g., food items, industrial raw materials, and machinery (Tsuruni 1980:5) . They are always on the lookout for expansion into commercial activities where they can turn a profit.

Pacific Islands Development Program - 5 trading operations

The four largest Japanese trading companies have been it olved in the tuna trade, among other activities, since at least the 1960s. The trading companies' intention to participate in fishing ventures initially was to to expand their export trading of frozen tuna for marketing in the United States and Italy. Their involvement, at this early stage, was not extensive but involved trade credits as advances against purchases of fish in exchange for marketing rights (particularly for export sales of tuna) .

As the growth of the Japanese economy proceeded and the demand for sashimi tuna rose in the 1970s, trading companies began to direct their trading activities to supplying tuna to the domestic sashimi tuna market. They eventually were able to increase their marketing share of the sashimi trade by negotiating whole boatload purchases of tuna from distant-water Japanese tuna companies and acting as marketing agents for Korean and Taiwanese tuna fishing enterprises for exclusive sales rights to the Japanese market.

Since the vast majority of distant-water tuna vessels land their catches at Yaizu (Japan) each trading company set up operating subsidiaries or contracted with agents in Yaizu to conduct their tuna trading operations. These subsidiaries or agents operate cold storage warehouses, do some processing, and also act as marketing agents on behalf of the parent trading company.

Processing by these marketing companies involves preparing tuna or skipjack fran whole fish into smaller loins or steaks for the retail trade. Most of these companies have contracts with major supermarket chains in Japan to supply these retail packs.

Two Reizo Cold Storage, located in Yaizu, is the tuna marketing and processing subsidiary for the Mitsubishi Corporation. Yaizu Suisan operates a cold storage and acts as the tuna marketing and processing agent for C. Itch Ltd. Mitsui & Co does its tuna trading through Commercial Co. located in Yaizu. It also deals occasionally through a tuna trading company by the name of Towa Suisan, located in Tokyo. Marubeni Corporation does its tuna trading through Maruko Suisan located in Yaizu. Maruko, on the other hand, contracts its cold storage from another x npany in Yaizu. Marubeni Reizo, located in Tokyo, also operates a cold storage for Maruberni .

The trading companies view their basic function as providing efficiency and coordination through price and service. In the case of tuna trading, they view their service functions as: (1) arranging transportation, (2) financing, (3) documentation formalities, (4) ensuring delivery, and (5) inspection of fish. Bien the Federation of Japan Tuna Fisheries Co-operative Association (Nikkatsuren) acknowledges some benefits of the trading companies in the tuna trade in that offloading of fish at Yaizu is now done in one to two days, whereas formerly it took up to ten days. However, because they also hold frozen tuna in cold storage for speculative sales on the Japanese market, there is a feeling that the trading companies have some control over the market price of tuna sashimi which operates to the disadvantage of Japanese tuna fishermen.

Pacific Islands Dev el oprnent Program - 6 The approximate percentages of their tuna trading, which change annually are: sashimi-70 percent and processing (canned and katsuobushi) 30 percent. 'Itma trading relative to the overall turnover of a large trading company is snall. For Mitsubishi, US$150-200 million and for C. Itch, US$140-150 million, compared to sales of around US$100 billion.

Profitability of tuna related trading

According to the Japan Foreign Trade Council, the gross profit for all trading companies averages 1.3 percent (before tax) and net profit averages 0.07 percent of net sales. For the major trading companies, according to Mitsubishi, the average net profit is 0.2 percent of net sales. Generally, the trading companies operate on high volume sales and very low profit margins (Appendix 3).

The profitability of their tuna trading operations depends on the market situation. For C. Itch, currently it is a marginal operation. C. Itoh indicates that they would be satisfied with a 1 to 2 percent return on net sales, but currently they are losing money on their tuna operations. For Mitsubishi, their margin is less than 1 percent of net sales on a volune of 100,000 tonnes of tuna per year.

Previously, there were more tuna traders than there are at the present time. The reasons for the redaction are: (1) traders now have higher risks and lower profit margins, (2) they have to advance working capital to vessel operators (e.g., for oil, general operating expenses, and wages), and (3) tuna has to compete with pork and chicken in the domestic market.

Pacific Islands Development Program - 7 Pacific Islands Development Program - 8 Tuna trading arrangements and agreements

In studying the operations of the major Japanese trading companies one quickly realizes that, given their keen rivalry for market share and constant vying for leadership positions in any particular activity, each company is quick to replicate and follow any successful venture, or mode of contracting a supply source developed by any other company. In what follows, therefore, selected operations of the two most prominent trading companies in the tuna trade---Mitsubishi and C. itch —are examined in detail on the basis of personal interviews conducted in 1986.

Mitsubishi. Mitsubishi was a shareholder with other private fishing interests in Japan and Nikkatsuren in establishment of Kaigai Gyogyo Kabushiki Kaishu (KG} - Overseas Fishing Company Ltd) which operated fran 1958 to 1983. FKK was initially formed to promote development of overseas fishing operations by Japanese vessels especially in the Pacific, Southeast Asia and Africa. This required establishment of overseas bases for vessels to operate from and to land fish for processing and transshipment. FGKK's activities also included establishment of joint ventures in fishing and fish canning/processing.

In Malaysia, a joint venture operating under it's ownership included a cold storage facility for transshipment of frozen tuna landed by fishing vessels of Japan, Taiwan, and Korea; a cannery for packing canned tuna for export to the United States, United Kingdom, and Europe; a processing factory for froz en prawns, etc., for export; a fish meal plant, and a fleet of as many as 11 tuna longliners.

In Mauritius, a joint venture operating under I KK ownership, included a cold storage facility for transshipment of tuna landed by longliners from various nations; a cannery for packing canned tuna for export to the United Kingdom and Europe; a tuna longliner and a tuna purse seiner.

In Papua New Guinea, a company owned by KGKK operated a fleet of pole-and-line vessels. This venture was terminated in 1982 resulting from taxation problems with the Papua New Guinea authorities and the collapse of the U.S. market for canning grade tuna.

! KK also had a venture that operated a fleet of 10 pole-and-line vessels in Madagascar. This operation began in 1972 and closed in 1976 due to the nation's economic and political difficulties.

In addition, as consuner demand for tuna increased in the early 196Os in Japan, the co-owners of RGKK saw an opportunity to finance Korean tuna longline operations. his was done by offering boats, technical knowhow and financial credits in exchange for rights to purchase their fish catches, initially for export trading and later for imports into the Japanese market.

Pacific Islands Development Program - 9 Korean tuna longline operations actually started as early as 1963 with the Korea Marine Industry Development Corporation (KMILC) which operated 10 longliners based in American Sanoa to supply Star-Kist's cannery. It was financed by a consortium which included Starkist and Italian and French tuna interests. The arrang rent with the consortiun provided long term capital to KMIDC for the purchase of tuna longliners and advances for working capital for trip expenses. These loans and advances were to be repaid through the supply and sale of fish to the consortium.

Mitsubishi mainly provided debt capital in FZ3KK using the same type of arrangement with the Korean vessels as that used by the consortium which financed KMIDC .

The financial structure of l(KK was such that only 2 percent of its capitalization was equity investment while 60 percent of its debt capital was provided by Mitsubishi. Mitsubishi also provided technical assistance for handling and preparing tuna for the Japanese sashimi market by the Korean vessels.

Five Korean tuna fishing companies were financed by W.KK in 1966 and 1967 (in the form of long term capital for purchasing fishing vessels and operating capital in the form of advances) . The plan was to provide an additional supply of fresh tuna for the sashimi market in Japan through Korean imports. Nikkatsuren eventually sold their interest in FURY since the oanpany's operations were at cross-purposes with the interests of the Japan tuna fishermen's association. Mitsubishi then became a major equity holder in the company. The five Korean companies eventually failed in the 1970s after the first oil shock, the subsequent hi gh interest rates worldwide, and the economic downturn in the Japanese economy.

In 1983 KGKK ceased operations. However, Mitsubishi established a company under the same name to take over and carry on the Mauritius joint venture tuna cannery and plans to increase the nunber of purse seiners there fran one to three. Its canned tuna sales are mainly to EEC countries.

C. Itch. C. Itch, unlike Mitsubishi, as far back as 1970-71 actually built longlire boats and chartered them to Korean companies as well as providing financial and technical assistance.

C. Itoh saw this arrangement as a source of cheap and efficient labor. Since then Korea has established its own fishing companies as a result of the repayment of credit extended by C. Itch. These companies are still closely tied to C. Itch because they need sales commitments for their catches, vessel financing and operating expenses due to Korean exchange control restrictions.

Tam supply sources

Tuna trading by the Japanese trading companies is now split into two lines. One is to deal with tuna for sashimi in the Japanese market and the other is to deal with tuna for canning and processing.

Pacific Islands Development Program - 10 Trading companies buy raw tuna on a spot basis fran Japanese tuna fishing vessels. They also contract with Korean and Taiwanese boatowners for tuna deliveries. As for the source of tuna supply to the Japanese market of 400,000 tonnes (50,000-60,000 tonnes fresh) , the Japanese longline fleet accounts for 70 percent; Korean vessels account for 18-20 percent; Taiwanese vessels for 6-7 percent, and the balance fran other foreign countries.

Salmi tuna. Yaizu Suisan, a subsidiary of C. Itoh, buys tuna for sashimi fran Japanese longliners and also from Taiwanese and Korean vessels. Most dealings are arranged under long term contracts and C. Itch will extend to its contractual parties certain loans and advances. Such financial assistance is carsnonly given to Korean vessel owners because of tight foreign exchange regulations still in effect in Korea.

The supply of tuna sashimi varies by grade. The top grade is southern bluefin tuna. Because of the catch quota imposed in this fishery, the catch is limited and the market strong. Bigeye tuna caught in the higher latitudes is considered hi g h grade sashimi tuna and substitute for bluefin tuna to some extent. Medium grade sashimi tuna has less fat content than the higher grades, a good red color, and is in relatively plentiful supply. The middle latitudes of the central Pacific and Indian Oceans yield mediun grade bigeye and yellcwfin tuna which are caught primarily by Korean and Taiwanese longliners. These catches find their way to the Japanese market.

Canning/praaessing tuna. Mitsubishi buys processing tuna mainly fran Japanese vessels but, because of the yen revaluation, purchases fran Korea and Taiwan have been increasing. 1 nerican purse seiners are not generally competitive because their costs of operation are higher.

Mitsubishi currently uses Tinian as a transshipment base for canning/processing tuna purchased f ran Japanese, Korean, T iwanese, and American vessels. The fish is transshipped to reefers of Korean or Panamanian registry at transport costs to American Samoa (Starkist, and Van Camp) of US$132 per tonne and to Thailand at US$)—S90 per tonne. Transport costs favor transshipping to Thailand.

C. Itoh also deals in the trading of tuna for canning/processing use. The ampany buys fish fran Japanese, Taiwan and Korean purse seiners for sales to Japanese canners or to Thai,, canners with transshipment at Tinian or Guam.

Four or five years ago C. Itch started buying tuna (skipjack and yellowfin) from Indonesia and the Philippines for shipment to the United States and Japan. They also buy from U.S., Taiwanese, and Korean boats and sell to canners in Thailand and the Philippines assuming the risk of nonpayment by the cannery buyers.

P rket share

In terms of the total tuna trade in Japan, the market share of each

Pacific Islands Development Program - 11 company obviously can change from year to year. Mitsubishi is the acknowledged leader in purchases from both Japanese vessels and foreign vessels. By its own estimate Mitsubishi has a 30 percent share of the total tuna trade in Japan and 40 percent of the total tuna marketing from the Pacific Ocean region. An estimate by a competitor trading company has put Mitsubishi's share at 50 percent of the tuna sashimi trade.

Approximately 35 percent of the total tuna trade in Japan is shared equally by the other major trading companies; 10 percent is done by mediun-snail traders; and 5 percent is handled by very snail traders. Some of the very snail traders act as agents for foreign fishermen and occasionally do a small trading business, e.g., cold storage warehousing, sales on the auction block, or sales to other traders or fishmongers through direct negotiation.

The share of the imported tuna trade by the Japanese trading companies' subsidiaries and/or agents is: Tvyo Reizo (Mitsubishi) —45-50 percent; Yashima (independent)---10-15 percent; Hassui (Kyokyo)--10 percent, Yaizu Suisan (C. Itch) --4-5 percent; Maruko (Marubeni) —3-4 percent; Nippon Suisan -2-3 percent; Kanetana (independent) —2-3 percent, Marumi (independent) —2-3 percent; Tokyo Shosha (Mitsui), Toshoku Trading (Mitsui), and others—each share 1 percent or less (Narasaki 1986a:8; personal communication, 1986) .

The market share for the tuna trade with Thailand canners, is: Interpral (French brokers) —25-30 percent; Mitsubishi----20--25 percent; C. Itch-20-25 percent; Thai vessels-10 percent; Marubeni—negligible; Taiyo (Sol anon Isi ands) —negligible.

The share of Japanese trading companies in tuna imports changes f ran year to year. One-half to two-thirds of the catches of Taiwanese tuna vessels are handled by Taiwan--sponsored companies registered in Japan. On the other hand, almost 100 percent of Korean tuna imports are handled by Japanese trading companies.

Pacific Islands Development Program - 12 The Japanese trading companies involvment in tuna activities will certainly be affected by rrent tunaun market conditions in Japan as well as the position of the yen.2 cu

Between 1980-84, annual imports of tuna and billfish ranged between 100,000--140,000 tonnes. t re than 90 percent of imports, other than skipjack and albacore, were channeled to the sashimi market and the rest were supplied for canning and katsuobushi manufacturing. The limited amount of skipjack and albacore imports went to other than the sashimi market.

With regard to fresh fish demand, about 80 percent of the total annual supply of tuna and billfish, excluding albacore, totalling 400,000 tonnes, are channeled into the sashimi market while the remaining 20 percent is used for canning and other purposes. A small anount of skipj ack is traditionally consumed as tta (lightly roasted skipjack) and more recently the skipj ack sashimi market has been developing.

In recent years, however, the sashimi market has been rather unstable with wholesale prices showing erratic behavior due, apparently, to a demand ceiling and a tendency toward oversupply on the market.

Market experts give several reasons for this trend:

(a) Westernization of Japanese (especially young) consumer dietary habits in the postwar years toward more diversification and a decline in seafood consumption in general.

(b) Even for fish products in general, the variety has greatly increased so that currently whitaneat fish has come into popular use as sashimi thus competing with red meat tuna.

(c) Sashimi tuna and billfish are sold at higher prices than other fish used for sashimi because of the higher cost of maintaining g high quality and freshness throu h extremely lov temperature freezing (below -50 0C for long term storage and below -40°C for short term storage); thus consumption of tuna sashimi has stagnated.

(d) Recent preferences of tuna sashimi consumers are inclining more toward smaller quantities of higher-valued fatty meat tuna, torn and less for lower-valued red meat tuna akami which formerly had been the principal supply item for sashimi.

(e) Among the postwar generation of consumers, who now constitute a majority of the population of Japan, demand is steadily shifting toward meat products, especially low-priced chicken and pork, thus further leading to lowered demand for tuna sashimi.

In view of the above factors, there is a general belief among market observers in Japan that it will be difficult to maintain even the existing market demand for tuna sashimi.

Pacific Islands Development Program - 13 In response to the recent tendency towards oversupply relative to market denand, the Japanese government is taking steps toward providing administrative guidance to the industry. Official government to government consultations between Japan and South Korea are taking place four times each year on this matter. There are also unofficial discussions taking place between Nikkatsuren and the Marine Products Importers Association and between Nikkatsuren and overseas producers associations. All discussions relate to limitations on the amount of sashimi tuna imports into Japan. These limitations could eventually spread to, and affect, other countries as well.

Pacific Islands Development Program - 14 The basic function of a general trading company is to buy commodities Fran producers or suppliers and to sell commodities to manufacturers, processors, and wholesalers, or even to oonsuners. Fbr purposes of facilitating pros urenent and trading of co modities, there are many ways that a trading company can extend assistance to the producers or suppliers or to the end chain of buyers.

Initially, the trading companies study the re uiranents of producers or suppliers for capital, infrastructure, technical assistance, or market information, as well as the needs of manufacturers or processors for raw materials or the needs of wholesalers and consumers for merchandise to trade. when they see the needs of manufacturers or processors growing and when they see these needs are not being well met with a sufficient supply of raw materials, they may extend assistance to producers and/or suppliers of raw materials to raise their production capacity. Or when they see the supply of raw materials growing, they may extend assistance to manufacturers, processors, and wholesalers or consumers to increase their purchases of raw materials or merchandise.

In assisting both ends of the trade line, a general trading company at times can became involved in equity holding, or finances but their real intention is to increase their trading activity with products which have good market prospects. Their position is always as an intermediary and they never really wish to be a part of production or manufacturing.

In the early 1970s, when the Japanese trading companies saw the demand for tuna rapidly growing while production remained on a low level, they assisted the producers in increasing their production capacity. with the increased production, the trading companies hoped to increase their trading business. As cases in point, Mitsubishi and C. Itch, as well as other trading companies, extended financial and technical assistance to Korean and Taiwan tuna producers (fishing companies and/or tuna boat owners). Moreover, they, at times, encouraged principal officers of existing companies to leave and become independent owners by offering than tuna vessels on lease arrangements and credit advances for meeting operating expenses.

Almost all the trading companies who dealt with Korean partners built tuna vessels and leased than to the Koreans with the condition that the lease payment (actually an installment on the vessel's purchase price) would be paid with fish catches and that ownership of the vessels would be transferred to the operators after the necessary number of years of installment payments. Under this arrangement, the trading companies were ensured of having the fish catches delivered to then.

Today, however, the supply of tuna is readily available, or rather excessive, and the trading companies can easily purchase the commodity without involving themselves on the production side.

There also appears to be no current interest on the part of trading companies in vertical integration in tuna production and marketing of the

Pacific Islands Development Program - 15 joint venture type (either equity or loan investment). This is borne out by current appraisals of the companies' financial performance in the year ahead. Because of the rapid appreciation of the yen, overall sales and profits declined in 1986 and projections for any immediate improvement are not considered bri ght (Japan Company Handbook 1986) . Trading companies are though in an advantageous position to arrange for efficient and inexpensive freight for transport of sashimi grade tuna. Although fishing vessels do land their catches at Japanese ports on completion of a fishing trip, because of the fact that tuna fishing is now carried on in more and more distant waters, tuna catches are increasingly being transported to Japan by refrigerated carrier vessels. Since sashimi tuna is now quite expensive, not all buyer-distributors have the financial ability to buy up a whole boatload fran a tuna longliner. The trading companies can intermediate these purchases.

The market is currently speculative and tuna prices tend to fluctuate in a very volatile range. Sometimes heavy inventories of stock have to be held and tuna trading, particularly for sashimi, has become risky for the medihm and small trader. Only those who have the financial backing can sustain themselves in this trade and the market is now dominated by less then ten buying-distributing companies.

Pacific Islands Development Program - 16 The activities of general trading companies are related primarily to international marketing and procurement of commodities together with trade-supportive activities such as trade financing, market research, warehousing and shipping. bus, they provide essentially the infrastructural services that support independent or semi-independent productive and extractive activities. These features which characterize the trading companies' network of affiliated ventures and trading arrangements are now reco gnized as a "new (or unconventional) " form of international business organization (Koj ima, 1984:80) .

Their primary interest in direct and indirect investments in overseas resource development ventures with forei gn partners is creation and protection of spoken (the oannercial ri ght to intermediate) whereby, either through an equity or a debtor-creditor relationship, forei gn producers are obligated to sell the product through intermediation of a particular trading company to whom they pay a aoirinission.

In the early days of the trading companies' entry into tuna trading, and especially during the late 1960s and early 1970s, they saw an opportunity to provide an additional supply source of tuna to the foreign processing markets; and later an alternative supply of tuna to the Japanese domestic sashimi market which was faced with excess dem and as a result of the rapid economic growth of the economy. In engaging in these activities, the trading companies' real motive was to generate oo r nissions through an extension of their trading business.

The culmination of these early activities involved then in ^rmercia1 commitments and joint ventures of various types. The current tuna market situation, either for the sashimi trade or for the canning/processing trade, is not conducive to, nor currently lends itself, to either direct or indirect investment interest of the types which were prevalent in the earlier growth period.

The immediate prospect of entry into the Japanese market is not bright on any account. The sashimi tuna market is currently saturated. If anything, the increasing imports and sagging prices of red meat sashimi tuna is having the effect of stimulating efforts towards imposing some restraint on further tuna imports fran all countries.

The trading companies may finance new fisheries development projects, if promising, but the current recession in the tuna industry, which is felt to be structural and deepseated (Doulman 1985:1) , would make few, if any, projects financially attractive. Also, the trading companies are giving priority to existing project commitments which require infusion of new capital investment, e.g., the Mauritius joint venture by Mitsubishi. To be sure, Lane Convention countries, e.g. , Solomon Islands, Fiji, and Papua New Guinea would have preferred status in any future investments on the basis of their qualifying for preferential access to the EEC market.

The general pessimism in the tuna industry is pervasive and has not escaped the sensitive feelers of the trading companies. Under current

Pacific Islands Development Program - 17 market conditions, the only solid interest expressed by Japanese trading companies in any extension of Pacific islands tuna trading activities is in the canning/processing transshipment trade. The reason, obviously, is that this type of trading precludes any long term capital cx itment on the part of the trading company and allows then to perform their real role as intermediaries in tuna trading. If tuna prices eventually do recover, they will, most likely, again look favorably to various forms of long term capital involvement on the production side of the tuna trade.

Pacific Islands Development Program - 18 •.. ..a • ,i r. ^•n,:^•r^rr ^• . r sr i r;^. o-•..r

Independent aomFaZiies

Mitsubishi Shoji Toyoda Tsusho Mitsui Bussan Okura Shoji C. Itoh Okaya Marubeni General Sekiyu Sumitomo Shoji Hara Nissho- Iwai Kokubu Toyo Menka Nagase Kanematsu-Gosho Atakaa Kin ho-Mataichi Nichimen Japan Pulp & Paper Chori Osaka Kozai Toshoku

Manufacturers' subsidiaries

Toyota Motor Sales Mitsubishi motor Sales Kawasho Sunikan Bussan Shoji Matsushita Electric Trading Shinko Shoji Sales

Source: Yoshihara Kunio, o g , h lbg Vanguard g t 13apanese oxford University Press. Tokyo. 1982:8. Note: "A aka was merged with C. Itoh in 1977.

Pacific Islands Development Program - 19 Pacific Islands DEvelopnent Progran - 20 • r^ Ow •6 •• i r^

JAPAN FOREIGN GRADE AIL, INC.

!' Y 10, 1973

( NrxcI Pte)

Preface

General trading companies have demonstrated comprehensive and diversified management functions, in order to realize postwar national policy of establishment of the nation based upon trade and to develop economy in various fields, and consequently have contributed to the development of not only national economy but also the world economy. In the forthcoming future, general trading companies not only should go along with the directions of domestic and international situations but also should demonstrate their functions, meeting positively with the requirement of a changing society and economy.

Recently, the domestic and international environments of society and economy are changing with the basic stream of a strong desire towards the affluent society for everybody.

We consider it indispensable to maintain free economic structure supported by free ideas and a fair competition principle in order to arrive at the true affluent society. It is an essential condition for this course that every constituent member of the society, whether an individual or a corporation, acts on a mutual understanding and cooperative spirit based on the self-consciousness of being an organic and indivisible constituent.

General trading companies hereby make fresh determinations to strongly become conscious of their historic mission and their own roles in the light of changing social and economic environments, and further to self control their in future actions in view of the social influence of their business activities as well as the greatness of their responsibility, and ultimately to contritute to the realization of the affluent society.

Although it is inevitable that each of the general trading companies is to develop its in creative activities in accordance with its management policy, this Code of Conduct is hereby set dawn to confine such mission and common ideology.

Chapter 1. Ideology and Posture of Management Prosperity of enterprises never exist without sound progress and development of the society. Based on this recognition, general trading companies, with their comprehensive and diversified functions, are to contribute to the welfare improvement and the social harmony in order to meet effectively the requirement of the changing society.

Pacific Islands Development Program - 21 General trading companies are to become always conscious of the social roles and responsibilities which they must fulfill and, with moderate management posture, are to reform their cwn habitude, keeping with the times or occasionally taking the lead.

General trading companies, when demonstrating their functions, are to pay attention to the harmony with nature, social and economic environments and any existing orders, both domestically and internationally. der 2. Functions and Fields of Activities General trading companies are to try to properly envision the directions toward which domestic and international economies, industries and societies must truly proceed and are to demonstrate diversified functions as the society requires.

(1) General trading companies are to collect and provide information all over the world, are to try for proper and effective utilization of commodities and are to contribute to rationalization of distribution both domestically and internationally.

Among all, trading company activities, such as positive participation in the development of domestic and international resources, are the social responsibility which is expected of general trading companies and such activities contribute widely to the living of people through stabilization of the commodity prices.

(2) General trading companies, in their international activities, making the spirit of international cooperation as an axis, are to promote international cooperative operations to equalize unevenness between nations and are to contribute to the harmonious development of the world and the improvement of the welfare of domestic and international people.

(3) General trading companies, not merely as the channels of distribution, are to demonstrate the so-called organizer function widely under the harmonious cooperation of industries and enterprises, and are to c ntribute to the development of the national economy. Also, development activities such as regional development and social development are one of the important functions requested of general trading companies in order to improve welfare and bring about the social welfare.

Chapter 3. Cooperation with Related enterprises and Industries

(1) General trading companies are to pay respects to subjecthood of related companies and are to plan to achieve their social mission together.

(2) General trading companies are to endeavor to coexist and coprosper with other industries, particularly with all business, and are to meet the requirement of the society together. Also, with sufficient consideration to be given to the

Pacific Islands Development Program - 22 positions of other enterprises and industries, principles of orderly competition and fair trade are to be the standard of management activities. mapter 4. self Controls and Regulations

General trading companies, through the completion of internal audit systems or training of their personnel, are always to impregnate their organization, down to the end, with self consciousness of the social mission and are to control and regulate themselves based on their social responsinil ities.

Also, when dealing with land, stocks and living-related commodities, prudent consideration is to be given in view of the ideology and the functions of their management.

General trading companies, in their activities, are to gay respects not only to the legal regulations but also to international trust and business ethics and are also to give consideration to widely recognized habitual practices and are to make efforts in fairness and stabilization of business transactions.

C rapter 5. Es-tabl i shore r of Mutual Trust with the Society

General trading companies, both domestically and internationally, are to be me conscious of the wideness of the field they are related to as well as the greatness of the influence their activities are creating and are to endeavor to establish strong mutually trusting relations with every division of the society.

Along the above lines, in order to request right recognition and understanding on the business activities of general trading companies, efforts are to be made to establish, one cy one whenever possible, common measures concerning items which are desirable to be unified among public information like reports on settlement of accounts.

Pacific Islands Development Program - 23 Pacific Islands Development Program - 24 Mitsubishi Corporation Salesa (March 1986) US$94.6 billion Sales breakcbwn: Fuels 31% Metals 22% Machinery 22% Foodstuffs : 10% Chemicalss : 8% Textiles, Industrial materials, and others 7% Trade ration 61% Equity ratio 6.8% Gross profit/sales (March 1985) : 1.23% Net profit/sales 0.14% Net profit/equity 7.49% Mitsui & Canpany Sales (March 1986) : US$100 billion Sales breakdown: Steel products 14% Machinery 19% Chemicals : 11% Foodstuffs 12% PetroleLun, gas 22% Nonferrous metals 13% Textiles 4`k Others 6% Trade ratio 62% Equity ratio Gross profit/sales (March 1985) . 1.52% Net profit /sales 0.03% Net profit/equity 2.62%

C. Itch & Co. Sales (March 1986) US$86.5 billion Sales breakdown: Energy, chemicals 30% Metals 14% Machinery, construction 28% Foodstuffs . 12% Textiles 11% Lumber, others . 5% Trade ratio 55% Equity ratio 3.7% Gross profit/sales (March 1985) 1.37% Net profit/sales : 0.04% Net profit/equity 6.03%

Pacific Islands Development Program - 25 Marubeni Corporation Sales (March 1986) US$77.8 billion Sales breakdown: Metals 18% Machinery, construction 29% Energy, chemicals 28% Textiles 9% Foodstuffs 10% Canmodity transactions 6% Trade ratio 66% Equity ratio 3.7% Gross prof it/sales (March 1985) 1.20% Net profit/sales 0.06% Net prof it/equity 6.75%

Source : Japan Cciii ny Handbook 1986. Toyo Keiza1 Shinposha Ltd., Tokyo, 1986; Diamond's Japan Business Directory 1986. Diamond Lead Co., Ltd., 1986. Note: a Sales figures given in yen were converted to collars at 185 yen = one dollar. b The trade ratio is the ratio of export, import and offshore trading to sales.

Pacific Islands Development Program -- 26 1. For information and data in this and the next section, acknowledgment is made to Osamu Narasak.i, President, New Fisheries Development Ltd, for assistance in arranging interviews with Mitsubishi Corporation, C. Itch & Co. , Ltd. , the Japan Foreign Trade Council, and Nikkatsuren, and for providing inFortant information on the operations of the Japanese general trading companies in the tuna trade.

2. For overall information and data in this section, acknowledgment is made to Norio Fujinanii, Special Advisor to the Minister of Agriculture, Forestry and Fisheries on International Affairs (Fisheries) , for providing working papers and general discussion of current conditions in the Japanese tuna fishing industry and for assistance in arranging a meeting with the Japan Marine Products Importers Association. Information in this section also draws heavily on Siiuita (1986) . A more detailed description of the market is found in Ashenden and Kitson (1987).

Pacific Islands Development Program - 27 Pacific Islands Devetopnent Program - 28 Ashenden, G.P. and G.W. Kitson. 1987. The Japan tuna market. Pacific Islands Development Progran . East-West Center. Honolulu. 134p.

Diamond's Japan Business Directory. 1986. Diamond Lead Co., Ltd. Tokyo. 1547 p.

Doulman, David J. 1985. Recent developments in the tuna industry in the Pacific islands region. Pacific Islands Development Program. Fast-West Center. Honolulu. 9 p.

Forbes. 1984. The ever rising sun. Vol. 136 (1) . pp. 134-40.

Fujir^mi, Norio. 1986a. option for distant water countries: Japan. Tuna workshop on options for cooperation in the development and management of global tuna fisheries. Vancouver. 18 p.

Fu) inami, Norio. 1986b. Tuna Fisheries Development of Japan. INFOFISH Tuna Trade Conference. Bangkok. 18 p.

Frundt, Henry and Arthur Danike. 1982. Transnationai corporations in the South Pacific tuna fisheries. Center for international technical cooperation. The American University. Washington, D.C. 95 p.

Industrial Groupings of Japan (Revised Edition 1982-83) . 1982. Dodwell Marketing Consultants. Tokyo. 493 p.

Japan Company Handbook. 1986. To Keizai Shinposha, Ltd. Tokyo. 1213 P.

Japan Foreign Trade Council. n.d. The Sogo Shosha: what they are and how they can work for you. Sogo Shosha Ccxlunittee. Tokyo. 13 p. Japan Marine Products Importers Association. 1986. Imports of marine products by country. January--October. Tokyo. 4 p.

Koj ma, Kiyoshi and Terutano Oz a. 1984. Japan's general trading companies: Merchants of economic development, OECD. Paris. 119 p.

Kunio, Yosnihara. 1982. Sogo Shosha: The vanguard of the Japanese economy. Oxf ord University Press. Tokyo. 358 p.

Narasaki, Osamu. 1986. Structure and functions of Japanese fish market in. relation to tuna marketing and criteria applied for tuna price determination. INFOFISH Tuna Trade Conference. Bangkok. 12 p.

Sunita, Norio. 1986. Japanese tuna industries and the marketing difficulties. INFOFISH Tuna Trade Conference. Bangkok. 14 p.

Pacific Islands Development Program - 29 Tsurumi, Yoshi. 1980. Sogoshosna. Engines of export-based growth. The Institute for research on public policy. Montreal. 128 p.

United States International Trade Ccaunission. 1986. Competitive ^nditions in the U.S. tuna industry. USITC Publication 1912. Washington, D.C. 320 p.

Yoshino, M. Y. and Thomas B. Lifson. 1986. The invisible link: Japan's Sogo Shosha and the organization of trade. The Mn' Press. C ibridge and Lorxbn_ 291 p.

Young, Alexander K. 1979. The Sogo Shosna: Japan's Multinational Trading CompwAes. Westview Press. Boulder, Colorado. 247p.

Pacific Islands Develognent Program - 30 THE EAST-WEST CENTER is a public, nonprofit educational institution with an international board of governors. Some 2,000 research fellows, graduate students, and professionals in business and government each year work with the Center's international staff in cooperative study, training, and research. They examine major issues related to population, resources and development, the environment, culture, and communication in Asia, the Pacific, and the United States. The Center was established in 1960 by the United States Congress, which provides principal funding. Support also comes from more than 20 Asian and Pacific governments, as well as private agencies and corporations.

Situated on 21 acres adjacent to the University of Hawaii's Manoa Campus, the Center's facilities include a 300-room office building housing research and administrative offices for an international staff of 250, three residence halls for participants, and a conference center with meeting rooms equipped to provide simultaneous translation and a complete range of audiovisual services. PACIFIC ISLANDS DEVELOPMENT PROGRAM

The purpose of the Pacific Islands Development Program (PIDP) is to help meet the special development needs of the Pacific Islands region through cooperative research, education, and training. PI DP also serves as the Secretariat for the 1980 Pacific Islands Conference, a heads of government meeting involving leaders from throughout the Pacific region, and for the Pacific Islands Con- ference Standing Committee, which was established to ensure follow-up on development problems discussed at the Conference.

PI DP`s research, education, and training activities are developed as a direct response to requests from the Standing Committee. PI DP's projects are planned in close cooperation with the Committee to ensure that the focus and the organization of each project address the needs identified by the heads of government on the Committee, a process which is unique within the East-West Center and in other research and educational organizations serving the Pacific.

A major objective of the program has been to provide quality in-depth analytical studies on specific priority issues as identified by the Pacific Island leaders and people. The aim is to provide leaders with detailed information and alternative strategies on policy issues. Each Island country will make its own decision based on national goals and objectives. Since 1980, PI DP has been given the task of research in six project areas: energy, disaster preparedness, aquaculture, govern- ment and administrative systems, roles of multinational corporations, and business ventures development and management.