ALASKA-JAPANECONOMIC RELATIONS
A Study of the Potential Contribution of Trade with Japan to Alaska's Economic Development
ng , • Ichirou Inukai, Akio Iwasaki, Michael R. C. Massie, et. al.
Prepared for Office of Regional Economic Development U. S. Department of Commerce Washington, D. C.
Prepared by Institute of Social, Economicand Government Research University of Alaska College, Alaska January 1968
This report was prepared under contract with the Office of Regional EconomicDevelopment. The statements, find ings, conclusions, recommendations, and other data in this report do not necessarily reflect the views of the Office of Regional EconomicDevelopment.
FORrnORD
This study, prepared by the Institute of Social, Economic and Government Research of the University of Alaska, is considered by the Federal Field Committee to be perhaps the most important product of its 1967 research effort. Given the complexity and history of Alaska-Japan relationships, it is not expected that every reader will adopt or agree with all that the study contains. What is certain is that this p S p Cd within and without government. It is designed to stimulate thinking on the part of public and private parties involved in Alaska-Japan relations- existing and potential. It also provides a fresh basis for policy re considerations on the part of government agencies at all levels. Alaska more than most states must face internationally and its geopolitical position on the North Pacific Rim makes it a "natural" that Japan be a key focal point. The two entities make up almost the classic case of economic complementarity. Alaska has the resources that Japan needs, and Japan has the sophisticated industrial economy which Alaska presently lacks. The strengthening and elaborating of commercial ties is in the larger interest of all parties, including important benefits to the United States of trade and balance of payments support and to Alaska in terms of a steady pace of growth and development. It was in part for these reasons that the Field Committee together with the Economic Development Administration of the Department of Commercearranged the financing of this important study. The result is a fine display of the sound scholarship that can flow from the research talents of the University of Alaska.
Joseph J. FitzGerald, Chairman Federal Field Committee for Development Planning in Alaska
V
PREFACEAND ACKNOWLEDGMENTS
Preface The increasing role of Japan in Alaska's economy is commonknowledqe. Japan is now one of the world's top industrial nations, but because of her small land area and limited natural resources, her economy is sustained by imports of raw materials and semi-finished goods, financed mainly by the export of finished manufactures. As a reqion of undeveloped resources close to Japan, Alaska is naturally one potential source of these imports. The same can be said, however, for Western Canada, Eastern Siberia, Manchuria, Australia and NewZealand. The premise behind this study is that Alaska's ability to benefit from Japan's spectacular industrial expansion depends in larqe part on beinq able to anticipate her import needs, on an awareness of world market conditions for those commodities Alaska might export to Japan, and on an understanding of the structure of the industries and markets in Japan toward which Alaska's exports miqht be directed. The original proposal for the study was submitted to the Economic Development Administration by Arlon R. Tussing and Ichirou Inukai upon the encouraqement of Joseph H. FitzGerald, Chairman of the Federal Field Committee for Development Planning in Alaska. The objectives set out in the proposal were as fo 11ows: 11(1) To project Japan's import requirements until 1980 or 1985 of commodities which are or miqht be produced in Alaska. Wewould assemble and summarize the most authoritative estimates from business, government and scholarly sources in Japan, and in addition, make our own independent projections of import needs. (2) To survey world supply conditions for each of these commodities over the same period. Wewould project output potential and cost estimates for Alaska's competitors in each major commoditygroup. (3) To project transportation costs and conditions which would affect the exports of these commodities both by Alaska and by her competitors. (4} To report the structural and organizational features of the relevant Japanese industries and markets, which miqht be important to Alaskan enterprises planning exports to Japan. (5) To make recommendations for appropriate action, both by government agencies and by private enterprise, which would help Alaska obtain and benefit from Jaoanese market and investments." ·
vii The results of these investigations were to be assembled in a report which would also include an appendix of useful statistical and business information not easily obtainable otherwise. Both the stated objectives of the project and the research plan placed their emphases on the demandconditions for potential Alaska exports to Japan, rather than on the problems of supply, production, costs, etc. for Alaska export industries. This emphasis was due to the investigators' fear that adequate treatment of the latter would require a full study of every facet of Alaska's economyand of the problems of economic development in Alaska. Despite the attempt to limit the investigation's scope, it has been necessary to range very widely, taki up explicitly the goals of Alaskan economic growth
'.1 haiJ2 tha for the development of different industries. Someof the reasons for the attention which had to be devoted to general Alaskan economic questions were the following: (1) It was necessary to survey Alaskan resources and production possibilities in order to determine the commodities for which it was meaningful to investigate Japanese demand and competing world supply sources. Early in the course of the study the investigators selected loqs, lumber, wood chips and pulp; crude oil, natural gas, and petrochemicals; iron, copper and other metallic ores and concentrates; coking coal; fish; beef, mutton, wool and reindeer; and tourism as areas for special attention. (2) Since Japanese capital as well as Japanese markets appear to have a major role in the development of Alaska's resource exports, the existing and possible future structures for each of these industries in Alaska are highly relevant both to their ability to attract Japanese capital and to the consequences of Japanese investment in them.
(3) Alaska 1 s potential export industries are virtually the entire Alaska economy (outside of government and the service trades); the shape of their development determines the shape of development of Alaska 1 s economy. The industries therefore influence Alaska's contribution to the national economyand the quality of life in Alaska. Recommendations directed at the development of these industries must be evaluated in accordance with state and national goals for Alaska 1 s development in general. The actual investigations which culminated in this report had two aspects: quantitative and qualitative. The quantitative efforts were devoted largely to an attempt to estimate the volume, and where possible, the price dimensions of Japan's demand for potential Alaska exports over the next ten to twenty years. This part of the study involved
viii comparison of estimates derived (1) from authoritative Japanese government or trade industry studies; (2) by projection, on the basis of appropriate assumptions, of trends established in the recent past; of (3) by more complex and eclectic methods involving an understanding of technical and structural changes in the resource-using industries (or alternatively, understanding of the changing structure of demand on the part of Japanese consumers for products like fish and meat). The projections arrived at in each case involve assumptions about the institutional characteristics of the industries involved and assumptions about policy on the part of the various governments. Qualitative information was obtained through a broad survey of the published literature by all the investigators and by visits, especially • p • associ ons and government agencies in Alaska, in Japan, in Seattle, Vancouver, Washington, D.C., and elsewhere. The information presented by Hubert Gellert in Part III was acquired in part during his term of service as Director of the State of Alaska Trade and Information Office in Tokyo, and in part through investigations conducted specifically for this study. The analysis, conclusions and recommendations contained in each signed part of this report are the responsibility solely of the respective authors. While the explicit disagreements within the report are few, there are a number of differences in assumptions and emphasis in different parts of the report by different investigators (for instance, in the treatment of the Southeast Alaska timber industry in Parts I and II by Tussing, Part III by Gellert, and Part VII by Massie). Part I, called "The Place of Trade with Japan and Japanese Investment in Alaska 1 s Economic Development, 11 by Arlon R. Tussing, relies on the other sections of this report for background and sets forth the analytical and policy premises, the general conclusions and the recom mendations of this study as a whole. Part II is an abstract of Part I, including a summary of the most important policy recommendations. The various portions of this report were completed in first draft early in the summer of 1967, but the process of review and revision required until January 1968. Although some parts of the report were already becoming dated, the investigators decided not to try keeping the report current because the attempt would cause a further delay in publication. Each section, therefore, should be regarded as using the best information available in June 1967. Many readers will be disappointed with the recommendations presented here. The investigators have not proposed any larqe public works or other massive injections of Federal funds into Alaska 1 s economy. Nor have they recommendednew tax concessions or subsidies to existing or prospective industries--on the contrary, the wisdom of some current programs has been questioned.
Alaska 1 s economy is growing vigorously, in part because of Japanese demand for the state 1 s potential output of crude materials. It is white
ix Alaskans, especially those living in the Anchorage-Kenai Peninsula district, who will probably benefit most from an acceleration of economic growth in the state. This area is already a relatively wealthy one in comparison with most other communities in the United States. As lonq as Alaska's development proceeds as well as it has recently, it may be hard to convince citizens of the other forty-nine states that it is in the national interest to transfer more of the public revenue either to these prosperous Alaskans, to the oil companies, or to Japanese firms for the sake of further stimulating Alaska's economic development. This standpoint is one of political realism in respect to Federal expenditures in Alaska, but it is rooted in basic considerations of equity and of economic efficiency which are valid for intrastate as well as inters transfers resources The report touches on several important ways in which public revenues are, or would be, spent or sacrificed in order to encourage industrial development in Alaska. We have avoided passing judgment on most of these explicit or implicit subsidies even where they do strongly influence Alaska's economic relations with Japan and Alaska's economic development. Each of them deserves more rigorous scrutiny than has been possible under this project. Somestatements are in order, however, on the principles by which we should judge public expenditures, tax exemptions, or the sacrifice of economic rents otherwise due the public as the owner of resource-bearing lands or waters. Four diverse instances of existing or proposed subsidy proqrams in Alaska, advocated for the sake of economic development, will serve as examples: (1) Land managementagencies of both the State and Federal governments in Alaska require primary processing of timber within the state. Forest products manufacturinq in an otherwise uneconomic location is thus subsidized by the amount that timber sale revenues fall short of their free market potential. In addition, these processinq requirements may diminish income generated in Alaska from logging and log transport operations. (2) Royalties and taxes on oil and gas leases and production in Alaska take only a small fraction of the vast incomes being generated on the state's public lands. Superficially, Alaska's apparent generosity to the oil industry has few parallels amongprivate landlords or governments elsewhere. (3} The Alaska Industrial Incentive Act permits the state administration at its discretion to give total or partial exemption from State and local taxes to new or existing enterprises for up to ten years. (4) The Federal Government is being asked to consider building an extension of the Alaska Railroad from a point near Fairbanks to the KobukRiver area in Northwest Alaska to 11open up" the intervening territory in advance of exploration and mineral discovery with the exception of one copper deposit. The point here is not to judge these programs, but to recall that each subsidy represents a transfer of resources which could be used for consumption or for investment somewhereelse in the economy, and the burden should be on the subsidy's advocates to show that this transfer does on balance increase the public welfare. This burden has two parts,
X first to demonstrate that the program itself is both effective and desirable, and then to show that its direct beneficiaries should not pay for it. To date, there has been no attempt for any of these programs to present even a prima facie case based on rigorous economic reasoning and on concrete estimates of its costs and benefits. For instance, estimates of the income generated in Alaska timber processing by the log export prohibition are easy to find. These gains should be compared with the timber sale revenues lost by the Government and the processing income lost in other parts of the United States as a result of the policy. Alaskans in general might be expected to prefer any gain in stable manufacturing employment in the state over almost any gain in employment elsewhere and over almost any gain in Federal revenues. A solid comparison of the gains in manufacturing income and employment in Alaska even with made. Likewise, favorable tax treatment of the oil and gas industry is advocated as an incentive for the companies to continue and expand their exploration efforts in Alaska. The industry is one in which the costs and benefits of a particular set of leasing and tax policies can be enumerated and aggregated with a fair degree of confidence. A case for the existing policies or for policy changes needs to be based on a concrete estimate of the rate of return expected by the oil companies in Alaska, of what the effect of different policies would be on this rate of return, and of what rate of return is necessary to induce the companies to continue exploration and development investment in the state. Another missing part of a serious consideration of tax policy as an incentive is a quantitative estimate of just how much the public's sacrifice of royalty and tax revenues is offset by the industry's indirect contribution to the State's economy. Critical readers will note that the investigators in this study have not always practiced what they preach: The recommendations presented here are not evaluated on the basis of a strict 11PPBS11 analysis. The broad scope of this study and the limited time and resources for it precluded the quantitative rigor we would have preferred for each recommendation. But more significantly, with one possible exception (Recommendation4, dealing with exploration), none of our proposals calls for large public expenditures or subsidies. They are almost costless measures either to increase the mobility of productive factors or of goods (Recommendationsle, 5, 6d, and 7), or to reduce uncertainty (Recommendation6g), or cheap measures to increase the knowledge necessary for rational economic decisions (Recommendationsla, lb, 2, 6a, 6c, and 6f). One recommendation (3) proposes effective State regulation of a particular industry. None of the recommendations involves expenditures of a size which is beyond the present fiscal capacity of the State of Alaska. One reviewer of the first draft suggested that the recommendations lacked a schedule of priorities and a time dimension. The recommendations have all been deliberately cast into a form in which they might be under taken immediately and simultaneously. Proposals such as the marine resources study (Recommendation2) and an accelerated program of mineral
xi exploration will require some lead time and perhaps several years for completion, but there are grounds to argue they should be initiated as soon as possible. Putting both the time and cost dimensions of the various recommendations into the same rough format yields the following schedule.
Proposed NewOutlays Continuing Page Recommendation Initiation FY 1969 Outlays
86 la. Log export Immediate None (Net None (Net quota revenue gain revenue gains)
lb. gn l $ 0 $ , year returns (Alaska timber exports only) 89 le. Encouragementof Immediate None None timber competition 2. Fisheries study FY 1969 $100,000 $100,000 @ FY 1970, FY 1971 91 3. Public Service FY 1969 $125,000 $125,000 Commission per year 92 4. Mineral exploration Immediate None None (Alternative a: leasing system) (Alternative b: FY 1969 $1 ,000,0001 $1,000,0~0 public investment) per year 1 (Alternative c: FY 1969 $1 ,000,000 $1 ,000,0~0 exploration per year corporation) 94 5. Remova1 of copper Immedi ate None None per export restrictions 93 6a. Japanese Consulate Immediate None None 6b. Business manual FY 1969 $20,000 $5,000 per year to keep current 94 6c. Training program FY 1969 $50,000 $50,0003
1Generous estimate based on Quebec experience. 2Hopefully, later years' outlays will be more than offset by lease and sales revenues. 3costs would be reduced in later years by tuition charges. xii Proposed NewOutlays Continuing Page Recommendation Initiation FY 1969 Outlais 94 6d. Purchases from Immediate None (Possible None (Possible Japan net gain) net gain) 6e. Tokyo office Immediate $10,000 $5,000 (supplies per year and exhibits) 6f. Trade association Immediate None None 6g. Incentive Act Immediate None None 95 7. Foreign banks Immediate None None
Acknowledgments This study would not have been possible without the encouragement and assistance of the Federal Field Committee for Development Planning in Alaska, whose chairman, Joseph H. FitzGerald, first conceived of such a research project and guided the original proposal through to the contract stage. The Committee and particularly its staff economist, Dr. Douglas N. Jones, paid continuing attention to the progress of the research and assisted at various points with criticism and suggestions, and in the circulation of the first draft for review. Of course, the conclusions and recommendations of the study are not necessarily those of the Federal Field Committee. The many persons who reviewed and criticized all or part of the first draft of this report, in many cases in painstaking detail, had a strong influence on its final form. Amongthese reviewers were United States Senator E. L. Bartlett; Donald P. Blasko, Petroleum Engineer, Anchorage Field Office, Bureau of Mines; Dr. James A. Crutchfield, Professor of Economics, University of Washington; Professor Victor Fischer, Director of the Institute of Social, Economicand Government Research, University of Alaska; Dr. Robert B. Forbes, Professor of Geology, University of Alaska; William N. Griggs, Special Assistant to the Assistant Secretary of the Treasury; George Gryc, Chief, Alaskan Geology Branch, U.S. Geological Survey, Menlo Park; Perry Hagenstein, Counsel, Public Land Law Review Commission; J. A. Herdlick, Area Director, Bureau of Mines, Juneau; W. HowardJohnson, Regional Forester, U.S. Forest Service, Juneau; and Dr. Ralph W. Johnson, Professor of Law, University of Washington. Others included Yoshio Katsuyama, Director, Alaska Trade and Information Office, Tokyo; Ralph Loffmark, Minister of Industrial Development, Province of British Columbia; Professor Leo Loll, Dean of the College of Business, Economics and Government, University of Alaska; J. Ross Maclean, M.D., Medical Director, HollywoodHospital, NewWestminster, British Columbia; Dr. Carl McMurray,Executive Assistant, Office of the
xiii Governor, Juneau; EdwardG. Posniak, Chief Economist, United States Japan Trade Council, Washington; Earl Plourde, Alaska State Forester; Harry L. Rietze, Regional Director, Bureau of CommercialFisheries, Juneau; Burke Riley, Regional Coordinator, Office of the Secretary of the Interior, Juneau; John Freeman Shaw, CommercialCounselor, United States Embassy, Tokyo; Dale Teel and Edwin Fisher, President and Vice-President, Anchorage Natural Gas Corporation; and Dr. Haskell P. Wald, Chief, Office of Economics, Federal Power Commission,Washington. The investigators extend their thanks to these reviewers and to the many other persons who have contributed to the appearance of this report.
Arlon R. Tussing College, Alaska January 1968
xiv PERSONNEL
Investigators
Arlon R. Tussing Associate Professor of Economics University of Alaska College, Alaska Salvatore Comitini Associate Professor of Economics Columbus, Ohio I chi rou Inukai Senior Lecturer (Instructor in Economics, University of Sierra Leone University of Alaska, Freetown, Sierra Leone 1965-1967) Hubert J. Gellert President (Associate Professor of DevelopmentResearch Associates EconomicDevelopment, Juneau, Alaska University of Alaska, 1967) Michael R.C. Massie Assistant Professor of Forest Management University of Alaska College, Alaska
Consultants
George W. Rogers Professor of Economics University of Alaska Juneau, Alaska Ryoshin Minami Assistant Professor of Economics (Assistant Professor of Economics, Hitotsubashi University University of Alaska, 1967) Tokyo, Japan
Research Staff
Sandra Bates Akio Iwasaki Gregg Erickson Michael Haley John Rosen Susan Schwartz
xv
TABLEOF CONTENTS Page
FOREWORDby Joseph H. FitzGerald V PREFACEAND ACKNOWLEDGMENTS vii PERSONNEL xv TABLEOF CONTENTS xvii LIST OF TABLES xxiii LIST OF FIGURES xxxi
PARTI THEPLACE OF TRADEWITH JAPAN AND JAPANESE INVESTMENT IN ALASKA'S ECONOMICDEVELOPMENT by Arlon R. Tussinq l INTRODUCTION
POLICYISSUES IN ALASKA'SECONOMIC DEVELOPMENT 6
THEGOALS OF ECONOMICDEVELOPMENT IN ALASKA 11 EconomicEfficiency--the Growth of Real GNP Welfare: Health, Education, Etc. National Security: Strategic Materials U.S. Balance of Payments Opportunities for Outdoor Recreation EconomicNormalcy in Alaska: Reduction of Seasonality, Unemployment,Living Costs Integration of Alaska Natives into ModernSociety A Longer View of Resource Development THEPROS AND CONS OF ALASKA'SECONOMIC RELATIONSHIP WITH JAPAN 17 Benefits of the Relationship Impact of Alaska Natives: Uncertain TwoSources of Difficulty: High Seas Fisheries and Timber Monopoly Public Sentiment Regarding Japanese Trade and Investment PROSPECTSAND POLICIES IN VARIOUSINDUSTRIES: WOODAND LUMBER, PULP, AND RELATED PRODUCTS 20 The Japanese Market Wrangell LumberCompany's Monopsony Position
FISHERIES 29 Japan's Demandfor Marine Products The Economicsof Marine Fisheries Goals of Fishery Management
xvii Page A Program for the Developmentand Managementof North Pacific Fisheries Resources Goals Trusteeship Zones Competitive Leases Disposition of Revenues Anticipated Objections to Fishery Reform
PETROLEUM,NATURAL GAS, AND RELATED PRODUCTS 50 Japan's Energy Demand I Natural Gas Natural Gas Costs and Natural Gas Prices COAL 62 MINERALSOTHER THAN MINERAL FUELS 64 Japanese Demand Acceleration of Exploration Export Restrictions on Copper LIVESTOCKPRODUCTS 74
TOURISM 76 GENERALCONSIDERATIONS CONCERNING ALASKA-JAPAN ECONOMIC RELATIONS 77 Ignorance and Insecurity Establishment of a Japanese Consulate The Alaska Industrial Incentive Act Imports as an Incentive to Trading Companiesto Locate in Alaska The Alaska State Office in Tokyo, and the Need for a Private Trade Association Banking in Alaska Business and Professional Services in Alaska SUMMARYAND CONCLUSIONS: STATE AND FEDERAL RESPONSIBILITIES 84
PARTII SUMMARYOF CONCLUSIONS AND RECOMMENDATIONS (Abstract of Part I) 87
PARTIII JAPANESECOMPANIES IN ALASKA by Hubert J. Gellert 97
INTRODUCTION 97
ALASKALUMBER AND PULP COMPANY 97 Organization and Operations The Creation of Alaska Lumberand Pulp Company Governmentand ALP xviii Page WRANGELLLUMBER COMPANY 104
FISHERIESOPERATIONS 106 Western Alaska Enterprises, Inc. Pacific Alaska Fisheries Company Orea Pacific Packing Company,Inc. Policy Considerations ALASKACHIP INDUSTRIES 111
ALASKAPETROLEUM RESOURCES CORPORATION 114 Connection with AmericanGovernment Policy JAPANGAS CHEMICAL COMPANY 116
CONCLUSIONS 118
PARTIV THELEGAL CLIMATE FOR INDUSTRIAL CAPITAL INVESTMENT IN ALASKA: A JAPANESEVIEW by Ichirou Inukai and Michael Haley 121
PARTV THEJAPANESE MARKET FOR ALASKAN PETROLEUM, NATURAL GAS, AND PETROCHEMICALSby Ichirou Inukai 127 JAPAN'SDEMAND FOR MINERAL FUELS 127
OVERSEASOIL RESOURCEDEVELOPMENT 130 Pattern of Financing of Overseas Petroleum Resource Development The Alaska Petroleum DevelopmentCompany, Ltd.
DEMANDFOR NATURAL GAS 135 City Gas Electric Power Supply Patterns of Natural Gas Utilization by Japanese Industry
SCALEOF CAPITALOUTLAY IN LNGIMPORTS 139 AMMONIA-UREAPROJECT 142
PARTVI PROSPECTSFOR ALASKA-JAPAN TRADE RELATIONS IN MARINEPRODUCTS by Sa1 vatore Comiti ni T47 HISTORYOF RECENTCONFLICTS OVER MARINE RESOURCES IN THE NORTHEASTERNPACIFIC 147
xix Page JAPANESESUPPLY AND DEMAND AND PRICE TRENDS FOR MARINE PRODUCTS 152 Recent and Current Supply and Demand Projected Future Supply and Demand JAPANESEIMPORTS AND EXPORTS OF MARINEPRODUCTS 157 Imports of Marine Products Exports of Marine Products Projected Balance of Trade of Marine Products
PROSPECTSFOR ALASKA-JAPAN TRADE IN MARINEPRODUCTS 165 CONSIDERATIONSDEALING WITH THE MANAGEMENT -OFTHE NORTH PACIFICFISHERIES 168
PARTVII JAPANESEDEMAND FOR ALASKAN FOREST PRODUCTS by Michael R. C. Massie 171 SUPPLYAND DEMAND FOR FOREST PRODUCTS IN JAPAN 171 Domestic Production Demand Trends in Supply and Demand JAPANESEIMPORTS OF FORESTPRODUCTS 174 Characteristics of Imports Imports from Canada Imports from the U.S.S.R. Imports from the United States Import Trends ALASKA'SFOREST RESOURCE AND POTENTIAL FOR EXPORT 179 Forest Resource Timber Harvest Forest Products Exports Potential for Future Exports to Japan SUMMARYAND CONCLUSIONS 184
PARTVIII PRESENTAND FUTURE SUPPLY, DEMAND, AND IMPORT REQUIREMENTS FOR LIVESTOCKAND MEAT PRODUCTS IN JAPAN by Akio Iwasaki 187 AGRICULTUREIN JAPAN 187 LIVESTOCKPRODUCTION: CHANGE IN THECOMPOSITION OF LIVESTOCK 188 Beef Cattle
xx Page Swine Poultry Feed Quantity of Carcasses Produced PROCESSEDMEATS 198 DIETOF THEJAPANESE PEOPLE 202 PROJECTIONOF MEAT CONSUMPTION 203 Statistical Resources Cross-sectional ConsumptionAnalysis SEASONALITYOF DEMAND 215
PARTIX JAPANESETOURISM TO ALASKA by Hubert J. Gellert 217 PRESENTJAPANESE TOURISM TO ALASKA 217 JAPANESEOVERSEAS TOURISM 217 POTENTIALJAPANESE TOURISM TO ALASKA 219 Seasonality of Demand
APPENDIX 1. ALASKA-JAPANECONOMIC RELATIONSHIPS: A STUDY OF THEPOTENTIAL CONTRIBUTIONOF TRADE WITH JAPAN TO ALASKA'S ECONOMIC DEVELOPMENT 221 2. TRENDSIN PETROCHEMICALSANDAMMONIUM FERTILIZERS, JAPAN 245 3. JAPANESEIMPORTS OF FORESTPRODUCTS FROM CANADA, U.S.S.R. ANDTHE UNITED STATES, 1957-1966 287 4. JAPAN'SIMPORTS OF COKINGCOAL 301 5. TRAININGPROGRAM FOR JAPANESE EXECUTIVES AND TECHNICIANS IN ALASKAPreliminary Proposal by University of Alaska Institute of Social, Economicand GovernmentResearch 305 6. ANNUALREPORT ON TRENDS IN THE[JAPANESE] FISHING INDUSTRY A Publication of the 55th National Diet (Special Session), translated by Arlon R. Tussing 321
xxi Page 7. VALUEOF CATCH,MAJOR FISHERIES, JAPAN 1961-65 399 8. MATERIALSONTHE QUEBEC MINING EXPLORATION COMPANY (SOQUEM) 403 9. MARGINALPROPENSITY TOCONSUME AND INCOME ELASTICITY OF DEMAND, FISH, MEAT,POULTRY, AND DAIRY PRODUCTS, JAPAN, 1964-1965 419 10. ANOUTLOOK OF RAW MATERIALS SUPPLY FOR THE JAPANESE STEEL INDUSTRY 425
Biblioq
Addenda 469
xxii TABLES
I-1 Selected Economic Indicators for Japan, 1958-66 3 I-2 Japan's Major Imports, 1964-66 4 I-3 Alaska's Exports to Japan, 1964-66 5 I-4 Sea Distances Between Yokohama,Japan, and Various World Ports 5 I-5 Patterns of Ownership in Japanese Trade and Investment
I-6 Estimated Supply and Demandfor Timber, Japan, 1965-1985 22 I-7 Imports of Logs and Lumber by Country, Japan 1966 23 I-8 Imports of Pulp by Country, Japan 1966 25 I-9 Reported Exports of Logs and Lumber to Japan, 1965 and 1966, Customs District 31 28 I-10 Consumption Per Household of Animal Protein Foods Japan 1956-1965 31 I-11 Origin of Japan's Imports, Crude Oil and Heavy Oil Fiscal 1965 51 I-12 Declared Wellhead Prices of Alaska Natural Gas 60 I-13 Consumption and Import of Coal, Japan 65 I-14 Average Prices, Japan's Imports of Coal for Coking 66 I-15 Japan's Imports of Minerals Other than Mineral Fuels 1962-1966 67 I-16 Exports to Japan of Minerals Other than Mineral Fuel From British Columbia Ports, 1966 68
V-I Outlook for Supply of Primary Energy up to Fiscal 1985 129 V-2 Value of Petrochemical Output, Japan 1957-1965 136 V-3 Feedstocks Utilized in the Production of Ammonia, Japan 1963-1965 137
xxiii TABLES
V-4 Production of Methanol from Natural Gas Japan 1960-1964 138 V-5 LNGTanker Costs Per Year, Exclusive of Fuel and Port Expenses 140 V-6 Distance of LNGTanker Voyage, Capacity and Cost 141 V-7 Total Construction Cost of Gas Liquefaction Plant, r V-8 Liquefaction Plant Operating Costs 143 V-9 Annual Expense for LNGStorage Facilities 143 V-10 LNGUnit Storage Costs, by Numberof Tanker Voyaqes 144 V-11 Ex-plant Cost of LNG 145 V-12 ComponentCosts of Delivered Price, Alaska LNG 146
VI-1 Index of Japanese Marine Fisheries Catch 153 VI-2 Japanese Supply and Demandfor Fish and Shellfish 154 VI-3 Percentages of Total Value of Japanese Marine Products Imports, by Type of Category 155 VI-4 Selected Japanese Imports of Fish from U.S. 158 VI-5 Percent of Japanese Fish Imports Represented by Method of Processing, from U.S. and Total Imports 159 VI-6 Alaska Fish Exports to Japan as a Percent of Alaska Production, Selected Cateqories 160 VI-7 Value of Japanese Marine Products Imports 161 VI-8 Value of Japanese Marine Products Exports 162 VI-9 Percentages of Total Value of Japanese Marine Products Exports, by Type of Category 163 VI-10 Balance of Trade of Japanese Marine Products 164 VI-11 Alaska Marine Products Prepared for Market and Wholesale Value, 1965 166 VI-12 Alaska Fish Exports to Japan 167
xxiv TABLES
VII-1 Estimated Japanese Timber Supply, Demandand Forest Production, 1965-2015 173 VII -2 Japanese Imports of Logs and Lumber by Country of Origin, 1966 175 VII-3 Major KnownCommercial Forest Land Areas, Estimated Timber Volumes, and Potential Annual Cut, in Alaska 1966 181 VTJ-4 Volume of Timber Cut by ManaqementAqencv Alaska 1950-1966 183
VIII-1 Value of Agricultural Product and Gross Domestic Product in Agriculture, Japan, 1959-65 189 VIII-2 Numberof Cattle-Raising Farm Households and Head of Cattle 191 VIII-3 Numberof Hog Raising Households and of Swine 192 VIII-4 Numberof Poultry-Raising Farm Households in Egq and Meat Production, and Numberof Fowl, Japan 1956 to 1965 194 VIII-5 Proportion of Egg-Production Households by Numberof Fowl, Japan 1964 and 1965 195 VIII-6 Demandand Supply of Livestock Fodders Japan, 1960 to 1966 196 VIII-7 Utilization of Feed for Selected Years 197 VIII-8 Supply of Livestock Products by Type 199 VIII-9 Production of Processed Meats by Class Japan 1955-1965 202 VIII-10 Relation Between National Income and Dietary Composition 204 VIII-11 Estimated Parameters of Demandfor Livestock Products, Japan 212 VIII-12 Marginal Propensity to Consumeand Income Elasticity of DemandFish, Meat, Poultry, and Dairy Products, Japan, 1964-65 213 VIII-13 Projected Demandand Supply of Meat, Japan: 1970, 1975, 1980 214
XXV TABLES
IX-1 Overseas Travel by Japanese (Excluding Okinawa) 1956-1966 219
APPENDIXTABLES
1- l Exports to Japan Through Customs District 31 (Alaska), 1964-1966 223 1-2 U.S. Imports from Japan Through Customs District 31 (Alaska), 1965-1966 225 1-3 Exports to Japan from British Columbia Customs Ports l 964-1966 227 1-4 Japan's CommodityImports, 1966 231
2-l Output of Petrochemical Products 248 2-2 Developmentof the Petrochemical Industry in Japan 249 2-3 Productive Capacity and Operation Rate of Major Petrochemicals 250 2-4 Output of Petrochemicals 251 2-5 Exports and Imports of Major Petrochemicals 252 2-6 Price Movementsof Petrochemicals 259 2-7 Supply and Demandof Fertilizers 266 2-8 Destination of Exports by Type of Fertilizer 268 2-9 Changes in Profit Ratios of Fertilizer Companies 270
2-10 Investment Programs in the AmmoniumSulfate Industry 272 2-11 Sources for Financing Investment Programs 274 2-12 Increase in World Nitrogen Capacity (Estimates) 277 2-13 Regional Comparison of Nitrogen Capacity 278
2-14 Construction by Oil Companies of NH3 Plants in ConsumingCountries 279 2-15 Comparison of Average Freight Costs for Shipments from Japan and Europe 280
xxvi TABLES
2-16 Major Producers' Share of Regional Markets for Ammonium Sulfate and Urea 282 2-17 A Recent Exampleof International Biddinq for Fertilizer 283 2-18 Overseas Investment Programs by the Japanese Ammonia Industry 285
1 1 p t p from thP UnitPd States Japan, 1957-1966 (Quantity) 291 3-lb Japanese Imports of Forest Products from the United States, C.I.F. Japan, 1957-1966 (Value) 292 3- lc Japanese Imports of Forest Products from the United States, C.I.F. Japan, 1957-1966 (Average Value per Unit) 293 3-2a Japanese Imports of Forest Products from Canada C.I.F. Japan, 1957-1966 (Quantity) 294 3-2b Japanese Imports of Forest Products from Canada C.I.F. Japan, 1957-1966 (Value) 295 3-2c Japanese Imports of Forest Products From Canada C.I.F. Japan, 1957-1966 (Average Value Per Unit) 296 3-3a Japanese Imports of Forest Products from the U.S.S.R. C.I.F. Japan, 1957-1966 (Quantity) 297 3-3b Japanese Imports of Forest Products from the U.S.S.R. C.1.F. Japan, 1957-1966 (Value) 298 3-3c Japanese Imports of Forest Products from the U.S.S.R. C.I.F. Japan, 1957-1966 (Average Value Per Unit) 299
4-1 Japan's Imports of Coking Coal by Country, 1962-65 303 4-2 Japan's Imports of Coking Coal by Country and Grade, 1966 304
6-I- l Urban Household Budget Consumption Elasticities 331 6-I-2 Marine Products Supply and Demand 333 6-I-3 Comparison of Domestic Production and Imports of Major Imported Marine Items 334 6-I-4 Average Per Capita Household Expenditure on Marine Products 338
xxvii TABLES
6-I-5 Per Capita Physical Volumeand Cash Outlay for Consumption of Various Fisheries Products 342 6-I-6 Value of Marine Products 347 6-I-7 Value of Marine Products Imports 350 6-I-8 Total Fisheries Production 354
6-1-9 Relative Shares of Different Ocean Fisheries ~ 6-I-10 Production of the Coastal Fisheries 356 6-I-15 Production of the Major Constituent Fisheries of the Middle and Sma11 Fisheries Industry 359 6-I-16 Numberof Landings of Major Species in the Mediumand Sma11 Fisheries 361 6-I-17 Production of Major Fisheries in the Other Fisheries 362 6-I-18 Numberof Landings, Major Species of Other Fisheries 364 6-I-21 Spread of Equipment in the Coastal Small-Scale Fisheries 369 6-I-23 Numberof Fishery Enterprises 371 6-I-24 Numberof Fishery Enterprises by Type of Organization 372 6-I-29 Numberof Enterprises, Small and Mediumand Other 373 Fisheries 6-I-30 Numberof Enterprises by Type of Fishery, Major Fishing Vessel-Using Fisheries in the Mediumand Small Fisheries and Other Fisheries Categories 374 6-I-45 Fishing Vessels Constructed, by Character of Fishery 379
6-III-l General Trends in Mediumand Small Fisheries Enterprises 380 6-III-8 Total Capital and Its Composition, Mediumand Small Fisheries Enterprises 394 6-III-9 Total Income and Profit, Mediumand Small Fisheries 395
7-1 Value of Catch, Major Fisheries, Japan 1961-65 401
xxviii TABLES
9-1 Marginal Propensity to Consumeand Income Elasticity of Demand, Fish, Meat, Poultry, and Dairy Products, Japan, 1964-65 421
10-1 General Specifications for Iron Ores 435 10-2 Iron Ore and Coal Carriers Presently in Operation and l 0-3 Average Coke Ratios of Major Steel Producing Nations 445 10-4 Operating Data of Tokai No. l Blast Furnace 452 10-5 Tentative Methods for Testing Thermal Decrepitation Property of Iron Ores 455
xxix
FIGURES
I- 1 Attendance at Major Types of Outdoor Recreation Areas, Years of Record 14 I-2 Economics of an Unappropriated Fishery 34 I-3 Impact of Technical Progress on Unappropriated Fishery 36 I-4 Effect of Conservation Measures on Overexploited Fishery 37 I-5 Impact of Protective Tariff or Import Quota on Distressed he
I-6 Entry of NewCountry into 11Managed11 Fishery 39 I-7 Anchorage Gas Rates 61
VII-1 Geographic Ownership Pattern of Timber ManagementAgencies and State-Selected Forest Areas, As Of 1965 180
VII I-1 Meat Consumption Per Capita and National Income Per Capita 207
VIII-2 Meat Consumption Per Year Per Household 208 VII I-3 Relation of Meat Consumption, Real Income Per Capita, and Meat Prices 209 VII I-4 Meat Consumption Per Household, and Proportion of Households in Income Group, 1965 210 VII I-5 Projection of Meat Supply and Demandto 1980 211
APPENDIXFIGURES
2-1 Exports of Nitrogenous Fertilizers, by Producers 276
6-I- l Marine Products and Overall Price Indexes for Producing Areas and ConsumingAreas 330 6-I-2 Change in the Use of Fish and Shellfish Destined for Consumption 335 6-I-3 Per Capita Consumption of Animal Protein in Various Countries, 1964-65 336
xxxi FIGURES
6-1-4 Per Capita Annual Household Expenditures on Marine Products by Region 340 6-1-5 ConsumerPurchase Price of Marine Products 341 6-1-6 Index of Prices of Marine Products in Producinq Areas 344 6-1-7 Indexes of Producing Area Prices and Volumeof Catch for Plentiful Species 346
6-1-9 Total Catch and Catch of Plentiful Species 352 6-1-14 Production in Different Countries 365 6-I-16 Tonnage of Fishing Vessels by Type of Fishery 366 6-1-17 Construction of Powered Vessels 368 6-I-23 Numberof Enterprises in the Mediumand Small Fisheries by Sea of Operation 376 6-I-28 Total Capital and Liabilities Mediumand Small Fisheries 377
6-III-l Fisheries Receipts and Outlays 381 6-III-9 Receipts and Outlays in Other Mediumand Small Fisheries 382 6-III-10 Wage Index by Scale of Enterprise, Mediumand Small Fisheries 383 6-III-11 Movementof Waqes in Principal Mediumand Small Fisheries 384 6-III-12 Wages and Value Added Productivity 387 6-III-13 Capital Intensity Ratio, Value Added Productivity, and Physical Productivity 388 6-III-14 Product Value, Product Volume, and Fish Prices, Mediumand Small Fisheries Enterprise 390 6-III-15 Capital in Mediumand Small Fisheries Enterprise 391 6-III-16 Capital Composition, Mediumand Small Fisheries Enterprise 392
xxxii FIGURES
6-III-17 Total Capital, Capital Intensity Ratio and Self Sufficiency Ratio by Size Class 393
10-1 Annual Production of Pig Iron and Crude Steel 428 10-2 Apparent Consumptionof Steel Per Capita of Various Nations 429 10-3 Location of Integrated Steel Mills and the Share of Pig ~ ,j
10-4 Typical Mileages from Major Supply Sources of Raw Materials 432 10-5 Trends of the Amount, C&FPrices and Percentage by Sources of Iron Ore Imports 433 10-6 Trend of Domestic Iron Ore Production 436 10-7 Trend of the AmountC&F Prices and Percentaqe by Sources of Coal Used by the Iron and Steel Industry 440 10-8 Trend of the Amountand Price of Domestic and Imported Scrap Used by the Japanese Steel Industry 441 10-9 Typical Ocean Freight Rates for Imported Iron Ores and Coal 443 10-10 Operating Data of Blast Furnaces in Japan 446 10-11 Size Distribution of Blast Furnace Charge Materials at Fuji's Hirohata Works 448 10-12 Effect of Self-Fluxed Sinter on Coke Ratio and Productivity of a Blast Furnace 450 10-13 Heavy Oil Consumption by Fuel Injection into Blast Furnaces 453
xxxiii
PARTI THEPLACE OF TRADEWITH JAPAN AND JAPANESE INVESTMENT IN ALASKA'SECONOMIC DEVELOPMENT Arlan R. Tussing
INTRODU CTI ON The background to the growing economic ties between Japan and Alaska is the growth of the Japanese economy at a rate hiqher than that of any other country at any time in its history. The qross national product of Japan in real terms has more doubl in last ten years, and manufacturing output has almost quadrupled, so that by 1966 Japan had overtaken both the United Kingdomand the Federal Republic of Germany in terms of gross value of manufacturing output. Real per capita qross national product increased at a rate of 9.5% per year between 1955 and 1966, compared to a rate of only 1.9% in the United States during the same period.l Japan's industrial machine, like that of Britain, sustains itself by importing crude materials and exporting finished manufactures. Taken together the rapid growth of production and Japan's dependency on imports mean a rapid absolute growth in imports and esoecially in raw materials and semi-manufactures. Table I-1 shows the growth of imports since 1958. It is not remarkable that Japanese attention should turn toward Alaska as a potential source of supply for these imports, since the state's undeveloped resources are on the whole exactly those for which Japan's needs are growing most rapidly. Table I-2 lists Japan's ten top import items for 1966, and all except cotton, wheat, and soybeans are likely Alaska exports. Despite these
1 These growth rates were calculated by fitting a logarithmic least squares trend-line to per capita GNP data deflated to 1958 prices. Data were for calendar years for the United States and fiscal years for Japan, obtained from the U.S. Department of Commerce, Survey of Current Business, and Economic Planning Agency, Keizai Hakusho (Economic White Paper), 1966 and 1967. The resulting regression equations were as follows: Japan: log Y = 2.4885 + 0.0396 T U.S.: log Y = 3.3953 + 0.0077 T where Y is per capita GNP in calendar 1958 prices, and Tis the year minus (calendar) 1954.
Projecting these trends implies that Japan will achieve a per capita product equal to that of the U.S. in 1966 by the year 1978, and will overtake the U.S. in 1984.
1 potentials, however, the correspondence between Japan's import needs and Alaska's resources have not, to date, made a great impact on Alaska's exports except in the cases of forest and fish products. Thanks to these items, Japan accounted for 89.9% of Alaska's exports to foreign countries in 1965, and these three categories, in turn, amounted to 98.8% of Alaska's exports to Japan. Alaska is clearly not the only place where Japanese industry can get these resource products. The eastern region of the U.S.S.R. has a natural endowmentvery similar to Alaska's and, of course, British Columbia and YukonTerritory are very similar to Alaska in their potential exports, in their state of development and in their institutional environment. Other countries with large undeveloped resource stocks which have been the Philippines, Malaysia, and a number of African countries. At the same time, Japan is not Alaska's only possible customer. The demand for fuel, ores, forest products, livestock products, and the like is increasing in all industrialized countries including the United States. There are, however, two major influences making for a special affinity between Japan and Alaska. One is proximity. Table I-4 lists the mileages between Yokohamaand various points of origin for Japanese imports. The other is Alaska's underdevelopment, which allows Japanese capital to participate directly in resource development. Because of the narrowness of Japan's own resource base and her dependence on imports, Japanese businessmen and officials have deep anxieties about being 11cut off" from necessary raw materials either by commercial competi tors or by world political crises. Japan's desperation over the loss of oil, iron ore, and scrap imports was one major influence producing the Pacific War. These same fears are now driving the Japanese deliberately to spread their imports among various countries with different political alignments and to press for direct capital investment by lJapanese firms in extraction, processing, and transportation of raw materials. It is in capital-hungry underdeveloped regions like Alaska where this kind of Japanese investment is most feasible. On the whole the expansion of Japan's crude materials imports is not occurring merely as sales by established producers to Japanese industry, but as the result of initiatives and investment from the Japanese side. This is true not only in private enterprise countries such as the United States, Canada, and Australia, where Japanese firms may find partners for joint ventures among domestic firms. It is also the pattern in under developed mixed economies such as that of Indonesia, where domestic state owned corporations join with Japanese capital, and even in the U.S.S.R., whose state organs are contemplating joint ventures with Japanese capital. The Japanese business press calls these arrangements kaihatsu yunyu (development imports). Table I-5 outlines the various patterns of ownership in the differ ent stages of operation existing or planned in Alaska's exports to Japan. The table perhaps understates the degree of Japanese initiative and
2 TABLEI-1 Selected Economic Indicators for Japan, 1958-66 Manufacturing Gross Real GNP Production National Product, Per Capita Imports, CIF Imports of Foodstuffs Index Nominal (Million (1958 U.S. (Million U.S. nd Crude Materials,CIF Year (1960 = 100) U. S . Do11 a rs ) Dollars) Dollars) (Million U.S. Dollars) 1958 66.9 31,995 427 3,033 2,374 1959 76.9 37,158 438 3,599 2,825 1960 100.0 44,575 492 4,491 3,498 1961 119. 9 53,633 558 5,810 4,387 1962 130. l 58,860 632 5,637 4,175 1963 143.7 68,684 654 6,736 5,087 1964 169. 1 78,909 730 7,938 5,892 w 1965 177.2 87,069 795 8,169 6,137 1966 198.3 101,253 908 9,522 7,280
Annual Rate Growth (percent) 14.4 15.3 10. 1 15.3 14.3
Sources: Manufacturing Production Index: Ministry of International Trade and Industry Manufacturing Production Index, calendar years. Gross National Product: Economi Plannino Agency, Keizai Hakusho (Economic White Paper), and Nihon Keizai Shimbun, fi cal years. Real GNP per capita: fiscal years, see footnote 1. Imports: Ministry of F1 ance, Nihon Boeki Nempyo(Trade of Japan) and Nihon Boeki Geppyo (Japan Exports and Imoorts), calendar years. Imoorts of foodstuffs and crude materials: food and live animals; rude materials, inedible except fuels; mineral fuels, lubricants and related materi and animal and vegetable oils and fats. Source, same as for imrorts, calendar yea Growth rates are logarithmic least-squares reqression coefficients. TABLEI-2 Japan's Major Imports, 1964-66 (Thousand U.S. Dollars, C.I.F.)
Item 1964 1965 1966 Petroleum, crude and partly refined 928,745 1,047,306 1,200,363 Wood, Lumber, and Cork 5l4,456 575,613 783,097 (of which pulp other than cotton) (76,243) (79,539) (102,794) Iron Ore and Concentrates 420,286 523,582 606,214 RawCotton and Cotton Waste 439,363 441,820 423,945 Sheep and LambsWool, Crude 372,926 341,077 417,059 Ores and Concentrates of Non- Ferrous Base Metals 236,881 287,487 376,724 (of which copper) (91,875) (128,190) (191,141) Non-Ferrous Metals 254,453 247,496 349,733 (of which copper) (86,851) (98,398) (168,869) Coal 211,164 270,274 301,638 (of which coking coal) (189,059) (250,220) (281,395) Wheat and Meslin, unmilled 261,998 251,092 278,745 Soya Beans 176, 176 225,757 271,985
Source: Calculated from Minis!rY of Finance, Nihon Boeki Nempyo(Trade of Japan) and Nihon Boeki Gepry6 (Japan Exports and Imports).
4 TABLEI-3 Alaska's Exports to Japan, 1964-66
Item 1964 1965 1966 WoodPulp 22,657 21,007 24,412 Logs and Rough-cut Lumber 5,213 5,687 8,978
Fi sh and Fish Preparations ? ?60 l ,497 4 167 A11 Others 244 866 l ,300 Total Exports to Ja12an 30,374 29,057 38,858 Total Ex12orts 34,313 36,739 43,222
Source: Calculated from U.S. Department of Commerce,Bureau of the Census, Foreign Trade Reports EA663and EA664.
TABLEI-4 Sea Distances Between Yokohama,Japan, and Various World Ports (Nautical Miles)
City Miles City Miles Manila l ,800 San Francisco 4,500 Brunei 2,000 Wellinqton 4,900- Singapore 2,900 Goa 5,200 ANCHORAGE 3,000 Bandar Mashum(Iraq) 5,800 Pri nee Rupert 3,400 Maricaibo 7,300 Vancouver 3,700
5 financing in some of the patterns because regardless of the degree of domestic ownership or manaqement, the initial contact and planning were made by Japanese firms, and in a number of cases, stages which are listed as domestically owned are in fact largely Japanese financed. For instance, the logging contractors who supply Alaska Lumber and Pulp Company's mill, and some of the domestic sawmills whose product is sold in Japan by Wrangell Lumber Company, have their working capital or lonq term credit under written by the Japanese firms. The same kind of arrangements are common in the British Columbia mining industry and also occur in Alaska fisheries where processing firms with Japanese capital provide credit to the fishermen who supply them. A central role in almost all of these undertakings is played by the compan 1 Bussan, Mitsubishi Shoji, SumitomoShoji, C. Itoh & Co., and Marubeni-Iida, act as purchasing agents, brokers and jobbers for the bulk of the raw mater ials used by Japanese manufacturers large and small. Each of these trading companies has subsidiaries based in the United States or in Canada, and has specialists in each important category of import commodity. They act as intermediaries between Japanese customers and producers abroad, taking responsibility for product specifications, for arranging transport, trade credit, insurance, etc. The larger trading companies were each part of pre-war Zaibatsu groups, and each still has informal ties, as well as interlocking directorates, with a large Japanese bank and with a large number of manufacturing concerns. The Japanese government is also intimately involved in these import development projects. Since a substantial portion of commodity trade and all capital movements are subject to direct exchange controls, major investment projects and long-term import commitments cannot be made with out clearance from the Bank of Japan issued under authorization of the Ministry of Finance. Every major overseas venture is preceded by a long series of negotiations and consultations among the companies involved, the Finance Ministry, the Ministry of International Trade and Industry, and other sections of the government. Approval of Japan Gas Chemical Company's participation in the Alaska ammoniaand urea project required government initiated plans to reduce ammoniaand nitrate capacities throughout the Japanese chemical industry. Final agreement on the gas liquefaction venture depended on M.I.T.I.'s aqreement to a reduction in the duty on liquefied gas. The government's attitude toward any particu lar venture depends on a host of considerations, including its conformity to the long and medium term economic plans, its lonq and short term effect on the balance of payments, and its impact on the capital structure of the industries involved. Where the import is sufficiently crucial to Japan's overall development plans, as is true in the case of fuels, actual government funds may be provided as part of the total Japanese investment. POLICYISSUES IN ALASKA'SECONOMIC DEVELOPMENT Other chapters of this report pursue in further detail those aspects of the Japanese economy that determine the pace and dynamics of Japan's resource imports. In each of a handful of important industries, Alaska may become one of the most important overseas suppliers of a particular commodity. Alaska's overall importance to the Japanese economy, however, is not likely to be enormous. Alaskan exports in 1966 accounted for only TABLEI-5 Patterns of Ownership in Japanese Trade and Investment VenttJ1res In Alaska
Pattern Stage of Operation Industry Examples Extraction or har Primary processing Trade (transport, vesting (logging, ( sawmi11 , freezing, sales, etc.) fishing, mining, etc) canning, concentra ting, etc.)
I. Domestically owned Domestically owned Domestically owned Phillips-Marathon Alaska LNGproject -._,J I I. Domestically owned Domestically owned Japanese owned Log and lumber purchases (by Wrangell Lumber Co.)
III. Domestically owned Japanese owned Japanese owned Alaska Lumber and Pulp's Sitka operation IV. Domestically owned Joint venture Japanese owned Collier Carbon & Chemical Japan Gas Chemical urea plant v. Joint venture Joint venture Japanese owned Gulf Oil-Alaskco petroleum project about one-half of one percent of Japan's total imports. 2 The most optimistic projections of Alaska's export growth would not raise this figure to more than two or three percent within the next ten years. Even two percent of total imports would be equivalent to less than two-tenths of one percent of Japan's gross national product. The potential role of Japanese trade and investment in Alaska presents an entirely different picture. As we mentioned above, Japan took about 90 percent of Alaska's commodityexports to foreign countries in 1966. Exports to Japan amounted to about 10 percent of the gross value of commodityproduction in Alaska and were probably equivalent to about six percent of total value added in the private sector of the state's economy. The next few rs will , see these proportions increase substan- gges , forest products, are entirely dependent, albeit in different ways, on relations with Japan. In the lumber and pulp industries, about 60 percent of the total product by value is now shipped to Japan. Moreover, it is not an exaggeration to say that the entire industry in the state, except for one domestically owned pulp mill, is dominated by one Japanese-owned firm, and that with the possible exception of one veneer plant, this firm has a hand in every important new development being planned in the forest industries in Alaska at this time. Japan's present and potential importance to Alaska fisheries is more complicated. The survival of some of the most valuable salmon stocks depends upon the ability of the United States to reach agreement with Japan about the taking of salmon on the high seas. On the other hand, the rapid growth of Japan's need to import protein foods offers impor tant opportunities to utilize undeveloped marine resources in the waters of and adjacent to Alaska. Alaska's major growth industry today, oil and gas, would continue to expand rapidly even without Japanese interest, but with both Maruzen Oil Companyand Alaskco committed to joint ventures in petroleum explorations in the state, and with the Japanese market appearing directly or indirectly as the major customer for Alaska natural gas, Japanese economic activity may well determine the shape that this industry's growth takes too. Moreover, if the experience of British Colum bia and YukonTerritory is instructive, the mining and beneficiation of iron, copper and other metallic ores in the State may also depend upon Japanese markets and Japanese initiative. For these reasons, the character of Japanese purchases and Japanese investments in Alaska can play a large part in determining the pace of economic growth, the amount and nature of employmentand unemployment, and have a great impact on the quality of life in the state. The general
2 we can not directly compare the 38.8 million dollars shown for exports to Japan from Alaska ports with the 9.5 billion dollars of total imports in Japan's foreign trade returns in order to see the first as a proportion of the second, because the import figures include insurance and freight charges. We have not calculated the CIF value of Alaska's shipments to Japan, but they are probably in the vicinity of 60 million dollars.
8 purpose of this study is to advance our understanding of the trade and development possibilities mentioned above, to point out areas in which the Federal, State and local governments involved, or private firms or individuals, may affect the pace and character of this growth. While this study is not intended mainly as an analysis of Alaska's economy or growth potentials as a whole, nor as an economic development plan for Alaska, the recommendations advanced in various parts of the report, and summarized in Part II, are naturally based on certain assumptions about what is possible and what is desirable and upon implicit priorities and tradeoffs amongdesirable goals. At a risk of oversimplification, the analytical and policy framework of this study is presented in the next few pages.
i l i an understanding of its structural and nation and world as a whole. Existing patterns of life and work in Alaska have been based in a great part on the hunting and fishing economyof the Natives, on defense employment and on the construction of military facilities, or on jobs existing in Alaska only because of Alaska's remote ness from the agricultural and manufacturing centers of the nation. These patterns provide almost no clues to the future shape of the state's economic development. Outside of activities serving tourists, Alaska's growth in the next couple decades will be grounded almost entirely on the extraction of natural resource products, on their early stages of processing, and on their shipment 11outside. 11 As is the case with the growth of goods-producing industries every where, labor requirements per dollar of product or per dollar of invest ment will be very low compared with the same industries in the past, with older sections of those same industries, or with national or world averages. At the same time, the specialization and the skill requirements in these industries will most likely be higher. The growth of extractive industries and primary processing will of course indirectly create other employment in Alaska, especially in service trades catering either to the basic industries themselves or to the workers employed in them. Nevertheless, one important implication of the nature of Alaska's foreseeable economic growth is that even massive capital investments are not likely to produce a spectacular boom in the state's permanent employment or population. A further corollary of this pattern of development is that even the most rapid growth of basic industry will not bring with it a "balanced economy", that is, a corresponding expansion in the production of finished manufactures or of foodstuffs, except for those products such as fish and perhaps livestock which can be produced in massive quantities fQr export. Indeed, the continuing reduction of transport costs and of the time required to transport goods and people between Alaska and more popu lous regions, together with improvements in transportation frequency and efficiency, will almost certainly mean the demise of Alaska agriculture and dairying as they exist now, and will worsen the competitive position of some manufactures which are carried on for the local market and of
9 even some service trades. 3 The prices of foodstuffs and of finished manu factures produced outside of Alaska, measured in terms of humaneffort there, will continue to fall along with the cost of transporting them. On the other hand, the increase in population and of economic activity within a particular region will bring a growth of the regional market, and tend to increase the number of services and manufactures offered to that market; local enterprise will certainly share in this growth. Even if this latter trend is strong enough to offset the effects of more efficient transport, Alaska's role in the world for the foreseeable future will continue to be as a supplier of wood, mineral and petroleum products, of fish, and of space for outdoor recreation. The labor markets in highly skilled, technical, and professional occupations will account exceptionally larqe proportions new job opportunities in Alaska. These occupations have national labor markets and an exceptionally mobile labor force. Because of this fact and because of Alaska's small population, we can expect that a very large proportion of these jobs will be filled from Outside, no matter how successful we are in attempts to find and train Alaskans for them. For a number of reasons the population and labor force in the more developed portions of the state will remain a relatively transient one. For a large part of the state's population at any particular time, work and residence in Alaska will be regarded as a stage in a career rather than as establishing a permanent home.4 This path of development poses some unique challenges to Alaska. In rural areas of the state, the natural increase of population and the continuing disruption of the subsistence economycan be expected to increase the labor force far more rapidly than economic growth will create new job opportunities there. To make the situation more serious, the low
3 For instance, soft drink bottling and baking may disappear as did brewing many years ago. It is conceivable that clothing will be sent out for dry cleaning and automobile engines and other heavy equipment will be sent out for repair to be returned within a few days from Portland, Seattle or even Tokyo or Stockholm, just as photographic film is sent out for processing now. Many other examples could be suggested. Manufactures and service activities tend to disappear wherever the difference between the cost of doing them locally and of doing them outside exceeds the effective cost of transportation.
4 At the same time that skilled and professional positions in Alaska are filled from a labor pool much greater than the state's own population, many (perhaps most) young people raised or educated in Alaska will make their careers elsewhere. This fact should have important implications for the goals of the public schools and of higher education in Alaska.
10 levels of skills and educational achievement of Alaska Natives virtually preclude them from the new positions which are appearing. Alaska probably contains the richest and poorest communities in the United States and it is entirely possible that rapid economic growth by itself will only exacer bate this contrast. THEGOALS OF ECONOMICDEVELOPMENT IN ALASKA Economic Efficiency -- the Growth of Real GNP If we define economic development as the process by which product per worker and hence income per person increases, then economic develop ment is its own goal. That is, the most obvious standard for udgi i l IJO1 CV iJ and per capita income. On the whole in a modern market economy, the strivings of individuals push in the direction of the economy's development. Workers tend to move towards those places, those industries, and those occupa- tions where employment is more ~lentiful and/or more rewarding. Managers tend to adopt more efficient methods of production, that is, those in which the cost of producing a given output is lower or those in which the revenue from a given input is higher. This elementary goal, economic efficiency -- the greatest output for a given input of humaneffort -- is mentioned because it and the market mechanisms which effect it are often lost sight of in discussions of development policy. Manyworth while development goals do involve a sacrifice of economic efficiency, which sacrifice means ultimately a decrease in the total quantity of goods and services and in the incomes with which people can purchase them. This is not the place for a discourse on the merits of free trade, but exchange between individuals, between firms, between regions or between nations takes place only if both sides benefit from the transaction. For this reason any decision to forbid or to limit transactions which otherwise would take place, through tariffs, import quotas, export controls, primary processing requirements or the like, implies a decision to make an ec0nomic sacrifice in the interest of some other objective. The same is true of any policy which subsidizes a transaction which otherwise would not have taken place. One consequence of these truisms is that Alaska's development pattern as forecast above can be altered significantly only at a high price to the United States and probably to most of the people living in Alaska. If Alaska were an independent nation it could, by high protective tariffs on consumer goods, together with the devaluation of its currency, create a more 11balanced 11 economywith a substantial proportion of its population in agriculture and in the manufacture of consumer goods. But it co~ld do so only at a much lower standard of living. If the skilled Alaskans who could receive higher incomes in the United States or other countries were unwilling to stay there under these conditions, Alaska might still be able to attract large numbers of immigrants from poorer countries. Although the illustration is a far-fetched one, its point is not irrelevant to some of the conceptions of economic development which are now popular in Alaska, based on the history of other places and other times.
11 Welfare: Health, Education, etc. There are other development goals closely related to the general goal of increased product and increased income. These might be broadly cate gorized as welfare goals, and include the reduction of extreme income disparities, the improvement of health, the advance of education, and the like. Just as Alaska's economic development must be judged by its con tribution to the national product and the national income, it must be judged by its contribution to the national welfare. It is obvious, however, that both sets of goals have peculiarly Alaskan aspects. This is above all because of the low incomes, low levels of health and education, and the generally depressed conditions of Alaska Natives.
Another set of national development goals concerns national security. In the past, settlement of the remote fringes of the U.S. was advocated for the purpose of forestalling territorial claims by other powers, or for the purpose of repelling or detecting invaders. The growth of Alaska's population and economy in the period after World War II was largely the result of the establishment of major military facilities grounded on the assumption that the main threat to the nation's security came from the Soviet Union, and upon the military technology of the strategic bomber stage. Settlement of the territorial fringes in itself is largely irrelevant to national security today, and the military impetus for Alaska's growth has now run its course. Indeed, one problem facing the State will be the need to adjust to declining military activity. The most important remaining national security goal relevant to Alaska's economic development is the desire to develop domestic sources of certain strategic materials. The two outstanding commodities in this category, for which Alaska is a likely supplier, are petroleum and copper. The United States is by far the world's biggest producer of both items, but its share of world consumption is even greater. Paradoxically, con cern that the United States could not supply its own industrial require ments in times of emergency has led to Federal restrictions on the import of petroleum and on the export of copper. Wewill argue elsewhere that the policies adopted are in neither case a rational response to the problem of potential scarcity. Nevertheless, the concern which has justi fied present policies cannot be ignored in considering national development goals for Alaska. U.S. Balance of Payments Still another standard by which Alaska's development will be judged is its effect on the U.S. balance of payments. The intensification of the state's relations with Japan will have a favorable impact on the United States' balance of payments, both because the state is a heavy net exporter in its commodity trade, and because of the inflow of Japanese capital to its industries. Unless Japanese capital investment continues to grow indefinitely, at sometime in the future earnings on Japanese capital will cause a net outflow in the invisible accounts, but Alaska's net contribution to the U.S. balance of payments will remain positive because of the massively favorable balance of commodity trade.
12 Opportunities for Outdoor Recreation Another area of policy associated with the development of Alaska concerns the rational use of Alaska's wilderness, wildlife, and scenic resources. With higher incomes, increased leisure, and reduced trans portation times throughout the industrial parts of the world, the demand for scenery and for space for outdoor recreation is increasing at least as rapidly as the demandfor energy, minerals, or wood products. At the same time, population growth and intensified pressure to exploit new sources of crude materials is shrinking the areas available for such leisure activities. Figure I-1 shows attendance at several major types of outdoor recreation areas over several decades, and gives some hint of the ratio at which it will continue to expand. Alaska contains the bulk of the true wilderness rema1n1ngin the United States, and is also the most accessible area of its kind to the densely populated high income areas of Europe and Japan. At certain points, Alaska's value for wilderness and for outdoor recreat!on must ~ome into conflict with its utility as a source for raw materials. Preserving Alaska's natural and scenic resources and making them available for recreational use will require more than a sacrifice of potential material output. It will also require investments in parks and campqrounds, access roads, public outlays on fish and wildlife managementand on forest and range protection, and public and private investment in a variety of facilities serving tourists. Intelligent policies toward the development of Alaska require attention to more than maximization of Alaska incomes or of the dollar value of its production. They require a broad national and international view of aesthetic and recreational requirements for decades to come. EconomicNormalcy in Alaska: Reduction of Seasonality, Unemployment, Living Costs In addition to the national goals of economic efficiency, public welfare, national security, and the preservation and extension of opportunities for outdoor living, there are some distinctive Alaskan goals by which the economic development of Alaska may be judged. One is the establishment of economic normalcy. By nonnalcy, we mean a reduc tion in the highly seasonal character of employment in Alaska, an avoid ance of the boomtown-ghost town cycle which has tended to characterize extractive industries in remote locations, and a reduction of the exceed ingly high cost of living. These objectives too, may be in conflict with other goals or with each other. For instance, a more efficient way of utilizing Southeast Alaska's timber resources is undoubtedly to sell logs to mills with lower costs of operation in Oregon, Washington, British Columbia or in Japan. But processing provides more stable employment and results in a more stable kind of communitylife than does a purely 5 rn the near future, resource development and recreational objectives will be complementary more often than they will be in conflict. Roads, air strips and other facilities for mineral exploration or production or for timber production will make more of Alaska accessible to hunters, fishermen, mountain climbers and other sportsmen, in most cases without damage to wildlife, scenery, watersheds, etc. Likewise, most resource development projects will not encroach on the opportunity for true wilderness experiences in totally roadless and undeveloped areas.
13 FIGUREI-1 ATTENDANCEATMAJOR TYPES OF OUTDOOR RECREATIONAREAS, YEARS OF RECORD
Visits (m!llions) 400 3001-----...J-----+------,I------+-----+,-.,,.~.,---, ..,,...... r 2001------1------+-----+------;---/ I I/r rese~~if: 100 1-----+-----+----t-.:---/·-··" _;_- 90 ,,- : -/_:-J..-,,:.:::._ so .-:-I /_ 1, 70 State parksj-\-= j _ _,i_ 60 \ : , ~- 50 :-/ , ,, -,rTVA- 40 U- / --/--1-----1 , /' 30 1------+----i-----/-~ .. y·'---v-./,-
20 1-----+-----+----,~-, ' I -!tl/l!-L-• 1··./ I /
lo ,_ ___ _,______, ....f;,. --+-1-, I / - i- ..../-----+----II 89 ,______._ ____ ,,__,.~,;:,/ t -t--\ -,-' -/,"-+-----;--1----1-,,,,·A'-t-----;----1
~ Y,,, '/.-~-/ ' ;/,·/--+-----if-J-.-._ 5,- National forests, ~ 7·- 41------+-----+- 0 3 1------1----1,,-(,v~ ~ °' I// / f:,<;, ;," , ""--" <;,<;, 2 -----+--/ 'o~'T,@'>"---+----•,------,---i / ' / lo-----~-----+-----~--Y-+-----+---, 0.91-----1·-----+---·'-""'-'-----~1 0.8 --i-----t-- 0.7 ,_____ ,••+----+---/'-_)( ::--\: --;-----,----, 0.6 /1--+-----+.)('->1·---_g--J-1----+----+----! 0.5 1-----,. I , ' Canadian 0.4 -,J nation" parks 0·3 -;N-at-io-nl-al----l----+-----'-t------i----i 0_2 ,,--'- park ,ystem l l 1910 1920 1930 1940 ---19-50 ____ 1~96_0_1-965 Great depression World War II
Source: Marion Clawson and Jack L. Knetsch, Economicsof Outdoor Recreation, Johns Hopkins Press for Resources for the Future, 1966.
14 logging and transport operation. The U.S. Forest Service and the State of Alaska have decided to make sacrifices in economic efficiency, in stumpage prices, and in foreign exchange for the sake of increasing employmentand employmentstability in Alaska. Integration of Alaska Natives into ModernSociety The last major development goal we will mention is perhaps the most difficult to effect. It concerns the incomes, welfare and general well-being of the Native peoples of Alaska. Since it is generally agreed that the preservation or expansion of the traditional subsistence econo mies of the Eskimos, Indians, and Aleuts is not a realistic objective, policies must necessaril be directed at the successful integration of thPs l i Uni in development pursued for other goals had and may continue to have undesirable effects on the status of Natives. Developmentmay increase the pressures upon, or even destroy vital subsistence resources. It may subject Native communities to some of the most disintegrating effects of industrial society, without yet providing them with either the employment opportunities or the social skills they need to become successful members of that modern economy. A Longer View of Resource Development If we look ahead for more than ten or twenty years, any estimate of how much of a particular crude materi a 1 wi11 be 11needed11 wi 11 probably be more than wildly inaccurate. Such estimates may be almost meaningless. Even today the only raw materials which are really indispensable, i.e., which could not be replaced by wholly satisfactory substitutes at reasonable prices within a few years, are water and air. Science and industrial techniques are moving so quickly that within a very few decades the only absolutely necessary inputs for' any material product will be mass and energy. This situation ought to have radical effects on the goals of resource development policy. One implication of the swiftness of technical change is that 11conservation 11 of most exhaustible resources does not make economic sense. There is no certainty that today's vital resource will be vital or even in demandtwenty years from now. If income earned from mining a non renewable resource stock this year can be invested to earn an eight percent profit, then it would pay to set aside the stock for twenty years only if it were expected to be four and one half times as valuable at the end of the period. This is approximately the same as saying that both the remaining supplies of the material and the next best substitute twenty years from now must cost 4.5 times as much, a very improbable circumstance. 6 In one way this situation increases the urgency of developing Alaska's resources, and in another diminishes its urgency. Certain materials must
6 20 (1. + .08) = 4.46
15 be utilized now or they may never be utilized. Similarly, if these stocks of resources constitute Alaska's locational advantage and its impetus to economic grov1th, the assets must be deve1 oped now or A1 ask a may never become developed. On the other hand, it is very unlikely that Alaska's material production will ever be critical to the nation's security, level of income, or welfare. For this reason, all other things being equal, the rational course both for Alaska and for the United States is to develop, even at the risk of exhausting, the state's non-renewable resource stocks? as quickly as commer cially possible. On the same grounds, any policy toward "strategic materials" 1tJhichincreases costs8 or reduces production9 today in the name of "self sufficiency" is irrational and wasteful except in the ve short run. paying today, and will pay higher costs in the future through postponing the development of substitute technology. The reservation "all other things being equal" is a vital one, because rapid extraction of some exhaustible resources may damage or decimate other renewable or permanent assets. In many cases, the decisions whether or not to develop a particular resource and at what rate can b.e made by a straightforward economic comparison of costs and benefits. This is seldom true, however, where the recreational and aesthetic value of wilderness, wildlife, scenery, and clean air and water are involved. In contrast to Alaska's raw materials resources, satisfactory substitutes for these assets will not be readily available. Since Alaska's potential raw material output does not seem to be critical to any vital national interest in the long run, close contests between present production and wilderness values should probably be resolved in favor of the latter. It does not make sense to lock up fuels, ores, or timber, much less high turnover renewable resources like fish and game, on the ground they will be "needed" in the future. But it is probably an expression of the highest practical rationality to withdraw large areas permanently for recreation and wilderness, even if doing so means some sacrifice in commodityoutput.
?Economically, much of Alaska's timber resource must be considered a non renewable resource, because the next crop is so far in the future that its present value is insignificant. 8 ••• as in the case of petroleum.
9 as in the case of copper ••• lOFor instance, there is no compelling national justification for opening National Parks and Monuments (or the Alaska State Parks as they are established) to mining activity. For the contrary view, see Charles F. Herbert, "A Summary Comparison of Mining Laws and Practices with Recommendations for Policy," XX Part I, Alaska-Northwest Canada Economic Activities, Anchorage: Federal Field Committee for Development Planning in Alaska, 1967. See pp. 3-4 and 11. Mr. Herbert's recommendations are based upon the view that, "our nation's industrial civilization may face a most serious threat to its continued existence through the loss of potential mineral deposits by closure of vast areas to mineral exploration and development." Fears of this type are common, but they reflect a serious underestimation of the technical flexibility of modern industry and of the speed of technical progress. 16 THEPROS AND CONS OF ALASKA'SECONOMIC RELATIONSHIP WITH JAPAN Benefits of the Relationship From the point of view of the development goals just discussed, we found virtually no reason to be apprehensive about the impact of Alaska's trade with Japan either on identifiable national interests or on Alaska's development in particular. The export to Japan of raw materials produced in Alaska has created employmentwithin the state, revenue for the Federal Government, State Governmentand local entities, and foreign exchange earnings. In the forest products industries where the greatest Japanese interest is so far concentrated, these additions seem virtually all to be net gains for the state's economy, and not merely replacement of employ- rvJi rket<; or domestic enterprise. We knowof no case in the state where Japanese capital has preempted or is in the process of preempting opportunities which would otherwise be taken up by domestic enterprise. And aside from a possible handful of persons connected with the processing of salmon roe, no serious case can be made that Japanese nationals have taken jobs which would otherwise be available for Alaskans. As we see in Part VII of this report, there is no foundation to the claim some- times heard from the Northwest states that Alaska timber exports to Japan 11come back11 in the form of U.S. imports, which reduce employment in the domestic lumber industry. Nor do we find ground for any conten tion that exports to Japan are depriving U.S. industry or U.S. consumers of goods needed at home.11 There are only two aspects worth mentioning in which Alaska produc tion for the Japanese market differs in its impact from production for domestic markets, and both considerations argue in favor of trade with Japan. The first is the U.S. balance of payments situation. Unless Alaska's overseas exports substitute for other possible exports from the United States, or induce U.S. consumers to import from abroad what they would purchase from Alaska if the Alaska product were not exported, the net impact on the balance of payments is overwhelmingly favorable. The other favorable aspect of Japanese trade and investment is the apparent concern of Japanese investors, importers, and of the Japanese government for long-term commitments. Because of Japan's extraordinary dependence upon raw materials, and because of anxiety over possible future limitations on raw materials supplies, seven, ten, or twenty year or even longer commitmentsare not uncommonin Japan's crude materials purchases. On the whole, we believe that the stability contributed by agreements of this type are in Alaska's interest. The state's potential exports are of commodities which the world demandand supply are both expanding. But neither the supply nor demandfor crude materials can be expected to expand at a constant rate nor do the two of them necessarily 11 Even if there were evidence that domestic U.S. demand for products now being exported to Japan is sufficient to sustain commercial production of the same volume, we would reject on principle the argument from domestic need. If a domestic shortage develops and U.S. customers 11need 11 Alaskan production, they will be able to obtain it without the imposition of any export restrictions, simply by being willing to pay the necessary· price.
17 increase together. As a result, their prices on the world market are subject to severe fluctuations, and countries or regions depending heavily on the export of a few mineral, forest or agricultural products suffer instability in employmentand income. Their governments find it difficult to implement long-term development plans, and investment in consumer oriented industries is made more hazardous and more expensive by the uncertainty of local income. The "boomtown today, ghost town tomorrow" pattern becomes even more likely. This instability and the high cost of offsetting uncertainty are the chief disadvantages of an "unbalanced" resource-based economylike Alaska's. In this sense, stable markets for Alaska's resources are almost as important as growing markets. Just as Japanese industry wants assured uppl • l tudes of world market conditions and political crises, so Alaskans will benefit from similarly assured markets. The long-term contracts pre ferred by Japanese customers, and the direct involvement of raw materials customers in Alaska investment can be welcomed as a step towards this kind of stability. While there are obvious dangers in becoming entirely dependent upon the fortunes of one nation's economy, there is little reason to believe that the potential instability induced in Alaska's export industries by business fluctuations in Japan will be any greater than those induced by fluctuations in the United States. Our unsupported guess is that the dangers would be somewhat less. Impact on Alaska Natives: Uncertain In general then, the impact of Japanese trade and investment on Alaska has been about the same and will continue to be about the same as we would expect from production by domestic capital for domestic markets. One of the shortcomings of the economic relationship with Japan is the same as that of Alaska's economic growth in general; it has contributed virtually nothing to the reduction of rural poverty, unemployment, illiteracy and demoralization. With minor exceptions in the fisheries area, and perhaps in the development of a Japanese market for reindeer, we do not expect foreign trade to make a direct contribution to the resolution of these problems. Of course, to the extent that economic development increases the State's revenue from taxes and royalties, it provides resources which may be used for up grading of education, for vocational training, and for other social services, but the impact of these funds on the status of Alaska Natives depends on the manner in which they are spent.12 In the absence of 12 Another source of benefits for Native communities would occur from the present Native land claims if the Courts and/or Congress granted them title to land bearing commercially utilizable resources. It might be much preferable for Natives' self-respect and incentives for self-improvement if they received an income as royalties because of their rights as landowners instead of as welfare payments because they are poor and unemployed.
18 agressive efforts to prepare Natives for employmentin the modern economy, and in some way to earmark new jobs for them, it is not clear that any of the rapidly growing industries will create more than a handful of jobs for Eskimos, Indians and Aleuts. TwoSources of Difficulty: High Seas Fisheries and Timber Monopoly As against the several clear benefits of Alaska-Japan economic relationships, and one important area on which their effects are neutral we see only two negative features. The first, the controversy over Japanese fishing for Alaska-spawned salmon on the high seas, is now seen largely as a problem of biology, of international law, and of hard bargaining, rather than as an area of economic interchange. There is evidence that high s lmon hi salmon runs, especially in the Bristol Bay area and that it aggravates the problems of managing and conserving the resource. We do not see how this problem or other conflicts arising from rivalries over ocean fisheries can be solved within existing institutional and legal frameworks. It is clear, however, that the Japanese market and Japanese fishing enterprises will be involved in whatever resolution is achieved. In this report we shall present the outlines of one possible approach toward an economically rational regime for the utilization and managementof the ocean fisheries of Alaska and to the West of Alaska. Another possible problem in the relations between Alaska and Japan, is the virtual monopsonyl3position enjoyed by the Alaska Pulp Companyin the state 1 s forest product industries. In addition to owning Alaska Lumberand Pulp Company,which operates the pulp mill at Sitka, another subsidiary, the Wrangell LumberCompany, markets practically all sawn timber exported from the state. This situation results in the almost complete absence of arm1 s-length export transactions in logs, lumber or pulp. Together with the faulty classification in the foreign trade returns from U.S. Customs District 31, this situation has made it impossible for us to ascertain con clusively whether this monopoly power results either in lower than com petitive stumpage prices, lower than competitive prices for lumber and cants sold to Wrangell LumberCompany by domestic sawmills, or any avoidance of Federal and State corporate income taxes through profit-concealing pricing policies. Wewish to make it clear that we are not alleging the existence of such policies, but merely pointing out that the present structure of the industry provides no safeguards against, or even reliable indicators of, such practices. At the same time it appears that the policies of the Japanese Government, the U.S. Forest Service, and the State of Alaska lead to a reinforcement of this monopsonysituation. Public Sentiment Regarding Japanese Trade and Investment With very few exceptions, Alaska public opinion is favorable to the involvement of Japanese industry in the state 1 s economy. The
13 Monopsony refers to a market condition in which a number of sellers deal with only one buyer, just as monopoly refers to a market in which a number of buyers deal with only one seller, A market in which there is only one seller and only one buyer is called one of bilateral monopoly.
19 exceptions are to be found mainly amongfishermen and in communities heavily influenced by the fishing industry. In response to the Japanese capture of salmon on the high seas, the Seattle-based Alaska Fishermen's Union has for two years been conducting a "boycott Japan" campaign com plete with posters and bumper stickers, but the campaign seems to have made little public impression. It is in Kodiak above all, and to a lesser extent in the Bristol Bay communities, that outright hostility to Japan and Japanese activity is found. In Kodiak, the controversy over salmon has been exacerbated by incidents in which Japanese trawling operations have damagedcrab gear. The feelings of a large part of the population toward Japan and Japanese, however, seem to go far beyond anything explainable by a particular set of grievances; they are remin iscent of sentiments prevalent during and immediately after World War II. i B tol R fi h d other local people express attitudes very much like those encountered in Kodiak, but in Bristol Bay there seems to be a general admiration for the efficiency of the Japanese fishing industry, and a reluctant conclu sion that "if we can't keep them from taking the salmon, then at least let's bring them into the Bay, where we will knowwhat they are doing, and where they will make some jobs for people here." In other coastal communities, from Kotzebue to Cordova, the Japanese seem generally welcome, either as a possible new source of income, or "to help keep the [U.S. owned] packers honest." In summary, we see no reason to oppose or restrict further exports to Japan or entry of Japanese capital into the Alaskan economy. On the contrary, the impact of these developments is almost entirely good. We do see a possible monopoly problem in one industry, but this problem is not different from what it would be if an American-ownedfirm were involved. The appropriate policy even in this case is probably not one of imposing restrictions, but rather of encouraging other large firms, possibly Japanese, to enter the industry. At the same time, public sentiment in Alaska does not seem to be an obstacle to the continued growth of Japanese trade and investment. PROSPECTSAND POLICIES IN VARIOUSINDUSTRIES: WOODAND LUMBER, PULP, AND RELATED PRODUCTS 14 The Japanese Market Woodproducts are the one area in which Japanese interest in Alaska has already been translated into impressive trade figures. Alaska Lumber and Pulp Company's pulp mill ~t Sitka, since it began production at the end of 1959, has accounted for more than half of the value of Alaska's exports to Japan. Exports of pulp together with those of logs, cants and lumber, whose value almost doubled between 1965 and 1966, amounted to 86 percent of Alaska's shipments to Japan in 1966. Imports of wood, lumber and pulp accounted in turn for 8.3% of Japan's total commodity imports in 1966.
14 see also Hubert J, Gellert, "Japanese Companies in Alaska," Part III of this report, Michael R. C. Massie, "Japanese Demand for Alaskan Forest Products," Part VII of this report, and Michael R. C, Massie and Howard Wells, "Japanese Imports of Forest Products from Canada, the U.S.S.R. and the United States, 1957-1966," Appendix 3 of this report,
20 Although about 70 percent of the total land area of Japan is classi fied as forest land, and a high proportion of it is intensively managed for wood production, the country's dense population and the rapid growth of demandespecially for residential construction and for pulp, has made it impossible for Japan's forests to supply all her needs. Table I-6 shows the prospective growth of demandfor forest products in Japan. Logs and lumber are drawn from a variety of sources. The major sources of hardwood logs are the Philippines, Sabah, and Sarawak while the United States and the Soviet Union are the leading sources of soft wood logs. Most of the lumber imports to Japan, overwhelmingly softwood, come from Canada and the United States. g ng pul increased imports both of pulp and of pulpwood. A sizable market may be expected for Alaska pulp chips, produced either from whole logs or as a by-product of lumber production. Accordinq to Japanese industry estimates, Japan's total chip consumption will roughly double, from 7,300 million board feet to 14,077 million, between 1965 and 1975 but imports will come up much more rapidly, from 182 million to 4,560 million. Chipping meets the State of Alaska's primary processing criterion and a moderate size investment can be economical. Alaska Pulp's Wrangell subsidiary has installed a chipping facility to handle waste from its sawmill, and its chip output, like that of at least one other mill planned in Southeast Alaska, will be utilized by the pulp mill at Sitka. However, plans of other Japanese companies to invest several times as much in a chip mill at Homerfor export directly to Japan were not consummatedbecause of a combination of financing diffi culties and uncertainty about log supply. There are a number of places in Alaska where a medium-sized plant cutting its higher grade logs into lumber and chipping the rest might find a profitable market in Japan for both. Such a combined facility located on the Alaska Railroad and at tidewater on Prince William Sound or on the Kenai Peninsula, as well as using softwood from coastal areas, could draw on wood from the Interior. Similarly, such a facility might utilize some of the vast hardwood timber resources in adjacent areas of the Interior. Wrangell LumberCompany's Monopsony Position The problem of monopsonyin the Alaska timber industry raised earlier in this report is a complicated one. Not only does the Alaska Pulp Companythrough its two subsidiaries in the State hold an effective monopsonyposition, but the U.S. Forest Service enjoys a position as a virtual monopoly seller.15 In cases of 11bilateral monopoly16such as 15 Economic Goals of Forest Management: Are the Forest Service, Bureau of Land Management, etc., Revenue-maximizing Monopolists or Oligopo lists? It is difficult to evaluate the economic effectiveness of the policies of the various forest management agencies in Alaska without a more explicit statement of policy goals. If the Forest Service, the Bureau of Land Management or the State Division of Forestry behaved as a rational revenue maximizing private resource owner would, sustained physical yield as a policy constraint would make no sense. According to capital theory, the owner of any asset (whether exhaustible or renewable) will
21 TABLEI-6 Estimated Supply and Demandfor Timber, Japan 1965-1985 (million board feet) Demand Supply Total Construction Pulp Other Domestic Imported Consumption 1965 10,558 7,223 14,077 21,624 6,572 28,196 (actual) 1975 116,1"12 14,077 12,211 29,934 12,466 42,400 1985 50,880 38, 160 12,720 50,880 Source: Table VII-1.
attempt to maximize the present value of its net future returns. In general, if the net revenue (price minus cost of production) from a unit of output will be the same regardless of when it is harvested, the sustained yield harvest of a renewable resource will be economically more rational than rapid "mining" of the resource only if the applicable interest rate is smaller than the ratio between the sustained yield annual harvest and the total stock. If the net rate of growth (growth minus decay) of the individuals composing the population stock is expected never (or never again) to be higher than the interest rate, it will pay to "mine" that stock now regardless of age. As far as we know there is no timber stand in Alaska whose rate of growth is rapid enough to make physical sustained yield a rational goal from this standpoint at any reasonable rate of discount.
If the objective of policy were to maximize revenues subject to the constraint of not exceeding the sustainable physical yield of the forest stock, the primary processing requirement would not make sense, for it is certain that higher stumpage prices could be obtained in sales for log export. The single goal that seems most closely to fit to declared policies of the Forest Service in Alaska is the maximization of permanently sustainable (and preferably non-seasonal) employment within the district, subject to various constraints concerning the preser vation of other values of the forest. This is perhaps the one goal generally justifying both the sustained yield doctrine and the primary processing requirements. Only after approxi mating the maximization of permanent employment does the Forest Service attempt to optimize revenue from timber sales. This seems to be done however, on a sale to sale basis, and there is no evidence of any concern for optimizing the present value of
22 TABLEI-7 Imports of Logs and Lumberby Country, Japan 1966 (million board feet, million U.S. dollars)
Logs Lumber Total Quantity Value Quantity Value ---Value Philippines 2,851 200.9 9 .3 201.2 U.S.A. 1,772 164.7 174 19.2 183.9 Sabah l ,485 95.7 95.7 U.S.S.R. 1,501 74.2 29 2.4 76.6 Canada 117 11.8 267 25.8 37.6 Others 1 , 106 70.2 36 10.7 80.9 TOTAL 8,832 617.5 515 58.4 675.9
Source: Table VII-2.
future revenues. If the latter were the objective, we would expect policies aimed at a more rapid logging of old growth stands, perhaps by allowing sale prices to fall to zero, but instead accepting bids on the basis of monthly rentals on uncut timber stock. In any case, the picture of the Forest Service as a revenue maximizing monopolist seems inappropriate. In the cases of the State Division of Forests and of the Bureau of Land Management, there is insufficient evidence from actual timber sales to infer a consistent set of policy goals. For these agencies too, the maximization of permanent employment based on the forest resource might be a reasonable objective. Even this goal will probably call for permitting export of round logs from some areas outside of Southeast Alaska, unless the agencies are prepared to grant outright subsidies, perhaps in the form of negative stumpage prices, to offset the price disadvantage of Alaska processing.
16 The Wrangell Lumber Company and the Forest Service until 1967 did not face each other directly as buyer and seller as the cutting was done by domestic timber contractors either for Wrangell itself or for domestically owned mills which in turn sold the products to Wrangell. The existence of these intermediaries, who themselves hold no monopoly power either as buyers or sellers,
23 this, economic theory does not provide a clear-cut prediction of how timber prices and the volume of cut will differ from the competitive norm, or of what distortions, if any, will occur from the optimal allocation of resources. It is understood that the Japanese Govern ment has assured Alaska Pulp an exclusive position amongJapanese timber interests in Southeast Alaska precisely because of the advantages of a monopsonyposition. Whether or not this position is effectively exercised, Japan's Finance Ministry and Ministry of International Trade and Industry can be expected to regard it as in her national interest to minimize the foreign exchange expended for timber and pulp imports, and paid out to foreign governments in taxes. Companyspokesmen natur ally deny the use of pricing policy for any of these objectives, but in the absence of competitively arrived at arm's-length transactions in , position must be viewed with reservations. Apart from the Japanese Government's policy, or any deliberate effort on the part of Alaska Pulp to prevent the entry of other Japanese firms into Southeastern Alaska, the main single influence perpetuating the company's monopsonyposition is the Forest Service policies which make mill construction a prerequisite for major timber sales and primary processing in the State a requirement for sales in general. Since economies of scale and the advantages of established operation are much greater in processing and in the lumber trade than they are in logging and in sale of round logs, Wrangell LumberCompany's advantage over potential entrants is overwhelming. These circumstances place the Forest Service in a number of dilemmas concerning timber sale policy, especially since St. Regis and Champion have withdrawn their interest in the major Juneau sale. In general, the best prospect for a large sale in this area by an enterprise willing to establish a pulp mill or large sawmill would be either a Japanese controlled firm or a joint venture in which Japanese capital plays a large part. In the present situation, however, it is unlikely that any Japanese firm or combination not closely connected with the existing Japanese firm would bid on the sale. The Forest Service is understand ably reluctant to turn such a large proportion of the Tongass National Forest into the hands of one company. The alternative of earmarking the sale for smaller and presumably domestically owned mills does not avoid this dilemma, because for these mills the most attractive market and sources of financing seem to be available only through the Wrangell LumberCompany. On the other hand, locking up the timber in the area involves an absolute loss of income both from the stumpage price itself and from the employmentwhich would be generated as a result of any sale. Our apprehension is not about the size of Alaska Pulp Company's interest per se, because there is considerable evidence that a large
should not change these theoretical implications of the bilateral monopoly situation. While both the Forest Service and the company are in a position to affect prices or production volume in such a way as to improve their respective revenue positions, the profits of the logging contractors and of the domestic mills can be expected to tend toward the competitive minimum to the extent that either of the larger parties effectively exercises its monopoly power.
24 TABLEI-8 Imports of Pulp by Country, Japan 1966 Unit: metric tons; million yen Sulphite Other Countr Dissolving Sulphite Sulphate Ocher Pulp Total Volume Value Volume Value Volume Value Volume Value -- Volume Value U.S.A. 141,873 8,859 66,945 3,480 110,000 6,182 2,635 331 321 ,453 18,852 Canada 27,755 1,915 29,845 1,382 202,770 10,419 17 13 260,785 13,729 Finland 2,107 116 2,815 143 19,717 942 24,639 1 ,201 Republic of South Africa 17,019 922 277 10 17,246 932 N u, U.S.S.R. 9,470 369 6,526 255 15,996 624 NewZealand 14,079 606 14,079 606 Basutoland, Bechuanaland, Swaziland 13,718 590 13,718 590
Sweden 3,699 244 722 52 1,098 78 "! 70 5 5,704 379 Others 5 - 1,265 60 383 34 1,653 94 TOTAL 192,423 12,056 109,852 5,425 369,400 19, 142 3,605 384 675,280 37,007
Source: Japan Tariff Association, Nihon B6eki Geppy6 (Japan Exports and Impon:s), 66.12. scale is necessary for optimum performance in timber management and in the production of lumber or pulp. It would be unwise to restrict the freedom of Alaska Lumber and Pulp Companyor Wrangell Lumber Companyto purchase logs, chips, cants or lumber freely, or to bid on future timber sales simply because their influence has become 11too big". Where these firms become successful buyers or sellers because of greater efficiency, whether resulting from economies of scale or from superior management, it is in the public interest that the companies get the business involved. It is our concern, however, that the special position Alaska Pulp Company now holds not preclude other operators who might be willing, by virtue of competition and greater efficiency, to pay higher prices for stumpage or lumber, to create more jobs, or to pay more in taxes as a result of their operations. For intelligent decisions on the part of the Forest Service in making timber sales and setting the conditions for them, on the part of loggers and mill owners in buying timber and selling lumber, and on the part of prospective new entrants into the industry, two kinds of price information not now available are required. The first is the competitive free market value of stumpage and of logs in Southeast Alaska. Some inference about this can be made from sales in British Columbia, but prices there cannot be expected to be exactly the same as would prevail under similar circumstances in Alaska, because of differences in logging and transport costs. One way in which such reference prices could be established without violating the Forest Service's general commitment to local primary processing would be to allow up to a certain fixed percentage of timber sold to be cut for log export. The proportion might not be more than 10 or 15 percent, but so long as the tenders were brought to the attention of all the major Japanese trading companies and timber importers plus potential customers in the Western United States and Canada, and means were assured to bring these customers together with interested logging contractors, the sale price would give the best possible indication of the true value of the region's timber resource. These prices would not only provide the Forest Service with an indication of the effectiveness of existing monopsony power, but would give both the Service and the public a measure of the opportunity cost of the primary processing policy in terms of timber prices and employ ment in logging. We are not urging abandonment of this policy, but we feel that it is important that it be possible to measure the relative costs and benefits of pursuing different policies. The other set of reference prices which ought to be made available are the actual export prices of cants and lumber exported from Alaska. Wrangell Lumber Companyuntil recently took the position that since much of its purchases are made from private contractors and not from the Forest Service, its sale prices were privileged information, and accordingly refused to disclose them. While this was formally correct (though we see no particular reason why any sale price should not be disclosed), the special competitive advantages of the Companyare in fact created by
26 the policies pursued by the Forest Service and by the Company's effective preeminent position itself. It is in our opinion a very strong argument in favor of compulsory disclosure.17 Fortunately, the establishment of these prices on the basis of monthly and annual averages is possible without additional legal or administrative authority, and without imposinq any additional control or supervision over timber exporters. Normally, the foreign trade returns of the United States provide such information for each customs district through the simple expedient of dividing the quantities exported into the value of export for each commodity. Information derived this way would be as satisfactory for the purposes set forth here as would the actual quoted price for each sale. The existing foreiqn trade i 1 misclassification of exports among categories. le I-9 shows the volume and value of exports reported from Customs District 31 (Alaska) in 1965 and 1966. While the figures here ought not be identical with sales of Alaska timber to customers in Japan, the correspondence should be extremely close. But in the liqht of our knowledge of what was actually shipped, and of the relative order of prices for the items listed, neither the quantities nor the calculated prices make any sense. The vast bulk of the timber shipped from Alaska in both years properly belongs in category 24 22140, which shows a very small export figure for 1965, and no figure at all in 1966. Instead, the large shipments of cants to Japan have been placed in the rough sawed lumber categories. As a result, the prices in these categories are entirely misleading. If the grades of products were comparable, we would expect spruce to command a substantially higher price than hemlock. Similarly, dressed lumber should show a higher price than rough-cut. Accordingly it is impossible, for instance, to compare the FOBprices of Alaska's timber exports to Japan with those of British Columbia. In the future, measures should be taken to assure the more accurate classification of exports of these commodities. Specifically, exports should be accurately subdivided by species and into round logs; roughly squared logs or cants, preferably with at least one dimension break with in this category; rough-sawn lumber with at least one dimension break; and finished lumber. Spot checks should be made to ascertain that the product exported is actually of the species, grade, and dimension reported; in addition, arrangements might be made with Japanese customs authorities to establish grade and measurement comparability between U.S. export and Japanese import data. Finally, the measure 111,000 board feet" should consistently refer to the same thinq, preferably to the scale generally used in the industry here.18 Despite an earlier Japanese government policy that Alaska Pulp Company's interest was to be confined to Southeast Alaska and was not to be extended into the westward timber producinq areas, the companyhas 17 Because of direct sales of Forest Service timber to the Company, commencing in 1967, the government now has access to the latter's sales records. 18 In order to standardize measurements for buyers and sellers, it would be in order to recognize a third party or "Bureau" cant scaling.
27 TABLEI-9 Reported Exports of Logs and Lumber to Japan, 1965 and 1966 Customs District 31 1965 1966 Calculated Cal culafed Schedule B Quantity Price Per Quantity Price Per Number MBF Value MBF MBF Value MBF 24 22130 Softwood sawlogs, veneer logs and bolts 11,024 $ 580,071 $ 52.62 6,615 $ 93,514 $56.28 in the rough, n.e.c. 24 22140 Softwood sawlogs, veneer logs and bolts 28 3,250 116. 07 roughly squared, quartered, or halved 24 23130 Hardwoodsawlogs, veneer logs and bolts 115 8,101 52.26 in the rough, n.e.c.
24 32130 Lumber, rough sawed, white pine including l ,010 81,851 81.04 sugar pine 24 32140 Lumber, rough sawed, western hemlock 12,508 801,904 64.11 2,402 1,492,981 66.64 24 32145 Lumber, rough sawed, spruce, incl. Alaska 64,210 4,289,383 66.80 1 ,386 6,743,498 67 .18 spruce, Sitka spruce, and white spruce 24 32150 Lumber, rough sawed, cedar except Spanish 378 12,089 31.98 1,052 62,082 59.01 cedar 24 32230 Lumber, dressed, planed, tongued, grooved 211 9,561 45.31 etc., western hemlock 24 32235 Lumber, dressed, planed, tongued, grooved 9,962 487,886 48.97 etc., spruce Source: U.S. Department of Commerce,Bureau of the Census, Foreiqn Trade Report EA 664. now extended its role as the sole marketing agent for all Alaska lumber into new projects planned for Prince William Sound and Afognak Island. This move was, however, not at the company's own initiative, but was at the urging of State officials. There is nothing objectionable in this widened activity or indeed in the extension of Alaska Pulp's activity to all parts of Alaska, but the State and Federal Government should not by either commission or omission pursue policies which effect an exclusive reserve for any company. Both governments should make it clear to the Japanese government and Japanese timber industry that they do not favor the establishment of such reserves and would favor the entry of other Japanese companies into the industry both in Southeast Alaska and in the newly opening areas to the west. Positive encouragement should be given to firms independent of Alaska Pulp in establishing enterprises or in i wood 19 FISHERIES20 Japan's Demandfor Marine Products The second most important category of exports from Alaska to Japan is at present fish and fish preparations. In 1966 their aggregate value amounted to more than four million dollars, more than two and a half times the figure for the previous year. The bulk of these exports were salmon roe, herring roe, herring roe on kelp, and salmon.2 1 Two of the largest Japanese fisheries concerns have acquired interests in Alaska processing or packing operations, and three of the major trading companies
19 One such independent firm which has repeatedly explored the possibility of Alaska operations, so far without success, is the Iwakura-Gumi Lumber Company of Hokkaido.
20 see also, Hubert J, Gellert, "Japanese Companies in Alaska," Part III of this report, Salvatore Comitini, "Prospects for Alaska-Japan Trade Relations in Marine Products," Part VI of this report, Arlan R. Tussing (tr.), "Annual Report on Trends in the [Japanese] Fishing Industry," Appendix 6 of this report.
21 Export data in the U.S. Foreign Trade Returns for District 31 are even more confusing for fishery products than they are for logs and lumber. We have been completely unable to reconcile these figures by category with either the information provided by the Bureau of Commercial Fisheries or that collected by the Alaska Department of Fish and Game. Apparently the same products have not even been placed in the same category from one season to the next. Our experience with the two portions of the returns we have examined in detail raises serious doubts about the accuracy of U.S. foreign trade data. Import declarations are probably more assiduously examined and import categories more accurately assigned than export declarations because of the concern for accurate assessment of import duties. We might also expect aggregates for larger commodity categories to be better than the classification in detail. Nevertheless, the quality of the collection and compilation of foreign trade infor mation seems to warrant overall scrutiny.
29 are also involved in fish products activity in the State. This trade and interest can be expected to increase in the future. Visits by the author in July 1967 found Japanese fisheries personnel -- managers, buyers, technicians, or biologists -- in at least twelve of the State's fishing centers. Undoubtedly they were present at other places too. The background for this development has been the prodigious growth of demandfor animal protein in Japan, resulting from rapidly rising living standards. In the last ten years, consumption of meat products measured by carcass weight has been increasing at a rate of over eleven percent per year and fisheries products (including whale meat and edible seaweed) by landed weight have been increasing at a rate of about five rcent per year. These figures underestimate the actual growth of hav l gt,t::.1 priced items. Three influences have made consumer prices of fish and fish products advance far more rapidly than the general consumer price index, which itself has been rising despite a near constancy of the general wholesale price index. These influences are the already mentioned shift toward higher quality species, the shift toward products of a higher level of processing, and finally, an increase in demandwhich has outrun the increase in supply. Table I-10 shows the growth in expenditures per household for animal protein in Japan, according to the Family Income and Expenditure Survey. We find an increase over ten years of 79 percent in the per household expenditure for fresh fish and of 93 percent in the expenditure for pro cessed fish. In terms of general purchasing power, the increases have been 23 and 33 percent respectively. The survey shows a small decline in the actual physical volume of finished products purchased. Nevertheless, projection of the last ten years' growth of domestic consumption (domestic catch minus exports plus imports) for another ten years suggests an increase of 59.6% in the physical volume required. Making projection of future consumer demandin terms of constant general purchasing power for final consumer products derived from fish, using the 1965 cross sectional income elasticity of demandfor all fish products (.44), the 1965 to 1966 rate of growth of real per capita GNP(9.5 percent), and the 1960 to 1965 rate for population growth, by coincidence we get exactly the same figure for the increase in fisheries demand, 59.6%. Using a more detailed examination of demandfor specific marine products, the Fisheries Agency of the Ministry of Agriculture and Forestry estimated Japan's total requirements for fisheries products to increase from 6.9 million metric tons in 1965 to 9 million in 1971, and 10 million in 1976. During the same period, however, Japan's total catch volume, which was virtually the same as its consumption volume in 1965, 6.9 million tons, is expected to increase only to 7.4 and 7.9 million tons respectively. This implies a deficit which needs to be made up from imports of over a million and a half tons in 1971 and two million tons in 1976. The increases in imports are now expected to continue in two major commoditygroups, the high value species like salmon, shrimp and various kinds of fish roe, and in fish meal for industrial use.
30 TABLEI-10 Consumption Per Household of Animal Protein Foods Japan 1956-1965 A. Expenditures in Current Yen (1960=100) Fish and Shellfish Canned Fish Fresh Processedc Meat Milk & Eggs &Meat Total 1956 82.3 79.8 65. 1 67.5 66.4 72.7 1957 85.4 86.7 69. 1 72.9 71.4 77.3 1958 90. l 89 .8 76.8 81. 1 74.7 83.5 1959 92.3 93.0 86.0 89.0 88.2 89.7 1960 100. 0 100 .0 100.0 100.0 100.0 100.0 /.2 110 .1 1962 114.5 113.7 136.4 131. 3 106.4 104.9 1963 128.4 126.7 143.7 144.6 116.2 136.5 1964 134.5 138.3 150.7 148.4 119.9 143.1 1965 197.6 154.4 167.2 161. 1 123.8 157. 3 B. Expenditures in Constant ( 1960) Yen (1960=100)a Fish and Shellfish Canned Fish Fresh Processedc Meat Milk & Egqs &Meat Total 1956 88.5 85.8 70.0 72.5 71.3 78.2 1957 89 .1 90.4 72. 1 76.0 77.5 80.6 1958 94.3 94.0 80.4 84.9 78.2 87.4 1959 95.6 96.4 89. 1 92.2 91.4 93.0 1960 100.0 100.0 100.0 100.0 100.0 100.0 1961 100.7 102.2 108.5 107.0 101.8 105. 1 1962 101.8 101.1 121. 2 116.7 94.6 111. 0 1963 106. 1 104. 7 118.8 119.5 96.0 112.8 1964 107. 1 110.1 120.0 118.l 95.5 113. 9 1965 109.2 114.2 123.7 119.l 91.6 116 .3 C. Physical Quantity (1960=100; 1960 weights)b Fish and Shellfish Canned Fish Fresh Processedc Meat Milk & Eggs &Meat Total 1956 91.3 92.9 79 .8 63.6 76 .4 79.5 1957 88.0 95.4 81.2 70 .1 79.6 81. 7 1958 79.9 102.9 91. 2 81. 5 74.3 91.4 1959 100.7 103.6 99.9 90.3 86.6 97.5 1960 100.0 100.0 100.0 100.0 100.0 100.0 1961 94.9 93.4 105.2 111. 3 94.1 100.2 1962 95.1 85.7 119 .8 121. 7 85.6 106.7 1963 89.2 86.2 117. 2 128.6 88.8 105.5 1964 89. 1 87. 5 118. 2 135.2 89.9 107. 0 1965 83.4 87.8 121. 0 141. 9 91.6 106.3 aExpenditures in current yen deflated by general consumer price index. bExpenditures in current yen deflated by commodity group price indexes. cDried, salted, and smoked; pickled fish and shellfish; fish paste products; fish and cuttlefish in soy. Source: Calculated from Office of the Prime Minister, Kakei Ch~sa Soga Hokokusho: Showa 21-37-nen (General Report on the Family Income and Expenditure Survey, Japan, 1949-62), 1964, and Kakei Chosa Nempo (Annual Report on the Family Income and Expenditure Survey), 1964 and 1965. This anticipated increase in demand is taking place at a time when Japan's inland and coastal fisheries are already intensively developed, when heavy fishing pressures on the major knownhigh seas fisheries are rapidly reducing yield per unit of effort, and when other coastal nations are increasing their territorial claims in offshore waters and are otherwise attempting to exclude foreigners from adjacent fishing grounds. Apart from vigorous diplomatic representations and a cam paign to raise the efficiency of the coastal fisheries the most impor tant response of the Japanese fishinq industry and of the Japanese Government to these developments is an attempt to 11buy into 11 overseas fisheries. This approach has been especially important in East Africa, where the Japanese have been furnishing vessels, cold storage and pro- cessing equipment, and have been training fishermen for some of the developing nations in area. r e rams p a new industry, part of whose product meets domestic food requirements and the rest of which finds a cash market in Japan. In turn, the Japanese are increasing the overseas fish supplies available to them and at the same time their markets for vessels and equipment. The Japanese Government has participated in the financing of ventures of this sort and regard them as an important form of assistance to underdeveloped countries. As far as we know, the strategy of Japanese fishing firms toward Alaska has never been cast in exactly the same terms as their East African ventures, because the United States as a whole is not an underdeveloped country. Given the opportunity, however, these firms would eagerly do the same kinds of things. The large-scale sections of the Japanese industry are in many respects superior to their U.S. counterparts in technique, organization and financing. They are interested in a greater number of species and in year-round operation of their equipment. On this basis, if they could, these firms would construct cold storage plants, processing facilities and shore facilities for their fishing fleets and for Alaskan fishing fleets equipped in many cases with Japanese-built vessels and Japanese gear. If necessary, they would provide credit to domestic fisherman. They would of course find the prospect even more attractive if they were allowed to import low-wage labor from Japan or even lower wage labor from the Philippines or Korea. Even with domestic labor at domestic wage rates we could expect very substantial invest- ment and development activities in Alaska fisheries and Alaska-based fisheries, if it were not for a great number of legal and institutional obstacles. Someof these obstacles are restrictions on the use of foreign built vessels or in vessels even partially owned by or mortgaged to aliens, the prohibition of the use of ship-to-shore radio by aliens, and the like. It is our conviction that the rapidly growing Japanese market for fishery products together with the Japanese willingness to invest in Alaska's fisheries offers some of the best opportunities for the growth of a strong and progressive fishing and fish processing industry in the State. We are not impressed by the argument that foreigners should be excluded from fisheries stocks not now utilized by Americans because 11we will need them sometime in the future". The income given up by not utilizing these stocks today is lost forever, and there is no reason to believe that Japanese-owned firms would be any less willing to sell their catch in America than would American firms if there were indeed
32 a market for the product in the United States. One reason for special encouragement over the possibility of the rapid development of Alaska fishery resources by foreign initiative and foreign capital is that fishing and fish processing operations are by far the most labor-intensive of all of Alaska's potential growth industries. As such, they offer the best opportunity to provide direct increases in employmentand in income for Alaska Natives, especially in the coastal communities. Planning to take advantage of these opportunities, or for that matter, to deal effectively with any of the opportunities or problems presented by the fishing industry, opens up such a complex maze of economic, legal and social difficulties that it is hard to imagine any serious long range programs for fisheries outside of a fundamental the i 1 l These complications have led us to propose a radical approach to the whole fisheries question.22 The difficulties in implementing the approach presented here are enormous and the outline that follows should not be regarded as a finished program, but only as a basis for deliberation. The Economics of Marine Fisheries Proper consideration of the approach presented here requires an understanding of the economic peculiarities of the fisheries. We shall present the theory in a brief and highly simplified form and recommend that the reader refer to the works cited in the footnote below for a more complete exposition. The physical yield of a given fisheries stock, like any other factor of production, is subject to diminishing, and ultimately to negative, returns. That is, as the input of labor and capital (which we will here combine under one heading as "fishing effort") is increased, each successive increment increases the total catch by a smaller and smaller amount, until at some level represented in Figure I-2 by Is, the maximumannually sustainable catch is reached. Beyond that level further increases in fishing effort will diminish the actual catch. What makes the ocean fisheries differ so fundamentally from most other resource industries is that the resource stock is unappropriated; that is, unowned. If a private owner or a public body actually owned the resource, the rational course for the owner would be to provide an input of fishing effort equal to Im, because that is the level which would maximize net revenue, the value of the catch minus the cost of obtaining it. The quantity Rm- Cmis what economists call the rent attributable to the resource, and it is the amount
22 Neither the theoretical assumptions nor the basic policy conclusions that follow are original. For more definitive statements of both by specialists in the fisheries field, see specially Francis T. Christy, Jr. and Anthony Scott, The Common Wealth in Ocean Fisheries, The Johns Hopkins Press for Resources for the Future, 1965, and James Crutchfield, 11The Marine Fisheries: A Problem in International Cooperation" in the American Economic Review, May 1964. See also, Ralph W. Johnson, "Regulation of Commercial Salmon Fisherman: a Case of Confused Objectives," Pacific Northwest Quarterly, October 1964, 55: 141-145.
33 FIGUREI-2 Economicsof an Unappropriated Fishery 0 0 n v, .::s: fT'l 0 ,c-t- OJ C: OJ ..0 < Level of fishing effort (Input of labor and capital) Note: Twosimplifying assumptions implicit in Figures I-2 through I-6 (a) that the supply of fishing inputs is infinitely elastic, that is, that their prices are independent of the amount employed, and (b) that the demandfor the product is infinitely elastic, that is, that its price is independent of the size of the catch. If these assumptions were relaxed, the outcome in each of the examples in this section would be even less desirable. the resource owner could expect to get per season for leasing the right to fish the stock. It is also the optimum level of effort for society as a whole, because any additional inputs of labor and capital are worth more elsewhere in the economythan they would produce by being applied to this particular fishery. Since the fishery is unappropriated, however, and anyone may enter it, the existence of economic rent--that is, total revenues greater than costs--will draw more enterprises and more fishing effort into the fishery, until the value of the catch just covers the cost of capturing it: that is, until all rent has been dissipated by increased costs and/or reduced output. The total catch may be considerably less than the maximum sustainable catch and will be obtained at a considerably higher cost than 34 necessary. And despite great differences among enterprises, the fishery as a whole will be a no-profit minimumwage industry. Actually the average returns of both labor and capital in fisheries tend to be even lower than they otherwise would be, ironically because some fishermen are very successful. Even in a distressed fishery and in a bad year, a few expert or lucky fishermen will be able to make a small fortune, perhaps in a couple of weeks. This fact may lure into the industry so much gear and labor that the average boat does not break even. A period of high economic rents while the fishery is being developed also tends to induce overinvestment in vessels and gear, and commitment of labor which cannot be withdrawn from the industry as easily as it entered. A mature fishery, then, may be expected to reach an equilibrium gh e, where its true costs are actually higher than its revenues. The direct consequences of the unappropriated character of the fisheries resource are therefore a misallocation of resources and continual crises in fishing communities. The special character of the industry also makes every conventional response to its problems self-defeating. Because the industry is typically in a no-profit position the resources available for research and for gear improvement are minimal and fisheries tend to be a technically backward industry. But to the extent that improved techniques and equipment are introduced they tend actually to worsen the situation of the industry. Improved technology can be seen in Figure I-3 as a fall in costs per unit of fishing effort. In other words, all things being equal, a dollar spent on labor or capital will catch more fish. But all things will not remain equal as the creation of new rents will induce greater fishing effort in the industry until the rents have again been dissipated. This process is shown in Figure I-3 where technical progress drops the cost line from Cl to C2, so that inputs of fishing effort move from I1 to I2, yet production actually falls. Far from improving the position of the fishermen themselves, this process usually involves a reduction in employment, as well as a reduction in output. If the fishery in question is completely under the jurisdiction of a single political entity, the chronic crisis of the industry and inevitably declining yields will produce a demand for 11conservation. 11 The usual goal pursued by regulatory agencies is a reduction of effort to the maximumsustainable catch level. This goal in itself is a suboptimal one because the net yield, that is the rent of the fishery, is less (at Rs in Figure I-2) than it would be at a lower level of effort where marginal revenue equals marginal cost (Rm), In any case, the conservation measures usually chosen, the shortening of seasons and restrictions on the effectiveness of gear, tend to be self-defeating from the point of view of the industry's welfare. Figure I-4 shows the new position of the industry after the regulating authority has so reduced catch efficiency to assure maximumsustained catch. After adjustment, the industry will again find itself in a no-profit position, devoting far more resources 35 FIGUREI-3 Impact of Technical Progress on Unappropriated Fishery ..c:: u .µ ft$ u r- Rs - co .µ Rm Total cost of 0 s:: .µ 0 fishing effort V, R1i------~------0 co s:: OJ co V, R2..._--~------~ Total catch .. s.. .µ OJ revenue V, 0. 0 u OJ ::s ./ ,.... s:: Old ....,.,, co OJ .µ > Techno 1 ~gy/ 0 OJ I- s.. / Improved Technology I1 Level of fishing effort (Input of labor and capital) than are technically required to achieve the same catch. 23 The dynamics of a regulated fishery then usually turn out to be a tug-of-war between the fishermen, who are always attempting to improve their position by improving 23 The same maximum sustained catch level (or indeed the economically optimum catch level) could be obtained with maximum efficiency if the regulating authority levied either a license fee or a production tax high enough to reduce fishing effort to the desired level. This kind of solution will seldom be acceptable to the fishermen concerned both because of the employment reduction itself, and because the benefits of increased efficiency will be diverted to the government through the tax. 36 FIGUREI-4 Effect of Conservation Measures on Overexploited Fishery ("") <.n 3: rr, 0 OJ C: OJ _o < rt- Vl X C: (I) () M- ...... -s ::, OJ 3 --' -t, ...... C: --'• -'• ;::i 3 O" (/) s:i, -s ::, ..c: O" --1 ...... u C: ;::i .µ 3 ..Q rtl Rs Total cost of u fi shi nq effort ,-- Rm rtl .µ R C! r e .µ 0 Vl "O rtl C: QJ revenue rtl Vl "s... .µ QJ Vl Cl 0 u QJ ;::i r- C: co QJ .µ > 0 QJ f- s... m s e Level of fishinq effort (Input of labor and capital) the efficiency of their gear and their techniques, and the regulating agency which is trying to 11conserve 11 the resource by reducing the efficiency of each unit of fishing effort. The outcome is in any case a relatively backward and chronically depressed industry, which makes a minimumnet contribution to the national economy. Another recourse governments may take to aid distressed fisheries entirely within their national jurisdiction is the imposition of prohi bitive duties or quotas on competing imports. If the import restrictions are effective, they raise the price of the fishery product in question. In Figure I-5 such a development is shown as a rise in the value of product curve. But as far as solving the difficulties of the industry, this move too is futile. The rent temporarily created induces greater inputs in the industry and the final result is actually a lower catch for which the country's consumers are required to pay a higher price. The fishery itself reverts to its original no-profit condition. 37 FIGUREI-5 Impact of Protective Tariff or Import Quota on Distressed Fishery RJ Total cost of l\n fishing effort R2 i------"'"' R" V , R Total catch 1 1 revenue V2 I1 Level of fishing effort (Input of labor and capital) v1, v2: Value of catch at original (non-tariff) prices The principles involved and the ultimate condition of any fishery where freedom of entry prevails are the same whether or not the fishery is entirely confined within one national jurisdiction or whether it is a high seas international fishery. The existence of international rivalry over a particular fishing stock does, however, make even the usual efficiency-reducing conservation measures impossible in the absence of international agreements covering all potential entrants into the fishery. Figure I-6 shows how unstable these agreements tend to be. Countries A, B, and C have established short seasons and gear restrictions, which establish cost curve c for their nationals. Yet country D which is bound by no such restrictions 1 enjoys a much lower cost curve at C2. The existence of considerable economic rents induces country D to increase its fishing inputs up to its own no-profit position at 12, thereby subjecting the resource to the overfishing which A, B, and C's agreement was designed to prevent, and at the same time probably runinq the fishery entirely from the point of view of A, B, and C's higher cost structure. FIGUREI-6 Entry of NewCountry into ''ManagedII Fishery ..c: u .µ co u Rs r- co .µ Rm Total cost of oc fishinq effort ,f-,) 0 R? (f/ "Cl co C OJ Total catch co U1 revenue ~ s... .µ OJ U1 CL 0 u OJ :::::; r- C co OJ .µ > 0 OJ I- s... Level of fishing effort (Input of labor and capital) In the same fashion, even an unregulated, over-fished, international fishery may suffer further distress if a more efficient or otherwise lower cost new participant arrives and enters the fishery. In the behavior of these models, we can see what has happened in virtually every developed ocean fishery.24 The nature of the long run equilibrium situation may be obscured by the wide fluctuations of catch from one year to the next. In the short run these fluctuations seem 24 rt is not surprising that the Alaska king crab fishery is an example of a highly profitable and technically progressive industry. The fishery is new and the input of fishing effort has probably not yet reached the level of maximum sustainable catch let alone the no- profit equilibrium. Without restrictions on entry to the industry or on the total amount of fishing input the king crab fishery too will become overexploited so that efficiency reducing regulation is required to maintain physical output. No matter how effective the United States and the State of Alaska are in their biological management of the resource and in preventing foreign encroachments, this industry must eventually become chronically distressed under its present organization. 39 the main determinants of prosperity or distress in the industry. But in the long run neither conservation, nor import restrictions, nor abstention lines, nor easy credit, nor subsidies, nor improved gear will make fishing a remunerative occupation or a stable, healthy industry. The normal condition of the ocean fisheries is sickness. The normal situation in every established fishery is for the cost of doing business for the average fishing boat to be higher than the value of its catch. This will be true as long as there are too many fishermen and too many boats. The economics of the industry guarantees that there will be too many fishermen and too many boats as long as we let everyone fish who wants to fish. The logic of the model set out above is so compelling, its consequences so perfectly descriptive of the state of the industry, and its outcome so inexorable that we concluded that it is futile and less than responsible to make policy proposals which do not face up to the irrationality of the present situation. Goals of Fishery Management The general goals of managementin ocean fisheries should really be no different from the policy goals for economic development in general. An extremely important goal is economic efficiency, which means on balance a greater output of the goods and services people want and higher incomes with which to buy them. It is in the area of economic efficiency that the performance of the ocean fisheries is weakest, and is indeed almost absurd. But efficiency in a strict measurable sense cannot be the only objective. The fisheries are regarded as an important source of employment and many of the inefficiencies which characterize their operation have been deliberately introduced for the purpose of creating or protecting employment, no matter how superfluous or wasteful those jobs may be in a technical sense. Alaskans were generally aware of the superior efficiency of fish traps for the taking of salmon when traps were outlawed to provide more opportunity for employmenton fishing boats. To the extent it perpetuates 11unnecessary 11 jobs, the pro hi bi ti on of fish traps is no more and no less 11featherbedding 11 than the prohibition of log exports, than farm price supports, or than the restrictive practices of some of the building trade unions. Whether or not makeworkpolicies are harmful depends upon their alternatives. In general, people prefer to feel they are making a living by honest labor in an inefficient industry than to receive an outright dole. The reorganization of salmon fishing along more efficient 1i nes would probably create enough additiona 1 economic rent to 11buy out 11 the fishermen who would have to leave the industry. But even if the new rents were sufficient to support all these fishermen at higher incomes than they now get from fishing, it is not at all clear that this would be a desirable reform if there are no realistic and acceptable employment opportunities for the labor force displaced. The American economy tolerates grosser examples of contrived inefficiency whose social useful ness is not apparent; there is no special virtue in making the salmon fishery (or any other fishery) more rational by policies which swell welfare outlays and the number of structurally unemployed. Nevertheless, the future of salmon fishing as a source of employment is limited. With extremely short seasons and tight limitations on gear, the ease of entry into the fishery lures to it an ever greater number of fishermen who are indifferent to the fact that they might not actually make money. We do not have figures on the number of persons fishing in Bristol Bay, for instance, who have regular employmentduring most of the year in Seattle, Anchorage, or elsewhere, and vJhodo not depend on fishing for their livelihood. But even now, we are confident that there is a considerable number of persons for whomthis fishery is mainly an adventure, a big gamble, and a form of recreation. The number of boats operating on Bristol Bay in fact appears to increase as the fishery becomes more precarious. The catastrophic consequences of this situation to those fishermen, particularly Alaska Natives who have no other source i 1 Politically, the easiest course is to let the situation deteriorate .further and (in the case of the Bristol Bay fishery at least) to blame the entire deterioration on the high seas catch by Japanese vessels. There is probably no single policy which will be acceptable to the majority of fishermen, divided as they are into residents and transients, and into a whole spectrum running from those for whomfishing is a way of life and a sole livelihood to those for whomit is an avocation. Nevertheless, some set of measures restricting the number of boats and fishermen in the salmon fisheries is inevitable. In choosing the way in which the reduction of fishing effort is achieved, Alaska will have to face up to a direct conflict between two goals of fishery policy, economic efficiency and employment. Efficiency would best be advanced by moving to a fishery composedof a small number of large-scale enterprises, employing the lowest cost techniques to obtain the largest catch consistent with preservation of the salmon runs. These would eliminate limitations on the kind of gear which might be used, including fish traps. The simplest and most effective way of establishing this kind of regime would be to lease a very small number of permits by competitive bidding. The most serious objection of this efficiency-maximizing (or rent maximizing) course is that the best financed and most enterprising fishermen, the ones who would survive such a move, would probably be the best equipped to shift to other occupations or lines of business. At the same time, it would be the aged, the tradition-bound, the poorly educated resident fishermen who are not prepared to move to other areas or to do anything else, who would be driven from the industry. A large proportion of these people are Alaska Natives already suffering a multitude of other handicaps. The fact that the State might receive more in license and leasing fees and in business taxes on the remaining enterprises than it would have to pay in welfare to displaced fishermen is hardly important in the light of the injury to the latter's self sufficiency and self-respect. An opposite course of policy would sacrifice technical and economic efficiency in order to provide work and income for those fishermen who have no realistic alternatives except public assistance. This approach too would require a reduction in the number of permits, but far less radically. Reservation of fishing rights to those who need them would 41 be accomplished by a system giving preference to year-round residents of Alaska and of areas adjacent to the fishing grounds or to Alaska Natives and/or in inverse proportion to family income.25 At the present time, we are more sympathetic to this second approach, which would provide some increase in economic efficiency at the same time that it effectively serves the employmentand welfare functions being served ever more poorly by the existing regime. We have included the above commentson the state's alternatives in the salmon fisheries to introduce two of our conclusions about the fisheries relations between Alaska and Japan. The first is that Japanese high seas fishing is not the main source of trouble for our salmon industry, and that there,""s no accommodationwith Japan over this 11 y y i these fisheries. Catching salmon on the high seas is wasteful of fish because the individuals are taken before they reach maximumsize. It makes regulation of catch and escapement on a stream by stream basis almost impossible because of the difficulty of distinguishing one race from another on the high seas. And not least, Japanese enterprises are taking fish which might otherwise be caught by domestic fishermen. 26 It is indeed in the interest of Alaska's fisheries that the United States persuade the Japanese to reduce or end their taking of Alaskan salmon.27 But we fear that the Japanese high seas fishing fleet is often used as a scapegoat for the fact that the United States and Alaska are unwilling to put some kind of order into their own fisheries. The second conclusion is that the international fisheries regime proposed in the following pages could not and should not be applied immediately to the salmon fishery. As and if the growth of employment opportunity and the improvement of education make realistic alternatives to salmon fishing available to the people of the coastal (and riverine) villages, the number of fishing permits might be decreased by attrition 25 Explicitly restricting fishing rights to specific categories of fishermen may be held to be in conflict with the "equal protection" clause of the United States Constitution, or with Article VIII, Section 15 of the Alaska State Constitution, which prohibits exclusive rights to fisheries. The same effect, however, might be obtained indirectly. One device would be to establish license fees steeply graduated according to family income. 26 For an excellent summary treatment of the issues in the U.S.-Japan rivalry over Alaska spawned salmon, see Ralph W. Johnson, 11The Japan United States Salmon Conflict," Washington Law Review, Vol. 43: 1-43, 1967. 27 Both sides would benefit if the United States would grant Japan a quota of salmon approximately equal to their present high seas take, to be caught inshore in exchange for an end to the high seas fishery. 42 and the industry gradually transformed into one in which the net economic contribution to the community(economic efficiency) is the norm. In the meanwhile, the fishery clearly is one source of income to people whose only immediate alternative is public assistance. However, its contribution to the welfare of these people could be sharply improved by limiting the right to fish to those who are really in need of the income. While it is probably desirable to sacrifice efficiency to preserve or increase employmentin the existing fisheries, there is no excuse for subjecting presently undeveloped fish stocks to the same irrational treatment which has brought the present troubles in the salmon fisheries and for creating new crisis-ridden sections of the industry and of the community. It is a particularly cruel joke on Native communities in the dS as 1 pe source employmentand to encourage their commitmentto this industry so long as it is subject to so many perverse trends. The regime proposed below is not intended as a finished program for immediate implementation, but as a generalized~ of solution toward which we feel the United States must be willing to move in order to optimize its own benefits from the living resources of the North Pacific. The concrete recommendationon which the section will conclude is a study of the means in which this norm might be approached. A Program for the Developmentand Managementof North Pacific Fisheries Resources Goals. In listing the goals for a rational regime for the managementof ocean fisheries, we need to emphasize again that not all of these goals are necessarily congruent, and that we must have an explicit or implicit schedule of priorities and of trade-off ratios amongdifferent desirable goals. Choices and compromisesmust be made amongthem. But one goal, if not always the paramount one, is economic efficiency. In respect to a particular fisheries stock this goal is best expressed in maximization of economic rents attributable to the resource. Wewant to maximize the net return to fishing effort, the value of the catch minus the cost of the effort necessary to capture it. This is the level of fishing effort represented by Im in Figure I-2. It also implies that we choose the lowest cost combination of inputs to achieve a given level of fishing effort. This in turn requires some means by which the most efficient enterprises can be selected to carry out this effort, and some way of dispensing with cost-inflating conservation measures. A rational managementregime should provide a frameworkwhereby technical improve ments in the industry are encouraged and whereby they result in benefits to consumers and/or producers rather than harm. It should forestall the creation of new industries doomedto chronic distress. Ideally, such a regime should also minimize international conflict over the resource by providing equal access by the fishing enterprises of different nations to the resource and equal access by the consumers of various nations to the product. It should satisfy the claims of existing enterprises and national fisheries and provide for the orderly entrance and participation of others. Finally, it has to take into 43 account a host of other considerations including the utilization of some fishing stocks for sport, or by indigenous peoples for subsistence. It has to take into account the different bioloqical characteristics of different stocks and the different institutional characteristics of different national fisheries. Trusteeship zones. For a number of reasons which will be apparent, the proposal outlined here would best be implemented through a multi lateral treaty involving the United States, the U.S.S.R., Canada and Japan. But it might conceivably be executed unilaterally by the United States for that area which we will hereafter call the U.S. Trusteeship Zone. A unilaterally (or for that matter multilaterally) established zone would have no status under present international law, but our 1 uf f i l 11 i that it would be in fact enforceable. Under the proposed arrangement, the United States would contract to be or declare itself exclusive trustee and managementagency for all the marine and anadromous biological resources of the Pacific and Arctic Oceans in a Trusteeship Zone bounded on the east by the Alaskan cont inental land mass and East Longitude 141°, on the south by Latitude 54° 40', and on the west by the International Date Line or by some other suitable demarcation line. The establishment of this Trusteeship Zone would not constitute a territorial claim or limitation on the rights of nationals of any country outside of those rights directly connected with biological stocks covered by the treaty or declaration of trusteeship. The Trusteeship Zone then would include both the U.S. territorial waters and the high seas within the Zone. Within this Zone the United States would have exclusive jurisdication over licensing, regulation, management, conservation and enforcement with respect to any biological marine resource not specifically covered by another international treaty. In turn the United States would agree to treat equally in regard to fishing and production rights, except as noted below, the nationals and fisheries enterprises of all countries formally recognizing the U.S. trusteeship. Equality of treatment would imply the right of qualified foreign nationals or enterprises to fish in U.S. territorial waters included in the Trusteeship Zone and to establish shore facilities including bases, cold storage and processing plants, to acquire stores and to sell the catch on the same basis as U.S. nationals, with the exception that the United States reserves the right to require the use of domestic labor to be employed under United States and Alaska labor laws on all shore-based facilities and for fishing operations within the territorial waters of the United States. In addition, the United States would establish itself, and require from foreign nations as a prerequisite for their exercising production privileges within the Zone mutual freedom of trade in the marine products taken in the Zone and in vessels, gear and supplies used in fisheries within the Zone. That is, the United States or any country whose nationals participate in fishery activity within the Zone would agree not to restrict between each other the export or import of any of these commodities through duties, taxes, quotas, or other prohibitions or restrictions. 28 rn many respects this proposal has been inspired by the Pacific Fur Seal Treaty which from a biological and economic point of view has an exceptionally successful innovation. 44 A designated agency of the United States would, either on its own initiative or on the basis of nominations from prospective fishing enterprises, define specific fisheries stocks. The size of a fisheries stock or managementarea as defined would depend upon its biological and economic characteristics and might be entirely within U.S. territorial waters, entirely on the high seas or might straddle the U.S. territorial limit. In one case a stock might be defined to include the entire zone, 29 while in another its extent might be one small bay. Competitive Leases. The function of defining the stocks or management areas would be to provide units in which fishing riqhts would be leased by competitive bidding. The bidding might take a number of fonns; for instance, a highl developed fishery in which the optimum catch level l d prohab l he 1 the case of an undeveloped and relatively unknownfishery whose total yield was more speculative, bidders would undoubtedly prefer a tax by weight or other measure of physical quantity. An ad valorem charge might be the most appropriate fonn in the case of a product for which the market was undeveloped and demandwas accordingly a relatively speculative factor. The length of lease also might vary depending on whether or not the particular stock could be effectively fished with multi-purpose vessels and gear easily moved in or out of a particular fishery or whether it used highly specialized vessels and gear, requirinq long-tenn leases so that production would cover the capital costs of the most efficient equipment. All these matters--the definition of the respective stocks and managementareas, the fonn of the bidding, the length of lease and the like--would be detennined by the managing agency on the basis of its scientific and economic infonnation and on the basis of nominations from and consultation with interested parts of the fishing industry. A more complicated issue would be the assurance of equity of treatment amongdifferent fonns of fishing enterprise, specifically, amongthe small proprietorships and partnerships which characterize the U.S. industry, the large corporations which dominate Japan 1 s high seas and overseas fisheries, and the Soviet State corporations. The larger enterprises might desire, and be in a position, to bid on an entire stock. At the same time, such a procedure would be beyond the ability of small boat owners, despite the fact that the latter might be quite as efficient in terms of potential catch per unit of fishing effort or of costs per unit of output. A conceivable response on the part of the small boat owners would be for them to make a collective bid, but in view of the extremely individualistic propensities of American fishennen, such a prospect seems hardly realistic. There seems to be no reason, 29 The boundaries of the U.S. Trusteeship Zone and of the Trusteeship Zones of other nations might vary as well for different species or a particular management area might be defined to fall within more than one trusteeship zone and be administered cooperatively by the management agency of more than one country. 45 however, not to allow individual enterprises to bid for a specific portion of a qiven fishery. In a case where there were many bidders of different sizes, the successful bidders would be a group of bidders beginning with the ones offering the highest bid, the second highest and so on downwarduntil the cumulative quantity bid for equaled the total catch to be leased.30 To avoid penalizing the most efficient, however, each successful bidder would be held to only the lowest rate successful bid. In assigning a particular resource for leasing, consideration should be given to the utilization of that stock for subsistence fishing by local residents and for sport fishing. from eases censes s ld be disposed of in the followinq order: (1) administration, management, enforcement and research; (2) compensation and rehabilitation of fishermen and communities adversely affected by the reorganization of fisheries management; and (3) the general government accounts. In the case of a multilateral treaty the revenues from all Trusteeship Zones might be divided among the various parties in proportion to their "historical interest" in the various fishery Zones, with a provision allowing the international supervisory body on unanimous agreement of the participating countries, to apportion part of the revenues to economic aid to developing countries or to other worthy international objectives which might make the arrangement more acceptable to "outsider" nations. If a U.S. Trusteeship Zone were established unilaterally, however, because the other major fishing powers of the North Pacific declined to follow this approach, we see no obligation of the part of the United States to share the revenues from its Zone with other nations. We would suggest that the U.S. share of the net proceeds from fishing activities adjacent to Alaska be apportioned between the Federal Government and the State of Alaska on the same basis as the income derived from fur seal operations under the same kind of multilateral treaty. Anticipated Objections to Fishery Reform. Wewill emphasize again the general and tentative character of the managementscheme proposed here and reiterate our awareness of the practical difficulties of implementing it in fisheries which are already highly developed, above all in the salmon fishery. Beyond these reservations, however, we are further conscious that a scheme of reorganization so sweeping as this will provoke vehement objections from those economically or emotionally committed to the present organization of the industry, and from those who are committed to what we believe is an essentially fallacious conception of the national interest. It is in order here to anticipate some of the most deep-seated objections. One 301~ cases where the optimum catch level cannot be assigned in advance by the management agency, apportionment of shares among successful bidders may have to be based on some quantum other than catch volume; for instance, number of tonnage of vessels used in the fishery, man days of fishing effort, or subdivisions of a management area. 46 obvious ground for objection, which would appeal very strongly to patriotic convictions, is the proposition that "foreigners should not be allowed to take our fish." To put it another way, "why should foreigners be a 11owed to fish in our waters?" Leaving aside the virtually insoluble semantic and legal question what makes an ocean fishery stock "ours" in the first place, the answer to this objection is that the use of these resources is in the national interest of the United States; in many cases, the net return to the United States will be greater if the actual capture is carried out by foreign enterprises. It is a matter of national interest that American consumers not be deprived of fisheries products they want either now or in the future, but the proposal here provides for that consideration through its requirement of freedom of trade in the products obtained within the p ng fish in U.S. waters or adjacent waters is not different in principle from the question of allowing aliens or alien-controlled corporations to hold mineral leases on U.S. public lands or otherwise to engage in business within the country. Particularly in the case of unutilized or underutilized fisheries stocks in the North Pacific, we believe that an arrangement of this type would generate considerable employmentthrough the establishment of shore facilities and the provision of supplies, considerable revenue through license and lease fees, and from taxes paid on shore facilities. None of these benefits will accrue if the same resources are locked up in anticipation of possible future use by domestic enterprise. A closely related objection is based upon the proposition that the national interest demands that the United States have the largest and strongest possible fishing industry. The present arrangements do not promote this end in any case, and it is not clear that it is indeed a matter of vital national interest to expand or to maintain this particular industry within our borders it if is not economically viable in its own right. Again it is in the interest of Americans that they be able to buy whatever they want, but it is also in their interest to be able to buy it cheaply, as well as to increase the public revenues which pay for the services they desire from their governments. We are not persuaded that the nation's interest in a large domestic fishery is pa~amount over these goals. I roni cal ly, the most determined opposition from fishermen to a reorganization of this kind would probably result from the fact that such a reform would provide the foundation for the building of a strong and effective American fishing industry. In the great majority of areas of production, American enterprise enjoys a great superiority both in technical prowess and in the availability of capital over its Soviet and Japanese counterparts. There is no obvious reason why this should not be true in fisheries as well. America's backwardness and competitive disadvantage in this industry are the heritage of its archaic, small scale nature. Reorganizing the fisheries into a sector in which long term planning is possible, in which expectations of profits are high, and in which scientific and technical progress yields positive returns, should provide the inducement for larqe-scale American enterprise to enter and develop it. This kind of development would indeed most likely transform the industry into one more closely resembling the large-scale Japanese operations than it does the present U.S. fishing industry. 47 The heart of the problem is that a free entry fishing industry composed of tiny enterprises cannot be expected ever to be strong, stable and progressive. Yet it has been the unappropriated character of the fish stock, and unlimited freedom of entry, which have made the industry uncongenial to the large-scale corporate enterprise which is so spectacularly successful in other sections of the American economy. The result has been that the public and fishermen particularly have come to regard the single boat operation, precariously financed and experiencing violent swings in fortunes from one season to the next, as the very essence of fishing enterprise. The industry has attracted to itself and has created whole communities of people to whomthis kind of adventure is a way of life. They are understandably hostile to any move which would deprive the fisheries of their romance and make them 11just another II certain set of values or way of life; America or Alaska may well want to preserve this enclave of small enterprise and rugged individualism in an increasingly corporate and bureaucratic world. Nevertheless, it is our responsibility as economists to point out the self-destructive tendencies in the industry as it is now constituted. Without some reform along the lines of that proposed here, the vast fisheries stocks of the North Pacific will not make nearly their maximumpossible contribution to the economic welfare of Alaska, of the United States, or of its neighbors on the Pacific. A final probable objection to the reorganization plan is that it would not be accepted by other countries. Since Canada1 s fishing industry is in scale and structure similar to that of the U.S., the serious doubts concern the acceptability of such a regime to the Soviet Union and to Japan.3 1 If indeed these countries promote the expansion of their fisheries mainly for non-economic reasons, specifically as a symbol of national strength or grandeur, as a means to autarky or self-sufficiency in foodstuffs pursued for ideological reasons, or if they regard the fisheries as a source of jobs for otherwise unemployable workers (as we have done above for Alaska salmon), then agreement will undoubtedly be very difficult. The present rivalry will then continue, probably on terms unfavorable to the U.S. industry because of the technical and financial superiority of its rivals. It is quite clear, however, that the Japanese, who live by trade, are not strivinq for autarky in this area. The big fisheries firms are motivated primarily by profit opportunities and the Japanese government is being motivated mostly by the concern for· the future supply of animal protein for Japan's people. The small-scale coastal fisheries of Japan still remain an important source of jobs for a section of the population which cannot rapidly or easily move into other occupations, and it would be extremely difficult to reorganize these fisheries at one sweep. The modern sec.tors of the Japanese economy, however, which include the large-scale fishing enterprises, are facing a chronic shortage of labor suitable to them, and there is no reason to believe that the desire to create jobs plays any part in Japan 1 s policy toward her large-scale fishing enterprise. 31 We actually feel the greater resistance would come from the United States and Canada. 48 The purely nationalistic goals mentioned are much more plausible in the case of the Soviet fishing industry, but it is not at all clear that they are the ruling consideration. Despite the extreme institutional dissimilarities in the economies of the Soviet Union and Japan, the farmer's promotion of its North Pacific fishing fleet seems to stem from the same considerations as the Japanese effort. Above all is the growing demand in the Soviet Union, generated mainly by the rise in standards of living, for increased supplies of animal protein together with the inability of domestic agriculture to meet this demand. In the U.S.S.R. as in Japan, agriculture and some other sectors of the economy hold reservoirs of underproductive and underemployed labor. But there is a chronic labor shortage in the capital-intensive, modern sectors of the economy, and it is entirely conceivable that the Soviet i l rl 1 fisheries which would allow her access at owest cost to the marine products she desires and allow an optimal allocation of her own resources, at the same time minimizing the chronic international rivalries in the area. This plan offers to the U.S.S.R. 's fishing industry exclusive operation in those fisheries where her costs are lowest and a share of the now dissipated economic rents which would be generated in the fishing activity of other countries. It also suggests the penalties of being excluded from such an arrangement, should the United States be willing to go ahead unilaterally. In summary, while this regime might not satisfy every interest or fulfill every goal of the countries directly involved, we believe that its adoption by treaty would on balance provide considerable benefits to each of them. Even short of the adoption of a multilateral treaty, the U.S. administration of an open access Trusteeship Zone on its own unilateral determination would benefit Japan and the Soviet Union as well as the United States. In addition it would provide a reasonable and rational way for dealing without discrimination with the other countries which are now seeking access to these same fisheries stocks. 32 In addition to the obvious advantages of wider participation by having this scheme adopted as an international treaty, there is an important practical advantage of this route to its implementation, in respect to its possibility under U.S. law. There are a great number of Federal and State laws beginning with the 18th Century restriction on the use of foreign-built vessels in U.S. coastal fishing, to the Alaska Constitution's prohibition of the establishment of exclusive rights to any fishery in the state. These many obstacles in law probably could not be amended or repealed outside of a package providing enough parties in the U.S. and Alaska with sufficient benefits to over come the opposition of those parties whose real or imagined interests would be threatened. An international treaty would, of course, take precedence over all such restrictions not embodied in the U.S. Constitution or in other treaties. 32 At present there is no principle whatever on which the United States can prevent North or South Korea, Communist China, or Peru from fishing in the area, even for salmon. The entry of one of these countries will certainly mean the end of Japanese observance of the 175° abstention line. In conclusion, we see the organization of ocean fisheries, both domestic and international, as so unsatisfactory, and the opportunities of international trade and cooperation so great, that a sweeping reconsideration of the industry's entire structure and managementis warranted. The preceding pages have attempted to outline one philosophy and a general program in accordance with it, which we believe would result in the rapid development of North Pacific fisheries resources, to the advantage of the people of the United States and of Alaska. At the same time, we believe such an approach would create net gains for other nations, but not at the expense of United States interests. In view of the wholly provisional nature of this proposal, however, our concrete recommendationat this time is that a comprehensive Federal State-Universities research program be established looking into the Paci th obj of recommendinga workable program of rational managementfor these resources. PETROLEUM,NATURAL GAS AND RELATED PRODUCTS 33 Japan's Energy Demand It is in oil and gas above all that Japan is determined to diversify her sources and to develop her own production, either alone or jointly with international oil companies, because Japan has almost no oil or gas reserves on her own territory. National energy requirements are expected roughly to double in ten years, and as the proportion of energy coming from Japan's high-cost domestic coal mines declines the proportion of fuels imported will continue to increase. Table V-I presents the Japanese government estimates of total energy requirements and dependency on imports until 1985. Of this total, liquid petroleum gas imports alone are expected to increase from .4 million metric tons in fiscal 1964 to 1.4 million in 1970 and 2.5 million in 1985. Today the bulk of Japan's oil imports, over 75 percent, comes from the politically uncertain Middle East. Table I-11 breaks downJapan's imports of oil in fiscal 1965 by country of origin. Governmentpolicy now is pressing the development of imports from Alaska, Canada, Indonesia, Malaysia and the U.S.S.R. In addition to the need for certainty of supply, the desire to lower domestic oil prices is spurring Japan's exploration and investment abroad. In the immediate post-war period, Japan encouraged foreign oil companies to invest in her petroleum industry .so as to provide the capital and knowhownecessary to catch up with its Western counterparts. As a result, most Japanese oil companies are required to buy their imports from these same foreign firms at a price which the government believes 33 See also: Ichirou Inukai, "The Japanese Market for Alaskan Petroleum, Gas, and Petrochemicals, Part V of this report, and Nihon Kogyo Ginko, "Trends in Petrochemicals and Ammonium Fertilizers, Japan," Appendix 2 of this report. 50 TABLEI-11 Origin of Japan 1 s Imports, Crude Oil and Heavy Oil Fiscal 1965 1000 Kilo 1iters Iran 21,037 Kuwait ?l ,027 Neutra 1 Zone 14,212 Saudi Arabia 10,779 Indonesia 6,704 Iraq 5,573 U.S.S.R. 3,175 Singapore 1,474 Bahrein 1 , 159 U.S. 1 ,037 All Others 13,771 TOTAL 99,948 Note: Total imports from the Middle East, including territories not listed by name, were 75,984 thousand kiloliters. Source: Sekiyu Remmei,Sekiyu Shiryo Geppo (Petroleum Resource Monthly) is considerably above the competitive price. One hope is that new production wholly or partially controlled by Japanese interests will reduce the industry 1 s dependence on these 11tied-in 11 contracts, and at the same time put the Japanese in a better bargaining position in respect to the price of U.S.-British-Dutch ownedMiddle Eastern oil. Recent and continuing Middle Eastern crises have emphasized the importance of political stability as a factor in Alaska 1 s competitive position. To Japan in particular, with about three quarters percent of its oil originating in the Middle East, the need for new diversified and stable sources of petroleum supply is obvious. 51 Although Alaska is by no means the only area of Japanese oil interest it does have two advantages over its principal North American competitors, British Columbia and Alberta: high cost pipelines are generally necessary to being Canadian oil to tidewater, and once there, the shipping distance is between 600 and 900 miles greater than from Alaska. On the other hand Canadian operations, while possibly higher cost in the long run, can be conducted on a smaller scale than would be prudent in Alaska, and with a shorter time lag between exploration and production. However, recent developments seem to indicate that significant forms of Japanese capital will soon be flowing into the development of Alaska's oil resource. The Alaska Petroleum Development Company,Ltd. announced in January of this year an agreement with Gulf Oil Company r:;o i p 1 i i h1 1 of prospects n Bristol Bay and Southern Cook Inlet. The Japanese firm will participate in the venture through its wholly-owned subsidiary, Alaskco. In addition, the Maruzen Oil Companyhas announced independent plans to enter into joint exploration activities with Union Oil Company, probably in the same areas as the Alaskco-Gulf partnership. Anything better than a moderate success by these two organizations will no doubt stimulate further Japanese interest in Alaskan oil. Japan's petroleum requirements are expected to increase by more than 400 percent by 1985. By satisfying an increasinq portion of these requirements with foreign oil developed by Japanese capital, the country hopes to avoid what might otherwise become a serious drain on its foreign exchange. Alaska's Advantages in Petroleum In recent years the generally high quality of Alaskan crude has probably been another factor in the continuing flow of oil industry investment into the State. The remarkable lack of sulfur or hydrogen sulfide contamination in any Cook Inlet oil makes it considerably easier and less expensive to refine and process into acceptable end products. This quality in crude oil is becoming increasingly important as public health and anti-pollution agencies lay down stringent regulations govering the amount of residual sulfur legally allowable in light and heavy fuel oils. Such regulations are a matter of great 11 11 concern to the producers of high sulfur ( sour ) Canadian and Venezuelan crudes. The purity of Alaskan crude is perhaps of particular interest to the Japanese who, in their densely populated country, have been among the first to become aware of air pollution dangers. In a sense it is ironic that Japan should wish to develop a part of its oil supply in Alaska for there are strong economic and political factors which provide a large incentive to marketing Alaskan oil in the United States. First and foremost amongthese is the fact that the U.S. policy of limiting foreign oil imports through quotas has increased the domestic price of crude by about 50 percent over the world market price. The quotas, which were instituted in 1959 to supposedly assure petroleum self-sufficiency in time of national emergency, provide an incentive to 52 domestic rather than foreign investment by United States oil companies. Muchof Alaska's present oil development has no doubt come about as a direct result of this incentive. A barrel of oil produced in Alaska is simply worth about 50 percent more than a barrel produced overseas. Since the mandatory quotas were introduced in 1959 the wellhead value of Swanson River crude has increased from $1.50/Bbl. to its present level of $3.19/Bbl. This latter figure compares with today's $2.15 value in Indonesia of similar type crude. Barring a major shift in United States enerqy policy, oil company executives almost universally expect the price of domestic crude (and Canadian overland imports, which are exempt from the quota sys tern) to continue its upward trend as U.S. consumption expands at a pace faster than domestic reserves S d ill rther the ability of A"laskanoil. Just as the United States seems prepared to accept higher petroleum prices in the interest of self-sufficiency in this resource, so the Japanese may be willing to forego some of the profits and foreign exchange they might earn by selling their Alaskan oil in the United States, for the sake of diversification of supply sources and of reducing air pollution. Nevertheless, in view of the difference between the world market price and the prices which prevail behind the U.S. quota wall, together with the potential profits from Alaskan oil production implied by this difference, we find it very hard to believe that the Japanese companies involved are not motivated to a large extent by a desire to profit by sales within the protected U.S. market. One form that such sales might take could be a trade with one or more of the international oil companies of Alaskan oil for Middle Eastern or Indonesian oil controlled by the same companies, at two barrels to three or some other appropriate ratio. The profits to the Japanese from such a transaction would certainly be adequate to cover the cost of desulfurization of sour crudes, and would still leave the Japanese companies free to commit their Alaskan supply to Japan in case of another disastrous upheaval in the Middle East. Even if this should be the intention of Alaskco and Maruzen, in contradiction to their publicly expressed plans, we see no reason to oppose or restrict their entry into the Alaskan oil business. To the extent that the import quota actually expresses a concern that the U.S. be self-sufficient in petroleum for national security purposes,34 Japanese participation of U.S. oil resources for U.S. markets is entirely in line with this objective. The increased supply resulting from the expansion of Alaska's reserves should also help to offset the domestically inflationary consequences of the quota system. Of course, one disadvantage of 34 The argument for the quotas from the standpoint of national security is not a particularly strong one, and we are tempted to regard it as another example of economic featherbedding, this time in behalf of domestic oil producers, especially the high-cost "independents. 11 53 production for the domestic market is that it does not generate foreign exchange as do exports; in addition profits paid to foreigners are a negative entry on the balance of payments sheet. But we believe that this disadvantage is overwhelmed by the benefits to the United States resulting from rapid discovery and development of its oil reserves. In view of the fact that both American and Japanese petroleum industry spokesmen repeatedly complain about the high cost of operation in Alaska, and that the former in particular couple this with dire warnings about the consequences of the State attempting to take a higher proportion of the value of oil discovered or produced in bonus bids, royalties or taxes, it is necessary to counterpose to these statements an understanding of the fact that effective costs of oil exploration in As in most myth, there is an element of truth behind these pro fessions. Costs are higher in Alaska, and the environment is hostile. It is important to note, however, that drilling and exploration costs, which range up to many times stateside averages, are probably declining as the industry benefits from economies of scale inherent in the ongoing development of Alaska's transportation and communication facilities, as well as the directly related infrastructure being established in the growing number of small specialized service firms in the Cook Inlet area. (The number of persons working for such firms in Alaska increased from 749 in 1965 to 1242 in 1966, according to the Western Oil and Gas Association, Alaska Division.) Also of importance in the future of Alaskan costs is the fact that while the unusual conditions experienced in Alaska have caused oil firms to make costly mistakes, particularly in offshore operations, the accumulating experience will tend to eliminate these in the future. Relatively high wage rates in Alaska are often pointed out as having a negative effect on the development of new industrial enterprises in the State. However, high labor costs are of only minor importance in the case of Alaska's oil industry. Thoughwage rates for oilfield workers exceed the California scale by 45 percent (a large differential eYen for Alaska), wages and salaries paid in Alaska represented only 9.6 percent of the industry's total expenditures on Alaskan operations in 1966. Reduction of Alaskan labor rates to stateside levels would thus reduce total costs by only about three percent. The relative unimportance of wage rate differentials on the oil companies' costs of operation emphasizes a significant point in the regional economic pattern: only a small proportion of the industry's expenditures on Alaska are actually spent in Alaska. The definitive statistics which would indicate the percentage of goods and services actually obtained in the State, and thus directly contributing to its economy, are yet to be gathered. It is nevertheless clear that, despite its very favorable impact on State revenues ($140 million since 1958), the oil industry contributes less to Alaska's economy, dollar for dollar, than any other basic industry except perhaps defense. In other words, an investment in almost any Alaskan industry--fisheries, forestry, tourism, etc.--will produce more jobs and business activity than an equal investment directed to developing Alaska's oil resources. 54 Despite the low percentage of oil industry investment "staying in Alaska" the absolute sums are large. In fact, the conditions of exploring for oil in Alaska dictate that expenditures be very large if they be made at all. Though the average profitability of Alaskan exploration may be very high, a tremendous investment is necessary to provide reasonable certainty that any particular companywill in fact approach that average. It is for this reason that so many companies find it advantageous to pool their efforts, undertaking exploration, land acquisition, and development in partnerships and combinations. While the chances of striking it extremely rich are reduced by this tactic, (a bonanza if found, must be shared) the corollary fact--reduced risk of ending up with nothing to show for one's investment--outweighs the strategy's disadvantages in minds of most oil companyexecutives. The huge scale of operations necessary to reduce uncertainties to reasonable levels reinforces the generally held impression of Alaska's disadvantageous position as an expensive place to search for oil. Yet it could be just as easily said that the relatively high costs result as much from the industry's objectives as from the difficulties raised by the State's climate and terrain. In Alaska, the oil companies are looking for giant fields because nothing but a giant field is considered worth developing at such a great distance from the main oil markets, and the search for giant fields demands a giant exploration program. In the south forty-eight where a much smaller field can be economically developed, the minimumsize exploration program is naturally much smaller. Since 1958 the oil industry has invested about $700,000,000 on finding, developing and producing Alaska oil resources. By the end of 1968 the cumulative total will almost certainly pass the billion dollar mark. Through 1966 the industry had produced natural gas and crude petroleum products worth just over $200 million at the wellhead. Perhaps out of concern for public attitudes toward State taxation and leasing policy, these figures occasionally are cited to show that Alaskan operations have thus far shown a "loss." Such calculations fail to take into account the present value of oil discovered but still to be produced. These "proved, recoverable reserves" as estimated by the American Petroleum Institute stood at 321 million barrels in 1967. Assuming that development and lifting costs will average 50¢/barrel, and that the well head price will be at least $3/barrel, it can be calculated that the net future value of these underground assets is in the neighborhood of $800 million. Additional reserves which will soon become "proved" as a result of presently scheduled development drilling will almost certainly boost this sum to beyond the $1,500 million mark by the end of 1968. Ultimate reserves are still very much a matter for conjecture, but according to officials of a major oil company, " ... exploration and development work to date provide the basis for a conservative estimate of an ultimate reserve in the Cook Inlet Basin of 1 .5 billion barrels of oil and 5 tri 11ion cubic feet of gas. 11 At $3/barre 1 and 10¢/Mcf this quantity of hydrocarbons has a gross future value of $5 billion. Our conclusion from the foregoing picture is that oil exploration and development in Alaska are moving ahead at a very satisfactory pace and that no special inducements are necessary at this time to coax either American or Japanese capital to enter the industry in the state. 55 Indeed, from a strictly accounting point of view, the industry probably could stand a much higher burden of royalties and/or taxes and still remain an extremely attractive investment proposition for the major oil companies. We are not recommendingsuch a move because it raises questions entirely outside the scope of this study. We suspect, but cannot prove, that the decision-making process in respect to the oil exploration programs of the major companies is not an entirely rational one in the profit-seeking sense. Specifically it seems likely that an increase in the State's production tax would have a heavier impact on the companies' outlays on exploration in Alaska than could be explained by the change in their profit expectations. The reason is that oil men seem to be influenced strongly by their subjective assessment of the State's 11friendliness 11 to the industry, and that an increase in the tax l reductions actually imposed by the tax. With sufficient technical and financial information we could conceivably calculate the profit expectation and the optimal rate of exploration for the industry for each possible combination of royalty and tax rates, and from this schedule estimate the combination of rates which would optimize either the rate of revenue flow to the State or the present value of all future revenues from the industry. An attempt is presently being made at the University of Alaska to make such estimates, but in the absence of a more confident appraisal of just what it is that determines the level of exploration activity, any policy recommendation flowing from such a study will be highly conjectural. 36 35 From one standpoint oil companies are not necessarily irrational if they are more sensitive to tax rate changes than the direct impact on profits warrants. The authorization of one tax increase sets up an expectation it may be followed by further increases or by other changes in the "rules of the game." For this reason, the State would be wise to impose new production taxes only after a rigorous professional study of the industry's long term prospects, rather than as the end product of a sensational conflict in the legislature between pro- and anti-industry factions. The non-rational aspects of oil company behavior should not be dismissed, however. It is likely that the very novelties and hardships of some aspects of exploration and development in Alaska provide an incentive for firms to engage in operations there. Work in Alaska still has a romantic flavor in the industry and the size of a company's Alaskan operation seems to impart considerable status among industry leaders. 36 Gregg Erickson, who must be credited with much of the analysis of the oil and gas industry which appears in this section, suggests that the Federal and State Governments are making considerable sacrifices in terms of their overall economic goals by attempting to maximize their income from bonus bids on oil and gas leases. His argument is as follows: While giving at least nominal attention to the other goals of resource management it appears as if Federal, and to some extent State, agencies have conducted the leasing of Alaskan oil and gas rights in a manner designed primarily to maximize Federal and State income from bid prices 56 Natural Gas Unlike Alaska petroleum whose market is likely to remain mainly a domestic one, Japan appears directly or indirectly to be a major prospective market for petroleum's sister product, natural gas. As in the case of Alaskan oil, Japan's inte~est in Alaskan gas flows from her rapidly growing energy consumption, her concern for diversifying sources of energy, and from the low sulfur content of the Alaskan product. At present, two important agreements have been concluded for Japanese utilization of Alaska natural gas or for its derivatives. During the past year, a combine composedof the Marathon Oil and Phillips Petroleum Companies announced an agreement to sell 50 million MCFyearly to Tokyo Gas Company, I Company l surveys have been conducted at Port Nikiski north of Kenai for the proposed liquefaction plant. Nowunder construction at Nikiski also is the $50 million manufacturing complex which will use natural gas from the Kenai field for the synthesis of anhydrous ammonia. Collier Carbon and Chemical Corporation, a wholly-owned subsidiary of Union Oil, will supply approx imately 40 percent of the plant's 1500-ton daily ammoniaoutput to an adjacent urea facility owned jointly by Collier and Japan Gas Chemical Company,which will in turn use it as raw material in the production of pearl urea fertilizer, chiefly for export to Southeast Asia. It is expected that a significant proportion of the remaining 900 tons of daily ammoniaoutput will be marketed on the U.S. mainland. on Alaska public lands. Taken together the two governments control and own virtually every acre of land in the state. Like most sellers who find themselves in such a privileged position, the two governments have been quite conscious of their ability to "spoil their own market" by offering too many leases in too short a time. From the standpoint of revenue maximization this is probably a legitimate concern. The proportion of the oil industry's capital spending directed toward exploration in any one year is no doubt fairly unresponsive to the number of tracts available in the prospect market. In economic terms, the demand function for prospects is highly inelastic: a small percentage change in the quantity offered will bring about a much greater percentage change in the price. Under such conditions it makes sense for the revenue maximizing seller to dribble his prospects onto the market in a very slow stream. There is circumstantial evidence that the Federal Government at least is following such a strategy in Alaska. For instance, no Federal oil and gas leases have, to our knowledge, yet been made available in offshore (outer continental shelf) Cook Inlet, Bristol Bay, or the Gulf of Alaska, all of which are areas of acknowledged oil company interest. A policy of maximizing direct revenue may be consistent with the public interest, but the leasing agencies ought to consider whether or not the higher bid prices are more than offset by the lower present value of future royalties, resulting from reduced exploration effort. 57 Early in 1967 representatives of Japan 1 s Methanol-Formaldehyde Association, representing all the big producers and consumers of these compounds, were investigating the possibility of establishing a methanol plant in Alaska, probably in association with Skelly Oil and Gas Corporation. Although no official announcement has been made, it appears that this inquiry has been either suspended or abandoned because of the anticipated high cost of construction of a plant in Alaska. According to the Japanese firms, this cost factor would have to be offset by a gas price lower than the 15 cents quoted to them for the operation to be commercially competitive. The development of natural qas production in Alaska on a large scale for either foreign markets or markets in the more lated parts of the pi Al I economy. Often overlooked in considering the impact of gas liquefaction for the Japanese market of the A1 as kan economyis the 11fa 11 out II of LNG technology on the local Alaskan energy scene. Anchorage Natural Gas Corporation is investigating the possiblity of marketing LNGin Alaska by barge, railroad or truck. Even without the Alaska-Japan project it might be possible for a small liquefaction plant in the Cook Inlet area to supplement the normal gas supply in Anchorage during the periods of peak demand and also supply LNGto other Alaskan towns. Income which accrues to the State from other oil and gas royalties and taxes at present seem to many residents and officials to be the most important effect of the development of the petroleum and natural gas industries. However, the view of the Gas Companyis that LNGfor local consumption may well prove to be the greatest and most endurinq benefit of the Alaska-Japan gas project. A similar spillover may occur from the construction of the ammonia urea complex utilizing Alaska natural gas. While the vast bulk of the market for the product of these plants is bound to be outside Alaska, their outside markets will provide the economies of scale necessary to lower drastically the cost of elemental nitrogen used as fertilizer in Alaska agriculture. In particular, low-cost ammoniafrom this plant may provide a significant enough price breakthrough in the production of haylage for supplemental livestock feeding to make commercial beef production a possibility in the Kenai Peninsula and Kodiak areas.38 37 Hawaii is probably the best prospect for an additional major market. The most conspicuous single obstacle to development of this market 11 is the Merchant Marine Act of 1920 (46 U.S.C. 861, the "Jones Act ), section 27, which restricts domestic water transportation to vessels built in the United States. There is no apparent prospect that any American shipbuilding firm could build the kind of tankers required for LNG transport within the forseeable future. 38 1nterestingly enough, the main potential market for Alaska livestock now appears to be in Japan, and large-scale commercial production of beef for the Japan market could offer another spillover, namely a reduction of Alaska beef prices. This would result from the fact that the local product could now be produced at a low enough cost to be competitive with the Australian, etc., product on the world market. 58 Natural Gas Costs and Natural Gas Prices As a byproduct of oil exploration, natural gas reserves properly have no discovery cost. Gas reserves are increasing much more rapidly than prospective consumption is appearing. The actual cost to the oil companies of producing a cubic foot of natural gas is composedonly of the costs of bringing it out of the ground and of transmitting it to the point at which it is sold. If there were effective competition within the industry, either amonggas producers or between gas and other low-cost energy sources, the price of gas would tend to fall to a figure equal to the highest direct cost required to serve any componentof the total demand. In the absence of competition, however, the companies can optimize their revenue from gas sales by selling at a muchhiqher of refo ts b ts to the communitywould be far less at the higher price. If permitted, the sellers can further increase their revenue by setting different prices for different classes of customers. Those who can easily buy elsewhere (like the Tokyo utility companies) or take their operations elsewhere (like Japan Gas Chemical Company)will receive lower prices than customers whose alternatives are limited to relatively high-cost energy sources (such as the local utility companies) and these in turn can expect to receive substantially lower prices than those for whom local gas has almost no satisfactory substitute (such as residential consumers). The result predicted by economic theory in a monopolyor near-monopoly situation is fully borne out by the price structure existing for natural gas in Alaska now. Table I-12 and Figure I-7 show wellhead prices and Anchorage gas rates in 1967. It should be pointed out that the differences in rates in the latter figure are not due entirely to monopolistic price discrimination, but do in part reflect the different cost of servicing different classes of customers. Never theless, in the absence of deliberate price discrimination by class of buyer, these different costs would be expressed in a single downward curve or step-shaped graph. Beside these rates we should set the fact that the price generally quoted by the oil companies to large outside investors interested in using Alaska natural gas as a feedstock for petrochemical operations is in the vicinity of 15 or 16 cents per MCF. Our independent calculation in Chapter V of the effective price of gas delivered to the LNGplant is exactly 15 cents. It is widely understood that the industry ·is determined to 11hold the line 11 at a price in the vicinity of 15 cents. Phillips and Marathon now have an enormous stake in this effort because their contract with the Tokyo utilities calls for renegotiation in the event of a major sale at a lower price. A five-cent reduction in the effective wellhead price would cost them about $50 million during the life of the contract. In their desire to hold up the wellhead price of gas, the oil companies have had an apparent ally in Alaska's Department of Natural Resources, which must certify the price for the purpose of assessing the production tax. The State's motive in this case seems to have been the optimization of its revenues; the reasoning is that the higher the price, the higher the tax yield. The United States Geological Survey has also helped legitimate the sixteen cent figure by approving that value for gas used for oilfield repressurization. 59 TABLEI-12 Declared Wellhead Prices of Alaska Natural Gas Unit: $/MCF Field Sale To Price Cook Inlet Liquefaction Plant .0944 Kenai Liquefaction Plant .15 Kenai SwansonRiver Field for Injection . 16 Kenai Collier Carbon Ammonia Plant . 16 Beluga Chugach Electric Association . 16 Sterling Consolidated Utilities .25 SwansonRiver Kenai Pipeline .25 Kenai Anchorage Natural Gas Pipeline .275 (after 11/20/71) .30 Source: Alaska Division of Lands The problem of natural gas pr1c1nq is an extremely serious one for Alaska, and its resolution may be one of the most important determinants of Alaska 1 s future growth. Reduction of power and heatinq costs in the long, dark and cold Alaska winter can play a role in reducing the inflated cost of living. In addition, potentially low-priced gas is one of Alaska 1 s greatest incentives to industrial development. If indeed the state has lost one of the world 1 s largest methanol plants because the owners of gas reserves are determined to hold the price of gas well above its cost to them, this pricing policy has already been a severe blow to the State 1 s growth. The orice of energy for concentration 60 FIGUREI-7 ANCHORAGE GAS RATES $2.25 I------+--- - GENERAL SERVICE RATE (SMALL COMMERCIAL) 2.00 1------1---- DOUARS PEI! Md ~ : ::: 1-B-E-Sl--1,DE-N-TI-A~_i"-+----+-----+---!-----+---+-- RATE 1.25 .--,---,·--~"t:-.;;;;;;;;;;.<:,:$:.;;5;,:,l.;;;;;;;;-----t------:-,--,---,______.;.;..;._ I i',. <$1oi i I 1.00 1-----1-----+--+----+-----1~- INTERRUPTIBLE 1----!--~~----1--~~~<~$1~00~1 RATES .75 ($10,0~ .so ,______.___ _..______,______-+-__ ($12,000) .25 -, -----1------1------l---+-----+ .,C::.---/ - ($25,000) POWER RATES 10 100 1,000 10,000 100,000 MONTHLYGAS CONSUMPTIONIN Mcf Notes: (a) Not all rates are shown (b) Figures in parentheses indicate minimum monthly bill SOURCE: Anchorage Natural Gas Corporation operations may again be the crucial factor in determining whether Alaska's low-grade iron deposits can be developed commercially.39 The remedies for this situation are not simple nor easily apparent. We are generally hesitant to recommendthe imposition of additional regulation, controls, or surveillance on industry because their existence 39 The fact that there is such a difference between either the direct cost or the opportunity cost of natural gas to the oil companies, and the price they cite to 11outsiders, 11 gives the former a tremendous com petitive advantage over other firms in petrochemicals or other gas using manufactures. In the complicated agreement between Collier Carbon and Chemical and Japan Gas Chemical, the latter does not formally buy either gas or ammonia from Union Oil's subsidiary. The transaction is entirely disguised as a product-sharing one, so that no gas price appears. It is reasonable to wonder whether the Japanese firm would have made this kind of agreement if it had been able to buy natural gas at a price approximating Union's "internal" price. For the same reasons, we will be surprised if Cook Inlet iron ore production and concentration takes place unless one or more of the oil companies has an important share of the operation and of the profits. 61 seems often to be a deterrent to development quite apart from either their content or the cost imposed by them. Yet this particular industry is composed of closely interlocked firms within which arms-length sales are very rare except to the ultimate consumer. The forces of the market itself cannot be expected to approximate the outcome we would hope for in a competitive industry. While not sufficient in itself, one remedy short of additional regulation would be complete disclosure of and publicity about the prices and price differences which actually exist in the industry. For instance, the Federal Power Commission is required to approve any contract for the export of natural gas outside the United States, including the price at which the qas is exported. In the case of the Alaska LNGproject, the Commissionapproved a contract which stated only the price of the product as delivered at Negishi, Japan. an approx p ce can es s qure, we believe that it was within the authority of the Commissionto require that the price be stated in FOBterms so that consumers and government agencies in Alaska might make a direct comparison of this price with prices of the comparable product offered to consumers in the State. The Commission's mandate to regulate the natural gas industry in the interest of consumer protection and resource conservation does not presently apply to the Alaskan market because Alaska gas crosses no state lines on its journey from producer to consumer. The price of exported gas, which must be approved by the FPC, may however, affect the price which large domestic customers--including public utilities- will be willing to pay. Ultimately, however, the reduction of energy prices and the elimination of price discrimination against Alaska consumers depends upon establishment by the State of an effective Public Service Commissionwith sufficient legal authority, staff and public support. Gas reserves in the state have already expanded far beyond any foreseeable market for them at the prevailing price. In contrast to the situation in petroleum, therefore, we see little danger that resolute action on the part of the State to increase Alaska's share of the benefits from this resource will seriously slow down its development. Quite the contrary, a reduction in prices, however achieved, ought to result in a substantial expansion of gas production. COAL4o Any discussion of the uses of coal by Japanese industry must make a clear distinction between coking coal and other types, as it is for coking coal that Japan must depend so heavily upon overseas resources. In fact, the bituminous and sub-bituminous coal for use as fuel and in the chemical industry at large is in oversupply in Japan. As a result, the Japanese coal industry has constantly been facing adjustment of production to declining demand. Coal was at one time dominant in Japan's energy supply, and in the early post-war period production policy put a 40 See also: "Japan's Coal Imports," Appendix 4 of this report. 62 heavy stress on the reconstruction of the coal industry. Taken together, the structural change in energy demand and the technical rationalization of what is left of the coal industry are already causing serious problems of readjustment and unemployment, so that the Japanese government is not likely to encourage the import of any coal other than for coking purposes, even if available at considerably lower cost than domestic supply. Japan's supply of coal suitable for iron and steel production, however, is completely inadequate. Despite complete destruction during World War II, her iron and steel industry has risen to fourth position in the world in terms of production and productive capacity, and in absolute terms is still the most rapidly growing iron and steel industry y i creas for co ng coal; the future demand for imported coal depends directly uoon the outlook for the steel industry. The Japan Iron and Steel Industry Federation has prepared its own estimates for steel production to 1980. According to the report, the volume of steel produced increased 12.2% annually between 1960-1965. The future growth, however, is not expected to be as rapid, because of a world wide tendency toward overcapacity and overproduction together with the probability that Japan has already just about captured its maximumpercentage share of world steel exports. On the basis of the world trend in the steel market, JISIF estimates that the growth of steel production in Japan during 1965-1970 will be 8.3% annually and during 1970-1980 will be 7.8%. This would mean an increase in actual production, however, from 23 million tons in 1965 to over 60 million tons in 1980, just about keeping pace with the expected rate of growth of national income. Because of technical advances in the iron and steel industry, the consumption of coal will not quite keep pace in terms of its growth rate with steel output, but the increase in required imports will nevertheless be huge. For this reason, the industry has been actively seeking long term purchase arrangements with overseas coal suppliers. Perhaps one series of recent negotiations between firms in Japan and Canada is most relevant to Alaska prospects. According to the agreement, a total of nearly 15 million tons of coal are to be purchased over a span of 10 years, 0.6 million tons the first year, 0.9 million in the second, l .0 million in the third, and 1.73 million tons annually for the remainder of the contract period. At the time this is written, the agreement has not been finalized because of remaining differences over the price, and because of remaining differences between the British Columbia Provincial Government, the operators of the colliery, and the National Government over transportation arrangements. Until 1965 the United States was the leading supplier of coking coal for Japanese industry. But U.S. coal, shipped mainly from eastern ports, has been a relatively high-priced supply. In recent years, Japan has been able to obtain coal much more cheaply from other countries, most notably Australia, from deposits developed in part with Japanese initiative and Japanese capital. The U.S. share (by physical volume) 63 has fallen from 57. 1% in 1962 to 40.3% in 1966. Dµring the same period Australia's share has increased from 26.8% to 45.9%, making Australia now Japan's largest supplier. Table I-14 shows the relative prices of Japan's various sources of supply for coking coal, and in these figures Australia's price advantage is apparent. Comparisons based on these foreign trade declarations should be used with caution, because trans actions with the United States are largely "arms-length," those with the Soviet Union are on a bilateral basis with biases which may be offset in the declared prices of other commodities, and those with Australia and to a lesser extent Canada are in part with firms in those countries in which Japan has a financial interest. Nevertheless, the range of prices gives us an idea of the competitive level which Alaska cokin9 coal would have to meet to find a market in Japan. Total transport costs including -i four dollars per ton, and the cost transportation from Southcentral Alaska could be expected to be slightly less. Transport costs from Northwest Alaska, however, might be more, not so much because of the added distance, but because the bulk carriers could be operated on this route only part of the year. In any case, to induce Japanese initiative in the development of an Alaska coal deposit, the Alaska price at tidewater probably could not exceed nine dollars. The most important obstacle to the development of a Japanese market for Alaskan coking coal is the absence of reliable information about the location and quantity of suitable coal deposits. A huqe formation in the Western part of the Brooks Range is known, and reaches the sea in the Point Lay area of northwestern Alaska. This deposit has been super ficially investigated a number of times, but there is considerable doubt as to whether it is commercially workable. Another formation of coking coal has been reported from the vicinity of Cordova, but even less is knownabout its structure and volume. In summary, there is a ready and growing market in Japan for all the coking coal that Alaska might produce but the uncertainty as to the existence in Alaska of workable coal reserves together with the low prices at which Japan is able to purchase new supplies from Australia and Canada, make coal one of the less promising fields of trade in the foreseeable future. MINERALSOTHER THAN MINERAL FUELS Japanese Demand The growth of Japanese industry has resulted in a vast increase in demandfor metallic ores and other mineral products. Because of Japan's own limited land area and resource base a large and increasinq proportion of these mineral products must be imported. As can be seen in Table I-15, approximately half of the value of Japan's mineral imports other than petroleum, natural gas and coal was accounted for by iron ore and concen trates. The second largest import item in the cateqory is copper ore and its concentrates; together with copper scrap they accounted for more than a quarter of billion dollars of imports in 1966. Other metallic ores imported in order of their 1966 values were zinc, nickel, manganese, molybdenum,bauxite and lead. The major non-metallic minerals were natural phosphates, commonsalt and asbestos. 64 TABLEI-13 Consumption and Import of Coal, Japan (Unit: 1,000 tons) Year Consumrion Imrort Ratio Index of Import (1 Imt~r (2 I (1) 1956 7,425 3,113 41 .93% 100.0 I .0 1958 21,735' 4,436' 20.41 142.5 1959 12, 123 4,840 39.92 155.5 1960 17,574 6,976 39.70 224.1 1961 22,653 9,436 41 .65 303 .1 1962 21 , 165 10,314 48.73 331.3 1963 22,033 10, 171 46 .16 326.7 1964 24,770 12,210 49.29 392.2 1965 27,520 15,568 56.57 500.1 Source: Ministry of International Trade and Industry, 1966 Tsusho Hakusho (CommerceWhite Paper), p. 810. Alaska is said to be a storehouse of mineral wealth and is reputed to hold deposits of virtually all of the minerals listed, but the most impressive fact about the state's mineral production and mineral exports to Japan, the major market in the Pacific Basin, is their virtual non existence. There is an obvious contrast between the development of Alaska's mineral resources and those of her immediate neiahbors British Columbia and Yukon Territory. The difference is indeed a striking one. One aspect of this contrast was the fact that in 1966 there were at least 22 mineral properties in British Columbia and the Yukonwhere production was being carried on, or had been committed, for the Japanese market. In a number of cases these minina ventures were at least partly financed by Japanese capital. While exports from British Columbia ports to Japan are not identical to British Columbia production for customers in Japan, Table I-16 shows the relative magnitude both of these exports in their aggregate and in their composition. This gulf between the general state of development of the mineral industry in the two areas has produced a number of attempts to explain the differences in terms of differences in mining law, in tax incentives, in costs of productive inputs such as labor, machinery and energy, or in the development of 65 TABLEI-14 Average Prices, Japan's Imports of Coal for Cokinq (U.S. dollars/short ton) Country of SupQly 1964 1965 1966 United States FOBU S a 11 27 11 41f CIF Japan a 18. 51 18. 54f CIF Japanb 16 .45 16.79 16. 81 Australia FOBAustraliac,e 9.26 CIF Japana,e 13.43 CIF Japanb 12 .15 12. 18 11. 94 Canada FOBCanada a 10.58 FOBB.C. Portsd,e 8.75 9.60 9.96 CIF Japana,c 14.50 CIF Japanb 12. 72 12.92 12.08 U.S.S.R. CIF Japanb 13.19 11. 54 13.06 Source: Calculated from: a. United Nations, CommodityTrade Statistics. b. Japan, Ministry of Finance, Trade of Japan and Japan Exports and Imports. c. Australia, CommonwealthBureau of Census and Statistics, External Trade of Australia. d. British Columbia, Bureau of Economics and Statistics, Preliminary Statement of External Trade Throuqh British Columbia Customs Ports. Notes: e. All coal. f. First half of calendar year. 66 TABLEI-15 Japan's Imports of Minerals Other than Mineral Fuels 1962-1966 Unit: Millions of U.S. Dollars, C.I.F. 1962 1963 1964 1965 1966 -- -- - Iron ores and concentrates 319.6 355.7 420.3 523.6 606.2 Iron and steel scrap 177. 7 185.8 234 ..6 153 .1 145. 1 Copper ore and concentrates 90.9 94.1 102 .1 128.2 191. 1 Copper and copper alloy scrap 43.1 42.1 64 2 33.2 64.6 Natural phosphates 32.7 33.5 43 8 47.6 51. 1 Salt 25.0 26.3 35 ..3 35.7 39.2 0-, -...J Zinc ores and concentrates 6.7 8.2 31 .0 38.4 38. 1 Nickel ores and concentrates 15. 6 18. 2 28. 1 24.9 30.5 Manganese ores and concentrates 12. 1 9 .1 13 .0 26.0 28.6 Crude asbestos 15.8 16.0 20 6 19. 1 21. 2 Molybdenumores and concentrates 6.9 6.3 12 4 13.5 20.6 Bauxite and concentrates of aluminum 13.2 15.6 18 ..3 17. 2 19.0 Lead ores and concentrates 4.9 8.2 9 6 14.6 15. 1 Other non-metallic minerals 33.3 39.2 49 ..1 47.1 55.3 Other metallic ores, concentrates and scrap 21. 7 23.6 37 5 36 .1 48.5 TOTAL 744. l 881 .9 1119.8 1168. 6 1374.4 Source: Calculated from Ministry of Finance, Nihon Boeki Nemoyo(Trade of Japa) Nihon Boeki Ge2.!2YQ_(Japan Exports and Imports). TABLEI-16 Exports to Japan of Minerals other than Mineral Fuel fro~ British Columbia Ports, 1966 Thousands of Canadian Dollars, F.O.B. Copper in ore or concentrate or matte 39,867 Iron in ore or concentrates 18, 195 Lead in ore or concentrates 2,208 Nickel in ore or concentrates 1,765 Zinc in ore or concentrates 655 Ci\ Silver in ore or concentrates 531 o:i Metals in ore or concentrates, N.E.S. 4,940 Scrap Metals 1 ,341 Asbestos 768 Sulfur 325 Non-metallic minerals, N.E.S. 21 TOTAL 70,616 Source: Province of British Columbia, Department of Industrial Develoomen , Trade and Commerce, Bureau of Economics and Statistics, Preliminary Statement of External Trade Throuoh British Columbia Customs Ports for the Calendar Year 1966. · transportation facilities. 41 Neither these materials nor our conversations with authorities or the mining industry provide ground to believe that the differences in laws or tax incentives and burdens provide much explanation for the difference in development between the two regions. There are indeed important differences in cost structure, but the transportation situation in Interior and Northern British Columbia and in the Yukon has not been more favorable than in the mineralized areas of Alaska. The extension of road and railroad facilities into the remote areas of North west Canada has generally followed the verification of commercially workable mineral deposits. Acceleration of Exploration i exception of Kennecott Copper Company's Ruby Creek property, there is no known hardrock mineral deposit of a quality and magnitude sufficient to assure its being exploited even if it could be worked with the costs which prevail in British Columbia, and even if it were located adjacent to a developed transportation system. In view of Alaska's qreat land area and its general geological structure, it is reasonable to speculate that it 11must11 contain rich mineral deposits; however reasonable such a presumption is, it is still speculation. In view of the rapid qrowth of the Japanese economy and of Japanese mineral imports, it is safe to say that quantitatively Japan offers an almost unlimited market for potential Alaska mineral production. The Japanese trading companies and their metals producing clients make no secret of their willingness to purchase on long-term contract concentrates of iron, copper, nickel and other ores and to participate in the financing of mining and processing operations. They are not prepared on their own, however, to invest large sums in topographic and geological mapping, in geochemical and geophysical surveys, prospecting or preliminary development work. Until the Federal Government, the State Government or private citizens on this side of the Pacific conclusively establish the existence of commercially workable ore bodies the opportunities from Japan are almost meaninqless. The requirements for the generation of exports of Alaska mineral products are the same as for the development of a mineral industry in general. Of first priority is an acceleration of geoloqic mapping. Only approximately three percent of the state has been mapped at a scale 41 see in particular, Charles F. Herbert, "Mining Costs in Southeastern Alaska," State of Alaska, Division of Mines and Minerals, Report for the Year 1964; Charles F. Herbert, 11A Summary Comparison of Mining Laws and Oil and Gas Laws and Practices with Recommendations for Policy"; Part 1 of Alaska-Northwest Canada Economic Activities, prepared for the Federal Field Committee for Development Planning in Alaska, 1967; Thomas A. Elliott, unpublished paper presented at the 1964 Alaska Minerals Conference, University of Alaska, College, Alaska; and Alvin Kaufman, Foreign Markets for Alaska's Minerals, unpublished paper presented at the 1967 Alaska Minerals Conference, University of Alaska, College, Alaska. 69 as gross as one mile to the inch. 42 Beyond this mapping and preferably coordinate with it should go a systematic program of mineral exploration. Two types of approaches to the stimulation of exploration effort are possible and each could be expected to produce an industry with entirely different characteristics. The first approach would involve a retention of the present basis upon which mineral riqhts are established in all but a few products; that is, 11discovery and appropriation 11 as is now required by the Alaska State Constitution. Under this orqanization of the mineral industry, the government responsibility is limited to the most general mapping and survey activities plus the provision of a tax and possibly a subsidy proqram to increase the expected returns from successful discoveries. Reforms consistent with this approach would include provision for centralized recordinq of mininq claims and revision o 1aw n s of claims and to minimize Exploration would undoubtedly be accelerated under an alternative approach whereby the government responsibility extended beyond that of geological mapping to extensive geophysical and geochemical surveys and actual prospecting. In this case discovered properties would then be leased or sold by competitive bidding. In this fashion the risk and uncertainty of the mining business would be considerably reduced. It is reasonable to believe that this approach would attract more private capital and a different type of private capital from that which now characterizes the mineral industry. It is certain for instance, that Japanese capital and Japanese technical assistance is available for establishing production and concentration facilities where a proved discovery is available for lease. The province of this study is not an evaluation or reevaluation of public policy toward the mineral industry in general and we have not had the occasion to pursue the ramifications of moving toward this alternative system. We do, however, suggest that if the State of Alaska is in earnest about discoverinq and developing its resources it should seriously consider several alternative strategies. Somewherein Alaska there must be at least one vast bonanza and the individual prospector or the exploration companywhich discovered it might look forward to gaining a great fortune. The philosophy embodied in mining laws of the United States and of Alaska is based on the assumption that the possibility of such fortunes will draw enterprise and capital into the business of prospectinq. Present day Alaska reality is just the opposite because detailed qeoloqic mapping and basic mineral surveys are so inadequate. The probability that any given prospector will make a promising find is almost nil, and even the most promising discovery tends to remain undeveloped because the probability that any single prospect can actually be turned into a profitable mine is still too small. For these reasons, both the business of prospecting 42 see Economic Development in Alaska, a report to the President by the Federal Field Committee for Development Planning in Alaska, August 1966, pp. 18-20. 70 and the business of mineral development appeal only to a very narrow section of the capital market and only to a tiny minority of extremely adventurous enterprisers. The result, we believe, is a great underinvestment in mineral exploration and development. It may well be that the mathematical expectation of profit from prospecting and development is extremely high, but because uncertainty is also high these expectations do not attract adequate amounts of capital or enterprise into the industry. For instance, if the probability of success were such that each firm had a one percent chance of recovering on its investment at a rate of one thousand to one, and a ninety-nine percent chance of recovering nothing on its investment, the mathematical profit expectation in the industry as a whole would be 900 percent.43 There are indeed enterprises and investors who like this kind of gamble, and because the mining laws are generally based on the phi l ophy " , i dua s to be representative in larges ons of the industry. We should not be surprised if today's miners and prospectors stubbornly oppose proposed changes of mineral laws or of the organization of the mineral industry which would accelerate the opening up of Alaska's mineral resources. Such opposition can be expected to measures either increasing the scope of government responsibility in discovery and development, or providing incentives for larger firms to enter these activities. If it is indeed true as we believe it is that the profit expectation of the search for marketable minerals in Alaska is very high, and if it is also true that the probability of acquirinq a producible mine from any given one thousand, ten thousand or hundred thousand dollars of effort is rather low, then the requisites of a strategy for establishing a mining industry in Alaska are clear. The search for profitably producible minerals must be carried on in units large enough, both in terms of land area and in terms of funds invested, that the probability of total failure falls to levels which are generally acceptable in our economy, and large enough that the probability of success is great enough to warrant a prudent investor's commitment of his funds. One approach to this goal would be to provide large private firms with sufficiently large land areas to explore, and assurance that the fruits of their search will accrue to them. This approach would require legal changes to allow the land management agencies of the Federal and State Governments to make large exclusive exploration leases as they now do for oil and gas. Sufficiently large leases would make it in the interest of private firms even to undertake the preliminary geological mapping which is now proceeding slowly as a government responsibility. Indeed, the terms of bidding might require the lessee to conduct such mapping and other survey work to U.S.G.S. standards and to release their data for publication at the end of a specified period. 43This is the reason more favorable tax treatment for producing mines is not likely by itself to be a big incentive for exploration--such measures do not reduce the overwhelming probability of total failure in any single exploration venture. 71 As suggested above, an alternative approach which might be chosen for social policy reasons would be to make the business of exploration itself a government responsibility, and for the State to lease by competitive bidding mineral properties which it had discovered and assessed. This approach would probably be the most effective in reducing the uncertainties of private investment in Alaskan hardrock mininq, but it would also require substantial changes in present mineral law as well as establishment of a new agency to carry on exploration and development. A third approach intermediate between the two above and compatible with either, would increase the scale of exploration effort by combining public and private funds in different proportions for different kinds of ventures. This strategy would involve the formation of a mineral exploration corpo on Such a corporation, modeled after the Quebec Mining Exploration Company (SOQUEM),need not have any special privileges not granted to private exploration or mining companies, but would start with a large fund committed to systematic exploration within Alaska, either on the company1 s own account, or in partnership with private enterprise. The company could stake claims or bid on leases, buy mineral properties or claims, and lease or sell its discoveries. It might engage in joint ventures with private investors, with or without a provision in their agreement granting these investors an option to buy the State corporation 1 s share at some time in the future. In our discussions with representatives of Japanese mining, mineral importing, and trading firms, this last kind of approach brought forth the most encouraging responses. One reason for this response was that the uncertainty on the part of Japanese business toward investment in Alaska mineral development is in part composed of the high uncertainty which characterizes these industries at present, and in part made up of doubts by the firms about the commitment of the government of Alaska to a positive and realistic attitude toward economic development and toward Japanese participation in Alaska 1 s economic development. Unfamiliarity with U.S. and Alaskan conditions and procedures, uncertainty about public policy, and a limitation of foreign exchange to finance large enterprises with their own equity capital, have combined to make Japanese concerns interested in Alaska 1 s resources seek to establish joint ventures with local firms. Large private partners for these joint ventures in mining are not readily available in Alaska for the same reasons that domestic capital generally is not available. The participation of the State 1 s own capital in joint enterprises would not only serve a risk-sharing function for the Japanese companies involved but also help reassure them that the State was committed to the success of the venture, and would not capriciously undermine it by changes in the rules of the game. Because, of the very favorable response we received to such a proposal, materials on Quebec1 s exploration company, the only one of its kind in North America, are included in Appendix 8. Export Restrictions on Copper Copper ores and concentrates, and copper metal and scrap, play a large role in Japanese imports in general, and outside of petroleum and natural gas, copper is the biggest single focus of Japanese interest in 72 the mineral resources of Northwestern North America. For these reasons, we must mention the particular impact of U.S. export restrictions on exploration for, and development of, copper deposits in Alaska. Under the Export Control Act of 1949, the President is authorized to prohibit or curtail the export of certain materials considered to be in short supply in the United States. While the United States is domestically the world's largest copper producer, it is also the larqest consumer, and tends on balance to be a net importer of copper. In the face of an upward trend in demand for copper both home and abroad, the Secretary of Commerce has established quotas for the export of refined copper products and copper scrap, and has effectively prohibited the export of copper ores and concentrates. The initial Conqressional authorization for such restrictions was based on the need for assurinq supplies of strategic materials and res ans on exports are ostensib y on same grounds. But it is the overwhelminq consensus in the industry and in the business press that this authority, coupled with possible sales from government stockpiles, is being used mainly as a short-term price control device. Restrictions on the export of ore are almost inevitable once the government has determined to depress the price of copper below the free market level. It would be exceedingly difficult to justify holding down the refiners' product price while allowing their raw materials to be exported. It is our opinion that the policy is an unsound one, and that its results are directly contrary to the intent of Congress in authorizing such controls, and to the declared intent of increasinq domestic supply.44 The policy has resulted in a deterrent to the development of domestic copper mining and has created a two-price system in which the free market price of copper scrap has often been higher than the informally pegged price of new refined copper. Since a major interest in Alaska's potential copper production comes from Japanese firms, the qeneral policy of denying applications for licenses to export copper ores and concentrates~ copper matte, blister copper, and other unrefined cooper, almost completely chokes off this important source of capital and initiative. While the present policy does provide an exception when 11because of contamination or any other reason (these commodities) cannot be processed commercially in the United States, 11 no Japanese firm is qoinq to invest in development of U.S. copper mines for export to Japan or for sale of concentrates at world market prices, if there is not a prior assurance that the product may indeed be exported. Ironically, even under the most favorable possible interpretation of the above exception, exporting firms would be interested in ignoring potentially high grade discoveries whose ores clearly are not 44 rt is instructive to compare government policy toward copper with that toward petroleum, where a similar desire to increase domestic supply has led to quotas on imports, on the ground that U.S. prices higher than world market prices would encourage exploration and development at home. Perhaps it is not too cynical to suggest that the different policies pursued have little to do with national security requirements, but reflect the fact that sellers of petroleum and petroleum products have more political influence than do their buyers, as against the fact that sellers of copper ores and copper have less political influence than do their buyers. 73 eligible for export pennits in favor of the lower grade ores which would be worthless domestically at prevailing prices. In summary, we believe that the present export restrictions are an abuse of the legislative authority granted for export control, and are positively hannful, with virtually no redeeming benefits to the United States. } LIVESTOCKPRODUCTS 45 As per capita income has increased in Japan, the per capita expenditure devoted to food has also increased and the consumption of livestock products has risen at an even faster rate. Meat accounted for 20 percent of the value of agricultural production in 1965. Average individual consumption of meat in Japan in 1964 was somewhat over 7 kilograms. This y four pri World War I and 2-1/2 times the 1955 rate. Yet, as we can see in Table VIII-10, the per capita meat consumption remains one of the lowest among the industralized nations. As incomes continue to rise and living styles are progressively Westernized we can expect a continuing increase in meat consumption. On the basis of recent Japanese consumption behavior, Iwasaki has estimated that the utilization of livestock products by carcass weight will approximately double during the next ten years. Using an increasing proportion of imported feed, domestic poultry and pork production will keep pace with demand, but because of the almost total absence of grazing land the increased consumption of beef and of mutton, an important component of processed meats in Japan, will be supplied in large part from imports. Imports of beef were about 13 thousand tons and those of mutton about 93 thousand tons in 1966, almost all from Australia and New Zealand. Import needs are expected approximately to double between 1965 and 1970, to double again by 1975, and by 1980 to stand at about six times the 1966 figure. Production in Australia and NewZealand is not expected to be able to supply this need, and Japanese meat packers are looking to other areas, Mexico, Brazil, and even Alaska, for meat sources to be developed in the next few years. In different cases they are interested in operating packing plants, feedlots, and even ranches in remote parts of the world, to insure the growing supply which will be necessary for a finn to obtain and hold an important share of the Japanese market. Prima Ham, Ltd., one of the larger meat processing firms, which recently opened a Brazilian operation, has dispatched one of its animal husbandry specialists to Alaska for a two year investigation of the feasibility of beef production for the Japanese market. Within the objectives and resources of this study, we have been unable to conclude whether or not there is a serious prospect for Alaska 45 see also Akio Iwasaki, "Present and Future Supply, Demand and Import Requirements for Livestock and Meat Products in Japan," Part VIII of this study. 74 meat exports to Japan. According to the estimates of the U.S. Bureau of Reclamation, the Kenai Peninsula-Kodiak Island area could provide only about a third of the beef consumed in the Alaska railbelt.q 6 At the same time, the Bureau's study indicates that this kind of enterprise would probably be a money-losing proposition even if its prospective outlet were the high-price Alaska market rather than the Japanese market, where freight costs would have to be absorbed and where the competition would be from the world's lowest-cost producers. The cost and profit projections of the Bureau of Reclamation study are not entirely applicable to a large Japanese-financed venture, however, because they assume an industry composed of small proprietorships. The authors explicitly rejected the possibility of a large-scale, integrated, corporate venture, on the ground that 11no company is likely to be interested or have ty. ass s an enterprise wou din fact be viable anywhere in Alaska, but the interest and experience do both in fact now exist on the part of Japanese packers. The above remarks apply primarily to a possible beef industry, but it should be kept in mind that mutton is Japan's biggest meat import, and that the rate of increase in the demand for sausages, m~ t of which contain some mutton, is among the highest of all meat products. 7 In addition, several Japanese entrepreneurs are interested in developing a market for Alaska reindeer as a gourmet food. So far, imports of reindeer have been stymied by the fact that they are not classified as domestic food animals by the Ministry of Agriculture and Forestry. We understand that the obstacle is a formal one and would be overcome without great difficulty if the U.S. Department of Agriculture would make some definitive gesture 11certifying 11 reindeer as fit to eat. (In the opinion of Japanese officials with whomwe discussed the matter, inspection requirements could be met by State action.) Interest in reindeer by a larger and more influential Japanese company than those now involved would also facilitate its reclassification. 46 Department of the Interior, Bureau of Reclamation, Livestock Industry in Alaska: Possibility of an Integrated Livestock Industry on Kenai Peninsula, Kodiak, and Adjoining Islands, Juneau, 1967. 47 Appendix 9 presents cross-sectional income elasticities of demand for various fish, livestock, poultry and dairy products in Japan. Simply stated, the income elasticity of demand for a commodity is the percentage increase in expenditure for that commodity for each one percent increase in family income. Accordingly, expenditures on "high quality" items like sashimi, salmon, oysters, ham, sausage, butter, and cheese, whose elasticities are in the vicinity of 0.9 to 1.3, may be expected to increase roughly at the same rate as real income per house hold. Items like mackerel, cod, whale meat, and powdered milk have low income elasticities, which fact indicates that they are consumed disproportionately by low income households; expenditures on these items can be expected to increase slowly if at all. 7.5 TOURISM48 The volume of tourism is one of the most difficult areas of economic activity to predict, because Alaska is still totally undeveloped as a goal for Japanese tourists. In recent years, the number of Japanese travelers stoppinq off or spending more than a few hours in Alaska has numbered only two or three hundred annually. Of these, the greatest proportion are either members of business inspection parties, many of them actually recreational junkets, or of orqanized mountaineering groups. Alaska is still well down the list of places Japanese want to visit but rapidly growing trade will make Alaska more conspicuous to the Japanese people at the same time that increased incomes will enable them to travel more extensively Urban middle-class Japanese are amonq the world 1 s most enthusiastic skiers, mountain climbers, and sport fishermen. Alaska has a great deal to offer them relatively close to· home. The extent to which this potential is realized depends qreatly on what Alaskans do to provide the kinds of tourist facilities Japanese visitors want, on the promotional efforts of the State and of its tourist industry, and on the ability of the transportation indust~y to offer attractive tour packages, alternative routes, and lower fares.49 Approval of additional airline route authority between the East Coast and the Orient throuqh Alaska, and of a direct Anchorage-Honolulu route, would be steps in this direction. 48 See also Hubert J. Gellert, "Japanese Tourism to Alaska, 11 Part IX of this report. 49 Airline fares per mile between Alaska and the Orient are among the highest in the world on a per mile basis. Mean passenger-mile fares calculated from tariffs published in March 1967 were as follows: ROUTES FARES ($ per mile) FARES (~ per mile) F class Y class F class y class Intra-U.S. .080 .066 Connections to, in Intra-Canada .084 .062 South & S.E. Asia .079 Canada-U.S. .087 .070 Europe-Africa .130 .082 Intra-Latin Intra-Africa .118 .099 America .111 .086 Intra-Australasia .112 .088 U.S.-Latin America .091 .073 Asia-Australasia .114 .087 Europe-Latin America .114 .074 Japan-u.s. West Europe-North America .106 .071 Coast .132 .078 Intra-Europe .138 .106 Japan-u.s. (other) .109 .068 Connections to Alaska-West Coast .071 U.S.S.R. .140 .112 Intra-Alaska .153 Europe-Middle East .129 .094 Alaska-Europe .121 .072 JAPAN-ALASKA .161 .100 See author for sources and method of calculation. 76 If per capita income in Japan continues to grow at the rate of recent years, so that it reaches present United States levels in little more than a decade,50 the number of Japanese traveling abroad will become a torrent. It is not unreasonable to expect their numbers to increase as much as ten times by 1977.51 If one of every hundred Japanese travelers spent time in Alaska--the present figure is one in seven hundred--the total number could be in the vicinity of 20-25,000 visitors annually ten years from now! Howeverspeculative this hypothetical potential miqht be, its very size is sufficient to warrant further investigations. GENERALCONSIDERATIONS CONCERNING ALASKA-JAPAN ECONOMIC RELATIONSHIPS The remaining pages of Part I of this report are devoted to aspects of government policy and the economic climate in Alaska which affect the state's overall ability to develop its export trade, to attract Japanese capital, and to benefit from both trade and investment. Ignorance and Insecurity Two important themes which recur in any consideration of Japanese activity in Alaska are ignorance and insecurity on the Japanese side. In many cases the ignorance on the part of Japanese importers or prospective investors is not caused by the unavailability of information but by the conviction that information is unavailable. A recent visit to Japan revealed that the responsible officials of some large Japanese corporations contemplating investments of tens of millions of dollars in Alaska have startling misconceptions about Alaska's geography and climate, population, economy, and above all about the United States political system, U.S. and Alaska laws, and American business practices. The same persons are usually better informed on engineering, transportation and financing problems related to their own lines of business in Alaska 50 See footnote 1, page 1, of this report. 51 Data in the Family Income and Expenditure Survey for 1965 yield an income elasticity of demand for all travel of about one, and for sporting goods, cameras, and similar travel-related consumer goods of somewhat greater than one. Data from a private survey undertaken by one of the European airlines, however, gives an elasticity figure for foreign travel by the upper fourth of income earners, of slightly greater than three. By 1975, two~thirds of Japanese households will be in an income group which corresponds to the upper fourth today, so this elasticity estimate is not too unreasonable as a basis for projecting the propensity to travel abroad of the entire population. A 9.5% annual increase in per capita income, an income elasticity of demand of 3.0, and an annual population increase of 0.9%, give an increase of expenditure on foreign travel of 32.5%, compounded annually. This rate of growth means an expenditure increase of 16.6 times in ten years. 77 but even here there are surpr1s1ng gaps. Most of them, for instance, are virtually unaware of the many kinds of technical reports available from various Federal and State agencies, and their staffs do not seem to know how to find out what information exists despite the fact that virtually the same kinds of reports are published by Japanese government agencies and used extensively in Japanese industry. The insecurity mentioned above is closely related to this ignorance. There is a deep fear of public opposition to Japanese investment in Alaska and of government connivance to prevent it. There is fear that after Japanese interests make large outlays on mining or industrial facilities, capricious changes in laws or in administrative policy will forbid export of the product. While these fears may not be totally without foundation are y out propu i the ignorance and the anxiety of the Japanese about Alaska conditions will naturally diminish as actual contact expands and as trade and investment increase. Establishment of a Consulate in Anchorage, now a distinct probability, would help alleviate the condition, as would the opening of Alaska offices by some of the Japanese trading companies. But in the meanwhile these psychological factors are a clear hindrance to Japanese activity in Alaska. Twomeasures on the part of the State of Alaska would help increase practical knowledge of Alaska by Japanese business: First is the preparation of a manual, both in English and in Japanese, on doing business in Alaska. This manual would include a summaryof the State and Federal laws with which investors, especially Japanese investors, in Alaska are likely to be concerned, an outline of Federal, State and local taxes, and a discussion of those points in which American business practices differ substantially from those abroad. This manual would not be an extremely detailed technical volume containing all the information actually necessary to carry on the business of a 1arge enterprise, but ought to contain an annotated bibliography of the sources of the more detailed information~ as well as of technical materials available from government agencies.J2 The second activity would be establishment at the University of Alaska of a special program, offering both year-long instruction and special summershort courses for Japanese businessmen and technical personnel from companies interested in resource development or trade in Alaska. This program would offer intensive study of English as a second language, instruction in American Business practices, business law, 52 There is now one reference source for businessmen printed in Japanese by the Bank of Tokyo: Tokyo Ginko, Chosabu, "Arasuka no Apurochi: Sano Rikai no Tame ni" (Approach to Alaska; for the Sake of Understanding), Togin Chosa Shiryo, No. 43, September 1966, 147 pp. 78 administrative procedures relevant to Japanese economic activity in Alaska, and in Alaskan resources. The possibility of such a proqram was raised with all of the firms we visited in December, 1966, and with one exception (Marubeni-Iida, which apparently has its own foreiqn trade school) all were very favorable, and would probably send at least one of its staff to such a school. Even in the absence of such a proqram, two Japanese firms, one in petrochemicals and one in meat packinq, are sending staff members to the University for study of Alaskan conditions. Thi,s recommendation was presented to the University early in January, 1967, and its President assiqned the primary investigator in this project and the Institute of Social, Economic and Government Research, to draw up a formal proposal for a special course for p propos l , s of the comments and recommendations received concerning it, are included in this report as Appendix 5. Establishment of a Japanese Consulate Japanese businessmen have repeatedly pointed out the absence of consular services in Alaska as a deterrent to activity there. According to the Consul-General of Japan in Seattle, whose jurisdiction includes Alaska, his office is not able to furnish much assistance to either Japanese nationals or Americans in Alaska other than on routine passport and visa matters. Wewere told by several Japanese officials that the Ministry of Foreign Affairs in 1965 planned establishment of a Consulate in Anchorage, but that the Ministry of Finance for budqet reasons disallowed the proposal. (Actually, the Ministry of Foreiqn Affairs was required to choose between establishing an office in Edmonton, and one in Anchorage, and chose the former.) Wewere urged to intervene, because in the words of one dip 1omat, "your government has more influence on the Okurasho (Ministry of Finance) than we do. 11 There have subsequently been representations from the State and Federal qovernments, and from the Alaska Congressional delegation, in favor of the establishment of a Consulate in Anchorage. The 11campaiqn11 should be continued. The Alaska Industrial Incentive Act The Industrial Incentive Act seems not to serve as an incentive to the establishment of Japanese enterprise (or any enterprise, for that matter) in Alaska. While each firm interested in Alaska development indicated an intention to apply for the tax exemptions provided under the Act, none indicated that its concessions significantly affected the decision whether or not to locate in Alaska. This result is in accord with findings elsewhere in the United States and Canada.53 To 53 A review of these studies is found in John F, Due, "Studies of State Local Tax Influence on Location of Industry," National Tax Journal, Vol. 14 (June 1961), pp. 163-73; also see Henry L. Hunker and Alfred T. Wright, Factors of Industrial Location in Ohio, Ohio State University, 1963; Roland J. Wonnacott, Manufacturing Cost and the 79 the extent that State and local tax exemptions do affect industrial location decisions (and the evidence is weak and contradictory), the Alaska Act fails because its application is discretionary. All the Japanese businessmen who know of the Alaska Act know of and preferred the British Columbia legislation, largely because its application is certain. There have been other features of the Act which seem to vitiate its usefulness or to be harmful. Local property taxes are only a small portion of operating costs in any industrial or mining venture, far less than labor costs. Yet depriving those communities in which industrial development is occurring of those revenues necessary to meet their rowing demand for schools, streets and utilities, contributes ~-.:r I ii;)~(" (\ scarcity of skilled labor, incidentally, was regarded as Alaska's biggest single handicap by most firms questioned.) An official of one large firm now operating in Alaska and receiving an exemption under the Industrial Incentive Act admitted that its relief from local taxation was in this fashion one of the sources of the firm's troubles because of the financial difficulties of the community involved. He did not, however, express an interest in giving up the present exemption. One of the worst features of the Act is the vagueness of the standards within which the Department exercises its discretion to grant or refuse tax exemptions. Section 43.25.120(a) says the Department may refuse exemption "if it gives a substantial advantage in competition with existing industries or jeopardizes the financial condition of a political subdivision. 11 Subsection (b) authorizes the department to ignore (a) if in its judgment the petitioning industry "substantially benefits the general economyof the state, 11 and (c) permits granting tax exemptions to existing industries. Subsection (d) makes the standards even more vague. Providing such broad administrative discretion without clear standards for their exercise very badly blunts any incentive impact because a prospective investor's eligibility is so unclear at early stages of planning, and at the same time is an open invitation to corruption. Some industrial incentive legislation may be desirable from a psychological point of view, but we would recommendan industrial incentive system whose application is not dependent either upon administrative discretion or upon size. It should not exempt new enterprises from local taxes, or alternatively, it should provide State compensation for Comparative Advantage of United States Regions, Upper Midwest Economic Study, Minneapolis, (1963), Chapter 4; Report of the Royal Commission on Taxation (The "Carter Commission"), Queen's Printer, Ottawa, 1966. Vol. 2, pp. 132-5; Vol. 6, p. 8, al loc. See especially Douglas N. Jones, "Development Constraints on State Tax Policy Formulation," 1966 Proceedings of the National Tax Association, Denver, pp. 444-462. The last paper is written with special reference to Alaska. 80 revenues of which the municipality is deprived. 54 Indeed the law should forbid local governments to offer discriminatory tax treatment, to discourage tax-cutting competition to attract industry. It would be desirable to extend this principle further to a cooperative attempt to bring the taxes and the incentive systems of Alaska, Yukon Territory and British Columbia into the maximumpossible conformity, to prevent this kind of competition, from which all three regions will suffer. Imports as an Incentive to Trading Companies to Locate in Alaska As we have pointed out before, the so-called trading companies (Mitsubishi Shoji, Mitsui Bussan, Sumitomo Shoji, Marubeni-Iida, C. Itoh, etc.) are the key to Japanese trade and overseas activities. They act as brokers rtually all of Japan's crude mate als imports and for a great proportion of exports. They are usually central in financing Japanese enterprise abroad and in Japanese joint ventures with foreign companies. The initiative for any industrial, mininq or fishing venture in Alaska involving Japanese capital is likely to come from one of the trading companies. All of them have offices either in San Francisco or Seattle, and all of them have offices in Vancouver, but none so far has an office in Alaska. It is our impression that the very presence of representatives of these companies in Alaska would be an impetus to trade, because of the present lack of general knowledge of Alaska on the part of Japanese business and because permanent representatives would be able to perceive trade and investment opportunities for their own and their associated firms which would not be apparent from Tokyo to Seattle. Establishment of offices from some of these firms at least seems inevitable, but incentives might be souqht to hasten the event. For instance, State and local agencies in Alaska might search for occasions to buy Japanese machinery, construction materials, etc., through the trading firms, and make a point of informinq these firms through their Seattle or San Francisco offices of forthcoming opportunities to bid on furnishing supplies to these agencies. There would be some additional benefits from an increase in direct Alaska imports of Japanese goods, conducted through the trading companies. The notion of two-way trade seems to play an important role in the attitude of the trading companies toward activity in Alaska. Of course it earns them foreign exchange which assists in financing investment and in financing the Alaska export trade, but we suspect it is even more important psychologically, as a demonstration of Alaska's "seriousness" in desiring trade with Japan. Finally, the prospect of an expansion of direct imports of motor vehicles, industrial machinery, structural steel, pipe, cement, and other heavy items in which Japan is an advanced, low cost producer, would enlist the powerful trading companies in the effort to reduce Conference shipping rates for general merchandise carriage (in effect, the rates of the Kawasaki, or "K," line) between Alaska and Japan 54The 1967 amendment to the Act, requiring consent of local governments for local tax exemption, meets this requirement. 81 The Alaska State Office in Tokyo, and the Need for a Private Trade Association We have been impressed with the importance and the effectiveness of the Tokyo trade and information office. Japanese firms interested in Alaska utilize its services regularly, and the present Acting Director, Yoshio Katsuyama, handles their demands very competently. There are a number of ways, however, in which its effectiveness could be increased and its work supplemented. Operating out of the Office of the Governor, its contact with other State agencies, including the Department of Commerce,the Department of EconomicDevelopment and the latter's Travel Division, have been minimal. Alaska State agencies have in l they t informed of developments in Alaska, or supplied with material necessary to its functioning. The situation improved somewhat in the last months of the Egan administration, when Hubert Gellert, formerly, the Director of the Tokyo office, became Deputy Commissioner of Economic Development; but the improvement in communicationwas a fortuitous one based on personal contact, and was not a result of a considered reorganization or policy decision. The office should remain nominally part of the Office of the Governor for prestige reasons. But we would recommendthe establishment in the State of a Cabinet-level Department of Economic Developmentand International Trade, with jurisdiction over the Tokyo office and with a Deputy Commissioner for International Trade or Japanese affairs who knows the Japanese economyand speaks Japanese, to provide an Alaska counterpart to the Tokyo office. In addition, the latter office needs to be provided with a full library of books and films on Alaska, a complete file of State and Federal documents and publications relevant to Alaska minerals, fisheries, agriculture, mines, commerce, etc., complete sets of U.S.G.S. and U.S.C. &G.S. maps and charts, and the like. A private or semi-official Japan trade association supported by the Alaska business communityshould be organized to supplement the work of the State's agencies in the exchange of information and services. The formation of such an association has been suggested from a number of quarters in the state, but in at least some of the cases, the suggestions look as if they were advanced primarily for the financial or political benefit of the sponsors. To avoid the appearance of this kind of promotion, the initiative should probably come from the State Government on a clearly bipartisan or non-partisan basis, or from the Governor, together with Alaska's Senators and others. Banking in Alaska One of the difficulties in the conduct of international trade or international capital movements involving Alaska is the inadequacy of the existing Alaska banking system in these areas. At present, Alaska banks seem to handle a relatively small proportion of international transactions or industrial financing in the State, and there is little 82 prospect this condition will change. The resources of these banks are narrow enough that they are most profitably employed in financing in real estate development, instalment loans, and local commercial credit. Even if the Alaska banks were of a sufficient scale to do an effective job in international commerceor in the industrial trust business, these fields would probably be an unwise allocation of their funds and efforts. It is difficult to determine just how much the absence of suitable banking facilities directly deters trade and investment in Alaska. But this problem was consistently given as one of the most important reasons that the Japanese trading companies do not establish Alaska offices but instead do their Alaska business through offices in Seattle or Portland or in Vancouver, B.C. The same consideration is also encouraging Japanese is (or will be) mainly in Alaska to es lish headquarters in Seattle rather than in Alaska. Officials of one Tokyo bank have said they would "definitely" establish an Alaska branch if the Alaska banking laws permitted it, as soon as one of the trading companies opened an office in the State. Experience in other states where alien banks operate branches or subsidiaries suggests that Japanese banks in Alaska would not compete with the existing banks in the state for the retail business in which the activity of the latter is concentrated. The same is of course not true for a subsidiary of larger U.S. banks. (For instance, Seattle First National Bank, which even now does substantial amounts of Alaska business out of Seattle.) In the context of Alaska's anticipated economic growth, however, it is improbable that the entry of large Outside banks will diminish the volume of business of the existing Alaska banks.55 From our standpoint, the increase in competition would be only salutary. The difference in scale of assets may be so large, however, that carefully drawn legislation and increased supervision will be necessary to assure continued competition. The problems arising in NewYork from the failure of the Intra Bank (Lebanese), which operated a branch in that state, indicate that legislation permitting branches of alien banks will require more effective protection of domestic depositors and creditors than has been the case in NewYork State under its present l aw.56 Business and Professional Services in Alaska Another deterrent to establishment in Alaska of offices and head quarters for large enterprise is the scarcity of first rate legal, accounting, insurance, engineering, and other consulting services. In 55 See Ernest Kohn, The Future of Small Banks: an Analysis of Their Ability to Compete with Large Banks, Albany: New York State Banking Department, December 1966. 56 see U.S. Congress, Joint Economic Committee, "Foreign Banking in the United States," Economic Policies and Practices, Paper No. 9, Washington 1966, 83 addition, there is a general belief that the professional standards and integrity of many Alaska finns and individuals in these fields are less than adequate. In particular, there seems to be agreement amongboth outside investors and Alaska businessmen themselves that the opportunities to participate in "inside deals" or to use inside infonnation for speculative purposes is often more important to the purveyors of business services in the State than is the desire to offer professional services for professional fees or commissions. This is an aspect of the business climate which is not unique to Alaska; it is probably inevitable in a booming frontier area. An activity like land speculation is unquestionably amongthe most profitable possible allocations of a mixture of personal assets composedof a modest amount of capital, considerable business talent, and some inside infonnation. It would be surprising if Alaska sproporti s o enterpr s oo practice reflected these circumstances. In the behavior of large enterprise based "Outside,1' however, some reluctance to deal with Alaska businessmen is a material fact. At this time, unfortunately, we see no appropriate legislative or administrative remedies.57 SUMMARYAND CONCLUSIONS: STATE AND FEDERAL RESPONSIBILITIES Alaska's economic growth in the foreseeable future will be based upon the extraction or harvesting and the primary processing of crude materials and foodstuffs, and upon the state's scenic and recreational potentials. In both aspects, resource exports and tourism, Alaska's major markets will be the rapidly developing high income areas of the North Pacific rim, above all the West Coast of the United States, and Japan. 58 With increasing population and increasing production per capita in these areas, many of Alaska's underdeveloped or even unknown resources are bound to be developed. This process is now under way with the establishment of new industries based on the state's oil and gas reserves and on its forests. Further development along the same lines is assured, and there seems no danger that Alaska's economic growth will come to a halt, except perhaps as the result of a World War, a major depression in both the United States and Japan, or a wave of protectionist legislation in either country. In the above sense, Alaska is not a depressed area, nor is its recent economic development a fragile plant requiring preferential treatment on the part of the Federal Governmentor massive Federal outlays for its sustained growth. Indeed, the vast natural wealth of the state together with its small population make it likely that Alaska 57 we suggest, however, an investigation of the hypothesis that Federal and State land management agencies and Federal mortgage guarantee agencies are carrying out policies which deliberately or incidentally sustain highly inflated land prices in Alaska. If this proposition is correct, present policies contribute to the diversion of capital and talent toward land speculation as well as to the generally inflated price levels in Alaska. 58 Other significant outlets of the same type may develop within a few years in Hawaii, Mexico, Taiwan, Hong Kong, Singapore, etc. 84 will soon have the richest revenue base per capita of any of the fifty states. At the same time, the growth of population, especially in the Cook Inlet area, should bring to Alaska most of the amenities of urban industrial society and both the efficiencies of scale and the competition which will make these amenities available at reasonable cost. The improvement in transport technology and the expansion of transport scale should also continue to narrow the differential between the cost of living in the developed portions of Alaska and in the rest of the nation. The high standards of living, even in terms of purchasing power, of most Alaskans will make it increasingly difficult to justify special Federal outlays beyond those provided to all the states for Alaska 1 s transportation and communications networks, power, educational system, or its resource development. There are still a number of policy areas in which Federal or State action could facilitate growth or facilitate reduction of living costs; we have pointed these out where they were specially connected with Alaska 1 s economic relationship with Japan. In addition, there are entire industries, such as the ocean fisheries and the mineral industries other than oil and gas, which do not contribute their full potential to Alaska 1 s growth or to the nation 1 s income because of their outmoded structure and organization. The existing organization of these industries is supported by tradition and by the economic and emotional commitments of the people now engaged in them, but in our opinion their development depends upon legal innovations to encourage their reorganization and influx of new capital and new kinds of enterprise. The present path of development of Alaska 1 s economywill reduce its present dependence on two very unstable sources of income, military activity and salmon fishing, and will in general diminish seasonal fluctuations in employment and income. But the growth which can be foreseen as a result of investment in the new resource industries does not offer much hope for reducing the number of Alaskans, either Native or non-Native, who are entirely outside the modern economy, who are tied to declining or seasonal or sporadic industries and occupations, or who are tied to communities left out of Alaska 1 s general economic progress.59 The future of these people depends on deliberate efforts, whether by State or Federal agencies, to improve their education and skills, to widen their horizons and improve their mobility, and to create jobs for them. Just as Alaska 1 s 11take-off to sustained growth11 seems to be assured, the participation of Japanese markets and Japanese capital in 59 Economic growth, no matter how capital intensive or technically sophisticated, will certainly provide some improvement in job opportunities for Natives and other disadvantaged Alaskans. In no way do we want to diminish the importance of encouraging these workers to move into new jobs which are being created, or of encouraging Alaska employers to hire Alaskans. 85 this take-off appears inevitable. We see several benefits and no danger to United States or Alaskan interests in this development. There are measures which might be taken to accelerate Japanese trade and investment, and in general both Alaska and Japan will benefit through increased liberalization of trade and of capital movements.60 But as was the case with the state's growth as a whole, no massive public outlays nor special concessions are justified for the purpose of attracting Japanese capital. Again, there are industries such as fisheries and mining, where Japanese initiative and Japanese capital would play a larger role if the legal environment and structure of these industries were more conducive to their development, but the necessary reforms would also increase their attractiveness to American capital. In general, the prerequisites for increased exports of Alaskan resource products to J for Alas 1 s economic development in general. The measures required for the State or the nation to get the maximumbenefit from Japanese interest in Alaska are likewise the measures which maximize the benefits of Alaska's development in general. 60 one important consequence of Alaska's growing exports, together with its absence of domestic manufactures, is that the state has much to gain and nothing to lose from the freest possible international trade. While most economists believe this is also true for the national economy as a whole, in Alaska's case the argument is overwhelming. Any U.S. tariff or other import restriction can only raise prices to Alaskans, without protecting any Alaskan enterprise or job. At the same time, it may reduce the ability or willingness of countries like Japan to buy or invest in Alaska. Accordingly, we should expect the Alaska Congressional delegation to be among the most consistent opponents of tariffs, "voluntary" or mandatory quotas, export controls, and the like. The one possible exception of this statement concerns the import quota on petroleum, which has probably increased oil exploration effort within Alaska, since Alaskan crudes can be sold behind the U.S. quota wall. Elimination of the quotas now would, however, be unlikely to reduce development or production of Alaska's reserves. 86 PARTII SUMMARYOF CONCLUSIONS AND RECOMMENDATIONS (Abstract of Part I of this study) Japan's EconomicGrowth is Impetus for Imports of Alaska Crude Materials Japan's rapid economic growth has generated a growinq need to import crude materials: mineral fuels, wood and lumber, metallic ores and concentrates, cotton and wool, wheat, soya beans, and livestock and fishery products. The fact that Alaska is a relatively undeveloped potential source of a number of these commodities near to Japan has resulted in a growinq interest in the development of Alaska's resources and import of their products on the part of Japanese industry. In 1966, the major Alaska export to Japan was wood pulp ($24 million), followed by lumber, mostly roughly squared, ($9 million), and fish ($4 million), but present commitmentsguarantee larqe-scale Japanese purchases of, or investment in, petroleum, natural gas and petrochemicals in Alaska. There are prospects of various degrees for Japanese participation in the development of mining for coal and metallic ores, and in production of livestock products. Joint Ventures with U.S. Firms are Expected to be Most CommonForm of Japanese Participation in Alaska's Economy. Central Role is Played by Trading Companies. Several patterns of industrial organization characterize Japanese imports from crude materials producing areas like Alaska, Western Canada, Australia, Southeast Asia, et. al., ranging from simple purchases of products extracted and processe-a-by domestic firms, to ventures totally owned and managed by subsidiaries of Japanese firms. The pattern which is expected to be most commonin Alaska is the joint venture between one or more large Japanese enterprises and one or more American firms. The so-called trading companies usually play the central role in initiating such ventures, and are deeply involved in both the capital and commodity transactions which result. The U.S. and Alaska Gain from Japanese Trade and Investment. No Serious Objections are Seen to Growth of Economic Relationship. Wefound almost no reason to be apprehensive about the impact of Alaska's trade with Japan on United States national interests or on Alaska's development in particular. The export of raw materials to Japan has created employmentwithin the state, revenue for the Federal Government, State Government and local entities, and foreiqn exchanqe earnings. There seems to be no case in the state where Japanese capital has preempted or is in the process of preemptinq opportunities which would otherwise be taken up by domestic enterprise. Nor is there evidence that Japanese nationals have taken siqnificant numbers of jobs which would otherwise be available for Alaskans or United States nationals. Alaska's economic development in qeneral, and with it Japan's contribution 87 to that development, seem to make no direct contribution to solution of the unemployment problems of Alaska Natives and other disadvantaged sections of the population. But the public revenues generated by this growth can be used to improve education and other social servfces assisting these people to cope with a changing economy. Two possible areas of difficulty in existing economic relationships between Alaska and Japan are the controversy over high seas salmon fishing and the existence of a monopolistic (more accurately, monopsonistic) position in the state's forest products exports by one Japanese-owned firm. Outside of a minority of fishing communities, public opinion in Alaska is quite receptive to increasing Japanese involvement in the state's economy. Forest Product Exports Will Continue to Expand. Some Concern is Warranted to Assure Competition i lumber Purchases Japan's demand for forest products is expected to grow much more rapidly than the output of her own forests, resulting in a growing import requirement. Japan is now and will continue to be the customer for most of Alaska's forest output. The prospect is unquestionably for growing shipments of squared logs and large dimension lumber ("cants"), and probably for lumber and pulp chips as well. At present, through its Wrangell subsidiary, the Japanese-owned Alaska Pulp Companyis involved as a major customer and/or creditor of nearly every sawmill in the state, as well as being the owner of a large pulpmill at Sitka and its own sawmill at Wrangell. It is difficult to demonstrate what the economic consequences are of Alaska Pulp Company's domination of the state's timber exports, but the following recommendations are intended to minimize the dangers of monopoly exploitation, without stifling the desirable contribution of the Companyto development of the industry. Recommendationl.a. (See Page 26) We recommend ermi tti n. lo ex ort on a limited proportion 10-15% of timber sales from Southeast Alaska, for the purpose of establishing the competitive free market value of stumpage and logs in the region. Such prices would give the Forest Service and the public a measure of the degree of monopoly power exercised by Wrangell Lumber Company (in its own right or through satellite domestic mills) and a measure of the costs imposed by the primary processing requirement. Recommendationl.b. (See Page 27) We recommendcareful scrutiny and accurate classification of timber exports in the U.S. foreign trade returns. This information should yield the average F.O.B. price of various types of timber products exported from Alaska to Japan, and by comparison with prices of exports from British Columbia and the Pacific Northwest, should be another measure of possible monopsonistic price behavior. Because of misclassification, these returns are now useless for this purpose. 88 Recommendationl.c. (See Pages 27-28) We recommendrepresentation by the State and Federal Governmentto the Japanese Government that the former do not favor the establishment or maintenance in Alaska of exclusive reserves for any companyor group of companies. We recommendpositive efforts to attract Japanese timber firms independent of Alaska Pulp Company into both Southeast Alaska and areas to the westward. Growing Demandfor Protein in Japanese Diet is Creating Gap between Japan's Fishery Consumption and _yatch~~ One Jesponse of_ ,Japanese Fishing Enterprises is Investment in Overseas (Including Alaska) Fisheries and Processing Industries. MaximumBenefit for Both Sides Requires Reorganization of U.S. Fisheries. The improvement of living standards in Japan has produced a steep growth in demandfor animal protein in the Japanese diet. Consumption of poultry, dairy products, and red meat have progressed rapidly, but not as a substitute for fish. Japanese households are spending increasing sums on fish and fish products; in addition industrial fishmeal is in growing demandfor livestock feed. In 1965, Japan's fisheries catch was almost equal to her domestic consumption, but a deficit of about 1.5 million tons is expected by 1970, and of two million tons by 1965. One important strategy of the Japanese fisheries industry to overcome this deficit is to participate in the development of, or otherwise buy into, overseas fishery industries. Someevidence of this approach can be seen already in Alaska, where Japanese firms are engaged in joint ventures in processing and packing with domestic firms. The bulk of Alaska's export to Japan, however, remains a byproduct item of the salmon fishery, salmon roe. Japanese capital, initiative, and technology may offer major opportunities for development of new fisheries based in Alaska. But the present structure of the ocean fisheries is a self destructive one, in which any mature fishery tends to be unprofitable, technically backward and crisis-ridden, wasteful of humanresources, capital, and fish. Measures to overcome these tendencies, whether the industry is to depend on Japanese or domestic enterprise, will require a reorganization of the legal framework and the industrial structure of the fisheries. Recommendation2. (See Page 50) We recommenda comprehensive study of the entire North Pacific fisheries picture leading to a rational regime for their development and utilization, acceptable to the United States, Canada, Japan, and the Soviet Union, and providing for equitable treatment of would-be new entrants into these fisheries. 89 This report proposes in principle a regime which miqht meet these requirements. Our proposal includes: (a) Establishment either by treaty or by unilateral declaration, a United States trusteeship and management zone for fisheries stocks including U.S. territorial waters adjacent to Alaska and the high seas westward to the International Date Line or other suitable demarcation. In this zone, all fishing activity would be subject to U.S. licensing, manaqementand requlation. (b) Equal treatment in the zone of the nationals of all countries recognizinq the trusteeship, including the right to establish shore facilities. The U.S. would reserve the right to require the employmentof U.S. nationals on shore facilities or on operations in its territorial waters. (c) Limitation of fishing effort in each stock to the economic-biological optimumby granting exclusive leases through competitive biddinq. (d) Free trade among the f 'i ) ' ' etc., in the trusteeship zone (of each, assuming a multilateral aqreement). Japan's Growing Energy Requirements Expand Crude Oil Imports. Japanese Industry Wants to Diversify Energy Sources. Japan's interest in developing oil and gas resources abroad proceeds from the rapid growth of energy demand in Japan, which is occurring simultaneously with a shift of energy inputs away from coal toward petroleum and manufactured and natural gases. Imports of crude oil are now heavily dependent on the 11big eight" international oil companies and on Middle Eastern sources of supply, a circumstance which the Japanese feel makes their oil supply both vulnerable to world crises and unnecessarily high-priced. For these reasons, Japanese industry and government circles would like to diversify oil sources by region and political alignment, and to develop supplies with Japanese capital to improve Japan's bargaining position in re1ation to the international oil companies. Another concern turning attention to Alaskan oil exploration is the low sulfur content of Alaska crudes, which reduces the cost of preventing air pollution in Japan's densely populated urban areas; the same consideration is one of the appeals of Alaska natural gas. High Profit Expectations may Induce Sale of Japanese-Developed Alaska Oil in U.S. The market price of crude oil behind the United States quota wall is about half again as high at it is elsewhere in the world, so there can be some doubt about the intention of Japanese enterprise actually to export to Japan all the oil produced in Alaska with Japanese capital; nevertheless, both Alaska Petroleum Development Companyand Maruzen Oil, Ltd. are going ahead with Japanese government support in joint exploration ventures in Alaska with domestic firms. In terms of the exnected cost of discovery of a given volume of reserves, Alaska oil exploration is so attractive to both domestic and Japanese firms that no special action is needed to strengthen exploration incentives. Indeed, even if the industry were subjected to a substantially higher burden of royalties and taxes, Alaska would probably remain an extremely attractive field of operation. We have refrained from making any recommendations on leasing and tax policy, however, because the topic is a large one not central to the objectives of this study. 90 Natural Gas Reserves are AmongAlaska 1 s Most Promising Development Assets, but Benefits are now Limited by Overpricing and Price Discrimination. Japanese demand and potential demand for Alaska natural gas both for energy and as a feedstock for petrochemical operations in Alaska are based on the low cost and purity of the product. As a byproduct of oil exploration, natural gas reserves have no discovery cost, and known reserves in Alaska are growing more rapidly then demand. On these grounds we concluded that natural qas is consistently overpriced in the state, even at the lowest prices (around 15¢ per Mcf) quoted for export or for large industrial users operating in partnership with the oil companies or their subsidiaries. In addition, monopolistic price discrimination results in far higher prices for domestic users in Alaska same i in liq rrn in Japan. A supply of natural gas for energy (industrial and domestic) and for industrial feedstocks at prices approximating its development, lifting and transmission costs, could be one of the biggest single influences reducing the cost of living in the Cook Inlet area and in attracting manufacturing and primary processing activities. We see no danger that the regulation necessary to reduce gas prices and eliminate monopolistic and discriminatory pricing will stifle development of existing gas reserves or of reserves yet to be discovered. Recommendation3. (See Page 62) We recommendproviding the Alaska Public Service Commissionwith the authority, staff, and public support to regulate natural gas prices and pipeline charges, to eliminate price discrimination and to bring prices approximately in line with true incremental costs. State and Federal agencies should have a general commitment to lowering gas prices as an important influence on the cost of living, on industrial growth, and on exports, as opposed for instance to a goal of maximizing revenue from the production tax. Even prior to the establishment of effective regulation, the existing cost, price and profit situation in the industry should be carefully analyzed and widely publicized. Japan 1 s Demandfor Coking Coal is Strong and Growing, but Alaska Supplies are Uncertain. There is an immediate and growing demand in Japan for coking quality coal, but the absence of proved and commercially workable deposits in Alaska makes exports doubtful in the foreseeable future. Japan as Market for Metallic Ores and Concentrates is Basis for Mining Boomin Western Canada. Japan I s need for meta11 i c ores and concentrates, led by iron and copper, is increasing in pace with her industrialization. Primary metal manufactures and trading companies are initiating and financing mineral development, production, and trade in about thirty countries. Of special 91 interest is a Japanese trade and investment boomin the mineral industry of British Columbia and YukonTerritory since these areas share geologic structures with Alaska. The Japanese companies involved there are just as willing to purchase or to invest in Alaska mineral production. Absence of Hardrock Mining and Exports in Alaska Related to Lag in Exploration Activity and to an ObsolescenA Legal Status. The absence of hardrock mining or mineral exports in Alaska is not satisfactorily explained by the state 1 s tax structure, by inadequacies in transport facilities, or even by high costs; accordingly, mineral production probably will not be highly responsive to tax concessions, outlays on road rail or harbor facilities, or prospectinq or production subsidies. The key bottleneck seems to absence of ica mapping and basic survey work, coupled with the existence of an industrial structure, created by mining law, which deters exploration and development efforts on a large enough scale to result in a reasonable probability of ultimate profits. Recommendation4. (See Paqes 69-72) We recommendconsideration of the followin alternative a preaches not necessaril mutuall exclusive to acceleratinq mineral exploration and increasing the scale of exploration and develo ment to attract sufficient ca ital into las as mineral industries: a Changes in State and Federal mining law to ermit lar e exclusive exploration leases. b Heavy public investment in mapping and survey work, coupled with extension of government responsibility to exploration and possibly development, so that workable discoveries are sold or leased to private firms for production; (c) Establishment of an exploration and development corporation, with the State as a major or sole stockholder, committed to systematic exploration in Alaska, either on its own account, or in joint ventures with private capital. The Most Promising Metallic Mineral is Copper, but its Development for Export is Precluded by U.S. Policy. The most intense Japanese interest in the minerals of Northwestern North America concerns copper; copper concentrates are probably Alaska 1 s most promising export potential amongminerals other than mineral fuels. A major obstacle to these exports exists in the application of the Export Control Act of 1949. Exports of copper ores and concentrates have been virtually forbidden, ostensibly to alleviate the domestic copper shortage. On the contrary, this policy seems to be part of a strategy to depress domestic copper prices; its actual result is a deterrent to domestic copper exploration, development and production. As such, the prohibition 92 is an abuse of the legislative authority for export controls and helps defeat its declared goal. It is doubly hannful in Alaska because the low domestic copper price reduces the incentive to produce for the domestic market, while the export prohibition deprives the state of promising markets and capital sources in Japan. Recommendation5. (See Pages 73-74) We recommendremoval of export restrictions on copper, its ores and concentrates. Domestic Livestock Production is not Expected to Meet Japan's Growing Demandfor Meat Products; Japanese Finns ~ve Shown Interest in Alaska Ranch Pos ibiliti Livestock products, in particular beef, mutton and wool, are areas of rapid import growth in Japan, and existing sources at home and in Argentina and NewZealand are expected to be inadequate to meet the increase in demandover the next decade. Japanese meat packers are interested in Alaska's livestock potential, but it is not clear whether or not large scale production is economically feasible in the state. If such a venture is indeed possible, it will probably require large corporate enterprise combining ranching, feedlot, packinq and transport operations. Japanese Tourism to Alaska is Expected to Grow Rapidly, but Absolute Numbersof Tourists Will not be Great for Several Years. Japanese travel abroad is expected to increase at a rate of 10 to 30 percent annually, compoundedover the next decade. Alaska is, however, far down the list of places Japanese want to visit. Nevertheless, very optimistic projections might be made of Japanese tourism to Alaska, assuming the maximumpromotion of the states as a stopover in the course of travel between Japan and the United States or Europe. Several Measures are Seen by Which the State can Improve Economic Climate in Respect to Japanese Trade and Investment. There are a number of aspects in which the state's economic climate, and the services offered in Alaska to exporters and investors, might be improved. The following recommendations, while discussed in detail in Part I of this report, are self-explanatory. Recommendation6.a. (See Pages 78-79) We recommendcontinued efforts on the part of representatives of the United States and of Alaska to persuade the Japanese Government to estab1ish a Consulate in Alaska. Recommendation6.a. (See Page 78) We recommendthat the State prepare a manual, in English and in Japanese, on doing business in 93 Alaska, including a summaryof State and Federal laws with which foreign investors are likely to be concerned, an outline of Federal, State and local taxes, and a discussion of those points in which American business practices differ substantially from those in Japan. Recommendation6.c. (See Page 78) We recommendestablishment at the University of Alaska of a special program of courses for Japanese businessmen and technical personnel, including intensive study of English, instruction in Amerkan business practices, busfr,ess "law, administrative procedures and in Alaskan resources. Recommendation6.d. (See Page 81) We recommendspecial attention on the part of state agencies to possible opportunities to purchase supplies and equipment from Japan, in order to give the trading companies increased incentive to establish offices in Alaska, and to demonstrate the State's commitmentto reciprocal trade. Recommendation6.e. (See Page 82) We recommendincreased use of the Alaska State Office in Tokyo by state agencies, its formal retention in the office of the Governor, and its de facto integration into a cabinet-level Department of EconomicDevelopment and International Trade, with a Deputy Commissionereither for International Trade or for Japanese affairs. Recommendation6.f. (See Page 82) We recommendthe establishment of a private or quasi-official Japan trade association or Alaska Japan society, supported by the Alaska business community. Recommendation6.g. (See Pages 80-81) We recommendamendment of the Alaska Industrial Incentive Act to reduce uncertainty and the latitude of administrative discretion, and to protect the fiscal interests of local governments. 94 Recommendation7. (See Page 83) We recommendprov1s1on in Alaska banking law for, and administrative encouragement of, establishment in the state of subsidiaries of out-of-state banks, and branches of alien (Japanese and Canadian) banks. Alaska's Growth and Export Trade Seem Assured; State's Prospect of Fiscal Self-Sufficiency Reduces Justification for Preferential Federal Outlays. On the whole, Alaska's economy, based on its resource industries, ng " g p for continued growth are excellent. The benefits of this development will not be distributed evenly amongAlaska communities, occupations, or population groups, and these imbalances will require a high level of social services. But the state's overall revenue position per capita should be amongthe strongest of all the states. There are a number of measures which might be taken to increase the rate of growth of the state's economyas a whole, or of its international trade sector in particular, or which might be taken to improve the distribution of benefits from this growth. But none of the findings of this study point to the necessity of preferential Federal treatment for Alaska or for massive programs of Federal expenditures outside of those provided to all the states. 95 PARTIII JAPANESECOMPANIES IN ALASKA Hubert J. Gellert INTRODUCTION Alaska is unique among all the states in being the site of Japanese financed industrial ventures: with the sale of a Japanese-owned plastics factory in Pennsylvania to American interests, Alaska is the only state where manufacturing financed to a major degree by Japanese capital is pl . eq capi pa cipation by Japanese concerns are now present in Alaska: Alaska Lumber and Pulp Company,Wrangell LumberCompany, Western Alaska Enterprises, Inc., Pacific-Alaska Fisheries, Inc., Orea Pacific Packing Co., Inc., Alaskco, Inc., and Japan Gas-Chemical Co., Ltd. The latter two are organ ized, but not yet operating. This section will examine the creation of the existing Japanese-financed concerns, their organization and operations, and their relations with government agencies in Alaska. A proposed wood chip mill, which was planned at lenqth but recently dropped, will also be covered. ALASKALUMBER AND PULP COMPANY Organization and Operations Alaska Lumberand Pulp Company,Inc. was incorporated as an Alaskan corporation on December10, 1953, with authorized capital of $1,000,000 and paid-up capital of $25,000. The entire amount of ALP's capital was provided by Alaska Pulp Company,Ltd. of Tokyo, which had been incorporated in August of the same year with authorized capital of $4,166,667 and paid-up capital of $1,041,667, of which approximately 60%was provided by fifteen chemical fiber manufacturing companies, 21% by trading companies, and 13%by pulp and paper companies. Whenthe mill was built, the Alaskan subsidiary's capital was increased to $8,500,000 through sale of stock to the parent company. Included in the fifteen chemical fiber manufacturing companies are all of the major rayon-producing companies in Japan. With the exception of one American director, all the directors of Alaska Lumberand Pulp Companyare also officers of the parent company. The Alaska Lumberand Pulp Companymill at Sitka was completed in November1959 at a cost of approximately $66,100,000, more than $10 million above the $55,500,000 estimated construction cost. Of the money required, $12 million came from first mortgage sinking fund bonds sold to two insurance companies and the General Electric Pension Fund and secured by liens on real property, equipment, and certain permits and agreements. The bonds are due in 1976 and are guaranteed by the Export Import Bank of Japan. Seven million dollars was raised through the sale 1 As of the time of writing, a Japanese financed aluminum plant is now planned in Oregon. 97 in the United States of Senior Serial Notes finally due at the beginning of 1966. The notes were taken over by the Export-Import Bank of Japan in 1964. The largest share of the funds for the mill--approximately $40 million--came from the sale of Junior Notes, which are subordinated to the bonds and Senior Notes, to Alaska Pulp Company, the parent of Alaska Lumber and Pulp Company. Alaska Pulp Companywas in turn financed in the amount of $47.5 million by the Export-Import Bank of Japan, the Long-Term Credit Bank of J)pan, and Japanese commercial banks. One-half of the Junior Notes were capitalized in 1964 when the paid-in capital of Alaska Pulp Companywas increased to approximately $20 million. The Alaska Lumber and Pulp Companymill was desiqned to produce 340 air dry tons per day of 93% alpha dissolving pulp by the magnesium sulphite process suitable for rayon textile bers, as well as higher alpha content pulp for other types of rayon fibers, lower alpha pulp for cellophane, and paper-grade pulp. After an estimated 2.5 million dollars worth of improvements, production capacity was raised to 560 tons of dissolving pulp a day in 1963. Production and sales data from 1960 through 1963 are shown in the following table. Production Sales 1960 (April 1960-March 1961) 115,000 ST $16,417,000 1961 (April 1961-March 1962) 130,000 19,355,000 1962 (April 1962-March 1963) 119,000 17,274,000 1963 (April 1963-March 1964) 116,000 20,412,000 Companyofficials estimated that the company is now producing 180,000 short tons of pulp a year and that about 16%of the output is paper pulp. Sales in the April 1966-March 1967 fiscal year are estimated at $24.7 million. Of the 180,000 short tons shipped last year, all but 20,000 short tons were shipped to Japan, where they were marketed through Alaska Pulp Company. The bulk of the 20,000 short tons was marketed in the continental United States. The company's shipments to Japan travel mostly by two specialized carriers, the 10,700 metric ton "SITKAMARU, 11 which is a pulp carrier, and the 14,000 metric ton "WRANGELLMARU, 11 which is a lumber and pulp ship. Most of the chemicals and other supplies come to the mill from the continental United States by a 3,800 short-ton capacity barge of the Griffith Tug and Barge Company. The barge carries rail cars. and is able to carry pulp bound for the continental United States on the return trips. Most of the mill's log supply is towed to Sitka in log rafts. ALP also uses a log barge of l ,000,000 board feet capacity to bring material from as far away as the Yakutat area. 98 In addition to its primary manufacturing activities, Alaska Lumber and Pulp Companyprovides housing and a store for its employees. ALP invested in an advance to its housing subsidiary of about $1 million, which has been included in the cost of the pulp mill project for amortization. The Silver Bay Store is operated separately by the company and not included in the mill operation. The Creation of Alaska Lumberand Pulp Company At the end of the Second World War, Japan was faced with a critical situation in obtaining timber supplies. Her forests had been overcut during the war and were grossly inadequate to meet the demands of recon struction as well as expanding demandby pulp mills. The Japanese timber try hed I Forest Resources to study the world-wide avai ability of wood supplies. A ready supply of hard woods appeared to be available from the Philippines and other countries of southeast Asia, but the only soft woods at a reasonable distance from Japan were on the northwest coast of the United States and Canada, Sakhalin and the Maritime Provinces of Siberia, and Alaska. With the rapidly expanding pulp industry of the northwestern United States and Canada and a difficult political situation with Russia at that time, Alaska seemed the best alternative. In 1951, the Council for Forest Resources Counter-Measures approached the Supreme Commander,Allied Powers in Tokyo to inquire as to whether it would be possible for Japanese industry to import timber from National Forests in Alaska. The Council received an affirmative answer the following year, and in September 1952 a mission headed by Mr. Junichiro Kobayashi, chairman of the Council, went to Washington and Alaska. With the Ketchikan and Juneau Working Circles at that time committed to other industries, the Sitka Working Circle was the focus of Japanese interest from the inception of the Alaska Lumberand Pulp Companyproject. However, the form of the project changed considerably during the planning stage. The Council first proposed a free port in Alaska to which logs from the Tongass National Forest cut by Japanese would be sent for shipment to mills in Japan. After the mission in 1952, the Japanese realized the Forest Service policy of requiring primary manufacture for timber from Alaskan National Forests would prevent log export. For lumber, the regulations for export in effect at that time required average widths and thicknesses no greater than average widths and thicknesses manufactured by existing industry in southeast Alaska. The regulation also required the manufacture of pulp rather than merely chip manufacture. The concept of the Alaska project now changed to manufacturing units. In June 1953 a meeting of Japanese government agencies and private firms were held by the Forest Counter-Measures Council. The principal result of the meeting was a plan for raising $40.2 million from Japane~e companies and the Export-Import Bank of Japan, of which $12 million would be put into a joint venture with an American companywhich would be expected to contribute $3 million. The new companywould be expected to borrow $30 million from banks in the United States to start a sawmill 99 operation by the end of 1953. A pulp mill of 100,000 tons per year capacity would be started in the second year of operation. Alaska Pulp Companywas formally incorporated August 15, 1953, on the basis of these plans. It seems, however, that no discussions about a joint venture were even held with American concerns. Alaska Lumber and Pulp Companywas incorporated in Juneau shortly before the end of the year, and plans proceeded for an entirely Japanese-owned project. Through 1953 and early 1954, the Alaska Pulp Companystudied the possibility of buying a sawmill located at Sitka from the Columbia Lumber Companyat Sitka in addition to building another sawmill at Sitka. The application made by the companyto the Forest Service for a timber sale in May 1954 stated that the companyintended to operate the existing 11 60 000 successful in acquiring mill and that a new sawmill would be built at Sawmill Creek at Sitka with a production capacity of 150,000 board feet per day. The idea was that the pulp mill to be built later would use the chips from the sawmills. However, an American Company,Alaska Industrial Corporation, which had been interested in starting a pulp mill at Sitka, acquired an option on the Columbia LumberCompany sawmill, and in June of 1954, Alaska Pulp Companyobtained a five-year lease on the sawmill of Alaska-Wrangell Mills, Inc. at Wrangell. A Washington corporation, Wrangell LumberCompany, was set up as a subsidiary of Alaska Lumber and Pulp Companyto operate the Wrangell mill. (The following section discusses Wrangell Lumber Company.) The Forest Service opened the bids for the Sitka pulp mill timber allotment on January 25, 1956, and Alaska Lumberand Pulp Companywas the only bidder. The allotment included all of Baranof Island and a narrow strip of Chichagof Island along Peril Strait. The contract for the timber also provided that if the economically available supply in the allotment did not amount to 5-1/4 billion board feet, additional timber would be made available from the balance of Chichagof Island or Kuiu Island at the discretion of the Forest Service. The amount of economically available timber has been a source of friction between the companyand the Forest Service ever since. Government and ALP This section will focus on the relations between Alaska Lumberand Pulp Companyand government agencies, as the company's dealings with private business firms in Alaska have been very limited. The only contacts with Alaska-connected industrial firms appear to have been with Alaska Industrial Corporation, which was headquartered in NewYork and interested in pulp mill possibilities at Sitka. At the suggestion of the Forest Service, representatives of the group planning the ALPproject did hold discussions with Alaska Industrial Corporation concerning obtaining studies of the Sitka area. These discussions came to an end in early 1954, shortly before the creation of Wrangell LumberCompany. Despite the interest in a joint venture with an American company, it appears that no discussions were ever held for this purpose. At present, ALPobtains trade finance from an Alaska bank. 100 The American pulp industry formally opposed a Japanese-owned mill exporting pulp from Alaska. In December 1953, the American Paper and Pulp Association put out a statement'.entitled Position of the American Paper and Pulp Association with Respect to the Sale of Publicly-Owned Forest Resources in Alaska to Foreign Interests. The thrust of the Association's position was that there was already an over supply of dissolving wood pulp on the world market and that the proposed project was therefore economically unsound. The paper goes on to say that existing pulp producers in North America are able to meet the needs of Japan through long-term contracts. Opposition was also expressed by Senators and Representatives from the Northwest who were eager to protect Alaska's timber for mills in their area, as well as from southern legislators who were against aiding rayon in a prime foreign market for cotton Most of the contacts by the Japanese in connection with the Sitka mill have been with the Forest Service. During the planning stage, the Forest Service appears to have shaped the pro.iect in two important ways. The timber export policy caused the Japanese to abandon plans to export logs from Alaska early in the game. United States immiqration policy also caused them to quickly give up ideas of bringing any Japanese other than technicians to work in the mill. In addition, the Forest Service from the start discussed only the Sitka area as a source of timber, and the Japanese seemingly had already selected this part of southeast Alaska as their principal source of timber supply. The Forest Service advised the companyduring the planning process on the preparation necessary for requesting a timber sale. The idea of a competitive sale appeared to pose no difficulties for the Japanese, possibly because it was clear that they were the only party interested in a major sale in the Sitka area. The Forest Service recommendedthree principal steps to prepare for bidding on the timber: (l) preliminary investigation as to whether the project would be feasible; (2) preliminary discussion with the Forest Service concerninq timber that would fit together to make up a sale and conditions under which the Forest Service would agree to advertise the timber; (3) preparation of a detailed development plan. From 1953, when these steps were outlined, throuqh 1955, Alaska Lumber and Pulp Companycompleted its inventory of the first ten years' cut area in mid-1955, performed preliminary engineering work for the pulp mill, and discussed with the Forest Service the tentative sale area. The Forest Service also cruised the sale area to assure a 50-year supply of timber for a major pulp mill and sawmill. The contract between Alaska Lumber and Pulp Companyand the Forest Service gave the companycutting rights on 5-1/4 billion board feet from the mandatory completion date of the mill, December31, 1961, to 2011. The contract was unique in that the Forest Service guaranteed a certain amount of timber with the provision that if it were not available within the allotment, it would be provided from other areas. The contract provided for an initial operating period up to June 30, 1971, during which there would be no redetermination by the Forest Service of stumpage rates and deposits for the timber. 101 A mill utilizing an average 150 million board feet a year during the initial operating period was required. An additional requirement was that 70% of the mill's supply, or 105 million board feet a year, would come from the contract area. As a protection to the company, provisions were made in the contract to include only timber meeting current standards for economic operation.2 The contract stipulations concerning the cut from the company's allotment became a major source of conflict shortly after the signing of the contract in October 1957 and have continued to plague relations between ALPand the Forest Service. In July 1958, the companyrequested a three-year waiver of the 70% requirement; this was granted subject to annual review, and the companycontinued efforts to permanently reduce 70% i 1 i 1962 t it 1 t $8 million since the beginning of operations in November1959 through the end of March 1962 and that it was able to continue operating only because its Japanese creditors had forgiven interest payments. Cited as causes for the loss were: (1) actual construction cost of the mill, which was approximately $10.6 million above the estimate; (2) the depressed rayon pulp market in Japan; and (3) the excessive cost of logs. In studies of the initial operating area, the company's foresters and consultants had estimated a log cost of $35 per thousand board feet at the mill. The companyclaimed, however, that the cost of logs was approximately $56 per thousand, with logs from the Blue Lake area, costing nearly $59 per thousand. These were costs which applied to company logging operations, and although the cost of logs supplied by contract loggers was considerably below the companylog cost, the average cost was still far above the estimate. ALPclaimed that their more recent inventory found that the economically feasible timber volume in the allotment was only about one-tenth of the 5-1/4 billion board feet estimated by the Forest Service. This was the company's justification for purchasing a higher percentage of logs from outside the allotment than allowed in the contract. The Forest Service wanted to pursue a long-term policy of upholding the contract cutting requirement basically for reasons of economic balance in southeastern Alaska. It has feared a forest economytightly controlled by a few large companies to the detriment of small operators relying on independent sales resulting from large mills' supporting logging companies in bidding on timber sales outside the large mills' allotments in return for a commitmentto supply them exclusively. 2 see North Tongass Logging Engineering Study--Peril Straits Block--1962. The results of this study indicated that it was reasonable to expect that ALP could log the one billion fifty million board feet in their allotment during the first ten years of operation, as required by the contract. 102 The Forest Service attacked ALP's contention that it had to purchase cheaper logs to survive. In a 1962 report, the Forest Service took the position that if Alaska Lumberand Pulp Company's financial structure were made comparable to the other major pulp mill in Alaska, Ketchikan Pulp Company,ALP would have made a profit before interest of about 2% on total investment in fiscal year 1962. The report pointed to ALP's high interest load and the managementfee paid to the parent company- $600,000 in 1962--as principal causes of the company's loss. The Forest Service report of 1962 further indicated that ALP's log cost was very close to that of Ketchikan Pulp Companyand was in fact lower in fiscal 1962, largely due to a three-month strike of loqgers at Ketchikan Pulp Company. The Forest Service also pointed out that the depres market p after the beginning of 1965. At that time, the parent companywas obligated to buy the pulp at cost plus 20%, pursuant to the pulp sale agreement executed at the time of the bond indenture. In 1964, however, the Forest Service did allow the reduction of the 70%requirement to 51%during the balance of the ten-year initial operating period for two reasons: (1) a large independent cut of about 140 million board feet a year was being taken from the Tongass National Forest, and enforcement of the 70%provision could reduce the market for the independent operators and (2) the Ketchikan Pulp Companyrequirement was reduced in 1961 from 75%to 58%. The dispute between the companyand the Forest Service is still continuing despite the reduction, with the companycontinuing to press for a greater percentage of its timber requirements from outside the allotment. A joint inventory of the allotment by the Forest Service and companyforesters has been suggested, but the Forest Service has not had sufficient funds to carry it out. The inventory would appear to present a possibility for settling the controversy, especially if foresters not affiliated with the companyor the Forest Service were added. A more effective step against domination of Southeast Alaska's timber by a few large concerns might be to allow the Forest Service to require new mills based on timber sales where interest indicated the possibility of mills. The Service has felt it lacked such authority, except in the case of very large sales such as for pulp mills. The Forest Service has now reversed its judgment that it could not require new mills. Under the Secretary of Agriculture's Regulation S-3, a mi11 requirement in timber sales is a 11owed "when necessary to promote better utilization of national forest timber. . " A controversy has developed over the use of this authority centered on the ability of the Forest Service to name specific communities for location of plants. It is the view of HowardJohnson, the Regional Forester, that the entire Tongass Forest area is esentially one mar keting area, and industry must be allowed maximumlatitude to analyze the economics of plant establishment without restriction. To do other· wise would place burdensome limitations beyond those imposed by a pioneering timber economy. Another major concern is that Alaskan timber contains a large proportion, probably about 50%, of low-quality 103 log volume. To date there has been no economic product other than pulp for which this portion of the timber is suited. For this reason, a requirement to establish a plant has not met with any great favor with the industry. There have been requests to deny the established pulp companies an opportunity to bid on moderate-sized sale offerings, but with the understanding that the companies would continue to provide a market for low-quality logs under the primary manufacture policy, but the Forest Service has been reluctant, due to the obvious inequity of such proposals. Alaska Lumberand Pulp Companyhas had more limited contact with city and State governments. In order to provide \vater for the mi11, ALPput up $2.2 million of the $6 million required to construct the Blue generating equ·Jpment, ss ion I i nes, and water system that supply both the mill and the City of Sitka. The city operates the dam and the electric and water systems, with the company paying $200,000 annually for water until 1962 and $100,000 a year after that. The companyhas also been buying about 6 million kilowatt hours of electric power a year from the city in recent years out of a total mill demandof 125 million kilowatt hours, but the city wants to stop serving the mill, and ALPinstalled a new generator to supply all its power needs in 1967. At the request of the International Pulp and Sulphite Workers Union local which represents the workers in the mill, Alaska Lumberand Pulp Companystarted a store soon after the mill began operating. Products are brought to Sitka by barge and sold at about 10%more than the landed cost, which makes the average price an estimated 25%less than comparable goods in Sitka stores. Sitka merchants protested the creation of the Silver Bay Store and have recently renewed their protests, linking it with the company's exemption from State and local taxes. The company received the tax exemption for ten years starting in 1960 under the Alaska Industrial Incentive Act of 1957. Fiscal 1962 marked the first annual payment to the City of Sitka of $72,000 in lieu of taxes to cover school costs. WRANGELLLUMBER COMPANY Wrangell LumberCompany was incorporated in Washington State in July, 1954 as an ALPsubsidiary. In October 1963, it became the parent, probably for tax reasons in view of its profits and ALP's stated losses. As stated above, entering the sawmill business in Alaska was one of the original objects of the Japanese group that orqanized Alaska Pulp Company. According to executives of the company, another important purpose of starting Wrangell LumberCompany was to acquire experience in doing business in America. Wrangell LumberCompany leased the mill at Wrangell from Alaska Wrangell Mills, Inc., whose principal stockholder was C. T. Takahashi, a leading Seattle trader. The initial lease was for five years, and 104 after several short-term renewals, an agreement was reached in 1966 for the period until 1981, with provision for cancellation with one year's notice after 1971. Wrangell LumberCompany reportedly encountered several problems in its early years and lost money. Efforts to sell its product, Sitka spruce cants and flitches, to Japan proved difficult because the market there was unfamiliar with them, and efforts were made to sell in the continental United States as well as in Japan. Japanese shipping lines were short of tonnage and were reluctant to bring ships into the unknown waters of Alaska. The difficulty in retaining a stable labor force also plagued the companyin its first years of operation. Among i was stevedoring. Initially, a great deal of time was necessary to load the lumber. The companyestimates that the cost of stevedoring was $13 per thousand board feet. The present cost is $7 per thousand board feet for freighters and $5 for special lumber carriers. The reduction in the cost of loading freighters was achieved mainly through loading all the lumber of one size at a time, instead of loading by grade. The output of Wrangell Lumber Companyhas increased from 7 million board feet of cants and flitches in its first year of operation to 64 million board feet in 1966. A number of changes in the mill's machinery are responsible for the increase, together with increased working hours and better shipping. The log pond has been expanded, a new log carriage and edger have been installed, the conveyor system improved, and a larger trimmer put in. In 1966, the mill operated fifty hours a week for fifty weeks, with two weeks off for maintenance. The mill employs fifty persons on the machines plus twelve in the office, of whomthree are Japanese managers. About half the mill's output is taken to Japan by three special lumber carriers with a capacity of 5 to 6 million board feet each. The lumber carriers introduced significant shipping economies, reducing the freight costs by about 10%under those of ordinary freighters and reducing longshore costs as cited previously. Wrangell LumberCompany is the main market for every sawmill in southeast Alaska. In 1966, the bulk of its exports came not from its own Wrangell mill, but from two mills at Haines and one each at Ketchikan, Sitka and Petersburg. Shipments in 1967 are expected to be in the vicinity of 240 million board feet, cant scale, compared with 179 million the previous year. The heavy reliance on purchased lumber for much of Wrangell Lumber Company's exports may create a problem for the companyin the future. Newspecialized carriers are normally built under a Japanese government shipbuilding program which requires a ten-year loading guarantee. The loading guarantee, in turn, will require Wrangell Lumber Companyto make ten-year contracts with suppliers in Alaska. There is some concern that the suppliers may be unwilling to make contracts of more than one year, which is the present practice. 105 Although Wrangell LumberCompany finances loggers, it does not hold nearly as extensive Forest Service timber rights as ALP. Therefore, its involvement with government agencies has not been as intense as that of Alaska Lumberand Pulp Company. The companydoes appear to be concerned that its controlling position in exporting spruce cants might lead to some government action. In addition, Wrangell LumberCompany has taken over several sales from defunct loggers, and they have also purchased small sales near Yakutat and Wrangell, as well as the 264 million board feet Kake sale in joint venture with Mitkof Lumber Companyof Petersburg. More immediately, the companyand ALPare strongly against any loosening of the State's log export policy on the grounds that it would increase stumpage in southeast Alaska and make for a more unstable labor market, even if it only applied to areas in the westward. On the part of the Forest Service, the principal connection with Wrangell LumberCompany has been an effort to secure costs and market prices of its products in order to charge proper stumpage. This has been only partially successful since the companydoes not release the market price or costs after the lumber leaves the mill. The Forest Service is now trying to appraise the value of timber sent to the Japanese market in order to establish an accurate dockside price in Alaska. Wrangell LumberCompany last year foiled the Forest Service policy of having an additional mill at Petersburg. The Forest Service put up the 250 million board feet Hamilton Bay sale and created considerable interest amongveneer producers in the Pacific Northwest. However, the companysupported the existing Petersburg mill in outbidding the other companies interested in putting a new mill in Petersburg, and it will reportedly now receive hemlock cants from the existing mill. A possible approach to meeting the desires of the Forest Service and the people of Petersburg to have another mill may be the same as stated previously, that is, for the Forest Service to require construction of a mill in the timber sale contract; but even this procedure would not guarantee that the sale would not ultimately be to a satellite of Wrangell LumberCompany. FISHERIESOPERATIONS To a large extent, the Japanese presence in the fisheries industry 11 11 is Americanized , with much of their activity taking place in the form of joint ventures in which the controlling interest is held by American companies. Therefore, the involvement of the joint ventures with govern ment agencies has been largely the same as purely American companies in the fisheries industry. TwoJapanese fisheries companies--Taiyo Fisheries Companyand Nichiro Fisheries Company--are active in Alaska; the former is longer established and more widespread. The presence of Taiyo in Alaska appears to have started with the visit of one of the company's senior executives in 1961. He developed the concept of using products regarded as waste in the Alaskan fisheries industry for export to Japan. 106 In April 1962, Governor Egan ordered the arrest of a Japanese boat fishing in Shelikof Strait, which was alleged to be Alaskan waters closed to foreign fishermen. The boat belonged to Taiyo, and the companylost $300,000 - $400,000 because the whole operation in that area had to be abandoned. Governor Egan was invited to Japan the following year by the President of Alaska Pulp Companyand conferred with representatives of the Japanese fishing industry, amongthem President Nakabe of Taiyo. Nakabe expressed interest in getting into Alaskan fisheries on a more secure basis than distant fleet operations. Governor Egan invited Taiyo and other Japanese fishing companies to enter Alaska with shore based plants. Western Alaska Enterprises, Inc. After a public relations campaign to smooth the feelings of some Alaskans in coastal cities against Japanese fisheries, Western Alaska Enterprises was incorporated in July 1963 as a 100 percent subsidiary of Taiyo (California), a wholly-owned subsidia~y of the main company in Tokyo. Western Alaska Enterprises began with small purchases of salmon roe from processors in Kodiak and Cordova. The companyprovided the tables and other equipment to be put between the head cutter and the 11iron chink 11 at a cost of $2,000 to $80,000 depending on the quantity of roe produced. In the first year, Western Alaska Enterprises produced only $60,000 worth of salmon roe, herring roe, and herring roe on kelp. Several technical and market problems arose. More time elapsed between catching and processing Alaska salmon than the salmon caught by Japanese fishermen, and the roe was not as fresh. Also, Alaskan salmon were more mature than those caught on the high seas; they consequently had bigger eggs, and the membranessurrounding the eggs were harder. Alaskan fisher men had to be urged to bring their catches to shore more quickly, and the Japanese technicians at the processing plants had to adopt new techniques. The Japanese market was not familiar with the herring roe on kelp, and it was hard to sell the first year. Since then it has become accepted, and there is trouble supplying the demandwith both British Columbia and Alaska as suppliers. The succeeding years have seen considerable expansion in the operations of Western Alaska Enterprises. Sales rose to $1. 3 million in 1964, spurred mainly by Governor Egan's invitation to Japanese fishing companies to purchase unprocessed pink salmon directly from American fishermen in Prince William Sound. The Japanese boats were called in with the full cooperation of Federal and State agencies because the canneries and cannery workers could not reach agreement in wage nego tiations and there was danger of losing the salmon run. Western Alaska Enterprises purchased and exported to Japan about one-half of the total 6,000 tons purchased by Japanese concerns. In addition, the company expanded its salmon roe purchasing activities to the Pacific-American Fisheries Companycannery at King Cove on the.Alaska Peninsula and the Nakat Packing Companyplant near Craig. The following year, Western Alaska Enterprises expanded its salmon and herring roe activities and also purchased approximately 70 tons of king salmon from the Kuskokwim 107 River area for sale in the United States. 1966 was the most active year for the company, with sales reaching $1.7 million. Japanese ships were called in to handle an unexpectedly large run of pink salmon in Cook Inlet, but this was not a profitable enterprise, as the peak of the run had passed by the time the ships arrived. Western Alaska Enterprises also purchased an experimental shipment of halibut from Cook Inlet for Japan and silver salmon from the same area which was exported to London. Last year marked the first year of importing goods from Japan to Alaska. About $5,000 worth of nets and ropes were sold to the State Department of Fish and Gameand 120 tons of frozen octopus were brought in for halibut bait. JO t enterpr started last year. One involved the charter of a freezer ship for which approximately 300 tons of salmon were purchased from local fishermen in 1966. The other began with the processing of king crab and shrimp. Between 200,000 and 300,000 pounds of king crab were purchased up to March of this year for shipment to the United States, and a small amount of shrimp was purchased last year for export to Japan. Just at the time the shrimp reached the Japanese market, however, shrimp taken by the Russians from the Shumagin Islands also arrived. The Russians sold the Shumagin shrimp of better quality at a lower price, and Taiyo suspended its imports of Alaskan shrimp. Western Alaska Enterprises will expand its processing joint venture operation in Kodiak this year. A new corporation was started this Janu ary with a paid-in capital of $50,000, 60 percent from the American side and 40 percent from Western Alaska Enterprises, with Western Alaska Enterprises arranging for the necessary loans. A plant costing over $1 million will be built in Kodiak to process salmon, crab and shrimp. The salmon will be exported to the United States and Japan, the shrimp mostly to Europe, with some to Japan, and the crab mostly to the United States. The addition of salmon roe processing to each of the seven canner ies tied up with Western Alaska Enterprises has meant an estimated 10 to 25 additional workers. In addition, 3 or 4 Japanese technicians and a Japanese superintendent are present to supervise the roe-taking at each cannery. Last year, American technicians were trained under a grant from the Department of Labor, and some Japanese have been replaced. Western Alaska Enterprises ships its products directly from proces sing plant by Taiyo boats diverted from the high seas, chartered freighters, and Taiyo freighters on their return trip to Japan after bringing processed fish to the West Coast of the United States. Almost all the boxes and salt used in the salmon roe processing for which Western Alaska Enter prises has responsibility are brought up from Seattle. Western Alaska Enterprises' financing is arranged through an Alaska bank, the Seattle agency of a major Japanese bank, and the branch of the Japanese bank in Portland. A peak of about $1 million in short-term 108 trade loans has been borrowed; half and half from the Alaska bank and the Seattle agency. Since the Seattle agency is not allowed to receive deposits but only loans and foreign exchange, deposits are kept at the Portland branch, as well as at the Alaska bank. For the new Kodiak venture, money is being obtained from banks in Japan and an Alaska bank. Pacific Alaska Fisheries Company Pacific Alaska Fisheries Companyis a joint venture between Taiyo Fisheries Companyand Peter Pan Fisheries, Inc. of Seattle, with Peter Pan owning 51 percent of the $200,000 capital and the Japanese company owning 49 percent. The joint venture owns canneries at Scow Harbor and King Cove on the Alaska Peninsula and at Dillingham in Bristol Bay. The first of ons 1965 s ucces 1 c; of the organizers, because of the exceptionally good year in Bristol Bay. Canned salmon production reached 250,000 cases (48 one-pound cans to a case), and other products included 100,000 cases of canned crab (48 eight ounce cans to a case), and 700,000 pounds of frozen crab. The sales forecast was $6 million and actual sales were a little over $10 million. Net profit was $700,000 as against an expected $200,000. Last year's produc tion was not nearly as good, as Bristol Bay fishing suffered a sharp decline. The products of Pacific Alaska Fisheries are sold mainly in the United States. Orea Pacific Packing Company,Inc. In 1966, negotiations were completed for a joint venture cannery in Prince William Sound at Orea Inlet near Cordova. The companyis capitalized at $1 million, with 50 percent from NewEngland Fish Com pany, 30 percent from Nichiro Fisheries Company,one of Japan's major fishing companies, and 20 percent from Mitsubishi Trading Company. The first year of operation in 1966 probably was not very successful, as Prince William Sound had a poor fishing season. Future production of salmon is somewhat in doubt due to the effects of the 1964 earthquake, and the companyis now actively studying other products. Most of the pack of pink salmon is sold in the United States. Policy Considerations The reasons for Japanese fisheries companies getting into Alaskan processing probably included consideration of the resource and restric tions under international agreements and state regulations. Clearly, the Japanese companies were attracted by the rich salmon resources of Bristol Bay and central Alaska where their ships were excluded by the International North Pacific Fisheries Convention, which forbids Japanese salmon fishing east of 175° west longitude. The relative economics of high seas and shore-based fishing might have been an additional impetus for the entry of Japanese firms into Alaskan ventures. Although national and state policies concerning foreign participa tion in Alaska's fishing are covered in detail elsewhere in this study, 109 a brief description of some of the major guidelines is necessary to understand the Japanese entry. State regulations require primary pro cessing of salmon before export. (Primary processing is defined as evisceration and freezing.) As mentioned previously, these regulations can be waived to allow emergency exports of unprocessed salmon. The State also allowed sales of unprocessed salmon to Japanese ships that came into Arctic Alaskan waters last autumn and intends to continue this policy. The justification is that processors in that area close down after the summerseason. Federal regulations allow sale of unpro cessed salmon within territorial waters, but not outside. State law (Chapter 33, Session Laws of Alaska, 1962) prohibits of live ki and dungeness crab, making processing in Alaska At present, no state or federal regulation specifically prevents export of unprocessed shrimp although Customs regulations would have to be observed. Someshrimp are now being exported after quick cooking, without being shelled or subjected to other processing. The State has changed its policy toward herring to facilitate the taking and processing of sac roe, most of which is under Japanese auspices. Previously, the requirement of full carcass utilization curtailed the roe industry. But this has recently been changed to per mit discarding the female herring carcass. Other American regulations applying to fisheries made joint ventures with American companies look attractive. Two restrictions often men tioned are those applying to boat ownership and operation of radios by foreign fishing companies in the United States. Fishing companies with more than 25 percent of their capital owned by foreign concerns cannot own fishing boats or mortgages arising from the sale of fishing boats. Pacific Alaska Fisheries solves this problem by leasing boats from a leasing company. NewEngland Fish Companyfinances vessels for Orea Pacific. Joint ventures would make financing plant facilities as well as boats from American sources easier. Radio licenses cannot be qranted to fishing companies with more than 20 percent foreign capital~ The Japanese companies also wanted American partners to overcome the bad feelings of the Alaskan fishermen towards Japanese fishing efforts and labor problems. The State government has urged Japanese fishing companies to establish shore-based plants in Alaska as an alternative to the high seas salmon fishery and to give the Japanese a greater stake in con servation of Pacific salmon. In May 1965, Governor William A. Egan summarized the State's policy in his commentson preliminary negotiations between NewEngland Fish Company,Nichiro Fisheries Company,and Mitsubishi Trading: 11 ••• a Japanese-owned cannery or canneries in Alaska would be an increment in making it in their best interest to observe conservation practices. The proposed joint venture 110 with NewEngland Fish Companyin its Orea plant is an ideal solution to many of our problems. 11It should be clearly understood that this venture does not mean any lessening of our desire to stop the Japanese from catching our North American salmon on the high seas. If anything, I feel that this type of operation will make the Japanese more aware of the need for cooperating with us to protect our most important resource. 11To me, it is highly significant that the Japanese are willing to invest their capital in an Alaskan shore operation. This will make them an important part of our economic commu- j and Company years. To protect this investment, the Japanese will want to see a continuity of operation. This demands careful, effi- cient managementof our resources." In contrast to the State policy, local opposition has been evident on several occasions. Most recently, a Kodiak entrepreneur preparing to enter a joint venture with a Japanese firm was defeated in the 1966 legislative election largely because of opposition to his cooperation with Japanese fishing interests. ALASKACHIP INDUSTRIES Japanese paper pulp companies, faced with a rapidly growing demand for paper, began investigating the possibility of using Alaskan timber in 1963. Also influencing the companies' turn to Alaska was the depen dence on logs from the Soviet Union, which gave the Russians the oppor tunity to increase the price from year to year. Somethree years later, the Alaska project was dropped. This section will explore the factors leading up to the decision not to proceed with the Alaskan project. In 1963, the Japan Pulp and Paper Association started exploring Alaskan log export. The first response of the State government was to suggest areas in western Alaska along the Yukonand KuskokwimRivers where large but sporadic amounts of softwoods are located and where the policy of the Bureau of Land Management,U.S. Department of the Interior, seemed most favorable to log export. The Pulp and Paper Association, led by Jujo Paper Company,quickly lost interest in this area and focussed its attention on the southern part of the Kenai peninsula, largely on State lands with some private and National Moose Range lands, where there are much smaller and less dense stands of spruce than in southeast Alaska. State policy has been to allow limited export of spruce for experimental purposes and to allow export of chips. In May 1964, a mission came to Alaska headed by Governor Machimura of Hokkaido and composedof major companies in the Pulp and Paper Association that had large mills in Hokkaido and proposed that the State allow export of softwood logs during an experimental period, with the percentage of processed timber, both in chips and lumber, to be gradually increased. 111 The State government responded that it would allow cutting and transportation of "several" shiploads of round logs and that it wanted a detailed proposal for establishing a manufacturing operation in Alaska; the word "several" was finally determined to mean around half a dozen. After preliminary surveys, the State determined to ask for bids on timber from the Kenai Peninsula and Shuyak Island for manufacturing, after an initial log export period. The companies that would participate in the Alaska project were formally identified in early 1965 as Oji Paper Company,Daishowa Paper Company,Ltd., Honshu Paper Company,Ltd., Tohoku Pulp Company,Ltd., KokusakuPulp Industry Company,Ltd., and Jujo Paper Company,Ltd. They planned to organize Alaska Chi Industries, Inc., an Alaska corpor- Homerto produce 220,000 cubic meters of chips by 1969, assuming the start of operations in 1966. Operation of the chip mill would be contracted to Iwakura-GumiLumber Company, one of the leading lumber companies in Hokkaido, which would operate the lumber part of the mill for itself under a separate corporation. The planned financing included ownership of the capital by the major Japanese paper-pulp companies with Jujo and Oji having fifty-five percent between them. Included in the ownership was Alaska Pulp Company with five percent of the capital. Reportedly under pressure from the Japanese government, however, Alaska Pulp Companywithdrew. On the American side, the plan for financing the chip mill included: (1) leasing equipment from Greyhound Leasing Corporation (a subsidiary of GreyhoundBus Lines) in the amount of one million dollars, having net interest costs of 6-7/8 percent per annumfor nine years, Alaska Chip Industries to have the right of purchasing the equipment at the end of the lease term at fair market or renewing the lease; (2) a bank loan of $900,000 at 7 percent for 15 years, with $750,000 to be provided by the Alaska State DevelopmentCorporation; (3) $500,000 working capital at seven percent for one year; (4) trade finance in the amount of $1 million to $1.5 million at 6 to 6-1/2 percent; and (5) $1.6 million to be raised by the City of Homerthrough a revenue bond issue for a dock and mill site. The bonds would be repaid from lease payments by the company. As plans for the Alaska Chip Industries mill progressed, several obstacles appeared but were surmounted. It seemed that there would be a shortage of electric power, but the HomerElectric Association received a loan from the Rural Electrification Administration to extend higher capacity lines to Homer. The existing dock on the HomerSpit was thought to be unusable for the 10,000-15,000 ton ships to be brought in for the chips, so the plan for financing a new one was made. Early in 1966, the incumbent mayor appeared to be in political difficulty, causing the Japanese companies to feel that they might have to brief a new man in order to obtain dock and site financing, but the incumbent was retained and the bond issue for the dock approved. From the end of 1965, however, serious problems arose that did cause abandonmentof the project. A technical mission made a detailed study of 112 the Kenai forests and greatly reduced the amount of timber believed to be available. The Japanese group anticipated a cut of 6.6 million feet annually from State land, 1.1 million feet from the Kenai Moose Range, and .9 million feet from private lands. The survey found a possible cut from State land of only 4.6 million cubic feet, which would have meant an insufficient load for the two vessels believed to be necessary to transport chips to Japan at an acceptable price. Furthermore, a significant portion of the State forests appeared to be on Shuyak Island, and the Japanese group developed serious doubts about logging in this unknownarea and transporting logs over a rough stretch of water. The companies proposed overcutting other lands in the early years of the project while a study of the Shuyak situation was being made, and then undercutting the allowable cut in the later years of the 20 year period 1967-1987. Des te reservations part the but new developments overtaken the project. In an article entitled 11Bright and GloomySides of Alaskan Ventures," the Nihon Keizai Shimbunof June 12, 1966, stated, 11The reason for the postponement of the plans for establishing a chip industry in Alaska by the six paper and pulp companies is that the economic and social conditions in the United States have been heavily affected by the Vietnam war; therefore it would be unfavorable to venture into Alaska at the present time. 11The Vietnam war has made difficult the condition of demand and supply of labor in Alaska, as well as causing the prices to soar of the various material and machine~y that were to be purchased in the U.S. for constructinq the mill. All these factors have made the cost of mill construction very much higher than at first estimated. 11The business fund was also to be secured in the U.S., but with interest rates rising, a rescrutiny of the financial side has also becomenecessary." In any event, the Vietnam war created one pretext for the Japanese group to abandon the Homerchip mill project. Possibly more important were developments in the overseas chip markets at about the same time as the appearance of the Nihon Keizai article. Honshu Paper Company,one of the membersof the Alaska Chip Industries group, was completing negotiations with DiamondInternational Companyfor purchase of chips from Sacramento, California. The 7-year contract called for 150,000 cubic meters per year at a price of $40 per unit (2.5 cubic meters) CIF Kushiro, Hokkaido. Although the chips would be of low quality, they would be suitable for cardboard and as an addf tive for newsprint. Also, Oji Paper Companywas discussing with the Russians the purchase of 300,000 cubic meters per year at CIF cost of $50 per unit; these Siberian chips would be good quality softwood. The 113 chips from Alaska probably would have been better than both the California and Siberia products, but not nearly enouqh to justify their price of $70 per unit. It appeared to the Japanese companies that the feared shortage of chips from overseas would not materialize or would be postponed, and that there was no need to pay the higher price for Alaskan chips. Later last year, Oji Paper Companysigned a large contract with Alaska Pulp Companyfor chips that Alaska Pulp Company's Alaskan subsidiary was buying in the western United States and shipping to Japan through Coos Bay, Oregon. The June 12 article in the Nihon Keizai Shimbunmarked public acknowledgment of the abandonment of the Homer chip mill project. However interest continues by Japanese companies in the timber of southcentral Alaska for chips, and increasing demands pulp and paper industry combined with the tightening of the American chip market due to expansion of pulp mills in the United States could well cause a chip-producing operation to be started. The State's log export policy was certainly one important reason for Japanese interest in a chip mill. A more flexible log export policy, which is now beinq considered, will have to carefully weigh future possibilities of this kind in allowing export of unprocessed timber. ALASKAPETROLEUM RESOURCES DEVELOPMENT CORPORATION The Alaska Petroleum Resources Development Corporation was incorp orated in Tokyo in October 1966 with a paid-in capital of $11 million from petroleum, iron and steel, electric power, shipping, automobile and trading companies. The object of the company is to explore for and develop oil in Alaska for shipment to Japan. The Alaskan subsidiary of the Alaska Petroleum Resources Development Corportion, called Alaskco, was incorporated with a paid-in capital of $2 million in January of this year. The background of this major move to develop Alaska's oil for Japan includes deliberate policy by the Japanese government to diversify Japan's oil supplies and to give Japanese companies a greater share of imports. Japan's crude oil imports in 1965 were about 80 million kilo liters, mostly from the Near East, of which only 15 percent was developed by Japanese companies, chiefly the Arabian Oil Companyoperating in Kuwait. The balance was sent to Japan by foreign capital companies. A principal goal of the 20-year oil import plan published in 1966 by the Japanese government was to double the quantity of imported oil developed by Japanese companies. Sources of supply are to be diversified through exploration in Alaska, Canada, and southeast Asia. To cope with air pollution, development efforts would focus on oil with low sulfur content. Creation of the Alaska Petroleum Resources Development Corporation is linked to the interest of the president of Alaska Pulp Companyin attracting other Japanese firms to Alaska and the Alaska Club, a group 114 of major Japanese companies interested in Alaskan ventures whose organi zation was sparked by Alaska Pulp Company. The possibility of developing Alaskan oil for Japan appears to have caught the interest of President Sasayama several years before the government's new oil import policy. Following a trip to Alaska by Sasayama in 1963, Alaska Pulp Companyhad sparked the formation of the Alaska Club. The chairman of the Alaska Club was Kogoro Uemura, who was chairman of the Petro 1eum De1i berati on Council, an advisory organ to the Japanese government. Sasayama reportedly interested not only the president of Teikoku Oil Company,but also Uemura in developing Alaskan oil. Teikoku is the only developer of Japan's very limited oil resource and has had supply problems. Active consideration of developing Alaskan oil appears to have s in ummer 1 mi 1 by Sasayama Soichi Matsune, chairman of the Atomic Industrial Council of Japan and now chairman of Alaska Petroleum Resources DevelopmentCorporation, and Kazuo Hayashi, president of Teikoku Oil Company,inspected the Cook Inlet area. This mission was followed by a group of Teikoku engineers who came to Alaska for a month's investigation in September 1965. The possibility of joining companies already at work in Alaska was then actively explored. Twocandidates were Petrofina, a Belgian company operating through its American subsidiary, and Great Basin Oil Company. However, negotiations with these two possible partners were dropped, probably because the Japanese side felt that they could not put up enough acreage or money, and the decision to proceed independently was made. Early in 1966, formal presentations of the plans for Alaska were made to the Alaska Club, mainly by Hayashi, and he and the Alaska Club approached the Japanese government for political support and operating funds. A strong and largely successful effort was made at the same time to obtain commitmentsof capital from various industries, culminating in the incorporation of Alaska Petroleum Resources DevelopmentCorporation. The Japanese government has included in this year's budget funds for a public corporation to assist overseas oil exploration by Japanese companies. About $10 million is included in the budget for the Alaska Petroleum Resources DevelopmentCorporation and a similar corporation for developing oil in northern Sumatra. The companyis presently studying geological data and has made arrangements to obtain the results of seismic work done by a group of companies active in the Bristol Bay area. Alaska Petroleum Resources DevelopmentCorporation appears to be most interested in the off-shore area north of the Alaska Peninsula. The study of geological and seismic data and test drilling is expected to last three years. If oil is found, it is expected that preparations to develop it will take two years. In addition to moneyexpected from the government for explora tion, the company's capital would be greatly increased in the next five years if oil is found in attractive quantities, and total expenses of $80-$110 million are expected, including dock facilities and oil develop ment equipment, but excluding ships. The companyhopes that the Japanese government will supply one-half of the needed amount. ll5 Connection with American GovernmentPolicy The companyhas been in continual contact with the United States government regarding its policy on development of non-renewable resources by foreign companies. At first, the American government held to the principal of reciprocity, and since American companies were not allowed to develop such resources in Japan without a Japanese joint venturer, Japanese companies would not be permitted to hold mineral leases in the United States. Teikoku Oil Company,however, found a precedent for the Japanese government's allowing a subsidiary of a foreign companyto par ticipate alone in resource development in Japan, and was workinq on the Japanese Ministry of International Trade and Industry to issue a formal statement allowing this. Meanwhile, the United States government has i cy Japan pee applications wil be considered on a case-by-case basis. The company has also entered into an agreement with Gulf Oil Companyfor joint exploration, with a possibility also of a joint venture for develop- ment. Conclusion of such a joint venture would remove the conflict with American policy. JAPANGAS CHEMICAL COMPANY Presently under construction is a joint project by Japan Gas Chemical Companyand Collier Carbon Corporation, a subsidiary of Union Oil Company,to produce prilled urea. Planning for the plant has pro ceeded rapidly and with minimal contact with Alaskan government agencies. Demandfor ammonia-basedfertilizers has increased rapidly with the growing world population and more intensive agriculture. In meeting the demand, Japanese companies faced small domestic gas reserves and dependence on naphtha derivatives from imported oil, resulting in feed stock that was approximately twice as expensive as that available to overseas companies. An additional obstacle to meeting foreign competition was the "administered guidance" over the fertilizer ·industry. Faced with a race by fertilizer producers to increase plant capacity, the Japanese government, at the industry association's request, limited each producer to 20 percent of total production capacity from June 1965 until June 1967. Companiesplanning to build larqe new plants considered necessary to compete with overseas suppliers had to scrap existing facilities or pool the allowed increases of several firms. The largest plants under these restrictions were in the medium-sized class, about 700 tons per day. At this time, plants of l ,000 tons were beinq built in other countries. In August 1965, a casual encounter between a representative of Japan Gas Chemical Corporation and a Ministry of International Trade and Industry official initiated companyplanning of the Alaska project. A San Francisco managementconsultant had previously contacted MITI looking for an outlet for the products of Collier Carbon & Chemical Corporation that might be produced from Alaskan natural gas. Japan Gas Chemical contacted the consultant expressing interest, with the result that the president and a vice president of Collier Carbon & Chemical came to Japan in September 1965. 116 The agreement with Collier, which was formalized in early 1966, called for the latter to put up a plant producing 1500 tons a day of ammoniaand 1000 tons a day of prilled urea. The ammoniapart would be entirely paid for and the responsibility of Collier, and would supply the urea section with ammoniafeedstock and carbonic acid gas. Japan Gas Chemical would put up 50 percent of the capital for the urea plant, of which the total cost was estimated at $16 million, and take 50 percent of the product. Profits are also to be shared on a 50-50 basis. Collier will be responsible for construction and operation of the urea plant, but technical and office staff will be supplied by both sides, and the Japanese side will also participate in the design of the plant and purchase of equipment. Under the terms of the agreement, Japan Gas Chemical is given a priority right in purchasing li uid ammonia. The shipping of the urea will be the res ibili l which will take it to Japan or other points. The contract covering the foregoing points runs until 1984 and is renewable thereafter for one-year periods. The form of organization is an unincorporated joint venture under which Japan Gas Chemical1 s part of the plant is, in effect, a separate factory. Japan Gas Chemical Companyhad investigated the possibility of establishing a plant in Iran shortly before being approached by Collier. The situation in Iran had been found unacceptable, probably because of the profit-sharing arrangements, before negotiations were completed with Collier. One of the principal problems facing the joint venture was meeting the capacity restrictions of the Japanese fertilizer cartel. In April 1966, Japan Gas Chemical was able to secure agreement to the Alaska project by pledging to the Japanese fertilizer industry that it would shut down facilities in Japan equivalent to the 500 tons a day that would be shipped from Alaska. Government contacts concerning the joint venture urea plant have been with the Alaska State Office in Tokyo, the State Department of Natural Resources, and the State Department of Labor. The Alaska State Office prepared a special report on the oil and gas industry in Alaska and gave advice on forms of corporate organization. Collier Carbon and Chemical Corporation purchased the land for the ammonia-urea plant from the Division of Lands, Department of Natural Resources, at a public auction following nomination by the company. The Alaska Department of Labor has been involved with the venture through its boiler inspection section. The chief inspector has made several trips to Japan to make sure that the storage tanks for ammonia, carbon dioxide, urea, and other substances will meet the State's safety standards which are iden tical to those of the American Society of Mechanical Engineers. In the future the venture will be affected by judgments of the Alaska Department of Natural Resources on what is a proper wellhead value of its gas feedstock. 117 CONCLUSIONS One series of conclusions from reviewing Japanese companies in Alaska includes certain practical steps that could be taken to make negotiations on future Alaska-Japan development projects easier. Although the Japanese side usually speaks English or includes interpre ters, there is a need for help on both sides in interpreting what is meant by the other side in view of the different patterns of thought. Another persistent difficulty has been the use of different units of measurement -- in the case of timber, koku and cubic meters instead of board feet and cubic feet; kilo calories and cubic meters for natural gas, instead of BTUand cubic feet; etc. rn comments are in o on re I ons p tween Japanese projects in Alaska and government agencies. In the forest products industries, it is clear that the Forest Service export policy has been essential to the sawmills and pulp mills in southeast Alaska. The unsuccessful planning of Alaska Chip Industries for a chip mill at Homer has given impetus to taking a new look at the State's round log export policy. Someobservers, including the author, do not believe that the chip supply and demandsituation of Japanese industry gives any reason to think that a chipping project based on State lands in the Kenai area will start within the next five years or so. However, any policy change to allow the export of round logs from the lower Kenai Peninsula should be reviewed often, as it appears likely that the relative demandfor chips will be increasing. Problems now exist between the Forest Service and the Japanese owned mills in southeast Alaska. Alaska Lumberand Pulp Companyhas questioned the Forest Service inventory in its allotment in an effort to continue and expand purchases from outside its allotment. It can be expected that the pressure to make available parts of the Juneau Working Circle will increase in view of St. Regis' declining its option. The Forest Service must continue to require mills in its competitive sales if new mills are to be built at Juneau or at other locations in southeastern Alaska. The continuing dispute between the Forest Service and Japanese concerns points up a major issue in Japanese development of Alaska's forests--the effect of domination by one concern. It appears that the Japanese government supports this domination by keeping other Japanese firms out of southeast Alaska. This subject merits further study, especially in view of the apparent interest of Wrangell Lumber Companyto participate in development of western Alaska timber. In the fisheries sector, a policy of requiring primary process- ing of salmon with allowance for emergency sales directly to Japanese firms has paid off in joint venture processing plants and has not led to the predicted evil of wiping out American interests in favor of the sole dependence on the Japanese market. The primary need here appears to be an educational effort to remove the emotionalism that could be a barrier to future development. 118 Alaskco, Inc., the Japanese spearhead for development of Alaskan oil resources, has raised the issue of the right of foreign concerns to hold federal mineral leases. It appears that the question might be avoided, as Alaskco has announced plans to joint venture with an American company. Under the most recent ruling of the federal govern ment, requests from Japanese companies to lease in Alaska will be handled on a case-by-case basis. Alaska would benefit from the increased competition for oil leases that further liberalizing of the rules for foreign companies might bring. 119 PARTIV THELEGAL CLIMATE FOR INDUSTRIAL CAPITAL INVESTMENT IN ALASKA:A JAPANESEVIEW Ichirou Inukai and Michael Haley This paper looks at the legal climate for capital investment in a formal manner, strictly as it is reflected in the Alaska Statutes and the Alaska Administrative Code. It goes without saying that Fed eral fows, regu·lations, and administrative practices, the demographic, social, and political characteristics of Alaska, the nature and quality of transportation, business services, and the like, are all crucial in determining the overall receptivity of Alaska to business investments. These considerations are all taken up elsewhere in the study. If, however, we ask the question whether or not Alaska is friendly to industrial capital investment, the answer is a qualified yes. Qualified in the sense that the laws can be favorable if liberally applied -- for example, granting tax exemptions where permissible, or granting non-competitive sales or leases where permissible, could in many cases enhance Alaska's attractiveness to investors. The Alaska Constitution, Article VII, Section l sets forth the official policy of the State: 11It is the policy of the State to encourage the settlement of its land and the development of its resources by making them available for maximumuse consistent with the public interest." Basically, there is equality in treatment of Alaskan and foreign investors, with a few exceptions that will be mentioned later in this paper. Both foreign and domestic corporations may conduct business in Alaska for any lawful purpose with a corporate charter easily obtained, at least in theory, by citizens born in this country. (Three natural persons at least 21 years of age must sign the articles of incorporation.) But before such a corporation can transact business or incur indebtedness, $1,000 consideration must be paid for the issuance of stock. Foreign corporations, in order not only to transact a lawful business in Alaska, but also to be able to bring suits in the Alaska courts, must procure a certificate of authority from the Commissionerof Commerce. Whether certified or not, the corporation is still subject to the same fees while transacting business with the State. Obtaining this certificate does not subject the corporation to control of its internal affairs by the State, but does allow the foreign corporation to enjoy the same rights and comply with the same obligations as are enjoyed and complied with by domestic corporations. Mergers of either domestic or domestic and foreign corporations are permitted if allowed by the laws under which each foreign corporation is organized. The Alaska Securities Act of 1959, as found in Title 45 of the Alaska Statutes, provides fairly detailed regulations for the issuance of prospectus and securities in order to prevent fraud on investors. Although the provisions of the Act are not directly aimed at controlling 121 the promotion and managementaspects of corporations, they could possibly be used, to a limited degree, in such a manner. Once in existence, a corporation operating in Alaska is confronted with labor laws which seem to be patented after the Federal Labor Laws, with the minimumwage rate being 50 cents more than the prevailing Federal minimumwage rate, and the standard workday and workweek, 8 hours and 40 hours, for those not acting in a supervisory capacity. Alaska labor laws, like those of the federal government, seem favorably oriented towards the fishing, fanning, and small timber industries, though not towards the employees of these respective industries. Employees in these fields are not entitled to collect overtime (time-and-a-half) pay for those hours worked beyond the standard workweek. On the other hand, a ng to , es i a ly coa ni industry, provide very exacting mining regulations in the attempt to protect the workers' health. The mining labor provisions would probably have minimal effect in deterring investment in this field since most mining states have similar provisions. There are, of course, protective regulations for youths under 18 years of age, which apply to all branches of industry. A State law which could possibly increase operating costs and also discourage the importing of out-of-state workers, is the one requiring employers who transport their workers from places outside the state or even from points inside the state to the place of employment, to provide return transportation for these workers after tennination of employmentfor reasons beyond the employee's control. An important Act which was designed to entice investors to Alaska is the Alaska Industrial Incentive Act. Under this law the Department of EconomicDevelopment and Planning may grant income tax exemptions (including license fees, excise, and other taxes, but not including contributions to the Alaska UnemploymentCompensation Fund) on the industrial development income derived by a business classified by the Department as exempt, for a 10 year period, and property tax exemptions up to 10 years depending upon the amount of the investment. The graduated scale starts at five years of exemption from property taxes when the investment in real or personal property is not greater than $1 million and reaches 10 years when the investment exceeds $10 million. If the Department feels that a business should not receive a total exemption of either its income or property taxes, the Department may nevertheless grant partial exemptions when it is in the best interest of the State to do so. The guidelines within which exemptions are granted are whether or not the petitioning finn will economically bene fit the state by supplying goods to either in-state markets not adequately served or to out-of-state markets. An apparent drawback of the Act is that exemptions cannot be granted to mining operations unless the pro ducts of such operations are preliminarily conditioned for refinement or are processed in the state (either by the producer or by the purchaser). Another factor to keep in mind, which directly or indirectly influences prospective investors is that of the income tax that his employees will have to pay. This factor has some effect on the avail ability of out-of-state laborers, who are desirable or necessary to 122 some businesses. Both residents and non-residents, under the Alaska income tax laws, are subject to a tax of 16%of the total income tax that would be payable to the United States at the Federal tax rates in effect on December31, 1963, on all income derived from sources within the state. In order to be able to benefit from exemptions and deductions, the workers must be residents of Alaska for the full 12 months of the tax year. Before leaving the subject of State taxation, it must be mentioned that there is imposed on resident and non-resident corporations, an annual tax of 18%of the total taxable income derived from sources within the state that would be payable for the same year to the United States at the Federal tax rates in effect on December31, 1963. outside state. In order to engage in a business (not including the fishery business) in Alaska, a companymust pay for a business license (gross receipts acquired from the sale of goods to a foreigner for permanent shipment out of the United States are exempt from this sort of taxation). Turning our attention from the overall picture of the Alaska laws confronting prospective investors to those relating to particular industries which at the present hold the greatest rewards for prospec tive investors, namely the petroleum and natural gas, mining, fishing and lumbering industries, we find both favorable and unfavorable legal aspects. The Alaska timber laws and regulations can be effectively used to hamper an individual or concern engaged in the cutting and selling of timber for interstate or overseas transportation to the extent that primary manufacturing of timber can be required to be performed within the State. There is little doubt that such a policy has some deterring effect on logging, haulage and longshoring. By not inserting a primary manufacturing requirement clause (it is not mandatory) in the timber sale contract and by making the sale a non competitive one (although the minimumsales price must be at least the appraised value of such timber), the Director of the Division of Lands of the Department of Natural Resources can enhance the desirability of investment in the Alaska forest industries. In this respect, the Alaska labor provisions applying to small scale timber firms, mentioned earlier, are also an inducement to investment. The gross receipts of the sale of logs, except those sales to foreign countries, are subject to taxation under the Alaska Business License Tax. While the Alaska timber laws and regulations allow a possible indirect restriction on the interstate and foreign movementof unpro cessed timber, the State commercial fishing laws and regulations provide a direct restriction on the interstate and foreign movement of specific fishery products by banning the transportation of live king or dungeness crabs out-of-State. In addition to this restriction, there is a 1:3 price distinction between resident and non-resident 123 commercial fishing license fees, vessel license fees, and fishing gear licenses. Charging non-residents three times as much as residents for the privilege of fishing commercially is probably as great a discrimi nation in favor of non-resident fishermen as is constitutionally permissible (see 1959 Opinion of the Alaska Attorney General, No. 15, entitled 11Discrimination Against Aliens and Non-Residents in Issuance 11 of Fishing Licenses ). Aliens lawfully admitted to the United States are permitted to engage in commercial fishing activities, and the State does allow a transfer of the gear fishing license of non-residents and residents in certain cases of calamity befalling the licensee. Because of the desire to conserve the State's migratory fish and shell fish, the Alaska rules and regulations are to be strictly enforced, accordi to the Alaska laws. As stated before, time-and-a-half pay Of course, those engaged in the fishery industry must contend with State taxes in the same fashion as those engaged in any other business. While fish buyers, who are not classified as processors of fisheries products and who are not employees, must obtain an Alaska Business License, others engaged in the fishery industry do not need to obtain such a license. But salmon canneries and other commercial fish processors and shore-based cold storages must pay a license tax equal to 1 percent of the raw value of the fish; crab canneries are subject to a 2 percent tax of the value of said crabs; and freezer ships and other floating cold storages must pay an annual license tax of 4 per cent of the fishery resources they process through freezing. The 4 percent tax also applies to those who sell fishery products to floating cold storages and canneries lying outside the State's jurisdiction, thus attempting to discourage avoidance of the tax. The mining industry, at the present time, has more to offer pros pective investors in the way of legal incentives that may be granted by the Department of Natural Resources than is true in either the fishing or lumbering industries. As stated previously, the policy of the State is to 11encourage the settlement of its land and the development of its resources by making them available for the maximumuse consistent with the public interest. 11 (Constitution of Alaska, Article VII, Section l.) As in the fields of lumbering and fishing, aliens and alien controlled corporations organized under the laws of any state may engage in mining operations (exploring and mining minerals), but only if the laws of their country grant similar privileges to citizens or corporations of the United States. The following are some of the legal incentives that the Alaska mining industry has to offer to prospective investors. One incentive is that the State may grant financial assistance of up to $2,000 a year to an individual or up to $4,000 a year to a partnership in order to prospect in Alaska. Twoother possible stimuli to investment that may be granted at the discretion of the Commissionerof the Department of Natural Resources are: (1) 11In unproven areas the Commissionermay offer additional incentives and other terms in granting permits for 124 exploration and development whenever it appears to be in the best inter est of the State to do so. 11 (Alaska Statutes, Section 38.05.135); and (2) "The Commissioner, for the purpose of encouraging the greatest ultimate recovery of coal, oil, gas, oil shale, phosphate, sodium, potassium, and sulphur, and in the interest of conservation of natural resources, may after public hearing, waive, suspend, or reduce the rental, or minimumroyalty, or reduce the royalty on an entire lease hold, or on any tract or portion of a leasehold segregated for royalty purposes, whenever in his judgment it is necessary to do so in order to promote development, or whenever in his judgment the lease cannot be successfully operated under its terms. 11 (Alaska Statutes, Section 38.05.140(d)). A fourth possible incentive is that the Commissioner is allowed, for several minerals, to permit a lessee to hold more than ngs ary such mineral. A fifth incentive is that the Mineral Resource Fund Board of the Department of Natural Resources may purchase minerals suit able for resale at not more than the current market price when another purchaser is not readily available and in this way encourage the exploration and extraction of valuable minerals by providing a market for them. And finally, a sixth incentive is that all new mining opera tions, except those of sand and gravel, are exempt from the State mining license tax for three and one half years after production begins. Of course, along with the favorable legal aspects that the State has to offer in the mining field are some unfavorable to investors. One of the drawbacks to prospective foreign investors is illustrated by State laws and regulations applying to the leasing of coal lands. Foreign investors are hampered by the requirement that prospecting permits may only be issued to corporations organized under State laws, the majority of the stock of which is owned and controlled by United States citizens; and the requirement that only 21-year-old United States citizens may request that lands be classified as coal lands. Ever-present restrictions for both residents and non-residents alike are the very exacting State mining safety laws and regulations. Just as the State has enacted comprehensive mining safety laws, so also has it enacted extensive oil and natural gas conservation regulations ranging from well spacing and unit agreements to those regulations controlling production practices. Aliens and alien controlled corporations of countries allowing similar privileges to United States citizens and corporations are free to hold mineral leases on public lands and to engage in the Alaska oil industry, with high aggregate amounts of land allowed to be held by both residents and non-residents -- up to 500,000 acres of tide and submerged lands, and 500,000 acres of other lands. Besides the favorable amounts of land allowed to be held in leases, any lessee who while drilling makes the initial discovery of oil or gas in commercial quantities in a geo logic structure is allowed a reduction of one half in royalty payments for ten years following the discovery. Although the leases in known geological structures containing oil or gas in commercial quantities must be obtained through competitive bidding, this is not so for lands 125 not classified as competitive. Alaska allows those having a valid existing offer for a non-competitive oil and gas lease for federal land other than shorelands to be considered the first qualified applicant for such land if Alaska so selects such land under the Alaska Statehood Act, unless the land be classified by the State as competi- tive within 90 days after the selection is approved. Shoreland applicants for oil and gas on federally owned land, subsequently with drawn by Alaska under this act receive a similar preferential treatment by being given the first right to an Alaska lease of the land. As previously stated, the Commissionerof the Department of Natural Resources, in his discretion, may encourage development in this field by reducing or eliminating, permanently or temporarily, the rental or minimum royalty. But all producers of oil and gas must pay a gross production l of g of produced all oil and gas not exempt from taxation. The Alaska laws and regulations, besides providing ways in which development in the field of oil and natural gas can be encouraged, also provides certain small potential or actual hinderances to inves tors. One such potential hinderance is that the Director has the authority to close indefinitely to leasing those areas of land previously open for leasing which do not exceed 640 acres. The fact that lands classified as competitive may be leased only upon competitive bidding by cash bonus bids, while not hindering investors, is not great encouragement to them either. A third consideration is that sub-surface storage of oil and gas, not designed to prevent the waste or increase the ultimate recovery of such products, is not entailed in a lease, but rather a storage lease at added expense must be obtained. Fourthly, a bonus paid for a competitive lease conditioned upon the patenting to Alaska of such land as selected under the Statehood Act, is forfeited if the selection is disapproved. Fifthly, those having Federal oil and gas leases in Alaska must also comply with Alaska rules and regula tions not in conflict with the Federal rules and regulations. And lastly, the conservation provisions of the Alaska laws, although they are probably found in any oil producing state, may provide annoyances to investors in this field. In summingup what has been said, the answer to the question of whether Alaska is friendly to industrial capital investment lies in the discretion of the political leadership of the Alaska State Government. If the legal incentives that can be granted at the discre tion of the various Department heads are granted, then the answer will 11 11 be a distinct yes • 126 PARTV THEJAPANESE MARKET FOR ALASKAN PETROLEUM, GAS, ANDPETROCHEMICALS Ichirou Inukai JAPAN"SDEMAND FOR MINERAL FUELS In the last ten years, the demand for energy resources in Japan has increased from 51.3 million kiloliters (MMKl)lin 1955 to 145.8 MMKlin 1965, (or an increase of eleven percent per annum). This rate increase slightly exceeded that of the Gross National Product, which increased at the rate of 9.5% per annum in the same period. (Hence, per capita consumption of energy reached 1,072 kiloliters in 1963, which was almost equal to Italy's level of 1,099 kiloliters in the same year.) Two distinctive aspects must be mentioned in the overall demand for energy. The demand for energy in the iron and steel industry multiplied about 3.6 times in ten years, increasing 13.7% annually. Second, non energy producing uses of petroleum products have expanded sharply due mainly to the quick growth of the petrochemical industry. The consump tion of petroleum products in this industry was only 0.6 MMKlin 1956, but it increased sharply to 9.1 MMKlin 1965. The petrochemical industry consumed six percent of the total energy resources and thirteen percent of the petroleum products in 1965. We shall return later to these two industries for further discussion. The structure of energy supply also showed considerable changes during the same decade. The ever-increasing importance of petroleum (which has come to hold the dominant position in the supply of energy}, contrasted with the relative decline of coal as the primary energy supply resource. Petroleum occupied only twenty percent of the total energy supply in 1955, but rose to fifty-eight percent in 1965. In comparison with this trend, coal, which supplied forty-nine percent in 1955, dropped to twenty-seven percent of the total energy supply in 1965. Hydroelectricity also supplied a lower share of total energy needs in 1965 than in 1955, falling from twenty-one to eleven percent in that period. In accord with the Petroleum Industry Law, put into effect in July, 1962, the Ministry of International Trade and Industry (MITI) was charged with the preparation of a petroleum supply plan for a period of five years, commencingin fiscal 1963. MITI, however, recognized the impor tance of an overall energy policy in the face of the rapid changes in the demand and supply structure of energy resources in Japanese industry. 1 These figures are based on 10,000 kilocalories per kiloliter petroleum equivalents. 127 The Overall Energy Council was then formed as an advisory body under the jurisdiction of MITI, and it assumed the task of planning a long range energy policy. The Council submitted its recommendationto MITI in February, 1967. This recommendation is likely to become the most important document for the analysis of Japan's demandfor energy resources. This is not only because it was formulated by the most definitive authorities in the field, but because it outlined policies which are now being implemented in overseas resource development. Table V-1 is a summaryof the five tables forecasting the changing demands for energy resources. For use in forecasting energy demand, Councfl se I years I 5, 19 , I , I recommen dation assumed an annual GNPgrowth rate of eight percent for the period 1965 through 1970, 7.5% for 1970 through 1975, and 6.5% for 1976-1985. Taking into consideration all other possible factors, the Council then estimated the total demandto increase from 146 MMKlin 1965 to 220 MMKl in 1970, to 390 MMKlin 1975, and to 550 MMKlin 1985. The annual growth rates of the total energy demandwill be 8.5% between 1966 and 1970, 7.1% between 1971 and 1975, and 5.9% between 1976 and 1985. The most signifi cant increases are expected to be in the mining and manufacturing sector and in the petrochemical industry. The former will double its demand for energy (from 75 MMKlin 1965 to 150 MMKlin 1975), and the latter will triple its demandfor energy resources (as feedstocks) from 10 MMKlin 1965 to 30 MMKlin 1975. Table V-1 reveals the future role of petroleum for energy supply. The supply of petroleum will multiply about four times in twenty years, increasing its share in the total energy supply from 58 percent to 75 percent. The supply of domestic petroleum will, however, remain almost unchanged. Hence, the importation of petroleum must play a major part in supplying energy requirements. According to the estimate, amounts of imported crude oil will increase from 76 MMKlin 1965 to 302 MMKl in 1985. Also, imports of other petroleum products will rise slightly. It is estimated that $4,660 million in foreign exchange will be required for primary energy imports in 1985, which is cause for serious concern amongthe Japanese. To meet the ever-increasing demandfor petroleum, and the accompanying increased need for foreign exchange to finance it, the Council strongly recommendedthe development of overseas petroleum resources by Japanese capital and technique. It is expected that oil supply developed by Japanese capital in foreign countries will expand from 11 MMKlin 1965, to 130 MMKlin 1985. In this manner, it is expected that foreign exchange in the amount of $730 million will be saved in 1985. The Council determined the primary goal of the energy policy -- a stable supply of low cost energy. The Council considered that prices must be low in the long run, reasonably stable and uninfluenced by supply and demandfluctuations, and in quantities adequate for assured production 128 TABLEV-1 Outlook for Supply of Primary Energy up to Fiscal ~985 (* Petroleum Equivalents: million kiloliters) (Actual) (Estimates; Fiscal 1965 Fiscal 1970 Fiscal 1975 Fiscal 1985 Amount * Ratio Amount * Ratio Amount * Ratio Amount * Ratio (%) (%) %) (%) Hydroelectric Power (M3KWH) 76.6 18.8 11.3 81.5 19.9 8.3 90.6 22.2 6.6 107.7 26.4 4.4 Atomic Power (M3KWH) 0.0 0.0 0.0 6.0 1.5 0.6 32.6 8.0 2.4 245.3 60.1 10.0 Coal (MMt) 81.5 45.2 27.3 78.4 51.4 21.4 82.8 55. l 6.3 84.6 56.5 9.5 Domestic 62.5 31.6 19. 1 52.3 31.3 13.0 52.0 31.4 9.3 52.0 31.4 5.3 Imported 19.0 13.6 8.2 26. 1 20 .1 8.4 30.8 23.7 7.0 32.6 25.1 4.2 Petroleum (MMKl) 102.5 96.7 58.4 172. 1 161. 7 67.2 262.0 246.2 72.8 476.2 446.9 74.8 Domestic 0.8 0.7 0.4 0.7 0.7 0.3 1.0 0.9 0.3 1.0 0.9 0.2 Developed overseas 11.3 10.6 6.4 22.6 21.2 8.8 53.7 50.5 4.9 138.0 129.7 21. 7 Imported 76.3 71.8 43.4 125.5 118.0 49.0 182. 5 171. 6 .7 321 .3 302.l 50.5 ~ Imported oil products 14.2 13.6 8.2 23.3 21.8 9. 1 24.8 23.2 6.9 15.9 14.2 2.4 I.O Others 4.9 3.0 6. 1 2.5 6.9 1.9 7.8 1.3 Domestic 4.9 3.0 4.9 2.0 5 .1 1.4 4.8 0.8 Imported 1.2 0.5 1.8 0.5 3.0 0.5 2 TOTAL 165.6 100.0 240.6 100.0 338.4 l JO.0 597.7 100.0 (A) Domestic Energy 56.0 33.8 56.8 23.6 59.6 7.6 63. 5 l O. 6 Imported Energy 109.6 66.2 183.8 76.4 278.8 82.4 534.2 89.4 (B) Domestic Energy 66.6 40.2 79.5 33.0 118. l 34.9 253.3 42.4 Imported Energy 99.0 59.8 161. 1 67.0 220.3 76.l· 344.4 57.6 Value of Imported Energy $1,580 mil. $2,470 mil . $3,570 mil. $6,180 mil. Foreign Exchange Needed for Imports $1,320 mil. $2,050 mil. $2,830 mil. $4,660 mil. Foreign Exchange Saved through Development of Overseas Crude Oil $60 mil. $120 mil. $290 mil. $730 mil. Note 1. In terrns of 10 MKC/Klpetroleum. 2. (A) On assumption that energy derived from atomic power and crude oil deve oped overseas is supplied through imports. (B) On assumption that the above energy is supplied domestically. 3. All tons in this chapter are metric tons, unless otherwise indicated. of energy. With respect to quantity, the policy aims at a stable supply which is relatively free from overall economic fluctuations and free from pressures of the international oil interests. At the same time, a minimumquantity of oil must be secured in order to counter political instability in individual supplying countries. The underlying thought in these goals may be understood if we consider the fact that Japan's oil supply is highly concentrated, both in terms of the supplying countries and in the suppliers themselves. Approximately eighty percent of the oil supplied to Japan in 1965 was supplied by the "Big Eight" oil companies, and about the same proportion came from the Middle East. And, the so called oil-tied loans to Japanese refiners created serious problems in price negotiations when refiners imported oil. (As major investors in, or creditors of, Japanese refining and distributing companies, the major ies are able to req re Japanese rms to purchase crude petroleum from them at substantially above the competitive world market price.) OVERSEASOIL RESOURCEDEVELOPMENT A wide distribution of supply areas, and the establishment of Japa nese initiative in price determination for crude petroleum are the most important elements in achieving a stable and cheap supply of petroleum resources. In order to achieve these goals, the Overall Energy Council has advocated a positive expansion of the overseas petroleum resource activity by Japanese capital, from the exploration to the production stage. According to the Council's recommendation, such development will benefit Japan in a number of ways. First, of all the stages of petroleum production, processing, and distribution, the rate of profit is largest in crude oil production. Production by Japanese capital would expand Japan's share of profit in the process. Second, the development of petroleum by Japanese capital would save a large proportion of the foreign exchange Japan would otherwise have to pay to foreign producers. Third, many of the most promising areas for oil resource development are them selves economically underdeveloped. By joining in the oil resource development of these areas, Japan could make a considerable contribution to their economic development. On the basis of the recommendations provided by the Overall Energy Council, the Ministry of International Trade and Industry announced a broad policy framework for overseas petroleum resource development. An outline of the policy is as follows: 1. Between 1966 and 1980, exploration projects will be set in motion in 26 selected areas throughout the world. A. "Southeast Asia-type" onland oil fields (relatively small fields). In this category are fields in Canada and Latin American countries. B. "Southeast Asia-type" offshore oil fields (in the same areas). C. "Middle East-type" large-scale oil fields, including some in the Middle East, Alaska, and African countries. 130 On the basis of this typology, thirteen areas in Oceania and Southeast Asia, six areas in Alaska and Canada, five areas in the Middle East and Africa, and two areas in Latin American countries have been selected as prospective areas for the overall oil resource development by Japanese capital. 2. Within four or five years after the beginning of the plan, explora tory drilling should be completed and the production of crude oil commenced. The production from developed fields should reach 163 million kiloliters by 1985, so that at least 30 percent of the demand for crude oil would then be supplied by Japanese-developed oil fields. The financing of overseas oil development is to be carried out through the Overseas Oil Development Fund, to be appropriated from the 1967 investment in 20 rs is to reach 46 8 thousand mil ion yen ($128.2 million), of which 14.l thousand million yen ($38.6 million) would be spent for exploratory drilling, and 32.7 thousand million yen ($89.6 millinn) for development drilling. The fund will be financed by customs revenue on the imports of crude oil. The government's share of financing would be between 50 and 70 percent of total investments, the rest consisting of private capital. The private investors will be reimbursed for their share of direct investment on unsuccessful projects. Encouraged by the positive attitude of the government, investors have already initiated several projects, among them JAPEX-Canadain Alberta, JAPEX-Australia in NewGuinea, Saba-Teiseki in Malaysia, Sumatora-Teiseki in Indonesia, and Alaskco in Alaska. (Since the above was written, Maruzen Oil Companyhas announced its intention to initiate a joint exploration venture in Alaska with Union Oil Company.) So far, three major corporations are actively working on overseas oil development. Arabia Oil CompanyLimited, an Idemitsu venture, brought about a surprise success in its exploration for oil in Saudi Arabia. This successful venture is one of the major reasons for the recent enthusiasm for overseas oil development in Japan. Teikoku Sekiyu Companytook the initiative in the formation of the Alaska Petroleum Development Company,Ltd., which later established as its subsidiary in Alaska the Alaska Petroleum Development Company,Ltd. (Alaskco). A third corporation active in the field is Japan Petroleum Resource Development Corporation. In the original plans of the Alaska Petroleum Development Company, all development funds were expected to be contributed by Japanese capital, and the corporation was indeed formed with participation from more than eight major industries. This plan, however, was strongly opposed by the existing refiners group, which by and large represents the views of the foreign oil producers. The Japan Petroleum Industry Association argued that the plan was simplistic, that no definite guarantees of land leases in Alaska were in sight, and that the cost of development in Alaska would be greater than in other areas. Another result of the Overall Energy Council study was the initiation of the Crude Oil Corporation in October, 1965. As announced by the MITI 131 Bureau of Mines, the purchase of the Corporation's stock was to provide a backup for the overseas development by Japanese capital, and for the purchase and marketing of Japanese-developed oil. In respect to the latter purpose, COCwould be the exclusive purchaser of the developed oil. In return the Corporation would provide long tem, contracts with the domestic refiners, which might also involve long tem, loans to those refiners. The COCis financed by an initial government outlay of 10 thousand million yen plus a COCbond issue in 1966 of 11 thousand million yen. In addition, the corporation is to receive 9,300 million yen out of the customs duty on imports. This COCproqram called forth a viqorous debate between the Japan Petroleum Industry Association, which is a group fa pres , the Japan Petroleum Mining Association, which represents the fim,s who would benefit from the COCprogram. Pattern of Financing of Overseas Petroleum Resource Development So far, three major petroleum companies in Japan have been actively working on the development of overseas petroleum resources. From the experience of these companies, we can see the general shape of the methods used for financing overseas oil resource development by Japanese capital. The case of the Petroleum Resource DevelopmentCorporation may be the most illustrative. As we shall see later, the Alaska Petroleum Develop ment Corporation also decided to follow a similar pattern. Therefore, it may be worthwhile to examine the financing of the PRDCin detail. PRDCis now actively expanding its operation in at least four different areas of the world. In Canada, PRDChas already bequn explorations, and is planning to begin similar ventures in Australia and Indonesia. In Canada, PRDCinitiated the fom,ation of JAPEX-Canada,a joint venture between itself and the Pinnacle Petroleum Companyof Alberta, of which PRDCis also the major stockholder. In greater detail, the arrangement is as follows: PRDCis to buy 863,000 (or 50.1%) out of 1,725,000 shares of Pinnacle at a price of $0.60 Canadian per share. JAPEX-Canadais to be established with a paid in capital of $1.5 million Canadian, with 75 percent ownership by PRDC, and 25 percent by Pinnacle. The share of oil produced will be allocated in the same proportion. PRDC'stotal contribution by the end of 1971 is to be $5 million Canadian, of which $3,750,000 is to be used in the joint venture, and the remainder by Pinnacle in its own ventures. Pin nacle is to be the operator of the joint venture. The JAPEX-Indonesiaproject is similar to the JAPEX-Canadaventure. PRDChas reached an agreement with Pem,ina Corporation, the Indonesia state petroleum concern, according to which off-shore oil fields of East Kalimantan will be developed by Japanese capital, technoloqy, and equip ment with a minimumplanned investment of $7.5 million. This venture will eventually be joined with the North Sumatra Offshore Resource DevelopmentCompany, which is another subsidiary of PRDC,to fom, JAPEX- 132 Indonesia. On the same basis, a JAPEX-Australia venture is being pro moted in order to develop the petroleum resources of East NewGuinea, and other similar ventures are being contemplated. The Alaska Petroleum Development CompanyLimited The Alaska Petroleum Development CompanyLimited was incorporated on September 3, 1966 with an authorized capital of 16 thousand million yen and a paid-in capital of four thousand million yen. The initiative for its formation came from the Teikoku Oil Companyand APDC's stock holders make up a list of a number of the most imoortant manufacturinq and energy-using corporations in Japan, a fact which can be seen from the positions of its officers and board of directors, in the following 1is t. Position Name Principal Concurrent Positions Chairman Soichi Matsune Vice Chairman of Atomic Energy Industry Counci1 President Kazuo Hayashi President, Teikoku Oil Co., Ltd. & Kyodo Oil Co., Ltd. Senior Executive Yasuo Niki Executive Director, Alaska Pulp Director Co., Ltd. Executive Director Satoru Sasaki Director Junichi Tsuboi II Yoshiya Ariyoshi President, Nippon Yusen Kabushiki Kaisha (The Japan Steamship Co., Ltd.) II Masao Anzai President, Showa Denko K.K. II Yoshihiro Inayama President, Yawata Iron & Steel Co., Ltd. II Hiroki Imazato President, Nippon Seiko K.K. II Katsujo Kawamata President, Nissan Motor Co., Ltd. II Kazutaka Kikawada President, Tokyo Electric Power Co.,Inc. II Fumihi ko Kono President, Mitsubishi Heavy Industries, Ltd. II Toshio Doko President, Tokyo Shibaura Electric Co., Ltd. II Shigeo Nagano President, Fuji Iron & Steel Co., Ltd. II Shingo Fujioka President, Mitsubishi Oil Co., Ltd. 133 Position Name Principal Concurrent Positions Director Hirotoshi Honda President, Tokyo Gas Co., Ltd. II Masao Matsuda Vice President, Alaskan Pulp Co., Ltd. II YosomatsuMatsubara Chairman, Hitachi Shipbuilding & Enqineering Co., Ltd. II Yasuichi Mirna President, Nippon Mining Co., Ltd. Auditor Tadao Sasayama President, Alaska Pulp Co., Ltd. Co., Inc. It incorporated its subsidiary Alaskco as an American resident corporation in Alaska in 1967. Shortly after the formation of Alaskco, its representatives announced its intention to participate in joint exploration ventures in the Cook Inlet and Bristol Bay areas with Gulf Oil Company. These moves were made only after a lonq controversy within Japanese business and government circles over the desirability of major resource development investments in Alaska, and the success of this venture is considered crucial in the contemplation of further expansion of Japanese investment in Alaskan resource development. The first serious interest on the part of Japanese capital in petroleum exploration and development in Alaska came from Teikoku Oil Company,one of the largest refiners and distributors in Japan not tied to one or more of the major international oil companies. Because of the large capital investment required for an Alaskan venture, Teikoku arranged several meetings with major figures in Japanese finance and industry to induce their participation in the formation of APO. During these negotiations, Teikoku met strong opposition from the Japan Petro leum Industry Association, the organization of the Japanese refiners. The chairman of the Association publicly denounced the Alaska project, insisting that it was unnecessary, too big, and too risky. As suggested before, this attitude on the part of the refiners is not unrelated to their complicated connections with the foreign oil companies. APOmet serious resistance from the Japanese refinery industry from its beginning. The main criticisms of its program were: 1) the possibility of U.S. restriction on export of oil in case of emergency, 2) the high cost and high risk of ventures in Alaska, 3) the probable high price of developed oil. There were repeated warnings that it was unrealistic to expect an Alaskan "miracle" on the order of Idemitsu 1 s success in Saudi Arabia. APOitself was aware of the special problems involved in Alaska operations, and had secretly proceeded in negotiations with Gulf Oil, one of the major world oil companies, on the possibilities of a joint venture in Alaska. MITI was also in favor of the joint ven ture method rather than an exclusive operation by APO. Hence, when Alaskco, a wholly owned subsidiary of APO,was incorporated in Juneau 134 in January 1967, the change in APD's plan from an exclusive venture was already an open secret. Gulf could also expect some advantages from a joint venture for three reasons: 1) Gulf already holds about 200,000 acres under lease in the Bristol Bay and Cook Inlet areas, and Japanese capital would be made available to carry on exploration on these leases, 2) APOis strongly backed by the Japanese government in its financing, and 3) the joint venture will have a secure share of the Japanese market when production beings. The agreement announced on January 11, 1967 provided for a 50-50 share, both of expenditures and the oil produced. DEMANDFOR NATURAL GAS 2 The demand for natural gas is dependent upon the growth of industries techn expand even more rapidly in future. Thus far, we can point out five major consumer groups for natural gas in Japan: l) the chemical and petrochemical industry, 2) household and business consumption of city gas, 3) manufacturing in general, 4) electric power supply, and 5) mining. We shall first examine the growth of demand for natural gas in specific segments of the Japanese economy. The chemical industry utilizes natural gas in the production of methanol, ammonia, acetylene, etc.3 However, these products can also be manufactured from other raw materials such as crude oil, naphtha, crude oil gas, and refinery gas. In Japan, ammoniaproducers began utilizing natural gas in 1958, and the share of natural gas used in this area has rapidly increased since that time. In 1965, 18 percent of the total ammoniaproduced utilized natural gas as its feedstock. Recently, Japanese (domestic) natural gas production has tapered off, and there is a serious problem in supplying natural gas for the industry. As a direct result of these considerations, Japan Gas-Chemical Companydecided to enter into a joint venture for the production of ammoniaand urea in Alaska. The company acceded to the urging of 2 The following conversion tables might be useful in reading this section: 3 t m Mcf 1 metric ton (t) = 1 1402 49.5 3 1 cubic meter (M ) = .000713 1 .0353 1000 cubic feet (Mcf) = .0202 28.32 1 ¥/t ¥/m3 $/Mcf 1 yen per ton (¥/t) = 1 .000713 .000561 1 yen per cubic meter (¥/m3) 1402 1 .17868 1 dollar per 1000 cubic feet ($/Mcf) = 17820. 12. 71 1 3 See also Industrial Bank of Japan, Trends in Petrochemicals and AmmoniumFertilizers, Japan, Appendix 2 of this report. 135 the Japanese government in decreasing its scale of operation in its existing plants in Japan, so that it could concentrate on developing operations in Alaska, and so that excess capacity would not depress the Japanese petrochemical industry as a whole. The government also induced the Companyto offer an indirect share of the project to Tokai Chemical Company,whose operations in Japan would also be cut back as a result of the increased supply of urea from Alaska. In the long run, however, the demandfor ammoniaand urea is expected to increase as a result of the growing demandfor chemical fertilizers throughout the world. The production of petrochemical products in Japan has increased tremendously in the last nine years. Table V-2 below shows just how rap y 1,700 million yen but by 1965, it had increased to ,213 million yen. In line with the sharp rise in production, the demandfor feedstock has naturally increased; this trend is expected to continue. For example, the industry expects the demandfor methanol to increase more than 50 percent between 1964 and 1968, and the demandfor ammonia30 percent in the same period. TABLEV-2 Value of Petrochemical Output, Japan 1957-1965 Value of Production Year (1000 million yen) 1957 1. 7 1958 11. 1 1959 29.5 1960 53. 1 1961 84.5 1962 127.2 1963 134.8 1964 239.4 1965 321.3 Source: Sekiyu KagakuShimbunsha, Sekiyu Kagaku K6gy6Nenkan (Petrochemical Industry Yearbook) 1966. At the same time, exports of petrochemical products have expanded steadily in the last few years. According to the 1966 Tsush6 Hakusho (CommerceWhite Paper), Japan's exports of chemical products expanded by 74 percent between 1963 and 1965, and the exports of chemical fertilizer by approximately 50 percent in the same period. 136 TABLEV-3 Feedstocks Utilized in the Production of Ammonia, Japan 1963-1965 (Unit: 1000 tons) Year Crude Oil Refinery Gas Natural Gas Total 1963 766 119 355 1241 1964 888 152 354 1394 1965 950 163 395 1508 Source: Sekiyu KagakuShimbunsha, Sekiyu Kagaku KogyoNenkan (Petrochemical Industry Yearbook) 1966. The increased demandnecessitated by the growth of the petrochemical industry was filled by a combination of crude oil, refinery gas, naphtha, etc. Because of the stagnation in production in the Niigata area, however, the proportion of natural gas input as feedstock has tended to drop in the last three years. In its project resume submitted to MITI, Japan Gas Chemical Companyexplains that Japan's natural gas production cannot meet the huge demands of the chemical and petrochemical industry; hence, the short supply of natural gas hinders the expansion of production capacity and holds up the cost of domestic production. Japan's petro chemical plants are now of a relatively small scale and production costs, whatever the feedstock, tend to be higher than those in the United States and in some European countries where individual operations are larger. City Gas The consumption of natural gas for heating, cooking, etc., by house hold and business has steadily increased. Between 1955 and 1964, the consumption of natural gas for city gas has increased from 23 million cubic meters to 344 million, 12 percent of the total consumption in 1964. Electric Power Supply The third largest object of consumption for natural gas is the production of electric power. Until ve~y recently, natural gas was not used for power generation, but in 1963 its use was begun by 137 TABLEV-4 Production of Methanol from Natural Gas, Japan 1960-1964 Methanol Produced From Natural Gas Percentage of Total Year (thousand tons) Methanol Produced 1960 160.2 78.2 1961 205.2 81. 9 1962 294.3 97 .1 1963 309. 1 91. 7 1964 326.9 82.0 Source: Tennengasu Kogyokai, LNG,Tokyo 1966, p. 143. Tohoku Electric Company,and by 1964 generation was consuming about 120 MMm3. Hydroelectric power has becomemore expensive in Japan because prime construction sites for hydro-generators have become scarcer and more remote from industrial centers. In addition, the problem of air pollution has increased the attractiveness of natural gas over its competitors in the thermal generation field as it contains a relatively small quantity of sulfur. A major factor in the Tokyo Electric Power and Tokyo Gas Companies' decision to import LNGfrom Alaska was the low sulfur content of that type of fuel. According to the Overall Energy Council's estimates, the input of LNGfor the supply of primar~ industry will increase from 2.4 x 1013 kilo liters in 1970, to 5.2 x 101 by 1975. Patterns of Natural Gas Utilization by Japanese Industry There are two contrasting patterns of natural gas input for Japanese industry, location of the plant at the gas field, and transportation of gas to the plant. First, the chemical and petrochemical industry considers it more profitable to produce ammonia, methanol, and urea at the site of the natural gas supply if the latter is cheap, of good quality, and large enough to cover a long~term investment commitment. This was the reasoning behind Japan Gas Chemical's decision to enter into the joint project with 138 Collier Carbon and Chemical Companyin Alaska. Second, in most case~, the input of natural gas as a supply of primary energy requires its transportation to the plant site, rather than locating the plant at the gas field. Manyof the technical problems in the liquefaction and trans portation of natural gas have already been solved by CAMEL'sAlgerian project. Tokyo Electric Power Companyand Tokyo Gas Companyhave signed an agreement with Marathon and Phillips for the import of liquefied natural gas from Alaska. In both the ammonia-urea complex and the LNG venture, Japanese industry will finance directly a part of the total capital investment. This pattern of promoting and assuring the fmport of vital crude materials and energy resources, called kaihatsu yunyu (develop ment imports), is now a popular approach within both the private and government sectors of the Japanese economy. SCALEOF CAPITALOUTLAY IN LNGIMPORTS According to the Phillips-Marathon-Tokyo Electric Power-TokyoGas Companyagreement, an estimated 960,000 tons of LNGper year will be exported from Alaska to Japan, at a price of $0.52 per million BTU(or $0.20 per thousand kilocalories) over a period of 15 years. The liquefac tion plant will be constructed at Nikisiki, Alaska, and the vaporization plant at Negishi on Tokyo Bay. Two30,000 ton-capacity-LNG tankers will be used for transportation of LNGbetween Alaska and Japan. Some idea of the outlays involved can be had from the cost for the Algeria LNGproject; $7.3 million dollars for the liquefaction plant, $1.4 million for storage facilities, and $1 .0 million for shipping facilities, for a total of $9.7 million for the facilities for exporting LNGfrom Arzew, Algeria to Canbay, France. In this project, two LNGtankers, each of 12,000 tons, were used. The Alaska-Japan project plans to use two 30,000-ton LNGtankers, making 16 voyages a year between Alaska and Japan. The cost of constructing each tanker (the displacement equivalent of at least an 80,000-ton oil tanker) is estimated at more than $22 million. Tables V-5 and V-6 provide estimates of capital and operating cost and unit cost for the transportation of LNG. In the case of the Alaska-Japan carriage, these figures give us a cost of transportation of about two yen per cubic meter or $0.16 per thousand cubic feet, as the distance between Nikisiki and Yokohamais approximately 5,300 kilometers. Hirakawa has provided some cost estimates for liquefaction and storage. Table V-7 presents his estimates of total construction cost for a liquefaction plant, based on a survey of recent construction and of the literature. The LNGsales contract calls for the delivery of 50 million Mcf per year, or 1,765 MMm3, so that a projected plant capacity of 2,000 MMm3 is rather appropriate. The estimate of $66.7 million total construction costs in this table is substantially higher than the figures released by the parties to the contract, but in view of the propensity for virtually 139 TABLEV-5 LNGTanker Costs Per Year, Exclusive of Fuel and Port Expenses LNGCapacity (tons) 10,000 20,000 30,000 Motive Power (BHP) 12,500 22,500 30,000 Speed (knots) 17. 1 18.5 19.3 Vessel Price (100 million yen) 41. 5 65 85 Annual Cost (million yen) Depreciation Allowance Over 10 years 415 650 850 Over 15 yea rs 277 433 567 Over 20 yea rs 208 325 425 Interest (5.2%/year x 1/2) 108 169 421 Other Expenses 215 255 288 Total Annual Expense Depreciation Over 10 years 738 1,074 l ,359 11 11 15 years 600 857 1,076 11 11 20 years 531 749 934 Source: Tennengasu Kogyokai, LNG,Tokyo 1966, p. 210. all construction cost estimates, especially in Alaska, to be exceeded, it is probably not unreasonable. Table V-8 gives Hirakawa's estimate of operating cost for various size plants, and Table V-9 the total liquefac tion cost. A land tank storage system of 285,000 barrel capacity (19,000 metric tons) is estimated at $2,067,000 ($7.26 per Bbl, or 39,200 yen per ton), a below-ground concrete facility at $2,010,000 ($7.06 per Bbl or 38,100 yen per ton) and for a tank under frozen ground, $1,765,000 ($6.19 per Bbl, or 33,400 yen per ton). Table V-9 relates the size of tank to the annual cost of operation. 140 TABLEV-6 Distance of LNGTanker Voyage, Capacity, and Cost (Depreciation over 10 years, Interest Rate Based on Long Tenn Average} Voyage Distance (kilometers) 1,000 2,000 3,000 5,000 Voyage Distance (nautical miles) (540) ( l ,080) (1,620) (2,700) 10,000 Ton Tanker Ann l Shi rmi ( thousand terns 487 346 266 181 Annual Shipping Capacity (MMm3 ) 682 485 372 253 Total Annual Expense (million yen) 834 846 852 860 Shipping Cost (yen per ton) 1,710 2,440 3,210 4,750 3 Shipping Cost (yen per m ) 1.22 1. 74 2.29 3.40 20,000 Ton Tanker Annual Shipping Capacity (thousand tons) 996 714 560 384 Annual Shipping Capacity (thousand tons) 1,394 1,000 784 538 Total Annual Expense (million yen) 1,231 l ,256 1,267 1,284 Shipping Cost (yen per ton) 1,240 1,760 2,264 3,350 3 Shipping Cost (yen per m ) 0.89 1.26 1.62 2.39 30,000 Ton Tanker Annual Shipping Capacity (thousand tons) 1,540 l, 118 876 608 3 Annual Shipping Capacity (MMm) 2,156 1,656 1,226 851 Total Annual Expense (million yen) 1,577 1 ,612 1,632 1 ,653 Shipping Cost (yen per ton) 1,025 1,445 1,865 2,720 3 Shipping Cost (yen per m ) 0.73 1.03 1. 33 1. 94 Source: Tennengasu Kogyokai, LNG,Tokyo 1966, p. 213. 141 TABLEV-7 Total Construction Cost of Gas Liquefaction Plant, by Scale Scale of Plant Construction Costs (MMm3per year) (100 million yen) (million dollars)l 1,000 120-150 37.5 3,000 285-360 90.3 4,000 340-440 108.3 1Midpoint of range. Source: Tennengasu Kogyokai, LNG,Tokyo 1966, p. 193. Finally, we have an estimate for storage costs per ton of LNG, as shown in Table V-10. Table V-12 assembles the appropriate cost estimates from the previous tables in order to impute the price of crude natural gas delivered to the liquefaction plant. On the whole the costs estimated have been conserva tive, especially where they depend upon an estimate of capital expense, and no allowance has been made for purification of the gas or for pre compression. (The gas from the fields in question are virtually free of H2S, but CO2and moisture removal will be necessary; the high wellhead pressures will probably obviate the necessity for pre-compression.) If processing, storage, or transport costs have been underestimated, the fifteen cent price imputed for the gas itself is too high. Nevertheless, this figure is identical to the price being quoted in Alaska for other prospective large sales, so that the relative proportions are probably realistic. AMMONIA-UREAPROJECT In addition to LNGexports, another project involving Alaska natural gas has been initiated, a joint venture between Collier Carbon and Chemical Company,a subsidiary of the Union Oil Companyof California, and Japan Gas-Chemical Company,for the production of ammoniaand urea. The capital investment is expected to be about $50 million, with an eventual produc tion of 1,600 tons per day of ammoniaand 1,000 tons per day of urea, using 142 TABLEV-8 Liquefaction Plant Operating Costs Scale of Plant Annual Expense Annual Expense 1 (MMm3per year) (1000 million yen) (million dollars) 1,000 7-10 2.36 2,000 14-18 4.44 ?i,000 19 6 25 4,000 24.5-32 8.06 1Midpoint of range. Source: Tennengasu Kogyokai, LNG,Tokyo 1966, p. 198. 20,000 MMcfper year of natural gas. According to statements from Collier, plants will be completed by 1968, and will directly employ 125 workers, with an estimated annual payroll of around $1.3 million. The Company also says that another 350 permanent jobs in the area will be dependent upon the project, but it is not at all clear what the basis is for this estimate. TABLEV-9 Annual Expense for LNGStorage Facilities (thousand yen per ton capacity) Annual Basic Tank Capacity Capital (tons) Charge Tank Tt~e 5,000 10,000 20,000 12% Above Ground Tank 9.44 6.47 5.01 Frozen Ground Type Tank 8.24 4.62 4.40 15% Above Ground Tank 10.40 8.10 6.25 Frozen Ground Type Tank 10.30 7.04 5.52 17% Above Ground Tank 11. 81 9. 17 7.10 Frozen Ground Type Tank 11. 68 7.96 6.25 Source: Tennengasu Kogyokai, LNG,Tokyo 1966, p. 205. 143 TABLEV-10 LNGUnit Storage Costs, by Numberof Tanker Voyages Unit: yen per ton of LNG(yen per m3 of natural gas) Annual Capital Storage Facilities Tanker Voyages (Crossings per Year) Charges Construction Costs 50 40 30 20 12% 60,000 yen per ton 216 (0.15) 270 (0.19) 360 (0. ) 540 (0.39) 50,000 II II II 180 ( 0. 13) 225 (0.16) 300 (0. ) 450 (0.32) 40,000 II II II 144 ( 0. 10) 180 ( 0. 13) 240 (0. ) 360 (0.26) 15% 60,000 yen per ton 270 ( 0. 19) 337 (0.24) 450 (0. ) 675 (0.48) 50,000 II II II 225 (0.16) 281 (0.20) 375 (0. 7) 563 (0.40) II II II I-' 40,000 180 ( 0. 13) 225 (0.16) 300 (0. ) 450 (0.32) +: +:- 17% 60,000 yen per ton 306 (0.22) 382 (0. 27) 510 ( 0. ) 765 (0.55) 50,000 II II II 255 ( 0. 18) 319 (0.23) 425 (0. ) 638 (0.46) 40,000 II II II 204 ( 0. 15) 255 (0.18) 340 (0. ) 510 (0.36) 1 The relationship between the number of voyages and the transport distance for LNGtanker with a speed of 17 to 19 knots is as follows: Vo~es Per Year 50 40 30 20 Sea Distance (kilometers) 1,000 l, 700 2,700 4:.800 Source: Tennengasu Kogyokai, LNG, Tokyo 1966, p. 206. TABLEV-11 Ex-plant Cost of LNG 3 (Gas Price plus Liquefaction Costs 1 : yen per m ) Price of Gas 3 Delivered to Annual Capital 2 Scale of Plant (MMmper year) the Plant Expense 1,000 2,000 3,000 4,000 3 1 O yen/m 3 14 ?,89 2 74 ? ($0.0787/Mcf) 10 3.43 3. 13 2.96 2.83 13 3.87 3,49 3.28 3 .13 16 4.30 3.85 3.61 3.43 2. 0 yen/m3 8% 4.27 4.02 3.87 3,76 ($0.1573/Mcf) 10 4.56 4.26 4.09 3.96 13 5.00 4.62 4.41 4.26 16 5.43 4.98 4.74 4.56 3.0 yen/m3 8% 5.40 5 .15 5.00 4.89 ($0.2360/Mcf) 10 5.69 5.39 5.22 5.09 13 6.13 5.75 5.54 5.39 16 6.56 6.11 6.87 5.69 1Excludes cost of compressing to 40 kg/cm2 and purification (extrac tion of H2s, CO2 and H20). 2oeprec1a . t. 10n, 1n . t eres t , t axes. Source: Adapted from Tennengasu Kogyokai, LNG,Tokyo 1966, p. 198. Direct employmentestimates given by Collier and by Japan Gas-Chemical are somewhatcontradictory. Japan Gas-Chemical will participate only in the urea plant, ammoniabeing supplied from Collier's ammoniaplant. For the production of 1,000 tons per day of urea, Japan Gas-Chemical estimates manpowerneeds at 17 production operatives, a supervisory staff of five, and a handful of secretarial and managerial positions. In all, the total employmentat the urea plant is not expected to exceed 30 persons. This means that Collier will employ the remainder of the 125 (or about 95 persons) in production, managerial, and maintenance jobs. Assuming that half of these positions are of an office work nature (Japan Gas Chemical's portion of the complex will also be operated and administered by Collier), somewherebetween 40 and 50 persons would have to be involved in production and maintenance at the ammoniaplant. In view of the state of technique in industry, this seems an extremely high estimate. Private 145 TABLEV-12 ComponentCosts of Delivered Price, Alaska LNG 3 yen ~er m cents ~er Mcf Contract price, C.I.Fi Negishi 6.61 52.0 less transport cost 2.04 16. 1 Imputed price F.O.B. Nikiski 4.57 36.0 less storage cost2 .17 1.3 4.40 34.6 Imputed ex-plant price 3 l -- -- Imputed input price 1. 91 15.0 Note: Residuals in cents may not be precise because of derivation from yen figures. 1 3 .61¥/m3 _ Table V-6, [shipping cost (¥/m) for 5000 km]+ 300 x 5000_3000 - 1 .94 + .09. 2Table V-10, storage cost based on 30 visits per year, lowest cost tank [seep. 142], 12%capital charges. 3Table V-11, 2,000 ton plant and 12%capital charges assumed; liquefaction costs and gas price simultaneously determined by: liquefaction cost= 2.26 + (capital charge - lO)x.12 + (gas price - 2.0)x.13. = ex-plant price - gas price. So, 1.13 x liquefaction cost= 2.26 + .24 + .13 x 2.40 + 2.49 estimates by officials of other chemical firms for employment in both plants are in the vicinity of 100 positions in the first year, settling down to a permanent staff of about 40. Also, the estimated employmentof some 350 resident workers outside the plant proper is open to question. Because production and office workers are to be recruited directly by Collier, the additional positions presumably are in the areas of longshoring and warehousing, dock maintenance, etc. Manyof these jobs would not be of a year-round nature, such labor being necessary only on the arrival or departure of a tanker. Movementof labor power into the area in the hopes of this kind of employmentmay only help perpetuate a long-standing problem of Alaska's smaller ports, seasonal or sporadic employment. The frequency of sailings between Japan and Alaska is still indefinite, but assuming one voyage per month, longshoremen and warehousemencannot expect regular employmentas a result of this project. The completion of the LNGplant and further industrialization of Kenai area, however, ought to provide complementary demandfor these and a host of other services, and so help stabilize the level of employment. 146 PARTVI PROSPECTSFOR ALASKA-JAPAN TRADE RELATIONS IN MARINEPRODUCTS Salvatore Comitini HISTORYOF RECENTCONFLICTS OVER MARINE RESOURCES IN THENORTHEASTERN PACIFIC Japan fishes for salmon and halibut in North Pacific waters east of a line drawn at 175° west longitude under an international agreement -- the North Pacific Fisheries Convention of 1952 with the United States and Canada. This 1i ne is more than 600 mi1 es off Bristol Bay and two thousand mi·1 es from Seattle. On the western side of this line, Japan fishes for salmon under a convention with Soviet Russia -- the Northwest Pacific Fisheries Convention. On both sides of this line, therefore, Japan is under treaty obligation to abide by the provisions of both these treaties which, in effect, prohibit Japanese fishing relatively close to the coastal waters of Asiatic Russia and the Northwest Pacific coast of North America. It has been found -- that is, scientific evidence developed by the North Pacific Fisheries Commissionclearly indicates -- that Asiatic- and American-origin salmon intermingle over these vast areas of the central North Pacific. This has caused some widespread dissatisfaction amongthe American salmon fishermen because they contend that the Japan-United States-Canada Tripartite Agreement specifically forbade them to fish for any salmon of North American origin. The Japanese contend that the line was drawn not specifically to prevent them from fishing North American 3tocks but primarily to fix a line which presumably equitably divided the stock. Therefore, it was assumed that the Japanese would in fact be taking some of the North American salmon. The Japanese also contend that their high-seas salmon fishing has had no detrimental effect upon the conservation and growth of red salmon resources of North American origin and that the fluctuations in the salmon runs of the Bristol Bay fishery are primarily due to natural factors. The Japanese are also dissatisfied with the provision in the North Pacific Fisheries Conven tion which prohibits them from fishing in the area east of this line, that is the so-called 11abstention principle. 11 Although the original ten year term of the convention has expired and can now be terminated on a one-year notice in the annual renewals between the three countries, Japan has made it plain that she still does not accept the idea that countries can prevent others from fishing over wide areas of the ocean hundreds of miles from the shore. She claims, in effect, that just because a stock spawns in the rivers of a particular nation, it is not necessarily the property of that coastal nation if, in fact, it feeds and grows on the common-propertyocean pastures. The Japanese have proposed a renegotiation of the North Pacific Fisheries Convention on some basis of shared utilization of the fisheries resources, taking into account the preferential position of the United States and Canada in regard to the salmon stocks of North American origin. They feel that a commonsolution can be found and would be acceptable to all parties if this principle of abstention is satisfactorally denied as legal in inter national law. 147 The conflict over the marine resources adjacent to Alaska might be said to have originated with the Truman Proclamation in 1945, which in effect was the forerunner of the abstention principle. The Truman Proc lamation established that any nation that has subjected one of its own coastal fisheries to investigation and regulation for the purpose of conserving the fishery, and is making as full use of it as should be made, has the exclusive right to that fishery as far offshore as it extends. The United States has made every effort to establish this principle as part of international law, first at the RomeConference in 1955, then at the meeting of the International Law Commissionin 1956, and finally at the United Nations Law of the Sea Conference in 1958 -- all without success. The Convention on the Continental Shelf, drafted at the United Nations n in , 1ares coastal state exercises sovereign rights, or jurisdiction, over the con tinental shelf for the purpose of exploring and exploiting its natural resources, and it goes on to define natural resources as including not only the mineral and other non-living resources of the seabed and subsoil but also living organisms which belong to sedentary species, or are immobile on or under the seabed, or are unable to move except in constant physical contact with the seabed or the subsoil. This convention having been ratified by the requisite number of signatory nations has become a part of international law. It, therefore, confirms the right of the United States to claim the clams, crabs, oysters, abalone, and other species which live on the "seabed ... of the submarine areas adjacent to the coast but outside the area of the territorial sea to a depth of 200 meters or, beyond that limit, to where the depth of the superadjacent waters admits of the exploitation of the natural resources of the said areas ... 11 (Article 2, Subpara. 4) In May, 1964, the Bartlett Bill (S.1988) was introduced in the Con gress, one aspect of which was to carry out for the United States the intentions expressed in the continental shelf convention. Whenthe Bart lett Bill was signed into law, President Johnson acknowledgedthat king crab was to be included as a cont,nental shelf resource. The Japanese had been taking king crab in the eastern Bering Sea, in the Bristol Bay area and off the Pribilof Islands, and Russia was trawling for king crab off Kodiak Island as well as crabbing with tangle nets in Bristol Bay. The Bartlett Bill, together with the Convention, could have poten tially halted Japan and Russia from continuing their king crab operations on these areas of the United States continental shelf. However, the situation was complicated somewhatby the fact that the Soviet Union, but not Japan, is a signatory to the Convention, and also by the fact that Japan has been fishing for king crab in these areas since 1930, whereas the Soviet Union crab fishery has been operating only within the last six years or seven years. The Japanese, then, could claim "historic rights" to this resource. Before the bill was signed into law, the Japanese attempted to exempt king crab by entering into negotiations with Washington. The United States position, however, was that the bill merely implements the Convention agreement. Nevertheless, the 11 President did say: ••• since the waters over the continental 148 shelf are high seas, efforts will be made to work out in advance with foreign countries procedures for enforcement there. 11 The question of the international king crab fishery is a very complex and delicate one because it involves some definition of "historic rights." That is, while the Japanese have been operating in this fishery for some 35 years, the Soviet Union Bristol Bay fishery dates only to 1959, which presents a question as to whether an 11historic fishery 11 is involved. In order partially to resolve these questions related to the inter national king crab fishery, two separate meetings were held in 1964 between United States officials and delegates from both Russia and Japan. The meeting with the Soviet Union in June, 1964, resulted in an agreement designed to minimize damage to gear of American king crab fishennen in Kodi Al general area. One month before the signing of the U.S.S.R.-United States King Crab Agreement, the Japanese and the United States concluded their consulta tions regarding king crab fishing in the eastern Bering Sea. The dele gations agreed to recommendarrangements which would regulate the king crab fishery of both countries for a two year period and that at the end of such time the two governments would hold further consultations. The negotiations resulted in a reduction in Japan's harvest to a maximumof 185 thousand cases annually for the two year period. This represented a decrease of about 21 percent below the reported Japanese annual average production of 235 thousand cases during the past several years. The Japanese agreed not to use tangle nets in a 3,400 square mile area north of Unimakand AmakIslands as well as to establish conservation measures such as minimumsize requirements for crabs taken, mesh size limits, recommendations that pots be used only in certain areas to avoid gear conflicts, and limiting fishing in the next two years to presently exploited areas. Under the agreement, each nation would regulate its own fisher- men with observation pennitted to the other party. With regard to the continental shelf Convention and the Bartlett Act, the two delegations 11faced with the opposing legal positions of the two governments regarding rights under international law to fish the king crab resource ... agreed on technical arrangements without prejudice to the legal position of either side. 11 At the time of the Japanese-United States consultations on king crab, a movementwas made to bring king crab under the jurisdiction of the International North Pacific Fisheries Treaty which was concurrently being negotiated in Tokyo. At the present time, king crab falls within the scope of the North Pacific Fisheries Treaty for biological research, but there are no current regulations on gear, catch, and expansion of the industry. Under the International Waters section of Alaska's commercial fi~hing regulations for 1964, the Alaska Department of Fish and Gamebroadened the species and covered waters to include tanner and dungeness crab besides king crab, and the area was increased to include any waters seaward of that officially designated as the territorial waters of Alaska to a depth 149 of 200 meters or, beyond that limit, to where the depth of the superadja cent waters admits of the exploitation of these crabs. This action expanding the covered international waters (from previously only those seaward of Cook Inlet and Kodiak) was taken by the Department to assert and demonstrate Alaska's interest in the conservation of the resources of the continental shelf as outlined in the 1958 U.N. Geneva Conference on the Law of the Sea. Alaskan private fishing interests wanted a ban on all foreign fishing operations in the eastern Bering Sea over the United States continental shelf under the provisions of the Bartlett Act passed by Congress in May, 1964. As previously mentioned, President Johnson pledged, however, that before implementing the act the United States would consult with Japan and give full consideration to Japan's "historic rights." It was by BurPau 1 i 1 there were more than 350 Soviet and Japanese fishing vessels operating off the Alaskan coast -- about 200 of these Japanese ships. These ranged from exploratory fishing vessels in the gulf of Alaska to factory-ships in the Bering Sea. Of the Russian fleet, there were 116 trawlers, 19 refrigerator ships, three factory vessels and various transport vessels, fishing primarily for Pacific Ocean perch east of Kodiak and a smaller trawler fleet southwest of Kodiak. There was also a king crab factory ship with two smaller sister-ships each with at least two tangle-net setting trawlers operating in the Bering Sea both north and east of Unimak Pass. The Japanese operations included two factory-ships each with 12 trawlers fishing for shrimp north of the Pribilof Islands, two factory-ships each with six catcher boats taking king crab with tangle-net gear in outer Bristol Bay, two fishmeal factory-ships each with 30 trawlers on the "flats" of outer Bristol Bay near Port Moller. There were also two fishmeal factory-ships operating in the eastern Bering Sea northwest of the Pribilofs and another two just north of UnimakPass -- each of the fleets having 28 trawlers. Also, there was one factory-ship whaling in the western Aleutians with seven whale-killer units and one expected to operate in the Gulf of Alaska between Kodiak and Dixon entrance. In addition, there were various exploratory fishing trawlers seeking pri marily Pacific Ocean perch and bottomfish resources. These activities caused widespread alarm amongWestern fishing interests and there was growing agitation for the United States to adopt a new twelve mile territorial fishing limit in accord with the recommen dations of the U.N. Law of the Sea Conference. The twelve mile terri torial fishing law passed by Congress in October, 1966, was strongly protested by Japan, who adheres to only three nautical miles and does not recognize the right of any nation unilaterally to extend its coastal fishing limits. This precipitated another series of negotiations in view of the consideration that Japan has the right to abrogate the North Pacific Fisheries Treaty at any time. The United States in enforcing the new twelve mile limit would thus have to think of the cost involved to both sides. 150 It was surmised by the American team of negotiators that to enforce the twelve mile limit law west of 1750 west longitude would jeopardize the North Pacific Treaty. The Japanese position was that they would agree to recognize the twelve mile fishery limit but insisted on salmon also being recognized in the agreement, whereupon the American negotia tors felt there would have to be some compromisewith Japan in order to enforce a twelve mile limit. The American side knew, however, that al though Japan wanted to end the salmon treaty, Japanese fishing circles were seriously concerned over threatened incursions by South Korea and Nationalist China into the high seas salmon fishery. Presumably, Japan began to recognize that without a treaty there would be nothing to pre vent South Korea and Nationalist China from entering this highly lucra tive fishery. As it developed, salmon was not considered a part of the protect the separate agreement made with the Soviet Union in regard to enforce ment of the twelve mile limit. This new agreement specifies that no Japanese king crab fishing would take place south of the Aleutians, and that Japanese trawling could continue within the fishing zone of the Aleutian Islands but with seasonal. restrictions in some areas to avoid damage to American king crab gear. In all other areas of Alaska and mainland United States, Japanese fishing is prohibited within the twelve mile fishery zone. Outside of the fishery zone, on the high seas, there were a number of areas specified near Kodiak and UnimakIslands in which no Japanese trawling or longlining would take place during the six-month period of a year when American king crab and halibut gear are most heavily concentrated in these areas. Although the Japanese preferred a long-term agreement in order better to plan their fisheries operations, the United States pressed for, and won, a two-year entension of the previous agreement, hoping that American ground fish operations might expand and therefore provide a better bargaining position at subsequent meetings. It was found, for example, that it is difficult to convince the Japanese that they should refrain from fishing for ocean perch in expanded U.S. territorial waters when not a single American vessel is fishing for perch north of the State of Washington. The annual Japanese king crab quota for 1967 and 1968 was set at the equivalent of 163 thousand cases to avoid possible overfishing. The dele gations also agreed to recommendfurther study and research of the king crab resource in the eastern Bering Sea and presentation of the results to the International Commissionunder the North Pacific Fisheries Convention. The conferences with both Russia and Japan were occasioned by: (1) their increased commercial fishing operations off the west coast of the United States; and (2) the response by Congress in enacting a new twelve mile law as a protective measure for domestic fishermen. Whereas the Russians readily agreed to stay outside the twelve mile limit, the Japanese consider the restriction a unilateral impairment of their historic fishing 151 rights off the North American coast. Practically speaking, the Japanese have no obligation to staying twelve miles off the coast of Washington and Oregon, but they do resist being pushed farther away from the coast of Alaska. Specifically, this concerns the salmon that the Japanese are permitted to take on the high seas west of 1750 west longitude. A portion of the Aleutians, lying within the new twelve mile fishing zone extends westward beyond the 1750 boundary and its offshore waters are presently open to Japanese salmon fishing. It is claimed by Japan that its fisher men have taken considerable salmon off the end of the Aleutian Island chain in that nine mile zone between the old three mile limit and the new twelve mile limit. The Japanese argue, therefore, that Congress cannot er,act a law which violates a right they enjoy under a treaty entered into previously by the United States. This does present a legal issue for politics and the future of fish conservation in the Pacific. The situation on the part of the United States is extremely delicate because if the point is conceded to the Japanese, it may possibly lead to demands for exceptions to the twelve mile limit from the Soviet Union and possibly other fishing nations. On the other hand, there is a Japanese threat to abrogate the North Pacific Treaty should the United States take a hard line on the Aleutian issue. But again, the Japanese feel a sense of gratitude to the United States who quietly dissuaded the South Koreans from moving into the salmon fishery after alarming the Japanese by announcing their intent to compete with Japan for salmon in the central Pacific. The official agreement regarding the king crab fishery in the eastern Bering Sea with Japan was signed at Washington on November25, 1964, and entered into force on that date (15 UST2076; TIAS 5688). Amendment; November29, 1966 (TIAS 6155). The agreement relating to fishing operations in the northeastern Pacific Ocean with the Soviet Union was signed at Wash ington on December14, 1964, and entered into force on that date (15 UST 2179; TIAS 5703). The agreement relating to fishing for king crab was signed at Washington on February 6, 1967, and entered into force on that date (16 UST24; TIAS 5752). JAPANESESUPPLY AND DEMAND AND PRICE TRENDS FOR MARINE PRODUCTSl Recent and Current Supply and Demand Together with the steadily increasing income levels of Japanese house holds in recent years, the demandfor marine products has steadily risen. This increase in demandhas been reflected in an increase in per capita expenditure by households on marine products, an increase in the consump tion elasticity of demand,2 a high rate of increase in imports, and an increase in the ratio of prices between consuming and producing areas. 1This section is taken from Appendix 6, Annual Report on Trends in the Fishing Industry, (publication of the 55th National Diet, Special Session), Tokyo, 1967. 2The consumption elasticity of demand compares the rate of increase of total household consumption expenditures and the rate of increase of expenditures on a particular commodity. To the extent that the consump tion elasticity is high, a strong demand for the commodity is indicated. 152 The per capita household expenditure on marine products in 1965 increased by about 12 percent over 1964 in urban areas and about 13 per cent in rural areas. These increases were considerably greater than the growth of foodstuffs in general for the total economy. During the period 1960-1965, the mean rate of growth of expenditures on marine products was almost 11 percent in urban areas and almost 16 percent in rural areas. However, between these two areas, there was a considerable difference in the composition of consumption. The demandin urban areas has been primarily for the mediumand high grade fresh and processed fish products. In the rural areas, the demandhas been for the traditional and plentiful species in both fresh and low grade processed form. The demand for animal protein, therefore, has increased both in volume and in diversity. Marine products demandfor food use over the past ten years reflects the follow- ! . ( ) h to more rapid increases rn demand for processed marine products; (2) within the fresh fish species, a trend from the plentiful species (herring, mackerel, saury, squid, etc.) to mediumand high quality fish and shellfish (tuna, salmon, shrimp, crab, etc.) with the latter showing the greater increases in consumption; (3) amongthe processed foods, from the less processed (salted and dried fish) to highly processed items (pickled fish, fish sausage, ham, etc.) with the same shift toward higher quality in each kind of product. As a result of these changes, fresh fish and shellfish have fallen as a proportion of domestic fish and shellfish production for food consumption, and in 1965 the proportion of the catch destined for processed use represented 62 percent. In addition to these changes in the food component, the demand for non-food marine products (especially fishme~l for livestock and poultry feed and fish feed) has continued to rise rapidly. TABLEVI-1 Index of Japanese Marine Fisheries Catch (1960=100) 1960 100 1961 108 1962 111 1963 108 1964 102 1965 111 Source: Appendix 6. The rate of growth of the domestic supply of marine products, on the other hand, has been measurably slower in recent years. As shown in Table VI-1, the Japanese marine fisheries catch in 1965 equalled the catch in 1962. This sluggish growth together with the rapid upward 153 TABLEVI-2 Japanese Supply and Demandfor Fish and Shellfish (thousand tons) Import Index Domestic Destined Domestic Domestic Surplus (+) ( 1960=100) Production For Ex)ort Supply Demand or Deficit(-) Non-food ( 1) (2 (3)=(1)-(2) (4) (5)=(3)-(4) Food Use Use 1960 5,803 555 5,248 5,348 -100 100 100 1961 6,281 524 5,757 5,892 -135 300 121 1962 6,303 654 5,649 5,914 -205 275 199 !-' V1 +:- 1963 6,273 598 5,675 6,113 -43[ 462 436 1964 5,989 716 5,273 5,845 -572 1062 529 1965 6,502 680 5,822 6,477 -655 1487 583 Source: Appendix 6. shifts in demand has tended to put strong upward pressure on the domes tic price level for marine products, thus stimulating imports of the most desirable, scarce fish items. Table VI-2 presents data on the supply and demand for fish and shellfish for the period 1960-1965. From a deficit (represented by the volume of imports) of 100 thousand tons in 1960, the gap between domestic supply and demand continually widened until by 1965 it was six and a half times greater. This represents an average rate of growth of 45 percent per year! As indicated by the index of fish imports, by type of use, the rate of increase of imports for food consumption has been much greater than that for non-food uses. During the past 10 years, although the prices of marine products in both the producing and consuming areas have increased, the rate of been l y of the rise in the consumption elasticity of demand and the relative increase in the demand for higher quality items. Due to this increase in demand plus the relative stagnation of the domestic catch, imports of fish and shellfish have increased from less than two percent to over 10 percent of domestic supply. This is reflected by the relative shift toward fresh and frozen products in the composition of the total value of imports of marine products between 1960 and 1965, as shown in Table VI-3. Imports continue to show high annual rates of growth. The increase in imports from 1964 to 1965 was 40 percent for food purposes and 10 percent for non-food uses. Although still a·relatively small fraction of the total supply, since they constitute mainly high quality items, imports of particular items (e.g. shrimp, herring roe, and fish meal) are becoming a rather high proportion of the total supply of these marine products. Within the non-food component, due to the increased demand for food and the rise in prices in the producing areas, it is becoming very difficult to maintain domestic sources of supply of fish. As a consequence, the relative weight of non-food imports has been rising and in 1965 amounted to 37.5 percent of the non-food supply. · TABLEVI-3 Percentages of Total Value of Japanese Marine Products Imports, by Type of Category 1960 1961 1962 1963 1964 1965 Fresh and frozen 17.0 37. l 43.4 53. l 56.2 57.6 Salted and dried 7.8 7. l 7.7 6.7 8.2 9.6 Agar-Agar 1.3 1.2 0.7 l.9 1.3 1.5 Fish Meal 14.5 11. 8 16.9 18.6 15.2 15.8 Other marine products 59.4 42.9 31. l 19.7 19. l 15. 6 Total 100.0 100.0 100.0 100.0 100.0 100.0 Note: Total may not add to 100 due to rounding. Source: Appendix 6. 155 Projected Future Supply and Demand Based on data for 1955 to 1964 with certain assumptions about future demand for marine products, Japanese officials project marine requirements for 1971 at about nine million tons and for 1976 at about 10 million tons. These represent increases of approximately 32 percent and 47 percent, respectively, over the 1965 catch. Japan's consumption of animal protein is still only one-third to one-half that of the most advanced countries. On the basis of international comparisons, given future increases in national income, Japan will probably remain in the stage of rapidly increasing protein consumption. It follows, therefore, that the projected increases are expected to continue well beyond these years. Based on rural and urban data for 1956 to 1964, it is anticipated that, even with future price increases, a shift in demand in urban areas in favor of meat products will probably be small in view of a relatively weak substitution relationship between medium and hiqh quality fish and shellfish products and meat products. That is, in the cities, there tends to be a strong substitution relationship between the mediumand high quality fish and shellfish and the plentiful fish species. In the rural areas, on the other hand, there tends to be a fairly distinct substitution relationship between the plentiful fish species and meat products. Accordingly, it is possible that the demand for the plentiful species (especially in their fresh use) may decline since their prices have been rising relative to those of livestock products. It can be expected, then, that competition with meat products by the mediumand high grade fish and shellfish will remain strong for a considerable period of time. Furthermore, following the above line of reasoning, it is possible that the urbanization of rural consumption patterns based on recent income increases could cause further substantial differences in favor of medium and high quality fish and shellfish. It can be anti cipated, therefore, that marine products will continue to play an increasingly large role in the animal protein consumption of Japan. A comparison between producer prices as against wholesale and retail prices in consuming areas between the period 1957-1961 and the period since 1961 shows that the rates of increase of wholesale and retail prices in consuming areas has exceeded that of producer prices. The rise in the rate of increase in producer prices between the first and second periods indicates a strengthening of demand as against production. With respect to the large differences in the rates of increase between pro ducer prices on the one hand and consuming area wholesale and retail prices on the other, the content of shipments to the consuming areas reflects both a higher proportion of high quality products for which demand has increased and an increased proportion of high-unit-price imported products. Corresponding to anticipated continued increases in demand for these products, imports are expected to continue to increase at least over the short run. On a long run basis, however, whether imports will continue to be used to fill the gap between supply and demandwill depend on factors such as the ability of Japan to finance 156 a growing deficit in marine products trade and the relative cost of increasing domestic production by a strong effort in developing new fishing methods and new fishing grounds. JAPANESEIMPORTS AND EXPORTS OF MARINEPRODUCTS Imports of Marine Products Controls on Japanese fish imports were lifted in 1961. The result has been a constantly growing inflow of shrimp, sea bream, tuna, herring, salmon roe, and cuttlefish. As previously indicated, the main increases have been in fresh and frozen marine products and in fishmeal. As shown in Table VI-7, 1965 imports of fresh and frozen marine products repre sented a twenty-three-fold increase over 1960 and reflected in their compos tion tendency tor domestic demand to increase most conspicu- ously in the high grade species of fish and shellfish. Heavy sellers in the Japanese market include neighbors like South Korea, the Soviet Union and Taiwan, and more remote fishing nations like Peru, Mexico, Spain, and Australia. The big Japanese fishinq companies have also become leading importers. Imports have been further stimulated by recip rocal deals in which Japan sells vessels and equipment and supplies technical aid in exchange for fish. Specifically, shrimp and prawns largely from CommunistChina, Mexico and Taiwan accounted for about 40 percent of the total value of marine products imports for human consumption in 1965. Imports of dried and salted marine products between 1961-1965 amounted to an eight-fold increase. The domestic supply of marine fodders and fertilizers has not kept up with the growth of demand and imports of fishmeal increased by about seven and a half times during this period. In the first half of 1966, Japan imported 76.2 thousand metric tons of edible fishery products of which about 41 percent came from three communist countries -- China, the Soviet Union, and North Korea in that order. Fresh and frozen shrimp was the largest volume item -- 19.4 thousand metric tons -- of which almost 60 percent came from these three. By the end of 1966, imports of frozen shrimp reached a record 36.2 thou sand metric tons worth slightly over 60 million dollars. This represented an increase of 73 percent in quantity and 67 percent in value over 1965. Just a few years ago -- in 1960 -- shrimp imports totaled a mere 625 tons. This tremendous increase can be attributed primarily to growing demand for this high-priced food brought about by increased earnings of Japanese families. As shown in Table VI-4, the greatest relative increases in United States fish exports to Japan have also occurred in shrimps, lobsters, and prawns -- increasing over 13 times in quantity and over five times in value in 1966 over 1965. However, while most categories showed significant relative increases in 1966, in terms of absolute magnitudes, fresh or frozen salmon and salmon roe represent roughly 80 percent of the total quantity and value of Japanese imports of fish from the United States in 1966. Furthermore, the data show that imports of fish from the 157 TABLEVI-4 Selected Japanese Imports of Fish from U.S. Quantity Value (000 lbs.) Relative ( 000 do11 a rs ) Relative 1965 1966 1966/1965 1965 1966 1966/1965 Fresh, chilled or frozen 1,493 3,701 248 491 l ,099 224 Salmon 1,424 3,149 221 427 878 206 Shrimps, lobsters, prawns 38 507 1334 36 193 536 Crustacea, molluscs 24 16 Salted, dried or smoked 2,522 6,436 255 2,512 6,526 260 Salmon roe 1,995 5,484 275 1,986 5,567 280 Herring roe 480 692 144 496 945 191 Fish roe, n.e.s. 23 a 18 b 11Kurage11 5 5 Fish, n.e.s. 19 24 126 7 13 186 Crustacea, molluscs 2 l Canned 62 205 331 137 354 258 Caviar 55 179 325 132 334 253 Crustacea, molluscs 7 26 371 5 20 400 Salmon a b Crab a b Total 4,077 10,342 254 3,140 7,979 254 (a) Less than one thousand pounds. (b) Less than one thousand dollars. Note: These fish items represented over 90 percent of all imports from U.S. Source: Japan Imports and Exports, Commodity£Y_ Country (Tokyo: Japan Tariff Association, 1 65.12 and 1 66.12). United States are made up primarily of cured fish, representing some 65 percent and 80 percent of total quantity and value, respectively, in 1966. This is also reflected by the relative percentages of Japanese imports, by various methods of processing, from the United States and in total imports of fish, shown in Table VI-5. Based on data for 1965 and 1966, Japan has imported greater amounts of cured fish and lesser amounts of fresh, chilled or frozen fish from the United States relative 158 to total imports of these items. This holds in both quantity and value terms. Imports of canned fish from the United States and as a percentage of total fish imports are relatively insignificant. As might be expected, as shown in Table VI-6, the same tendencies show up in Alaskan fish exports to Japan as a percent of Alaska production in 1965 and 1966. That is, although all categories of fish exports increased relatively, a larger proportion of cured fish products has been exported to Japan than any other category. However, the proportion exported for all other cate gories increased significantly, doubling in most cases, while the propor tion of cured products exported declined by more than 50 percent. For the sake of comparison, in 1965, fresh and frozen fish products represented 52 percent and 54 percent of total quantity and value, respectively, in the Soviet Union's exports to Japan, while cured products represented only l , res ve y. TABLEVI-5 Percent of Japanese Fish Imports Represented by Method of Processing, from U.S. and Total Imports Quantity Value 1965 1966 1965 1966 U.S. Total U.S. Total U.S. Total U.S. Total Fresh, chilled or frozen 32.9 76.3 35.6 75.0 14.5 76.3 12.9 74.8 Salted, dried or smoked 55.6 13.7 59.6 9.1 74.2 13.7 76.7 12.5 Canned l . 4 1 . 5 2.0 0.5 4.1 1.5 4. 2 1. 3 Note: See Table VI-4 for description of items within each category. Source: Table VI-4. Exports of Marine Products Between 1960 and 1965 marine products exports increased at an average rate of seven percent per year -- less than one-sixth the rate of growth of imports of marine products over the same period. Moreover, as shown in Table VI-8, fishery exports increased at a slower rate than the rate of total exports for the Japanese economy-- falling from almost six percent of the total in 1960 to less than four percent in 1965. Over 90 percent of Japanese fish exports are composed of frozen tuna, canned salmon, trout, tuna, crab and like products, whale oil, and pearls. Five countries -- the United States, the United Kingdom, West Germany, Italy, and Switzerland -- account for 60 percent of Japa nese fish exports. The main export market, therefore, is composedof the advanced countries of America and Europe. As shown in Table VI-9, 159 TABLEVI-6 Alaska Fish Exports to Japan as a Percent of Alaska Production, Selected Categories Quantity Value 1965 1966 1965 1966 Salmon, frozen 0.5 0.9 0.3 0.6 Fish, frozen (excluding salmon) 5. l 1.8 ( q \ l ) l? ? 8 9 5 Fish, salted, dried, smoked 72. 7 32.1 98.8 44.3 Shrimp, frozen 3.\ 7. lb Shellfish, frozen (excluding shrimp) a.ob 0.0 a.ob 0.0 Total 0.6 1.8 0.9 2.0 a. See Table VI-12. b. Less than 0.5 percent. Source: Alaska Department of Fish and Game; United States-Japan Trade Council. the proportion of canned seafood and other marine products in the total value of Japanese exports has tended to decline in recent years, while that of frozen marine products has tended to rise relatively. This is undoubtedly due to the fact that the production of such items as salmon, trout, crab, and whale are affected by various international restrictions, and their influence has extended to the export industry. Projected Balance of Trade of Marine Products As concluded in the section on supply and demandfor marine products, based on continued increases in demandfor mediumand high grade fish and shellfish, projected imports, at least in the short run, are expected to continue their upward trend. Of even greater significance, however, is whether additions to domestic supply can be sustained on a long run basis and the method by which these additions will be financed. That is, it can be expected that the Japanese would want to reduce the long run cost of supplementing the domestic supply of marine products through foreign sources of supply. This consideration is of important significance for the prospects of marine products trade between Alaska and Japan, since the policies implemented by the State of Alaska with regard to its marine resources will determine to a large degree the nature and extent of the prospects for trade with Japan. 160 TABLEVI-7 Value of Japanese Marine Products Imports (million dollars) Percent Change 1960 1961 1962 1963 1964 965 (1964-1~§5) Fresh and frozen 2.6 8.4 12.9 31.5 50.3 59.8 18.8 Salted and dried 1.2 1.6 2.3 4.0 7.3 10.0 36.2 Agar-Agar .2 .3 .2 1.1 1.2 1.6 32.2 Fish Meal 2.2 2.7 5.0 11. l 13. 7 16.4 19. 9 Other marine products 9. 1 9.7 9.3 11. 7 17. l 16.2 -5.3 Total Marine Products Imports 15.3 22.7 29.7 59.4 89.6 103. 9 16. 0 r.-' °'I-' Total Imports of Japan 4,491.1 5,810.6 5,636.4 6,736.4 7,937.5 8 168.9 Marine Products as a Percent of Total Imports 0.34 0.39 0.53 0.88 1.13 1.27 Source: Appendix 6. TABLEVI-8 Value of Japanese Marine Products Exports (million dollars) Percent Change 1960 1961 1962 1963 1964 1965 1964-1965) Frozen 51.6 56.9 80.8 72.6 87.1 88.8 2.0 Canned 116.3 99.0 157. 2 122. 3 128.4 136. 5 6.3 Salted and dried 5.8 5.6 5.7 6.0 6.4 6. 1 -4.3 Pearls 30.5 35.8 41.8 47.3 55.l 64.2 16. 6 Other marine products 29.7 31.3 29.6 36.6 37.3 34.9 -6.4 Total Marine Products Exports 233.9 228.6 315 .1 284.8 314. 2 330.5 5.2 I-' C\ N Total Exports of Japan 4,054.4 4,235.5 5,916.1 5,452.2 6,673.0 8,451.6 26.7 Marine Products as a Percent of Total Exports 5.8 5.4 6.4 5.2 4.7 3.9 Source: Appendix 6. TABLEVI-9 Percentages of Total Value of Japanese Marine Products Exports, By Type of Category 1960 1961 1962 1963 -- 1964 -- 1965 Frozen 22.1 24.9 25.7 25.5 27.7 26.9 Canned 59.8 43.3 49.9 42.9 40.8 41.3 Salted and dried 2.5 2.4 1.8 2.0 2.0 1.8 Pearls 13. l 15.7 13.3 16.6 17.5 19.4 I-' Other marine products 12.7 13. 7 9.3 12.9 11.8 10.6 w°' TOTAL 100.0 100.0 100.0 100.0 100 .0 100.0 Note: Total may not add to 100 due to rounding. Source: Appendix 6. Between 1960-1965 the proportion contributed by exports of marine products to the foreign trade of Japan fell by one-third while the pro portion of marine products imports requiring financing by foreign trade increased by almost four times. As shown in Table VI-10, the balance of Japanese trade in marine products has been increasingly unfav orable since 1962. Extrapolating from present circumstances, it can be expected that this tendency will continue in the immediate years ahead. For one thing, given the growing international restrictions on export oriented fisheries, the future catch from operations in traditionally exploited waters will probably decline. ·For example, the 1965 pack of canned crab in the mother-ship crab fishery already declined 10 percent from the previous year. The Bering Sea production alone declined by over 20 percent as a result of the negotiations between the United States . Japan ing number of cannery ships operating in the Okhotsk Sea, has resulted in a five percent decline in that area. Significantly, more than half of Japan's annual output of canned king crab meat has been exported to the United States, the United Kingdom, France, and other western countries, and has consistently been a good money earner. Moreover, due to rising income levels and growing prosperity in Japan, there has developed a strong domestic demand for canned king crab meat. It was reported, for example, that the retail price for this product in the Japanese market in October, 1966, was $1.00 a can -- about the same price as in the United States. These considerations would suggest, therefore, that Japanese exports of canned crab meat will show a tendency to decrease. The same tendencies can be expected in other export-oriented fisheries which are being hampered by international restrictions on their operations. TABLEVI-10 Balance of Trade of Japanese Marine Products (million dollars) Exports Imports Surplus 1960 233.9 15.3 218.6 1961 228.6 22.7 205.9 1962 315. 1 29.7 285.4 1963 284.8 59.4 225.4 1964 314.2 89.6 224.6 1965 330.5 103.9 226.6 Source: Appendix 6. 164 Another aspect to the balance of trade picture which has tended to be unfavorable to Japan is the increasing cost of labor. That is, given the growth of the Japanese economy and rise in labor earnings in the industrial sector, alternative sources of employment have been drawing young workers out of the fishing industry, thus leading to labor shortages and tending to increase the average cost of labor to the fishing industry. Over a period of several years the wage level in the fishing industry has been increasing at a rate of roughly 18 percent per year. This, however, has not adversely affected the small and medium enterprises, since due to rising prices and slower increases in material outlays coupled with a productivity growth rate matching that of labor costs, the rate of growth of gross receipts has exceeded that of expenses and profits have actually risen in the domestic However, the same result is not the case in the larger-scale, export oriented fisheries. Since fish exports compete in foreign markets against foreign sources of supply of fishery products and close-substitute animal protein products, the competitive position of Japanese fish exports is based to a greater extent on cost factors than on demand factors. Demand for marine products is largely a function of economic conditions in foreign countries while supply of exports is a function of domestic costs. Japan has recently faced increasing competition from Taiwan and South Korea, both of whomare rapidly increasing their tuna operations in the central Pacific and Indian Oceans and export most of their catch to the United States. The lower operating costs (largely labor costs) of these two countries have strengthened their position in the international tuna market once considered the exclusive preserve of Japanese tuna fishing enterprises. Similar developments in other high seas fisheries are to a large extent responsible for the decline in new investment in larger-sized fishing vessels. The average size of vessels constructed in Japan during the period 1960-1965, for example, dropped from 160 tons to 127 tons. The recent investment increases have been for vessels of less than 100 tons, especially those operating in the offshore trawl and purse seine fisheries and the nearby skipjack and tuna fisheries, rather than large scale vessels for the high seas tuna longline fisheries, high seas trawlers, mother-ships, freezer-ships, and transport vessels -- all of which are facing downwardtrends. These trends reflect the divergent patterns between domestic and foreign economic conditions. Given the foregoing developments, therefore, the most probable course of events in Japanese trade in marine products is for a continued narrowing of the gap between export receipts and import payments in the years ahead. PROSPECTSFOR ALASKA-JAPAN TRADE IN MARINEPRODUCTS Alaska is the number one fisheries state in the United States with landings valued at close to 75 million dollars and a wholesale value at about 200 million dollars. This is 25 percent greater than the number two state -- California. The fishing industry has played a vital role in the economic development of Alaska for almost 90 years and still remains the number one industry in the state. 165 A glance at Table VI-11 reflects the entire fisheries picture of Alaska, in terms of species and prepared and processed value. Salmon, representing about 70 percent, and crab (mostly king), representing 21 percent, account for about 90 percent of total production. Whenhalibut is added to these two species, the remainder comprise less than four percent of total output of Alaskan fishery products. Further, almost three-fourths of the total represents canned fish -- 90 percent of which is salmon. Frozen fish, more than half of which is crab (mostly king) and a fourth, halibut, account for 26 percent of total output, while cured and fresh are relatively insignificant in the total. As shown in Table VI-12, the biggest gainers in Alaskan fish exports to Japan in 1966 over 1965 were frozen fish and shellfish and sh roe, whereas cured sh exports cl . , discussed and shown in Table VI-6, although these increases represent more than a doubling in most cases, the percentage exported, except for fish roe, represent only a small fraction of actual production of these species. There are, therefore, excellent prospects for further substan tial increases in these marine products. This is especially so since, as previously indicated, Japan's capacity to absorb an increasing quantity of fresh and frozen fish and shellfish is rapidly growing while the gap between domestic supply and domestic demandis expected to continue widen ing. TABLEVI-11 Alaska Marine Products Prepared for Market and Wholesale Value, 1965 ( 000 do11 a rs) Canned Frozen Cured Fresh Total Salmon 107,738 6,273 1 , 131 128 115,270 Crab (mostly king) 11,670 22,411 198 34,279 Halibut 2 11,001 11,003 Shrimp 1 ,061 812 8 1,881 Roe (mostly salmon) 2,076 2,076b Other marine products 6 1,566 a 5 2,065 Total 120,477 42,063 3,207 339 166,574 a. Less than one thousand dollars. b. Includes $488 thousand of herring meal and oil. Source: Alaska Department of Fish and Game. 166 TABLEVI-12 Alaska Fish Exports to Japan Quantitya Valueb 1965 1966 1965 1966 Salmon, frozen 74.0 188. 5 21.0 51.0 Fish (excluding shellfish), n e c 713 5 0 Fish (excluding shellfish), salted, dried or smoked 1,084.8 433.7 1,117.0 455,0 Shrimp, frozen 66.8 69.0 Shellfish (excluding shrimp), frozen 0,2 0.9 0.2 1.0 Fish (excluding shellfish) prepared or preservedc 355.9 3,383.5 359.0 3,369.0 Total 1,514.9 5,786.9 1,497.2 4,167.0 a. Thousands of pounds. b. Thousands of dollars. c. Indications are that this represents mostly fish roe. Source: United States-Japan Trade Council Whena comparison is made between the income elasticity of demand3 between certain types of marine products in Japan, it is found that income elasticity is relatively high for the high grade fresh fish and shellfish species, e.g., salmon, tuna, crab meat and shrimp, oysters, and relatively low for the lower grade dried and salted marine products. These findings are certainly consistent with recent trends in Japanese demand for the higher grade fish and shellfish species and the increasing reliance on imports to meet this demand. Yet, the fact that United States exports of marine products to Japan have consisted mainly of cured products has meant that Japan has had to turn more and more to other countries to supply this demand. The fact is, for example, that although United States fish exports to Japan increased almost five times between 1962-1965, CommunistChina, Mexico, Spain, South Africa, Thailand and the Soviet Union, all have shown considerably greater rates of increase during these years. 3 rncome elasticity of demand is the percentage change in quantity demanded of a commodity resulting from a one percent change in income, If income elasticity is high (close to or greater than one), demand for the commodity is very sensitive to changes in income. See Appendix 9. 167 There is another aspect to consider seriously in evaluating the prospects for marine products trade between Alaska and Japan on a long tenn basis. The per capita consumption of fish in the United States for the past 20 years has hovered around 10 or 11 pounds per year, while for chicken and meat, it has increased by 50 percent and 10 percent respectively. This suggests a strong substitution relationship between fish and meat products with rising income levels in the United States. The present per capita consumption of chicken is about three times that of fish and for meat it is about 16 times. There is still a further consi deration, of even greater significance to the economic welfare of Alaska. The per capita consumption of canned salmon presently is less than half that in 1940, while the per capita consumption of tuna has more than tripled since that time. The consumption trend in the domestic economy, there- unfa Al , bulwark of which is the canned salmon industry. Since practically all of the Alaska catch is marketed in the domestic economy, on the basis of these significant trends, there is every reason to consider stepping up the export of marine products -- especially frozen -- to Japan. CONSIDERATIONSDEALING WITH THE MANAGEMENT OF THE NORTH PACIFIC FISHERIES The Alaska Department of Fish and Gameestimates that the average weight of offshore catches of king salmon (mostly immature) is only six pounds per fish as against an average weight of 20 pounds per fish when mature. In 1964, the Japanese mother-ship fishery took 410,150 king salmon and the Japanese land-based drift gill net fishery took an additional 275,000. The Japanese high seas catch, therefore, yielded a little over four million pounds. If, however, these fish were allowed to mature before caught, the total yield would have been almost 14 million pounds. The difference -- some 10 million pounds -- represents the economic loss suffered by both nations resulting only from this aspect of the mismanage ment of this valuable resource. Assumingan average price of 20¢ per pound, this amounts to a loss, in economic value, of about two million dollars from this single species alone! Whenone considers further that studies indicate that about 30 percent of red and chum salmon initially caught and killed by high seas gill nets drop out and are lost, and an even higher percentage of larger-sized king salmon because of small-meshed high seas nets, the relative magnitude of the net economic loss from high seas salmon operations is enough to stagger one 1 s imagina tion. Be that as it may, given the provisions of the North Pacific Fisheries Treaty, one cannot easily accuse the Japanese of acting irration ally, since, to them, it is either four million pounds or none. However, one can easily perceive the loss to both sides in non-recovery of the potential economic rent from this resource. That is, any conceivable division of the captured potential yield above four million pounds would benefit both sides. It is clearly in the economic interest of both economies to cooperate in the fonnulation of a managementscheme which would maximize the potential economic yield from the salmon resources. The same analysis and arguments for shared utilization and distribu tion of the economic benefits can be made for other internationally exploited fisheries, e.g., the king crab, shrimp, and bottomfish resources, 168 which tend to be economically mismanaged, resulting in a loss in economic welfare to all parties. That is, if economic welfare is to be maximized, there should be a management regime which is primarily concerned with maximizing the net economic yield from the fisheries resources. Even if a fishery is presently managed so as to maximize the sustainable physi cal yield from the stocks, for example, if there are no restrictions on entry of vessels, gear and fishermen (i.e., fishinq effort), everyone will race out to the grounds in order to catch as large a share as possible in as short a time as possible. The effect is to raise the aggregate real costs of fishing the stocks thus dissioatinq the potential economic rent through a larger effort than is necessary to catch the allowable maximumyield. The ultimate result is the same as in the previous case. i l 1 in fishing effort, less cost, and economic resources could have been used more efficiently thus enhancing welfare for all parties. The same economic principles apply in the case of fishery resources under a nation's or state's jurisdiction, e.g., within the established exclusive fishing zone of a sovereign political entity. For example, from 1960 to 1966, there has been an increase of about 100 percent in the number of vessels and gill nets and almost 300 percent in the number of set nets in Bristol Bay. This substantial increase came in the face of an outlook for poor salmon runs in 1962, 1963, and 1964. The natural tendency, therefore, unless entry and fishing effort is somehowrestricted, is to dissipate the full potentially-recoverable wealth from the resource through excessive fishing inputs. The prescription that the State manage ment authorities have applied -- that is limiting fishing to just two or three days a week -- does not get at the basic problem since entry is still not impeded. The rapid build-up in the king crab fishery in the Kodiak area has recently been showing signs of this same phenomenon. The end result will be the same: an eventual curtailment of harvesting time and an economic loss to all as a consequence of allowing capacity to build up to an uneconomic level. The foregoing facts and figures suggest that there is a clear opportunity to increase significantly Alaskan exports of marine products to Japan. All signs are favorable, on basic supply and demand qrounds, for the two economies to gain the benefits from increased trade. The foregoing arguments also suggest a clear mutual advantage in encouraging and fostering cooperation in joint management and joint business enter prise in exploiting the internationally-shared fisheries of the North Pacific. However, unless management and exploitation is -- to an impor tant degree -- based upon economic criteria, there is no way to measure the potential economic benefits of any proposed manaqement regime. 169 PARTVII JAPANESEDEMAND FOR ALASKAN FOREST PRODUCTS Michael R. C. Massie This analysis is essentially comprised of three components: the supply and demandsituation for forest products in Japan, Japanese imports of forest products, and Alaska as a current and potential supplier of forest products to Japanese markets. The report is pre sented in three segments covering these components, followed by a Summary l Appendix 3, which contains in detail forest products imports to Japan from Canada, the United States, and the U.S.S.R. SUPPLYAND DEMAND FOR FOREST PRODUCTS IN JAPAN1 Domestic Production Supplies of indigenous timber are increasing but at a very slow rate; domestic timber production is close to full capacity and is unlikely to change significantly in the short run. Both additional capital improvements for timber production, and research and develop ment funding are underway but only very minor increases in production can be expected in the next few years. About two-thirds of the land area of Japan consist of forests. Approximately one-third of this is National Forest and two-thirds is small, fragmented private ownerships. The National Forests are inten sively managed and are producing at or near full capacity. The private forests are producing at less than full capacity. Intensive forestry is inhibited by mountain terrain, inappropriate cutting for charcoal and firewood, the lack of skilled local forestry labor, and the extreme fragmentation of ownership. The rapid pace of Japanese industrialization has been accompanied by a net outflow of labor from rural areas to the cities; poorer quality labor at a higher price remains in the forestry sector. The small private forests are owned b~ some 2,700,000 households and are usually five hectares or less in size. Intensive forest manage ment under government planning is expected to be very difficult. Reforestation is promoted and subsidized, and planted areas are expected to double by 1992. Nevertheless, since 1961 capacity cuts, and in some areas overcutting on the National Forests, have not eased the gap between domestic wood production and consumption. The prospect of increasing the annual output from some 31 billion board feet in 1965 to over 56 billion board feet by the year 2015 might prove difficult. 3 1 on a historical annual basis, demand is defined as consumption plus exports. Similarly, supply is inventory at the beginning of the year, plus domestic production, plus waste utilization, plus imports. 2 One hectare equals 2.47 acres. 3 See the lower part of Table VII-1. \ 171 The plan for increased domestic production appears somewhatoptimistic, and supplies of indigenous timber are likely to increase at a slower rate than expected. This will be particularly true if present plans for an annual removal of total forest inventory are maintained at between four and five percent since an annual cut of this magnitude requires very intensive forestry. Indications are that a continued high level of consumption or increases in consumption will require increased imports. Demand Japan, with a population of some 100 million people in 1967, has shown remarkable economic growth. Expanding population and increased industrialization have been accompanied by an increased demandfor and The has declined relative to other materials, but the total consumption of wood for industrial and general construction has increased greatly. Currently, housing shortages are becoming critical, so that a possible renewed interest in wood components and/or prefabrication could again add appreciably to total demand. Pulp and paper production is becoming increasingly important in the Japanese economy. Paper, particularly quality cardboard for packaging, is being consumedin vast and increasing quantities. Currently Japan is ranked fifth in the world in pulp produc tion and third in the production of paper. Pulp and paper mills totaled 659 as of the year-end 1964; other wood products manufacturing plants included about 25,000 sawmills, approximately 159 flooring mills, 227 plywood plants, and 28 particle and fiberboard mills. A summaryof timber supply and demandand indigenous forest production as estimated in early 1966 is shown in Table VII-1. As of May1967, timber demandfor the year was expected to be 33.8 billion board feet, while domestic supply was indicated to be about 21.8 billion board feet and imports 12 billion board feet. Based on the 1975 projection, it would seem that while the demandestimates might be acceptable, domestic supply is overestimated and imports underestimated. Trends in Supply and Demand The total demandfor timber products has steadily increased over the past several years; however, homeconsumption is the increasing component with exports remaining relatively stable; Particularly strong gains are evident in per capita consumption of pulp-derived products and timber products directed into construction. In the last ten years home consumption of wood for construction, pulp and paper, and miscel laneous other wood products has risen from 96 board feet per person to 155 board feet per person; this represents a per capita increase of about 62 percent. The demand for wood in Japan appears to be linked to internal changes in the Japanese society and economyand not to the export of finished products. Exports between 1956 and 1966 indicate a surprising degree of stability. The average, with very little variation in range over 172 TABLEVII-1 Estimated Japanese Timber Supply, Demand and Forest Production, 1965-2015 Year 1965 1975 1985 1995 2005 2015 Demand (mi11 ions of board feet) Construction 10,558 16,112 r~ tJ Other 10,345' 12,211 Total 28, 196 42,400 50,880 57,664 61,904 61,904 Supply Domestic 21,624 29,934 38, 160 47,488 53,848 55,968 Imports 6,572 12,466 12,720 10, 176 8,056 5,936 Total 28, 196 42,400 50,880 57,664 61,904 61,904 Self-Sufficiency Ratio 77% 71% 76% 82% 87% 90% Forest Production Unit 1965 1985 2015 Forests (Plantation) 1,000 hectares 7,660 12,640 13,420 (Natural) 1,000 hectares 16,520 11,540 10,760 Forest Inventory mi11 ions bd. ft. 802,208 983,256 1,230,872 Annual Cut millions bd.ft. 31,376 40,280 56,392 Source: Calculated from data in Japan Lumber Journal, March 26, 1966. the ten year period, was about 1,713 thousand cubic meters. Japanese home consumption, on the other hand, increased from about 42.5 to some 72.1 billion cubic meters during the same period. Domestic production increased from about 41 billion cubic meters in 1956 to 49 billion cubic meters in 1961 and has remained fairly stable since. Utilization of waste wood and chip wood began in 1959 and contributed about six billion cubic meters in 1966, but the remaining quantity for home consumption came from expanding imports. Imports jumped from 2.5 billion cubic meters in 1956 to 17 billion cubic meters in 1966. Domestic timber production is close to full capacity under current conditions. Supplies of indigenous timber are expected to increase at a slow rate and are unlikely to change significantly in the short run. Homeconsumption of forest products is rising rapidly, and as 173 total demand for forest products increases, a larger percentage of Japan 1 s needs will have to be procured from foreign sources. Signifi cant increases in imports can be expected for the next several years. The peak year is expected to be 1975, but 1980 might be a more accurate estimate, after which the high proportion of imports is expected to hold for some five to ten years before increased domestic production can begin to alleviate the situation. JAPANESEIMPORTS OF FORESTPRODUCTS Characteristics of Imports Imports of forest products by Japan are mainl ogs, sawlogs, r 1p I 1 Table VII-2. Major suppliers on a volume bass in 1966 were the Philip pines, United States, U.S.S.R., Sabah, Sarawak, Canada, NewZealand and Indonesia; on a value basis, a smaller quantity of more valuable hard- wood logs would place Sabah ahead of the U.S.S.R. Similarly on a value basis, a smaller quantity of product, composed largely of manufactured soft wood lumber, would place Canada ahead of Sarawak, which provided hardwood logs. The Philippines, Sabah, Sarawak and Indonesia supply mainly hard wood or broadleaf species. NewZealand and Canada are suppliers of softwoods; the U.S.A. and the U.S.S.R. both supply larqe volumes of softwoods and lesser volumes of hardwoods. The U.S.S.R, Canada and the United States are the principal suppliers of wood in other than log form. Though the U.S.S.R. supplies mainly logs, she also supplies a significant volume of softwood lumber and some hardwood lumber.4 Canada supplies mainly lumber and pulp, and only minor amounts of logs. The U.S.A. supplies mainly logs, considerable pulp, some softwood lumber, increasingly large amounts of pulpwood chips, and minor amounts of hardwood lumber. The other countries noted are primarily suppliers of logs. Recently, however, the Philippines, Japan's major source of wood, which has traditionally shipped hardwood logs to Japan, is finding markets there for hardwood lumber and is moving in the direction of developing a timber processing industry, reducing log exports, and conserving timber. Regardless of whether or not Southsea hardwoods continue as a major component of Japanese wood imports, Alaska's role as a supplier will be affected mainly by Canadian, Soviet, and U.S. Pacific Northwest competition and policies. Imports from Canada The most important imports from Canada to Japan are sulphate pulp and hemlock lumber. Together these two items accounted for about 44 million dollars of the total 76 million dollars of logs, roughly shaped wood, lumber, and pulp imported in 1966. Lesser quantitites of logs and other kinds of lumber and pulp are responsible for the difference (see Appendix Table 3-2). 4 Refer to Appendix 3 for a detailed 10-year tabulation of forest products imports from Canada, the U.S.S.R. and the United States. 174 TABLEVII-2 Japanese Imports of Logs and Lumber by Country of Origin, 1966 Commodityby Hardwood Softwood Total Total Country Species Species Quantity Value (millions of bd. ft.) * (millions of U. S . do11 a rs ) Philippines, Logs 2,849 2 2 851 200.9 Lbr. 9 9 .3 U.S.A., Logs 31 1 , 741 1,772 164. 7 Lbr. 3 171 174 19.2 U.S.S.R., Logs 49 1,452 1 , 501 74.1 Lbr. 28 29 2.4 Sabah, Logs 1,485 1,485 95.7 Lbr. Sarawak, Logs 552 553 30.4 Lbr. Canada, Logs 116 117 11.8 Lbr. 267 267 25.8 NewZealand, Logs 2 211 213 12.7 Lbr. Indonesia, Logs 69 16 85 5.7 Lbr. Other, Logs 198 57 255 21. 5 Lbr. 17 19 36 10.7 All Countries, Logs 5,236 3,596 8,832 617.5 Lbr. 30 485 515 58.4 *Japanese log volumes are usually reported in terms of the Brereton log scale. Source: Adapted from Japan LumberJournal, February 25, 1967. 175 A preference still exists in favor of importinq wood in the round, and logs are taken from British Columbia ports when conditions and government policy permit. A good market exists for lumber in Japan, however, and the Japanese particularly like the "thicker cut" material and squares available in British Columbia. Price, quality and specifi cations appear satisfactory. The Japanese have preferred to cut their own lumber, not only because of the frequently mentioned advantage of homemanufacture using "cheap" labor, but because they can get the finish and dimensions they desire. Also, with a tremendous advantage in recovery (although North American mills consider the expenditures on time and manpoweruneconomic), they can recover over 70 percent of the log volume in lumber. American recovery is something in the order of 55 or 60 percent at most. Round logs will continue to be important to the Japanese, but cants and lumber in the "heavier" sizes might becomemore competitive for several reasons. First, with the increased use of special carriers for transportation, transfer costs are lower for cants and lumber relative to logs; squared material can be accommodatedin greater volumes than round logs per unit of shipping space. Second, particularly in British Columbia, the dimensions and specifications desired are Japanese, not American; British Columbia has gone to considerable effort to provide material in the desired form. Third, Japanese manufacturing costs are rising; wages in the forest products industry are currently rising much faster than productivity. In terms of import implications considering the time and manpowerspent on sawing, material that has received some sawing might prove more attractive in the future. Imports from the U.S.S.R. Soviet exports of forest products to Japan consist largely of pine, spruce, fir, and larch sawlogs and pulpwood logs. Lesser volumes of pine lumber and sulphite pulp are also important. In 1966 the total value of these exports was approximately 78 million dollars; coniferous sawlogs and pulplogs accounted for nearly 72 million dollars of the total value. The U.S.S.R. exported nearly 92 million cubic feet of logs and cants to Japan in 1966. Japan is by far the largest buyer of Soviet wood, with about 50 percent of all wood exports going to Japanese markets. The Soviets depend heavily on price competition to enter and hold markets. In 1964 the export price of sawlogs and pulpwood to Japan was the lowest in comparison to all other countries importing Soviet wood with the exception of the United Kingdom,who obtained pulpwood at one-half ruble less per unit. The United Kingdom,however, is the largest purchaser of Soviet lumber products which fact no doubt had considerable effect on the pricing of lesser volumes of pulpwood. As we can see in Appendix Tables 3-lc, 3-2c, and 3-3c, in general, the price to the Japanese for wood from the U.S.S.R. is much less than that from Canada or the United States, though this conclusion must be viewed with caution. The U.S.S.R. traditionally handles forestry 176 and forest products measurements under the metric system. Actual cubic volumes reported might not be comparable to converted U.S. or Canadian measurement units. In short, due to conversion procedures from board feet log scales to cubic volumes, the Japanese might be receiving more recoverable wood than actually indicated on a cubic foot basis. A higher price would then be entirely within reason. Japan and the U.S.S.R. deal in forest products under bilateral trade agreements. The 1963-1965 agreement called for 5.7 million cubic meters of industrial roundwoodover the three-year period in return for the foreign currency credits to pay for capital goods needed for industrialization. In this particular agreement the capital oods i 1 i , pulp mill, the equipment for a 140,000 ton white paperboard mill for packaging foodstuffs, and the equipment for a 100,000 ton printing paper mill. Implications here are that the new mills will eventually need the raw materials being exported. If this situation continues, there is a high probability that exports of roundwoodwill decrease in the long run when Soviet wood-processing industries expand. In the short run, as Soviet exports are determined a long time ahead in accord ance with economic plans, there is little possibility of significant changes in quantity and pattern of exports. The export of roundwood to Japan should continue at present or slightly higher levels. Emphasis will be on eastern timber surplus regions for log export, such as Siberia. This will be for the short run, as in the lonq run the center of the Soviet sawmilling industry is expected to move to Siberia. Imports from the United States The United States exported nearly 148 million cubic feet of logs and roughly shaped wood to Japan in 1966 at an estimated value of 165 million dollars, and lesser quantities of pulp and lumber accounted for an additional 77 million dollars. Logs were mainly hemlock, Douglas fir, and cedar; Sitka spruce was by far the largest lumber component. Pulp imports were more evenly distributed among several types. Currently, major emphasis is being placed on the import of wood chips to be used as inputs for Japanese pulpmills. Imports from the United Stutes totaled less than l ,000 cubic meters in 1964, about 246,000 cubic meters in 1965, and some 800,000 cubic meters in 1966. Canada supplied smaller but still significant volumes. Total needs in wood-chips for pulp are estimated to reach 4.56 billion board feet by 1975. A major portion of this volume is expected to be imported from the United States and Canada. Nine chip carriers are supposed to be in operation to and from North America by late 1967, and several more are in the planning stage. Log and cant exports to Japan from the United States and Canada are carried by 59 specialized ships. Twenty-two of these ships were remodeled from other uses, but 37 were built specifically for the trade. Construction of ten more vessels has been authorized by the Japanese government for 1967, and estimates indicate an additional 13 more are 177 planned in 1968. During 1965 some 29 ports in Japan were expanded and improved for timber handling at a cost of several billion yen; this program is continuing. There is no longer any question that the Japanese anticipate a greatly increased demand for timber for many years, and that indigenous supplies will not be sufficient. They have been, and are now, progres sively working on facilitating means to acquire these imports. A major portion of the facilities being developed are geared to servicing North American sources of supply. Import Trends The demand for and imports of forest products wi I l continue to increase for several years, as will the preference for obtaining material in the round form or as close to the round form as possible. However, technological changes, consumer tastes, and internal revisions within seg ments of the timber-using industries (particularly those relating to rising costs and decreasing productivity) indicate that the types and quality of timber products demandedwill likely change after a period of several years. The remanufacture and export of higher value prod- ucts has played an important role in the economy, but miqht be less important in the future. As per capita consumption of particular wood products in Japan increases, a trend toward importing semi-manufactured products might develop. As Japanese consumption increases and the proportion of remanufactured products for export decreases, more chips, unfinished veneer, and "heavy" lumber will likely be included in future imports. The U.S.S.R. can supply timber to Japan at extremely competitive prices, although the bilateral trade agreements are actually designed to lower roundwoodexports in the long run as a result of payment in the form of forest products industrial manufacturing equipment. Possible difficulty in negotiations on wood purchases could develop. The Phil ippines is presently supporting a policy of lowerinq log exports and increasing lumber exports. Japanese pulp capacity, particularly for hardwood kraft pulp has increased, and Southeast Asian hardwoods are appearing to be less attractive because of processing difficulties when a great diversity of species is involved. Imports from North America are appearing more attractive. Tariffs and legislation notwithstanding, the Japanese market for softwood logs and cants from the United States should remain active. An increasing interest in hardwoods could develop, particularly in logs and chips, but possibly also in additional primary products. If home consumption of wood products in Japan continues to increase at a rapid rate, Alaska might very well end up with a compe titive advantage as a supplier of wood and timber, even in a semi manufactured form. Acceptable species, relatively low stumpage prices, uncommitted annual cut and relatively shorter ocean shipping distances to Japan are the main advantages at present. The high capital and operating cost structure, lack of facilitating technology, and an inadequate labor supply, relatively unskilled and expensive, appear to be the main problems. 178 ALASKA'SFOREST RESOURCE AND POTENTIAL FOR EXPORT Forest Resource Alaska has approximately 120 million acres of forested lands. The coastal forest is composed largely of Sitka spruce and western hemlock. The Interior forest is mainly white spruce, white birch, balsam poplar and aspen. The U.S. Forest Service currently estimates that total "commercial forest" (land capable of producing an annual crop of 20 cubic feet of wood per acre) will exceed 28 million acres. This figure may be increased as more detailed inventory data is gathered and as new technology outdates the present definition. Under current methods of inventory, the State's commercial forest land is estimated to contain about 52 billion cubic feet of timber. This includes some 215 billion board feet of merchantable timber, which is large enough to classify as sawtimber. The estimated sustained-yield annual cut that could be har vested is presently considered to be about 1.5 billion board feet. Major forest areas are shown in Figure VII-1; these are areas considered to have the highest potential. Other inaccessible areas of lesser potential have been omitted. Similarly, Table VII-3 does not include all commercial forest acreage and timber volumes, as areas inade quately covered by inventory have been omitted. However, the table does give some indication of the large resource potential. Total timber volumes and annual cuts which could be removed without depleting the resource under current conditions of management and technology are shown, although increasingly accurate and intensive inventory will probably prove these figures too conservative. Based on current approximations, timber in Interior and Western Alaska could support at least nine pulp mills or eighteen smaller wood processing mills. Timber Harvest The annual timber harvest has steadily increased for the past decade. Most of the increases can be attributed to higher annual cuts in the Tongass National Forest in the Panhandle. Since 1960, in line with the state land selection program, timber sales from state lands have gone from about 200 thousand board feet per year to over 31 million board feet in 1966. Table VII-4 indicates the major timber harvest volumes by management agency. The total harvest was thought to be somewhat higher -- in the vicinity of 540 million board feet, as the table does not include lesser volumes from private lands, Indian lands, and Bureau of Land Managementfree-use permits. In 1966 the timber harvested in Alaska was estimated to be still less than 50 percent of the amount that could be harvested each and every year on a sustained-yield program. Forest Products Exports The forest products industry in Alaska consists mainly of eight "large" sawmills and two pulpmills which processed over 500 million board feet of timber in 1966. Most of this processing was carried out in the Panhandle of Alaska, although some production did occur in 179 Fi g ure VI I - l OWNER BUREAU OF LAND MANAGEMENT STATE OF ALASKA AND • STATE SELECTED YUKON VALLEY ~• U.S. FOREST SERVICE N (X) 0 ~ ...::.. GEOGRAPHICOWNERSHIP PATTERN OF TIMBER , MANAGEMENTAGENCIES AND STATE-SELECTED FORESTAREAS, AS OF 1965 KALSKAG ~ RIVER TABLEVII-3 Major KnownCommercial Forest Land Areas, 1 Estimated Timber Volumes, and Potential Annual Cut, in Alaska 1966 Commercial Estimated Estimated Forest Acreage Timber Volume Annual Cut I \ (bi ons of acres) of bd.ft.) of bd.ft.) Southeast 4,800 145.0 825 Haines-Skagway 110 1.8 25 Prince William Sound & N.E. Kenai Peninsula 525 9.0 30 Afognak Island 230 5.3 38 Kenai Peninsula-Cook Inlet 380 2.7 40 Kodiak Island Group 30 . 3 4 Matanuska-Susitna Valley 1,300 5.0 75 Copper River Valley 1 ,000* 1.0* 15* Tanana River Valley 2,000* 7.0* 90* YukonRiver Valley 3,000* 10.0* 100* KuskokwimRiver Valley 170 .8 6 All Areas 13,545 187.9 1,248 1 under current conditions of estimated inventory and evaluation; only major river valleys estimated for the Interior. * Preliminary estimates only; inventory data not available. Source: Derived by the author from available forest inventory and records of the U.S. Forest Service, Alaska Division of Lands and the Bureau of Land Management. 181 Southcentral Alaska. Cants, rough lumber, and pulp were the major products. One pulpmill supplies mainly domestic markets in the conti nental United States, with lesser volumes of its output being directed into overseas markets; the other pulpmill services Japanese markets. Minor quantities of lumber are sold locally and limited shipments of lumber were made to the continental United States. Cants, the second most important product after pulp, are sold to Japanese markets. Alaska retains only about three percent of its forest products production for in-state use. Finished lumber and wood building materials are largely imported from the Pacific Northwest. In 1966 approximately 50 percent of the State's output of forest products was exported to Japan, and an additional eight percent was directed into other foreign markets. Shipments to the continental United States amounted to 39 percent, with Currently six Japanese lumber and pulp carriers are servicing Alaskan ports in the export of forest products to Japan. A seventh is under construction. Based on current production trends, that portion of the annual cut directed into Japanese markets should exceed 300 million board feet in 1967. Expansion is expected to continue in the Panhandle, but some of the additional production is also expected to come from Southcentral Alaska. Potential for Future Exports to Japan Alaska has considerable excess allowable annual cut that does not appear presently attractive to American industry. In order to provide maximumeconomic benefits to the state this cut should be utilized as quickly as possible, as holding large portions of this inventory for possible future large scale industry establishment appears to have merit only in one or two select locations. A market for a large portion of the unutilized allowable annual cut is available in Japan, which in the short run could amount to the minimumallowable annual cut that is accessible and presently not committed. This includes 175 million board feet in the Panhandle not including a pulpmill allotment, some 100 million board feet in Southcentral Alaska, and 52 million board feet in the railbelt area of Alaska. Future increases can be expected with increased accessibility, new and continued inventory and more intensive forest management. If present State and Federal policies are maintained, round log export can be expected not to change significantly. There is limited evidence, however, that while the Japanese prefer roundwood, imports of cants are likely to increase proportionately even more. Similarly, chip imports are likely to become increasingly more important. If National Forest policy is to prohibit chip export and the State policy is to allow it, some interest might develop in harvesting the under utilized state selected forest land for chip exports for Japanese pulp mills. Here, of course, due to the land ownership pattern, more emphasis would be placed on the state selected forests in Southcentral Alaska and the railbelt. 1$2 TABLEVII-4 Volumeof Timber Cut by ManagementAgency Alaska 1950-1966 (Thousands of Board Feet) U.S. Forest Service Alaska Tongass Chugach United States Division National National Bureau of Land of + Year Forest Forest Management* Lands Total 'I • • I 1951 52,894 5,803' 11 , 775 70,472' 1952 62,357 2,159 22,825 87,341 1953 59,196 4,665 19,916 83,777 1954 109,237 l, 775 10,462 121,474 1955 213,785 4,981 12,348 231,114 1956 230,198 2,021 24,797 257,016 1957 226,384 3,947 33,796 264,127 1958 167,520 8,216 20,292 196,028 1959 266,591 7,596 11,724 285,911 1960 347,496 3,613 14,229 210 365,548 1961 338,206 7,117 11,342 l ,987 358,652 1962 366,275 7,157 5,936 6,872 386,240 1963 395,145 3,847 3,620 10,633 413,245 1964 445,109 5,666 18, 144 468,919 1965 404,444 3,263 24,161 431,918 1966 476,000 848 31,220 508,068 *The Bureau of Land Managementdata is on a fiscal year basis and gives timber sales during the indicated period rather than actual timber cut. All other data depict timber cut during calendar year shown. +Omits several million feet from private lands, Indian lands, and free use permits. Source: U.S. Forest Service records; U.S. Bureau of Land Management, Annual Reports to the Secretary of the Interior; Alaska Division of Lands, Annual Reports. Alaska has been exporting forest products to Japan now for several years. The Japanese are familiar with the various woods and their charac teristics and continually exhibit greater interest. Alaska has a locational advantage relative to some other areas for trade with Japan and has acquired some insight into desired Japanese dimensions and speci fications. If increased exports to Japan are a desirable end, it would appear that Alaska must now decide what terms are acceptable. Such 183 factors as a low offering price relative to established trading patterns and cartel buying rather than competition miqht influence the degree and timing in regard to increased exports. The supply is here and the demand is there; it would appear that what remains amounts to terms and conditions and some sharp bargaining. SUMMARYAND CONCLUSIONS 1. Japanese supplies of indigenous timber are unlikely to increase significantly for several years. The National Forests are producing at or near full capacity. Plantations and intensive forest manage ment are underway. Future increases in production will have to depend heavil on small fragmented private holdings. Plans for i c ction r t imistic 2. A strong and rising demand for forest products is evident in Japan. This is linked to home consumption and not export markets. Increases are most evident in wood for construction and pulp for packaging materials. Housing is becoming critical and in short supply as the economycontinues to expand. 3. Continued and increasing imports of wood and timber can be expected through 1975-1980. The import level should then hold for at least ten years. 4. The Philippines are pursuing a policy of exporting less timber in the round, manufacturing more lumber for export, and conserving timber. Southeast Asian hardwood species are appearing less attractive for pulping because of processing difficulties when a great diversity of species is involved. Interest is developing in alternate sources of hardwood for kraft pulp. The United States, Canada, and the U.S.S.R. could be possible competitors. 5. A preference for importing roundwood is still noticeable. However, limited evidence seems to indicate that more primary manufactured forest products are likely to be imported in the future. This is linked, amongother things, to a rising home demand for srecific products and to increasing industry costs (particularly wage rates) and proportionately lower increases in productivity. Less time and manpowermight have to be expended in sawmilling, for example, which would probably increase the import demand for cants. 6. The U.S.S.R. (i.e., Far East and Siberia), Canada (British Columbia) and the United States (Alaska, Washington and Oregon) are most likely to be major rivals in forest products imports to Japan. 7. Canada will not compete in supplying logs, but can be expected to be a keen competitor for lumber. 8. The U.S.S.R. will compete for both log and lumber markets. Price competition is favored. The use of bilateral agreements might prove difficult, particularly where payments concern forest products manu facturing capital goods. 184 9. The Pacific Northwest appears in an excellent position as a supplier of logs if policies permit, and the Japanese appear to be gearing toward increased and continued log exports from this source. Pulp chips could be provided in much greater quantities, and increases can be expected. Conditions for any significant increases in lumber exports to Japan do not look favorable. 10. The Japanese, realizing the increasing need for timber imports, have developed a large fleet and have revised and expanded port facilities in order to more easily accommodateincr@ased imports. This expan sion is continuing, and a large portion is specifically being pre pared with North American timber in mind. 11. Alaska is in a very favorable position for increasinq timber imports to Japan. Experience has already been attained in trade; large reserves of uncommitted annual cut are available; timber species are favorable and have gained acceptance in Japan; and shipping is both established and competitive with runs from Japan to the Pacific Northwest. 12. An increased timber trade with Japan appears to hinge primarily on terms and conditions. Lowprice, cartel marketing rather than competition, lack of government negotiation ability, and diversity of government in Alaska might be major impediments from the Japanese point of view. 1~ PARTVIII PRESENTAND FUTURE SUPPLY, DEMAND, AND IMPORT REQUIREMENTS FORLIVESTOCK AND MEAT PRODUCTS IN JAPAN Akio Iwasaki As per capita income has increased in Japan, the per capita expendi ture devoted to food has also increased, and the consumption of livestock products has risen at an even faster rate. Meat accounted for 20 percent of the value of agricultural production in 1965. Average individual consumption of meat fo Japan in l 964 was somewhat over seven kilograms. This amount is approximately four times the rate of consumption prior to World War II, and two and a half times the 1955 rate. The upward trend in consumption has been met primarily by the growth of swine and chicken production. In contrast to other countries, however, per capita meat consumption remains small, at about eight percent of the figure for the United States. This section details the present state of livestock production, pro cessing, and consumption in Japan; it also explores the future supply of and the demandfor meat. AGRICULTUREIN JAPAN The total land area of Japan is about 36,996,000 hectares, of which 6,004,000 hectares (or about 16.2%) were under cultivation in 1965. This area represents an increase of only 3.2% over 1955. The slow increase in land cultivation is a result mainly of Japanese topography, which is generally mountainous. All land with a gradient of under 15 degrees is already under cultivation with the exception of some nationally owned lands. This latter land is mainly on the island of Hokkaido where the generally low level of cultivation is due primarily to poor weather conditions and the expense required to drain swampyland. On the other hand, the portion of the total population involved in agricultural production is decreasing at a substantial rate. In 1960, it was about 36%, and in 1965 about 30%. The relative productivity of the population in aqriculture is only a third of that in other industries, and its proportion of the total national product in 1965 was only 10.6%. The output of Japanese agricul ture, while at a high level compared with the past and with other countries in Asia, still does not produce the volume needed for domestic consumption; this deficiency is primarily the result of restricted arable land. Because of the movementof labor from agriculture to industry, the average amount of land owned by the individual farm enterprise is slowly increasing. 187 Although its share of total product is decreasing, rice ranked first in 1965 with 47.3% of the total value of agricultural production. A decline in the relative value accounted for by rice has been compensated for by increases in the shares of vegetables and fruits. (See Table VIII-1.) Livestock products have also multiplied rapidly, as part of an increasing diversification in food consumedand produced. The total value of livestock production increased two and a half times between 1959 and 1965, a rate much greater than the increase of total value in agriculture during the same period. Moreover, it is a much greater increase than the rate of increase for total national product. This figure shows only the increase in total livestock production, however, and does not reflect various problems of composition. The number of poultry and hogs produced has shown a sat,isfactory 'increase, but cattle production is in a state of comparative stagnation. Despite some increase in beef carcass output, reflecting new techniques and organization, the number of beef cattle actually declined by about 40%between 1959 and 1965. LIVESTOCKPRODUCTION: CHANGE IN THECOMPOSITION OF LIVESTOCK Beef Cattle Beef produced in Japan, mainly from Japanese Black Cattle (kuroge washu) is knownthroughout the world for its high quality. Despite the increase in the number of other species of livestock, the number of breeding cattle has decreased substantially (as shown in Table VIII-2). This is due primarily to the traditional uses for which the majority of Japanese cattle were bred -- specifically, for use as draft animals and for making compost. Such breeding was, for those farmers who practiced it, more or less a subsidiary occupation. As the small farm tractors and manufactured fertilizers became more popular, raising cattle for use as draft animals and for compost has become uneconomical, and such breeding has dwindled. Other farmers, who chiefly fatten cattle for meat, produced a high quality product. Feed was composedmainly of grain grown by these same farmers, and of agricultural by-products. Their highly refined techniques produce good beef, but they were highly labor intensive and the period required to produce such meat was relatively long. Meat of medium quality took three to four years to produce; high quality meat took four to five years. With the rising demand for meat and its accompanying price increases, farmers have been inclined to produce mediumquality meat, use roughage for feed, and reduce the breeding period. On the other hand, there are about 300,000 head of dairy cattle (primarily Holstein) in the dairy farming areas on Hokkaido. Using Holstein calves (as well as Aberdeen Angus and Hereford, which have a short breeding period and are highly efficient meat producers) as beef cattle, an attempt is being made to prevent declines in the number of beef cattle. 188 TABLEVII I-1 Value of Agricultural Product and Gross Domestic Product in Agriculture, Japan, 1959-65 Unit: 1000 million yen, (percent of total) 1959 1960 1961 1962 1963 1964 1965 Total Ag_ricultural Product 1722. 1 1830.8 2009.7 2312.3 2443.2 2734.4 3051.6 (100.0) (100.0) (100.0) ( 100. 0) ( 100. 0) ( 100. 0) ( 100. 0) Total Crops 1437. 1 1508.9 1613.4 1838.4 1888.0 2157.6 2384.0 (83.4) (82.4) (80.3) ( 79. 5) (77.2) (78.9) ( 78.1) Rice 865.5 888.6 893.6 1045.6 1105. 3 1232.4 1333.4 (50.3) (48.5) (44.4) (45.2) (45.2 ( 45 .1) ( 43. 7) Wheat, Barley Naked Barley 108.1 f-' & 106.0 107.9 94.6 34.1 83.7 96.3 00 (6.3) (5.8) (5.4) ( 4. l) (1.4 ( 3.1) (3.1) '° Other Cerea1 s 4.9 5.5 3.3 4.0 4.5 2.8 3. 1 (0.3) (0.3) ( 0. 2) (0.2) (0.2 ( 0 .1) ( 0 .1) Beans 51.9 49.0 48.5 45.0 51.6 41.1 57.1 (3.0) (2. 7) (2.4) (2.0) ( 2 .1) ( 1 . 5) ( 1. 9) Root Crops 59.3 57.7 61. 7 72. 7 84.7 71.5 99.2 (3.4) (3.1) ( 3.1) ( 3 .1) (3.4) (2.6) (3.2) Vegetables 124.7 152.3 203.9 239.4 254.2 314.6 343.4 (7.2) (8.3) (10.1) (10.3) ( l O.4 (11.5) (11.3) Fruits 92.3 114.8 134.7 161. 8 168.5 178. 7 206.5 (5.3) (6.3) ( 6. 7) (7.0) (6.9 (6.5) (6.8) Industrial Crops 80.5 82.2 97.9 115.5 123.4 147.4 154.0 (4. 7) (4.5) (4.9) (5.0) (. 51 ( 5 .4) (5.0) Others 50.0 52.9 61.8 59.8 61. 7 85.5 91.0 (2.9) (2.9) ( 3.1) (2.6) (2.5 (3.1) (3.0) Cocoons 46.0 56 .1 60.0 66.9 80.8 62.8 72.9 {2.7) "(3:1) f3.0) T2.9) 13.3) T2.3) "(2."4) 1959 1960 1961 1962 1963 1964 1965 Livestock Products 239.0 265.8 336.3 407. l 474. 514.0 594. 7 [13.9) (14.5) (16.7) (17.6) (19.5) (18.8) (19.5) Milk Cattle 10.6 13.3 16.4 17. 5 18. 18.9 19.9 (0.6) ( 0. 7) (0.8) (0.8) (0. ( 0. 7) ( 0. 7) Beef Cattle &Work Cattle 40.9 38.6 47.4 53.7 59. 74.6 74.9 (2.4) (2 .1) ( 2. 3) (2.3) (2. (2. 7) (2.5) Swine 49.7 55.4 63.0 82.0 105. 109.6 136.8 (2.9) (3.0) ( 3.1) (3.5) (4. (4.0) (4.5) Poultry 10.4 13. 5 19. 9 24.7 32. 39.0 44.5 (0.6) (0.8) ( l . 0) ( 1. l) ( 1. ( l . 4) ( 1 . 4) Eggs 81.6 90.9 122.0 145.6 163. 163.2 198. 7 (4.8) (5.0) ( 6 .1) ( 6. 3) (6. (6.0) (6.5) Milk 40.2 48.0 61.9 78.6 89. l 03 .4 115. l (2.3) (2.6) ( 3 .1) (3.4) (3. (3.8) (3.8) Other 5.6 6. l 5.6 5. l 5. 5.2 4.7 (0.3) (0.3) (0.3) ( 0. 2) (0. (0.2) ( 0 .1) f-1 \0 Agricultural GDP 1145.4 1184.4 1267. l 1442.0 1477. 1614.4 1791. 3 0 Value Added Ratio% ( 66. 51) (64.69) (63.05) (62.36) ( 60. 4~5) (59.04) (58.70) l. These totals are volume of production less consumption for seed and fodder 2. Agricultural GDP= Gross output x value added ratio. 3. Estimate. Source: Ministry of Agriculture and Forestry, Tokei Chosabu Kanrika, Showa 40-nen Noqyo Sosansbutsugaku oyobi Seisan Nogyo Shotoku Gaisan Kekka (Summaryof Total Agricultural Product and Agricultural Income Produced, 1965). TABLEVIII-2 Numberof Cattle-Raising Farm Households and Head of Cattle Farm Households Beef Cattle Head of Beef (thousands) (thousands) Cattle per Household 1955 2,280 2,636 1. 16 1956 2 319 2 719 L 17 1957 2,238 2,590 1. 16 1958 2,154 2,465 1.14 1959 2.085 2,365 1.13 1960 2,031 2,340 1. 15 1961 1,963 2,326 1.18 1962 1,879 2,332 1.24 1963 1,803 2,337 1.29 1964 1,673 2,208 1.32 1965 1,435 l ,886 1. 31 1966 l , 163 l ,577 1. 36 Source: Ministry of Agriculture and Forestry, Tokei Chosabu, Poketto Norin Suisan Tokei. Swine Farm enterprises ra1s1ng hogs can be divided by their relative scale into three categories: 1. Raising hogs as a subsidiary occupation 2. Using feed raised by the farmers, and 3. Large-scale production, using feed bought from outside sources. Farmers in the first class usually raise only one or two swine on a small or medium-sized farm, requiring no real capital investment. The 191 feed is composedmainly of by-products from potato and other vegetable cultivation. The greatest number of hog raisers in Japan belong in this category. The next class, again utilizing self-supplied feed, generally are dry field farm households whose holdings are larger than those of the households just mentioned. By using self-supplied feed in the form of grain and potatoes rather than purchased fodder, their costs of produc tion are stabilized. Even in this group, however, less than half the household's farm income is generally derived from hog production. The use of unpaid family labor and the utilization of manure produced by the hogs is closely integrated with other kinds of farming activities. , a rge,,s , feed. Using such purchased feed, s type of producer can locate his business near larger cities, where the consumption is centered. The dependence upon purchased feed whose price fluctuates, however, results in profit instability. Such instability was particularly severe in the years immediately following World War II because of the variations in the prices in both the fodder and product markets. The Animal Industry Promotion Corporation was established in 1961 with the aid of government funds. Whenthe market price was below a pre-determined level, A.I.C.P. bought the carcasses until the market recovered; as the price rose above the determined level, meat was released for sale. TABLEVI II-3 Numberof Hog Raising Households and of Swine Numberof Households Numberof Swine Head of Swine Per (thousands) (thousand head) Farm Household 1955 528 825 1.56 1956 653 l , 170 1. 79 1957 818 1,546 1.89 1958 834 1,649 1. 98 1959 941 2,244 2.38 1960 799 l ,918 2.40 1961 930 2,604 2.83 1962 l ,025 4,033 3.93 1963 803 3,296 4.10 1964 711 3,461 4.87 1965 702 3,976 5.66 1966 714 5,158 7.22 Source: Ministry of Agriculture and Forestry, Tokei Chosabu Kanrika, Showa40-nen NogyoSosanbutsugaku oyobi Seisan NogyoShotoku Gaisan Kekka. 192 Poultry Until recently, poultry fanning was primarily devoted to egg produc tion, but now it can be divided into meat and egg production. The demandfor beef and pork has grown up since the Meiji era (1868-1912), but people ate poultry and poultry products prior to that time, in addition to other animal protein foods such as fish and shellfish. According to the Nihon Teikoku Tokei Nenkan, there were over sixteen million domestic fowl in Japan in 1905. The statistical yearbooks for preceding years did not list poultry, so it is impossible to make anything more than a rough estimate for 1867; but it is not unlikely that poultry were rather numerous even during the Tokugawaera. In 1905, about 40% 1 As Table VIII-4 shows, poultry farming has grown immensely since 1961. This growth has been the result of research in the areas of feed and in general managementtechniques, in which the industry has made great progress, but over 80 percent of the producers still raise poultry as a sideline only. (See Table VIII-5.) The meat-producing portion of the poultry industry has grown consid erably, but it is still unstable because of violent fluctuations in whole sale prices. Periodic imbalance in supply and demandand inefficiency in marketing procedures because of the lack of certainty in consumer demandfor this relatively new product are to blame for such instability. Still another problem confronts this new industry, namely a deficiency in the domestic supply, requiring importation of day-old chicks, broilers, and dried eggs. These imports have increased yearly. Improvementof species has been aimed primiarly in the direction of increased egg production, and white leghorn, which is a profitable egg producer, is by far the most popular species in Japan. Breed improve ment for use as meat, in particular, improvement in the ratio of weight gain to feed consumed, has lagged, however, especially as applied to large-scale production. The free importation of poultry products as mentioned above has provided an impetus to improve existing methods. Apart from this direct influence is the problem of feed. As the number of fowl increases, so does the reliance upon purchased feed. The raw materials are imported from many other countries, but over 50 percent comes from the United States. Hence, poultry fanning is directly subjected to the fluctuating influence of world feed prices, with a resulting increase in profit instability. Feed Livestock production depends largely on the quantity of feed avafl able. Generally, the number of head depends upon the conditions of feed supply, particularly where the feed is composedprimarily of roughage. But in Japan, where there is no well established feed industry, it would 193 TABLEVIII-4 Numberof Poultry-Raising Fann Households in Egg and Meat Production, and Numberof Fowl, Japan 1956 to 1965 Egg Production Meat Production Numberof Fann Numberof Fann Households Numberof Fowl Numberof Fowl Households Numberof Fm,l Numberof Fowl (_t_housands)_ (thousands) Per Household ( thousands) _(thousands) Per Household ------1956 4,190 42,640 10 .18 1957 4,159 45,341 10.90 1958 4,158 50,291 12.09 I-' \.0 1959 3,879 48,215 12.43 .i,... 1960 3,839 54,627 14.23 1961 3,808 71,805 18.86 1962 8,806 90,006 23.65 1963 3,723 98,925 26.57 1964 3,487 102,912 34.68 21 13,173 627.29 1965 3,243 120,197 37.06 20 18,279 913.95 Source: Ministry of Agriculture and Forestry, Tokei Chosabu, Poketto Norin Suisan Tokei (Pocket Statistics of Agriculture and Fisheries). TABLEVIII-5 Proportion of Egg-Production Households by Numberof Fowl, Japan 1964 and 1965 Over 1-19 20-49 50-99 100-299 300-999 1000 1964 80.1% 9.7% 3.5% 2.8% 1.2% 0.25% 1965 83.0% 8.2% 2.8% 2.4% 1.2% 0.30% Source: Ministry of Agriculture and Forestry, Tokei Chosabu, Poketto Norin Suisan Tokei. be difficult to produce adequate quantities to meet the demandof the rapidly expanding livestock industry. The proportion of arable land available for grazing purposes is small, the greater part being devoted to high value crops like rice. In 1966, for instance, the proportions were 56.6% for rice cultivation and 2.2% for grazing. Those fann households involved in livestock raising fall in the following general categories: 1. Milk production only, located near cities, 2. The breeding of milk cows or beef cattle using roughage in an area which is unsuitable for rice production, and 3. Breeding hogs and/or poultry, using mixed feeds. Those in the first and third groups purchase rather than supply their own feed, while those breeding dairy of beef animals make efficient use of self-supplied roughage for feed. This group is concentrated particu larly in Hokkaido amongdairy fanners and in the northeast portion of Honshu amongcattle breeders. The actual tonnage of domestically produced roughage and concentrated feed increased 31.4% and 7.6% respectively during the period between 1960 and 1966 (see Table VIII-6), but the tonnage of imported raw material~ for concentrated feed increased 266.7% in the same period. After 1964, imported feed accounted for a larger part of the concentrates than did domestic production, and it constituted 32.6% of the total supply of feed 195 TABLEVII I-6 Demandand Supply of Livestock Fodders Japan, 1960 to 1966 Unit: 1000 tons total digestible nutrient ""- Concentrated Feed Total Roughage, Domestic Total-Concentrate Domestic Production Import(% of total Year Consumption Supply (% of total supply) (% of total supply) (% of total concentrate) concentrates] 1960 10,423 10,548 4,877 5,671 3,773 1,898 (46.2%) (53.8%) (66.5%) (33.5%) 1961 11 , 912 11 , 911 5,150 6,761 4,302 2,459 (43.2%) (56.8%) (63.6%) (36.4%) f--' \.0 1962 12,577 12,577 5,451 7,126 4,242 2,884 °' (43.3%) (56.7%) (59.2%) (40.8%) 1963 13,090 13,090 5,630 7,460 3,769 3,691 (43.0%) (57.0%) (50.5%) (49.5%) 1964 14,045 14,045 5,875 8,170 3,907 4,263 ( 41. 8%) (58.2%) (47.8%) (52.2%) 1965 14,755 14,755 5,915 8,840 3,908 4,932 ( 40 .1 %) (59.9%) (44.2%) (55.8%) 1966 15,529 15,529 6,409 9,120 4,059 5,061 ( 41. 3%) (60.8%) (44.5%) (55.5%) Annual Rate of Increase, Percent 6.8 6.7 4.7 8.2 1.2 17.8 Source: Ministry of Agriculture and Forestry, Tokei Chosabu, Poketto Norin Suisan Tokei. in 1966. In addition, the proportion of concentrated feed in the total supply has risen, reaching 58.7% in 1966. This can be explained by the fact that livestock such as poultry and hogs, whose numbers have increased most rapidly, can be finished satisfactorily only on concen trated feed. Imported raw materials for feed come from a number of countries incl~ding Thailand, the Philippines, Mainland China, Canada, Argentina, Peru, South Africa and Australia. The United States, however, supplies I ; Changes in the utilization of mixed feed products are shown in Table VIII-7. Mixed feed production has increased approximately ten fold in the last nine years, 65 and 22 percent going to the poultry and hog industries respectively in 1965. TABLEVI II-7 Utilization of Feed for Selected Years Unit: 1000 tons Beef Mixed Year Total Cattle Poultrt Swine Other 1956 828 n.a. n.a. n.a. n.a. 1963 6,201 640 4,530 875 156 (11%) (73%) ( 14%) (3%) 1964 6,496 711 5,430 1 , 157 198 (10%) (72%) {15%) (3%) 1965 7,977 803 5,149 1,773 261 (10%) {65%) (22%) (3%) Source: Ministry of Agriculture and Forestry, Tokei Chosabu, Poketto Norin Suisan Tokei. Quantity of Carcasses Produced As the number of breeding head has increased, so the quantity of carcasses produced has also increased. Production of beef cattle car casses increased only 1.36 times between 1955 and 1965, but the quantities of dairy cattle and pork have increased steadily and rapidly in the same 197 period, 7.13 and 4.2 times respectively. The use of a higher portion of the total numbers of animals as breeding stock and the slaughter of cattle at an earlier age has produced a greater supply of meat from a smaller total stock. The carcasses are sold through the slaughterhouse and the central wholesale meat market. The process of determining wholesale prices is a pre-modern one, geared to older techniques of raising and distribution, and has still to be perfected. One problem lies in the difficulty of clearly grading the quality of beef. This is particularly difficult because breeding is on a small scale and each head is different. Mutton has occupied an increasingly large proportion of meat imports, as shown in Table VIII-8. The growing imports of mutton are explained primarily by the rapidly increasing demand for sausage and other processed meats which have overtaken the available supply of raw materials produced from domestic sources. In addition, mutton is becoming more popular in its own right, and its distinctive flavor is becoming increasingly accepted. Mutton is not, however, generally regarded as high-quality low-cost protein, and is still used mainly as a raw ingredient for hams, sausages, and the like. The different weights of the various kinds of meat in Japan's increas ing volume of livestock imports can also be explained in part by the Ministry of Finance's foreign exchange policy, whose overall justification is said to be the concern for the balance of payments, but whose particular applications are determined on generally protectionist grounds. Foreign exchange availability is hardly relevant to the supply of pork, because pork can be produced in satisfactory quantities to meet consumer demand and at competitive prices by using imported feed. There is still an attempt to build up domestic production of beef, and imports of beef are limited by a foreign exchange quota. Nevertheless, imports of beef can be expected to increase rapidly in the future because domestic production will certainly be unable to keep up with increasing demand, and Japan is under severe pressure from GATTand from her trading partners to complete the long drawn out process of exchange liberalization. There is no sheep-raising industry in Japan, nor is there prospect of one in the foreseeable future, and mutton is now on the automatic approval list; that is, there are no restrictions on the acquisition of foreign exchange for importing of this kind of meat. PROCESSEDMEATS Processed meats manufactured in Japan may be divided into four classes: 1. Boneless ham and bacon, 2. Pressed ham, 3. Sausages and 4. Canned meats (including boiled and/or spiced and corned), whose quantity is fairly negligible. 198 TABLEVI II-8 Supply of Livestock Products by Type (by carcass weiqht) Beef Dairy Domestic1 Year Cattle Cattle Veal Horse Pork Mutton Goat Total 1955 109,007 7,300 8,495 20,855 82,302 433 471 228,863 1956 122,434 8,743 7,939 24,248 107,772 658 528 272,422 1957 103,395 10,805 5,214 19,011 137,051 l , 129 l ,049 277,654 1958 106,568 15,156 5,887 18,551 161,140 l ,332 947 309,581 1959 118,565 23,433 5,949 23,783 182,752 2,308 l 264 358,054 1960 111,537 25,866 5,048 23,662 147,318 2,712 l 368 317,511 1961 115,541 22,288 4,949 23,288 206,288 2,373 1,338 376,065 1962 117,554 22,546 6,024 24,856 324,188 1,648 l , 140 497,956 I-' 1963 143,791 33,391 8,747 22,083 279,344 1,394 2 358 491,118 '° 1964 170,842 43,625 9,460 17,493 298,057 987 971 541,435 '° 1965 148,178 52,022 7,574 16,002 353,513 716 889 588,894 Annual Rate of Increase 1955-1965 3.0 21. 7 -1.2 -2.7 16.0 5.2 6.6 9.9 ------Total Supply, All Import Domestic Tota 12 Year Cattle Mutton Pork Others Horse Poultry -·-- and Import 1955 1,346 8 - 78 - l l B3 230,296 ( l. l) ( 1.8) (-) . 7) 1956 2,431 10 3 275 - 2 2 721 275,143 ( l. 9) ( l . 5) (0) .0) 1957 22,712 11 13 2,711 - l 00 25 547 303,201 (16.0) ( l . 0) (0) .4) 1958 4,929 26 2 3,082 - 9 8 048 317,629 (3.5) (l. 9) (0) .9) Total Supply, All Import Domestic Year Cattle Mutton Pork Others Horse Poultr,}'.'. Total2 and Im~ort 1959 278 3 - 8,144 - 8 8,433 366,487 (0.2) ( 0. 1 ) (-) (2.4) 1960 5,788 18,107 5,897 8,279 - 5 38,076 355,587 (2.6) (86.5) (3.8) (10.7) 1961 5,360 22,663 988 7,772 - 90 36,873 412,938 (3.6) (90.5) (0.5) (8.9) 1962 4,764 23,192 2 14,577 - 284 42,819 540,775 (3.2) (93.4) (0.0) (7.9) 1963 4,689 48,806 6,512 14,593 12,773 3,471 90,844 481,962 (2.4) (97.2) (2.3) (26.6) (15.0) 1964 6,200 61,415 4,015 4,865 26,250 5,936 09 ,681 651,116 (2. 7) (98.4) ( 1 . 3) (60.9) (15.9) 1965 10,813 53,858 70 3,428 12,109 6,134 86,412 675,306 (4.9) (98. 7) (0.0) ( 43.1) (11.9) N Annual Rate 0 0 of Increase 1955-1965 23. 1 113.0 - 45.2 - 139.2 50.6 11.4 1Total does not include domestic production of poultry, for which data is available only in terms of number of fowl. 2Percentages do not include poultry. Source: Ministry of Agriculture and Forestry, Statistical Yearbook; Ministry of Finance, Trade of Ja~an. Pressed ham and sausages are the principal products of Japanese meat packers. (It should be noted that the products classified as pressed ham in Japan would be termed sausage in the United States.) After World War II, meat packing began to grow as an industry. Prior to that time, as described in preceding sections, general consumption of meat was low, with production of processed meats being a sideline of the domestic industry. As consumption of livestock products has increased, so has that of processed meats. Table VIII-9 shows that the quantity of these products in 1965 was 4.8 times that of 1955, the average increase about 1 11 Sausage was introduced to the public by fish processing companies which produce fish sausages. The popularization of these products paved the way for a shift in taste toward processed meat. Generally, the taste of processed red meat is preferred to that of processed fish, and an increase in income has resulted in a shift of taste toward goods of higher grade. While the demand for seafoods remains high, as measured by indicators such as the income elasticity of demand for various marine products, there seems to be a distinct substitution of red meat products, particu larly processed meats, for the lower grade fresh and cured fish. The demand for processed meat is expected to continue to grow. While meat processing is generally large-scale and carried on by relatively large concerns, this indust~y is dependent for its supply of raw materials on sources in the small-scale farming sector, whose produc tion is atomized, irregular, and beset with outmoded methods both in production and in distribution. The main raw material in the production of ham and sausages is pork, whose market price fluctuates rather sharply. The processing industry accounts for only a small portion of total demand for pork, so it is not in the position to initiate measures to stabilize its price. The demand for processed meats in Japan is still far below that of the United States. While the demand for boneless ham and bacon will undoubtedly increase, the cost of these items is still much too great for the average Japanese. However, a form of pressed ham peculiar to Japan has come into being. Its main constituents are pork and mutton, the proportions of each being varied to produce items which vary in taste and therefore in cost. As Table VIII-9 shows, the production of pressed ham manufactured to Japanese taste has in recent years paralleled that of sausage, althouqh manufacturing techniques remain largely inefficient, as the grading and cutting of meat is all done by hand. The relatively high share of materials in total cost reduced the incentive to increase labor produc tivity, and even in the most modern plants one production line employing dozens of young girls carrying out each step of the process by hand can be seen side by side with the latest automated machinery producing the same product with the help of only one or two operatives. Recently, meat packers have also been selling not only ham and sausages, but fresh boneless meat, particularly fresh pork. Previously, 201 TABLEVIII-9 Production of Processed Meats by Class Japan 1955-1965 Unit: metric tons Boneless Ham 1955 3,232 16,607 7,237 27,076 1956 4,591 20,037 10,132 34,760 1957 5,326 23,606 12,390 40,322 1958 6,688 27,606 18,850 52,565 1959 6,992 28,728 26,527 62,247 1960 7,089 29,310 37,801 74,200 1961 9,189 40,347 49,772 99,308 1962 11 , 284 49,068 63,832 124,184 1963 7,723 48,045 50,298 106,066 1964 8,715 56,253 55,538 120,506 1965 9,438 60,735 60,115 130,288 Annual Rate of Increase 1964-1965 Percent 11. 3 13.9 23.6 17.0 Source: Ministry of Agriculture and Forestry, Statistical Yearbook. retail dealers purchased their own carcasses and did their own butchering and finishing, but the lack of skilled workers coupled with the rise in wages has made the practice uneconomical. This shift has occurred together with a change in the bulk of meat retailinq (as for other foodstuffs in Japan) from tiny specialty stores to supermarkets, food sections of department stores, and the like. The rationalization of meat distribu tion and meat pe.cking are likely to continue to progress hand in hand. DIETOF THEJAPANESE PEOPLE Perhaps the most notable facet of the Japanese diet is its qreat dependence upon rice. A 1965 investigation by the Ministry of Agriculture and Forestry showed that the average caloric intake of the Japanese popu lation is 2,424 calories per day. On the average, rice constitutes 1,024 calories, or 42 percent of the total energy input. In combination with 202 other grains, rice occupied 54.6% of the caloric input in the national diet. This high dependence upon one grain in dietary life has been the product of a number of factors, including Japan's climatic suitability for paddy rice culture, but the high carbohydrate content of the diet can be regarded as most directly a consequence of the low levels of per capita income which have prevailed until very recently. Based on a highly developed fishing industry, marine products were previously the preponderant source of animal protein in the Japanese diet. In the last two or three years, however, according to the family income and expenditures survey, consumer spending on red meat and poultry has approached that of fish. In a number of other respects the variety of foods in e et in~reas Table VIII-10 shows per capita income and consumption of various animal protein throughout the world. Meat consumption in Japan was only one twenty-fifth and milk only one-ninth that of the respective United States averages. But the tota 1 protein intake per capita ( 73 grams per day) was 79.3% of the United States figure (92 grams per day), an indica tion that the proportion of other proteins, mainly vegetable and fish protein, were high in the Japanese diet. PROJECTIONOF MEATCONSUMPTION The above pages outline the structure and conditions of the Japanese livestock industry at present; here we will attempt to estimate the shape of changes of meat consumption in the near future and the import require ments they will induce. As indicated above, the prospects for substantial increases in domestic production are not good. Feed production has not grown, the scale of production is small, and government agricultural policy is not effectively directed at strengthening the livestock industry. In 1966, an influential book appeared 1 dealing with the plans for forma tion of a high productivity agriculture based on the most advanced technical developments. Unquestionably, productivity could be increased in Japanese agriculture in general and in the livestock industry in particular. The problems in accomplishing this are not technically insuperable; the key would be increasing the scale of agricultural operation and introducing new machinery and technique. At the present time, however, it is practically impossible to obtain new arable land or grazing land, and the degree of concentration of ownership of existing land needed for the technical advances proposed are now out of the question for social and political reasons. In respect to the method of production of roughaqe, the authors suggested an increase of productivity using maximumrotation in a limited area. Looking at the present CIF prices of internationally traded agricultural products, he finds Japanese prices rather high. Rice and wheat are 70-80% higher and dairy products two or three times the prices at which Japan could import the product. With increased liberali zation of trade in farm products on the horizon, the authors emphasize concentration of Japanese agriculture in those areas where it has high 1 sangyo -Keikaku Kai (Production Planning Association), 15-Nengo no Nihon no Nogyo (Japan's Agriculture After Fifteen Years), Tokyo: Taisei Shuppansha, 1966, 203 TABLEVIII-10 Relation Between National Income and Dietary Composition - Income Per Milk Fat and Capita (U.S. Meat (grams) Oils Calories Per Day Protein Country______Q_o_ll ar l 96j._}_ (Year) Kg./Yr. Fat Protein (grams) Total Cal. % Animal Origin --Grams Australia 1,544 (63) 111 8 7 14 3,160 42 92 Austria 895 (64) 64 7 7 19 2,960 35 87 Belgium 1,295 (63) 66 6 7 29 3,080 38 91 Canada 1,679 (63) 78 7 8 20 3,020 n.a. 92 Ceylon 125 (63) 2 1 1 4 1 ,920 5 42 (China) Taiwan 176 (63) 18 - - 7 2,380 13 60 Denmark 1,490 (63) 63 9 9 28 3,360 44 94 Finland 1,282 (63) 38 12 12 20 3,070 42 95 N 0 West Germany 1,408 (63) 64 6 7 25 2,940 37 80 .p,. Greece 484 (62) 27 5 5 19 2,910 15 94 Italy 762 (63) 36 4 4 18 2,860 18 84 Japan 575 (63) 8 1 1 6 2,280 9 73 Mexico 409 (62) 24 5 4 11 2,640 19 73 Netherlands 1 , 128 (63) 51 8 9 29 3,100 n.a. 85 NewZealand 1 ,619 (63) 116 11 11 21 3,520 50 112 Norway 1,311 (63) 41 12 9 25 2,970 n.a. 82 Pakistan 78 (63) 4 3 3 6 2,220 n.a. 51 Philippines 256 (63) 14 - - 3 2,000 12 46 Portugal 301 (64) 19 2 2 17 2,670 16 77 Spain 492 (63) 26 2 3 23 2,850 18 78 Sweden 2,018 (64) 52 10 9 22 2,950 42 83 United Kingdom 1 ,431 (63) 70 8 8 24 3,280 44 90 U.S.A. 2,696 (64) 103 8 9 22 3,120 40 92 Source: United Nations Statistical Yearbook. productivity and is internationally competitive. There are possibilities for substantially increasing productivity in activities such as piq and fowl breeding based on imported feeds, but the scale of present production is so small as to preclude taking advantage of these efficiencies. The upshot of these considerations is that we have not taken too seriously any estimate of future meat consumption in Japan which is based in large part on the prospects for increased domestic production. Although we have had to make our own projections of future demand, there is no simple and straight-forward technique for doing this. Simple projections of consumption growth ignore substitution relationships with fish and substitution relationships amongkinds of meat. In • the on dietary life and the manner in which it will affect meat consumption. As for economic determinants of meat consumption, the rate of growth of national income, relative price movementsamong different kinds of consumer goods, and business fluctuations are also influential. In view of these problems, any estimation of future meat consumption cannot help being imperfect; nevertheless, we attempted by a number of approaches to get some notion of the magnitude of meat consumption in the near future. Statistical Resources Information on domestic carcass production of beef, pork, horses, goats and sheep are available from the Ministry of Agriculture and Forestry, Norinsho Tokeihyo (Ministry of Agriculture and Forestry Statistical Yearbook). The tables there give the number of head slaughtered, but total carcass weights are computed by estimated average carcass weight. Net imports have been calculated from the Ministry of Finance, Nihon Boeki Nempyo(Trade of Japan), and Japan Tariff Association, Nihon Boeki Geppyo (Japan Exports and Imports), There is no firm data about the quantity of chicken meat produced, but the Ministry of Agriculture Livestock Products Office (Chikusankyoku) estimated the quantity of poultry products by combining the number of poultry, the hatching rate, and the ratio of slaughter; the results are shown in the tables indicating 11total food demandand supply. 11 As for processed meats, composition of materials is very unclear and there are no good data about the per centage of processed meat in total production. Goat and horse meat are used only for processed meat except in very limited areas. Despite the fact that we have no information on the quantity of mutton and horse meat used in processed meats, both of them, but especially the former, are much too large to be neglected. Meat is imported in two states, bone-in and boneless, and the proportions are not at all clear. Finally, as one proxy for total demand, and for calculating the ratio between domestically produced exports and imports, we used carcass weight. Both the general and meat price index are from the Office of the Prime Minister, Family Income and Expenditure Survey, and are the indexes for all urban consumer households. Using both monthly and annual time series data extending from 1951 to 1965, we used a number of models in an attempt to estimate the income elasticity of demand, the price elasticity of demandand the shift in demandover time for meat products. In these 205 estimations, expenditures on meat products deflated by the general price index and meat consumption per capita in kilograms were used as measures of meat consumption. The income variable was real national income per capita on a 1960 base. For meat prices, several possible relationships between the meat price and the general price index were used. Unfortu nately, these three independent variables -- income, meat prices and time -- were so closely intercorrelated that each model resulted in a high positive estimation of price elasticity and none of the estimations were judged suitable for projecting future demand. to use me se to l vze on of livestock products has been presented by Yuize Yasuhiko. His esti mations were based on 1951-1960 data for different livestock products (beef, pork, chicken, whale meat) for the Tokyo medium quality grade. Subsequently, the elasticities for the different meats were aggregated, and the result is shown in Table VIII-11, which indicates extremely high elasticities both with respect to income and with respect to price on the basis of the change in demand over time. Figure VIII-1 shows the movementof meat consumption per capita, real income per capita and the meat price index over the period in question. Cross-Sectional Consumption Analysis Figure VIII-3 shows the relation of meat consumption to income level in 1965 according to the annual Family Income and Expenditure Survey. Except in the case of sausage and whale meat, the consump tion of different types of meat seems to increase proportionally with the increase in income. Figure VIII-4 shows total meat consumption and the proportion of households in each income qroup. Meat varieties, except for sausage and whale meat, show a linear relationship to the increase in income. This implies total meat consumption per capita will increase roughly in step with the increase in national income. In 1964 the modal income group was about 450,000 yen per year and in 1965 between 450,000 and 650,000 yen. As income increases, the modal group moves to the right. Assuming that the distribution of income does not change radically, projection of an 8% increase in national income per capita will result in an increase in household income of 2.2 times in ten years, and we can expect a modal income of approximately 1.2 million yen. This gives us a 1975 figure for household expenditure in the vicinity of 30,000 yen in 1965 prices, or 40 kilograms. Again, using the yearly amount of household expenditure by commodity for yearly income group in the Family Income and Expenditure Survey, we calculate the cross-sectional income elasticity for a larqe number of 2 Yuize Yasuhiko, "Shijo Tokei ni Motozuku Chikusambutsu Juyo Bunseki," (Analysis of Supply of Livestock Products, Based on Market Statistics), Nogyo Sago Kenkyo (Quarterly Journal of Agricultural Economy), October 1965. 206 FIGUREVIII-1 Meat ConsumptionPer Capita and National Income Per Capita • 1W, mo U.S.A• ,, • • • • • 50 • • • • • .. • • Meat • Consumption Per Year • • • • 20 • • .,. 10 4 JAPAN 5. 2 0 0 0 0 0 0 0 0 0 LO 0 LO 0 LO r- r- N N National Income Per Capita in United States Dollars Source: Table VIII-10. 207 FIGUREVIII-2 Meat Consumption Per Year Per Household (All Japan All Households) 15 s.. m Q) >- s.. l 0 Q) 0.. -a r-- 0 ..c: Q) (/) :::, 0 :c s... Q) 0.. s::: 0 ,,-- +> 0. E :::, 5 (/) s::: 0 u 200 600 1000 1400 1800 Income Per Household Per Year Unit: 1,000 yen Source: Adapted from Office of the Prime Minister, Annual Report on the Family Income and Expenditure Beef Survey, 1965. Pork Chicken ----·- Ham -··- Sausage - - - - Whale ...... , 208 FIGUREVII I-3 Relation of Meat Consumption, Real Income Per Capita, and Meat Prices (1955=100) Index of Meat Consumption 300 200 100 ,1# .. ... ·-_.,,,_.. -, ... Meat Consumption Real Income Per Capita ...... ,.-·--Meat Prices 1951 1955 1960 1965 Source: Office of the Prime Minister, Annual Report on the Family Income and Expenditure Survey, 1965. 209 FIGUREVIII-4 Meat Consumption Per Household, and Proportion of Households in Income Group, 1965 40 50 30 40 ,...... V1 E n::l S- 0 0 .,... s:: QJ ~ >, "O s:: s:: -30 .,....0 n::l +> V) 0 :::l E 0 20 :::l ..s:: V) +> s:: 0 u QJ S- :::l .,....+-> "O .20 s:: QJ 0.. X w 10 200 600 1000 1400 1800 Income Per Year Per Household Unit: 1,000 yen -- - - Meat Expenditure Percentage of Household in 1965 ------Percentage of Househo1 d in 1964 ---- ...... Quantity of Meat Consumption Source: Same as Fig. VIII-3. 210 FIGUREVIII-5 Projection of Meat Supply and Demandto 1980 (our estimate) 100 70 Unit: 100,000 metric ton 50 40 30 20 10 7 5 Domestic Supply -- 4 Total Consumption ...... 3 2 1951 1955 1960 1965 1970 1975 1980 Calendar Year 211 TABLEVI II -11 Estimated Parameters of Demandfor Livestock Products, Japan (Time Series Data, 1951-1960) Income Elasticity Price El asti city Value Quantity Value Quantity Meat 1. 750 1. 773 -1.597 -1. 671 k s I. 7 l. I. - I. Total Livestock and Poultry Product 1. 283 -2.252 Source: Yuize Yasuhiko, NogyoSoga Kenkyu (Quarterly Journal of Agricul tural Economy), October 1965. meat, fish, poultry, and dairy products. Someof these are shown in Table VIII-12, and a more detailed breakdown is found in Appendix 9. By category of animal foods, we expect meat with a 1965 income elasticity demandof .74, to increase most rapidly, followed by milk and eggs with a figure of .59, and fresh fish and shellfish with an income elasticityy .44. Amongthe meat group, we expect the most rapid increase in consump tion to take place in sausage, followed by ham, beef, and pork, chicken, and finally by whale meat, for which we have no figure in 1965, but whose 1964 cross-sectional income elasticity was only .25. The increase in meat consumption does not,t however, mean a fall in expenditures in fish and fish products, as we can anticipate that each percentage increase in national income will yield close to one-half of one percent increase in expenditures on fresh fish and dried or salted fish, and a considerably higher increase in expenditures on shellfish. Amongfish products, con sumption should be increasing most rapidly for crustaceans (shrimp, lobster, crab), for tuna sashimi and for other high quality species such as sea-bream and salmon. The consumption of oysters is also expected to increase significantly in response to increased income. The species which seem to be losing ground at least relatively to both high grade fish species and meat are those species most widely consumed in the past: mackerel, horse mackerel and cod, etc. Of the dairy products, the most rapidly growing in demandare cheese, butter and fresh milk. In attempting to foresee future meat demand, the projection model which best fits the data on total consumption since 1951 is a simple semi-logarithmic relationship to time: that is, logy= a+ bt, where y is total consumption or total domestic supply and tis the calendar year. The results of this estimation were as follows: Total consumption: logy= 5.196 + 0.053t (r 2 = 0.989) Total domestic supply: logy= 5.206 + 0.049t (r 2 = 0.985) 212 TABLEVI II-12 Marginal Propensity to Consumeand Income Elasticity of Demand, Fish, Meat, Poultry, and Dairy Products, Japan, 1964-65 Marginal Propensity Correlation 2 Income l:.lasti- Correlation 2 to Consume (xio-5) Interce~t Coefficient (r) city of Demand Coefficient (r) 1964 -- 1965 1964 1965 1964 1965 -- 1964 -- 1965 1964 1965 Fresh Fish and Shellfish l , 123 l , 120 7,312 7,982 0.991 0.997 0.48 0.44 0.994 0.988 Fresh fish 1,040 l ,037 7,158 7,773 .990 .997 .47 .43 .994 .983 Tunny fillet 40 54 171 74 .925 . 981 .70 .73 .973 .977 Tunny sashimi sliced 117 117 84 887 .967 .974 1.00 .90 . 971 .982 Shellfish 82 82 57 52 .920 .993 . 51 .69 .963 .987 Dried and salted fish 424 420 2,724 2,724 .983 .984 .50 .47 .996 .989 Meat 2,083 1,990 3,462 4,348 .996 .994 . 79 .74 .988 .996 N 637 1,033 1,274 .992 .995 . 81 .76 .996 .997 I-' Beef 715 w Pork 579 593 859 1,209 .987 .985 . 81 .76 .995 .994 Chicken 256 245 513 850 .995 .986 . 72 .59 .990 . 972 Whale Meat 21 - 543 - . 726 - .25 - .884 Ham 253 236 208 182 . 991 .990 .91 .95 .995 .994 Sausage 136 134 20 - 73 .981 .977 1.12 l. 21 .989 .984 Bacon 16 - 23 - .949 - .79 - .962 Milk and Eggs 1,455 1,420 7,223 7,855 .969 .961 .62 .59 .992 .990 Fresh cans milk 761 685 l, 736 2,300 .977 . 959 .83 .75 .990 .983 Powdered mi1 k 14 - 771 - -.284 - -.04 - .079 Condensed milk 4 - 8 - .905 - .83 - .922 Butter 105 109 -117 -164 .990 .979 1.24 I .29 .994 .982 Cheese 46 - -22 - .975 - 1.29 - .983 Hens eggs 514 533 4,560 4,742 .948 .967 .45 .44 .983 .995 Source: Appendix 9. TABLEVII I -13 Projected Demandand Supply of Meat, Japan: 1970, 1975, 1980 (Carcass weight, l ,000 metric tons) Domestic Domestic Net Import Estimate and Year Supply Demand Requirement Tadakore Yasuhiko (assumption of 1970 598 570 -28 constant prices) 1975 91? l 0?9 117 1980 I ,555 1,760 205 "Japanese Agriculture After 15 Years" 1980 2,000 2,600 600 Our Estimate 1970 l ,060 l ,250 190 1975 l ,410 l, 760 350 1980 l ,840 2,450 610 Source: 15-Nengo no Nihon Nogyo, Taisei Shuppan, 1966; Sangyo Keikaku Kai, see text. The increase in meat consumption was 14.8% per annum, but this increase took place on a relatively low base, as we can see in Table VIII-10. As recently as 1964, Japan's meat consumption per capita was only two ninths that of Italy, which had a similar level of income per capita. On the other hand, total protein intake in Japan was 87 percent of that of the Italians, vegetable and fish protein consumption making up the difference. An increase of national income per capita to that of West Gennany should bring an increase in meat consumption of 8 times, but it should increase total protein intake per capita by only 1.3 times. The use of these income elasticity of demand figures to project future demandmakes a number of assumptions about future conditions, not the least of which is that price relationships remain the same. In view of Tadakore 1 s high negative figures for price elasticity of demand, and in view of the tendency for the meat price index to increase more rapidly than the general price index, the estimates mentioned above probably have an upward bias. The biggest detenninant, however, of future price changes is the degree to which imports are allowed to make up the difference between domestic supply and domestic demand. As of May 1966, beef, pork, ham and bacon were among the commodities for which foreign exchange restrictions existed. If these restrictions and/or high tariffs continue to exist, the sluggishness of domestic supply together with the increase in demand is bound to result in even more rapidly 214 r1s1ng prices, and a substantial diminution of the growth rate for meat products consumption. If, however, as we anticipate, imports of meat and meat products are genuinely liberalized in the near future, and world supplies of these items are relatively elastic, we can expect a general stabilization of wholesale meat prices. The increase in consumer prices would then represent mainly the shift of consumer demandto more highly processed forms of meat. Under these circumstances, our earlier estimate that the quantity of meat consumedwill approxi mately double in ten years seems to be realistic. SEASONALITYOF DEMAND i i relevant to the prospects livestock exports to Japan. Virtually all of Japan 1 s beef exports come from the southern hemisphere, in which the slaughtering period is largely between February and April; yet there is a distinct seasonal pattern in Japan 1 s meat consumption. That is, processed meat consumption reaches a peak in July and August, but beef consumption increases steeply after October and its peak occurs in December. A substantial portion of the beef bought from Australia and NewZealand has then to be stored for four to seven months. At first glance, at least, Alaska seems to be in a more favorable position to meet Japan 1 s seasonal beef demand; in addition, the specialized meat carrying vessels which are now being developed could be used for importing from Australia and NewZealand in the spring (by the Japanese calendar) and from Alaska in the fall. 215 PARTIX JAPANESETOURISM TO ALASKA Hubert J. Gellert The objective of this section is to assess the present extent of Japanese tourism to Alaska and its potential magnitude. PRESENTJAPANESE TOURISM TO ALASKA Japan as is negligible by any standard. In 1966, about 100 Japanese who spent only part of their time as tourists in Alaska took advantage of the stop-over privi lege allowed in 1965 by the U.S. Civil Aeronautics Board to the Interna tional Air Carriers traversing the North Pole through Anchorage.1 Despite the very small number of stop-over passengers in 1966, they represent a large percentage increase from the 30 Japanese passengers who are thought to have taken advantage of the privilege in 1965. Most of the stop-over passengers are traveling on business passports and probably combine business and recreation in their Alaska stopover. In addition to the foregoing group, a roughly equivalent number of businessmen come to Alaska to survey present or potential developments and spend part of their time in recreation pursuits. For instance, the Alaska Pulp Company-sponsoredorganization, The Alaska Club, has brought over a high-level group of Japanese executives in each of the past several years to visit the pulp mill at Sitka and the Wrangell lumber mill, but also to fish, sight-see, and enjoy other tourist activities. The other principal group of tourists makinq Alaska a destination point is composedof special-purpose groups, for the most part university mountain climbing organizations. These groups have scaled many of Alaska's important peaks in recent years and amount to about 100 persons a year; therefore, the total number of Japanese coming to Alaska entirely or partly for tourism is roughly 300 persons a year. JAPANESEOVERSEAS TOURISM A general overview of Japanese international tourism is necessary to understand the market for Alaska. Unfortunately, standard statistical sources, such as the White Paper Q!!_Tourism (Kanko Hakusho) published annually by the Prime Minister's Office, indicate the emphasis on attract ing foreign visitors to Japan and discouraging Japanese overseas travel 1 Japan Airlines estimate. 217 by their paucity of data on Japanese tourist travel abroad. Statistics for all Japanese overseas travel are available, however, and tourist travel is a significant part. The trend of Japanese international travel has been r1s1ng rapidly from year to year since the mid-l950 1 s, with slowdowns in the rate of increase coinciding roughly with economic recessions in Japan and govern ment tnavel limitations. (Table IX-1. The data exclude travel to the Ryukyu Islands, which have been closely associated with Japan for centuries and have been a part of Japan from the Meiji Era to the end of the Second World \~ar. Japanese can travel to the Ryukyus without a passport if they have an identification card.) In 1965, 46,000 tourist passports were issued, increasing 78% to 82,000 in 1966.2 Thus, 28% and 38%of all Japanese pee tourist passports. Given the prevalence of combined business-recreation trips and recreation trips disguised as "survey missions, 11 etc., probably well over one-half of all overseas travelers have been entirely or partly tourists in the two years. Passport issuance and visa data indicate the geographical preferences of Japanese tourists. Seventy-six percent of the tourist passports issued were for travel to other Asian countries, 15 percent for Europe, and 19 percent for the United States. 3 (About 10 percent of the passports were issued for more than one area.) Within these areas, it is clear that the main attractions are the 11standard 11 places -- London, Paris, Hong Kong, NewYork, Washington, San Francisco, Hawaii, etc. Post-war Japanese international tourism is only a little more than three years old. Overseas tourist travel was forbidden by the Japanese Government from the mid-19301 s until April l, 1964. On that day, the Government allowed each person $500 a year in foreign ixchange for over seas tourist travel and relaxed the other regulations. On January l, 1965 the foreign currency regulation was further relaxed, allowing $500 to be taken for each trip. The foreign currency limitation excludes air fare to and within overseas areas, which can be paid in yen. The currency restriction is only a minor obstacle to Japanese pleasure travel abroad. Of far qreater importance is Japan's low income level in relation to Western countries. Per capita income in Japan is still about the same as the lowest countries in Western Europe. Those in Japan with enough money to tour can do so freely despite the restriction under the guise of business, or by obtaining foreign exchange from contacts overseas. The elimination of the $500 restriction, now under consideration by the Japanese Government as part of its international transactions liberaliza tion program, would have little effect on Japanese tourism. Increased income and reduction of travel costs would be most important in boosting overseas tourism. 2Kokusai Kanko Koshin Kyokai (International Tourism Promotion Association). 3u.s. Department of Commerce, United States Travel Service, Far East Regional Office, Japanese Travel Statistics, Feb. 20, 1967. 4office of the Prime Minister, Kanko Hakusho, 1965, p. 52-53. 218 TABLEIX-1 Overseas Travel by Japanese (Excludinq Okinawa) 1956-1966 Year Year 1956 35,803 1957 45,744 1962 74,822 % of preceding year 128% % of preceding year 87% 1958 49,263 1963 100,079 % of preceding year 108% % of preceding year 134% 1959 57,194 1964 127,749 % of preceding year 116% % of preceding year 129% 1960 76,214 1965 158,827 % of preceding year 133% % of preceding year 124% 1961 86,328 1966 214,375 % of preceding year 113% % of preceding year 132% Source: Kokusai Kanko Koshin Kyokai, Shutsunyukoku Kanri Tokei Nempo. Data based on passport issuance. POTENTIALJAPANESE TOURISM TO ALASKA Several favorable factors should cause an increase in Japanese tourism to Alaska. Of considerable importance would be the opening of new air routes, principally an additional route between Alaska and Tokyo and a new route between Honolulu and Anchorage, now being discussed as parts of the Trans-Pacific route case. An opposing factor is the new route between Tokyo and Western Europe through Siberia and Moscow. It is now shorter to go from Tokyo to Paris by way of Moscowthrough Siberia than it is to go over the North Pole, even though the Tokyo-Moscowrun uses turbo-prop airplanes. If negotiations are successful, jets will be used within two years, reducing the relative flight time even more. The fare from Tokyo to Paris via Moscowis only slightly more expensive than the polar route -- $705.10 against $677.60 for a one-way economyclass ticket. Alaska's open space could be a significant attraction for Japanese, as it is for Americans. At present, the Japanese Government is concerned over the crowding of national parks, and an advisory group is studying a plan for intensive development of the Inland Sea National Park between Honshu, Kyushu, and Shikoku Islands to accommodateweekend visitors from as far away as Tokyo. In addition, the Government has planned new national 219 parks that would increase the present area by one-third. 5 These plans may be insufficient, however, and in the future Alaska might supply more of the demandfor outdoor recreation by the Japanese. There are significant obstacles to increasing the flow of Japanese tourists to Alaska. The 11standard 11 tourist areas will continue to be the principal attractions for the small percentage of Japanese with the means to tour abroad in the near future. Japanese attention will turn to Alaska only after the "standard" areas have been seen. Japanese travel agents and tourists believe that the cost of an Alaskan trip is considerably higher than a European tour. One attack on the dollar ka 111ade Japanese Governmentapproval to sell complete tours to the Arctic in yen as part of the air fare on the grounds that it owns the hotel in Nomeand other ground tourist facilities. The tours are designed especially for stop-over tourists. A reduction in trans-Pacific air fares throuqh elimi nation of the per mile differential for the Pacific now under discussion would serve to reduce the cost of an Alaskan tour. The outlook for Japanese tourism to Alaska is for a small numerical increase in the next decade. Special-purpose groups may extend to hunters and fishermen in addition to mountain climbers. Business-pleasure travelers making Alaska their destination are expected to increase with more Japanese-financed enterprises in Alaska, and stop-over visitors should increase more rapidly. More promotion would help to increase the number of Japanese tourists, although no major outlay can be recommendedfor government or industry in view of the small market. Emphasis should be placed on travel agents in Japan, who have far more power than travel agents in the United States over customer decisions on where to go. Promotion of stopovers would probably bring the greatest immediate results. At present only one international airline serving Anchorage promotes Alaskan stopovers. Within Alaska, steps could be taken to make a tour by Japanese easier. Provision of language help by travel agents would be an attrac tive feature. 5 office of the Prime Minister, Kanko Hakusho, 1965, pp. 92-93, 96-97, 220 APPENDIX1 ALASKA-JAPANECONOMIC RELATIONSHIPS: A STUDYOF THE POTENTIAL CONTRIBUTIONOF TRADEWITH JAPAN TO ALASKA'SECONOMIC DEVELOPMENT APPENDIX1 INTERNATIONALTRADE DATA: GENERAL TABLE1-1 Exports to Japan Through Customs District 31 (Alaska), 196,4--1966 Quantity Value Commodity or Commodity Group 1964 1965 1966 1964 1965 1966 Live Animals $ 23,660 Meat and Meat Preparations 1,13J, $ 1,056 FISH AND FISH PREPARATIONS(lbs.) 16,330,395 1,514,862 5,786,867 2,260,275 1,496,974 $ 4,167,351 Fresh, chilled or frozen fish 97,428 73,982 1,902,038 73,071 20,880 273,421 Fresh or frozen salmon 15,983,527 1,937,0 Salted, dried or smoked fish 1,084,810 433,698 1,116,709 454,544 Shellfish 168,224 174 67,673 185,155 260 70,273 Fish in air-tight containers 81,216 355,896 3,383,458 64,97 359,125 3,369,113 Green or Roasted Coffee 868 1,491 76 1,416 N N Synthetic Rubber and Rubber Subst. 2,627 3,026 1,605 92~1 1,150 610 w WOODAND LUMBER (MBF) 92,175 88,148 151,; 793 5,212,975 5,686,697 8,979,474 Softwood logs and cants 3,405 11,052 16,615 257, 86,4 583,321 93,514 Hardwood logs and cants 155 8,101 Rough-sawed softwood lumber 88,770 77,096 124,850 4,955,111 5,103,376 8,380,412 Finished softwood lumber 10,173 497,447 WOODPULP (Short tons) 162,586 152,786 175,293 22,657,271 21,006,977 24,412,204 Chemical wood pulp, dissolving 128,590 116,099 139,081 19,182,189 17,131,563 20,726,331 Sulphate wood pulp 33,325 36,687 36,212 3,875, 3,875,414 3,685,870 Wood pulp & screenings 671 84,866 METALLIFEROUSORES ANDSCRAP (lbs.) 441,179 50,400 266,115 100,47~ 29,400 113,912 Iron and steel scrap 81 8,062 Copper ores and concentrates 50,400 266,084 29,400 105,850 Antimony ores and concentrates 80,000 19,315 Columbium and niobium metal 10 32«',, Copper scrap 88,265 27, Copper-base alloy scrap 174,204 42,406 Nickel and nickel alloy scrap 99,246 10, 72,2 Quantity Value Commodity or Commodity~Group 1964 1965 1966 1964 1965 1966 Animal Materials, n.e.c., crude $ 200 Vegetable Materials, n.e.c., crude 5,853 $ 586 Lubricating Oils and Greases 1,220 $ 720 Medicinal and Pharmaceutical Prod. 7,502 4,080 Hydraulic Fluids and Oils Not Petr. 2,376 Rubber Manufactures, Finished 1,070 3,023 Paper and Paperboard and Manufactures 1,964 818 3,572 Textile Yarn Fabrics, Made Up Artls. 1,786 716 2,387 Abrasive Cloths and Papers, etc. 250 Pearls and Precious & Semi-Pree. Stones 2,701 Other Base Metals and Their Alloys 1,313 2,981 Manufactures of Metal, n.e.c. 3,410 280 2,966 Machinery Other Than Electric 64,293 511,620 61,193 Electrical Machinery, Apparatus, etc. 3,736 103,133 22,219 N Furniture 893 I',_, .i:,-- Travel Goods, Handbags & Personal Goods 2,200 3,080 Measuring, Controlling & Scient. Instr. 560 197,419 241,231 Photographic and Cinematographic Suppl. 6,224 200 995 Printed Matter 3,230 2,578 Finished Articles of Plastic 2,400 1,808 Dolls, Parts & Accessories 2,000 Fishing and Hunting Equip. Exel. Guns 1,200 Works of Art, Collectors Pieces, etc. 3,656 Other Manufactured Articles, n.e.c. 4,312 Special Transactions Not Classified 1,400 218 3,600 Animals, Live, n.e.c. 1,172 TOTAL 30,373,684 29,056,935 38,858,492 Source: U.S. Department of Commerce, Bureau of the Census, Foreign Trade Report EA-663. TABLE1-2 U.S. Imports from Japan through Customs District 31 (Alaska) 1965-1966 (Major Categories Inclusive, Sub-categories Non-exhaustive) Quantity Value Commodity or Commodity Group 1965 1966 1965 ~ FOODPRODUCTS AND PREPARATIONS $ 118,073 $ 224,074 Oranges except mandarin 257,067 lb 137,286 lb 47,205 29,516 Fish and whale products inedible 180 S .Ton 365 S.Ton 6~~)!8 192,450 WOOD,CORK, PAPER ANDPAPERBOARD MANUF. 228?086 60,982 Hardwood moldings, standard 898 Mlf 33,820 Wood veneer, one side plywood, obscure 144,512 sqft 73,600 sqft 29,070 5,927 Plywood face ply,~ 311,512 sqft 58,493 Plywood face ply, lauan 574,080 sqft 45,130 N N 1.11 TEXTILE YARN, FABRICS, MADEUP ARTICLES AND RELATEDPRODUCTS 2,424 13,453 CHEMICALS 47,584 8,008 NON-METALLICMINERAL MANUFACTURES 25,903 65,495 Ceramic electric insulators 17,192 MANUFACTURESOF METAL,N.E.C. 211,415 162,422 Concrete reinforcing bars not over 5¢ 3,315,024 lb 1,582,176 lb 145,184 61,669 Structural steel not manuf. 3 in+ 396,646 lb 899,490 lb 20,879 48,691 Iron and steel sheet piling 591,373 lb 603,442 lb 30,595 31,598 STEEL PIPE 1,012,826 1,426,715 Steel pipe not over 4 1/2 in dia. not alloy 1,686,155 lb 1,433,987 lb 112,509 102,362 Steel pipe 4 1/2 to 16 in dia. not alloy 3,078,257 lb 1,327,442 lb 176,649 82,428 Steel pipe over 16 in dia. not alloy 1,776,925 lb 18,733,335 lb 127,635 1,237,615 ~c!!ltity Value Commodity or Commodity Group 12.§2_ 1966 1965- 1966 WIRE PRODUCTS,NAILS, TACKS, SCREWS, NUTS, BOLTS, ETC. $ 169,32.!_ $ 72,921 MANUFACTURESOF BASEMETALS, N.E.C. 18,265 18,532 ELECTRICALAND ELECTRONIC MACHINERY, APPARATUSAND APPLIANCES 8,138 9,799 TRANSPORTEQUIPMENT AND PARTS 56,089 125,546 Passenger automobiles, new 32 veh 82 veh 32, ·754 106,177 Motor vehicles, passenger excl motorcyc. 23 veh 20,516 MISCELLANEOUSMANUFACTURED ARTICLES N.E.C. 333:.559 41,435 TOTALIMPORTS $2,2312 723_ $b229,382 N N Source: U.S. Department of Conunerce, Bureau of the Census, Foreign Trade Report IA254. °' TABLE1-3 Exports to Japan from British Columbia Customs Ports, 1964-·1966 Quantit_y Value (Canadian Dollars) Commodity or Commodity Group 1964 1965 ill.§_ 1964 1965 1966 Live Animals ~.500 20,450 Meat and Meat Preparations 9,538 345 10,028 FISH ANDMARINE ANIMALS (cwt) 36,328 44,209 517973 819,116 1,048,091 1,972,628 Salmon chum frozen whole or dried 10 2,266 370 80,075 Salmon spring frozen whole or dried 13 485 Salmon smoked 10 48 8 1,500 6,704 715 Shellfish fresh or frozen 448 105 196 17,329 3,810 7,260 Meat of marine animals 30,161 35,379 35,274 260,622 314,210 3~4,639 Fish roe, fresh, frozen, cured 5,661 6,411 16,495 536,910 634,292 1,570,014 Fishery foods and feeds 25 1,900 N N '-.J Dairy Produce, Eggs & Honey 42,178 76,726 36,608 Grain, Flour, Meal & Cereal Prep. 110,026,166 104,411,589 117,040,003 Fruits and Fruit Preparations 1-.!Q. 1,259 Sugar and Sugar Preparations 19,489 Cocoa, Coffee, Tea and Spices 5,756 14,410 Fodder & Feed Except Unmilled Cereals 3,569,123 4,687,119 5 2 654,510 Beverages 13,185 74,254 212,617 CRUDEANIMAL PRODUCTS, INEDIBLE 60,329 100,657 157,578 373,114 823,592 2,020,993 Cattle hides, raw 36,520 64,350 135,781 230,885 512,181 1,818,373 Calf and kip skins, raw 23,771 26,508 17,159 141,723 142,058 131,170 Beaver furs, undressed 38 458 108 506 5,331 4,510 Fox furs, undressed 9,326 4,530 163,649 66,940 Fox furs, undressed, white 15 373 Crude Vegetable Products, Inedible 19,922,146 27,099,184 36,184,049 Quantity Value {Canadian Dollars) Commodity or Commodity Group 1964 1965 1966 1964 1965 1966 CRUDEWOOD MATERIALS 328252796 423172582 526312415 Logs, cedar (MBF) 10,270 10,695 14,768 922,650 984,187 1,221,020 Logs, douglas fir (MBF) 1,101 591 65,915 45,817 Logs, hemlock (MBF) 6,115 12,395 12,639 371,771 902,815 727,816 Logs, spruce (MBF) 21,353 18,469 34,263 1,743,495 1,700,829 3,025,039 Logs, softwood (MBF) 3,265 941 1,357 289,830 68,285 94,451 Pilings of Wood (ft) 1,780,976 730,396 2,267,773 379,995 227,066 401,022 Pulpwood, bal fir spruce, unpeel(cord) 188 3,200 Pulpwood chips (tons) 6,940 55,159 48,940 397,400 Poles of wood 37,000 53,250 Logs, poplar, aspen, cottonwood (MBF) 960 61,500 Poles, telegraph, telephone wood (ft) 750 1,500 METALSIN ORES, CONCENTRATES& SCRAP 50 2 446 2757 54 2 726 2 879 69 2 454 2 323 Iron ore, concentrated (tons) 1,831,870 1,985,773 1,892,138 17,778,204 19,734,258 18,145,476 tv l'V Scrap iron and steel 280 2,157 208 53,836 111,063 38,479 CX) Aluminum scrap (cwt) 16,202 3,809 9,357 241,387 55,345 151,246 Copper in ores, concent., & matte 1,108,840 904,937 831,151 27,392,451 28,518,700 39,866,858 Copper scrap 35,862 5,169 6.276 1,153,896 208,127 322,591 Brass and bronze scrap 45,624 43,737 13,561 1,130,674 1,390,850 462,454 Lead in ores and concentrates - - 253,274 - - 2,208,422 Lead and lead alloy scrap (cwt) 3,181 70,298 Nickel in ores concent. matte (cwt) 37,573 42,458 32,102 1,807,394 2,071,396 1,765,239 Silver in ores, concentrates (T.oz) 241,816 374,924 421,488 299,925 465,782 531,397 Radioactive ores, concentrates 4,609 Metal ores, concentrates (cwt) 2,116 25,580 53,092 92,738 2,021,700 4,940,071 Scrap and sweepings, prim. metals 149,658 296,776 Iron ore direct shipping grade(tons) 46,742 491,643 Zinc in ores and concentrates - - 136,658 - - 655,016 COAL, CRUDEPET. & RELATEDPROD. ( ton) 971 2 300 1 2 023 2 134 1 2 059 2 502 92198 2 188 10 2613 2890 11 2 413 2 089 Coal 971,300 1,023,134 1,059,502 9,198,188 10,613,890 11,413,089 Quantity Value (Canadian Dollars) Commodity or Commodity Group 1964 1965 1966 lli_i lli2_ 196 6 CRUDENON-METALLIC MINERALS 1,294,733 2,410,664 1,114,555 Asbestos milled fibers grp 3(ton) 330 150 236 162,700 82,900 122,087 Asbestos milled fibers grp 4&5 4,461 5,677 4,006 708.,300 897,665 646,142 Sulphur, crude refined & refined 13,302 46,336 9,128 422,498 1,347,190 224,136 Stone crude 2 1,235 Sulphur in ores 101,300 Non-metallic minerals, crude 20,890 Other Waste & Scrap Materials 33,376 23,180 48,932 FURS, DRESSED& FUR FABRICATEDMAT. 21,704 4,425 Furs, dressed 21,504 4,425 Furs, dressed mink 200 WOODFABRICATED MATERIALS (MBF) 291. 925 491,410 1,538,531 16,826,950 15,855,485 19,424,864 Lumber, western red cedar 16,101 11,149 24,923 1,088,773 702,349 1,584,677 N Lumber, cedar, n.e.s. 8,524 5,024 9,941 791,689 470,422 856,451 N \.0 Lumber, balsam fir 6,152 1,054 1,451 520,064 93,846 132,207 Lumber, douglas fir 10,636 7,726 16,609 866,422 513,688 1,136,836 Lumber, hemlock 177,332 163,350 203,907 13,184,257 12,078,993 14,366,855 Lumber, western white spruce 474 50 2,084 41,622 5,992 158,926 Lumber, spruce, n.e.s. 3,812 7,075 12,768 300,605 707,098 1,105,873 Plywood, douglas fir 68,592 295,982 1,266,848 4,683 16,476 89,039 Lumber, lodgepole pine 5 516 Lumber, white pine 297 28,319 WOODPULP & SIMILAR PULP (cwt) 3,548,905 3,334,648 5,198,848 23,394,655 20,241,334 32,520,887 Wood pulp dissolving spec.alpha 758,068 19,925 644,703 5,918,945 158,940 5,363,081 Wood pulp bleached sulphite 85,700 168,406 218,938 515,315 1,009,245 1,281,215 Wood pulp sulphate semi-bleached 121,356 41,356 153,003 721,504 238,101 889,888 Wood pulp sulphate unbleached 281,022 485,116 856,239 1,379,766 2,393,037 4,197,280 Wood pulp sulphite unbl. strong 194,121 208,564 356,425 991,222 1,083,718 1,816,154 Wood pulp bleached sulphate 2,135,143 2,411,281 2,969,540 13,867,903 15,358,293 18,973,269 Value {Cc:U1a_cli@Dollars) Quantity -· -·----- Commodity or Commodity Group !2§i 1965 ~ 1964 1965 1966 Paper and Paperboard 5,581,725 -- 8,627 Textile Fabricated Materials 18,964 70,497 Oils, Fats, Waxes, Extracts & Deriv. 1,633,723 2,295,850 166,865 Chemicals and Related Products a, 302,13a ~.846,446 12,178,267 Petroleum & Coal Products 128,544 189,953 557,152 Non-Ferrous Metals 14,632,215 13,256,921 15,570,696 Metal Fabricated Basic Products 9,554 39,990 Non-Metallic Mineral Basic Prod. 6,634 15,950 24. 741 Gen. Purpose Industrial Machinery 70,101 6,629 11,306 Conveying, Elevating & Materials- Handling Equipment 1,324 31,524 Special Industry Machinery 868,635 206,401 126,132 Agricultural Mach. & Equipment 1,033 Road Motor Vehicles 9,100 995 Ships and Boats 9,301 944 225 Aircraft 49,390 17,504 26,ill Communications & Other Related Equipment 3,351 259 5,671 N Heating, Air Condit. & Refrig. Equip. 2,916 l,.) 0 Elec. Lighting, Distrib. & Control Eq. 6,365 6,083 4,774 Measuring, Controlling, Lab.,Med.,& Op. 26,236 90,745 55,321 Office Machines & Equipment 124,467 203,939 583,925 Apparel & Apparel Accessories 3,880 17,000 2,485 Toys, Games, Sporting & Rec. Equip. 1,433 8,748 173,728 Medicinal & Pharmaceutical Products 15,389 1392967 93,377 Printed Matter 7,915 2,386 4,062 Photographic Goods 2,380 Miscellaneous End Products 40,380 989 10,120 Special Transactions and Trade 16,891 21,216 14,994 TOTAL (thousands Canadian dollars) 272,895 278,229 334,936 Note: Detail is of commodities whose aggregate value was $75,000 or over, total is of all exports. Source: Province of British Columbia, Department of Industrial Development, Trade and Commerce, Bureau of Economics and Statistics, Preliminary Statement of External Trade Through British Columbia Customs Ports, 1964-1966. TABLE1-4 Japan's Commodity Imports, 1966 (Detailed classification selective) Mair; countries of origin, Value accounting for at least 80 SITC Million percent of volume (where NOS. Commodity Quantity Unit Yen applicable; otherwise value) Section 0 FOODAND LIVE ANI111\LS 576,590. 00 Live animals 3,111. 01 Meat and meat preparations 27,782. 011 Meat, fresh, chilled or frozen 27,473. 011-100 Meat of bovine animals, fresh, chilled or frozen 13,493. MKG 3,801. Australia, New Zealand 011-210 Meat of sheep or lamb, fresh, chilled or frozen 92,369. MKG 14,025. New Zealand, Australia 011-820 Whale meat, fresh, chilled or frozen 21,020. MKG 1,690. Norw"ay, Chile, U.S.S.R. 02 Dairy products and eggs 16,027. 03 Fish and fish preparations 39,710. 031 Fish, fresh and simply preserved 37,470. 031-1 Fish, fresh, chilled or frozen 7,385. 143 Herring 3,078. MKG 177.6 U.S .R. 144 Salmon 2,473. MKG 587.8 u.s A., u.s.s.R. 146 Sea bass 330 .5 MKG 27 .92 Chir;.. a, South Korea 148 Croakers 8,512. MKG 698.7 China, South Korea 151 Sea breams 1,237. MKG 187.3 South Korea, Ryukyu, Argentina Spain, Taiwan 031-2 Fish, salted, dried or smoked but not further prepared 4,626. 211 Salmon roe 3,159. MKG 2,528. U .s ..A., Canada 212 Cod roe 959.6 MKG 219.4 North Korea, South Korea, U.S.S.R, 213 Herring roe 504.4 MKG 334.9 South Korea Main countries of origin, Value accounting for at least 80 SITC Million percent of volume (where NOS. Commodity Quantity Unit Yen applicable; otherwise value 219 Fish roe, n.e.s. 28.95 MKG 10.19 North Korea, u.s.s.R. 230 Sea-urchin roe, salted 933.3 MKG 334 .9 South Korea 031-3 Crustacea & molluscs, fresh, chilled or frozen, salted or dried 25,458. 312 Shrimps, prawns & lobsters, fresh chilled or frozen 36,156. MKG 21,630. China, U.S.S.R., Mexico, Thailand, Hong King, India 313 Shrimps, prawns & lobsters, salted, dried or smoked 675 .6 MKG 74.13 Sou.th Korea 398 Crustacea & molluscs, live, fresh or frozen, n.e.s. 46,386. MKG 3,302. Spain 399 Crustacea & molluscs, salted, dried or smoked, n.e.s. 1,940. MKG 442.8 South Korea 032-0 Fish in airtight containers, n.e.s. and fish preparations 2,240. 010 Caviar and caviar substitutes 240.9 MKG 305.9 U •• S.R., U.S.A., Denmark 021 Sardines in airtight containers 604.5 MKG 79 .01 Southwest Africa, Republic of South Africa, Norway 022 Salmon in airtight containers 6.301 MKG 6.572 F ranee, Germany, Denmark 029 Fish preparations in airtight containers 361.2 MKG 37.66 China, Southwest Africa 041 Crab meat in airtight containers 14.05 MKG 1.942 South Korea 049 Crustacea & molluscs, prepared or pre served, in airtight containers, n.e.s. 434.1 MKG 137.8 China, Mexico, Australia 050 Crustacea & molluscs prepared or pre served excluding airtight containers 6,960. 11KG 1,611. China, South Korea 04 Cereal & cereal preparations 300,147. Wheat (including spelt) and meslin, 100,348. unmilled 05 Fruit and Vegetables 58,127. 06 Sugar, Sugar preparations and honey 58,732. 07 Coffee, tea, cocoa, spices, arid manufactures thereof 31,797. 08 Food stuff for animals (not including unmilled cereals) 35,528. r:1ain countries of origin, Value .accounting for at least 80 SITC Million percent of volume (where NOS. Commodity Quantity Unit Yen .applicable; otherwise value) Food stuff for animals 35,528. Hay & fodder, green and dry 540.7 Meat meal (including tankage) & fish meal unfit for human consumption, greaves 10,437. 09 Miscellaneous food preparations 5,629. Section 1 BEVERAGESAND TOBACCO 26,876. Section 2 CRUDEMATERIALS, INEDIBLE, EXCEPTFUELS 12372, 805. 21 Hides, skins & furskins, tmdressed 39,130. 211 Hides & skins (except fur skins) tmdressed 35,425. 211-1 Bovine and equine hides other than calf, calf skins and kip skins 26,445. 211-2 Calf skins and kip skins 5,396. 211-4 Goat skins and kid skins 303.8 211-6 Sheep & lamb skins with the wool on 331.3 211-7 Sheep & lamb skins without the wool 486.8 212 Fur skins, undressed 3,705. 212-0 ,Fur skins, undressed 1 010 Fur skins of sheep or goats, undressed 362.3 MKG 226.6 China 1367 ,437 020 Fur skins of rabbits & hares, undressed 508.5 2 MKG 416.2 France 23,215,030 030 Fur skins of minks, undressed 0.3833MKG 31.53 .S .S .R., Denmark, Norway 33,215,030 040 Fur skins of squirrel & flying squirrel, t.mdressed 3.779 4MKG 56.97 .S .S .R., China 44,344 090 Fur skins undressed, n.e.s. 312.8 5 MKG 2,974. .S.S.R., U.S.A., Poland, U.K, 51,102,098 China, Norway 22 Oil-seeds, oil nuts, and oil kernels 148,065. 23 Crude rubber (including synthetic and reclaimed) 49,453. Main countries of origin, Value accounting for at least 80 SITC Million percent of volume (where NOS. Commodity Quantity Unit Yen applicable; otherwise value) 24 Wood, lumber, and cork 244,909. 241 Fuel wood and charcoal 233.8 242 Wood in the rough or roughly squared 222,534. 242-1 Pulpwood (including broad leaved) MCM 5,463. 110 Pulpwood, conifer 861.9 MCM 4,959. .s.s.R. 120 Pulpwood, broadleaved 94.42 MCM 503.9 S .S .R., Ryukyu 242-2 Sawlogs and veneer logs, conifer 90, 701. 210 Logs, Pinus 1,304. MCM 11,836. S .S .R., New Zealand 221 Logs, sitka spruce 322.9 MCM 5,671. S .A. , Canada 229 Logs, Abies and Picea, excluding sitka spruce 1,519. MCM 14,843. .s.s.R. 230 Logs, Larix 407. 3 MCM 2,773. s.s.R. 240 Logs, white cedar, yellow cedar, other Chamaecyparis 330.0 MCM 8,104. .S.A., Taiwan, Canada 250 Logs, hemlock, and other Tsuga 2,780. MCM 35,863. S .A. 260 Logs, red cedar, and other Thuja 202.9 MCM 3,050. .S.A. 270 Logs, douglas fir, and other Pseudotsuga 528.5 MCM 6,990. S.A. 298 Sawlogs and veneer logs, n.e.s., conifer 156.7 MCM 1,501. .s.s.R., U.S.A. 299 Sawlogs and veneer logs, roughly squared or half squared, conifer, n.e.s. 7 .285 MCM 70.96 .s.A., u.s.s.R. 242-3 Sawlogs and veneer logs, non-conifer 125,987. 389 Sawlogs and veneer logs, non-conifer n.e.s. 974.9 MCM 7,948. Sarawak, Mozambique, Sabah, Bismark, Australia, Taiwan, Nigeria, Hong Kong 399 Sawlogs and veneer logs, roughly squared or half squared, non-conifer, n.e.s. 0.280 MCM 16,019. Australia, Taiwan, Nigeria, Hong Kong 242-9+ Poles, piling, posts, and other wood in the rough n.e.s. 34.43 MCM 370.2 • S • S • R. , U • S .A. 243 Wood, shaped or simply worked 21,027. 243-1 Railway sleepers (ties) 209.9 110 Railway sleepers, conifer 0.647 MCM 13,131. Canada, U.S.A. 243-2 Lumber, worked, conifer 19,106. 211 Lumber, Pinus, not exceeding 160mm in thickness 7.418 MCM 177,829. .s.s.R., U.S.A. Main countries of origin, Value accounting for at least 80 SITC Million percent of volume (where NOS. Commodity Quantity Unit Yen applicable; otherwise value) 820 Sulphite wood pulp, unbleached, n.e.s. 2.829 MMT 108.9 U.S S.R., Canada, U.S.A. 830 Sulphite paper pulp, bleached 75. 71 MMT 3,956. U.S A. 26 Textile fibers and their waste 332,446. 262 Wool and other animal hair 156,838. 100 Sheep & lamb's wool, greasy or fleece washed 278,475. MKG 145,043. Australia, New Zealand 200 Sheep & lamb's wool, degreased, bleached or unbleached 8,716. MKG 5,098. New Zealand, Australia 263 Cotton 152,620. 27 Crude fertilizers and crude minerals 60,066. 271 Fertilizers, crude 18,411. 271-3 Natural phosphates, whether or not ground 18,397. 310 Phosphate rock 2,559. MMT 18,397. U. S "A. , Morocco 273 Stone, sand and gravel 1,372. 273-1 Building & monument stone roughly split or squared 964.2 273-2 Gypsium, plasters, limest, etc. used for manufacture of ume or cement 287.7 273-3 Sand 12. 72 273-4 Gravel & crushed stone 107.3 274 Sulfur & unroasted iron pyrites 1,767. 275 Natural abrasives 4,905. 276 Other crude minerals 33,612. 276-1 Natural asphalt & natural bitumen 108.6 110 Gilsonite 2.845 MMT 107 .8 U.S.A. 276-3 Salt 14,127. 330 Salt liquors and sea water 23.6 7 MMT 89.27 Mexi.co 276-4 Asbestos, crude, washed or ground 7,648. 411 Asbestos, crude, washed or ground, not more than 33 yen 21.69 MMT 672.3 U.S"S.R., Canada, Republic of South Africa 412 Asbestos, crude, washed or ground, n.e.s. 215.6 MMT 6,976. Republic of South Africa, Canada Main countries of origin, Value accounting for at least 80 SITC Million percent of volume (where NOS. Commodity Quantity Unit Yen applicable; otherwise value) 212 Lumber, Pin us, not exceeding 160mm in thickness 7.418 MCM 177,829. U.S.S ., U.S.A. 221 Lumber, sitka spruce 302 .6 MCM 4,547. U .S .A, 222 Lumber, Abies, (excl fir and Picea (160mm) -- -- 1.943 MCM 31,656. u.s.s.". 223 Lumber, Abies, and Picea, more than 160mm 15.82 MCM 203,875. u.s.s, 231 Lumber, Larix, less than 160mm 1.217 MCM 11,960. u.s.s • (Total) 240 Lumber, w.c.y. cedar & other chamaecy 66.49 MCM 3,130. Taiwan, Canada 250 Lumber, hemlock & other Tsuga 568.2 MCM 8,130. Canada 260 Lumber, d. fir & other Pseudotsuga 65.74 MCM 9,051. Canada U.S.A. 280 Lumber, sawn lengths, conifer, n.e.s. 49.64 MCM 756.9 Canada 299 Lumber, finished, conifer, n.e.s. 0.155 MCM 14.12 S. Korea, Taiwan 243-3 Lumber, worked, non-conifer 1,712. 360 Lumber, non-conifer, n.e.s. 123.6 MCM 897 .8 U.S.A., U.S.S.R., Singapore, Malaya 399 Lumber, finished, non-conifer, n.e.s. 1.524 MCM 91.58 U.S.S.R., U.S.A., Equador, Taiwan 25 Pulp and Paper 39,577. 251 Pulp and waste paper 29,577. 251-1 Paper waste and old paper 2,571. 200 Mechanical wood pulp 0.687 MMT 20. 78 Canada, Sweden 251-5 Pulp other than wood 260.7 251-6 Chemical wood pulp, dissolving grade 13,491. 610 Sulphite pulp, dissolving grade 192.4 MMT 12,056. U.S.A Canada 620 Sulphate wood pulp, dissolving grade 18.35 MMT 1,433. U.S.A 251-7 Sulphate wood pulp 17,709. 710 Sulphate paper pulp, unbleached 107.8 MMT 4,691. Canada, Finland, U.S.A., New Zealand 720 Sulphate wood pulp, unbleached, n.e.s. 3.799 MMT 163.9 Canada (Basutoland, Bechuanaland, and Swaziland,) Mozambique 730 Sulphate paper pulp, bleached 239.3 MMT 12,850. Canada, U.S.A. 251-8 Sulphite wood pulp 5,424. 810 Sulphite paper pulp, unbleached 300.9 MMT 1,257. Canada, U.S.S.R. Main countries of origin, Value accounting for at least 80 SITC Million percent of volume (where NOS. Commodity Quantity Unit Yen applicable; otherwise value) 276-5 Quartz, mica, felspar, fluorspar, cryolite, & chioite 4,055. 510 Natural quartz & quartzite 58.84 MMT 346.1 South Korea 521 Mica blocks 1.175 MMT 680.0 India, Portugal 522 Mica splitting 0.703 MMT 440.9 India, Madagasgar 523 Mica unworked, n.e.s. 0.609 MMT 11.89 South Korea, Republic of S. Africa 524 Mica waste 2.030 MMT 51.42 India 28 Metalliferous ores and metal scrap 434,712. 281 Iron ores and concentrates 218,237. 281-3 Iron ores concentrates (except roasted iron pyrite) 218,219. 310 Iron ores and concentrates 45,846. MMT 216,882. India, Chile, Malaya, Peru, U.S ., Australia, Canada, Brazil 320 Maganiferous iron ore & concentrates 243.5 MMT 1,337. India, Republic of South Africa 400 Roasted iron pyrites 5.232 MMT 17.89 282 Iron and steel scrap 52,242. 010 Iron and steel scrap fit only for nelting other than alloy steel scrap 3,480. MMT 49,354. U.s . , India 022 Scrap of iron or steel plates, fit only for remanufacturing, but not for melting, other than alloy steel scrap 22.08 MMT 464.4 U .s , France, Germany 030 Alloy steel scrap, fit only for remanu facture 26.42 MMT 2,200. U.S ., Australia, Malaya 283 Ores and concentrates of non-ferrous base metals 135,621. 283-1 Ores and concentrates of copper (including copper matte) 68,811. 110 Ores and concentrates of copper 691.1 MMT 61,340. Philippines, Canada, Australia 120 Copper matte, cement copper, and native copper 26.12 MMT 74, 711. Chile, Taiwan, Cyprus, Kenya Main countries of origin, Value accounting for at least 80 SITC Million percent of volume (where NOS. Commodity Quantity Unit Yen applicable; otherwise value) 283-2 Ores and concentrates of nickel (including nickel matte) 10,995. 210 Ores and concentrates of nickel 1,270. MMT 8,623. New Caledonia 310 Bauxite 1,822. MMT 6,832. Malaya Indonesia, Australia 400 Ores and concentrates of lead 81.03 MMT 5,426. Canada Australia, Peru 500 Ores and concentrates of zinc 446.1 MMT 13,726. Peru, Australia, Canada, Mexico 600 Ores and concentrates of tin 1. 714 MMT 658.4 Thailand 283-7 Ores and concentrates of manganese 10,305. 710 Ores and concentrates of manganese 587.9 MMT 6,654. Australia, India, U.S.S.R., Brazil Thailand, New Hebrides 720 Ferruginous maganese ores & concentrates 552.5 MMT 3,650. India,, Republic of South Africa, Malaya 283-9 Ores and concentrates of non-ferrous base metals, n.e.s. 18,868. 910 Ores & concentrates of chromium 421.9 MMT 4,160. U .s .S ,R., Philippines, Republic of South Africa, Iran 931 Concentrates of Molybdenum, roasted 4.580 MMT 4,718. U. S .A, , Canada 933 Ores and molybdenum, unroasted 2.715 MMT 2,622. Canada, Sicoria, U.S.A., Chile 950 Ores and molybdenum of titanium 325.0 MMT 2,099. Australia, Malaya, Ceylon 980 Ores and molybdenum of Antinony 7.403 MMT 875.6 Boliv:ta, China, Republic of South Africa 284-0 Non-ferrous metal scrap 27,906. 04 Copper waste & scrap, fit only for remanufacturing 9.855 MMT 4,852. U.S.A, Australia, Philippines, Singapore, Hong Kong, Canada, Malaya, Kuwait, North West India, Lebancm, Ryukyu 022 Brass or bronze waste & scrap 56.25 MMT 18,147. U.S.A, Hong Kong, Canada, Australia, Singapore, Philippines, North West India 029 Copper alloy waste & scrap 0.777MMT 258.2 U.S.A, Ryukyu, New Zealand, Thailand, Kuwait, Lebanon 031 Nickel waste & scrap 0.166 MMT 179.5 U.S.A (Total) 032 Nickel alloy & scrap 0.088 MMT 53.96 U.S.A Matn countries of origin, Value accounting for at least 80 SITC Million percent of volume (where NOS. Commodity Quantity Unit Yen applicable; otherwise value) 041 Aluminum waste & scrap 4.751 MMT 697 .9 U. .A. , Hong Kong, Singapore, Canada, Malaya 042 Aluminum alloy waste & scrap 14.34 MMT 2,076. U. .A., Australia, Ryokyu 060 Lead or lead alloy waste & scrap 0 .4 78 MMI' 28.74 Ryukyu, Australia 070 Zinc or zinc alloy waste & scrap 0.085 MMT 5.039 U •• A., Kenya 285-0 Silver and platinum ores 704.9 010 Ores and concentrates of silver 2 .112 :illIT 203.9 Peru 286-000 Ores and concentrates of uranium and thorium 0.019 MMT 1.072 Australia (Total) 29 Crude animal and vegetable materials, n.e.s. 24,447. 291 Crude animal materials, n.e.s. 10,096. 291-1 Bones, ivory, horns, hoofs, claws, etc. 5,446. Section 3 MINERALFUELS, LUBRICANTS,AND RELATED MATERIALS 649,330. 321 Coal, coke, and briquettes 108,956. 321-4 Coal (anthracite, bituminous) 108,950. 410 Anthracite coal 1,288. HM'!' 7,637. North Viet Nahm, China, Republic of South Africa, South Korea, Ca:inada 421 Heavy coking coal, bituminous cont. ash not more than 8% 9,020. MMT 56,206. U .• A., Australia 422 Heavy coking coal, bituminous, more than 8% ash 6,038. MMT 29,921. Australia 423 Bituminous coal, less than 8% ash excluding heavy coking coal 860.0 MMT 4,274. Australia 424 Bituminous coal, more than 8% ash excluding heavy coking coal 2,303. MMT 10,906. Australia 321-5 Briquettes of coal Main countries of origin, Value accounting for at least 80 SITC Million percent of volume (where NOS. Commodity Quantity Unit Yen applicable; otherwise value) 321-600 Lignite briquettes & lignite 0.250 MMr 2.709 Australia (Total) 700 Peat briquettes & peat 0 .124 MMI' 2.976 United Kingdom (Total) 800 Coke or semi-coke of coal, lignite, peat 0.007 MMI' 0.293 U .S ,!1 (Total) 33 Petroleum and petroleum products 530,930. 331-0 Petroleum, crude and partly refined 432,130. 331-011 631 Crude, less than 0.9037 Sp, Gr. at 15° C. 89,030. MKL 386,086. Iran, Kuwait, Saudia Arabia 012 Crude, less than 0.9037 Sp. Gr. at 15° C. 4,104. MKL 18,170. Indonesia, Neutral Zone 021 Raw oil, more than 0.9037 Sp. Gr. at 15° C. 5,051. MKL 21,772. Saudi Arabia, Neutral Zone 022 Raw oil, less than 0.9273 Sp. Gr. at 15° C. 92 .62 MKL 490.9 023 Raw oil more than 0.9273 Sp. Gr. at 15° C. 1,058. 5,611. Rumania, Venezuela 332 Petroleum products 98,800. 1 Gasoline & other light oils 7,435. 2 Kerosene for lights & fuel 1,035. 3 Distillate fuels 35 .99 4 Residual fuel oils 64,121. 5 Lube oils & greases 12,111. 6 Mineral jelly & waxes 1,004. 9 By-products of coal, liquite petroleum, not chemical, n.e.s. 13,056. 341-110 Gas, natural & manufactured, liquefied 8,182. MMI' 9,444. Kuwai , Saudi Arabia Section 4 ANIMAL& VEGETABLEOILS & FATS 21,543. 411 Oils & fats 16,944. 1 Oils of fish & marine animals 400.1 110 Fish oil MKG 0.315 Iceland, U .S .S .R. (Total) 122 Whale oil, excl. baleen whales MKG France, Germany (Total) 131 Cod liver oil 8,000. MKG 1.464 Norway (Total) 132 Shark liver oil 266.3 MKG 54.33 Spain, Norway, Hong Kong, Taiwan Main countries of origin, Value acc::nmting for at least 80 SITC Million percent of volume (where NOS. Commodity Quantity Unit Yen applicable; otherwise value) 3 Animal oils, fats, and greases (excl. lard) 16,544. 342 Lanolin 36.77 MKG 19.92 Australia, U.S.A. 343 Wool grease, alein, and wool grease steerin 11.29 MKG 2.267 United Kingdom, U.S.A. (Total) 42 Fixed vegetable oil & fats processed 3,318. Section 5 CHEMICALS 178,934. 51 Chemicals, elements & compounds 59,282. 512 Organic chemicals 41,270. 513 Inorganic chemicals oxides, and halogens 11,674. 514-514 Other inorganic chemicals 4,432. 515-515 Radioactive & assoc. materials 1,907. 52-52 Mineral tar & crude chemicals (for coal, petroleum, etc.) 793 .6 561 Fertilizers, manufactured 17,807. 1 Nitrogen fertilizers&. materials (other than natural) n.e.s. 30.39 Section 6 MANUFACTUREDGOODS 248,398. 61 Leather, manufactures, (n.e.s.) & dressed furs 4,111. 63 Wood & cork mfgs. (excl. furniture) 3,925. 631 Veneers, plywood, etc. 3,525. 631-119 685-5Veneer sheets, n.e.s. 96.43 MSM 22.21 Tah,1an, U.S.A. 120 Sheets for plywood, n.e.s. 416.3 MSM 84.86 Phidppines, Australia 210, Plywood 415.9 MSM 223.8 U.S,A., S. Korea, Canada, Taiwan 410 "Improved" wood 0 .835 MCM 6.366 U.S,.A. 420 Reconstituted wood 19.62 MCM 351.5 Ryukyu 8 Wood, simply shaped or worked, n.e.s. 2,836. 832 Chipwood, & wood chips, n.e.s. 392,358. MKG 2,827. U .S ,A. Main cotn1tries of origin, Value accounting for at least 80 SITC Million percent of volume (where NOS. Commodity Quantity Unit Yen applicable; otherwise value) 632 Wood mfg., n.e.s. 220.2 64 Paper, paperboard, & mgfs. 4,562. 641 Paper, & paperboard 3,365. 1 Newsprint paper 1,091. 2 Other printing & writing paper 88.93 3 Kraft paper & paperboard 55.96 5 Machine made paper & paperboard, n.e.s. 689.0 6 Fibreboard & other bldg. board 57 .11 642 Articles manufactured of pulp, paper, or paperboard 1,197. 65 Textile yarn, fabrics, etc. 21,248. 66 Non-metallic mineral mfg. 's, n.e.s. 29,075. 67 Iron & steel 47,935. 68 Non-ferrous metals 125,904. 681 Gold platinum & others of platinum group 17,718. 682 Copper 60,793. 1 Copper & alloys, unwrought 57,016. 2 Copper & alloys, worked 3,776. 683 Nickel 3,134. 1 Nickel & alloys, unwrought 2,450. 2 Nickel & alloys, worked 683.8 684 Aluminum 14,560. 1 Aluminum & alloys, tn1wrought 13,274. 2 Aluminum and alloys, worked 1,286. 685 Lead 2,546. 1 Lead & alloys, unwrought 2,539. 2 Lead & alloys, worked 7 .197 686 Zinc 769.9 1 Zinc & alloys, unwrought 768.5 2 Zinc & alloys, worked 1.465 Main countries of origin, Value accounting for at least 80 SITC Million percent of volume (where NOS. Commodity Quantity Unit Yen applicable; otherwise value) 687 Tin 22,749. l Tin & alloys, unwrought 22,740. 2 Tin & alloys, worked 8.775 688-0 Uranium, thorium and their alloys 0.5 689 Misc. non-ferrous base metals 3,633. 3 Magensium & beryllium 321.4 4 Tungsten, molybdenum & tantalum 246.0 5 Base metals, n.e.s. 3,066. 69 Manufactures of metals, n.e.s. 9,509. Section 7 MACHINERY& TRANSPORTEQUIPMENT 274,650. 71 Machinery other than electric 166,190. 72 Electric machinery 43,313. 73 Transport equipment 65,148. Section 8 MISCELLANEOUSMANUFACTURED ARTICLES 69,593. TOTAL 3,428,172. Source: Ministry of Finance, ~E. Boeki Geppyo (Japan Exports and Imports); 66.12. APPENDIX2 TRENDSIN PETROCHEMICALSAND AMMONIUM FERTILIZERS, JAPAN APPENDIX2 TRENDSIN PETROCHEMICALSAND AMMONIUM FERTILIZERS, JAPAN A Report of Nihon Kogyo Ginko (Industrial Bank of Japan) Tokyo 1967 PETROCHEMICALS:RECENT TRENDS In contrast to the recession suffered by other industries as a result of the general decline in domestic demand, Japan's petrochemical industry had a good year in fiscal 1965, with an output valued at ¥310.5 billion, 1 an increase of 36% over the previous fiscal year's ¥228. 9 billion. Since the output of the chemical industry as a whole grew by only 8%, the petrochemical share of total chemical production in fiscal 1965 rose to 19% from 15% in the previous fiscal year. The favorable trend in output of petrochemicals was attributable to a 378% (¥25. 5 billion) increase in exports over the previous fiscal year. This differed from the past pattern in which output was supported mainly by domestic demand. The shift was brought about by the industry's efforts to make up for the dwindling domestic demand from manufacturers of such items as televisions, radios, refrigerators, synthetic fibers, etc. that has been witnessed since the latter part of fiscal 1964. Now that dependence on exports has become overwhelming, future development of the nation's petrochemical industry will be greatly affected by market trends overseas. Plant Facilities: Disparity witnessed between products in caoacity increment As for plant capacity in fiscal 1965, no marked expansion like that in the past was made. The following factors were responsible for this: The Second Term Program for Development of the Petrochemical Industry, begun in 1960 and involving the construction of five new complexes,* had already been completed in the previous fiscal year, and the construc tion of plants to produce some derivatives was deferred because of the recession in the growth rate of demand. At the end of fiscal 1965 ethylene capacity finally exceeded the million ton 2 level, though only slightly, when it climbed to 1,067,000 1. In this Survey "billion" refers to the U. S. unit. 2. In this Survey "ton" denotes "metric ton." 247 tons from 840,000 tons in the previous year. This was achieved by expanding the annual ethylene capacity of the pioneering centers to 200,000 tons and by the 100,000 ton increase that resulted from the expansion of Maruzen Petrochemical and others. Two pioneering centers, Nippon Petrochemical with its ethylene capacity increased to 200,000 tons in June 1965 and Mitsubishi Petrochemical with its capacity increased to 180,000 tons in November 1965, have both reached a scale comparable to plants in the West. Among the Second Term Program complexes, Tohnen Petrochemical realized a 200,000 ton annual ethylene output in April 1966; and in February 1966 Maruzen Petrochemical, whose Lurgi system ethylene plant operation had encountered many problems, completed its 100,000 ton capacity No. 2 plant of the SW system to supply the demand from derivative Compared with the previous fiscal year, the capacity increment of ethylene plants was very small, while the capacity growth rate of most derivative producers declined sizably, with some showing only a slight increase over the preceding year. Items which showed remarkable increase in plant capacity were those like polyethylene (54.3%), synthetic rubber (55.7%), benzene (215.8%), toluene (73.9%), and xylene (61.1%). These have secured a steady demand or have a high dependence on imports. TABLE 2-1 Output of Petrochemical Products Unit: ¥100 million Fiscal Year Petrochemicals(A) All Chemical Products(B) A/B 1960 625 % 10,017 % 6.2% 1961 872 (140) 10,701 (107) 8.1 1962 1,223 (140) 11,303 (106) 10.8 1963 1,747 (143) 13,056 (116) 13.3 1964 2,289 (131) 15,099 (116) 15.1 1965 3,105 (136) 16,362 (108) 19.0 Source: Chemical Industry Statistics Monthly. N.B.: Figures in parentheses denote comparison with previous term. 248 Following the expansion of ethylene plants, the production of Aromatics, such as BTX, etc., which had hitherto generally been imported was initiated by the petrochemical industry because the huge quantity of drip oil that results as a by-product can be efficiently utilized. Items for which no noticeable capacity increment was witnessed or for which plant capacity leveled off are: ethylene oxide (0% increase in annual capacity), ethylene glycol (0%), propylene oxide (7.1%), polypropylene glycol (5.6%), aceton (9%), octanol (8.8%), phthalic anhydride, etc. TABLE2-2 Development of the Petrochemical Industry in Japan Program Date Name of Complex and Location First Term Program 1956-60 1. Nippon Petrochemical at Kawasaki (Pioneering Centers) 2. Sumitomo Chemical at Niihama 3. Mitsui Petrochemical at Iwakuni 4. Mitsubishi Petrochemical at Yokkaichi Second Term Program 1961-64 5. Tohnen Petrochemical at Kawasaki 6. Daikyowa Petrochemical at Yokkaichi 7. Maruze~ Petrochemical at Goi 8. Mitsubishi Chemical Industries at Mi.zushima 9. Idemitsu Kosan at Tokuyama Third Term Program 1965- 10. Sumitomo Chemical at Chiba 11. Mitsui Petrochemical at Chiba 12. Showa Denko at Tsurusaki 13. Osaka Petrochemical at Osaka Supply and Demand: Active trend supported by expanding exports Beginning in the latter part of the preceding year, the deterioration of the supply and demand relation of petrochemical products continued in fiscal 1965 because of inactivity in such consuming industries as radio, television, refrigerator, synthetic fiber, etc. The industry therefore tried to maintain supply-demand equilibrium by putting off expansion pro jects and increasing exports. As a result, the operation rate was generally high, as shown in Table 2-3. 249 TABLE 2-3 Productive Capacity and Operation Rate of Major Petrochemicals Productive Capacity Compared with (M/ton) Prev. Year 0Eeration Rate{%) Mar. '65 Mar. '66 (%) Mar. '62 Mar. '63 Mar. '64 Mar. '65 SeEt.'65 Mar. 1 66 Ethylene 65,310 91,303 139.8 63 84 98 3 93 91 Polyethylene 27,753 39,740 154.3 48 84 115 115 105 107 Ethylene oxide 6,820 6,820 100 107 94 71 83 101 109 Ethylene glycol 6,300 6,300 100 128 115 59 76 95 91 Styrene monomer 14,640 21,100 144.1 104 99 102 70 86 96 Polystyrene 13,000 18,010 138.5 81 88 79 56 72 84 Propylene 46,002 62,686 136.3 57 80 100 109 104 111 Polypropylene 4,968 6,340 127.6 - 36 94 72 111 113 N Propylene oxide 6,637 7,110 107.1 - 83 89 51 60 60 \Jl 0 Polypropylene glycol 5,896 6,226 105.6 45 77 85 38 54 56 Isopropanol 833 1,333 160.0 67 61 81 120 93 97 Ace ton 6,385 6,385 100 81 65 93 86 92 93 Octanol 3,790 4,123 108.8 56 60 54 84 83 102 Butanol 6,320 7,750 122.6 31 86 87 97 92 93 Butadiene 11,226 14,923 132.9 90 99 91 72 66 86 Synthetic rubber 15,543 24,203 155.7 77 83 64 82 54 79 Benzene 8,693 27,450 315.8 116 98 85 104 96 90 Toluene 9,925 17,261 173.9 109 71 71 82 93 99 Xylene 6,920 11,146 161.1 94 55 54 73 93 106 Phthalic anhydride 5,835 5,385 92.3 62 51 71 80 78 95 Terephthalic acid 7,775 9,725 125.1 90 72 87 83 69 92 Source: Chemical Industry Statistics Monthly. TABLE2-4 Output of Petrochemicals Unit: M/ton Comparison with 1st Half' 64 2nd Half'64 Tota1'64 1st Half'65 2nd Half'65 Total 65 Previous Year ~%2 Ethylene 233,130 331,589 564,719 381,709 462,089 843 798 149.4 Polyethylene 137,018 176,229 313,247 194,460 237,539 431 999 137.9 low density 96,731 128,705 225,436 149,695 186,279 335 974 149.0 high density 40,287 47,524 87,811 44,765 51,260 96 025 109.3 Ethylene oxide 25,499 34,068 59,567 37,995 41,972 79,967 134.3 Ethylene glycol 19,321 28,409 47,730 32,978 35,525 68 503 143.5 Styrene monomer 64,206 71,657 135,863 86,160 105,311 191,471 140.9 Polystyrene 50,573 51,605 102,178 63,810 76,941 14G,751 137 .8 Polymer 43,095 43,235 86,330 52,170 62,065 114 235 132.1 Copolymer 7,478 8,370 15,848 11,640 14,876 26 516 167.3 Polypropylene 17,918 23,046 40,964 28,871 38,074 66 945 163.4 N V, Propylene oxide 15,979 20,072 36,051 21,677 24,181 45,858 127.2 ~ Propylene glycol 4,203 5,055 9,258 6,505 7,645 14 150 152.8 Polypropylene glycol 11,718 14,253 25,971 14,628 18,753 33 381 128.5 Isopropanol 4,393 5,902 10,295 7,092 6,709 13 801 134.1 Ace ton 16,767 25,573 42,340 26,447 33,995 60 442 142.7 Octanol ( 6,736) ( 7,565) ( 14,301) ( 8,207) ( 9,712) ( 11 919) (125. 2) 24,060 27,659 51,719 28,575 33,318 61 893 119.7 Synthetic rubber 60,598 72,985 133,583 80,037 94,736 174, 773 130.9 Butanol ( 2,464) ( 1,862) ( 4,326) ( - ) ( - _) 26,786 33,214 60,000 37,674 41,235 78 989 131.5 Benz en (101,140) (111,118) (212,258) (121,388) (123,722) (245 110) (115.5) 149,786 167,478 317,264 191,474 230,616 421 090 133.0 Toluene ( 22,059) ( 22,608) ( 44,667) ( 24,096) ( 26,227) ( 50 323) (112. 7) 78,183 83,630 161,813 92,602 117,109 209 711 129.6 Xylene ( 5,307) ( 5,191) ( 10,498) ( 4,763) ( 5,215) ( , 978) ( 95. O) 42,514 45,467 87,981 49,977 66,015 115 992 131. 7 Phthalic anhydride ( 22,174) ( 23,751) ( 45,925) ( 26,215) ( 27,921) ( 54 136) (117.9) 47,716 48,058 95,774 49,931 53,583 103 514 108.0 Terephthalic acid 37,764 33,603 71,367 36,323 48,736 85 059 119.2 Acrylonitrile 332169 682977 1022146 782442 802743 159!185 155.8 Source: Chemical Industry Statistics Monthly. N.B.: (1) Figures in parenthesis denote those excludin the Third Term complexes. (2) Products of industries other than the petroc~emical industry are included in acrylonitrile. TABLE 2-5 Exports and Imports of Major Petrochemicals Unit in M/ton 1964 1965 Compared with 1963 1st Half 2nd Half Total 1st Half 2nd Half Total previous year(%) Imports Polyethylene 4,998 739 1,431 2,170 835 436 1,271 58.6 Ethylene glycol 29,740 16,643 5,125 21,768 2,847 313 3,160 14.5 Styrene monomer 1,039 6,243 2,492 8,735 Polystyrene 13,319 9,574 4,404 13,978 2,404 1,573 3,977 28.5 Polypropylene 274 81 116 197 202 107 309 156.9 Propylene glycol 4,947 3,490 1,267 4,757 18 0 18 0.4 Ace ton 11,352 14,027 5,414 19,441 514 - 514 2.6 f'.) l./1 Octanol 4,909 340 - 340 N Synthetic rubber 58,145 25,840 27,959 53,799 25,703 20,733 46,436 86.3 Butanol 7,778 4,669 2,461 7,130 89 134 223 3.1 Benzene 17,084 22,863 16,376 39,239 4,419 3,305 7,724 19.7 Toluene 16,208 9,183 14,834 24,017 9,529 25,232 34,761 144.7 Xylene 67,401 57,725 58,226 115,951 41,974 29,481 71,455 61.6 Phthalic anhydride 3,026 1,806 669 2,475 715 1,440 2,155 87.1 Exports Polyethylene 26,056 9,802 16,518 26,320 33,371 55,845 89,216 339.0 Polystyrene 2,120 671 1,262 1,933 1,744 2,173 3,917 202.6 Acrylonitrile n.a. n.a. n.a. n.a. 24,182 26,292 50,474 Synthetic rubber 8,027 7,001 1.l,196 18,197 17,098 18,235 35,333 194.2 Source: Japan Trade Monthl_y. Table 2-4 indicates the output of petrochemicals for the past two fiscal years (1964 and 65), As can be seen, each item surpassed the pre vious year's figure. Substantial increases over the preceding year are revealed in ethylene (49.4%), polypropylene (63.4%), and acrylonitrile (55.8%). This stemmed from active domestic and overseas demand. On the other hand, ethylene oxide (an ingredient of polyester), ethylene glycol phthalic anhydride, octanol (plasticizer material of vinyl chloride resin), butanol, etc. show comparatively small increases and a decline from the growth rate of the previous year. The slack demand from related indus tries was responsible for this. As for butanol, the Japan Butanol Company was successful in construct ing a plant (operation started April 1965 at an annual capacity of 15,000 ) react in a single process in vapor), which is much more advanced than the acetaldehyde or propylene oxo process. This company was established by the joint investment of four concerns -- Mitsubishi Petrochemical, Japan Synthetic Chemical, Daikyowa Petrochemical, and Kanegafuchi Chemicals. The participation in the enterprise of an acetaldehyde process maker - Daikyowa Petrochemical -- is indicative of the rapid technical reform in the industry. In the production of octanol, there is competition between the aldehyde process and the aldox process, and the outcome is being carefully watched. However, in addition to the inactivity in shipments of octanol for placticizers, competition with butanol began to appear in 1965, resulting in an over-supply and dips in prices. Promo tion of exports and stabilization of prices therefore became vitally important and capacity expansion has consequently been postponed. Thus no variation from the previous fiscal year is noticeable in the volume of production from each process. Although the conversion of the existing IPA or Kumen process to the Wacker process had been projected, the implementation was deferred because of excess capacity. Since demand from polyester synthetic fibers, films, and antifreezes was sluggish, demand for ethylene oxide and ethylene glycol could be met by existing facilities. A sizable expansion, however, is scheduled between 1966 and the first half of fiscal 1967 in order to meet the increased demand expected in 1967 and thereafter. As for aromatics, new ventures were realized (Idemitsu Petrochemical in October 1965, and Maruzen Petrochemical and Asia Petroleum, both in February 1966) in an attempt to produce all of them domestically and achieve an efficient utilization of drip oil and intermediate derivatives. It seems that they are operating busily, supported by active demand from general solvents, styrene, alkyl benzene, isomerization of cyclohexan, etc. Polypropylene glycol makers have been suffering from excess capacity since fiscal 1964 and are operating at 54-55% of capacity because of sharp and successive declines in the expansion of demand for uretan foam 253 (33% in 1964 and 15% in 1965, respectively, from the previous fiscal year), which consumes approximately 90% of the total supply. Under such circumstances, Mitsui Chemical was forced to close its Kawasaki Plant in 1965 and Nihon Oils and Fats had to suspend operation at its Amagasaki Plant. The Industry is now examining remedial measures, such as forming of an anti-depression cartel, etc. However, since the largest consumer the foam rubber industry -- is also depressed, adjustment appears very difficult. As for the manufacture of new items, Nissan Petrochemical's heptanol (November 1965) and Nissan Conoco's alkyl benzene (April 1966) are note worthy. Being a c7 alcohol manufactured from propylene dimer (French ' 1 is used zer The initial production in Japan of alcohol above c7 is said to have occurred when Nissan Chemicals (parent company of Nissan Petrochemical and Nissan Conoco) entered the petrochemical field and when Maruzen Petrochemical attempted an overall utilization of olefine. Soft alkyl benzene, made by alkylation of n-chloridation paraphine and benzene (U.S. Continental's technique), is a soft type detergent resolved by bacteria. Nissan Conoco is a pioneer company in the manufacture of a soft type synthetic detergent in Japan, and will be followed by manufacturers of hard type cleansers, namely, Nisseki Cleanser and Mitsubishi Petrochemical. Other companies such as Toyo Koatsu, Japan Atlantic, Mitsui Petrochemical, Kao Ethyl, etc. will also attempt to produce soft alkyl benzene and alcohol above C7, Next, let us review trends in supply and demand with regard to major items. Plastics Output of plastics made from petrochemicals reached 764,000 tons in fiscal 1965, a favorable increase of 140% over the previous year. This is further reflected in the fact that in the same year petrochemical plastics occupied 40% of the total plastic output as compared with 32% in fiscal 1964. The amount reaches 45% if resins produced by the EDC process are added. Despite a slump in other related industries, the growth rate of petrochemical plastics thus exceeded the previous year's level. This is attributable to the increase in demand for polypropylene from plastics manufacturers. Though there was no newcomer in this field, polyethylene output for fiscal 1965 rose to 432,000 tons, 138% over fiscal 1964. This was due to the expansion of existing facilities, mainly by the makers of low density polyethylene, such as Asahi-Dow and Ube Kosan (these two companies sought the most economical scale of operation and started production respectively in March and December 1964). Expansion was also carried out by the 254 pioneering centers, particularly Sumitomo Chemical and Mitsubishi Petro chemical, in their attempt to cope with international competition. Such a notable expansion in capacity resulted in stiff competition among plastics makers, and this, together with a recession in related industries, seriously affected domestic demand. As a consequence, deterioration of the supply and demand balance became a matter of deep concern; and the industry, whose main activity so far had been on domestic sales, shifted its efforts to the further expansion of markets overseas. Thanks to an active foreign demand that continued from the previous year, exports for fiscal 1965 registered 89,000 tons, which is an increase of nearly 300% over the preceding term. Thus, supply and demand was generally well balanced because the standstill in domestic demand was compensated for by the increase in exports. Despite the increased use of high density it encountered competition from polypropylene in the field of injection molding. Consequently, no increase in capacity was witnessed except for a small scale expansion made by Furukawa Chemicals. On polyethylene as a whole, it can be said that the price dropped because it was feared that an oversupply would develop. Output of polystylene amounted to 141,000 tons, a gain of 38% over fiscal 1964. At the beginning of fiscal 1965, dealers' stocks increased due to a drop in demand for televisions, radios, refrigerators, etc. Toward the latter half of fiscal 1965, an upward turn occurred because its use in packing and construction material (foam stylene), copolymer (AS and ABS), and sundries expanded. However, as the Second Term complexes began full operation an over-supply gradually developed, the market began to decline and the price of polystyrene for plasticizer fell by ¥25 per kilogram during the year. As a result, manufacturers had to postpone expansion plans for about a year. Toyo Rayon and Sekisui Chemicals, which had been planning initial production, had to postpone the commencement of plaat construction. The existing average capacity of polystyrene per maker is a little more than 30,000 tons, even in the case of general pur pose resin. This illustrates the sharp competition among producers. Polypropylene made great progress in developing new uses, especially in films and the field of injection molding. Production in fiscal 1965 registered 67,000 tons, which is an increase of 63% over the previous year. The ratio occupied by fils and injection molding to the total demand advanced from 60% in fiscal 1964 to 80% in fiscal 1965. This was partly due to the sharp drop in its use for textiles. M~~erials for Synthetic Fibers As a result of the voluntary cutbacks in nylon and ester production together with the continuance of measures initiated in the previous term to expand domestic and foreign markets, the supply and demand relation· showed improvement in the latter half of fiscal 1965. Though the operation rate declined somewhat when compared with the previous year, the produc tion of nylon flattened out at a high level. Acryl production, on the 255 other hand, reached 88,000 tons, a 130% gain over the preceding year, and the enlarged capacity showed a high operation rate supported by an active demand from domestic and overseas markets. Demand for vinylon, which mainly depends upon industrial uses, showed a steady increase from the preceding term. As for synthetic fibers in general, efforts were made to maintain an equilibrium between supply and demand by promoting exports to make up for the sluggish domestic market. Under such circumstances, there was apprehension that the supply and demand balance of the raw materials for synthetic fibers might deteriorate. To cope with the situation, the industry tried to promote the export of lactum and acrylonitrile while reducing imports of lactum and The lar, seriously affected the manufacturers of major raw materials such as lactum, phenol, anon and cyclohexane. The overall capacity of the indus try was notably enlarged when, in order to make Japan self-sufficient in this line and to supply the Second Term complexes, Mitsubishi Chemicals and Japan Lactum entered the field and two companies belonging to the pioneer centers expanded. Since producers wanted to ensure their market shares in the nylon production of the Second Term complexes, they continued to operate at a high rate, regardless of the slack demand from consuming industries. As a result, the supply and demand balance was upset and · producers stocks increased. Under these circumstances, manufacturers vigorously attempted to exploit foreign demand. Their efforts resulted in exports totalling 17,000 tons in fiscal 1965. The receiving countries were the U.S.S.R., the Republic of Korea, India, Communist China, etc. Of these, the u.s.s.R. took more than 80%. Acrylonitrile production amounted to 159,000 tons, or a gain of 156% over fiscal 1964. The factors responsible for this were: expansion in knitted goods following the diversification of clothing, growth of demand due to improvement in quality of acrynitrile, and increased demand from overseas for acryl products. Of the total exports, 70% was shipped to Holland from where the majority is believed to have been re-exported to West Germany. The delay in plant expansion by European producers, who usually wait for a market to develop before they expand, was responsible for this. Since it is anticipated that the U.S.A., where production has been underway since the latter part of 1964, will begin actively exporting to the European market, it is feared that Japan's export position will be adversely affected. Actually, prices have indicated a downward trend since January 1966, when Monsanto cut its export price from $0.17 to $0.14 per pound. Owing partly to expansion, output of terephthalic acid increased by 19% over fiscal 1964 (growth rate was also larger than that of 1964), despite the production cutbacks effected in the first half of fiscal 1965. This is attributable to active polyester exports stemming from increased demand, particularly by the "permanent press" processing industry in the 256 U.S.A. In the material sector, however, over-supply was being indicated. Toyo Koatsu, whose facility was completed in February 1966, and other makers have been trying hard to maintain their operation rates as well as to ensure consumers. However, since demand for polyester, both domestic and foreign, has begun to rise again remarkably in recent months, a favor able turn has been indicated in the supply and demand relation of terephthalic acid, presaging a bright trend in the future. Future exports of DMTand polyester chip will be much more hopeful than terephthalic acid, in view of the fact that quite limited quantities of polyester chip were shipped to Switzerland and other places. Ethylene glycol for textil use also registered a slight increase (9% over fiscal 1964) with an output of 36,000 tons. Demand for items other than polyester -- anti-freezes, tex- tile and paper processing agents -- was also inactive, and the start of half of 1966 and early 1967. An exception to this is Nisso Petrochemical whose plant facility was expanded from 16,800 tons to 25,000 tons in April 1966. Synthetic Rubber Demand for synthetic rubber rose 13% over fiscal 1964. Output amounted to 138,000 tons, centering around tires and tubes. The share of new rubber (natural and synthetic, excluding reproduced rubber) in total consumption was raised from 39% to 43% (the ratios of synthetic rubber consumed in 1964 by countries were: U.S. 75%, West Germany 53%, Britain 47% and Japan 44%), Following the progress of synthetic rubber production, imports were reduced while exports made great strides. In fiscal 1965 imports supplied 20.9% of the demand. The figure for fiscal 1964 was 28.9%. Among imports, low-priced items and stereo type SBR accounted for 52%, while IIR, which was in new demand for the manufacture of tubes b~cause it holds air better and has not yet been locally industrialized, occupied 29%. Though a con siderable growth was shown (106% over a year ago), sales of CR consisted largely of exports, mainly to the U.S.S.R., and the existing capacity seemed to have been rather excessive. Aiming at cost reduction and the utilization of B-B fraction, the industry is now examining the feasibility of conversion to the butadiene chlorinate process from the existing carbide acetylene process. Besides cost reduction, a minimum production of 20,000-30,000 tons per year is also desirable. Whether or not this can be achieved will depend on the future growth of demand. The progress of BR production has been noted since the item was industrialized toward the end of 1964 by Japan Synthetic Rubber and Asahi Kasei. However, production operations are progressing at a faster pace than was generally anticipated at the outset due to the success of Japan Synthetic Rubber in entering into a long-range contract with Goodyear, and Asahi Kasei's active development of new uses, such as for automobile parts. Japan Zeon, which entered the field in October 1965, is also trying to raise its operation rate by making export to Goodrich, from whom the company introduced tech nical know-how. As a synthetic rubber for general use, this item is expected to rank next to SBR. The industry will be confronted with the problem of strengthening its international competitiveness by scale expan sion. Since there is no room for new industrialization of SBR as a 257 synthetic fiber, and since it will require some time before BR is able to develop a market, programs for industralization of EPR and EPT are mushrooming. The Ministry of International Trade and Industry is reported to have shelved deliberation of the problem of import of technical know how until overseas trends are clarified, Meanwhile, in August of 1965, Japan Zeon developed with its own skill a butadiene extracting process as its Tokuyama Center (GPB process) prior to the construction of a poly butadiene facility. Being a new process using DFM (dimethylformide) as a solvent, it differs from the CAAmethod (copper acetate ammonium solvent) of the acetonitrile process. This technique is being closely watched, even by foreign enterprises. In view of the fact that the effective utilization of fraction will become an important problem following c4 i the cl technique will be to our advantage. Price, Income, and Expenditures--Decline in Profit Rate Due to the imbalance in supply and demand as well as the intensified competition between enterprises, the market trend of petrochemicals became worse, Consequently, prices of most products are very competitive with prices overseas (Table 2-6). Since the real prices are said to have been 10% less, there might be some items whose real prices are lower than the international level. Prices dropped on the following items: terephthalic acid, synthetic textile materials of acrylonitrile, polyethylene, and plastics of poly styrene. The decline was caused by a recession in demand following the massive expansion of plant facilities. Therefore, it will not be possible to make use of the new capacity, and little advantage can be expected from the cost reduction. Further, owing to the increase in general administrative expenses, a declining trend is seen in profits and profit rate. It is notable that in contrast to the fall in petrochemical prices in Japan, upward trends., though not on all items, are witnessed in the U.S., supported by an active demand. They include phthalic anhydride, poly propylene, styrene monomer, polystyrene, methanol, etc. Even in Europe, prices of aceton, etc. have been raised, Such price hikes can hardly be expected in Japan where many enterprises attempt to undertake produc tion simply by introducing technical know-how. The recent competition among producers and the ensuing competition in prices are regarded as excessive in some quarters. Instead, it is desirable that stabilization and development of the industry be carried out by adjusting to demand. OUTLOOK Trend in Industrialization--Inauguration of New Centers Despite the tentative slump in the growth rate of petrochemicals, a large expansion is being anticipated and industralization is still active, particularly in olefine cracking and derivatives. The Petrochemical 258 TABLE2-6 Price Movements of Petrochemicals Yen per kilogram '61 '62 '63 Sept.' 64 -~----Mar. '65 Sept.' 65 Mar. '66 ~ril'66 U.S.A.* Polyethylene (low density) 267 205 179 159 161 149 141 139 125 Ethylene oxide 169 151 144 130 120 108 107 105 123 Ethylene glycol 152 136 127 115 109 101 98 95 107 Styrene monomer 151 144 141 116 106 102 99 94 99 Polystyrene 257 248 233 212 209 197 183 176 115 Polypropylene - 316 285 242 224 208 199 201 214 Propylene glycol 136 124 114 116 119 117 108 113 99 Polypropylene glycol 240 207 190 178 167 143 130 129 N V, Isopropanol 108 102 100 92 92 61 58 59 56 \.0 Ace ton 88 81 74 69 69 63 56 55 51 Octanol 240 191 173 154 149 141 136 136 99 Butanol 133 127 127 123 116 103 103 99 107 Methyl ethyl keton 141 134 133 125 116 120 110 110 99 Benzene 51 39 34 33 32 33 31 31 29 Toluene 32 31 30 29 28 28 27 27 23 Xylene 34 33 29 28 27 26 24 25 27 Terephthalic acid 281 259 228 218 206 195 188 186 Aery loni t rile 237 174 166 180 169 161 145 146 115 (Ref) Synthetic phenol 180 145 123 108 103 102 96 95 89 *Taken from European Chemical News, April 8, 1966. Exchange rate: 1 cent/lb0 = ¥7.92/kg Source: Chemical Indust!Y Statistics Monthly. Cooperation Conference estimates that annual production of ethylene from operating at 85% capacity will reach 1,341,000 tons in 1967, then 1,596,000 tons in 1968 and 1,903,000 tons in 1969. Consequently, in February 1966, an additional 320,000 tons of capacity was added to the total of 1,580,000 tons which had been originally allocated for the period up to the end of 1968. Out of the 320,000 ton allocation, 100,000 tons each will be allo cated to Osaka Petrochemical's Sakai Project and Showa Denko's Tsurusaki Project, both of whose plans for derivatives manufacture have definitely been established, while the remainder will be assigned to the expansion projects of existing complexes. Thus, in addition to the two centers that appeared in 1965 -- Mitsui Petrochemical and Sumitomo Chemical - two more centers will come into existence, and the number of complexes in Japan will be thirteen, involving eleven different companies. Osaka Petrochemical is the name of a petrochemical center formed by the cooperation of the Mitsui group and the Western Japan Federation of Economic Organizations group in order to avoid excessive competition and to enlarge the scale of operation. However, they did not agree to cooper ate in the manufacture of derivatives; instead, they decided that each group manufacture its own derivates. This reflects the difficulty of forming joint ventures for the manufacture of products for which demand is expanding. Among derivative programs, Toyo Koatsu's plan to produce low density polyethylene by its own technique, and the attempt of Mitsui Chemical (which has hitherto been a supplier for Mitsui Petrochemical) to manufacture polyethylene are notable. Showa Denko's Tsurusaki complex, which has acquired Japan Olefine's annual production allocation of 44,000 tons, has mapped out its program for industrialization of low density polyethylene by introducing know-how from "Ethylene Plastique" of France (approval is pending: voluntary adjustment 20,000 tons per year assured) and high density polyethylene by introducing know-how from Philips, A new complex to be established by the joint investment of four companies Showa Denko, Kyushu Petroleum, Yawata Chemicals, and Yawata Iron and Steel -- is planning to industrialize naphtha cracking. It has been decided that the new complex will industrialize derivatives before olefine in order to maintain a balance between the two. The material for this (ethylene) will be procured from Idemitsu Petrochemical's Tokuyama Center. Osaka Petrochemical and Showa Denko belong to the Third Term Program complexes, and under the present circumstances in which the differences between the First Term Program complexes and the Second Term complexes is becoming greater, the future of the most recent complexes will involve hardship. Besides, there are plans for the construction of other complexes, such as Nippon Petrochemical's Honmoku Center and Tohnen Petrochemical's Arita Center. In view of the recent sharp competition among derivative makers, the room for new complexes is quite limited. Together with restriction from the derivative sector, realization of the above projects will take a long time. Among the new industrialization programs for the current year, Toku yama Petrochemical's polyvinyl alcohol (!CI technique) is notable. This 260 is an attempt to convert athetylene to ethylene, which is similar to the industrialization of the Sohio process of acrylonitrile, EDC process of vinyl chloride and oxychlorination process. As regards the future develop ment of polyvinyl alcohol by the ethylene process, an attempt is being made to derive the basic material athetylene petrochernically instead of by the carbide process. Moreover, since athetylene chemistry has nearly been exhausted from the point of view of obtaining new derivatives, the realization of the above will have to overcome a lot of complications. Equipment Investment--Trends of new centers In a survey made by the Ministry of International Trade and Industry, 1965 is estimated at $114.6 billion, a sizable increase of 26% over the preceding term. This is attributable to the beginning of construction on new complexes during the year and the fact that enormous payments were made for construction in progress as the money market loosened up. A glance at trends in equipment investment reveals that the amount invested by the newest centers increased to 13% of the total in 1965 from 8% in the previous year, while that of the First Term centers decreased. In 1964, the Industrial Fund Committee of the Advisory Council on Industrial Policy, revised the target for fiscal 1965, making it ¥125.5 billion, but the result (estimate) for the term was somewhat lower. This was largely due to the necessity of postponing some scheduled construction because of the industrial slump. On procurement of funds, the number of stocks issued and the amount of borrowing decreased while internal funds notably increased (from 24% to 41%) as the control over capital increase and depreciation of the Second Term centers were initiated. In a review of products, we find that investment in the following items decreased from the previous year: the acetaldehyde group of products, because the older method of making these items has already been replaced by the petrochemical process in almost every case; terephthalic acid, because it has been affected by curtailment in acrylonitrile synthetic fiber; the DMTand ethylene oxide group of products, because they are experiencing an over-supply; and the propylene oxide group of products. On the other hand, polyethylene, styrene, alkyl benzene, SBR and BTX, etc. indicated a notable growth. Further when compared with the revised program set up at the beginning of the year, styrene, polystyrene, EDC, terephthalic acid, DMT, etc. declined to a large extent. The cause can be found in industrial recession, which made producers refrain more than expected from investing in facilities. A recent survey shows that equipment investment in fiscal 1966 will be ¥104.7 billion, or a decrease of ¥10 billion from the result (estimate) of fiscal 1965. This is the largest decrease experienced since 1962 and is attributable to the postponement of both the expansion of existing complexes and the construction of new ones. As for investment, while 261 the amount will decrease from the proceding year in the older complexes, it will increase in the newer ones to ¥26.9 billion from ¥15.4 billion in 1965--26% of the total investment amount for fiscal 1966. In regard to the type of work, both construction in progress and construction directly related to production will decrease. In contrast to the over whelming high rate of works in progress witnessed in the preceding years, it is particularly notable that investment in new construction for 1966 will occupy 25% of the total investment. As for investment by products, the majority of items indicate decreases, with the exception of poly ethylene, the ethylene oxide group and vinyl chloride products. The olefine manufacturing sector, especially, shows a remarkable drop due to comple tion of some centers. The growth of equipment investment in the poly- i. fact the ene ma.kers are the chief consumers of ethylene, and therefore, the construction of the polyethylene complex is given first preference among the derivatives of ethylene. As for ethylene oxide and vinyl chloride on the other hand, the increase supposedly is due to resumption of expansion which had been deferred on account of slack demand. At a meeting held in May 1966, the Fund Committee of the Advisory Council on Industrial Policy made cutbacks in construction funds for projects, whether new or already approved, on which further adjustment had to be made either because of the supply and demand balance or to bring them into conformity with the Law Concerning Foreign Investment. As a result, the amount was cut to ¥99.2 billion, or 87% of the 1965 estimated result. Since projects that had to undergo further adjust ment were rather few when compared with previous years, the rate of retrenchment was small. Since elements of uncertainty are comparatively few in the extension programs of the First and Second Term centers, and since the construction of Showa Denko's Tsurusaki Project and Osaka Petrochemical's Sakai Center won't start full scale until after 1967, trends in equipment investment for the current year will be greatly affected by the progress of Mitsui Petrochemical's and Sumitomo Chemical's Chiba Projects. Also, procure ment of funds will not be so difficult as in the past because the money market has eased. Under such circumstances, trends in equipment investment for the current fiscal year will also depend upon the growth rate of demand for major items following the recovery of other industries, Outlook for Supply and Demand Since a relatively high but gradual growth in the supply and demand of petrochemicals is anticipated, supply and demand for the time being will show a favorable movement provided an adequate supply system is maintained. However, keen sales competition is predicted among the major producers because there are many new projects for the manufacture of major derivatives. Also, further dips in prices will be brought about because overseas supply and demand indicates an improvement in all but a few exceptions. The estimate of demand for petrochemicals recently made 262 by the By-Products Committee of the Petrochemical Association predicts a considerable decline in the growth rates of major items in fiscal 1968-70. The growth rate of plastics will dip to an annual level of 12%- 15%, because further increase in export of polyethylene, which showed a high growth rate in fiscal 1965 due to active exports, can hardly be expected to continue since other countries have increased their capacity. High density polyethylene will find it difficult to maintain an annual growth rate of 20%, despite the industry's effort to develop new uses for it in containers, beverage bottles, etc., because of sharp compe tition from polypropylene in the key market of molding plastic. On the other hand, following the enlargement of naphtha cracking centers, many mushrooming, so the future supply and demand balance is problematical. As for polystyrene, demand will increase, though slowly, as demand from radio, television, telephone, household electric appliances and other fields increase. Nevertheless, improvement in the supply and demand balance in the near future is hard to anticipate because of the commence ment of operation by Yawata Chemicals. The supply and demand position of phenol, TPA, DMI', etc. -- materials for synthetic fiber -- will be further tightened under the present situa tion in which expansion of nylon and polyester capacity is being examined because of the sudden recovery of their supply and demand balance. However, the supply and demand balance of phenol after the second half of fiscal 1967 will be problematical due to the following factors: Toyo Rayon has decided to make an overall conversion to the cyclohexan direct oxidation process in and after 1968, and new facility expansion overseas is under way for TPA and DMI'. The rally in the vinyl chloride industry has completely changed the situation in octanol and butanol, whose major consumer is the plastics industry. Since the makers of octanol and butanol have exhausted their stock in the past few months and are unable to meet demand, consumers are requesting producers to give p'reference to the domstic market. In order to relieve this shortage, it would be wise to adopt long range measures for a harmonious development of both the industries making the basic material and those manufacturing derivatives. Problems--Enlargement of centers The petrochemical industry requires extensive equipment. Operating on a large scale therefore has many advantages. Since the industry was inaugurated to compete with foreign products, it is important that it be able to produce ethylene, the basic material, at a low cost. When demand was active, the ethylene centers have attempted substantial cost 263 reductions by expanding facilities per train (20,000 tons by Mitsui Petrochemical, completed in February 1958; 110,000 tons by Tohnen Petro chemical, completed in April 1966). A survey of the relation between plant scale on the one hand and construction expenses and factory cost per ton of manufactured item is reduced as the plant scale is enlarged. Enlargement of plant scale is also important from the technological view point, because progress in technique has made large size plants more suitable. Furthermore, under strong pressure from the advanced countries, Japan will eventually have to liberalize capital transactions. When this is done, Japan's petrochemical industry is destined to face even more intensified competition from world petrochemical interests. In order to meet this situation, enlargement of plant scale will become crucial becau,se j"nternationaJ will necessitate further cost reductions. However, large size becomes a handicap when the growth rate of demand tends to decline. This can be seen both in the recession of demand for ethylene due to the decline in the growth rate of demand for its derivatives and in the difficulty in maintaining a growth balance between olefine and its derivatives. As shown in the conclusion reached at the recent meeting of the industry, recession in the growth rate of demand for ethylene has limited further expansion. Also, as ethylene centers are expanded, a corresponding enlargement of derivatives plants should be made. This means that chances for expansion have now become fewer and conditions for realization thereof have become stricter. Japan Petrochemical, which has realized a 2,200,000 ton annual capacity of ethylene at a single plant for the first time in Japan, seems to be in a distressed position because demand has not followed up. It is reported that the company is struggling to maintain the operation rate of its newly installed plant by suspending the operation of its old plant. According to an estimate made at the end of 1965 by the Chemical Industry Committee of the Advisory Council on Industrial Policy, demand for ethylene in fiscal 1970 will be 1,800,000 tons and 3,100,000 tons in 1975. It is estimated that the average demand for ethylene per center will reach 140,000 tons in fiscal 1970, when Sumitomo Chemical and Mitsui Petrochemical (both now under construction at Chiba) and Showa Denko and Osaka Petrochemical, whose applications are now pending, will be in operation. Judging from demand, supply will be sufficient if each center would construct a plant with a capacity of about 100,000-150,000 tons per train, which is deemed the minimum-optimum size under the existing technical conditions; and existing facilities will have to be scrapped in order to avoid an over-supply. For attaining facility expansion, the petrochemical industry, in its pur suit of scale advantage, has to consider seriously the scrapping of facilities that have low productivity. In the meantime, it is impossible for each center to attempt scale expansion on the international level of 200,000-300,000 tons per annum. However, it will be required that some "selective steps to strengthen and foster" enterprises be included in the nation's industrial policy, since realization of scale expansion is desirable to cope with international competition. 264 Further, before ethylene production is expanded, an adequate expansion of demand for ethylene and its derivatives should exist. It is vital therefore that development of the raw material producers and the raw material users be harmonious. So far, the industry has expanded only after new demand has appeared, and expansion of ethylene production has therefore been absorbed by a corresponding expansion in the production scale of derivative makers. In recent years, the keen competition between companies has made it difficult for them to cooperate in their expansion programs. However, the sound expansion of petrochemical complexes cannot be attained if the member companies have a weak structure. In other words, before expansion is attempted, each member's management structure should be strengthened. Since this will require that the member companies have common goals, a general management policy for each complex must be set 'l'h i h 1 1 l The petrochemical industry has many problems to overcome in the pur suit of scale expansion. How to achieve its scale expansion in connection with production is of vital importance. Either the joint investment or the shift investment system may be one of the managerial means of solving the problem. However, the largest obstacle confronting the industry is how to relate the problem of management to the smooth promotion of scale expansion. AMMONIUMFERTILIZERS: RECENT TRENDS Supply and Demand -- Exports continued brisk During the period from July 1965 to March 1966 of the 1965 fertilizer year, 1 demand for ammonium fertilizers relative to supply remained steady as in the previous year. As before, operation was maintained at capacity and output was eighteen percent over the same term of the previous year. 1. A fertilizer year extends from July 1 to June 30. 265 TABLE 2-7 Supply and Demand of Fertilizers Unit: 1000 N tons OutEut Domestic Demand Exports Inventories July July July July 1963 1964 1965 1963 1964 1965 1963 1964 1965 1963 1964 1965 Fer. Fer. -Mar. Fer. Fer. -Mar. Fer. Fer. -Mar. Fer. Fer. -Mar. Year Year 1966 Year ill£ 1966 Year Year 1966 Year Year 1966 Annnonium sulfate 470 496 418 293 265 182 190 222 191 47 57 103 Urea 465 499 453 169 164 134 299 322 257 39 51 113 Annnonium chloride 121 119 98 58 53 36 74 64 54 11 12 19 High analysis fertilizers 164 198 173 141 167 156 15 18 17 27 41 40 Annnonium nitrate, other 9 10 8 10 9 7 0 0 0 1 2 2 Total 626 519 125 163 277 N 1,229 1,322 1,150 671 658 515 578 ,0\ 0\ ------·------Percentage Composition Annnonium sulfate 38.2 37.5 36.4 43.7 40.2 35.3 32.9 35.4 36.7 38.1 34.9 37.2 Urea 37.8 37.7 39.3 25.1 24.9 26.1 51. 7 51.4 49.6 31.1 31. 7 40.6 Annnoni.um chloride 9.9 9.0 8.5 8.7 8.1 7.0 12.8 10.3 10.4 8.6 7.6 7.0 High analysis fertilizers 13.4 15.0 15.1 21.0 25.4 30.3 2.6 2.8 3.3 21. 7 24.9 14.5 Annnonium nitrate, other 0.7 0.8 0.7 1.5 1.4 1.3 0 0 0 0.5 0.9 0.7 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 ------~------Increase Over Previous Year(%) Annnonium sulfate 95.7 105.6 114.1 98.0 90.2 92.4 82.0 116.8 115.4 76.9 119.5 194.1 Urea 121.9 107.4 121.9 107 .1 97.3 112.5 136.7 107.9 113.1 93.4 132.4 176.9 Annnonium chloride 117.5 98.4 111. 7 101.1 91. 7 108.9 154.4 86.9 113.2 49.0 115.7 176.6 High analysis fertilizers 140.1 120.3 118.6 130.0 118.5 101.4 142.0 118.3 152.8 146.6 149.6 123.1 Annnonium nitrate, other 93.8 104.4 125.8 100.0 91.5 113.8 --- 75.0 233.3 200.0 Total 111.5 107.5 117.5 106.0 98.1 105.3 113.5 108.4 114.8 86.3 130.3 170.1 Source: Japan Annnonium Sulfate Industry Association, Guidebook of Fertilizers, 1966. The growth of ammonium sulfate and urea production--fourteen and twenty two percent, respectively, over the corresponding previous term--was especially impressive. If this rate continues, fertilizer output will be 500,000 tons larger (in terms of ammonium sulfate) than the initial estimates 2 set by the Ministry of International Trade and Industry (MITI). The major reasons for this were: improvement in some facilities made it possible for producers to increase output; cutbacks of non-cellulose material output reduced the consumption of ammonia to less than planned, thus making more supply available for fertilizer production. Combined domestic and foreign demand for ammonium fertilizers was ten percent higher than in the same period of the previous year. Domestic demand alone was five percent higher and exports fifteen percent higher Domestic demand has recently been sluggish, especially in fertilizer year 1964, when farmers in eastern Honshu, fearing crop damange from abnormally cold weather, did not invest much in fertilizers. The farm consumption of chemical fertilizers has been growing from year to year. According to the Ministry of Agriculture and Forestry, input of fertilizers in agriculture in fiscal 1964 was ¥156 billion, an increase of twenty percent over 1960, Nevertheless, the share of chemical fertilizers in the total agricultural input declined from thirty-two percent in 1960 to twenty-one percent in 1964. The average purchase of fertilizers per farming family increased from ¥26,600 in fiscal 1960 to ¥32,900 in 1964, according to the Ministry's statistics. However, the share of fertilizers in the total agricultural costs of a farming family declined gradually from twenty percent in fiscal 1960 to thirteen percent in 1964, Despite how essential chemical ferti lizers are, their relative weight in farm economics has been diminishing. Therefore, a striking growth in fertilizer production is unlikely although domestic demand will remain more or less steady. Export of ammonium fertilizers continued steady. By the end of March of the 1965 fertilizer year, exports amounted to 519,000 N tons; urea and ammonium sulfate fertilizers combined made up eighty-six percent of total fertilizer exports. Sales to China (mainland) accounted for nearly half of all fertilizer exports (Table 2-8). This export performance was due to the steady world market, which made possible brisk inquiries from overseas, and the success of producers in receiving orders for urea and ammonia sulfate in large lots under the stable long-term contracts made in calendar year 1964 with China (mainland) and the Republic of Korea, 2. Ammonium sulfate output was estimated at 2,430,000 tons and urea output at 2,670,000 tons. In terms of ammonium sulfate, the total would be 5,100,000 tons. 267 TABLE2-8 Destination of Exports by Type of Fertilizer Unit in 1,000 N tons 1963 1964 July 1965 Fer.Year Fer.Year -Mar.1966 Ammoniumsulfate % % % China (mainland) 42(21.4) 77 (34. 6) 74(38.6) China (Taiwan) 41(20.9) 35(15.8) 28(14.8) Rep. of Korea 23(11.8) 68(30. 5) 47(24.7) Philippines 18 (9.1) 8 (3.6) 9 (4.5) Australia 16 (7. 8) 0 (0.1) 0 (O) Mexico 11 (5. 7) 2 (O. 9) Ryukyu 10 (5.0) 9 ( 4. 2) 7 (3.6) Indonesia 2 (1.0) 12 (5.6) 15 (7. 7) India Total (incl. others) 196 (100) 222 (100) 191 (100) Urea China (mainland) 155 (52. 7) 160(49.6) 109(42.4) India 57(19.5) 66(20. 4) 47(18.1) Rep. of Korea 37(12.6) 59(18.4) 74(28.6) Philippines 9 (3 .1) 2 (0.6) 5 (1. 8) Indonesia 8 (2.6) 4 (1.4) Latin America 7 (2. 5) 0 (O) 0 Total (incl. others) 294 (100) 322 (100) 257 (100) Ammonium chloride China (mainland) 66(97.6) 59(92.4) 48(89 .1) Rep. of Korea 4 (5.0) 3 (5. 3) North Vietnam 2 (2. 3) 3 (5.0) Total (incl. others) 72 (100) 64 (100) 54 (100) High analysis fertilizers Rep. of Korea 5(34.2) 3(15.5) Thailand 5(32.9) 4(23.2) 2(11.1) Philippines 3(18. 4) 5 (26. 2) 1 (8.6) Indonesia 1 (6. 6) 2(10.7) 3(19.8) China (mainland) 4(23.2) 8(48.1) Total (incl. others) 16 (100) 18 (100) 18 (100) Exports, total Rep. of Korea 69(11.9) 133(21.3) 121(23.2) India 57 (9.9) 66 (10 .5) 49 (9.5) Indonesia 3 (0.5) 23 (3.6) 22 (4.2) China (mainland) 263(45.4) 300(47.9) 239 (46 .1) Total (incl. others) 579 (100) 626 (100) 519 (100) Source: Japan AmmoniumSulfate Industry Association, Guidebook of Fertilizers, 1966. Fertilizer exports to China (mainland) have so far been determined by trade negotiations between businessmen of both countries. In this way, Japanese producers have contracted to export 440,000 tons of ammonium sulfate (par with the previous year) and 480,000 tons of urea (sixty percent over the 300,000 tons of the previous year) in 1966. Thus the deal with China (mainland) involving 1,500,000 tons,3 worth about 6,6 million U.S. dollars, will be unprecedented in the sale of fertilizers. Of the contracts made with major overseas customers, a total of 1,160,000 tons of fertilizers was scheduled to be shipped during April-June 1966-- 880,000 tons to China (mainland), 200,000 tons to Korea, and 80,000 tons to Taiwan. On balance, at least 3,630,000 tons can be exported during fertilizer year 1965, twenty-two percent over the previous year. fertilizer exports, and its market promises to expand in the future. However, in the absence of formal diplomatic relations, we cannot be overly optimistic about this export pattern, that is, depending on a single market for half of our fertilizer exports. Since exports continued to be steady in contrast to the sluggish domestic market, the relative weight of exports in total demand for fertilizers grew--from twenty-one percent in fertilizer year 1954 to forty-nine percent in 1963. Its weight, as of March of the current fertilizer year, stood a little above fifty percent. In view of the heavy dependence on overseas outlets, producers are confronted with the task of improving their export setups. Competition with western producers in the world market will become more severe. It is therefore essential to promote international strength and to secure a constant share of the market if the industry is to maintain rapid growth. Prices and Earnings Since demand has become steady with the advent of the worldwide fertilizer boom, overseas quotations eventually turned upward in fertilizer year 1962. Soon thereafter prices tended to rise rapidly. For example, during fertilizer year 1962 the average FOB price of ammonium sulfate remained $36.62 per ton and urea at $72.62 per ton. However, in fertilizer year 1964 ammonium sulfate rose to $46.98 per ton and urea to $86.32 per ton, that is respectively 28.3 and 18.9 percent higher than in the previous fertilizer year. 3. In terms of ammonium sulfate. 269 TABLE 2-9 Changes in Profit Ratios of Fertilizer Companies Ratio of profit to Ratio of operating Ratio of pr~fit total capifal profit to total capital Ratio of operating Ratio of current to sales em:eloyed em:eloyed :erofit to sales :erofit to sales Settlement Produ ers: Producers: Producers: Producers Producers: 3 term S:eecialized 2 Sideline S:eecialized Sideline Specialized Sideline ~ecialized Sideline S__2ecialized Sideline 1962 2nd H -3.26% 3.76% -1. 77% 2.26% 2.25% 5.58% 4.14% 9 30% -3.26% 4.56% 1964 1st H -0.66 2.95 -0.36 1. 78 4.53 5.93 8.25 9 86 -0.38 4.50 2nd H 1.03 3.36 0.61 2.07 6.06 6.16 10 .27 10 41 1. 74 5.11 1965 1st H 0.62 3.00 0.34 1. 78 5.51 5.90 10.09 9,94 3.29 4.48 2nd H -1. 72 2.73 -0.98 1.60 5.40 5.30 9.47 9,03 3.27 4.22 N '-...J 0 1. After taxes. 2. Specialized producers are: Toyo Koatsu Industries, Nissan Chemical Industries, Tohoku Hiryo, Nihon Suiso, Seitetsu Kagaku, Tokai Gas and Nitto Chemical Industries. 3. Companies running fertilizer production sidelines are: Showa Denko, Sumitomo Chemical Mitsubishi Chemical Industries, Toa Gosei Chemical, Chisso, Ube Industries and Japan Gas-Chemical. Sources: The Research Department of the Industrial Bank of Japan; business reports of companies under study. Nevertheless, we should note that overseas quotations have been declining. In 19664 the FOB price of ammonium sulfate !o China (mainland), our important market, is $45 30 per ton ($48.10 in 1965) and $87.19 per ton for urea ($92.11 in 1965 4 ), both lower by 5-6 percent than in the previous year. At present anunonia plants are being built in many western and developing countries. This situation will result in intensified worldwide competition, and trends in prices overseas will involve uncer tainties. This fer. year, the average overseas quotation of anunonium sulfate will be $47.60N.80 per ton and $90.50N.70 per ton for urea. These are the highest overseas prices experienced in the current fertilizer boom. With the rise in prices, there was an improvement in the producers' term was much higher' than in the second half of 1962, when prices over- seas remained low. However, heavily burdened with non-operating losses, such as the depreciation of carried-over export deficits, both the ratios of profit to sales and to total capital employed continued to slump. During the second half of 1965, various ratios dropped somewhat due to a decline in prices overseas (Table 2-9). Investment in Plant and Equipment--Strong interest in investment In the ammonium sulfate industry, investment in plant and equipment centered on rationalization in the direction of diversifying ammonia utili zation and shifting production toward high analysis fertisizers and urea. Recently, total outlays averaged ¥17Nl8 billion annually. In addition, because of a worldwide upsurge in demand for nitrogenous fertilizers, producers have regained confidence in investment since fiscal 1964. Thus the guidelines for adjusting investment programs have been agreed upon between the Ministry of International Trade and Industry (HITI) and pro ducers. In line with this, many producers have proposed programs to expand ammonia and urea plants •. As a result, total expenditure for fiscal 1965 is estimated at ¥20.6 billion, and initial outlays for fiscal 1966 will increase greatly to ¥34.1 billion (Table 2-10). Investment outlays for fiscal 1965 are estimated at ¥20.6 billion, in contrast to the ¥26.8 billion initially planned. This is still an increase of 7.3 percent over the previous year. The expenditure for high analysis fertilizer and sulfuric acid plants almost met the initial program. 4. Trade with China (mainland) is based on calendar year. 5. ¥17.3 billion for fiscal 1961, ¥18.4 billion for fiscal 1962, and ¥15.2 billion for fiscal 1963, calculated by the MITI. 271 TABLE 2-10 Investment Programs in the Ammonium Sulfate Industry Unit in Billions of Yen 1965 1966 1964 Initial Estimates Planned (Fiscal Year) l&_ Program (B) (B)-(A) (C) (C)-(B) B/A C/B Ammonia 5.2 11.3 7.0 1.8 12.9 5.9 134.6% 184.3% Urea 0.8 2.9 1.9 1.1 6.6 4.7 237.5 347.4 High analysis fertilizers 2.9 2.2 2.0 -0.9 2.3 0.3 69.0 115.0 N -,._J N Ammoniumsulfate 0.7 1.4 0.4 -0.3 0 -0.4 57.1 Sulfuric acid 1.4 0.8 0.7 -0.7 0.5 -0.2 50.0 71.4 Other 3.1 4.0 2.9 -0.2 6.2 3.3 93.5 213.8 Repairing and Preserving 5.1 4.3 5.7 0.6 5.6 -0.1 111.8 98.2 TOTAL 19.2 26.8 20.6 1.4 34.1 13.5 107 .3 165.5 Source: The Ministry of International Trade and Industry. However, outlays for ammonium sulfate and urea plants were smaller, primarily because payments were carried forward. In addition, because construction of ammonia plants was postponed till fiscal 1966, expenditure in that sector was $4.3 billion smaller than the initial outlays. According to the t11TI survey, because of the marked increase in invest ment in ammonia plants and the expansion of urea plants7 that paralleled the increase in ammonia production, total outlays under the fiscal 1966 investment program reached ¥34.1 billion, sixty-six percent over the ¥20.6 billion expenditure of the previous year. According to the survey of the Industrial Fund Committee of the Advisory Council on Industrial Policy, investment in fis will be only 0.2 percent over the previous year, the expenditure of the ammonium sulfate industry will be 65.5 percent over the previous year. A contributing factor is that during the year there may be major payments for the ammonia and urea plants being built along the guidelines for adjusting investment programs. These guidelines stipulate that 1) an expansion of ammonia plant is, in principle, limited to twenty percent of existing capacity; 2) each new plant shall have a daily capacity of 500 tons or more in order to promote international strength. With the completion of these facilities by the end of June 1967, the investment program for fiscal 1966 will be nearly accomplished. As for financing (Table 2-11), the issue of stock in fiscal 1965 increased somewhat, reflecting the industry's steady performance; however, during fiscal 1966 stock issues declined, and their relative weight in the overall financing of the investment program fell to 0.6 percent (0.2 billion). In contrast to this, reliance on borrowings rose from 26.7 percent in fiscal 1965 to 51.9 percent in fiscal 1966. Of the borrowings, the weight of financing from the Industrial Bank of Japan and the Long Term Credit Bank on the one hand, and trust banks on the other rose by 14.48 and 15.89 percent, respectively. The share of net worth in financing declined to 45.8 percentlO in fiscal 1966. PROSPECTSAND PROBLEMS Intensifying Competition in the Overseas Market Supported by a strong worldwide demand, the international fertilizer market has achieved sound expansion in recent year. The Japanese fertili- 6. An increase of ¥5.9 billion, 84 percent over the previous year. 7. An increase of ¥4.7 billion, 3.5 times as large as the previous year. 8. 6 .8 percent estimated for fiscal 1965. 9. 9.7 percent estimated for fiscal 1965. 10. 6 .4 percent estimated for fiscal 1965. 273 TABLE2-11 Sources for Financing Investment Programs Unit in net value in billions of yen 1964 1965 1966 % of % of % of Total Outlays 19.2 100.2 20.6 100.0 34.1 100.0 Stock 1.1 5.7 1.6 7.8 0.2 0.6 Debentures 0.4 2.1 0.4 1.9 0.6 1.8 Borrowings from Government organizations Japan Development Bank 1. 5 7. 8 0 0 1.8 5.3 Hokkaido and Tohoku Development Corp. -0.1 -0.5 -0. 7 -3.4 -0.5 -1.5 Other 0 0 0 0 0.2 0.6 Sub-total 1.4 7,3 -0. 7 -3.4 1.5 4.4 Private Financial Institutions Industrial Bank of Japan O.8 4.2 1.4 6.8 4.9 14.4 City banks 0.2 1.0 0.5 2.4 0.8 2.3 Trust banks 0.3 1.6 2.0 9.7 5.4 15.8 Insurance companies 0.9 4.7 1.0 4.9 1.3 3.8 Other 0.7 3.6 0.9 4.4 1.3 3.8 Sub-total 2.9 15.1 5.8 28.2 13. 7 40.2 Foreign Capital 0 0 0.4 1.9 2.5 7.3 Grand total 4.3 22.4 5.5 26.7 17.7 51.8 Owned Capital Depreciation 11.8 61.5 11.6 56.3 14.4 42.2 Other 1.6 8.3 1.5 7.3 1.2 3.6 Total 13.4 69.8 13.1 63.6 15.6 45.8 Source: The Ministry of International Trade and Industry. 274 zer industry, having the great markets of Southeast Asia nearby, has enjoyed brisk fertilizer exports. While the annual rate of increase in world fertilizer exports averaged only 8.3 percent during fer. years 1958-63, the growth of Japan's exports averaged 13.4 percent, thus placing her first among world producers -- with a sixteen percent share of the inter national market (Figure 2-1). Nevertheless, recent developments scarcely permit optimism. In many developing and advanced countries, producers, encouraged by strong demand, are pushing the expansion of ammonia plants. As shown in Table 2-12, world annual nitrogen capacity is expected to increase 1.5 times, from 24,647,000 to 37,140,000 tons, during fertilizer years 1964-67. Since the world nitrogenous fertilizer consumption is growing at the , period 14.6 percent -- will be over and above the growth of consump- tion. Moreover, most of the plants will be completed and begin operation during that period. Therefore, with the great expansion of capacity, the worldwide demand picture for fertilizers may change radically. Another factor we should note is that many countries importing fertilizers are trying to achieve self-sufficiency. A regional review shows that during the years 1964-67 a notable increase in nitrogen capacity will be achieved by the developing countries, which are now importers (Table 2-13). During this period, the developing countries will increase nitrogen capacity 1.9-fold, compared with the anticipated 1.5-fold increase in the advanced countries; and their combined share of the world total capacity will rise from 11.5 to 14.3 percent. Out standing is the increase expected in the Asian countries. China (Taiwan) will achieve near self-sufficiency in a few years. Other major importers the Republic of Korea, India, and the Philippines -- are building plants. However, since they lack sufficient capital and adequate technology, substantial time will be required and many difficulties encountered before they can achieve self-sufficiency. Nevertheless, recent develop ments should not be overlooked. 275 FIGURE 2-1 Exports of Nitrogenous Fertilizers, by Producers Unit in 1,000 N tons Japan 600 __ ,-W. Germany 500 ...... ______...... -- 400 300 /' Norway ,/_'_/_· .,..--·__,·---USA ,,., ', /' ___ .Netherlands ./ '/..--- -....._./ / ____....--...... '--.._-/ - 200 -. __.-· •...... _ / ranee ~ ...... __.--- -· ...... _·", • F _.-United 100 ____ Kingdom ______...... ,.,,.---- ...... '" ,,,,..,,. ------...... _.., O 1958/59 59/60 60/61 61/62 62/63 63/64 64/65 Source: Nitrogen, No. 30, 36. TABLE2-12 Increase in World Nitrogen Capacity (Estimates) Unit in 1,000 N t.p.a. 1964 (A) 1967 (B) Western Europe 7,952 10,499 132.0 France 1,498 1,750 116.8 West Germany 2,020 2,560 126.7 Italy 1,028 1,028 100.0 Netherlands 540 865 160.2 Norway 400 450 112.5 Spain 410 636 155.1 United Kingdom 768 1,483 193.1 Eastern Europe 4,689 6,981 148.8 u.s.s.R. 3,000 4,000 133.3 North and Central America 7,729 12,720 164.6 Canada 586 1,296 221.2 United States 6,734 10,723 159.2 South America 386 sos 130.8 Asia 3,501 5,542 158.3 India 325 985 303.1 Japan 1,800 2,200 122.2 China (mainland) 700 1,200 171.4 Africa 351 749 213.4 Australia 39 144 369.2 World total 24,647 37,140 150.7 Source: Chemical Age, Vol. 95, No. 2425. 277 TABLE2-13 Regional Comparison of Nitrogen Capacity Unit in 1,000 N t.p.a. 1964(A) 1967 (B) (Fer. Year) (Fer. Year) Africa 351 (1.4) % 749 (2.0)% 213.4% Asia (excl. Japan) 1,701 (6. 9) 3,342 (9.0) 196.5 Latin America 795 (3.2) 1,206 (3.3) 151. 7 Developing countries, total 2,847 (11.5) 5,297(14.3) 186.1 Rest of world 21,800(88.5) 31,843 (85. 7) 146.1 Total 24,647(100) 37,140(100) 150. 7 Source: Chemical Age, Vol. 95, No. 2425. At the same time, many oil concerns have been trying to enter into the production of fertilizers. In the United States, some oil concerns are going to invade the industry by taking over existing domestic plants. Some of them are planning to produce fertilizers in the Middle and Near East. There they can utilize the abundant supply of refinery off-gas and satisfy the need of the developing countries to achieve self-sufficiency (Table 2-14). When these concerns begin production using cheap raw material in consuming or nearby countries, Japanese producers will face increased difficulty in the export market. In addition to the movement toward self-sufficiency, we are confronted with the activity of the major European fertilizer exporters. In Europe, in order to meet international competition, producers are pushing construc tion of larger-than-ever plantsll which will employ the latest technology. 11. Ammonia plant with a daily capacity of 1,000 tons. 278 TABLE 2-14 Construction by Oil Companies of NH Plants in Consuming Coun:ries 3 Unit in NH t.p.a. 3 Country Com~ Location Capacity Com_2letion Pakistan Esso Standard Eastern Mari End of 1967 Saudi Saudi Arabian Fertilizer Arabia (Continental Oil Co.) Damman 600 Under planning Libya Continental Oil Co. 1,000 Under study Jamaica Esso Standard Oil S.A. Under planning l's) ..,._J I.C Lebanon Essa Standard Oil Rar Salaata 400 1966 Spain Amoniaco Espanol S.A. (Esso Chemical) Malaga 300 1964 Kuwait Kuwait Chemical Fertilizer (British Petroleum & Gulf Oil) Shuaiba 400 1966 (latter half) Philippines Esso Standard Fertilizer Limay Bataam 300 June 1966 Greece Essa-Pappas Industrial Satonika 300 1965 Malaysia Essa Standard Malaya Port Dickson 1965 1965 Source: Nitrogen, No. 30'\J37. TABLE2-15 Comparison of Average Freight Costs for Shipments from Japan and Europe Unit in dollars per ton Shipments from to Japan Europe Remarks India (east coast) 6. 86 10.85 Ammoniumsulfate 7.42 11.41 Urea India (west cost) 7.21 10.50 Ammonium sulfate 7.77 11.06 Urea China (mainland) 3.98 11.90 Ammoniumsulfate (North Sea-Southern China) 11.34 Ammonium sulfate (Mediterranean Sea-Southern China) 4.65 12.18 Urea (North Sea-Northern China) Rep. of Korea 3.00N3. 30 12.18Nl2.32 West Pakistan 7.28 10.08 Ammoniumsulfate 7.98 10,78 Urea China (Taiwan) 3 .85 12.04 Source: Japan Ammonium Sulfate Industry Association. !CI, a British general chemical producer of worldwide fame, is building three plantsl2 in Billingham. Although !CI has thus far had only a small share of exports and is not a member of NITREX, the cartel of European fertilizer exporters, it has announced its intention to promote exports more vigorously, Therefore, its effect on our fertilizer exports cannot be ignored. 12, Each plant has a daily capacity of 1,000 tons. 280 United States producers are also steadily expanding fertilizer facilities. Although U.S. fertilizer exports, except for exports financed by the funds of the Agency for International Development (AID), have so far not been large, U.S. producers will certainly try to enter the export market. Japanese producers should endeavor to increase their international strength, because overseas competition is becoming severe and they rely on exports for half of their sales. Strengthening competition implies lowering costs by introducing larger plants. In order to adapt themselves to the worldwide situation, Japanese ~roducers are scrapping old equipment and building larger-than-ever plantsl that have been made possible by integrating construction programs through the voluntary adjustment percent less than at present. However, plants in Europe are mainly of the 1,000-ton daily class, which will help reduce costs by fourteen percent of an existing plant with 500-ton-daily capacity. Moreover, since producers in the Netherlands and Belgium are reportedly using natural gas in place of more expensive naphtha, production cos ts may be lower than ours. It is true that in Southeast Asia we are in a better position in terms of freight than our European competitors; however, this advantage may be lessened as the newly built efficient plants are put into operation. We now turn to a review of the nation's trade policy. Usually, the amount of chemical fertilizers consumed is determined by the extent to which agricultural technology is made available and by the social and economic conditions of farming families. It therefore does not necessarily follow that a decline in export prices will result in greater imports by a consuming country. This is why a careful export policy is required. In order for the industry to activate the enoromous latent demand in the developing countries, it should endeavor: 1) to make the benefits of fertilizers widely known to farmers through technical guidance; 2) to give financial assistance in some way or other, say granting deferred payment allowances for their imports, and to make reciprocal imports of their primary products since most developing countries have faced an acute shortage of foreign exchange and the overwhelming number of their farmers are poor; 3) to improve the distribution system in the importing countries. In light of this, producers should reconsider their devotion to price competition in international bids. ~uring fertilizer year 1963, Asian countries imported 1,168,000 tons 1 of fertilizers. Of this, the amount imported from within the area, including Japan, is estimated at 533,000 tons.14 Some fifty-four 13. Ammonia capacity, 500-750 tons daily. 281 percent came largely from western Europe and the United States. Thus, the amount of west European fertilizer exports to Asia was relatively great (Table 2-16). However, compared to Japan, their exports to Asia are handicapped by higher freight costs. Regardless of this disadvantage, the long-range prospects of Asia as a great market may be the incentive behind their recent export drive. Considering our heavy dependence on exports to Asia and our comparatively small sales to other great potential markets in Oceania and Africa, we cannot but be astonished at the vigor and strength of the European producers and their long-range export policy. TABLE2-16 Major Producers' Share of Regional Markets for Ammonium Sulfate and Urea Shipments from w. Germany Italy to (Fer. Year) 1963 1964 1963 1964 Ammonium sulfate Western Europe 34.9% 32.7% 41.5% 36.1% Eastern Europe 5.7 15.4 Asia 12.6 24.3 31.9 10.9 Africa 20.3 16.7 17.9 29.7 North America 3.6 0.1 Latin America 28.3 23.6 3 ..0 7.9 Oceania 0.3 2.6 Total 100.0 100.0 100.0 100.0 ------Shipments from Netherlands Italy to (Fer. Year) Urea Asia 42.2% 30.9% 46.0% 29.3% Africa 8.7 16.0 12.4 22.4 Latin America 23,7 33.7 12.4 19.0 North America 13.8 5.1 Eastern Europe 27.5 20.3 Rest of E. Europe 11.6* 14 .3* 1. 7 9.0 Total 100.0 100.0 100.0 100.0 *Includes Eastern Europe and Rest of E. Europe, Source: Nitrogen, No. 40. 282 Now that the competition confronting us is becoming increasingly severe, how will our exports move in the future? What we can predict first is that prices will decline. Due to the great expansion of produc tive facilities in the past, the supply and demand relation in fer. year 1967 will deteriorate and a buyers' market will ensue. The u.s.s.R. and Rumania, especially, are offering unreasonably low prices in international bids (Table 2-17). Although this may be a temporary measure stemming from political considerations, its influence over the Southeast Asian market will not be negligible. We may be requested to lower prices in future negotiations. To cope with the decline in prices, producers should endeavor to lower costs by pushing rationalization. TABLE2-17 A Recent Example of International Bidding for Fertilizer (the purchase of 52,000 tons of urea by east Pakistan on May 14, 1966) Unit Price Bidder (FOB$/Lt) Freight C&F (1,000 tons) 1 u.s.s.R. 84 .87 10.25 95.12 20 2 Romania 76.30 20.32 96.62 10 3 Kuwait 91. 75 14.17 105. 92 9 4 Japan 91. 85 14,58 106 .43 20 Source: Japan AmmoniumSulfate Industry Association. Although it is certain that world demand will increase appreciably in terms of quantity, there is still apprehension about whether or not growth will continue as rapid as before. In this context, it is all the more important not only to secure the vested market, but also to find new ones. At the same time, because fertilizers are a material basic to agriculture, partners in trade negotiations are frequently government agencies. Under such conditions political matters tend to intrude and make negotiations more complex. Since the scope of private trade nego tiations is limited, the Government should adopt a flexible attitude to facilitate exports. 283 The Ammonia Industry's Overseas Ventures Plans to start overseas ventures have been considered by the ammonia industry since the fall of 1965. Such ventures were first proposed by countries that are rich in the necessary raw materials and by foreign firms aiming at the production of fertilizers with the help of Japanese companies. The reported negotiations to this end are shown in Table 2-18. (The project by Kuwait was abandoned in the subsequent negotiation.) Before taking action the Japanese fertilizer industry should make a serious study of the following matters: First there is the question of how to appraise the long-range effect of using less expensive foreign ammonia resources. When we consider the various circumstances, such as the sluggish increase in domestic demand for fertilizers and the limited domestic ammonia resources, it is doubtful whether we should expand a domestic ammonium capacity that has already reached ten million tons annually in terms of ammonium sulfate. Second, as stated before, foreign chemical fertilizer concerns, in anticipation of intensive competition overseas, have been pushing capital investment ahead of current price competition.IS In the long run, the developing countries will try to consume the fertilizers produced within their own borders. In view of this, the time has come for the industry to consider seriously the possibility of shifting their emphasis from the export of manufactured goods to capital investment abroad. 15. An example is the Essa plan to advance into the Philippines. 284 TABLE 2-18 Overseas Investment Programs by the Japanese Ammonia Indus Partners Japanese Company Capacity Products Major Terms Kuwait Japanese company takes (National Fertilizer Company) 1,000 t.p.d(NH ) Ammonia 50 percent of products. 3 Australia Ammonium Mitsuit takes part of (ICI) Mitsui & Co. 600 t.p.d(NH ) nitrate,urea products. 3 Australia Ammonium Mitsubishi takes part (Amalgamated Chemicals) Mitsubishi Shoji 600 t.p.d(NH ) Sulphate of products. 3 urea N co Pakistan Toyo Engineering Japanese companies take l..n (Government) Kobe Steel 300 t.p.d(NH ) Urea part of products. 3 United States (Alaska) Gas Chemical takes 50 (Collier-Carbon Chemical) Japan Gas Chemical 1,000 st.p.d(Urea) Urea percent of products. U.S.S.R. Japanese company takes (North Saghalien) 1,500 t.p.d(NH ) Urea all products. 3 Source: Nihon Keizai Shimbun; Chemical Industry Daily. \ APPENDIX3 JAPANESEIMPORTS OF FORESTPRODUCTS FROM CANADA, u.s.s.R. ANDTHE UNITED STATES, 1957-1966 .- APPENDIX 3 JAPANESE IMPORTS OF FOREST PRODUCTSFROM CANADA, U.S.S.R. AND THE UNITED STATES, 1957-1966 Compiled by Michael R. C. Massie and Howard Wells These statistics are derived from the yearbooks on Japanese trade published by the Japanese Ministry of Finance. 1 The data were presented in a form not entirely meaningful to Americans interested in forest products; hence, some liberties were taken in the arrangement of the product species classification. Mr. Ichirou Inukai of the University of Alaska was most helpful here in translating explanatory points not printed in English. The figures presented were converted from cubic meters and yen to cubic feet, thousands of board feet, short tons and U.S. dollars. The values were converted directly to U.S. dollars on the basis of 360 yen to one U.S. dollar. These values are for material C.I.F. (cost, insurance and freight) Japanese ports and include transportation and handling charges, services, and duty if applicable. Similarly, brokerage charges or costs and profits would be included by handlers and trading companies. In general the values might be considered the cost of imported inputs to Japanese wood products manufacturers. In any event, a comparison to Canadian, Soviet or American wholesale prices considering a transportation differential would not be valid. Logs and cants (roughly squared or worked material) were converted from cubic meters to cubic feet on the basis of 35.4135 cubic feet to one cubic meter. This was done because it was not possible to translate the figures into board feet without having more information on Japanese utilization. Data are not currently available for Japanese recovery or overrun. Considering the high level of Japanese milling technology, recovery (of usable wood) if converting from cubic feet to board feet should be somewhat higher than that by Canadian or American manufacturers. 1. Source: All tables were derived from: Ministry of Finance, Trade of Japan, Country by Commodity, Volumes 1957-1964, and Japan Exports and Imports, 1955-1966, 289 The reader is left to make his own assumptions on this point. Lumber volumes shown are direct conversions from cubic measure (i.e., after sawing, 12 board feet equal one cubic foot). This would mean that 2.36 cubic meters of lumber equals one thousand board feet of lumber. Similarly, for pulp, metric tons were directly converted to the more common North American unit of 2,000 pounds. The graphs are pictorial displays of the totals of the three categories, logs, lumber and pulp. The graphs are for the purpose of showing the relationship between the three major softwood competitors in these three categories. It should be noted that the columns of the tables may not add to give the totals and subtotals shown due to averaging. While every effort was made to maintain accuracy, due to several inconsistencies in classi fication and translation, these tables are of limited precision and should be used accordingly. 290 TABLE3-la Japanese Imports of Forest Products from the United States, C.I.F. Japan, 1957-1966 Quantity (thousands of cubic feet) - 1965- Product "- 1957 1958 1959 1960 1961 1962 1963 1964 1966 LOGS & CANTS Sitka Spruce 8 21 380 985 3,557 2,087 2,363 4,190 5,410 7,377 Pine 85 30 82 800 2,321 2,717 2,228 688 831 1,122 Spruce & True Fir - 374 1,048 1,468 3,767 7,656 7,232 6,663 7,521 7,960 Hemlock 80 23 105 104 19,620 21,717 53,971 73,712 80,544 96,258 Douglas Fir 910 913 948 2,323 10,775 7,814 10,316 10,607 11,536 18,377 Cedar 3,077 4,261 6,034 5,815 8,077 7,840 7,959 9,036 8,546 12,401 Cottonwood 137 494 311 392 803 480 209 311 - 305 Other Conifer 119 6 17 117 619 489 176 241 237 1,425 Other Non Conifer 19 312 149 227 289 140 271 268 276 2,316 Total Logs & Cants 4,435 6,434 9,074 12,231 49,828 50,940 84,725 105,716 116,852 147,541 Poles and Pilings 579 1,081 1,335 1,126 1,757 738 240 565 584 196 N \0 All Logs & Roughly I-' Shaped Wood 5,014 7,515 10,409 13,357 51,585 51,678 84,965 106,281 117,436 147,737 ------·-·=------LUMBER (millions of board feet actual lumber) Sitka Spruce 3.7 9.7 19.2 19.5 37.6 37.3 48.1 73.0 65.5 115 .9 Hemlock .8 .2 1.6 2.0 46.4 38.3 21.6 19.4 24.2 29.6 Douglas Fir 43.1 18.9 37.9 36.3 47 .o 27 .o 25.2 21.4 11.6 13.4 Cedar .2 .4 - .3 1.9 .3 .1 .1 - .2 Incense Cedar 3.3 2.9 3.5 4.4 6.0 7.3 10.3 7.0 8.5 10.6 Other Conifer .3 1.1 .2 .2 1.4 .8 1.5 15.1 1.9 1.2 Other Non Coni r .2 .2 .9 .4 .5 .7 10.5 3.9 2.3 2.9 Total Lumber 51.6 33.2 63.2 63.1 140.7 111.6 117.3 139.9 114.0 173.8 ------"·------PULP (thousands of short tons) Sulphite Dissolving 61. 7 28.7 32.1 99.5 136.7 129.0 149.0 142.3 160.2 156.4 Other Sulphite 21.9 .5 - - - 9.4 48.0 53.7 55.5 73.8 Sulphate 12.0 3.8 7.3 22.8 30.8 46.7 119.6 138.4 96.4 121.3 Other Pulp 23.2 12.0 26.7 33.0 41.1 44.8 53.3 125.7 59.6 161.8 Total Pulp 118.8 45.0 66.0 155.3 208.6 229.9 369.9 460.2 371.6 513.2 TABLE 3-lb Japanese Imports of Forest Products from the United States, C.I.F. Japan, 1957-1966 Value {millions of U.S. dollars2 Product 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 LOGS & CANTS Sitka Spruce .01 .02 .. 48 1.31 4.36 2.56 2. 77 5.13 7.22 10.43 Pine .10 .03 .09 .67 2.11 2.48 2.04 . 71 • 96 1.39 Spruce & True F:i.r - .38 1.16 1. 72 4.30 5.76 8.17 7.93 9.33 10.85 Hemlock .10 .03 .11 .12 18.79 20.19 49.91 69.51 77.78 97.57 Douglas Fir 1.23 .87 1.03 2.62 11.09 7 .92 10.21 10.88 11.53 19.14 Cedar 4.51 5.56 8. 71 8.99 11.62 12.25 12.76 14.09 14.15 19. 84 Cottonwood .10 .37 .25 .35 • 75 .43 .20 .29 - • 27 Other Conifer .11 - .02 .10 .66 . 77 .23 .38 .34 1.45 Other Non Conifer .12 .31 • 79 1.37 1.94 1.29 1.60 1.27 2. 77 3.59 Total Logs & Cants 6.30 7.58 12.65 17.25 55.61 53.65 87.88 110 .19 124.46 164.53 Poles & Pilings 1.02 1.19 1.52 1.38 2.25 • 94 .30 .63 . 80 .33 N All Logs & Roughly N'° Shaped Wood 7.32 8. 77 14.17 18.63 57.86 54.59 88.18 110. 82 125.26 164.86 ------mM"------LUMBER Sitka Spruce .45 1.00 2.06 2.10 3.74 3.19 4.23 6.34 6.03 11.05 Hemlock .09 .02 .14 .19 4.51 3.80 2.01 1.81 2.17 2.70 Douglas Fir 5.52 1.87 3.92 4.05 4.73 2.73 2.41 2.23 1.09 1.29 Cedar .02 .02 - .03 .20 .03 - - - .02 Incense Cedar .49 .37 .45 .61 . 82 1.47 1.22 1.20 1.46 1.81 Other Conifer .04 .03 .01 .01 .27 .13 .28 .33 • 29 .37 Other Non Conifer .09 .09 .17 .26 .41 .52 .75 1.22 1.30 1.95 Total Lumber 6.70 3.39 6.75 7.25 14.68 11.87 10.92 13.16 12.34 19.20 ------"=------PULP Sulphite Dissolving 11. 79 5.30 6.11 16.74 22.06 20.30 22.81 22.34 25.21 24.61 Other Sulphite 3.08 .06 --- 1.11 5.49 6.64 7.33 9.66 Sulphate 1.99 .80 1.50 4.53 6.12 8.27 15.89 18.87 13. 72 17.20 Other Pulp 5.01 1.85 3.99 4.46 4.00 4.27 4.70 6.89 6.22 6.38 Total Pulp 21.87 8.01 11.60 25.73 32.20 33.95 48.89 54.73 52.49 57.86 TABLE 3-lc Japanese Imports of Forest Products from the United States C.I.F., Japan 1957-1966 - 1 Average Value Eer Unit {U.S. Dollars Eer M cubic ft.~ ------·-··- Product 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 LOGS & CANTS Sitka Spruce 1,813 1,157 1,268 1,328 1,225 1,228 1,171 1,224 1,334 1,414 Pine 1,216 973 1,116 837 910 911 916 1,039 1,151 1,238 Spruce & True Fir - 1,019 1,106 1,174 1,143 753 1,130 1,191 1,241 1,364 Hemlock 1,309 1,117 1,065 1,164 957 930 925 943 966 1,014 Douglas Fir 1,349 957 1,082 1,126 1,029 1,013 989 1,026 1,000 1,042 Cedar 1,466 1,306 1~444 1,546 1,439 1,562 1,604 1,559 1,656 1,599 Cottonwood 753 739 813 889 931 895 939 932 - 901 Other Conifer 945 997 1,429 850 1,061 1,575 1,325 1,575 1,439 1,016 Other Non Conifer 6,411 984 5,321 6,051 6,702 9,248 5,894 4,726 10,054 1,550 All Logs & Cants 1,420 1,178 1,394 1,410 1,116 1,053 1,037 1,042 1,065 1,115 N Poles & Pilings 1,768 1,099 1,138 1,230 1,280 1,273 1,238 l,llO 1,373 1,682 '°w All Logs & Roughly Shaped Wood 1,460 1,166 1,361 1,395 1,122 1,056 1,038 1,043 1,067 l,ll5 ------~------·------LUMBER (U.S. Dollars per M board feet actual lumber) Sitka Spruce 123 103 107 108 100 86 88 87 92 95 Hemlock lll 90 91 94 97 99 93 94 90 91 Douglas Fir 128 99 103 lll 101 101 96 104 94 96 Cedar 99 56 - 91 106 ll6 204 181 - 120 Incense Cedar 147 128 129 138 136 202 118 172 173 172 Other Conifer 116 28 86 83 188 153 184 22 153 310 Other Non Conifer 499 553 187 649 839 748 72 3ll 556 664 All Lumber 130 102 107 ll5 104 106 93 94 108 110 ------~------PULP (U.S. Dollars per ton) Sulphite Dissolving 191 184 191 168 161 157 153 157 157 157 Other Sulphite 141 116 - - 125 118 115 124 132 131 Sulphate 166 210 207 199 199 177 133 136 142 142 Other Pulp 216 154 149 135 97 95 88 55 104 39 All Pulp 184 178 176 166 154 148 132 119 141 113 ,,, 1. For comparison purposes only; not based on reported prices. TABLE3-2a Japanese Imports of Forest Products from Canada C.I.F. Japan, 1957-1966 Quantity {thousands of cubic ft.2 Product 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 LOGS & CANTS Sitka Spruce -- -- 871 2,721 2,467 3,413 2,025 4,015 Hemlock -- - 25 744 3,140 4,748 1,473 1,939 1,911 Douglas Fir 12 - 12 68 471 1,312 1,406 335 58 277 Cedar 345 193 240 227 2,443 1,162 1,340 2,021 1,565 3,249 Cottonwood 58 46 - 16 28 15 21 - 42 50 Other Conifer - - - 25 69 488 344 67 142 88 Other Non Conifer - -- - 9 37 59 20 Total Logs & Cants 415 239 252 361 4,635 8,875 10,375 7,329 5,771 9,590 Poles & Pilings 168 331 153 428 1,077 1,233 146 147 67 89 All Logs & Roughly Shaped Lumber 583 570 405 789 5,712 10,108 10,521 7,476 5,838 9,679 N I..O ------~ LUMBER (millions of board feet actual lumber) Sitka Spruce - .3 -- 7.1 13.2 18.4 11. 7 7.8 12.3 Hemlock .6 - - .3 62.2 120.3 214.2 195.8 165.5 210.9 Douglas Fir 2.0 .1 .4 1.1 15.5 11.1 14.6 9.3 8.8 14.3 Cedar 1.4 1.1 .2 .1 22.2 4.3 8.1 8.6 6.6 8.8 Incense Cedar ------.1 .1 Other Conifer -- -- 2.3 8.9 8.0 14.5 13.2 20.6 Other Non Conifer -- - -- .2 .3 .4 .2 Total Lumber 4.0 1.5 .6 1.6 109.3 157.9 263.7 240.3 202.1 266.9 ------PULP (thousands of short tons) Sulphite Dissolving 56.8 16.6 42.5 23.0 6.0 12.8 26.4 35.8 36.6 30.6 Other Sulphite 4.1 .1 -- .1 .8 13.8 18.2 17.9 77 .8 Sulphate 30.6 3.8 .2 - 8.5 41.1 113.4 139.9 146.9 178.6 Other Pulp .8 - .7 1.2 .3 .2 .2 .7 1.2 .9 Total Pulp 92.3 20.6 43.4 24.2 14.9 55.0 153.8 194.5 202.7 287.9 TABLE 3-2b Japanese Imports of Forest Products from Canada C.I.F. Japan, 1957-1966 Value {millions of U.S. dollars) Product 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 LOGS & CANTS Sitka Spruce - - - - . 94 2.79 2. 71 3.91 2.51 5.31 Hemlock - - - .03 .63 2.63 4.11 1.40 1.88 2.03 Douglas Fir .01 - .01 .07 .50 1.32 1.31 .33 .06 .26 Cedar .38 .17 .24 .27 2.17 1.09 1.44 2.38 1.92 3.98 Cottonwood .04 .03 - .01 .03 .01 .02 - .04 .05 Other Conifer - - - .02 .06 .44 .27 .06 .17 .11 Other Non Conifer - - - - .04 .08 .23 .04 - .02 Total Logs & Cants .44 .20 .25 .41 4.38 8.37 10.09 8.12 6.59 11.75 Poles & Pilings .22 .30 .15 .46 1.14 1.32 .13 .40 .07 .09 All Logs & Roughly Shaped Wood .65 .50 .40 .87 5.52 9.69 10.23 8.52 6.66 11.85 N ------"'------'°1..n LUMBER Sitka Spruce - .02 - - .65 114 1.94 1.26 .90 1.58 Hemlock .06 - - .03 5.56 11.29 19.42 19.07 15.44 19.81 Douglas Fir .23 .01 .04 .13 1.42 1.01 1.26 .89 .84 1.35 Cedar .18 .13 .02 .01 1.89 .50 .90 1.02 .75 1.04 Incense Cedar ------.01 Other Conifer - - - - .20 .78 .65 1.27 1.02 2.00 Other Non Conifer - - - - - .03 .04 .18 .06 .03 Total Lumber .47 .17 .06 .17 9. 72 14.76 24.20 23.70 19.01 25.81 ------"""------PULP Sulphite Disso .._ving 10.24 2.83 7.15 3.89 1.02 2.08 4.17 6.02 6.37 5.32 Other Sulphite .57 .01 - - .01 .10 1.39 2.14 2.11 8.66 Sulphate 3.80 .44 .02 - .84 4.65 13.31 17.63 18.31 24.12 Other Pulp .08 - .06 .12 .02 .02 .02 .06 .10 .07 Total Pulp 14.70 3.29 7.23 4.02 1.89 6.85 18.88 25.85 26.89 38.17 T.ABLE3-2c Japanese Imports of Forest Products from Canada C.I.F. Japan, 1957-1966 - 1 Average Value Per Unit {U.S. dollars Eer M cubic ft.) Product 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 LOGS & CANTS Sitka Spruce - -- - 1,081 1,026 1,099 1,145 1,240 1,321 Hemlock -- - 1,050 847 838 866 947 972 1,060 Douglas Fir 1,146 - 956 1,085 1,065 1,006 932 999 1,041 951 Cedar 1,109 899 991 1,194 890 942 1,074 1,179 1,229 1,224 Cottonwood 718 676 - 806 1,022 873 840 - 375 937 Other Conifer - - - 896 872 892 817 961 1,195 1,297 Other Non Conif,2.r - --- 4,444 2,291 3,954 1,883 All Logs & Cants 1,055 856 989 1,126 944 943 973 1,108 1,141 1,223 Poles & Pilings 1,285 900 961 1,073 1,059 1,072 916 2,691 1,055 1,059 All Logs & Roughly N Shaped Wood 1,121 882 979 1,098 966 959 972 1,139 1,141 1,224 '°(J\ ------~------LUMBER (U.S. dollars per M board feet actual lumber) Sitka Spruce - 96 -- 92 87 105 108 115 129 Hemlock 101 -- 87 89 94 91 97 93 94 Douglas Fir 117 72 85 115 91 92 86 96 95 94 Cedar 128 126 122 112 85 117 111 119 114 118 Incense Cedar ------78 108 Other Conifer 96 94 - - 85 88 81 88 78 97 Other Non Conifer -- -- - 112 115 486 364 768 All Lumber 118 116 95 110 89 94 92 99 94 97 PULP (U.S. dollars per short ton) Sulphite Dissolving 180 170 168 169 169 162 158 168 174 174 Other Sulphite 139 109 -- 122 124 101 118 118 111 Sulphate 124 117 95 211 98 113 117 126 125 135 Other Pulp 98 - 85 103 86 97 89 83 84 76 All Pulp 159 160 167 166 127 125 123 133 133 133 1. For comparison purposes only; not based on reported prices. TABLE3-3a Japanese Imports of Forest Products from the u.s.s.R. C.I.F. Japan, 1957-1966 Quantity ~thousands of cubic ft.~ Product 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 LOGS & CANTS Pine 549 2,872 4,965 4,249 3,594 7,826 10,165 12,660 17,489 25,963 Spruce & True Fir 2,736 7, 5 34 10,984 15,556 19,692 22,880 28,327 34,123 36,860 45,553 Larch 395 2,229 3,912 5,090 7,082 9,935 7,844 11,025 14,135 14,326 Cedar 75 267 602 90 213 782 587 729 363 438 Cottonwood -- - 98 374 341 349 487 662 1,180 Other Conifer 233 - 442 240 248 395 1,137 3,358 3,003 4,050 Other Non Coni.fer - 163 - 58 8 468 137 146 14 218 Total Logs & Cants 3,988 13,065 20,905 25,381 31,211 42,627 48,546 62,528 72,526 91,728 ------.,,~·------PULPWOOD Conifer - 2,654 4,374 5,156 12,136 13,825 13,118 17,466 16,821 29,773 N I.O Non Conifer 249 426 1,597 2,209 2,178 2,441 2,645 ...... -- 1,799 Total Pulpwood - 2,654 4,623 5,582 13,733 16,034 15,296 19,907 18,620 32,418 Poles & Piling - - - 42 606 381 322 1,000 333 858 All Logs & Roughly Shaped Wood 3,988 15, 719 25,528 31,005 45,550 59,042 64,164 ?3,435 91,479 125,004 ------·-~------LUMBER (millions of board feet actual lumber) Pine - - - - .2 .3 - 9.3 12.4 18.2 Spruce & True Fir ------2.7 5.8 7.4 Larch ------1.8 .6 .5 Cedar - - - - .1 - - .5 - 1.4 Other Conifer ------.1 .3 .2 Other Non Contfer ------1.1 Total Lumber -- - - .3 .3 - 14.5 19.1 28.7 PULP (thousands of short tons) Sulphite 4.82 2 .82 .88 10.44 Sulphate 7.19 Total Pulp 4.82 2.82 .88 17 .63 TABLE3-3b Japanese Imports of Forest Products from the U.S.S.R. C.I.F. Japan, 1957-1966 Value ~millions of U.S. dollars2 Product 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 LOGS & CANTS Pine .34 1.52 2.69 2.46 2.15 5.68 5.97 8.47 12.12 17.54 Spruce & True Fir 1.63 3.85 5.29 7.53 11.02 16.39 16.26 21.86 24. 72 30.20 Larch .24 1.14 1.84 2.47 3.61 6.25 4.08 6.41 8.46 7.65 Cedar .05 .16 .36 .06 .14 .56 .36 .52 .27 .28 Cottonwood - -- .06 .22 .22 .23 .36 .46 .82 Other Conifer .12 - .22 .13 .12 .26 .65 2.15 2.01 2.64 Other Non Conifer - .08 - .03 .01 .20 .06 .10 .01 .11 Total Logs Cants 2.38 6.75 10.40 12.74 17.27 29.56 27.61 39.87 48.05 59.24 ------~------N PULPWOOD \0 o:> Conifer - 1.03 1. 71 2.07 4.98 7.01 5.37 7.89 7.75 13.32 Non Conifer -- .09 .14 .53 .88 .75 .95 .67 .95 Total Pulpwood - 1.03 1.80 5.51 7.90 6 .12 8.84 8.42 14.28 Poles & Piling - -- .02 .39 .29 .21 .64 .24 .58 All Logs & Roughly Shaped Wood 2.38 7.78 12.20 14.96 23.18 37.74 33.95 49.35 56.69 74.09 ------LUMBER Pine -- - - .02 .03 - .80 1.07 1.54 Spruce & True Fir ------.23 .49 .61 Larch ------.14 .05 .03 Cedar -- -- .01 - - .04 - .12 Other Conifer ------.01 .01 Other Non Conifer ------.05 Total Lumber - - -- .04 .03 - 1.23 1.62 2.37 PULP Sulphite .41 .26 .09 1.02 Sulphate . 71 Total Pulp .41 .26 .09 1. 73 TABLE3-3c Japanese Imports of Forest Products from the U.S.S.R. C.I.F. Japan, 1957-1966 Average Value Per Unit 1 {U.S. dollars 2er M cubic ft.) Product ,,__ 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 LOGS & CANTS Pine 621 529 542 578 599 726 587 669 693 675 Spruce & True Fir 596 511 482 484 560 716 574 640 671 663 Larch 612 513 471 485 509 629 520 581 599 534 Cedar 682 602 606 616 656 719 613 719 731 637 Cottonwood - - - 575 598 642 664 731 694 699 Other Conifer 514 - 497 524 492 667 574 640 668 652 Other Non Conifer - 472 - 563 559 419 437 681 393 486 All Logs & Cants 598 517 498 501 553 693 569 638 662 646 ------~~------PULPWOOD N \.0 Conifer - 389 390 401 410 507 409 451 460 448 \.0 Non Conifer - - 350 337 333 398 346 389 373 357 All Pulpwood - 389 388 396 401 492 400 444 452 440 Poles & Pilings - -- 566 646 749 645 645 714 678 All Logs & Roughly Shaped Wood 598 495 478 483 509 639 529 591 620 593 ------"""'""""------LUMBER (U.S. dollars per M board feet actual lumber) Pine - - - - 105 107 - 86 87 80 Spruce & True Fir -- - -- 108 - 85 84 82 Larch ------79 75 64 Cedar - - - - 135 -- 81 - 85 Other Conifer ------83 46 42 Other Non Conifer ------47 All Lumber - - - - 107 108 - 85 81 82 PULP (U.S. dollars per short ton) Sulphite 86 92 104 98 Sulphate 98 All Pulp 86 92 104 98 1. For comparison purposes only; not based on reported prices. APPENDIX4 JAPAN'S IMPORTSOF COKINGCOAL APPENDIX4 JAPAN"S IMPORTSOF COKINGCOAL TABLE 4-1 Japan's Imports of Coking Coal by Country, 1962-65 Unit: 1000 metric tons Countri'.: 1962 1963 1964 1965 1966 U.S.A. 6,004 5,460 5,740 6,914 7,067 Australia 2,821 2,898 4,321 6,619 8,054 U.S.S.R. 1,036 845 969 1,148 1,476 Canada 460 543 772 751 838 Others 197 157 193 483 90 TOTAL 10,518 9,903 11,995 15,915 12,525 Source: Ministry of Finance, Nihon Boeki Nempyo (Trade of Japan), and Japan Tariff Association, Nihon B;eki Geppyo (Japan Exports and Imports). 303 TABLE4-2 Japan's Imports of Coking Coal by Country and Grade, 1966 Grade Measure U.S.A. Australia u.s.s.R. Canada China Poland Austria ~ Heavy coking coal, bitu- Quantity (1000 metric tons) 6,940 1,833 128 14 105 9,020 minous, containing ash Value (million yen) 46,303 8,562 673 76 591 56,206 not more than 8% dry wgt. Unit value(¥/mt), CIF 6672. 4674. 5246. 5538. 5604. 6230. Unit value($/short ton)CIF 16.81 11.77 13.21 13.95 14.12 15.69 Heavy coking coal, bitu- Quantity(lOOO metric tons) 42 3,512 1,140 759 562 24 6,038 minous, containing ash Value (million yen) 273 16,956 5,966 3,922 2,690 115 29,921 more than 8% dry wgt. Unit value(¥/mt)CIF 6575. 4841. 5233. 5165. 5786. 4860. 4955. Unit value($/short ton)CIF 16.56 12.19 13.18 13.01 12.06 12.24 12.48 Coking coal, bituminous Quantity(lOOO metric tons) 76 762 16 6 859 other than heavy, con- Value (million yen) 525 3,635 86 28 4,274 taining ash not more Unit value(¥/mt)CIF 6925. 4773. 5347. 4866. 4975. ~ than 8% dry wgt. Unit value($/short ton)CIF 17.45 12.02 13.47 12.26 12.53 -l>- Coking coal, bituminous" Quantity(lOOO metric tons) 10 1,947 192 65 89 2,303a other than heavy, con- Value (million yen) 67 9,106 957 344 432 10,906 taining ash more than Unit value(¥/mt)CIF 6467. 4631. 4955. 5332. 4840. 4 739. 8% dry weight. Unit value($/short ton)CIF 16.29 11.67 12.48 13.43 12.19 11.94 TOTALOF ABOVE Quantity (1000 metric tons) 7,068 8,053 1,477 838 657 106 24 18,221 Value (million yen) 47,167 38,169 7,683 4,342 3,150 592 115 101,308 Unit value(¥/mt)CIF 6673. 4739. 5202. 5183. 4794. 5604. 4860. 5559. Unit value($/short ton)CIF 16.81 11.94 13.11 13.06 12.08 14.12 12.24 14.01 a. Includes 2 tons from New Zealand. - - Source: Calculated from Japan Tariff Association, Nihon Boeki Geppyo (Japan Exports and Imports), 66 .12. APPENDIX5 TRAININGPROGRAM FOR JAPANESEEXECUTIVES AND TECHNICIANSIN ALASKA APPENDIX 5 TRAINING PROGRAMFOR JAPANESE EXECUTJVESAND TECHNICIANS IN ALASKA Preliminary Proposal Institute of Social, Economic and Government Research University of Alaska College, Alaska March 23, 1967 DESCRIPTION AND PURPOSE We propose the introduction at the University of Alaska of a train ing program especially designed and conducted for staff members of those Japanese mining, manufacturing, fisheries and mercantile companies which are present or potential customers or investors in Alaska's resources. The program would be organized in such a way as to meet both the needs of those individuals assigned to long-term or permanent service in Alaska and of those stationed in Japan who are responsible for trade with Alaska firms. The main content of the program would be intensive instruction in English as a second language, an introduction to U. S. and Alaska business practices and law, and a survey of Alaska resources and geography. The growing importance of Japanese markets, Japanese capital and Japanese initiative in the development of Alaska's natural resources and Alaska's economy generally are now commonplace knowledge. Rather than detail here the prospects and problems of increasing Japanese participa tion in Alaska's economic development, we would refer to the article "Japan Trade in Alaska's Economy", in the October 1966 issue of the Alaska Review of Business and Economic Conditions. The growth of Japa nese trade and investment in Alaska's resources will bring a small but growing group -- a very crucial group -- of Japanese, to stay in Alaska for periods ranging from a few months to many years. Most of these individuals, managers, engineers, technicians, and commodity specialists, will arrive with excellent training and experience in their specialties, but with substantial handicaps in English conversation and composition and an overwhelming unfamiliarity with Western customs and institutions, they face in their daily work. 307 Japanese education requires the study of English beginning in middle school, and most college graduates have had ten or more years of English language courses in Japan. As a result, most of the younger educated Japanese are able to read English with some proficiency, particularly if they have had reason for continued contact with the language in their work. But Japanese with a working conversational ability in English are very rare, and the Japanese graduate with many years of study of written English usually requires two or more years in an English speaking country to obtain a reasonable speaking competence and aural comprehension. For this reason, a number of Japanese firms with activities in North America send their staff members to U.S. or Canadian universities for one or two years of cultural acclimatization before the beginning of their work. We believe there are obvious advantages both to Alaska and to the indi viduals involved if Japanese personnel assigned to Alaska can take this training in a program within the State. Even now in the absence of such a program, Japan Gas-Chemical.Company, which is investing in a large chemical plant at Nikiski, plans to send one or two employees to the University during the 1967-68 academic year. Another function for the proposed program is related to the fact that the general ignorance about Alaska conditions in Japan is an impor tant deterrent to investment in Alaska resources. A more complete treatment of this problem can be found in the second quarterly progress report submitted by this Institute on its Alaska-Japan trade study to the Economic Development Administration (mimeo, December 30, 1966). Four out of the five largest trading companies in Japan have expressed interest in sending at least one employee to the kind of program outlined here. Prima Meat Packers, Ltd. has already sent one of its animal hus bandry specialists to this Institute for one or two years study, as part of its investigation of the feasibility of livestock and meat produc tion in Alaska for the Japanese market. ORGANIZATION,ADMINISTRATION ANO FINANCING For its first twelve months, the Training Program would be located at the main campus in College, with direction from members of the staff of the Institute of Social, Economic and Government Research. There it could draw on the experience and contacts resulting from the Alaska Japan trade project. Because of the low anticipated enrollment and the experimental nature of the program the first year, it would be desirable to "borrow" staff and to contract for facilities and services from other University departments to avoid unnecessary operating and capital costs. Anchorage Community College, closer to the centers of business activity in the State, and administered by the Division of Statewide Services. 308 We would anticipate participants being expected to pay the same or approximately the same fees as non-resident full-time graduate students, both for tuition and loding, to cover transportation and lodging costs on field trips and to purchase their own books and personal instructional materials. Since the cost per student of this program will be consid erably higher than the fees charged, the difference between outlay and receipts will have to be made up by the University from other sources. This division of the cost reflects on one hand the fact that Japanese firms will decide whether or not to send staff members to an Alaska program in part on the basis of its cost to them relative to study at other North American universities, and second the fact that this program is valuable to the State in encouraging economic development. Despite a level of fees equivalent to those charged other students, the participants in this program would conduct their administrative and financial dealings with the University entirely through the program secretary. They should be able to enroll at any time during the year on the approval of the project director, with fees prorated and without extra red tape or late registration fees. Those participants who are in residence for all of a particular semester should be allowed to enroll in any appropriate course in the University's regular academic program, again on the approval of the program director and the department head concetned, and without penalty. The State of Alaska would be asked to futnish the services of its Tokyo office as an information, application and recruitment center for the program. Each prospective participant would be asked in Tokyo to fill out a detailed questionnaire and to take a test of English profi ciency and comprehension, both written and oral, as far ahead of his departure as possible. This test would be a guide to counseling parti cipants on the amount of English training they required so that they might enter the program at the appropriate times, and would also guide the program staff, especially the English staff, in preparing a suitable curriculum for the actual students enrolled. Total direct costs to the University are expected to be $35,000- 45,000 for the twelve months. This cost would hardly be affected by the number of students enrolled. SCHEDULEOF ACTIVITY The program schedule here is designed to coincide as much as possible with the regular academic schedule of the Univers while enough flexibility for individual participants with different subject matter interests and with vast differences in English competence. 309 Activities would be grouped by semesters: Fall semester would be devoted entirely to intensive work in English as a Second Language. Spring semester would consist of a series of short, intensive courses or semi nars conducted by University faculty members on the American political system and American institutions, U.S. and Alaska business practices and business law, and physical and economic geography of Alaska, the socio logy of the North; engineering, construction and transportation problems of the sub-Arctic. At the same time, a less intensive English course would be offered. A summer session would be devoted mainly to field trips and to seminars in specific industry or problem areas, some of which would be conducted at centers of the particular industry (e.g., petroleum, natural gas, and their products at Kenai) and which would draw resource personnel from government and business as well as from the University. Under the schedule described, students with a substantial handicap in English would have had a semester of "total immersion" in the study of English before being exposed to technical lectures in the language, and another semester of study of Alaska institutions, geography, etc., together with less intensive English instruction before actually parti cipating in wide-ranging discussions of the problems of particular industries. Others with a better initial comprehension of English and less time to devote, might enter after the beginning of the fall semes ter, or at the beginning of the spring semester. The maximum enroll ment might be expected during the summer session, when particular seminars would be augmented by Japanese nationals who have already been resident abroad, by those with the minimum time to spend, and by Alaskans concerned with the particular industries or problems. It is inevitable that some of the participants in the spring semes ter lectures will not be able to grasp everything that is said in them, whether or not they have taken the intensive English course the previous semester. Since the subject matter is at least as important as the English training, an assistant competent in both languages would be assigned to sit in on each day's lecture (perhaps 11/2 hours), and for the following period to lead a discussion in Japanese if necessary on the content of the lecture. This assistant might be a regular member of the course, offered a fellowship to the program in compensation for leading these seminars and generally serving as an interpreter as required. Participants in the program would also be encouraged to bring with them portable tape recorders both for recording lectures and to supplement their work in the language laboratory. A the first 310 TRAININGPROGRAM FOR JAPANESEEXECUTIVES AND TECHNICIANSIN ALASKA University of Alaska 1967-68 Schedule FALL SEMESTER Date Activity or Course Hours/Week Sept. 8-11 Introduction and Orientation 20 Sept. 12- English as a Second Language 15 Dec. 15 Language Laboratory 20 and Jan. 2-19 Dec. 16- HOLIDAYRECESS: Residence in homes of Fairbanks residents Jan. 1 (Sponsored by the Fairbanks Chamber of Commerce?) Trip to Anchorage. SPRING SEMESTER Jan. 23- Physical and Economic Geography of Alaska. Feb. 14 lecture 7 1/2 seminar 7 1/2 English as a Second Language 5 Language Laboratory 10 Feb. 15-23 Sociology of Northern Life lecture 7 1/2 seminar 7 1/2 English as a Second Language 5 Language Laboratory 10 Feb. 26- U.S. and Alaska Political System; Institutions Mar. 12 lecture 7 1/2 seminar 7 1/2 English as a Second Language 5 Language Laboratory 10 Mar. 13-14 Field trip to Juneau to observe legislature, visit agencies Mar. 18- U.s. and Alaska Business Practices and Business Law seminar 7 1/2 English as a Second Language 5 Language Laboratory 10 Apr. 29- Engineering, Construction and Transportation in May 15 Sub-Arctic Regions lecture 7 1/2 seminar 7 1/2 English as a Second Language 5 Language Laboratory 10 311 SUMMERSESSION Date Place June 3-7 Introduction to Alaska's Economy College June 10-21 Seminar in Minerals, Mining and Resource Law College June 24-July 3 Seminarin Petroleum, Natural Gas, Petro- Kenai & chemicals College July 8-12 Seminar in Livestock, Fisheries Kodiak July 15-19 Seminar in Forest Products Sitka July 22-29 Seminar in Labor, Immigration, etc. Anchorage July 30-Aug. 2 Seminar in Finance and International Trade College Aug. 5-6 ALASKACONFERENCE ON INTERNATIONALTRADE AND Anchorage ECONOMICDEVELOPMENT or College 312 CALENDAROF EFFORTON TRAININGPROGRAM FOR JAPANESEEXECUTIVE AND TECHNICIANS IN ALASKA Total July Aug. Sept. Oct. Nov. Dec. Jan. Feb. Mar. Apr. May June July Aug. Effort (mos. PROFESSIONALSTAFF F.T.E.) Project Director 1/4 1/4 1/4 1/4 1/4 1/4 1/4 1/4 1/4 1/4 1/4 1/4 1/4 1/4 4 E.S.L. Teacher 1 1 1 1 1 1 1 1/2 1/2 1/2 1/.2 8 Economic Geographer 1/2 1/2 1 Sociologist or Cult. Anthropologist 1 1 Political Scientist 1/2 1/2 1 Business Administration w I-' Instructor 1/2 1/2 1 w Civil Engineer 1 1 Total Professional Effort 17 Secreta,!Y_ 1/2 1/2 1/2 1/2 1/2 1/2 1/2 1/2 1/2 1/2 1 1 1 1 9 Language Assistant (and Seminar Leader) 3/4 3/4 3/4 3/4 3/4 3/4 3/4 3/4 1 1 1 1 10 BUDGET Project Director 4 mos. $ 6,000 E.S.L. Teacher 8 mos. 10,400 Economic Geographer 1 mo. Social Anthropologist 1 mo. Political Scientist l mo. Business Administration Instr. l mo. Civil Engineer l mo. 5 mos. average $1,350 6,750 Clerical Support, 3/4 time 4,080 Language Assistant, $2.50/hr. 4,000 Total Salary $32,230 Travel Travel for staff and invited speakers 2,000 Supplies Teaching and office supplies 1,500 Services Honorarium for other speakers Average of $75.00/day 4,500 Use of language laboratory 300 Other services: communication, xeroxing, printing, etc. 2 2 000 6,800 Indirect Costs 10,636 TOTALCost of Project $49,666 314 COMMENTSAND RECOMMENDATIONSON TRAINING PROGRAM (Responses to Preliminary Proposal, March 23, 1967) GENERALCOMMENTS SUGGESTIONSAND RECOMMENDATIONS "I think that Arlon Tussing's proposal for the establishment of a training program for Japa nese executives is excellent. I think it is a great idea and will be of tremendous value not merely in promoting better trade relations belween Alaska and Japan on every level." ERNEST GRUENING U. S. Senate "We applaud the University of Alaska in the No money, Try the Educational imagination and recognition of needs for the and Cultural Exchange Program of state it has shown in developing the proposed the U. S. Educational Commission training program. We have been following with for Japan. great interest and attention the efforts to obtain constructive Japanese participation in the development of Alaska and have been doing whatever we can to assist. The usefulness of this program is indicated by the interest already shown by Japanese firms in having some of their personnel study at the University in the coming academic year." WILLIAM B. MACOMBER,JR, Assistant Secretary for Congressional Relations Department of the State "Increased trade with Japan will undoubtedly No money. Could be characterized play a significant role in the economic as an indirect subsidy to Japanese development of Alaska, and a training program business firms. It constitutes of the type proposed might well aid and encour a new dimension beyond present age Japanes~ trade and investment there." program experience. ROSS D. DAVIS Assistant Secretary for Economic Development Department of Commerce "We believe there is much merit in the proposed training programs, and would hope that when we obtain staff to fill positions approved in the 1968 budget, some of the people assigned to special fields might be able to participate in parts of the program on a limited basis." FRANKH. MURKOWSKI Commissioner of Economic Development State of Alaska GENERALCOMMENTS SUGGESTIONSAND RECOMMENDATIONS "The study course I believe is excellent for Japanese aspiring to work in the U. S." The preference for a regular course and that for an intensive summer course would depend upon whether that company lacks personnel with a good grasp of English. A trading company I think would not be in terested in the fall semester largely devoted to the study of English while an -interested manu facturing firm may feel the neces~ sity. YOSHIO KATSUYAMA Acting Director Office of the Governor State of Alaska Tokyo, Japan The requirement for an English pro ficiency test--oral and written- seems to me to run the danger of being offensive to a prospective participant. Wouldn't it be less abrasive if you found some other way to see to it that the information you are after here is provided? To "devote entirely" the fall semes ter to "English as a Second Language" seems to me to be a not very good use of your comparative advantage. After all, a Japanese executive would not have to come all the way to Fairbanks to tidy up his English; and I should think you could better use your time on the main focus which is presently the content of your spring semester. Spread the contents of your spring semester over the entire program, with perhaps English as, at best, a concurrent program. Why no econom ist listed on your professional staff? etc. DR. DOUGLASN. JONES Economist, Federal Field Committee for Development Planning in Alaska 316 SUGGESTIONSAND RECOMMENDATIONS The direct benefits would appear to accrue to the Japanese students and the firms sponsoring them. Inevitably the question will be raised, should not the program be funded entirely by the individuals and their sponsors? A similar program for Alaskans in Japan might offer greater advantage to Alaska. Is there any possibility of a reciprocal arrangement for such training? The condition of the University's budget is such that I foresee no new program from state funds within the next fiscal year. Mr. Sasayama of AL Pulp felt that 19.66-67 was premature for such a program in Alaska. Tentative curriculum: 1. English as a Second Language. Presented as a "review" but, in fact, starting from scratch. 2. Life in America and Northern Areas. How to shop, travel, and cope with the cold. Customs and etiquette. 3. American Business Practices. 4. American Government and Law, as it affects the businessman. 5. Alaskan Geography, Resources, and Resource Economics. The biggest obstacle to a program of this kind and the biggest cost would probably be the slow start in enrollment. WILLIAMR. WOOD, President University of Alaska Could not possibly be started in the fall of 1966-67, no funds. Is it possible that some of the workshops you suggest could be put on in Anchorage for the people who are already there? I understand there are a number of representatives of Japanese business interests located in Anchorage who are currently dealing with business and government officials. Should a start be made with these people through the Anchorage Regional Center? Our basic policy is that the educational programs would be put on through the various academic colleges or the Division of Statewide Services rather than directly by a research institute. It seems to me the major hurdle is the one of financing the program. For this reason I recommend redrafting the proposal with the possibility of starting it in the fall of 1968 and in the meantime suggesting that the Academic Vice President review the proposal with the Academic Council for recommendation to the President. At the same time, consideration must be given as to whether or not the state would be willing to support the pro gram through appropriation to the University, and also what priority the University Administration and the Board of Regents might give to this program in relation to the expanding baccalaureate and graduate degree programs and other needs of the institution. Is it possible that some foundation might support a program of this type for a period of three to five years? ARTHURS • BUSWELL Director, Statewide Services University of Alaska 317 SUGGESTIONSAND RECOMMENDATIONS 1. "administered by ••• (ISEGR)"? Maybe could have direction (e.g. Program Director) in ISEGR and administration through statewide service. Otherwise sounds like lot of logistical work and nurse maiding on part of Institute. 2. Fall semester might get dull for them (p. 4). How about a begin ning on Alaska--general review course on Alaska, taught by someone familiar with, or in part, Japanese, or joint American and Japanese instructors. Get them interested and involved. 3. Schedule Chart: Holiday recess--include Anchorage, lots of Japanese there, change VICTOR FISCHER Director Institute of Social, Economic and Government Research University of Alaska Cost: Assistant Professor, full-time, nine months $10,125.00 Clerical help, 1/4 time, 9 mos., grade 10, Step Bat $7,068, 12 mos. 1,325.00 Student help, dubbing and supervision in language lab at $2.00 per hour, 20 hrs. per week for nine mos. 720.00 Tape Cartridges, 100 at $3.25 each 325.00 Depreciation on language laboratory, 9 mos. 300.00 Professor's salary Aug. 5-31 to prepare for course, 3/4 of basic monthly salary 843.75 13,638.75 In addition, you would need to budget for office supplies, etc. I wonder if we could get these people to participate in campus life and show "their" culture with us. Talks, performances (if ·they have cer tain talents), contact with an international student's group, etc. Would all of the program be continued in Anchorage? The tape recorders would need to be scheduled with Dr, Gordon. Suggests using Professor Kent Cathcart. CHARLESKEIM Dean, College of Arts and Letters University of Alaska 318 SUGGESTIONSAND RECOMMENDATIONS Two hour lab periods are much too long for efficient learning. Experiments have shown that 20-30 minutes of intensive drilling are most productive. Fifty minutes at a time is an absolute maximum. Therefore, it would be better to alternate class and lab sessions throughout the day. I suggest that the day's oral drills culminate in a period of controlled conversation where students would be divided into pairs or small groups to converse in simulated situations. The instructor would supervise and assist by moving from group to group. An American student assistant would be particularly useful here and might be recruited from our second year Japanese class in this depart ment. 8 9 10 11 1 2 3 ESL Lab ESL Lab ESL Lab Controlled Conversation BRUCER. GORDON Head, Department of Linguistics and Foreign Languages Univeraity of Alaska 1. I would suggest a "pilot" project first. More on semester seminar and more for executives with a fair grasp of English. Later tech nicians, training, and language work. 2. I might also suggest caution on "who" would attend, i.e., several Japanese executives in and out of Alaska in the past two years, or so are real professionals that know more about the resources here than many of our men. If the "top" level types came could we handle the situation? 3. Might work program for technicians (i.e. ramifications of mixing "technicians" and "executives"). Federal and State personnel will want to "latch on", if for no other reason than to keep informed, etc. How can this be regulated or controlled so as not to "spoil" effectiveness with policy and side banter. etc.? MICHAELR. C. MASSIE Assistant Professor Forest Management University of Alaska 319 SUGGESTIONSAND RECOMMENDATIONS For English Proficiency test suggest, the TOFL test. Standard one used all over the world. Ken Martin in counseling office has interpre tation of scores. For comprehension practice and for assistance to assistant; tape lectures could be typed and used for next Fall's English class. Four hours a day of Language lab is not necessary (i.e. too much). With earphones in Eielson students can practice with tape recorders, with language assistant in groups, visit classes (and taping lectures) seeing movies, etc. I assume $10,400 from 8 months (p. 9)@ $1300 month. But p. 9 time estimate adds up to 9 months and I doubt that ESL teacher obtainable Summer organization and planning would be necessary only the first summer. If new students arrive for Spring Semester and if students then vary a good deal in competence, teacher might need to form 2 instructional groups, teaching one perhaps from 1 - 2 and the other from 2 - 3. This, with individual tutoring could mean a full-time job in Spring Semester. The Supplies budget looks adequate, but I strongly recommend that it include the rental cost of films, the best of all media for improvement of oral comprehension. (She then suggests several films and elaborates on the subject. She also has included a sample Dictation-Lesson.) RUTHM. ROCHE Associate Professor of English University of Alaska 320 APPENDIX6 ANNUALREPORT ON TRENDSIN THE FISHING INDUSTRY APPENDIX6 ANNUALREPORT ON TRENDSIN THE FISHING INDUSTRY A Publication of the 55th National Diet (Special Session) Tokyo, 1967 Rough translation by Arlon R. Tussing Table of Contents PART I. Report on Trends in the Fishing Industry I. General Trends of the Fishing Economy in 1965 1. Survey of the Fisheries 2. Demand and Supply and Price Trends for Marine Products (1) Overall View of Supply and Demand for Marine Products (2) Trends in Household Consumption of Marine Products (3) Trends in Prices of Marine Products (4) Trends in Exports and Imports of Marine Products 3. Trends in Fisheries Production (1) Total Fisheries Production (2) Product of Coastal Fisheries (part omitted) (3) Output of Medium and Small Fisheries (4) Production in Other Fisheries (part omitted) (5) World Fisheries Production (6) Production of Processed Goods (omitted) (7) Technical Developments in Fisheries Production 4. Changes in the Structure of Fishery Enterprise and Trends in the Employed Population (1) Structural Changes in Fishing and Fishery Enterprise (part omitted) (2) Trends in Fisheries Employed Population (omitted) 5. Trends in Fisheries Finance (1) General Trends (omitted) (2) Coastal Fishery Finance (omitted) (3) Medium and Small Fisheries Finance (4) Fisheries Cooperatives and Trust Associations II. Trends in Coastal Fisheries Enterprise (omitted) III. Trends in Medium and Small Fisheries Enterprises 1. General Trends in Medium and Small Fisheries Enterprises 2. Trends in Fishery Income and Expenditure by Type of Fishery (1) Offshore Trawl Fishery (omitted) (2) Purse Seine Fishery (omitted) (3) Tuna Longline Fishery (omitted) (4) Other Medium and Small Fisheries (part omitted) 323 3. Trends in Fisheries Outlay (part omitted) 4. Wage Increases and Value Added Productivity 5. Capital Structure Worsening and Profitability PART II. Report on Measures Considered for the Coastal and Other Fisheries I. Summary II. Preservation and Increase of Marine Resources, and Fisheries Regulation (omitted) 1. Propagation and Preservation of Marine Fauna and Flora 2. The Augmentation and Breeding of Marine Fauna and Flora (omitted) 3. The Development of Coastal Fishing Grounds (omitted) 4. The Development of High Seas Fishing Grounds 5. The Nurture of Overseas Fisheries 6. Fisheries Regulation (omitted) 7. Management and Leadership in Fisheries Industry (omitted) 8. Conclusion and Enforcement of the Japan-Korea Fisheries Agreement (omitted) III. Advance in Equipment and Technology as Basis of Fisheries Production (omitted) IV. Modernization of the Coastal Fishery in the Medium to Small Fisheries (omitted) V. Rationalization of Marine Products Processing and Distri bution (omitted) VI. Raising the Welfare of Persons Employed in the Coastal Fisheries and the Medium and Small Fisheries (omitted) VII. Disaster Policy (omitted) VIII.Consolidation of Statistics and Surveys of the Marine Products Industry (omitted) Remainder of paper omitted. 324 PART I. Report on Trends in the Fishing Industry I. General Trends of the Fishing Economy in 1965 1. Survey of the Fisheries Economy A survey of the domestic economy in fiscal 1965 will show the following: At the beginning of the year, the balance of payments had improved, but because the recession had become increasingly deep since the middle of the previous fiscal year, monetray stringency had been completely relaxed by July. But even later the recession continued, and business bankruptcies increased. After autumn because of restoration of supply-demand balance action, a recovery could be seen. The economic growth rate was the lowest in ten years, next to that of 1958. In mining and manufacturing, compared with the previous year's large increase, growth was weak, and the growth of employment and of the wage level slackened. Real consumption by urban wage earners increased only 0.5% over the previous year, but the increase of 5.1% in rural areas moderated the stagnation of total consumption demand. Despite this slack ness, consumer prices made a large leap. On the one hand, looking at the world surroundings of Japan's fishing industry, the world demand for foodstuffs is expected to increase in the future, and a tendency for fisheries to play an increasing role as a source of animal protein is indicated. But on the other hand, compared to some years previously, the increase in world fisheries production has been modest in the most recent past, and its future trend bears attention. Next, together with the increase in fisheries production, there has been a strengthened interest in the part of various countries in the conserva tion of the fisheries resource, and in the FAO and elsewhere there have been investigations of fisheries resource problems. And the establishment and extension of fishing restrictions and exclusive fishing zones has circumscribed Japan's overseas fishing grounds. In addition, the progress of the fishery industries of neighboring countries has intensified competi tion both on fishing grounds and in export markets. In the above domestic and international environments, the following is a summary of the fishery economy centering on 1965: (1) Of the total supply of fish and shellfish in 1965 from domestic or import sources, products destined for human consumption accounted for 5,048 thousand tons, and non-food uses (livestock and fishery) 1,492 tons; compared to the previous year, these were increases of 13.1% and 3.6% respectively. The increase in supply for human consumption was great, but to the extent it represents a recovery from the decline in domestic use between 1963 and 1964, the supply of marine products is tending to be insufficient. 3?5 (2) With the increase in national income, the demand for marine products is increasing. This is a result of the change in the composition of consumption and the heightened demand for protein, but especially on the increased demand on the part of low income strata. It is accompanied by structural changes both in volume and in diversity. The increase in demand is manifested in an increase in per capita expendi tures, an increase in the price of marine products, and an increase in imports. (3) the per capita household expenditure on marine products in 1965 was ¥8,045 in urban areas, an increase of 11.6% over the previous year, and ¥5,093 in rural areas, an increase of 12.6%, and considerably exceeded between 1960 and 1965 was 10.6% in urban areas, 15.5% in rural areas, so that the difference between the rural and urban levels of expenditure contracted. But a considerable difference remains in the composition of consumption. (4) Since 1957, the prices of marine products have increased both in producing areas and in consuming areas, but the rate of advance has become greater in the latter. This is considered to reflect heightened demand in consuming areas, the relative increase in the quantity of high quality items, and the rise in distribution costs. (5) Exports and imports of marine products were 119.0 thousand million yen and 37.4 thousand million yen respectively, an increase of 5.2% and 16%. In both cases this was a record level, but the growth rate dropped compared with the previous year. The increase in exports was a result of expansion in canned fish such as salmon and trout, glass packed products, and pearls. Imports of marine products have shown a high growth rate since 1960, and are mainly of high quality items and fish flour for livestock feed. (6) Japan's total fisheries production (excluding whales) increased each year from 1956 to a peak in 1962. Subsequently because of a decline in the purse seine fishery and the dip-net saury fishery, it decreased. But the 1965 production of 6.91 million tons was 8.8% above the previous year, and represented a recovery to about the 1962 level. The good catch of squid, mackerel, aji, and other "plentiful species", bottom fish (off Africa and in the East China Sea), produced increases in the coastal fishery, the medium and small scale sector and other sectors of the indus try. Fisheries product volume increased only slowly since 1960, but because of the 556.2 thousand million yen increase in 1965 and the rise in prices, the total increase was 11.8%. (7) The number of fishery enterprises continued to decline. In 1965 there were 224 thousand enterprises, a fall of 4.7% since 1960. In coastal fisheries, the decline was 4.7%; but this was composed of the fall in the number of unpowered boats and drag-net enterprises, but on the other hand 326 the number of small scale power vessel enterprises and shallow sea aqui culture operations increased. The number of enterprises in medium and small fisheries and other fisheries declined over the period by 7.1%, but in 1965 there was a slight increase in their number. (8) The number of persons employed in fisheries has been declining with the outflow of labor power from fishing villages to other occupations, but in 1975 remained at 610 thousand, about the same level as the previous year. Looking at the different sectors, the coastal fisheries showed a bare increase. The medium and small and other fisheries showed a small decline. The small increase in coastal fisheries and the increase in the shallow sea aquiculture included an increase in the female labor force. The age distribution of those engaged in fisheries showed a relative ,~ward , and coastal fisheries in particular showed an increase. The number of new school graduates taking employment declined after 1963, but in 1966 showed some increase. (9) Credit from financial institutions to the fishing industry was 434 thousand million yen at the end of March 1966, a ten percent increase over the previous year, but the smallest increase in five years. The previo11s activity centering around the briskness of the medium and small fisheries had fallen off, and because of the slackness in 1963 and 1964, enterprises were depressed and held off on capital outlays for fishing boats and the like. On the other hand, the financing of coastal fisheries centering on aquiculture was comparatively active. Looking at the different financial institutions, as against an increase in funds from general financial institutions of six percent, that from associated firms or government organs increased by thirteen percent. (10) The average income of households in boat fishing in the coastal fisheries and in aquiculture has been increasing, but 1965's 790 thousand yen was a small decline from the previous year. The decline in edible seaweed production from the excellent previous year, resulting in an income fall in the aquiculture sector, and the fall in wage and other income because of the influence of the business recession, were the main causes of the feeling of stagnation. Mean fishing income showed the same trend, and in 1965 stayed at 280 thousand yen. (11) In recent years the differences between average family income of fisheries households in coastal fisheries and of the households of urban wage earners (cities with a population of 50,000 or over) has lessened, but the difference in per capita income is still large. The per capita income of coastal fishery households (fishing vessel fishing households and households in culture industries) and of fishing vessel fishing households were in 1965 only 71 percent and 66 percent respectively of the per capita income of urban wage earner households. 327 Again per capita household expenditures were for urban wage earner house holds 147 thousand yen, for coastal fisheries households 113 thousand yen, for fishing boat fishery households 106 thousand yen, and for aquiculture households 128 thousand yen; even the latter were substantially below the standard of urban wage earner households. (12) The fisheries income of coastal fishing boat households was in 1965 450 thousand yen, an increase of 12 percent over the previous year. Pro ductivity and income level of the three to five ton class has been high, and among the coastal fishing vessel fisheries this has been the most stable group with the most intensive management. But very recently high productivity management has appeared in the five to ten ton group and the number of enterprises in this group has increased. (13) As for the fisheries income of aquiculture households, 1965 was a bad year for households in edible seaweed production. Average income was 570 thousand yen, a fall of 24% from the previous year. The edible seaweed industry has a high specific weight in the aquiculture operations. So the fall in income here had a heavy influence on the income of the aqui culture households in general, but outside of edible seaweed production these incomes were relatively normal. In the aquiculture industry recently wakame culture centering on the Sanriku Coast (N.E. Honshu) has increased greatly. Experimental work is proceeding in the artificial hatching and propagation of prawns, abalone, and other species. These enterprises are expected to be increasingly successful. This kind of augmentation and cultivation has the advantage of effectively reviving the productive power of nature and its continuing development is expected. Warm water culture operations on the tidelands are developing rapidly, but recently there have been limitations in the supply of marine fodders and the like. (14) In medium and small fishing enterprises the investment in fixed capital beginning with fishing vessels was slack in 1965, but its profit ability was somewhat improved over the previous year. Looking at the different types of fishery, seine fisheries, skipjack pole and line fish ing, salmon and trout fisheries, etc. increased their profitability by a large margin, but on the other hand longline tuna enterprises, saury dip-net fishing, squid hand line and other fisheries showed a decline in profitability and the differences between the various kinds of opera tion were conspicuous. And in the last few years even within the same fishery, differences of productivity by scale have gradually increased and with them wage differentials and differences in profitability have become notable. (15) The average wage of employees in the medium and small fisheries enterprises was 543 thousand yen. It has gradually approached the level of other industries. This is largely a result of the existence of sectors in which fishing income has increased by a rather wide margin and because of the progress in bargaining power. On the other hand, value added per capita (fishing income minus material outlays) in medium and small fisheries increased by a greater amount than wages so that the distribution ratio of wages as a portion of value added fell below that of the previous year. 328 .16) Among the medium and small fisheries in the larger scale enterprises, physical productivity (per capita physical product) has gone up because of heightened capital intensity. Nevertheless a large increase has occurred in enterprise instability because of the worsening of the capital structure and an increase of financial dependence. On the other hand, in the small scale enterprises profits have been low and financing diffi cult to obtain. As a result investment in capital equipment has stagnated and the difference in productivity from larger enterprises has become greater. 2. Demand and Supply and Price Trends for Marine Products (1) Overall View of Supply and Demand for Marine Products A. Increased demand for marine products. In recent years, together with the increase in income levels, the demand for marine products has continued to increase. The increase in demand has manifested itself in an increase in the per capita household expenditure for marine products and an increase in the expenditure elasticity of demand, in an increase in imports and an increase in the ratio of prices between consuming and producing areas. The increased demand for marine products is due to increased income stan dards and to the change in the pattern of consumption, which has raised the demand for protein; but the large increase in demand on the part of the lower income groups has particularly contributed to this development. In 1965 the per capita family outlay on marine products increased above that of the previous year in both urban areas and rural areas despite the economic readjustment during the year. Looking at the expenditures on marine products of urban wage earner families in 1960 and 1965 by quintile 1 class, the ratio of per capita expenditure for fish and shellfish species (fresh and salted) between the top quintile and the bottom quintile has increased from 71.1% to 74.0%, and for fresh fish and shellfish species from 70.1% to 75.9%, so that the expenditure discrepancies between the different income groups decreased. In addition the increase of population of urban areas with their high income and the increase in opportunity to eat foreign style foods also contributed to the increase in demand. The 1964 urban consumption elasticity of demand for fresh fish and shell fish, salted and dried fish and shellfish, and seaweed was greater than that for 1960, and indicates a strengthening of demand (see Table 6-1-1), A characteristic of general price movements up to 1965 was a contrast between the stability of the wholesale price level and the substantial rise of consumer prices. If we observe the relation between the increased demand for marine products and their price movements, it is apparent that both producer and consumer prices advanced. While there is some difficulty in making a direct comparison between them, the increase i~ the latter since 1960 has been especially conspicuous (see Figure 6-1-1). 1. Based on the size of the real cash income to the survey households and dividing the latter into five groups from the smallest to the greatest. The average per capita monthly family real cash income was in 1960 to the lowest quintile 4,212 yen, for the highest 15,908 yen. In 1965 the figures were 7,942 yen and 27,251 yen respectively. 329 FIGURE 6-I-1 Marine Products and Overall Price Indexes for Producing Areas and Consuming Areas (1960 = 100) 180-..._ ____ ...... ____ ..... ____ .... ____ ...... Marine Products (Fresh) Consumer Prices Marine Products (Fresh) Producer Prices General Consumer Prices 12 General Wholesale Prices 10 80-.______.. __ 1957 1959 1961 1963 1965 Source: Ministry of Agriculture and Forestry, Nosambutsu Riutsu Tokei Nempo; Office of the Prime Minister, Kouri Bukka Tokei Chosa Nem20; Bank of Japan, Keizai Nempo. 1. In comparing different stages of distribution it should be cautioned that it is difficult to make direct comparisons because the composition of the items and their names differ; and again in the case of marine products there are other differences such as the fact that different raw materials may be used for the same final product in different areas. 330 TABLE 6-I-l Urban Household Budget Consumption Elasticities (All Metropolitan Areas, All Householeds) 1960 1964 Fresh fish and shellfish 0.4281 0.6462 0 Plentiful species -0.0538 0.0166 Medium and high quality fish 0.6941 0.8480 Shellfish 0 .4729 1. 2671 Salted or dry fish and shellfish 0.5282 0.7005 Pickled items 0.2319 0.1659 Canned fish and shellfish 0.6088 0.5119 Seaweeds 0.6192 0.8792 Dried nori 0.8160 1.1840 Whale meat 0.2050 0.1598 Source: Office of the Prime Minister, Bureau of Statistics, Annual Report on the Family Income and Expenditure Survey. 1. The consumption ela~ticity (n) compares the rate of increase of total consumption l~Jwith the rate otxincrease of expenditure 0 on a particular commodity ( :). n = ~ = ~;, i To the extent y the consumption elasticity is high, a strong demand for the com modity is indicated. 2. The consumption elasticities for 1960 to 1964 were calculated by the cross section method comparing total consumption expenditures and expenditures on marine products for different class levels of urban households (all metropolitan areas, all households). In contrast to this, there has been an increase in output and in produc tivity in processed marine goods. Their prices, compared to those of fresh fish and shellfish, have increased at a relatively lower pace (see Figure 6-1-5). In the demand for marine products not for human consumption, that for livestock and fish feed, and particularly for poultry feed, continues to develop rapidly and imports are an increasing proportion of the total supply. 331 B. Change in the composition of demand for marine products for human consumption. Together with the increase in demand for marine products there has been a large change in the composition of demand. That is, reflecting the general improvement in diets, the demand for marine products for food has over the last ten years consistently shown the following trends: 1. From fresh to processed; processed marine products have shown a rapid increase. 2. Within the fresh fish species, a trend from the "plentiful species" (herring, horse mackerel, mackerel, saucy, squid) to medium and high quality fish and shellfish, with the latter indicating the greater increase in consumption. 3. Among the processed foods, from the less processed (salted and dried fish) to highly processed items (pickled fish, fish sausage, ham, etc.). In the fresh and processed items alike, there has been a shift toward higher quality in each kind of Because of the above changes in consumption, fresh fish and shellfish have fallen as a proportion of domestic fish and shellfish production for consumption as food, and the proportion of the catch destined for pro cessed use increased from 57.1% in 1960 to 62.1% in 1965. In greater detail, the 1965 distribution was as follows: fresh, 37.9%, salted, dried and smoked products, 26.7%; pickled products, 27.7%; fish sausage and ham, 5.5%; and canned goods, 2.2% (see Figure 6-I-2). C. Stagnation of supply Total production of fish and shellfish and edible seaweeds in 1962 had reached 6.864 million tons but because of the bad season in the seine fishery in 1963 and a bad season in the squid hand line fishery and the saucy dip-net fishery in 1964, output declined. This was a temporary manifestation and in 1965 the good catch of plentiful species and bottom fish (on the high seas and west coast of Africa) restored the catch to a level of 6.908 million tons. Because of the increase in demand compared to production, and because of the stagnation in production since 1962, imports, while still not large, have increased in recent years in comparison to domestic production. Imports in 1965 were fish and shellfish, 655 thousand tons (of which 119 thousand tons were destined for food, 536 thousand tons were destined for other than food), edible seaweed 12 thousand tons, an increase of 14.5% and 20% respectively. Comparing the increase in production and imports in 1965 with those of 1964, the supply volume destined for domestic use of fish and shellfish was, for food purposes, 5,048 thousand tons, of which domestic production was 893 thousand tons, imports 536 thousand tons. These were increases of 13.1% and 3.6% respectively (see Table 6-I-2). Imports have come to occupy 2.4% of the total volume of fish and shellfish supply destined for human consumption. Looking at the total, imports are still a tiny fraction of supply, but because their main constituents are high quality items, they are becoming a rather high proportion of the total supply for domestic use of some particular species. The supply volume of fish and shellfish destined for human consumption in domestic markets shows an increase over the previous year, but the 1965 supply volume just about amounts to a recovery to the volume of 1962 and 1963, and based upon the increase in demand indicates a tendency toward inadequacy. 332 TABLE6-I-2 Marine Products Supply and Demand Unit: thousand tons Sueely Volume for Domestic Use Volume of Volume Total Food Use Non-Food Use Dest:i ..ned Domestic of Supply (including (including for Division Year Products Imports Volume Imports) Imports) Export Fish and 1960 5,803 100 5,903 4,365(8) 983(92) 555 Shellfish 1961 6,281 135 6,416 4, 756 (24) 1,136(111) 524 1962 6,303 205 6,568 4, 823(22) 1,091(183) 654 1963 6,273 438 6,711 4,963(37) 1,150(401) 598 1964 5,989 572 6,561 4,465(85) 1, 380(487) 716 1965 6,502 655 7,157 5,048(119) 1,429(536) 680 Edible 1960 77 8 85 60(2) 24(6) 1 Seaweed 1961 85 12 97 61(3) 34(9) 2 1962 100 8 108 82(2) 25(6) 1 1963 85 10 95 70(2) 24(8) 1 1964 72 10 82 62(2) 19(8) 1 1965 81 12 93 70(3) 22(9) 1 Whale 1960 154 0 154 154(0) 0 Meat 1961 179 0 179 179(0) 0 0 1962 226 14 240 233(14) 7 1963 193 12 205 196(12) 9 1964 198 24 222 181(24) 41 1965 218 19 237 203(19) 34 Source: Ministry of Agriculture and Forestry, Gyogo Yoshokugyo Seisan Tokei Nempo; Suisambutsu Ryutsu Tokei Nempo; Ministry of Finance, Trade of Jaean. 1. Fish and shellfish and whale meat are in original fish and original meat equivalents. 2. Edible seaweed is given in dried weight; accordingly the figures should be multiplied by five to make them comparable to those for fish and shellfish. (The dried weight is estimated at twenty percent total weight.) 333 TABLE6-I-3 Comparison of Domestic Production and Imports of Major Imported Marine Items (Product Weight) Volume of Imports As Volume of Volume A Percentage Domestic of of Domestic Imports Item (tons) (tons) Plus Imports Country of Import Yellowtail 43,819 1,484 3.3 S. Korea Herring 50,169 2,729 5.2 U.S.S.R. Sawara (Scomberomorus Niphonius) 5,757 12,314 68.1 s. Korea, China Sea Bream 40,105 2,815 6.6 s. Korea, Spain Shrimp 67,683 21,011 23.6 China, Mexico, Taiwan, Thailand Cod Eggs 11,611 827 6.6 N. Korea, u.s.s.R., s. Korea Herring Eggs 696 281 28.8 U.S.A., U.S.S.R., Norway, Canada Dried Cuttlefish 27,375 3,757 12.1 S. Korea, N. Korea, U.S.S.R., China Dried Seaweed 3,839 250 6.1 S. Korea (million sheets) Fish Powder & Fish Cake 432, 778 112,644 26.0 Peru, R. So. Africa, S .W. Africa Source: Ministry of Agriculture and Forestry, Gyogo Yoshokugyo Seisan Tokei Nempo; Suisambutsu Ryutsu Tokei Nempo; Ministry of Finance, Trade of Japan. 1. Import volume of seaweed is the import quota for 1965. 2. Import volume for herring is the fresh and frozen product only. 3. Import volume for herring eggs includes the kelp to which they are attached. 334 FIGURE 6-I-2 Change in the Use of Fish and Shellfish Destined for Consumption 100% Fresh 80% - Products 60% - Dried, Smoked, Salted 40% - Processed Pickled Products Products 20% - Fish Sausage 0 - Canned 1960 1965 Source: Ministry of Agriculture and Forestry, Suisambutsu Ryutsu Tokei Nempo. 1. In original fish equivalents. 2. The figures are the proportion of domestic output destined for domestic consumption as food. 335 FIGURE 6-I-3 Per Capita Consumption of Animal Protein in Various Countries, 1964-65 80 gr.--11------...... -- .... __ .....,______...... ,___ I....,..___ ...... ______...... , U~A 60 Austr.,pa • Canada • U.K1D •Denmark Netherlands• • West Germany •Norway 40 • Italy Japan 20 • Taiwan • • Philippines • India 0 $0 500 1000 1500 2000 2500 3000 National Income Per Capita Source: Food and Agriculture Organization, Production Yearbook 1965; International Financial Statistics, Statistical Yearbook. 1. The year for animal protein consumption varies among the different countries. National income year is calendar 1965, with the excep tion of Australia and India which are calendar 1964. 136 Within the non-food demand, despite the fact that feed for the fish culture industry is supplied by domestic production, it is becoming difficult to maintain sources of fish because of the increased demand for food and the rise in prices in producing areas. For this reason the relative weight of imports is going up, and in 1965 amounted to 37.5%. The 1965 supply volumes of edible seaweed and whale meat were 92 thousand tons and 203 thousand tons respectively and represented an increase of 13.6% and 12.2% over the previous year, recovering the 1962 and 1963 levels. D. Outlook for future supply and demand of marine products. Based on the data for 1955 to 1964 and making certain assumptions about future demand for marine products, the marine requirements projected for 1971 are rihout million tons and for 1976 about ten million tons, and the increase can be expected to continue even further. The increase in non-food demand is expected to be particularly great in the next five years. Again, if we look at total net foodstuffs per capita for 1971 we expect an increase of eight percent and in 1976 an increase of 14 percent in demand. A substitution relationship with livestock products cannot be seen too well in the case of medium and high quality fish and shellfish, but it is recognizable in the cases of fresh fish of the plentiful species and of the low grade processed items. Accordingly, it is possible that the demand for the plentiful species in their fresh use may decline because their prices are tending to rise relative to those of livestock products. But the competition with meat of the medium and high grade fish and shell fish species can be expected to remain strong for a considerable length of time. Still, on the basis of international comparisons, Japan's consumption of animal protein is only one-half to one-third of that of the most advanced countries, and with the future increase in the national income, Japan will probably remain in the stage of rapidly increased protein consumption, with marine products playing an increasingly large role as a source of animal protein (see Figure 6-I-3). Corresponding to this increase in demand, imports are expected to increase, but if we look at the long run, the use of imports to bridge the gap between supply and demand will probably encounter difficulties in condi tions abroad. Therefore, it seems necessary to raise production by the utmost effort to develop new fishing methods and fishing grounds. (2) Trends in Household Consumption of Marine Products A. The increase in household consumption of marine products. The per capita household expenditure on marine products in urban areas in 1965 was 8,045 yen and in rural areas 5,093 yen, an increase of 11.6% and 12.6% over the previous year, and a rate greater than the increase in expenditure for foodstuffs in general (see Table 6-I-4). 337 TABLE6-I-4 Average Per Capita Household Expenditure on Marine Products Expenditure on Marine Percentage of Marine Expenditure on Foodstuffs Products Products Expenditure Money Increase Over Money Increase in Total Foodstuff Expenditure Previous Year Expenditure Over Pre- Expenditure on Expenditures Year (a) (b) v12~u§_Yea:[!'.[eat,Poultry Prod. (b/a) 1960 36,397 8.7 4,871 10.3 5,000 16.3 13.4 1961 40,116 10.2 5,411 11.1 5,855 17.7 13.5 URBAN 1962 49,200 10.2 5,946 9.9 7,006 19.0 13.5 1963 49,161 11.2 6,579 10.6 7,997 14.1 13.4 1964 53,414 8.7 7,210 9.6 9,158 14.5 13.5 w 1965 58,604 9.7 8,045 11.6 10,110 10.4 13.7 w OJ 1960 27,004 4.3 2,477 5.6 1,587 10.2 9.2 1961 29,138 7.9 2,869 15.8 2,130 25.6 9.8 1962 31,758 9.0 3,314 15.5 2,675 12.0 10.4 RURAL 1963 35,461 11. 7 3,911 18.0 2,997 12.0 11.0 1964 39,906 12.5 4,523 15.6 3,412 13.8 11.3 1965 44,234 10.8 5,093 12.6 3,919 14.9 11.5 Source: Office of the Prime Minister, Annual Re£ort on the Family Income and Expenditure Survey; Ministry of Agriculture and Forestry, Noka Seikeihi Chosa. 1. Figures for metropolitan areas are calendar year, for rural areas, fiscal year. The average rate of increase of household expenditures on marine products between 1960 and 1965 was in metropolitan areas 10.6% and in rural 15.5%. While the level of consumption of marine products in rural areas is still lower than that in urban areas, the rate of increase in the latter is higher. A narrowing of the differential between rural and urban areas has been occurring in this fashion, but very recently a little dullness can be seen in the increase in the countryside. If we look at the consumption of marine products by regions, there are differences in consumption standards according to the different conditions in various cities and villages. The ratio of per capita household consump tion of marine products between the seven cities with the highest consumption standards and the mountain villages w~th the lowest standards, the ratio in , to fresh marine products, 47.8%, and for other marine products 64.2% (see Figure 6-I-4). Such regional differences are greater than the differences in income levels, and seem to reflect the great difference in conditions of distribution, in particular the absence in some areas of equipment for the distribution of fresh fish products. B. The change in the composition of marine products consumption. The increase in the consumption of marine product foodstuffs is at the same time accom panied by a large change in its composition (see Table 6-1-5). The physical volume of consumption per capita has decreased in the cities for the plentiful species and increased for the medium and high quality fish and shellfish, so that the total has moved sideways. In the villages the two components have moved in the same fashion as in the cities, but the total has definitely been increasing. The demand for pickled products, fish ham and sausage and similar processed foods has been increasing. It is clear that one characteristic of the consumption of fish and shell fish in recent years has been that, together with the increase in living standards, there has been a diversification of consumption. But as a supply condition, the diffusion of frozen fish has contributed a large part, and the diversification of species available based upon the large imports and the development of trolling on the high seas has been another major cause. The substitution relationship between marine products and meat has been mentioned above, but on the basis of our rural and urban data for 1956 to 1964, in the case of medium and high quality shellfish, even with future price increases, the shift of demand in urban areas in favor of meat products ought to be small because of the weak substitution relation ship. But in the rural areas a distinct shift seems to be indicated. In the case of the plentiful fish species, a strong substitution relationship is evident in the cities but it is not so strong in the village, Following the above reasoning it is possible that the urbanization of rural consumption patterns based on recent income increases could cause further substantial differences. 139 FIGURE6-I-4 Per Capita Annual Household Expenditures on Marine Products by Region Fresh Fish & • Shellfish thousand yen Processed Fish & D 8000 - Shellfish; Edible Seaweed; Whalemeat - 0 CIJ (J) (I) (I) bO (J) Sources: Office of the Prime Minister, Annual Report on the Family Income and Expenditure Survey; Ministry of Agriculture and Forestry, Noka Seikeihi Chosa. 1. Data for metropolitan areas is calendar year, for rural areas, fiscal year. 2. The seven largest cities are the six metropolitan areas and the city of Kitakyushu. The middle ranked metropolitan areas are cities with a population of 150,000 or over, excluding the seven largest cities, Small cities A are those with a population from 50,000 to 150,000. Small cities Bare those with a population of up to 50,000. 3. The classification of villages is based on the population employed in secondary industry, the mining and manufacturing population index, the farm household ratio, the arable land ratio, the woodland ratio, and the ratios of secondary occupations. 340 FIGURE 6-I-5 Consumer Purchase Price of Marine Products (1955 = 100) 250 Fresh Fish and Shellfish 200 Salted and Dried Fish and Shellfish Canned Products Pickled Products 150 1955 1957 1959 1961 1963 1965 Source: Office of the Prime Minister, Annual Report on the Family Income and Expenditure Survey, 341 TABLE 6-I-5 Per Capita Physical Volume and Cash Outlay for Consumption of Various Fisheries Products Fresh Fish and Shellfish Plentiful Medium, High Quality Whale Dried and Salted Prodessed Rural SEecies SEecies Total Meat Fish and Shellfish Seafood or Volume Expenditure Volume Expenditure Volume Expenditure Expenditure Volume Expenditure Expenditure ko ______y_en__ _-3._en Urban Year kg yen kg yen kg yen yen ~ Urban 1960 7.8 758 8.9 1,669 16.7 115 4.4 4 4 1,033 1,295 1961 7.6 788 8.5 1,869 16.1 128 4.3 4 3 1,133 1,493 w 1962 7.5 797 8.6 2,115 16.1 139 3.9 3 9 1,190 1,705 ~ 1963 6.6 3 7 1,253 1,886 N 831 8.9 2,447 15.5 162 3.7 1964 5.9 840 9.5 2,852 15 .4 159 3.6 3.6 1,370 1,989 1965 5.8 942 9.5 3,122 15.2 168 3.7 3.7 1,506 2,307 Rural 1960 8.1 581 4.4 592 12.5 69 2.8 2 8 493 742 1961 7.7 610 5.3 810 13.0 78 2.7 2 7 535 836 1962 8.5 785 5.4 849 13.9 109 2.4 2 4 576 995 1963 8.5 867 5.0 1,040 13.5 124 2.5 2 5 617 1,263 1964 7.5 859 6.4 1,245 13 .9 130 2.7 2 7 719 1,520 1965 7.9 1,002 6.3 1,368 14.2 143 2.8 2 8 806 1,774 Source: Office of the PEime Minister, Annual Report on the Family Income and ExEenditure Survey; Ministry of Agriculture and Forestry, Noka Seikeihi Chosa. 1. Plentiful species are pilchard, horse mackerel, mackerel, saury and squid. 2. Figures for urban areas are calendar year, for rural areas, fiscal year. (3) Trends in Prices of Marine Products A. Movement of marine product prices. In viewing relationships between producer prices, the wholesale price in consuming areas, and the consumer price of fresh marine products since 1957, we are handicapped by the fact that the species composition and the names are both different at the various stages of production, and it is difficult to make a direct compari son using the materials which exist. But to the extent we can use the Ministry of Agriculture and Forestry, Noka Seikeihi Chosa and the Office of the Prime Minister, Kouri Bukka Tokei Chosa Nempo, between 1957 and 1961 the producer prices and wholesale prices in consuming areas showed the same movements, but the consumer price showed a lesser rate of increase. But since 1961 the rates of increase of wholesale prices in consumer areas of producer prices. The rise in the rate of increase in producer prices between the first period and the second shows the strengthening of demand as against produc tion. And in respect to the large difference in the rate of increase between producer prices on the one hand and consuming area wholesale prices and consumer prices on the other, the content of shipments to the consuming areas reflects both a higher proportion of high quality products for which demand has increased and the increased proportion of high unit price imported products. The large rate of increase in prices in the consuming areas is thought to reflect the increase in cost of living of those associated with distribution, the increase in sanitary administration equipment and other investment in equipment, and the increase in the wage level. In the retail sale of marine products, for instance, the present situation is one of numerous tiny enter prises selling very small quantities of many different items and carrying out preparation services such as the cutting of fish. But in order to hold down costs in the process of distribution, in the future we will have to look to a tende~cy for an increase in scale at all stages, and toward the progress of rationalization of distribution in general. Compared to the rate of increase in the consumer price of fresh fish and shellfish, the rate of increase for processed products has been moderate. In particular, owing to the outstanding advance of technology and to large scale production, the increase in price of pickled products has not been high (see Table 6-I-5), In the past consumption of marine products, fresh items have been predominant, and have been rather stable in character, but recently the consumption of processed marine products has overtaken that of the fresh items, and in the case of fresh fish itself there has been a gradual improvement in the quality of the product consumed. B. The movement of producing area prices. Taking the producing area price of marine products in 1960 as 100, the price in 1965 was 142.1, indicating an annual increase of 7.3%. The increases in 1963 and 1964 were particularly high because of the decrease in supply, amounting to an increase of 15 percent and 11 percent respectively. The increase in 1965 over the previous year, however, was only 0.6% (see Figure 6-I-6). 343 FIGURE 6-I-.6 Index of Prices of Marine Products in Producing Areas (1960 = 100) 160-,------.....------.L..------'------.l------,I.. Bonita, Tuna J 50 Swordfish Bottomfish All Marine 140 Products Plentiful Species 130 , 120 110 \ V 1960 1961 1962 1963 1964 1965 Source: Ministry of Agriculture and Forestry, Suisambutsu Ryutsu Tokei Nempo. 1. The various categories of fish are as follows: (1) plentiful species; pilchard, round sardine, horse mackerel, maruaji, mackerel, saury, and squid. 2. Bottomfish: (a) offshore bottomfish: turbot, cod, pollack, Lockington, menuke, kikiji, hata hata, nigisu, and sharks; (b) East China Sea bottom fish: guchi, niba, ~. ihodai, conger eel, hair tail, gurnard, kanagashira, skate, and kidai. (3) High quality species: seabream, chidai, blackbream, yello,;~tail, flatfishes, sawara, gray mullet, perch, shrimp, crab, sea urchin, and sea cucumber. 344 The biggest influence making for the small price advance in 1965 was the 5.2% fall in the price of the plentiful species caused by the large 1965 harvest, coming after a substantial price increase the previous year (see Figure 6-I-7). Elsewhere in the high quality species, as against a 13.6% in the previous year, 1965 registered a fall in price of 0.1%, reflecting increased landings from the high seas trolling operation and increased imports of shrimp. Bottom species showed a 5.4% increase, compared to a 10.4% increase the previous year. Within the category, the price of those species taken in the East China Sea showed a 10 percent fall because of the increased catch, while the offshore species, as a result of decreased production and increased demand for processing, showed an increase of 14.4%. Bonita, the tunas, salmon and trout, and the like, were the subject of strong demand, and the prices of each increased about 10 percent over the previous year. Price increases were common among other high quality species such as prawns, shrimp, lobsters and the like. For instance, though the price of seabream and yellowtail increased as much as 10 to 40 percent, in the case of species such as sawara, domestic production and imports together amounted to an increase of supply of about 50 percent, but the price increases were of the same order as in the case of the preceding species. Thus, the prices of various fish species are influenced by the conditions of domestic supply and of imports, and characteristically show rather com plicated movements over the short run. (4) Trends in Exports and Imports of Marine Products A. Marine products exports. 1. Increase in exports. Exports of marine products in 1965 amounted to 119,000 million yen ($331 million), 3.9% of Japan's total exports of 3,042.6 thousand million yen ($8,452 thousand million). Between 1960 and 1965, marine products exports increased at an average rate of 7.2% per year, in close correspondence to the world's increase in trade in marine products, but it represented a fall in the relative weight of marine products in the total. Over 90 percent of the exports were composed of frozen tuna, water-packed cans of salmon, trout, tuna, crab, or the like, whale oil, and pearls, but the production of such items as salmon, trout, crab, and whale are affected by various international restrictions, and their influence extends to the export industry. Five countries, the U.S.A., the U.K., West Germany, Italy, and Switzerland account for 60 percent of Japan's exports, so that the main export market is composed of the advanced countries of America and Europe. Because of the favorable economic conditions in these countries in 1965, exports continued a smooth growth. 2. Trends in various individual items. Exports in 1965 exceeded the previous high mark reached in 1962. Marine fertilizers and oils and salted and dried marine products declined but canned salmon and trout and pearls increased, producing an overall increase over the previous year of 5.2% (see Table 6-I-6). 145 FIGURE 6-1-7 Indexes of Producing Area Prices and Volume of Catch for Plentiful Species (1960 = 100) 160 140 120 100 Index of Catch Volume 80 1960 1961 1962 1963 1964 1965 Source: Mini~try of Agriculture and Forestry, Suisambutsu Ryutsu Tokei Nempo. 346 TABLE 6-I-6 Value of Marine Products Unit: million yen, except as noted Increase Item 1960 1961 1962 1963 1964 1965 1965-1964 Frozen Marine Products 18,592 20,485 29,080 26,145 31,346 31,981 2.0% Canned Seafood 41,853 35,650 56,606 44,038 46,23:c 49,135 6.3 Salted or Dried Marine Products 2,099 2,020 2,036 2,145 2,302 2,202 -4.3 Pearls 10,972 12,883 15,063 17,024 19,828 23,118 16.6 Other Marine Products 10,700 11,263 10,645 13,163 13,416 12,561 -6.4 w ..,.. Total Exports of Marine Products 84,216 82,301 113,430 102,515 113,12 118,997 5.2 '1 Total Exports of Japan (100 million yen) 14,596 15,248 17,698 19,628 24,02 30,426 26.7 Marine Products as Proportion of Total Exports 5.8% 5.4% 6.4% 5.2% 4. n 3.9% Source: Ministry of Finance, Trade of Japan. Looking at the export volumes of various individual items, in frozen marine products there was an increase of about 2 percent over the previous year. While frozen tuna stagnated, there were increases in exports of frozen swordfish and of frozen fish from the high seas trolling operations. Because frozen tuna exports to the United States and Canada did not increase, the total declined somewhat despite an improvement in exports to Western European markets. Exports of frozen broadbill swordfish increased because of a lack of fish in the United States. The recent increase in exports is of the product caught in the high seas troll off the African Coast. Out of the 1965 production 54 thousand tons were exported, and the future development of this fishery is expected to make possible further increases in exports. Exports of canned seafood were 49.l thousand million yen, a 6 increase over the previous year. Exports of canned salmon and trout and canned crab increased, but other canned goods stagnated. Among the salted and dried fish, exports of shark fin and various kinds of fushi increased, but because other items decreased, the entire cate gory showed a 4 percent decline from the previous year. Pearls continued their steady ascent at about 20 percent per year. Because foreign demand continues to be strong, future increases are expected, but because of the aging and crowding of the beds, the production of an inferior commodity is a problem, and in the future efforts will have to be expended to maintain the quality of the product. B. Imports of marine products. 1. Increase of imports. Between 1960 and 1965, imports of marine products increased at an average of 46.6% per year, and a high rate of increase has been maintained during each year of this period. Imports in 1965 were 37.4 thousand million yen (104 million dollars), an increase of 16.0% over tte previous year; but this represents a slackening of the rate of increase, which was in the vicinity of 100 percent and 50 percent in 1963 and 1964 respectively. The causes of this increase in imports are the stagnating tendency in domestic production in recent years, coupled with a large increase in demand, in particular demand for high quality fish and shellfish and for fish powder. An additional reason was the rather wide liberalization of restrictions on the import of marine products in 1961 (see Figure 6-I-8), Looking at Japan's major partners in her import of marine products, in 1965 in first place was Communist China with 6.6 thousand million yen, after that, South Korea with 5.8 thousand million yen, Mexico with 3.7 thousand million yen, Peru with 3.0 thousand million yen, the United States with 2.6 thousand million yen, Taiwan, Spain, the Republic of South Africa, the U.S.S.R., and Thailand. 2. Trends for individual products. The main increases were in fresh and frozen marine products and in fish flour (see Table 6-I-7). 348 FIGURE 6-I-8 Value of Imports of Marine Products and of Total Imports (1960 import value 100) 700 Value of Marine 500 300 Value of All Imports 100 1960 1961 1962 1963 1964 1%5 1.0%- Marine Products as Proportion of 0.5 - Imports o.o Source: Ministry of Finance, Trade of Japan. 349 TABLE 6-1-7 Value of Marine Products Imports Unit: million yen, except as noted Increase Item 1960 1961 1962 1963 1964 1965 1965-64 Fresh and Frozen Marine Products 940 3,033 4,646 11,351 18,124 21,538 18.8% Salted and Dried Marine Products 429 579 826 1,427 2,638 3,592 36.2 Agar-Agar 74 96 79 403 425 562 32.2 Fish Flour 800 963 1,812 3,984 4,918 5,897 19.9 Other Marine Products 3,280 3,503 3,331 4,219 6,161 5,833 - 5.3 w V, 0 Total Marine Products Imports 5,523 8,174 10,694 21,384 32,266 37,422 16.0 Total Imports of Japan (100 million yen) 16,168 20,918 20,291 24,251 28,575 24,408 Imports of Marine Products as Proportion of all Imports 0.34% 0.39% 0.53% 0.88% 1.13% 1.27% Source: Ministry of Finance, Trade of Japan. The 1965 mark for fresh and frozen marine products imports was 21.5 thousand million yen (120 thousand tons), compared with 940 million yen (4.7 thousand tons) in 1960, that is, an increase of 23 times. This increase reflected in its composition the tendency for domestic demand to increase most conspicuously in the high grade species of fish and shell fish. In particular shrimp and prawns, largely from Communist China, Mexico, and Taiwan, accounted for 12.9 thousand million yen (21 thousand tons) in 1965, or about four-tenths of the total value of marine imports for human consumption. Imports of dried and salted marine products in 1965 amounted to 3.6 thousand million yen (13 thousand tons) compared with 1960 1 s 430 million yen (1.9 thousand tons), and was an eightfold increase, and of this total, imports of dried cuttlefish from South Korea were the most conspicuous. As for the import of dried from South Korea as a part of the normalization of diplomatic relations between Japan and the ROK, and of the requirement of balanced growth of the trade between the two countries, the quota executed in 1965 was 250 million sheets, an increase of 50 million sheets over the previous year. The domestic supply of marine fodders and fertilizers has not kept up with the growth of demand, and the import of fish flour has increased prodigiously, to 5.9 thousand million yen (113 thousand tons) as against 800 million yen (19 thousand tons) in 1960, an increase of 7.4 times. 3. Trends in Fisheries Production (1) Total Fisheries Production Increase in total fisheries production. Japan's overall fisheries output increased year by year after 1956 but reached a peak in 1962, and the following two years showed a decline because of bad catches in the seine fisheries and the saury dip-net fishery and elsewhere. But 1965's 6.91 million tons (excluding whales) was an increase of 8.8% over the previous year and was a recovery of the 1962 level. 1965's production increase occurred because of a good year in the seine fishery, a recovery from the previous bad year in the squid handline fishery, and because of the growth of production of the bottomfishing in African and East China Sea fishing grounds. The recent movements of the total catch and of those fisheries whose objects are the so-called plentiful species (squid, saury, horse mackerel, herring) are shown in Figure 6-1-9. Movements in production of plentiful species. The catch volume of the plentiful species is about a third of the total catch; it declined in 1964, and the 1965 level was a recovery to that of 1963. If we look at individual species, we find that mackerel production showed a gradual increase, but that all others fluctuated. The amplitude of fluctuation was particularly great for squid and for sauries, and while sauries showed an increase over 1963, squid increased only in 1965. While not included in the plentiful species, recent years have seen a gradual increase in the catch of pollack so that in 1965 it was the most important single species in volume, with a catch of 690 thousand tons. 351 FIGURE 6-I-9 Total Catch and Catch of Plentiful Species (1,000 tons) 8,000 Total Production 6,000 Total Product Excluding Plentiful Species 4,000 2,000 800 Mackerel 600 Horse mackerel 400 Sardines Squid Sauries 200 1960 1961 1962 1963 1964 1965 Source: Ministry of Agriculture and Forestry, Nosambutsu Ryutsu Tokei Nempo. 1) Figures for squid are the total for squid and cuttlefish; for horse mackerel: aji and maruaji; for sardines: pilchard, maruiwashi, and anchovetas; for mackerel: all mackerels. 352 Increase in total value. The total value of production has increased each year since 1960, and 1965's value was 556.2 thousand million yen, an 11.8% increase over the previous year. In the ocean fisheries, the coastal, medium and small, and other fisheries, all showed increases in both product volume and product value, but it was the increase in the latter which was most prominent (see Table 6-I-8). Comparison of coastal fisheries, medium and small fisheries, and other fisheries. If we compare the various constituent fisheries of the ocean fisheries since 1960, the proportion of value produced in coastal fisheries has fallen since 1963, but had increased up to 1962. The share of the but their share in value had been falling since 1960; in 1965, however,' both figures increased. The share of other fisheries in both volume and value fell in 1965 (see Table 6-I-9). (2) [Omitted except for Table 6-I-10 -- Production of the Coastal Fisheries.] (3) Output of Medium and Small Fisheries Increase in production volume. The production volume of medium and small fisheries increased from 1960 to 1962 and fell in 1963 and 1964 and again increased in 1965 to 3,536 thousand tons, a restoration to the 1962 level. The biggest part of the increase was due to a recovery from the previous year's bad catch in the seine fishery, and an increase in production in the squid handline fishery. The fishery for these plenti ful species accounted for half the production volume of the medium and small fisheries, and their changes determined the movements of catch volume in the medium and small fisheries. The value of production increased after 1960, stagnated in 1964, and in 1965 increased 18.4% to 243.6 thousand million yen, a somewhat higher rate of increase than previously. Changes in production by species. Product volume in the offshore trawl fishery declined 5.6% to 704 thousand tons. But the past five years together showed an average increase of 4 percent. The decrease in 1965 was caused, in the first half, by drift ice which reduced operations below capacity in the fishing grounds around Hokkaido, which operations have accounted for 60 percent of the total catch in recent years, and in the later half of the year by the bad catch of the highly variable hokke (lockington sp.). By species, pollack and hokke are the biggest portion of the catch. The landings of the offshore trawl have had a gradually declining tendency since 1960. Nevertheless, the shuttle vessels serving the North Pacific regions showed a rate of increase of 60 percent, to 123 thousand tons. The value of production of the off shore trawl increased 17.8% from the previous year to 30.5 thousand million yen. The seine fishery increased its volume from the previous year by 29.5%, to reach a new high of 1,134 thousand tons. 353 TABLE 6-I-8 Total Fisheries Production Volume of Product {1000 tons) 1960 1961 1962 1963 1964 1965 Total 6,192 6,710 6,864 6,698 ,350 6,908 Ocean Fisheries 6,102 6,610 6,760 6,590 ,231 6,761 Coastal Fisheries 2,178 2,247 2,297 2,416 ,147 2,240 Medium-Small Fisheries 3,063 3,289 3,513 3,349 ,156 3,536 Other Fisheries 861 1,074 950 825 928 986 Inland Fisheries 91 100 104 108 119 146 Whaling (No. of Whales) 19,649 20,845 22,237 22,370 24,209 26,986 Value of Production {1000 million yen) 1960 1961 1962 1963 1964 1965 w t Total 344.8 395.2 426.6 483.0 497.5 556.2 Ocean Fisheries 332.0 379.6 410.4 463.8 476.3 533.5 Coastal Fisheries 132.8 152.5 166.8 144.3 202.2 222.3 Medium-Small Fisheries 160.7 180.1 192.0 212.2 211.2 243.6 Other Fisheries 38.5 47.0 51.6 57.3 52.9 67.7 Inland Fisheries 12.8 15.6 16.2 19.2 21.2 22.6 Whaling 23.4 26.7 26.9 30.9 32.3 37.6 Grand Total 368.2 421.9 453.5 513.9 529.8 593.8 Source: Ministry of Agriculture and Forestry, Gyogo Yoshokugyo Seisan Tokei !'!empo, Suisan Ryutsu Tokei Nempo. 1. Coastal fisheries are shallow sea aquiculture, fixed net fisheries, fisheries not using fishing boats or using unpowered boats or powered boats of less than ten tons. 2. Other fisheries include the East China Sea trawl, the mothership type crab fishery, the North Pacific mothership type trawl, and the high seas trawl. TABLE 6-I-9 Relative Shares of Different Ocean Fisheries Volume of Coastal Medium-Small Other Product Fisheries Fisheries Fisheries Total 1960 35.7 50.2 14.1 100.0 1961 34.0 49.8 16.2 100.0 1962 34.0 52.0 14.0 100.0 1963 36.7 50.8 12.5 100.0 1964 34.5 50.6 14.9 100.0 1965 33.1 52.3 14.6 100.0 Value of Product 1960 40.0 48.4 11.6 100.0 1961 40.2 47.4 12.4 100.0 1962 40.2 46.8 14.0 100.0 1963 41.9 45.8 12.5 100.0 1964 42.5 44.3 13.2 100.0 1965 41. 7 45.7 12.6 100.0 Source: Ministry of Agriculture and Forestry, Gyogo Yoshokugyo Seisan Tokei Nempo, Suisan Ryutsu Tokei Nempo. 1. Coastal fisheries are shallow sea aquiculture, fixed net fisheries, not using fishing boats or using unpowered boats or powered boats of less than ten tons. 2. Other fisheries include the East China Sea trawl, the mothership type crab fishery, the North Pacific mothership type trawl, and the high seas trawl. 355 TABLE6-I-10 Production of the Coastal Fisheries Volume of Production (1000 tons) 1965-1964 1960 1961 1962 1963 1964 1965 % Increase Total 2,178 2,247 2,297 2,416 2,147 2,240 4.3 Fishing Boat Fishery 1,679 1,691 1,724 1,812 1,565 1,639 4.7 Set Net Fishery 215 234 211 215 219 221 0.9 Shallow Sea Culture 284 322 362 389 363 380 4.7 Value of Production (1000 million yen) Total 132.8 152.5 166.8 194.3 202.2 223.3 9.9 Fishing Boat Fishery 83.6 89.7 96.3 110.2 108.9 116.1 6.5 Set Net Fishery 15.3 17.3 16.7 19.2 20.8 24.2 16.7 Shallow Sea Culture 33.8 45.5 53.8 65.0 72.4 81.9 13.1 Value of Production(% of Total) Total 100.0 100.0 100.0 100.0 100.0 100.0 Fishing Boat Fishery 63.1 59.0 57.8 56.6 53.4 52.2 Set Net Fishery 11.3 11.3 10.0 9.9 10.8 10.9 Shallow Sea Culture 25.4 29.7 32.2 33.5 35.8 36.9 Source: Ministry of Agriculture and Forestry, Gyogo Yoshokugyo Seisan Tokei Nempo, Suisan Ryutsu Tokei Nempo. 356 Looking at catch volume in different waters, there were increases in all zones except the western part of the Japan Sea, which remained at the previous year's level; the increases were particularly large in the East China Sea, around Hokkaido, and in the Pacific Ocean. The main objects of the fishery in recent years have been horse mackerel and mackerel; the production of horse mackerel, which was rather stable before 1960, has increased, and the production of mackerel has increased conspicuously. In recent years the production of anchovetas has also increased. The value of production increased 14 percent to 43 thousand million yen, but the fall in the price of mackerel offset the increase in volume. a in and then g declined to a 1965 volume of 498 thousand tons, about the level of the 1961 volume. The value, however, increased 4.7% to a new high of 70.8 thousand million yen. Distinguishing production by the form of operation, output has declined since 1962 for operations based on the mainland; the 1965 catch was 309 thousand tons, a fall of 20 percent from 1962. The catch from mother ship operations and from operations based in foreign countries both had been increasing gradually but in 1965 registered decreases of 19.8% and 12.8% respectively. Atlantic Ocean operations increased gradually, reaching a new high in 1965. In recent years the catch ratio of the tuna longline fishery has on the average declined; the rate was particularly great in the North Pacific and in the Indian Ocean. And henceforth we expect either international management or restriction to be strengthened. The skipjack pole and line fishery, with the exception of 1963, has had a gradually increasing tendency, and in 1965 reached a new high of 177 thousand tons. This was a result of a good year in albacore, which makes up about 23 percent of the total volume, and of a decrease in bonito from the previous good year. The number of landings increased somewhat after 1962. Value reached 17.6 thousand million yen, an increase of 25.7%. As for salmon and trout, within the bounds of the restriction in the Japan-Soviet fisheries agreement, 1965 showed an increase of 5 thousand tons because of the good trout catch. The volume increased 22.3% from the previous year's 115 thousand tons, but this was a smaller volume than the good trout years of 1961 and 1963. By type of operation, mothership fishing for salmon and trout, medium sized drift net fishing for salmon and trout, and medium sized longline fishing all increased. The value of production was 32.3 thousand million yen, an increase of 21.4%. The volume of production of the saury dip-net fishery increased somewhat from the previous year to 213 thousand tons. But production was low from 1960 to 1964, and the 1965 figure exceeded the 1960 to 1964 average by 60 percent. Landings had declined beginning in 1960, and the 1965 figure was about the same. In each successive year, October, the most productive month, showed a radical decline and the average level fell. One explana tion is the September typhoons which struck the Sanriku area, and whose influence devastated the fishing grounds. In recent years, Soviet fleets have been moving into the saury fishing ground, and cooperative research is necessary between Japan and the Soviet Union concerning its influence on the fisheries resources and on fish migration. 357 The catch volume in the squid fishery increased in all waters, and was twice that of the previous year, but only 70 percent of the 1962-1963 level. The number of landings has been gradually increasing since 1960. But because of a fall in price, the value of the catch increased only 25.7%, to 9.1 thousand million yen. Mackerel angling continued to decline, and the 111 thousand tons was a 3.5% decline from the previous year. The number of landings too has declined gradually since 1960. But the value of production increased 9.1% to 3.6 thousand million yen (see Tables 6-I-15 and 6-I-16). (4) Production in Other Fisheries Increase in production. 19 s volume of thousand tons was 6.1% above the previous year, and represented a 91.5% recovery of the level of 1961, which was the peak year. But the growth rate was less than the 12.5% recorded in the previous year. The value of production has been slowly increasing, and 1965's 67.7 thousand million yen was 7.6% higher than that of the previous year. The increase in volume in 1965 was a result of the continued increase in the high seas trawl and in the recovery in the East China Seas trawl fishery from its bad previous year, The fishery having the largest specific gravity in the production total for other fisheries was the northern seas mothership trawl operation, whose production fell somewhat from the previous year. The trends in the major fisheries were as follows: A. The Mothership Crab Fishery. 1965's pack of canned crab was 458 thousand cases, a ten percent decrease from the previous year. By fishing grounds, the Bering Sea product declined to 185 thousand cases, a 21.3% fall, that of the Okhotsk Sea fell by 4.8% to 240 thousand cases, and that of the Olyutorskiy area increased 49 percent to 33 thou sand cases. The decrease in the Bering Sea catch was the result of negotiations between Japan and the United States and the Soviet Union respectively, which strongly restricted the number of cannery ships. The operation in the Olyutorskiy Sea area is carried on after the fishing season in the Sea of Okhotsk, and the larger catch was a result of the greater number of days spent there than the previous season. B. North Seas Mothership Trawl Fishery. The Bering Sea operation pro duces more than 80 percent of the catch of the North Seas zone. The Bering Sea catch reached its peak in 1961 and began a gradual downward trend; production in 1965 was 410 thousand tons, a low level compared with 1960 and 1963. Looking at different species of fish, only pollack has increased in recent years, and the catch of flounders and halibut which composed more than half the total volume has decreased, and its composition has worsened. The quality of the frozen minced fish using pollack as a raw material is good, and it has attracted attention as a source for the processing industry. The fleet operation, which used to be confined to the summer season, has shifted to a year-round basis. Beginning this year, operations in the Gulf of Alaska have been formally sanctioned. 358 TABLE 6-I-15 Production of the Major Constituent Fisheries of the Middle and Small Fisheries Industry Volume of Production (thousand tons) 1960 1961 1962 1963 1964 1965 Total Production, Medium and Small Fisheries 3,063 3,287 3,513 3,349 3,156 3,536 Offshore Dragnet Fisheries One Boat Trawl 585 603 587 655 697 650 Two Boat Trawl 57 45 43 48 49 53 Total 632 648 630 703 746 704 w Seine Fishery Vl One Boat Seine 511 497 542 471 603 757 '° Two Boat Seine 217 287 282 29 274 377 Total 728 784 824 763 876 1,134 Saury Dip-Net Fishery 253 438 457 342 198 213 Tuna Longline Fishery 433 483 535 533 506 498 Salmon and Trout Fishery 125 137 95 120 94 115 Skipjack and Line Fishery 102 153 168 132 170 177 Mackerel Line Fishery 166 123 149 125 115 111 Squid Handline Fishery 304 229 369 360 123 247 Other Small and Medium Fisheries 320 292 286 271 328 337 Value of Production (thousand million yen2 1960 1961 1962 1963 1964 1965 Total Production, Medium and Small Fisheries 161.0 179.9 192.0 212. 211.2 243.6 Offshore Dragnet Fisheries One Boat Trawl 14.5 16.1 17.7 20. 22.4 26.4 Two Boat Trawl 3.1 3.1 3.1 3. 3.5 4.1 Total 17.6 19.2 20.8 23. 25.9 30.5 Seine Fishery One Boat Seine 15.4 17.6 17.0 18. 24.2 26.3 Two Boat Seine 8.9 11.2 12.3 13. 13.6 16.8 Total 24.3 28.8 29.3 31. 37.8 43.1 Saury Dip-Net Fishery 8.0 9.4 6.3 10. 5.9 9.0 Tuna Longline Fishery 44.3 52.2 66.4 69. 67.6 70.8 Salmon and Trout Fishery 29.8 30.4 26.0 28. 26.6 32.3 Skipjack and Line Fishery 9.6 12.1 12.7 13. 14.0 17.6 Mackerel Line Fishery 5.3 5.2 4.7 4. 3.3 3.6 Squid Handline Fishery 6.1 8.2 w 4.7 10. 7.5 9.1 Other Small and Medium Fisheries 17.3 16.5 17.6 19. 22.6 27.6 °'0 Source: Ministry of Agriculture and Forestry, Gyogo YoshQk~ Seisan 'I'Qkei Nempo. 1. The volumes in each fishery are for fishing vessels of over ten tons. 2. Tuna longline fishery is the total of domestic and foreign based operations the Atlantic Ocean operation, and the freighter and self-propelled mothership fishery. 3. The salmon and trout fishery is the total of the mothership salmon and trout operation, the medium size salmon and trout drift net operation, the medium size salmon and trout longline operation, and the Japan Sea salmon and trout driftnet. TABLE 6-I-16 Number of Landings of Major Species in the Medium and Small Fisheries 1960 1961 1962 1963 "~964 1965 Offshore Trawl 1,368 1,295 1,282 1,226 1 166 1,176 Seine Fishery 812 673 649 612 593 637 Tuna Longline Fishery 1,925 2,003 1,903 1,968 1 863 1,806 w Saury Dip-Net Fishery 1,749 1,614 1,213 1,130 1 002 1,013 °'f-J Salmon and Trout Driftnet Fishery 993 985 747 532 539 508 Skipjack Line and Pole Fishery 787 705 640 668 670 678 Mackerel Angling Fishery 660 602 585 537 526 464 Squid Angling Fishery 1,773 1,915 1,951 1,978 2,043 2,372 Source: Ministry of Forestry and Agriculture, Gyogyo Yoshuku Seisan Tokei Nempo, 1. The landings in each fishery are of vessels of over ten tons. 2. The offshore trawl fishery includes a part of the northern seas high seas rawl. 3. The tuna longline fishery is only that part domestically based. TABLE 6-I-17 Production of Major Fisheries in the Other Fisheries Volume of Production in Value of Production (given Thousand Tons in thousands of million yen) 1962 1963 1964 1965 1962 1963 1964 1965 Mothership Crab Fishery (489) (509) (509) (458) 4. Lf 4.9 5.5 4.9 25 27 28 25 Northern Seas Mothership Trawl Fishery 510 314 415 410 11.l,, 10.0 11.6 12.0 East China Sea Trawl Fishery 331 345 302 325 27.9 30.9 29.8 31.5 High Seas Trawl Fishery 53 97 130 169 6.6 8.4 13.0 16.4 Total 919 783 876 929 50.2 54.3 49.9 64.8 Mothership Whaling w (1) Antarctic Whaling (number of whales) 20.5 23.8 25.3 28.4 0\ N Bearded Whales 6,574 6,150 4,600 4,124 Sperm Whales 1,064 1,839 4,706 3,071 (2) Northern Whaling 4. 4.9 5.2 6.7 Bearded Whales 681 641 801 1,001 Sperm Whales 2,549 2,700 2,460 2,460 Source: Ministry of Agriculture and Forestry, Gyogyo Yoshoku Seisan Tokei, Nempo. 1. The figure in parentheses in the Mothership Crab Fishery is the number of cases of canned product in thousands of cases. In 1962 the frozen product is included in the number of cans. One case consists of 48 half-pound cans. 2. The northern mothership trawl is the Bering Sea operation only. The high seas trawl fishery excludes the South China Sea and Northern Seas operation. The number of whales taken is given in blue whale equivalent and based on the yield of whale oil, the conversion ratios are two fin whales, 2.5 humpback whales and six sei whales. C. East China Sea Trawl Fishery. [Omitted.] D. High Seas Trawl Fishery. [Omitted.] E. Whaling Mothership Operation. (1) Antarctic Whaling. [Omitted.] (2) North Seas Whaling. In 1965 the number of whales (higekujira) taken increased by 200 to 1001 (blue whales included). The number of sperm whales was the same as the previous year, but the value of the catch increased by 29.7%. In order to conserve the North Seas whaling resource, international catch restric tions like those in the Antarctic areas are becoming a real question (see Tables 6-1-l} and (5) World Fisheries Production. Slackening of the rate of increase of production. According to FAO statis tics, in 1960 total world fisheries production was 39.5 million tons, and in 1965 was 52.4 million tons, an increase of 12.9 million tons over the five year period. But 1965's rate of increase over the previous year was only 0.8% and when compared to the average rate of increase between 1960 and 1964 of 6.9%, was a considerable slackening (see Figure 6-1-14). This reduction was mainly a result of a fall in Peruvian production of anchovetas. Looking at the increase in total world production by area the increase in South America, mainly Peru and Chile, was the greatest, and out of the total world increase between 1960 and 1965, represented 54 percent. The most important species was anchovetas, whose demand has increased as the material for fish flour because of the development of the world livestock industry. Elsewhere production increased in the low income areas of Asia, Africa, etc., but the rate was low. (6) [Omitted.] (7) Technical Developments in Fisheries Production. Present condition of fishing vessels. At the end of 1965, there were 381 thousand fishing vessels in operation, an increase of three percent from the previous year, but a decrease from 1962. This was because of an increase in the number of small vessels of up to ten tons, which make up 95 percent of the total number (see Table 6-I-20). The small fishing vessels which are used mainly in the coastal fisheries amounted to 364 thousand in 1965, a figure just below that of 1962. The number of unpowered vessels continued to decrease, but their reduction was exceeded by the increase in the number of small scale powered vessels. 363 TABLE 6-I-18 Number of Landings, Major Species of Other Fisheries 1962 1963 1964 1965 Mothership Crab Fishery 10 7 7 7 Small Fishing Boats (69) (67) (67) (73) Self-propelled Vessels (44) (30) (32) (30) North Seas Mothership Trawl Fisheries 25(306) 20(258) 14(228) 18(188) East China Sea Trawl Fisheries 798 785 781 779 High Seas Trawl Fisheries 40 41 61 63 Mothership Whaling Antarctic Whaling 7(86) 7(79) 7(78) 7(73) North Seas Whaling 3(21) 3(21) 3(21) 3(25) Source: Mini~try of Agriculture and Forestry, Gyogo Yoshokugyo Seisan Tokei Nempo. 1. Figures for Mothership Crab Fishery, North Seas Mothership Trawl Fisheries, and Mothership Whaling operations are number of motherships. Numbers in parentheses are of vessels serving motherships. 2. North Seas Mothership Trawl Fishery is Bering Sea operation only; 1962-63 includes experimental operations (2 fleets in 1962, 1 in 1963). 3. Figures for East China Sea Trawl Fisheries are numbers of authorized vessels. Among the powered fishing vessels, the increase in the number of those of under three tons was particularly large; their 164 thousand was about the same as the number of unpowered vessels. In the three to five ton class as well, an increase could be seen from the previous year. There were 17,512 larger scale vessels of over ten tons, used mainly in the medium to small fisheries; the increase from 1964 was only 2 percent, but it was a continuing increase. The increase in the 100 to 200 ton class was particularly conspicuous. Again, if we look at the trend in tonnage of the powered vessels, we see an increase of 200 thousand tons in three years, from 1.85 million tons in 1962 to 2.05 million tons in 1965 (see Figure 6-I-16). 364 FIGURE 6-I-14 Production in Different Countries (million tons) 10 8 6 4 2 ,...... I .,, "' _ ',,_.,,J ..... ------, ----No~aJl-- 0 1955 1957 1959 1961 1963 1965 Source: Food and Agriculture Organization, Yearbook of Fishery Statis tics 1965. 1. Data is not published for mainland China after 1961. 365 FIGURE 6-I-16 Tonnage of Fishing Vessels by Type of Fishery 1962 1965 (thousand tons) 0 High Seas Trawl - Fishery Bonito and Tuna Fishery 500 Angling and Long - line Fishery Purse Seine Fishery - 1000 Freezers, Trans ports, & Mother ships 1500 Indian Ocean and Offshore Trawl Fishery Other Fisheries 2000 Source: Fisheries Agency, Gyosen Tokeihyo. 366 Looking at the change by type of fishery, the increase in tonnage in the high seas trawl and in the bonito and tun fisheries were exception ally large. The angling and longline fisheries and the purse seine fishery showed a gradually increasing trend. On the other hand, the category which had the highest specific weight in terms of tonnage, rootherships, freezer ships and transports, fell from 600 thousand tons to 57 thousand tons while the remaining categories about held their own. Trends in fishing vessel construction. Employing a division point at 20 tons, the following trends can be seen since 1960 (see Figure 6-I-17). The number of vessels of up to twenty tons constructed in 1960 was about 8,900; along with the advance of power in the coastal fisheries, the number grew year by year to 14,400 in 1965. On a yearly basis, 1964 showed a small decline, but 1965 more than made up for it, The number of vessels over 20 tons reached a peak of 1,105 in 1961, and in 1962 entered a small and gradual decline. If we look at the tonnage con structed, the decline since 1961 was rather large. The reason for the comparative decline in tonnage is the fall in the average size of vessel constructed during the period, from 160 tons to 127 tons. This trend can be explained by the rapid decline caused by bad catches, in the high seas longline tuna fishery, which uses large scale vessels. Recent construction increases have been relatively great for vessels of less than 100 tons for the purse seine, offshore trawl, nearby seas skipjack and tuna fisheries. Trends in labor technique. Together with the advance in scale of fishing vessels, there have been occasions to introduce newly developed machinery and equipment for navigation, fish location, for fishing, fisheries administration, communication, etc, In particular, with the recent shortage of labor power, there has been a special effort to introduce labor saving technique, and there has been a general upgrading of equip ment. In the coastal small fishing vessels, dieselization has continued to advance rapidly, so that by 1965 85 percent of the vessels in the three to five ton class were so equipped (see Table 6-I-21). In the case of fish-finding machinery and wireless telephone also, the five to ten ton class shows a substantial diffusion, and progress is evident in the three to five ton class as well. In the work of the coastal fisheries, remotely operated school sensing devices have come to be used and are playing a role in the rationalization of the work of retrieving the nets. And in the fishing vessel fishery employing small dragnets, gill nets or hand trawls, the use of small machines for lifting the nets, which is the most labor-demanding operation, is reducing labor requirements. In the fishing vessels that operate in the offshore and high seas fishery, medium and high speed diesel engines have begun to spread rapidly, and together with them, remote control equipment and hydraulic fisheries devices are making possible economies of labor in the powered sector. The number of vessels with sharp-freezing equipment is also increasing, contributing to the value of the catch. 367 FIGURE 6-I-17 Construction of Powered Vessels ( thousand tons) 200 100 Above 20 tons ______.,,,.. Up to 20 tons -- 0 (thousand vessels) 15 Up to 20 tons 10 5 Above 20 tons 0 1960 1961 1962 1963 1964 1965 Source: Fisheries Agency, Gyosen Shunko Tokei. 1. For 1961 the number of vessels and tonnage in the up to 20 ton group is estimated. TABLE 6-1-21 Spread of Equipment in the Coastal Small-Scale Fisheries Dieselization Ratio Average Horsepower Percentage with Fish Percentage with Wire- Per Vessel Finding Egui:ement less Tele:ehone 1964 1965 1964 ~ 1964 1965. 1964 1965 Up to Three Tons 68.4% 71.5% 6.3HP 6.4HP 1.4% 1. 4.4% 5.8% Three to Five Tons 78.7 85.8 17.6 18.6 8.2 9.4 13.7 18.9 Five to Ten Tons 62.1 70.4 30.0 30.8 21. 7 25.4 26.7 36.7 w \.0°' Source: Fisheries Agency, Gyosen Tokeihyo; Ministry of Agriculture and Forestry, Gyogyo Dotai Chosa. Next, looking at the mechanization trends in the process of fish in the major fisheries, the high seas trawl has seen an advance in the conver sion to stern trolls in the high seas trawl, an introduction of powered equipment for casting drift nets for salmon and trout, and of reeling equipment for the tuna longline and in the saury dipnet fishery, the diffusion of hydraulic equipment for net lifting. In each case, this mechanization makes possible a minimization of labor requirements in the central activities of fishing and can lighten the burden of labor. Nevertheless, in the labor process alone we cannot speak of an overall systematic mechanization; old and new equipment and materials are used side by side, and rationalization of the catch process stands together with backward methods of management. Just how to assure complete rationalization of the fishing industry, as distin guished from mechanization of individual aspects, is one of the problems remaining for future research. 4. Changes in the Structure of Fishery Enterprise and Trends in the Employed Population (1) Structural Changes in Fishing and Fishery Enterprise A. Changes in the Number and Composition of Fishery Enterprises. [Omitted except for Tables 6-I-23 and 6-I-24.] B. [Omitted.] C. Structural Changes in the Medium and Small Fisheries and Other Fisheries Tendency of the Number of Enterprises. The number of enterprises in the medium and small fisheries and other fisheries has been following a con sistent downward trend, but in 1965 it increased 2.7% to 8,894, exceeding by a bit the 1962 figure (see Table 6-I-29). This is probably because the general increase in the scale of fishing vessels and of fishery enterprise has carried with it a number of enterprises shifting from the 10 tons and under class to the over 10 tons class. If we look at the trend in the number of enterprises by size class, the various classes of less than 200 tons showed a consistent decline, but in 1965 the number turned upward in each case. On the other hand, the 200 ton and above class, which had shown a continual high rate of growth, slowed considerably in 1965. The biggest influence producing this slack ness in the over-200-ton vessel group was the falling off in the tendencies toward enlargement and concentration in the largest vessels, which tenden cies had been proceeding above all in the bonito and tuna fisheries. In particular, the number of enterprises moving out of the 30-100 and 100- 200-ton classes into the larger categories had fallen off relatively, but there was a stronger upward movement on the part of those enterprises which were in the small-scale classes at the beginning of the period. Accordingly, the importance of the medium-scale groups in the total increased somewhat. Tendencies by Character of Operation. Looking at the change in the number of enterprises by type of operation over the last five years, declines were registered in the purse seine fishery, the triangular set-net fishery and the gill net fishery; there was relative stability in the troll fishery, and increases in angling and longline fisheries (see Table 6-I-30). 370 TABLE 6-I-23 Number of Fishery Enterprises (thousands) Change Change 1960 1962 1964 1965 1960-65% 1964-65% Total 234.8 227.0 228.6 223.7 4.7 2.2 (100.0) (100 .0) (100 .O) (100.0) Coastal Fishery Shallow-sea Aquiculture 50.8 53.3 60.5 62.0 1.9 2.3 (21. 6) (23.5) (26.5) (27.7) Fishing Vessel Fishery, 174.4 164.8 159.4 152.8 : 2 .4 4.2 Set-net and Beach Seine (74.3) (72.6) (69.7) (68.3) w -..J Sub-Total 225.2 218.2 219.9 214.8 4.7 2.4 J--1 (95.9) (96 .1) (96. 2) (96.0) Medium and Small Fisheries 9.6 8.9 8.7 8.9 7.1 2.7 and Other Fisheries (4 .1) (3.9) (3.8) (4.0) Source: Ministry of Forestry and Agriculture, Gyogyo Dotai Chosa. 1. Coastal fisheries are those using unpowered vessels, vessels of ten tons or less, shallow sea aquiculture, set nets or beach seines. 2. Enterprises not using fishing vessels and individual enterprises operating days or less are excluded. 3. Medium and small fisherires and other fisheries enterprises are those using powered vessels of greater than 10 tons not included in coastal fisheries. 4. Figures in parentheses are percentage of total number of enterprises. TABLE 6-I-24 Number of Fishery Enterprises by Type of Organization (thousands) Change Change 1960 1962 1964 1965 1960-65% 1964-65% Total 234.78 227.04 228.63 223.67 .47 .22 (10.00) (10.00) (10.00) (10.00) Individuals 227.82 220.50 222.97 217.84 .44 .23 (9.70) (9. 71) (9.75) (9.74) Companies 1.22 1.28 1.43 1.45 .94 .14 (.05) ( .06) ( .06) (. 06) w -....J N Cooperatives .50 .52 .51 .51 .14 .06 (Gyogyo Kyodo Kumiai) (. 02) (. 02) (. 02) (.02) Cooperatives .38 .30 .31 .33 .28 .62 (Gyogy~ Seisan Kumiai) (. 02) ( .01) ( .01) (.01) Joint Ventures 4. 77 4.33 3.32 3.45 2. 77 .39 (. 20 ( .19) ( .15) ( .15) Other .10 .10 .10 .10 .68 .oo (.01) ( .01) (.01) ( .01) Source: Ministry of Forestry and Agriculture, Gyogyo Dotai Chosa. 1. Enterprises not using fishing vessels and individual enterprises operation 30 days or less are excluded. 2. Figures in parentheses are percentage of total number of enterprises. TABLE6-I-29 Number of Enterprises, Small and Medium and Other Fisheries Chc1mge Change 1960 1962 1964 1965 1960-65% 1964-65% Total 9,576 8,877 8,664 8,894 .1 2.7 (100.0) (100.0) (100.0) (100.0) 10-30 tons 5,400 4,953 4,781 4,811 l .9 0.6 (56.4) (55. 8) (55 .2) (54 .1) w -...J 30-100 tons 2,835 2,574 2,476 2,603 .2 5.1 w (29.6) (29.0) (28.6) (29 .3) 100-200 tons 709 638 573 613 13.5 7.0 (7.2) (7.2) (6.6) (6. 9) Over 200 tons 632 712 834 867 3 .2 4.0 (8.0) (8.0) (9.6) (6. 7) Source: Ministry of Agriculture and Forestry, QyQgy_o Dotai Chosa. Note: Figures in parentheses are percentage of total enterprises. The following are the trends for different enterprise classes: The numbers of enterprises in the various classes of less than 200 tons show a consistent decline until 1965, when they turned upward. On the other hand, the rate of increase of the over 200 ton group was high until 1965, when it fell off. TABLE6-I-30 Number of Enterprises by Type of Fishery, Major Fishing-Vessel-Using Fisheries in the Medium and Small Fisheries and Other Fisheries Categories Percentage Percentage Increase Increase 1960 1964 1965 1960-65 1964-65 Trawl Fisheries 1,868 1,865 1,830 1,843 1.3 0.7 Purse Seine Fisheries 1,147 980 869 913 20.4 5.1 Triangular Set Net Fisheries 595 408 230 2 76 53.6 20.0 Gill Net Fisheries 1,591 1,097 1,058 1,083 31.4 2.4 Angling and Longline Fisheries 3,401 3,558 3.667 3,857 13.4 5.2 Source: Ministry of Agriculture and Forestry, Gyogyo Dotai Chosa. 1. The particular fishery in which an enterprise has been listed is deter mined by the activity which it received the greatest income in the particular year. 2, Individual proprietorships operating 30 days or less are included in the figures for 1964 and 1965, but they accounted for only about 1% of the total number of enterprises in the medium and small fisheries and in other fisheries. The number of purse seine enterprises had been declining, but in 1965 there was an upturn in product volume, and the number of enterprises again increased. This growth depended heavily upon the growth of large and medium scale purse seining, but small scale purse seine fisheries such as the eight angle lift net (nuikiriami) fishery continued to decline. As for the triangular set net fishery, the fish stocks which are their object show large fluctuations, so that the enterprises are unstable. The number of enterprises, which had fallen 53.6% in the previous five years, about regained their previous peak in 1965. Among the dip net fisheries, the saury dip net fishery showed a conspicuous decline, from 288 enterprises in 1960 to 37 in 1964, and back up to 81 in 1965. 374 The number of enterprises in gill net fisheries was heavily influenced by the decline in the number of sardine drift net enterprises and sal mon and trout drift net enterprises, but afterwards it was relatively stable. Because of the decline in the sardine stock and competition from the purse seine fishery, the sardine drift net fishery, which accounted for 223 enterprises in 1960, had by 1965 totally disappeared, The number of enterprises in the salmon and trout net fell from 688 in 1960 to 471 in 1965, with the decline particularly evident in the 10 to 30 ton class. The number of permits for trawling fleets is limited, so the changes in the number of enterprises in the past five years has not been too and of the major fisheries group its fluctuations were rela tively the most moderate. The number of enterprises in the offshore trawl declined gradually, those in the small scale motor trawl increased gradually, and other categories showed a relative constancy. The number of enterprises in angling and longline fisheries showed a gradual increase, as a result of increases in the squid line fishery, the mackerel line fishery, the tuna longline fishery, and the salmon and trout longline fishery. Among these groups, the squid fishery increased from 1,023 enterprises to 1,321 enterprises as a result of the rising price of squid. Mackerel angling continued to increase because of the abundance of fish, and is now at its peak. The tuna longline fishery, centering in the large scale group, increased from 768 enterprises in 1960 to 937 in 1964. But very recently the newly developed fishing grounds have become congested, and the success ratio has fallen. For this reason one portion of the fishery has tended to shift toward the skipjack pole and line fishery, which has been compara tively prosperous, reducing the number of enterprises to 921 in 1965, The salmon and trout longline fishery declined for a while from the 157 enterprises in 1960, but its recovery from 1965 brought it to 205, sub stantially more than the 1960 level. Trends by Different Seas. The changes in the fishery by sea of operation over the last five years are as follows (see Figure 6-I-23), In the Hokkaido District, the northern Japan Sea District, the Western Japan Sea District and in the Inland Sea, small scale enterprises in the 10-30 ton group were relatively numerous and becqA.Ise this group showed some decline, the total number of enterprises also declined (see Table 6-I-31). The number of enterprises operating in the South Pacific has declined somewhat. There has been an increase in the over-200 ton class centering in the high seas tuna and bonito fishery, but other classes have remained almost constant or declined. The number of enterprises operating in the North Pacific and Central Pacific and in the East China Sea has remained almost constant. In these areas the over-200 ton class has shown high productivity and occupies a large share of the total; the number of enterprises in this class has increased and those of the smaller-scale categories have decreased. 375 FIGURE 6-I-23 Number of Enterprises in the Medium and Small Fisheries by Sea of Operation 1960 CJ 2,500 - 1965 WZJJ 2,000 - 1,500 - 1,000 - 500 a- 0 ~ co co p. ij s:: Q) 10 co •r-l Cl) 'Cl (j r-l (j (j I-; ~ ,.c: •r-l •r-l co•r-l •r-l I"') u 'Cl co ,.c: 4-l H 4-l ,.c: 4-l ,.c: .µ •r-l .µ •r-l .µ •r-l .µ .µ .µ ~ ~ H (j s:: (j ;:l (j H co {J) (I! (fJ co r-l 0 0 co Q) co 0 co 0 dJ Q) (IJ co Q) s:: ::r:: z p... up... Cl) p... z Cl) :::: Cf.) µ;l Cl) H Source: Ministry of Agriculture and Forestry, Gyogyo Dotai Chosa. 376 FIGURE 6-I-28 TOTALCAPITAL AND LIABILITIES Medium and Small Fisheries (thousand million yen) 250 200 Debt Balance 150 100 300- Working Capital 200- 100- Fixed Capital o- 1962 1963 1964 1965 Source: Ministry of Forestry and Agriculture, Gyogyo- Keizai Chosa.- Year's End Figures 377 (2) Trends in Fisheries Employed Population. [Omitted.] 5. Trends in Fisheries Finance (1) General Trends. [Omitted.] (2) Coastal Fishery Finance. [Omitted.] (3) Medium and Small Fisheries Finance. The slackened demand for capital. The upward trend in the demand for fixed capital on the part of enterprises in the medium and small fisheries became dull in 1965, and the rate of increase in liabilities and loan balances also fell (see Figure 6-I-28). The cement of f f which reached its peak in 1960 to 1963 generally fell off as a result of postponement of enterprise expansion plans caused by the stagnation in production in 1963 and 1964. Decline in investment in construction of fishing vessels. The construc tion of fishing vessels for other than the coastal fishery in 1965 amounted to 94,000 tons with an estimated value of 42.2 thousand million yen, but this was a decline of 27% in tonnage and 16% in value from the previous year (see Table 6-I-45). Here, the great activity in construction of vessels for the bonito and tuna fisheries prior to 1964 fell off markedly, 1965's 181,000 tons was about a 50% decline after a 30% decline in the previous year. Construc tion of vessels for the high sea trawl, which had accounted for about three-tenths of total construction, declined somewhat from 1964, but construction for the offshore trawl and purse seine fishery increased over the previous year. [Remainder of section omitted.] II. Trends in Coastal Fishing Enterprise. [Omitted.] III. Trends in Medium and Small Fishing Enterprise. 1. General Trends in Medium and Small Fisheries Enterprise Some improvement in profitability. In 1965 in the medium and small fisheries enterprise, there were several branches such as the purse seine fisheries and the salmon and trout drift net fisheries in which product volume increased, and in those branches where the catch was poor, such as the tuna longline fishery, the saury dip net fishery, and the squid fishery, fish prices generally rose, and general improvements of profit position from the previous year were common. Mean fishing income per enterprise was 33.71 million yen, a 14% increase from the previous year. Fishing expenses also increased, but the rate of increase in depreciation, vessel and gear expenses and other material outlays was less; the year's 29,00 million yen was only a 12% increase over 1964, and net income from fishing was 4.70 million yen, a large jump from the previous year (see Table 6-III-1). Looking at the change in receipts and expenditures per enterprise over the last five years, expenses have been increasing at roughly 10 to 12% per year, and while receipts have consistently exceeded outlays, their rate of increase has fluctuated between 16 and 14 percent, and as a 378 TABLE 6-1-45 Fishing Vessels Constructed, by Character of Fishery 1962 1963 1964 1965 ~ 1963 1964 1965 Total 25.2 123.9 128.5 94.1 53.9 ~16.9 53.0 44.2 High Seas Trawl Fisheries 16.1 17.6 42.2 25.9 5.1 5.7 13.5 10.4 Offshore Trawl Fisheries 4.2 6.5 7.5 7.9 1.5 2.4 2.8 4.2 Bonito and Tuna Fisheries 50.7 64.8 37.6 18.1 25.7 32.9 18.9 9.6 w -..J \0 Purse Seine Fisheries 8.7 11. 7 9.5 13.1 5.2 6.1 5.3 6.4 Salmon and Trout Drift Net Fisheries 1.9 7.2 8.9 7.4 1.0 3.8 4.7 4.2 Other Fisheries 43.6 16.1 22.8 21. 7 15.4 6.0 7.8 9.4 Source: Fisheries Agency, Gyosen Shunko Tokei. 1. All wooden and steel ships of over 15 meters in length. 2. Construction cost is estimated on the basis of average cost per ton. TABLE 6-III-1 General Trends in Medium and Small Fisheries Enterprises 1964 1965 1964 1963 1965 1964 Tonnage of Vessels Utilized 91 103 91 100 Fixed Capital Employed in Fisheries (1000 yen) 21,260 112 21,967 103 Number of Personnel Engag,ed 23 100 22 95 Capital Per Person Engaged (1000 yen) 924 112 998 108 Fisheries Receipts (1000 yen) 29,442 110 33,706 114 Fisheries Outlays (1000 yen) 25,947 111 29,003 112 Net Income From Fisheries (1000 yen) 3,495 100 4,704 135 Value Added Productivity (1000 yen) 752 108 943 125 Average Wage (1000 yen) 446 111 543 122 Net Profit on Total Capital (percent) 2.5 53 4.4 176 Source: Ministry of Agriculture and Forestry, Gyogyo Keizai Chosa (Kigyo .!!£. Bu) . 1. Averages are for enterprises excluding corporations using fishing vessels of greater than ten tons and having a total capital of more than 100 million yen. 2. Apart from the categories of fisheries presented in Table 6-I-16 (Number of Landings in the Major and Small Fisheries) the East China Sea trawl is included here, net profit 3. Net profit on total capital=~~~----~----~ capital+ debt 380 FIGURE 6-III-1 Fisheries Receipts and Outlays 15% Gross Profit as Percent of SRlPs 10% million_...,...... ,.....,,...... ,.....,.....,....,....., ...... ,...... yen 30 Fisheries Receipts 20 Fisheries Outlays 10 Net Fisheries Income 0 1960 1961 1962 1963 1964 1965 Source: Ministry of Agriculture and Forestry, Gyogyo Keizai Chosa. 1. Gross profit as percent of sales= fishery income - imputed wages of family memoers fishery receipts [The rest of section omitted.] 381 FIGURE 6-III-9 Receipts and Outlays in Other Medium and Small Fisheries Fisheries Outlays Receipts million yen - 6 - - 2 1 30-50 50-100 30-50 50-100 50-100 100-200 ton ton ton ton ton ton Saury Dip-Net Salmon, Trout Fishery Drift Net Fishery Skipjack Pole and Line Fishery 382 FIGURE 6-III-10 Wage Index by Scale of Enterprise, Medium and Small Fisheries (1962 = 100) 180 10 - 30 tons average 140 over 500 tons 100 l 1962 1963 1964 1965 Source: Ministry of Agriculture and Forestry, Gyogyo Keizai Chosa. 383 FIGURE 6-III-11 Movement of Wages in Principal Medium and Small Fisheries yen/day 3,500 3,000 b 2,500 C d ! 2,000 h i 1,500 g j 1,000 ---- 500 35 36 37 38 39 40 a. Salmon and trout drift net 30-50 tons b. Single boat trawl 30-50 tons c. Tuna longline 200-500 tons d. Two boat purse seine 30-50 tons e. Two boat trawl 30-50 tons f. Saury dip net 50-100 tons g. Single boat seine 50-100 tons h. Single boat trawl 30-50 tons i. Skipjack pole and line 100-200 tons j. Mackerel pole and line 30-50 tons Source: Ministry of Agriculture and Forestry, Gyogyo Keizai Chosa. 384 result gross profit has fluctuated between 10 and 14 percent (see Figure 6-III-l). The rate of profit in 1965 was the highest of recent years, as a result of the influence of the large leap in profitability of the purse seine industry, the salmon and trout industries, and the skipjack pole and line fishery. 2. Trends in Fishery Income and Expenditures by Type of Fishery (1) Offshore Trawl [Omitted.] (2) Purse Seine Fisheries [Omitted,] (3) Tuna Longline Fishery [Omitted.] (4) Other Medium and Small Fisheries [Omitted.] Salmon and trout drift net fishery. Because 1965 was a good catch year for trout, product volume increased in each size category, and together with the rise in the price of fish, resulted in an increase in fishing receipts of 71 percent in the 10-30 ton group, 48 percent in the 30-50 ton group, and 27 percent in the 50-100 ton group. Fishing outlays also increased, but the increase in receipts was greater, so that the 10-30 ton group, which had shown a loss in the previous year, showed a posi tive net income, the 30-50 ton group and the 50-100 ton group showed increases in net income of 2-1/2 times and 1-1/2 times respectively, their rate of profit on sales increasing to 38.8% and 28.7% respectively. Still, because o_f the short season in the salmon and trout drift net fishery, both employment in the industry and its profitability must be viewed in the. light of other fishing activity during the year. [Remainder of section omitted.] 3. Trends in Fisheries Outlay Increase in fisheries outlay and its composition. [Text omitted.] Rise in the wage level and compression of differentials. [Text omitted.] 4. Wage Increases and Value Added Productivity The great increase in the wage level was affected in the course of inter play in supply and demand for labor power, but from another point of view it is a result of the increased ability to pay on the part of enter prises. Value added productivity per capita in the medium and small fisheries was 940 thousand yen in 1965, a 25 percent jump over the previous year. Fishing receipts increased 14 percent but the increase in material outlays was lower, and in addition the number employed declined, So, in spite of the fact that the increase in wage rates was great, the share of the wage bill in value added productivity fell from 59.3% to 57.5%. The increase in the wage level, then, occurred on a background of an increase in the enterprises' ability to pay, resulting from increased productivity. Over a period of several years, both the wage level and value added produc tivity have been increasing at a rate of roughly 18 percent per year. In 1964 the increase in productivity was relatively lower, but 1965 saw a 385 recovery so that the relative share of wages regained its previously stable level of about 58 percent of total value added (see Figure 6-111-12). In the past the wage level in the medium and small fisheries has been relatively lower, and has been increasing at a rapid rate, but value added productivity in medium and small fisheries enterprises has been increasing at approximately the same rate. Causes of the rise in productivity. Since 1962, value added per enter prise in the medium and small fisheries has fluctuated somewhat, but on the average it increased at 14.7% per year. Fisheries receipts increased at an average of 12.3%, but the rate of increase of material outlays was somewhat lower. On the other hand, the number of regular employees per enterprise declined at 2.7% per year, Thus, it is apparent that although the number of employees has declined, the main reason for the increase in productivity is the increase in the value of receipts from fishing. The average tonnage of fishing vessels used in the medium and small fisheries in 1962 was 77 tons. The tendency toward increase in scale slackened in 1965, but in the meantime the average scale had reached 91 tons, an increase of 18 percent. And at the same time, with the development of new technology as its background, the introduction of new equipment and new innovations in navigation, fish finding, fishing itself, and preservation had continued to advance. The scale of fixed capital per enterprise showed a 33 percent increase, and the capital equipment per employee increased by 45 percent. So, behind the increase in value added productivity was an increase in capital intensity. If we look at the movement of productivity and of the capital intensity ratio since 1962, the farmer's growth was greater in 1965, but on the whole they have moved together (see Figure 6-111-13). But it must be noted that of the increase in value added productivity, less than 35·percent was the result of increased physical productivity, the remainder being caused by the advance of prices. As a result of the upward trend in capital intensity, the average number of employees has fallen little by little as physical product per enter prise has advanced at about 4 percent per year. In the light of an increase in capital intensity in the vicinity of 15 percent, the rate of increase in physical output cannot be said to be high. At the same time, in the less profitable branches of fisheries, and among enterprises operating 100 tons and less, difficulties in investment are plentiful. Thus, though the total product in medium and small fisheries increased by a wide amount in 1965, the level was barely higher than that of 1962, and coupled with the growth of demand for marine products, the lag in production is one of the causes of the advance in fish prices. Thus, the rise in fish prices has made possible an increase in wage levels sustained by an increase in value added productivity (see Figure 6-111-14). 5. Capital Structure Worsening, and Profitability Trends in Capital Scale The overall capital scale of medium and small fishery enterprise averaged 37.7 million yen in 1965, a five percent increase over 1964. But the drop 186 FIGURE 6-III-12 Wages and Value Added Productivity (thousand 1000 Value added per worker productivity 800 600 Wage earnings per worker 400 200 1962 1963 1964 1965 Source: Ministry of Agriculture and Forestry, Gyogyo Keizai Chosa. Total value added 1. Value added productivity per wor k er=~~~~~~~~~~~~~~ Number of persons regularly engaged Wage bill Wage earnings per worker Number of persons regularly engaged 387 FIGURE 6-III-13 Capital Intensity Ratio, Value Added Productivity, and Physical Productivity (1962 - 100) l60 ...... -~~--~~~ .....~~..- .....- Value added productivity Capital intensity ratio 140 120 Physical productivity 1962 1963 1964 1965 Source: Ministry of Agriculture and Forestry, Gyogyo Keizai Chosa (Kigyo no Bu), and Gyogyo Yoshokugyo Seisan Tokei. Total value added 1. Value added productivity Number of persons regularly engaged Fixed capital engaged in fisheries Capital intensity ratio Number of persons regularly engaged Catch volume Physical productivity Number of persons regularly engaged 388 in the rate from the previous year's 14 percent was, apart from the general recession, one of the causes of the fall of investment in fixed capital (see Table 6-111-8). Looking at the growth of total capital by size class, the 100-200 ton group showed the highest rate, and the less-than-50 ton, and the 500 tons-and over groups showed virtually no growth. In the less-than-50 ton class, fisheries with poor or worsened profitability positions were numerous, and in the over-500-ton group the poor catch in the tuna longline fishery resulted in slackened investments. Against these, the upper levels of the purse seine fisheries and offshore trawl, and several medium-scale fisheries such as the salmon-trout fisheries, continued a comparatively high rate of growth despite the fall from thP previous VPRr Looking separately at the growth of fixed and working capital, both showed similar comparisons to the previous year, with fixed capital about 64 percent of the total (see Figure 6-111-15). PART II. Measures Considered in Relation to Coastal and Other Fisheries I. Summary In accordance with the "Law for the Promotion of Coastal and Other Fisheries," the government has set forth various policies to advance the position of persons engaged in coastal and in medium and small fisheries. In summary these are the following. (1) Preservation and increase of marine resources, and fisheries regulation. In order to secure the development of stable fish production, and of order in the industry, development of high seas fishing grounds have been planned, together with the protection of water surface, prevention of pollution, and propagation and restocking, and apart from studies of the condition of various fisheries and of the changes in them, surveys of marine resources have been encouraged. And further, with the conclusion of the Japan-(South) Korea fisheries agreement, practical measures under this agreement have been executed. (2) Modernization of coastal fisheries and medium and small fisheries. In order to provide for modernizing the coastal fisheries and for advancing the living standards of those engaged in them, in addition to the promotion of policies to modernize the structure of coastal fisheries, a unified promotion policy has been carried out in respect to the inland fisheries on the major lakes and marshes. And in order to provide for advancement of medium and small fisheries, together with practical surveys of major fisheries, enterprise diagnoses, worker training, and the like have been carried out. In the area of fisheries finance, measures such as an expansion of funds of the Agriculture, Forestry and Fisheries Public Finance Corporation and the lowering of insurance rates in the medium and small fisheries financial guarantee system have been undertaken in order to improve the 389 FIGURE 6-III-14 Product Value, Product Volume, and Fish Prices, Medium and Small Fisheries Enterprise (1962 = 100) 140 Fish Price 120 Product Volume 100 1962 1963 1964 1965 Source: Ministry of Agriculture and Forestry, Gyogyo Keizai Chosa (Kigyo no Bu), and Gyogyo Yoshokugyo Seisan Tokei, 390 FIGURE 6-III-15 Capital in Medium and Small Fisheries Enterprise Fixed Capital Ratio million yen 40 20 ------Fixed-·-- Capital ...... ----· • --··Working Capital 0 1962 1963 1964 1965 Source: Ministry of Agriculture and Forestry, Gyogyo Keizai Chosa (Kigyo no Bu). 191 FIGURE 6-III-16 Capital Composition, Medium and Small Fisheries Enterprise (1962 = 100) 40% Self-sufficiency ratio 30% / / 160 140 120 Equity 100 1962 1963 1964 1965 Source: Ministry of Agriculture and Forestry, Gyogyo Keizai Chosa (Kigyo no Bu). 392 FIGURE 6-III-17 Total Capital, Capital Intensity Ratio and Self-Sufficiency Ratio by Size Class tal Intensity Ratio Self Total (1000 yen per worker) Sufficiency Capital Ratio (1958=100) 200-500 80%....+--- ...... tons ...... / ... • 10-30 1000 60°0 tons tons 500 ...... 10-30 ton tons 0-a,---~..- o,_...,...___ ,..._ 1963 1965 1963 1965 1963 1965 393 TABLE 6-III-8 Total Capital and Its Composition, Medium and Small Fisheries Enterprises Fixed CaEital Eguity CaEital Fixed CaEi t.al Class of Total Capital Total Capital Total Capital Equity Capital Interest Paid Enter]:)1'."is~ Year (1000 yen) (Eercent) (Eercent) (Eercent) (1000 yen) Average 1964 35,798 64.4 33.1 194.3 1,529 1965 35,701 64.5 29.8 217.1 1,624 10-30 tons 1964 7,040 64.5 69.2 93.2 148 1965 7,198 62.6 67.1 93.3 131 30-50 tons 1964 15,962 66.7 50.9 130.9 486 w 1965 15,616 66.5 39.8 167.2 523 \.0 ~ 50-100 tons 1964 35,452 67.6 35.7 184.5 1,616 1965 38,394 66.4 30.6 216.3 1,728 100-200 tons 1964 60,424 61.4 30.1 204.3 2,415 1965 66,863 64.5 25.4 254.3 2,888 200-500 tons 1964 121,799 67.8 21. 7 312.9 6,248 1965 130,772 68.0 18.3 372.5 6,808 Over 500 1964 366,830 62.1 25.7 241.8 17,235 tons 1965 369,724 62.5 25.5 250.0 17,501 Source: Ministry of Agriculture and Forestry, Gyogyo Keizai Chosa (Kigyo No Bu), 1. See Table 6-III-l, Value~ are average per enterprise. TABLE 6-III-9 Total Income and Profit, Medium and Small Fisheries Unit: 1000 yen Net Rate of Total Business Fisheries Profit on Class of Enterprise Year Income _ 1._ncgme _ Net Pro_f:t1: 'I'o_t: al _C.3Qital Average 1964 3,592 3,495 883 2.5 1965 4,741 4,704 1,658 4.4 10-30 tons 1964 979 892 168 2.3 1965 1,257 1,179 225 3.1 w \.0 .JI 30-50 tons 1964 1,958 1,778 42 0.3 1965 1,975 1,892 275 1. 8 50-100 tons 1964 3,284 3,228 545 1.5 1965 4,643 4,698 1,830 4.8 100-200 tons 1964 6,058 6,076 1,721 2.9 1965 9,301 9,338 3,391 5.1 200-500 tons 1964 7,742 7,302 851 0.7 1965 13,726 13,815 4,025 2.9 Over 500 tons 1964 39,098 39,399 19,916 4.3 1965 44,629 44,720 20,678 5.6 Source: Ministry of Agriculture and Forestry, Gyogyo Keizai Chosa (Kigyo No Bu). 1. Net profit is enterprise income minus payments outside the enterprise (interest, etc.), managerial allowances of proprietors, and tax revenues. 2. See Table 6-III-l. structure of the coastal fisheries. In addition, various policies directed at improving the employment structure, strengthening the training in marine products cooperatives, and lightening the burden of taxation have been adopted, and plans have been made for the modernization of coastal fisheries and medium and small fisheries. (4) Rationalizaton of distribution and processing of marine products, Policies have been adopted, for the sake of rationalizing the distribution of marine products and of stabilizing their prices, to provide facilities for distribution and processing, to consolidate production and distribution, to rationalize the wholesale markets and the various stages of retail dis tribution, and to regulate exports and imports. In addition, aside from carrying out the practical surveys for the sake of implementing appropriate surveys and research have been encouraged concerning processes using marine ' products. (5) Raising the welfare of persons engaged in the coastal fisheries and in medium and small fisheries. In order to improve the welfare of persons engaged in coastal fisheries and in the medium and small fisheries, efforts have been undertaken to improve working conditions and the work environment, and to prevent sea disasters to fishing boats. In order to improve the living environ- ment in fishing villages, the dissemination of improvements in livelihood, the provision of housing, insurance, and welfare facilities in fishing villages are to be fostered, and supplements to social security are planned for people engaged in fishing. II. Preservation and Increase of Marine Resources and Fisheries Regulation 1. Propagation and Preservation of Marine Fauna and Flora [Omitted.] 2. The Augmentation and Breeding of Marine Fauna and Flora [Omitted.] 3. The Development of Coastal Fishing Grounds [Omitted.] 4. The Development of High Seas Fishing Grounds In respect to the development of high seas fishing grounds, in 1965 govern ment research vessels carried out development studies of bottom fishing grounds in the vicinity of Australia, and in 1966, it has been decided to conduct continuing studies of bottom fish fishing grounds on the east coast of Africa. In order to encourage the strengthening of effective developmental research in undeveloped high seas fishing grounds, the con struction of a modern equipped large scale research vessel in the 3,000 ton class has been provided for in the three year plan beginning in 1965. 5. The Nurture of Overseas Fisheries In order to provide for the healthy development of overseas fisheries through capital participation, labor services, and the like, beginning in 1965 assistance has been given to the Shadan Ronin Kaigai Gyogyo Kyoryokukai (Corporate Foreign Fisheries Cooperation Association), which is becoming Japan's window to the fishing world, to the collection of materials necessary to carry out these measures, analysis, dissemination and publicity, insti tutions of collaboration, training institutes for fishing vessel crews going abroad, and to the dispatch of a mission to Las Plumas, which is in the overseas fishing ground. [Remainder of paper omitted.] [Remainder of Section I omitted except for budget table.] BUDGETTABLE Fiscal 1964 Fiscal 1965 Fiscal 1966 Fiscal 1966 (Revised Budget) (Revised Budget) ~Preliminary Budget) i_Revised Budg~t) (General Account) Protection and Increase 583 594 654 639 of Marine Resources Development of Overseas 5 223 427 426 Fishing Grounds Consolidation of Fishery 8,428 10,349 12,506 12,515 Production Base Modernization of the Coastal 4,080 4,384 4,416 4,550 Fisheries and Medium and Small Fisheries l,.) \.0 " Rationalization of Marine 227 221 350 327 Products Distribution Other 5,636 8,955 5,884 5,930 Total 18,959 24,726 24,237 24,387 (Special Funds) Reinsurance of Fishing 4,710 5,098 7,282 7,282 Vessels Medium and Small Fisheries 1,001 1,230 1,406 1,406 Finance Insurance APPENDIX7 VALUEOF CATCH,MAJOR FISHERIES, JAPAN 1961-65 TABLE7-1 Value of Catch, Major Fisheries, Japan 1961-65 Unit: million yen 1961 1962 1963 1964 1965 TOTALVALUE OF CRUDEPRODUCT 421,874 453.489 513,888 529,913 593,762 Ocean Fisheries 406,272 437,315 494,697 508,613 571,156 Whaling_ 26,697 26,875 30,884 E.,.Jo_6_ JL608 Overseas Fisheries 53,936 60,464 63,358 712466 JJ...i205 Northern Seas Fisheries Mothership Salmon and Trout Fisheries 19,423 16,890 16,240 15,971 18,786 +:- 0 Mothership Crab Fishery 4,324 4,390 4,937 5,498 4,946 ~ Trawl Fisheries Mothership trawl (Bering Sea) 11,743 11,409 10,028 11,628 12,038 Mothership trawl (Okhotsk Sea) 683 921 1,098 815 901 North Sea trawl 230 397 1,498 2,106 1,927 South China Seas Fisheries Steam Troll - 3 Motor Trawl 91 42 19 High Seas Troll Fishery 2,883 6,553 8,400 12,999 16,404 Tuna Longline Fisheries Mothership Tuna Fishery 4,571 9,132 11,399 11,255 9,297 Home-based Operations 1,294 2,397 2,300 3,438 3,061 Atlantic Operations 8,567 8,326 7,386 7,750 9,844 Arafura Sea Pearl Oyster Operation 122 General Ocean Fisheries 280,100 296,196 335,506 332,431 374,414 East China Sea Troll 1,578 1,491 1,331 1,641 1,021 East China Sea Motor Trawl 25,478 26,388 29,575 28,171 30,463 Medium Scale Motor Trawl 19,232 20,805 23,818 25,940 30,514 Small Scale Motor Trawl 21,984 23,159 22,059 24,454 25,124 1961 1962 1963 1964 1965 General Ocean Fisheries {cont'd) Purse-seine Fishery 33,944 34,216 36, 22 42,937 49,033 Saury Dip-net Fishery 9,953 6,448 10,949 6,041 9,409 Sardine Drift-net Fishery 187 88 17 68 52 Herring Gill-net Fishery 746 953 1, 70 1,389 1,479 Salmon and Trout Drift-net Fishery 11,696 10,011 14, 77 12,154 15,095 Skipjack Pole and Line Fishery 13,249 14,033 15,302 14,877 18,974 Mackerel Pole and Line Fishery 6,526 5,594 4,942 4,143 4,324 Squid Line Fishery 11,626 14,336 18, 18 14,135 15,965 Home-based Tuna Longline Fishery 37,966 46,713 49, 45 45,512 49,198 Set Net Fisheries 17,256 16,668 19, 88 20,766 24,242 Large-scale Set Net Fisheries 11,246 10,796 12,588 13,726 16,307 Herring Set Net Fishery 61 65 IQS 90 1) ••. Yellowtail and Tuna Set Net Fishery 6,099 5,528 6,5 7 6,421 7,642 ..,.. Salmon and Trout Set Net Fishery 2,298 2,544 3,142 4,038 5,385 0 Other Large-scale Set Net Fisheries 2,788 2,659 2, 1 3,176 3,279 N Small-scale Set Net Fisheries 6,006 5,870 6,596 7,042 7,935 Pound Net Fishery 1,842 1,954 2,045 2,172 2,057 Other Small-scale Set Net Fisheries 4,164 3,916 4,551 4,869 5,878 Shallow Seas Aquiculture 45,538 53,779 64,9~5 72,409 81,930 Inland Fisheries 9,250 9,350 9 2 801_ 10,151 10,049 Inland Ag_aj.c:_u]._ture 6,352 6.824 9,382_ 11,149 12~557 Source: Ministry of Agriculture and Forestry, Tokei Chosabu, Poketto Norin ~eisan Tokei. APPENDIX8 MATERIALSON THE QUEBECMINING EXPLORATION COMPANY (SOQUEM) APPENDIX8 MATERIALSON THE QUEBECMINING EXPLORATIONCOMPANY (SOQUEM) PART I Charter of the Quebec Mining Exploration Company (Assented to 15th July 1965) HER MAJESTY with the advice and consent of the Legislative Council and of the Legislative Assembly of Quebec, enacts as fol 1. A joint stock company is incorporated under the name of "Quebec" Mining Exploration Company". Such company may also be designated by the name of "SOQUEM". 2. The Company shall have its corporate seat at or in the immediate vicinity of Quebec. 3. The objects of the Company shall be: (a) to carry out mining exploration by all methods; (b) to participate in the development of discoveries, including those made by others, with power to purchase and to sell properties at various stages of development, and to associate itself with others for such purposes; (c) to participate in the bringing into production of mineral deposits, either by selling them outright or transferring them in return for a participation. 4. The authorized capital of the Company shall be $15,000,000. It shall be divided into 1,500,000 shares of the par value of $10 each. 5. The shares of the Company shall be allotted to Her Majesty in right of the Province. 6. The Minister of Finance shall pay to the Company, out of the consolidated revenue fund, each year for a period of ten years, a sum of $1,500,000 for 150,000 fully paid-up shares of its capital stock for which a certificate shall be issued to him in return for such payment. 7, The affairs of the Company shall be managed by a board of seven directors appointed by the Lieutenant-Governor in Council, and they shall be the directors within the meaning of the Companies Act. 405 8. The president of the Company shall be appointed by the Lieutenant Governor in Council and shall remain in office for ten consecutive years. He cannot be dismissed except for cause and his salary cannot be reduced. He shall be ex officio a member of the board of directors. 9. Two members of the board of directors shall be appointed for five years as permanent officers of the Company. The other four members shall be appointed for four years. time of the first appointment, one shall be appointed for one year, one for two years, one for three years and one for four years. 10. Each member of the board of directors, including the president, shall remain in office after the expiration of his term until he has been replaced or reappointed. Except in the case of the president or a permanent officer, every vacancy occurring during a term of office shall be filled for the unexpired portion of the term of the member to be replaced. 11. No person shall hold office as a director unless he resides in the Province, but no share qualification shall be required. 12. No director shall have an interest in any mining exploration or operation undertaking, or in any undertaking for the manufacture or sale of equipment or materials used in mining exploration or operations, or in any undertaking to provide services for such purposes. If a director had such an interest at the time of his appointment, or if such an interest devolves to him subsequently by succession, gift or otherwise, he must promptly dispose thereof. An interest in any security listed on a recognized stock exchange shall not give rise to the application of this section, if it is equal to less than a one ten-thousandth part (0.01%) of the total outstanding amount of such security. 13. The board of directors of the Company shall meet at least once a month. Subject to sections 14 to 16, the board shall have the exclusive authority to bind the Company in anything concerning: 406 (a) the acquisition of mining properties or of any interest therein; (b) the sale of mineral deposits, mining properties or any interest therein; (c) any additional remuneration to the employees of the Company in respect of discoveries. 14. The president shall have full executive power for the management of the affairs of the Company, except those reserved to the board of directors, but including the acquisition of mining properties or any interest therein at a cost not exceeding $5,000 in each case. t-Governor in Council shall fix the salary of the president and of the officers who are directors, their additional remuneration in respect of discoveries, and any indemnities to which the other members of the board are entitled. 16. Without prior authorization by the Lieutenant-Governor in Council, the Company shall not: (a) make any contract for participation in the exploration and development of a mining property binding it for more than five years; (b) make any other contract binding it for more than two years; (c) sell mineral deposits, mining properties or any interest therein otherwise than by auction sale or public tender; (d) contract a loan which increases to more than $500,000 its total outstanding borrowings. 17. The accounts of the Company shall be audited by the Provincial Auditor once a year and also whenever ordered by the Lieutenant-Governor in Council. 18. The Company shall each year make a report of its activities to the Minister of Natural Resources. Such report must contain the information which the Companies Act requires the directors to give each year to shareholders and shall be laid before the Legislative Assembly by the Minister. 19. The dividends paid by the Company shall be fixed by the Lieutenant-Governor in Council and not by the directors. No dividend shall be declared the payment of which would reduce the CompanyI s accumulated surplus to less than one-third of its paid-up capital. 20. Sections 154 to 158 of the Companies Act shall not apply to the Company. 21. This act shall come into force on the day of its sanction. 407 GENERALINFORMATION FURNISHED BY SOQUEM PART II DEFINITION - SOQUEM(Quebec Mining Exploration Company) is a public enterprise entrusted with the same general duties, rights and objectives including profitability, as those of large private corporations engaged in mining exploration. la.ti11e Assembly on July 15th, 1965 (Act 13-14, Elizabeth II, Chapter 36.) SOQUEMis subject to the Quebec Companies Act and the Quebec Mining Act. TERMSOF REFERENCE-According to its charter, SOQUEMwas created (a) to carry out mining exploration by all methods; (b) to participate in the development of discoveries, including those made by others, with power to purchase and to sell properties at various stages of development, and to associate itself with others for such purposes; (c) to participate in the bringing into production of mineral deposits, either by selling them outright or transferring them in return for a participation. FINANCING- SOQUEMhas an authorized capital of $15 million; its sole shareholder is the Government of Quebec. The Minister of Finance shall buy each year from SOQUEM,out of the consolidated revenue fund, 150,000 shares of a par value of $10 each for a period of ten years. The Government of Quebec enjoys towards SOQUEMthe same rights and privileges as any majority shareholder in a private company. BOARDOF DIRECTORS- *Come Carbonneau, Ph.D., Eng. geologist; Georges Gauvreau, N.P. member of the Hydro-Quebec Board of Commissioners; *Claude Genest, L.S.C. financial administration; Jacques Lapierre, C.G.A. vice-president and director of Jacques Melanqon & Associates, Inc.; Jacques Parizeau, Ph.D., M. Com. economic and financial advisor to the Cabinet; Robert Sabourin, Ph.D., Eng. head of Laval's Department of Geology; *Mousseau Tremblay, Ph.D. geologist. OFFICERS* - Come Carbonneau, President; Mousseau Tremblay, Vice-President; Claude Genest, Secretary-Treasurer. TERMOF OFFICE - President - ten years, not liable to dismissal, Vice President and the Secretary-Treasurer - five years. Directors: the first - four years, the second - three years, the third - two years, the fourth - one year. 408 Personnel PERMANENTEMPLOYEES - SOQUEM'spermanent employees, as of October 1, 1966, number 33. Its personnel includes twelve geologists, of whom six hold Ph.D. degrees, and eight technicians. SEASONALEMPLOYEES -Approximately 100 people have taken part in six teen projects carried out during the 1966 field season in the Eastern Townships, Gaspe, Temiscamingue, Northwestern Quebec and in Chicoutimi, Roberval and Laviolette counties. They were recruited among university professors and students, engineers engaged in post-graduate studies, and prospectors. Heads of Departments F. DUBUC- GEOLOGY-41-B. Sc. (Un. Montreal '49), M.Sc. (McGill '50) -17 years in mining exploration in Canada, the U.S.A. and in New Caledonia. Past employers: Jones & Laughlin Steel Corp., Algoma Ore Properties and Union Carbide Corp. C; GLEESON- GEOCHEMISTRY- 35-B.Sc. (Loyola '53), M.Sc. (McGill '56), Ph.D. (McGill '59) -10 years geochemical exploration in Canada. Past employers: Kennco Exploration Ltd., Pickands Mather & Co. and the Geological Survey of Canada. E. GAUCHER- GEOPHYSICS- 34-B.A.Sc. (Ecole Polytechnique '55). Geological engineer, Ph.D. (Harvard 1 60). -11 years research work in Canada and the U.S.A. Past employers: Lowphos Ore Ltd., the University of Sudbury and the Geological Survey of Canada. J, GAUVIN- PROGRAMEXECUTION - 35-B.A.Sc. (Ecole Polytechnique '54). Mining engineer and geologist -12 years in the field of exploration and mining geology in Canada and Liberia. Last employer: Lamco J. V. Operating Co. He has supervised an operation of 8,000,000 tons of iron ore per year with a personnel of 300 men of 13 different nationalities of whom 50 were Swedish. G. DIONNE- PROSPECTVALUATION - 40-B.Sc. (Un. Montreal '56) -9 years of exploration in Quebec and in the Maritimes for Anaconda American Brass Ltd. and on his own. J. BRIVOIZAC- PROSPECTION- 52-Long experience of prospecting on his own and for Labrador Mining & Exploration Co. Ltd., Lake Superior Iron Ltd. and Anaconda Iron Ore (Ontario) Ltd. The Officers C. CARBONNEAU-PRESIDENT - 42-B.A.Sc. (Laval '48) M.A.Sc. (U.B.C. '49), Ph.D. (McGill '53). Post-doctoral Overseas Fellow, N.R.C. Louvain (1953- 1954) - Professor of geology, Ecole Polytechnique (1951-1963). 17 years in exploration, geological engineering, mining geology, marketing, and exploration and production management. Consulting geologist: Oka district (1953-1963), hydroelectric power development of Lachine Rapids (1957-1958), the Montreal Subway (1962-1963). Executive vice-president St. Lawrence Columbium and Metals Corp. (1963-1965.) 409 M. TREMBLAY~VtCE PRESIDENT& CHIEF GEOLOGIST- 38-B.Sc. (Un. Montreal '49) M.Sc. (McGill '51), Ph.D. (McGill '56) -15 years of exploration in East Africa and Canada. Past employers: Williamson Diamonds Ltd., Iron Ore Co. of Canada, the Geological Survey of Canada, and Anglo American Corp. of South Africa. C. GENEST- SECRETARY-TREASURER-38-L.Sc. (social, economic and politic - Un. Montreal 'SO), L.Sc.C. (Un. Montreal '53). Treasurer, Montship Lines Ltd. and assistant-secretary, Canadian Louis Dreyfus Corp. (1956-1963). Assistant secretary-treasurer (1963-1965), Sullivan Mining Group (East Sullivan, Sullivan Cons. Solbec, Cupra, Hastings, Quebec Lithium, etc.). PRIORITIES - Within the general objectives as defined by the company I s charter, the following were selected as exploration guideposts: (1) disseminated copper and molybdenum deposits; (2) massive sulphide orebodies of copper and zinc; (3) sedimentary gold and uranium deposits; (4) copper, nickel, lead, zinc, chrome and other metallic ores associated with basic intrusives. BASIC CONSIDERATIONS-Essentially, SOQUEMhas been conceived to collaborate either with private firms - those actually engaged in exploration or ore treatment in Quebec or elsewhere - or with companies interested in securing reliable sources of ore. The search for new mineral deposits is risky and costly. In order to fill the growing demand for minerals and to insure the rapid growth of the mining industry, exploration methods must be improved upon, and more money poured into the business. To maintain a satisfactory rate of discovery of new orebodies in Quebec alone, some 30 million dollars will have to be spent annually on exploration by 1970. The Quebec government taking its share of the risks, will then provide 1.5 million of those 30 millions. SOQUEMwill stress the long-term, systematic approach to exploration. Under our present economic framework, one cannot expect this type of approach from the majority of exploration companies. Frequently, their exploration budgets must be spread throughout various sectors of the country or in some instances throughout different parts of the world. Also these budgets fluctuate according to variations in metal prices, economic conditions, stock markets, and the random pattern of discoveries. These inescapable limitations of private enterprise with regard to long term exploration has led several countries to use their geological surveys as exploration departments. However, in this respect Quebec has introduced an innovation: SOQUEMis unique in that it is independent from the Geological Survey of Quebec; it is neither an extension of a government department nor an agent of the Crown. 410 Organized in a concept of profitability, SOQUEMwill in certain cases compete with others in the search for orebodies in a good spirit of fair play and with no special privileges. POLICIES - SOQUEM'sgeneral policy, however, is to act as a complement to private industry rather than compete directly with it. The company is seeking worthwhile mining properties; it deals with prospectors, syndicates and mining companies interested in selling their mining properties. SOQUEMwould not, however, stand in the way of a private mining company wishing to buy a particular mining property outright. SOQUEMis particularly interested in joint exploration programs with private enterprise. It can contribute and ation of a property, and provide as well its assistance with government dealings. SOQUEMis primarily an exploration concern, and as such welcomes partners who would in case of discoveries take charge of the mining operation. This is in keeping with article 3 (c) of its charter which stipulates that "The objects of the company shall be • • • to participate in the bringing into production of mineral deposits either by selling them outright or transferring them in return for a participation." PARTNERSHIPAGREEMENTS - SOQUEMis open to any reasonable types of partner ship agreements with respect to mining exploration. For instance, under the terms of some agreements which have recently taken place, SOQUEMand its partners are called to contribute to a common exploration fund managed by a Committee wherein the partners are represented according to their respective contributions. In case of discovery, a new company will be formed, and the partners will receive an interest in ratio to their participation in the exploration program. SOQUEM,therefore, will not necessarily hold the control of the companies resulting from such partnerships. Under certain conditions SOQUEMmay sell the whole or part of its interests to its exploration partners or to new participants. Several other types of association are possible and SOQUEMwill be happy to discuss them with interested parties. 411 EXCERPTSFROM SOQUEM'S 1966-67 ANNUALREPORT PART III EXPLORATIONPROJECTS During the year under review, SOQUEMundertook 33 separate projects involving an investment of $888,793. Priority was given to the search for non-ferrous metals and sedimentary gold and uranium deposits. During the current year the search for asbestos deposits and some other industrial mineral deposits will augment these priorities. The 1966-67 projects consisted of 12 reconnaissance programs involving 58% of the exploration budget and 21 target probing programs involving 42% of the budget, Ten of these programs were undertaken jointly with other companies. However, by March 31, 1967, five of the Company's own projects had been discontinued for lack of encouraging results. The work during the year brought to light the existence of several favorable exploration targets. Currently an elaborate study is being made of these promising areas. In several cases additional surveys are required before diamond-drill testing. Several of these targets will be jointly explored by Soquem and partners during 1967 and subsequent years. REGIONALDISTRIBUTION OF EXPLORATIONCOSTS-PERIOD ENDING MARCH 31, 1967 % Eastern Townships 28 Gaspesie 23 Abitibi 20 Temiscamingue 16 Nouveau-Quibec 12 Others 1 SERVICES Geology: The geologists on the Company's permanent staff have appraised numerous proposals submitted by prospectors, syndicates and mining companies. As of March 31, 1967, 155 proposals had been received, of which 13 were accepted. In addition to these duties they took part in the planning and direction of the exploration projects. Their action, which involves the integration of all data into a geological context, although difficult to measure quantitatively, permeates all levels of exploration activities. Geochemistry: During the summer of 1966, the geochemistry service completed two major reconnaissance programs. Approximately 1400 square miles were surveyed, and 4845 stream sediment samples were collected along with 1412 soil samples and 1087 heavy mineral samples. Additionally, the service surveyed several groups of claims in the Gasp{ and Eastern Townships 412 regions, collecting 6800 soil samples. Subsequently these samples were analysed to determine their content of copper, lead and zinc and, in certain cases, molybdenum, nickel and other metallic ores associated with basic intrusives. Geophysics: Five geophysical parties were assigned to the field in 1966, Nearly 2000 miles of lines were cut and surveyed by EM, Turam. and magneto meter and some 40 miles by induced polarization. In addition to this systematic ground covering SOQUEMcontracted for some 300 miles by input and 1000 miles by conventional helicopter-borne EM. Three permanent parties continued this verification in the fall of 1966 and the following winter. In preparation for the 1967 summer campaign, SOQUEMcontracted for some 3500 miles of aerial Input surveys. The company is, however, fully equipped to carry out aerial radiometric surveys and during the year under review flew more than 4000 miles. Also an extensive campaign directed by our geological service is underway. TRAINING OF PERSONNEL Because the mining exploration industry suffers from a dearth of junior personnel capable of undertaking geochemical and geophysical prospection ,1ork, SOQUEMin May 1966 organised two training camps. Some 35 students, most of them candidates for a degree in geology in Qu~bec universities, underwent a three-week course in geochemical prospection. Another 20 students were given a fifteen-day course in the use of geophysical equipment. The company is gratified to note that on two occasions a foreign exploration company sent technical personnel for training with SOQUEMparties. RESEARCH During its first full year of operation, the Company engaged in research work, seeking to improve traditional methods of exploration and to perfect new techniques. In the summer of 1966 the geophysics department built an EM (electromagnetometer) laboratory model. Experimental graphs were plotted to facilitate the interpretation of field anomalies. A new type of ground EM apparatus was experimented on. The first components of an induced polarization apparatus for laboratory use were assembled. The Company provided funds for a program of research in the application of rock thermoluminescence to mining exploration. This program was completed with the collaboration of Laval University. To stimulate interest at the academic level, the Company has offered two post-doctorate fellowships to Laval University for research in applied geochemistry and geophysics, tenable for a three-year period, starting in September, 1967. The holders of these fellowships will be employed by SOQUEMduring summer exploration campaigns, helping to overcome the problems arising from the scarcity of professionals in these fields. 413 A private research organization has been entrusted with the first phase of an operational research study concerning the optimization of financial resources taking into account the region, the type of ore and the exploration techniques involved. Mathematic models will be devised, based on geo logical, geophysical and geochemical data, which would make possible a quantitative evaluation of the earning potential and the optimum distribution of allocated funds for a given geographical zone. JOINT EXPLORATIONPROJECTS The Company is currently engaged in eighteen joint exploration projects with other companies, as shown on the accompanying chart. None of the areas explored ln these projects has yet been developed but they show promising possibilities, although no discoveries of connnercial value have yet been made. The obligations and profits in these ventures go hand in hand in case of discoveries as long as the partners uphold their association to the end and maintain their respective interests. However, each party has always the option to withdraw from the association but loses various advantages proportionate to the interests surrendered. 414 LIST OF JOINT PROJECTS AT JULY 15, 1967 Contribution of partners and sharing Management of Location of Type of PARTNERS of interests the project search project ill Le Bureau de Recherches Geologiques 62-2/3 SOQUEM Gaspesie Detailed prospecting et Minieres (B.R.G.M.) Mokta (Canada~ Ltee Geophysical Engineering & Surveys Limited 85 GEOPHYSICAL Development of The New Jersey Zinc Company recording helicopter EM lab. Les Explorations Terra Nova Ltee 50 SOQUEM Lac St-Jean Detailed prospecting and ore dressing research Mokta (Canada) Ltee 62-2/3 MOKTA Gaspesie Detailed prospecting Societe' d'Etudes, de Recherches et d'Exploitation Mini~res Lt~e (SEREM) PECHINEYCompagnie de Produits Chimiques et Electro-Metallurgiques Naganta Mining & Development Co. Ltd. 50 SOQUEM Abitibi Detailed prospecting ~ Timrod Mining Co. Ltd. ~ Nemrod Mining Co. Ltd. New Jersey Zinc Exploration (Canada) Ltd. ···~ ·~·so·~~·· . ·soQUEM ··Gasp€sie Detailed prospecting New Jersey Zinc Exploration (Canada) Ltd. 50 SOQUEM Abitibi Detailed prospecting Penarroya Canada Limitee 75 PENARROYA Abitibi Detailed prospecting Penarroya Canada Limit€e 55 PENARROYA Abitibi Reconnaissance Penarroya Canada Limitee 55 PENARROYA Gaspesie Reconnaissance Penarroya Canada Limitee 45 SOOl.JEM · Gasp§sie Reconnaissance Rio Tinto Canadian ExQloration Limited 60 SOOUEM Nouveau-Quebec Reconnaissance Rio Tinto Canadian Exploration Limited 60 RIO TINTO Nouveau-Quebec;;. Detailed prospecting Soci~tl d'Etudes, de Recherches et 55 SEREM Chibougamau Detailed prospecting d'Exploitation Mini~res Lt6e (SEREM) Sullico Mines Limited 9 SOQUEM Eastern Detailed prospecting Townships Sullico Mines Limited 55 SULLICO Abitibi Detailed prospecting Sullico Mines Limited From 50 to 90 SULLICO Lands adjacent Reconnaissance according to Qutbec in the to location State of Maine Voyager Explorations Limited 50 SOQUEM Temiscamingue Detailed prospecting Silver Scepter Mines Limited ESTIMATEDCOST OF CURRENTPROGRAMS AS AT JULY 15, 1967 Company's Joint Programs Programs Estimated Cost Total PROGRAMS Number Estimated Number to SOQUEM Estimated Cost Cost $ $ $ sance prospecting 9 467,000 318,000 Detailed prospecting 12 153,000 11 350,000 561,000 TOTAL 21 620,000 18 668,000 1,178,000 PORTFOLIOOF HOLDINGSIN MINING PROPERTIES AS AT MARCH31, 1967 Number PROPERTIES Number Acres of Claims Properties optioned held by SOQUEM 8 6,528 71 * held jointly 3 13,120 324 Properties staked held by SOQUEM 25 43,587 639 held jointly 5 55,125 1,175 Properties bought held by SOQUEM 2 2,080 52 held jointly ,~ An area of 1,625 acres of land was optioned in a region of the Eastern Townships where concession of land was made before July 24, 1880. 416 .,. QUEBECMINING EXPLORATIONCOMPANY BALANCESHEET AS AT MARCH31, 1967 ASSETS Current Assets 1967 1966 Cash on hand $115,097 Short term deposit plus accrued interest 629,709 Accounts receivable and advances 28,354 Loans receivable 1,571 J JL14 ;;, l/8,0/5 $ 496,693 insurance, taxes Loans Receivable 3,081 Less: installment maturing in 1,571 1,510 1,640 ensuing period Inventory - At Cost 41,818 404 Deferred Expenditures Cost o m1n1ng. . rig . h ts 1 91,979 f 2 Exploration expenditures 881,544 973,523 Less: recovery of deferred expenditures 20,793 through participation 952,730 Administrative expenses: previous year 111,073 year 1966-1967 187,578 298,651 1,251,381 111,073 Fixed Assets - At Cost Furniture and fixtures 51,850 Rolling stock and equipment 132,397 Leasehold improvements 16,236 200,483 Less: accumulated depreciation 30,728 169,755 37,175 and write-offs $2,424,539 $ 646,985 1 The purchase cost of mining rights is subdivided as follows: $90,594 for current projects and $1,385 for abandoned projects. 2 The exploration expenditures are apportioned as follows: $792,426 current projects and $89,118 abandoned projects. 417 ., QUEBECMINING EXPLORATIONCOMPANY BALANCESHEET AS AT MARCH31, 1967 LIABILITIES CURRENTLIABILITIES 1967 1966 Accounts payable and accrued expenses $ 116,616 Directors' fees payable 600 Employees' withholding taxes and 323 $ 117,539 $ 21,985 Qrnfbec CAPITAL STOCK Authorized 1,500,000 shares of 1s,ooo,ooo $10 par value Issued and fully paid 212,500 shares 2,12s,ooo 625,000 $2,242,539 $ 646,985 Signed on Behalf of the Board: Jacques Lapierre Director Robert Sabourin Director AUDITORI s REPORT In accordance with the act 13-14 Eliz. 11, c. 36, s. 17, I have examined the balance sheet of the Qu~bec Mining Exploration Company as at March 31, 1967, and the statement of deferred expenditures at that date, My examination included a general review of the accounting procedures and such tests of accounting records, vouchers and other relevant documents as deemed necessary. In my opinion, the accompanying balance sheet and statement of deferred expenditures present fairly the financial position of the Company as of March 31, 1967, and the administration expenses incurred during the fiscal year then ended, in accordance with generally accepted accounting principles. Gustave-E, Tremblay, C.A., Provincial Auditor ; QUEBECCITY, July 20, 1967 418 APPENDIX9 MARGINALPROPENSITY TO CONSUMEAND INCOMEELASTICITY OF DEMAND, FISH, MEAT, POULTRY,AND DAIRY PRODUCTS, JAPAN, 1964-1965 TABLE 9-1 Marginal Propensity to Consume and Income Elasticity of Demand, Fish, Meat, Poultry, and Dairy Products, Japan, 1964-65 Marginal Correlation Income Correlation Propensity Eg Intercept Coeff1cient Elasticity Coeff1cient Consume (x 10 ) (a) (r) of Demand (2) (r) 1964 1965 1964 1965 1964 1965 1964 1965 1964 1965 FRESH FISH AND SHELLFISH 1123 1120 7312 7982 0.991 0.997 O.L:8 0.44 0.994 0.988 Fresh Fish 1040 1037 7158 7773 .990 .997 . .43 .994 .983 Tunny fillet 40 54 171 107 .925 .981 . .73 .973 . 977 Tunny, sashimi sliced 117 117 84 74 .967 . 974 1. .90 .971 .982 Horse mackerel 21 28 895 887 .757 .862 . .13 .569 .705 Sardine 4 9 175 163 .769 .870 . .26 .827 .845 Bonito 15 11 233 195 .900 .760 . .24 .854 .702 ..,.. Turbot 44 46 457 462 .882 .950 . .39 .923 . 969 N Salmon 104 95 136 199 .986 .991 . . 71 .994 .987 I-" Mackerel 10 8 815 919 . 720 .469 • C7 .04 .737 .413 Mackerel-pike 10 12 285 227 .786 .873 .20 .28 .859 .936 Cod 13 7 161 209 . 873 .670 . .16 .860 .669 Sea-bream 74 72 169 155 .965 .984 . .73 .978 .988 Yellowtail 84 82 107 122 .984 .984 . .68 .985 .965 Cuttlefish 69 88 695 778 .951 .978 . .42 .987 .986 Octopus 32 42 279 322 .885 .968 . .46 .959 .980 Flatfish 16 10 25 34 .917 .891 . .64 .958 .916 Crustaceans 114 -31 .980 .96 .983 Fresh fish, n.e.c. 379 236 2464 2941 .982 .973 • L18 .32 .985 .959 Shellfish 82 82 153 209 . 982 .993 . s .69 .990 .987 Short-necked clam 8 9 57 52 . 920 .971 .so .963 ,938 Oysters 41 41 16 43 .978 .986 .84 .986 .985 Corbicula 3 3 37 44 .912 .931 . .30 .962 .939 Shellfish, n.e.c. 28 29 42 67 .962 . 965 . .70 .970 .973 1964 1965 1964 1965 1964 1965 1964 1965 --1964 1965 DRIED ANDSALTED FISH 424 420 2724 2978 .983 .984 50 .47 .996 .989 Dried small sardines 2 5 516 475 .256 .517 02 .06 •.200 .480 Dried horse mackerel 17 21 58 73 . 965 . 977 61 .61 .969 . 978 Dried sardines 12 15 104 118 .931 .959 47 .43 .979 .960 Dried cuttlefish 8 10 108 88 . 796 .840 35 .42 .867 .869 Dried fish, n.e.c. 98 94 504 553 .975 .980 55 .52 .991 .986 Salted salmon 74 71 330 304 .947 .969 69 .64 .929 .983 Dried bonito 16 18 45 30 .931 .957 64 .65 .947 .936 Dried bonito flakes 11 12 227 322 .869 .881 26 .27 .920 .926 Cod roes 67 60 .976 95 .988 Pickled fish 30 27 209 253 .915 .871 59 .48 .960 .952 Salted fish guts 16 11 45 93 .933 .934 65 .47 ..961 .963 Dried & salted fish, n.e.c. 67 62 5ll 673 .959 .986 44 .37 .973 .951 MEAT 2083 1990 3462 4348 • 996 .994 79 .74 .998 . 996 +" N Beef 715 637 1033 1274 .992 .995 81 .76 .996 .997 N Pork 579 593 859 1209 .987 .985 81 .76 .995 .994 Chicken 256 245 513 850 .995 .986 72 .59 .990 .972 Whale meat 21 - 543 - • 726 - 25 - .884 Ham 253 236 208 182 .991 .990 91 .95 .995 .994 Sausage 136 134 20 -73 .981 • 977 1 12 1.21 .989 .984 Bacon 16 - 23 - .949 - 79 - .962 MILK ANDEGGS 1455 1420 7223 7855 . 969 .961 62 .59 .992 .990 Fresh cows milk 761 685 1736 2300 • 977 .959 83 .75 .990 .983 Powdered milk -14 - 771 - -.284 - -0.04 - -.079 Condensed milk 4 - 8 - .905 - 83 - .922 Butter 105 107 -117 -164 .990 . 979 1 24 1.29 .994 .982 Cheese 46 - -22 - .975 - 1 29 - .983 Hens eggs 514 533 4560 4742 .948 .967 45 .44 .983 .995 NOTE TO APPENDIX9 Source: Calculated from family expenditure data in Office of the Prime Minister Bureau of Statistics, Kakei Chosa Nempo. (Annual Report on the Family Income and Expenditure Survey.) Marginal propensities were calculated by the least squares method according to the formula C =a+ bY, where C is the annual mean family expenditure in each income group and Y is the mean family income. The contribution of each group to the regression was weighted by the number of households in the sample. Income elasticities of demand were calculated in the same fashion according to the formula logC = d + logY. In both cases the two extreme income groups were excluded. The sample on which these calculations were based had the following characteristics: 1964 No. of tabulated Persons Earners Yearly Expenditures Households per per Income Living for Yearly Income Groups Adjusted Household Household (Thousand Yen) E~enditures Food ..::- N Average (yen) 8,291 4.28 1.63 666 522,470 208,725 L,..) Less than 99, 999* 39 2.54 o. 72 83 177,238 87,216 100,000- 199,999 317 3.17 1.12 155 219,090 107,717 200,000- 299,999 671 3.69 1.37 250 286,642 134,629 300,000- 399,999 1,028 3.90 1.50 346 356,699 160,310 400,000- 499,999 1,299 4.11 1.53 447 424,639 180,251 500,000- 599,999 1,183 4.21 1.52 543 483,230 199,293 600,000- 699,999 986 4.42 1.65 643 531,777 216,604 700,000- 799,999 693 4.51 1. 74 742 594,230 231,526 800,000- 899,999 519 4.62 1. 77 843 643,211 246,588 900,000- 999,999 362 4. 85 1.92 942 708,083 264,065 1,000,000-1,199,999 454 4. 76 1.93 1,081 764,376 273,131 1,200,000-1,399,999 269 4.89 2.12 1,286 803,922 290,155 1,400,000-1,599,999 150 5.17 2 .12 1,485 898,261 318,193 l,600,000-1,799,999 87 4.97 2.01 1,685 946, 760 326,073 1,800,000-1,999,999 68 5.11 2.16 1,878 993,086 365,681 2,000,000-Up * 166 5.26 2.07 2,746 ,136,189 387,403 1965 No. of Tabulated Persons Earners Yearly Expenditures Households per per In com~ Living for Yearly Income Groups Adjusted Household Household (Thousand Yen) l:i:~endi tures Food Average (yen) 8,288 4.25 1.65 739 565,333 227,068 Less than 99, 999* 21 2.78 0.61 77 155,291 89,697 100,000- 199,999 204 3.10 1.04 155 236,263 119,383 200,000- 299,999 455 3.50 1.31 249 303,723 143,350 300,000- 399,999 810 3.84 1.48 348 370,492 167,603 400,000- 499,999 1,064 3.94 1.54 488 423,171 185,871 500,000- 599,999 1,069 4.07 1.52 545 487,543 203,817 600,000- 699,999 1,110 4.25 1.61 641 526,311 217,848 700,000- 799,999 853 4 .44 1. 72 742 591,781 237,201 ~ 800,000- 899,999 638 4.42 1.67 843 641,784 251,755 N ,.i:,- 900,000- 999,999 489 4.62 1.83 944 718,922 273,692 1,000,000-1,199,999 624 4. 76 1.91 1,080 758,197 283,202 l,200,000-1,399,999 361 4.99 2.13 1,281 818,846 304,276 1,400,000-1,599,999 200 4.91 2.08 1,485 918,342 331,912 l,600,000-1,799,999 108 4.87 1.94 1,683 982,438 339,466 l,800,000-1,999,999 84 4.91 2.12 1,868 976,701 345,931 2,000,000-Up * 198 5.02 2.02 2,651 1,159,281 403,165 * Omitted in estimation of regression coefficients. APPENDIX10 AN OUTLOOKOF RAWMATERIALS SUPPLY FOR THE JAPANESESTEEL INDUSTRY APPENDIX 10 AN OUTLOOKOF RAWMATERIALS SUPPLY FOR THE JAPANESE STEEL INDUSTRY S. Tanabe, Y. Takahashi, and I. Iwasaki * ABSTRACT The present status of the Japanese steel industry and its future outlook, the technological developments which contributed to the cost technical organizations which provide cooperation and coordination of research and development activities are discussed. The topics are limited to the iron-making raw materials. INTRODUCTION Supported by the vigorous capital investment of the heavy and chemical industries and by the ever-increasing demand for durable consumer goods in the past decade, Japan has now emerged as the world's third largest steel producer, surpassed only by the United States and the Soviet Union. Figure 10-1 shows the growth of the Japanese steel production in the last 15 years, together with the future outlook according to the Government's Medium-Range Economic Plan. In 1968 the crude steel production is expected to exceed 50 million tons;l the per capita steel consumption at that time will reach 402 kg. (886 lb.), approaching the level of Western Europe, as shown in Figure 10-2. This requires an estimated import of 45 million tons of iron ore and 18 million tons of coal. One of the characteristics of the Japanese steel industry is that all the integrated mills are located on the sea coast and are capable of accommodating large freighters and bulk carriers. The distance of blast furnaces from wharves, even in the oldest plants, does not exceed 1.0 km. (3280 ft.) and some of the latest are located within 0.4 km. (1310 ft.). This proximity to deep-water harbors, and the use of large ore and coat carriers, greatly offset the inevitable high freight costs from distant overseas sources. Figure 10-3 shows the location of major integrated steel mills and the shares of pig iron and crude steel production by the major producers in 1965. The second characteristic of the Japanese steel industry is the high dependence of raw materials on overseas sources. Before World War II the *The authors are respectively Director in charge of raw materials and Deputy General Manager, Fuji Iron and Steel Company, and Professor, Mines Experiment Station, University of Minnesota. This paper is reprinted, with permission, from the Proceedings of the Fortieth Annual Meeting, Minnesota Section, AIME, 1967. 1 All the tonnage figures used in this article are metric tons (2205 lb.). 427 FIGURE 10-1 ANNUALPRODUCTION OF PIG IRON AND CRUDESTEEL , I ,, ' ~,' ~,' 50 Cl) I ~,' c.:;/~I ~' I A..0,'" I ,I 40 , I U) , z ,I 0 ,I t- I z ' ' 0 o~'' ..J ~I ..J ~,' :e 30 ~', . I z 0 t- u :::, a 0 a: 0.. ..J 20 <( :::, z z <( 10 o ...... __...______~~...... -..__.___,...... _...._ ___.....__,.__..._ ...... __.~..._....._. 1950 1955 1960 1965 1970 428 FIGURE 10-6 TRENDOF DOMESTICIRON ORE PRODUCTION 5r _,,,.,,,., .. ---- w / --- Q: 4 "'' 0 en t z PYRITE CINDER z 0 ~ 3 Q: + z ..------~ 0 -- l,) u - ~ ,, t-- ..J- 2 IRON SAND en ..J w ~- ~ + at ...... ______. ___ 0 I - ~ ~ 0 t DOMESTIC IRON ORE ,+ 01 I • & I I I & ii I I 1950 1955 1960 196 1970 Domestic iron ore supplies provide only a small portion of the total iron ore requirements, amounting at present to four million tons with nearly equal proportions of iron ore (including magnetite and limonite), iron sand, and pyrite cinder. The total domestic production, as shown in Figure 10-6, is not expected to increase appreciably. Domestic iron resources in general are relatively low in iron and often contain undesirable impurities. The general specifications that apply to imported and domestic ores clearly indicate this (Table 10-1). Although domestic limonite ores contain considerable amounts of arsenic, research efforts directed to utilize this material, particularly during and soon after the war, succeeded in developing a process involving roasting under weakly reducing conditions. The elimination of arsenic was found to be totally inhibited, however, when the ore was mixed with limestone to make a TABLE 10-1 General Specifications for Iron Ores Domestic Imported Iron Ores Iron Ore Iron Sand Pyrite Cinder Fe ...... 60% base 50% base 56% base 55% base Al o 12% Max 15% Max Si02 + 2 3 . s. . 0.10 Max 0.50 Max 5% Max P...... 0.15 Max 0.10 Max Cu . . . . . 0.05 Max 0.50 Max 0,6 Sn . 0.05 Max Ti0 0.35 Max 0.35 Max 10% base 2 As . . . . . 0.10 Max 0.10 Max 435 iron ore of 3700 miles in 1957 to 5500 miles in 1964. These figures may be compared with the average distance for the United States of 2100 miles, England 2200 miles, West Germany 3000 miles, France 2700 miles, and Italy 3600 miles in 1964. Added to the resulting increase in the percentage of transportation cost in the C & V prices of the imported iron ores, the Japanese steel industry suffered severely from the world-wide soaring of ocean freight rates in 1951-52 and again in 1957 due to international crises. Aiming at the vitally-needed stability both in quantity and price of imported iron ores, the Japanese steel industry has emphasized the need for long-term contracts, based on thorough study and future outlook, to secure smooth deliveries of high-grade ores in large quantities, and the creation of a fleet of large-size ore carriers. The use of large-size ore carriers has greatly reduced and effectively stabilized the freight costs. The ever-increasing distance of transportation from the supply sources, however, imposed a certain limit to this also, and a closer source of iron ore was intensively sought to further reduce the raw materials cost. In 1965 Australia came into the limelight as an important source of iron ore to Japan. Long-term contracts have been signed to import nearly 200 million tons of high-grade iron ore from there during the next two decades starting in 1966. The Japanese steel industry has also entered into contracts to purchase about 151 million tons of pellets from Australia during the period 1968-1988. Australian ores have numerous advantages: (1) they are high in iron and low in impurities; (2) the reserve is large and hence will be a stable source of supply; (3) the distance from Western Australia is 3800 miles, which is about half the distance from South America or South Africa, and substantially shorter than the distance from India of 4500 miles; and (4) the country is politically stable. Another important aspect of the iron ore supply picture is the development of iron ore pelletizing, not only of magnetite concentrate but also of hematite and goethite fines. The following factors stimulated the interest of the Japanese steel industry in pellets: 1. In some of the current supply sources, the high-grade ores are declining and the low-grade fines are increasing. Pelletizing provides a method of utilizing these fines and of lowering collectively the cost of ore and pellet. 2. Pellets have beneficial effects on blast furnace production efficiency. 3. Imports in the form of pellets reduce capital investments on domestic sintering installations. 4. Improvements in transportation and unloading efficiencies may be expected with pellets. The Japanese steel industry has made contracts to purchase pellets totalling 17 million tons over the next five years from Peru, the United States, and Goa. 434 FIGURE 10-5 TRENDSOF THE AMOUNT,C&F PRICES ANDPERCENTAGE BY SOURCESOF IRON ORE IMPORTS . llJ 20 u-z 0: 0 Ca F a. I- WO: C) w 10 ~--FOB FREIGHT ct 0 , # .· 50 .., . ,,, .. (I) ,• w , ,, 0: 40 , ,, 0 (I) z zo 01- 30 -z0: w-oO I- -' 20 er ~ o:e a. :e 10 0 100 ...... I- ... ·-..... u a. ••4Usr, ~-4/...... •·. . tq w 80 . 4 . ' u .' ,(','9.•. a:: ', ...... liC,q ", ', ..... ", ::> S, ... .• 0 Ou ... . (I) ~ "', ' 60 It 4 ''. )- (D .... /\'a ··... "'~~i'c . 'I?.,.It ...... 4 z ...... 4-if. ~.Ai> ..... ____ 0 40 PHILIPPINES I- ...... t'c4 ::> ...... ID ... ,..... er .._...... I- 20 .. ... (I) MALAYSIA ,, .""• --.:.... "', 0 ...... ,, ··-.:::::: 0 1950 1955 1960 1965 1970 433 FIGURE 10-4 TYPICAL MILEAGES FROM MAJOR SUPPLY SOURCES OF RAW ¥..ATERIALS (, CHINWANGTAO W.~TANA · ·, 960 \_ (\/IA SLE:Z1(),700) ' MA CAPEr:J: 0000 HCFE~ ~~! '\ HAMPTCNROADS -. I0,140 • ',1 .i:,.. w N ',~ LIBERIA _....------. ,,,, (VIA SUEZ 11,800) ----·~\- . VIA PANAMA (VIA CAPE ' \'J ~-, " SA~ Fl' 1£WCASTLE44~~\tf "'-,,~ SYDNEY 4470---.ll, PCRTKEMEL\4~0-" . VIA CAPE" Ln w1 al too set the cost of raw materials, every effort is being made to increase the production efficiency of blast furnaces: building of larger furnaces, beneficiation of burden materials, reduction of coke ratio by the use of higher blast temperature, humidity control, oxygen enrichment, fuel injection and high top pressure, and automation. Another contribution in lowering the cost per ton of steel is the reduction of scrap ratio by the introduction of LD converters. In this article, the major topics discussed are: iron-making raw materials; the present status of the Japanese steel industry and its future outlook; the technological developments which have contributed to cost reduction; and the professional societies and technical organizations which provide cooperation and coordination of research and development activities by the steel producers, universities, and governmental laboratories. RAWMATERIALS REQUIREMENTS AND SOURCES With the exception of limestone and semi-coking coal, Japan is not blessed with iron-making raw materials, and her steel industry must be dependent largely on overseas sources for its supply. In order to become and remain competitive in the world market, strenuous efforts have been and are being made to secure stable sources of iron ores and coking coal, and to reduce freight costs, Iron Ore In the 1950's South East Asia has been the major source of iron ore supply for the Japanese steel industry. As the production grew, the iron ore reserve in this region became insufficient to meet the demand, and the development of her supply source spread all over the world. From about 1960 the major sources have shifted gradually to South America, India, and Goa. Figure 10-5 presents the quantities of imported iron ore, the distribution by sources, and the average price delivered at the Japanese steel mills in the last 15 years. The future trend is also included by estimating the iron ore requirements on the basis of the expected crude steel production shown in Figure 10-1. Accompanied with this was the increase in the distance of haulage from the overseas sources, e.g., the average distance per ton of imported 431 FIGURE 10-3 LOCATIONOF INTEGRATEDSTEEL MILLS ANDTHE SHAREOF PIG IRON ANDCRUDE STEEL PRODUCTIONBY MAJORCOMPANIES ,-UJI 11101118STHL J\, _ll8JROAAIIII __ l'UKUOKA- YAWATAIROlll 8 STIE(L (•1M1T SUI TOKAI IRON 8 STHL (TOKi"i) !l.NITOMO lil!TAL (KOKUAA) _lf_OfdO~tTAL (WAXAYAM~ P'UJI IROI\I 8 ST££L ( TSUIIUSAI< I) _\V~-P_I!!$Tf;t]._1!!fll_VS!!,~ NISSHIN_ SEIi(() (K_Lfl_C~)-~ Cl FULLY IN OPERATION o PLANNED, UNDER CONSTRUCTION,OR PARTIALLY IN OPERATION o PRINCIPAL CIT.Y OTHERS 2.3% OTHERS 24.2 % YAWATA23.6'11, FUJI 20.7% 430 FIGURE 10-<~ APPARENTCONSUMPTION OF STEEL PER CAPITAOF VARIOUSNATIONS IUSA , ,"' I (/) ,...... ,, :; 600 ,, ,.,,. ,,' <( I ...... _, , a: C) ,' \ ,,,r--- 0 , ' ' GERMANY :d I , \\ A. •.,' /w. ~ I \ ,, / I · 500 I I \ ,_ ... /• ...... ' ~....._,, , ~ \ ,,' I '.....J a... ' , <( u "' I U.K. I I\ ,/r--- - -...... I , ~ 400 I ...... I I \ / a.. I .,..,...... , / \ / USSR I ,,,.,. ', I \ / - • -·-••• z I ' I \ ( ...... _,,"--- 0 , 1,,,*' ' ,____ I ', --'J.... , / ,,, FRANCE I- a... ,,,,,.--- , I'-;.,,-.-----.------~ 300 ' ./·· ::> / - ' ...... I' , (/) , - ...... ,_., z / ,_,,.. -- V 0 u _,:;.,"'r-·· ~';,' ...J w 200 w ..... (/) ..... z w a: 100 <( a.. a.. cl 0 t954 '55 '56 '57 158 159 160 161 162 163 164 165 429 Kamaishi mine, currently producing 400,000 tons annually, is the major supplier of the domestic magnetite ore. Fuji's Kamaishi Works was historically built to use the ore from this mine, but now depends largely on foreign sources, Iron sand is widely distributed along the coast of Japan and can be readily concentrated magnetically to between 56 and 60% iron. The total reserve of iron sand in Japan is estimated at 2.5 billion tons with the iron content ranging from 3 to 50%, Out of the current annual production of approximately 1.4 million tons, 75% is used in blast furnaces and 25% in electric smelting furnaces. Since iron sand consists mainly of magnetite and is relatively free of minus 150 mesh material, its use as sinter feed is advantageous in reducing coke requirements and increasing sinter-bed Since it contajns, however in the ragne of 7 to 10% Tio 2 mainly in solid solution with magnetite, the amount of iron sand in the blast furnace burden is thus limited to between 50 and 150 kg. per metric ton of hot metal. It was reported recently, however, that a small-scale blast furnace (inner volume 50 cubic meters) may be operated successfully using up to 50% iron sand by blowing iron ore fines into the molten iron layer, thereby removing the titanium from the hot metal by oxidation. Approximately 90% of the pig iron produced by electric smelting is based exclusively on iron sand. Because of its quality, electrically smelted iron is considered to be the preferred stock for special steel manufacture. As the result of intensive developmental work with preheated and prereduced charges, which have lowered the electric power requirements from 2250 kwhr to 900 kwhr per ton, the annual production of electrically smelted iron has remained constant in the range of 350,000 to 400,000 tons during the last few years. However, electric smelting is facing serious com petition from the use of high-quality burden materials in blast furnaces. Other processes currently in operation for treating iron sand are the Krupp-Renn process and the Wiberg process, which annually produce 50,000 to 60,000 tons of luppen and about 180,000 tons of sponge iron, respectively, Pyrite cinder containing in excess of 55% iron is being utilized as an iron-making raw material. It usually contains such impurities as sulfur (0.5 to 3%), copper (0.2 to 0.5%), and zinc (0.1 to 0.7%). Since it is relatively fine in size, pyrite cinder has been used exclusively as a sinter raw material. As the size becomes finer, the sintering operation is adversely affected with respect to both the quality of product and the efficiency of operation. In order to extend the tolerance limit of fines, a process consisting of a separate balling operation for fine pyrite cinder and subsequent mixing with the main stream of the raw feed prior to induration (termed "semi-pellet" sintering) has been developed at Fuji's Hirohata Works. Copper in steel adversely affects the deep-drawing quality, and, therefore, its removal from the raw materials is becoming increasingly important. Processes involving re-roasting of pyrite cinder followed by leaching, or sintering in the presence of 0.1 to 2.0% sodium chloride to volatilize copper have been described in the literature. All the domestic iron resources, aside from the limitation imposed by the grade and the impurity contents, are considerably lower than 2 foreign ores in C & F price per percent iron: imported ore, 19 cents, 2 The figure is for imported iron ore fines since the domestic ores, iron sands and pyrite cinders are used as sinter raw feed. The domestic iron resources appear to be somewhat cheaper, but due to their grades, impurity contents, and their effects on sinter quality and production, they are not regarded as having any advantage over imported fines. 437 domestic ore, 17 cents; iron sand, 17 cents; and pyrite cinder, 13 cents. Considerable interest exists, therefore, to develop methods of increasing the use of domestic iron resources. Red dust from steelmaking furnaces has been discarded mainly because it is too fine, with its average particle size of 0.2 to 0.3 microns, and also because it contains such impurities as zinc and sulfur, to be efficiently handled for any practical use. Two processes which have been proposed to eliminate this problem are (1) briquetting, and (2) mixing with sinter raw feed as slurry or as small green pellets. Those with high zinc content are pelletized or briquetted and reduced to remove zinc, thereby producing partially metallized feed for blast furnaces. Some of the processes quoted are actually in operation, the local condition l of different processes. At Fuji's Muroran Works all the LD converter dust is being utilized by processing at 10 tons per hour using the newly developed "rice-grain" method. The dry precipitator dust is balled to a size of 2 to 5 mm and mixed in the sinter raw feed. The red dust is thereby used up to 10% of the sinter mix without obstructing the permeability of the sinter bed during firing. Since iron laterites often contain over 50% iron and large deposits are located in the nearby Southeast Asia, they have attracted much attention from the Japanese steel industry as a potential source of iron ore. A number of methods for removing the nickel and chromium as by products have been developed and tested, including various physical concentration methods as well as hydrometallurgical and pryometallurgical means. Although the world-wide discoveries of high-grade iron ore deposits in recent years have lessened the interest in iron laterites, future programs would be centered on the utilization of their nickel content for alloy steel manufacture. A combined method of segregation roasting and flotation has recently been reported by Fuji's Central Research Laboratory. Coal The coal reserve in Japan consists almost entirely of a semi-coking variety, and, therefore, the supply of coking coal for the manufacturing of metallurgical coke must depend totally on import. Before the war coking coal was obtained from North China and Manchuria. When the Mainland China supply ceased after the war, an alternate source was found in the United States. The overwhelmingly superior quality of American coal (low ash, low sulfur, and high coking property) soon made the Japanese steel industry recognize its economic advantages. The ash content decreased from 20 to 25% to the current of 9 to 10%, and the sulfur from 0.7 to 0.8% down to between 0.5 and 0.6%. Although the use of American coal was mainly responsible for the world record of the lowest coke ratio being held by Japan, there remained an inevitable disadvantage in the particularly long distance of haulage extending over 10,000 miles via the Panama Canal. The use of large-size coal carriers reduced the freight costs, but their essential limitations stimulated an intensive search for closer sources 438 of supply. Australia started to increase her shipments of coal to Japan from about 1958-59, and expanded the harbor facilities of Port Kembla in 1962 to accommodate large-size coal carriers (35,000 dwt). The Australian share of the total coal imported by Japan was almost the same as the American share in 1965. The quantities of domestic and imported coal used by the Japanese steel industry, the distribution by sources, and the average delivered prices are shown in Figure 10-7. The delivered price of coal in the 1950 1 s frequently exceeded $20 and reached as high as $30 per ton in 1957. It is readily apparent why the Japanese steel industry has placed much emphasis on the lowering of the coke ratio. Prior to 1961 imported coal was almost entirely of the coking variety. This was due to the trend the nation to build las required a higher proportion of coking coal to maintain the necessary physical strength of the burden. The importing of semi-coking coal in an appreciable quantity started in 1961. Other minor sources of imported coal at present include Canada, the Soviet Union, and Mainland China. Domestic semi-coking coal, unlike domestic iron resources, supplies a substantial portion of the total coal consumed, and yet the steel industry suffers from the paradoxical dilemma of domestic coal being more expensive than coal imported from distant overseas sources. In all, the Japanese price of a ton of coke is indeed the highest in the world: the United States, $17; West Germany, $22; England, $24; France, $22; and Japan, $29. Active research efforts are being made in the development of technology to lower the coke ratio further, in the possibility of utilizing petroleum coke, and in the production of coke using either semi-coking coal or even noncoking coal as major raw materials. Scrap Having chronically suffered from the high prices of scrap and their wide fluctuations, much interest has been expressed in increasing the pig to-scrap ratio in the steel-making processes, and particularly in introducing LD converters which can operate entirely with molten pig. This is reflected in the rapid increase in the production of LD converter steel in recent years (see Figure 10-1). The amount of consumption and the average delivered prices of both domestic and imported scrap are shown in Figure 10-8. It is readily apparent that the price of sc:ap has fluctuated in the last 15 years from $40 to $85 per ton, and during some months in 1957 the price soared to well above $90 per ton. Even today the delivered price in Japan is still at least $10 higher than in any of the major steel-producing nations. A comparison of the total scrap consumption with the total pig production, as shown in Figure 10-8, points out that nearly equal amounts of scrap and pig were used in the steel-making processes until 1961. Due to the rapid growth of LD converter production, the consumption of scrap is now decreasing, and since 1962 has fallen considerably behind the production of pig. In general, capital goods require a relatively long time to turn into scrap, whereas durable consumer goods take a relatively short time (about 20 years). The rapid growth of steel production in the 1950's, therefore, had to be supplemented with large quantities of steel scrap. To alleviate the scrap shortage, a number of direct reduction processes were tested. Only in recent years has 439 FIGURE 10-7 TRENDOF THE AMOUNT,C&F PRICES ANDPERCENTAGE BY SOURCESOF COALUSED BY THE IRON ANDSTEEL INDUSTRY :z 30 0 I- a:: w a.. 20 ~ w u a:: a.. u.. (/) , :z 30 ,, ,, 0 ,, I- _.. -··· :z ...--- 0 ...J ...J 20 ~.. 1 ~ IMPORT I- a.. 10 ~ i ------:::::> ------(/) :z f 0 DOMESTIC u 0 t- 100 u a. • 80 lLJ AUSTRALIA u a:: :::::> 0 60 ·--.., .... (/) ...... _ ...... __ >- m 40 :z 0 DOMESTIC ------I- :::::>20 m a::- I- (/) 0 1950 1955 1960 1965 1970 0 440 FIGURE 10-8 TRENDOF THE AMOUNTAND PRICE OF DOMESTIC ANDIMPORTED SCRAP USED BY THE JAPANESESTEEL INDUSTRY z 80 0 I- ~\v ex: w 60 ~C:, Q. tP~, ==.. w 40 /,.,_ ~ A. ex: ts a. 20 I IA.. 1....-. dS u 0 30 .. ~ lo.. ~ Cl)z 0 u 10 1955 1960 1965 ''-'70 441 domestic scrap begun to feel the expansion of steel production of the early 1950's. The total supply of domestic scrap is expected to increase from 6,8 million tons in 1965 to 10 million tons in 1968 and to 13 million tons in 1970. In a not-too-distant future, the scrap requirement of the Japanese steel industry is expected to be balanced entirely by domestic sources. Limestone Limestone is one of very few natural resources in which Japan is self-sufficient. High-grade deposits are widely distributed throughout the nation, and the reserve is estimated at not less than 30 billion tons. Approximately 78% of the reserve is of noncrystalline and dense variety u use in iron and steel-making. As the production of steel has grown, the demand for limestone has increased. The rate of increase, however, has been considerably less due to the use of higher grade iron ores and of self-fluxed sinter, fuel injection, and to the accompanying reduction in coke ratio. The limestone requirements decreased from 246 kg. per ton (492 lb. per net ton) of hot metal in 1955 to 125 kg. (252 lb. per net ton) in 1960, and to 85 kg. (170 lb. per net ton) in 1963, The consumption of limestone by the Japanese steel industry, including that in the steel-making processes, totalled 11 million tons in 1965, Ocean Freight and Large-Size Carriers The ocean-freight percentages in the C & F costs of imported iron ores and coal are quite high, ranging respectively 41.5 to 37% and 38 to 32% during the years 1961 to 1963. Besides, ocean freights are by nature known to be unstable and to fluctuate widely. This is clearly indicated in Figure 10-9, in which the freight rates for a few typical routes in a recent ten-year period are shown. For example, the freight rate for ore between Goa and Japan ranged from $6.70 in 1954 to $18.20 in 1961, and the freight rate for American coal varied within a one-year period (1961) from a low of $7.25 to a high of $11.00. Clearly, in order to stabilize the raw material cost, it was necessary to stabilize the ocean freight by using ore and coal carriers. Yet the economics of using ore and coal carriers required a steady flow of these raw materials in large quantities for extended periods of time. Around 1960 the raw materials requirements of the Japanese steel industry increased, large sources of supply became available as a result of long-term contracts, and the number of ore carriers increased rapidly. At present, 80% of the Malayan iron ores, 50 to 60% of the Indian ores and nearly 100% of the ores from the United States, Canada, and South America are transported on ore carriers. A considerable amount of American and Australian coal is being transported on coal carriers. The use of ore and coal carriers has markedly lowered ocean freight rates. Although the haulage distance for iron ores increased from 3700 miles in 1957 to 5100 miles in 1963, the percentage of the ocean freight cost in the delivered cost decreased from 57 to 37%. In addition, the expansion of unloading facilities has cut the anchoring time, thus raising the efficiency of the sailing schedule of large-size carriers and contributing to further decreases in the delivered costs of imported raw materials. 442 FIGURE 10-9 TYPICALOCEAN FREIGHT RATES FOR IMPORTEDIRON ORES ANDCOAL 20 - IRON ORE (GOA-JAPAN) 4900 MILES 7- / 0 t- 15 n: w a.. ~.. IRON ORE (DUNGUN-JAPAN) w 2600 MILES t- 5 \_IRON ORE (LARAP- JAPAN) 1400 MILES 0'--~--~--~--~--~--~------~--~---~---1955 156 '57 158 '59 160 1 61 '62 163 164 '65 443 Eighty-four ore and coal carriers totalling 2,910,400 dwt are now in operation and 1,368,000 dwt additional are expected to be constructed after 1967 (Table 10-2), The reasons behind this contemplated rapid increase in tonnage are as follows: 1. As a result of the long-term contracts made with North and South America, India and Goa, South Africa and Australia, regular transportation in large quantity will become necessary. 2. As the harbors and the unloading facilities of the Japanese steel mills are expanded, the harbor facilities of each iron ore and coal supply source will also be expanded to accommodate large-size carriers. The berth depths in larger harbors are expected to be dredged to 14-16 meters (46-52 ft.) by 1968, thus capable of accommodating carriers of 90,000 to 100,000 dwt. 3. Advancement in shipbuilding technology makes construction of large-size carriers possible at lower cost. 4. The government has increased its aid to the Japanese mercantile marine. TABLE 10-2 Iron Ore and Coal Carriers Presently in Operation and in Plan for Construction In Operation Japanese Foreign Total DWT (Number) DWT (Number) DWT (Number) Ore Carrier. • 1,414,000 (53) 538,000 (8) 1,952,000 (61) Coal Carrier 252,300 ( 8) 377,000 (9) 629,300 (17) Pellet Carrier 111,300 ( 2) 111,300 ( 2) Bulk Carrier 217,800 ( 4) 217,800 ( 4) TOTAL .•• 2,910,400 (84) In Plan (for construction after 1967) DWT (Number) Ore Carrier. 800,000 (14) Coal Carrier 213,000 ( 5) Pellet Carrier 122,000 ( 2) Bulk Carrier. 54,000 ( 1) Coal-Oil Carrier 121,000 ( 2) Bulk-Oil Carrier. 58,000 ( 1) TOTAL . . 1,368,000 (25) 444 DEVELOPMENTSIN IRON-MAKINGTECHNOLOGY From the foregoing discussion it is readily apparent that major efforts have been directed towards increasing the efficiency in blast furnace operations, particularly in a reduction of coke ratio, and in an increased pig-to-scrap ratio through the adoption of the LD process. In this section some of the major developments in the raw materials field which contributed to the blast furnace performance will be briefly reviewed. Various technological developments, such as the use of larger furnaces, beneficiation of burden materials, high temperature blast, humidity controlled blast, oxygen enriched blast, fuel injection, high top pressure, reduction in the' coke ratio in the last 15 years, as illustrated in Figure 10-10. The national average of the coke ratio in 1951 was 911 kg. per ton (1822 lb. per net ton). Through the use of higher grade iron ores, as indicated by the lower ore ratio in Figure 10-10, and the installation of sizing facilities throughout the nation starting from 1953, the coke ratio was improved rapidly to 720 kg. (1440 lb. per net ton) in 1957. Humidity controlled blast, started in 1958, reduced the coke ratio to 650 kg. (1300 lb. per net ton). In 1960 it reached 619 kg. (1238 lb. per net ton) when the extensive use of self-fluxed sinter was started and the oxygen-enriched blast was incorporated. Fuel injection, introduced in 1961, lowered the coke ratio further to 507 kg. (1014 lb. per net ton) in 1965, contributing significantly to the reduction in the production cost of pig iron. There is an example of the coke ratio as low as 300 kg. (600 lb, per net ton) at present. Table 10-3 shows the average coke ratio of the major steel-producing nations in the last five years. Clearly evident is the result of concerted efforts to attain the lowest coke ratio by the Japanese steel industry through the procurement of high- grade iron ores and through the adaptation of numerous technical innovations developed throughout the world--all in order to offset the geographical disadvantages and to stay competitive in the world market. TABLE 10-3 Average Coke Ratios of Major Steel Producing Nations (kg. per ton pig) Year 1960 1961 1962 1963 1964 1965 Japan. 619 599 552 523 509 507 U.S.A. 748 708 690 669 655 656 England. 825 818 774 719 698 680 W. Germany 826 797 748 726 696 680 France, 971 955 917 848 808 784 Italy...... 751 697 696 657 661 646 445 FIGURE 10-10 OPERATINGDATA OF BLASTFURNACES IN JAPAN 1.0 0 ..... <( oc w ~ 0.6 0 0 t u <( 0.5 1.6 a::: w er 0 a::: 70 1.5 WW ~ (.!) 60 (/)- a:::<( .....:x: zU 50 wll.: u. 40 a:::m Wz a._ 30 I.4 >-".....::E ..... 1.2 > a::: .:: w 1.0 g a. ,,, 0 (/) 0.8 oz ::E' 1200 a:::0 LI.. .. a...... Q(I) 1100 0.6 wtj ~~ 1000 ..J a::: ~~ 900 (/) ffiti; 800 w cl LI.. u 0 <( i~ 700 z a:::a::: w ::, m Lt.. :l: ..... :::) (/) z~_, Cl 1950 1955 1960 446 In Japan the productivity of blast furnaces is expressed in terms of pig iron tapped per cubic meter of inner volume per day, and the capacity of blast furnaces by the inner volume in cubic meters. The productivity increased steadily from 0.8 ton to 1.5 tons per cubic meter in the last 10 years, and as high as 2 tons per cubic meter has been reported. Sizing and Blending It is well known that the size distribution of the charge is closely related to the output and efficiency of a blast furnace--the fines in the raw materials must be removed to avert operating aifficulties and the coarse iron ore lumps must be crushed through a certain size depending materials charged to major blast furnaces in Japan may be summarized as follows: Iron ores 8/10 mm to 25/35 mm Sinter 5 mm to 75 mm Coke 15 mm to 75 mm Positive control of the size distribution of the ore charge started in 1953 at Fuji's Hirohata Works with all other companies following suit. At Hirohata Works the size range of the iron ore was controlled between 10 and 50 mm after the first improvement program in 1953, between 10 and 40 mm after the second improvement in 1960, and then between 10 and 25 mm after the third improvement in 1965. Typical size distributions of coke, sinter, and iron ore lumps after the three improvement programs are shown in Figure 10-11. The effect of sizing the ore charge is being investigated by actual furnace tests in various plants: at Hirohata Works the reduction of iron ore lumps from a range of 10 to 40 mm to the range of 10 to 25 mm was reported to result in an 8,0% decrease in the coke ratio and a 3,0% increase in the pig iron production. At Yawata's Tobata Works the reduction from between 8 and 40 mm to between 8 and 30 mm resulted in a 5.5% decrease in the coke ratio and a 3.8% increase in the pig iron production. In both plants the proportion of the sized ore in the charge ranged from 30 to 40%. The sizing installations at Japanese steel works consist either of two-stage crushing with three-stage screening, or of three-stage crushing with four-stage screening in closed circuits. For coarse crushing, gyratory crushers are generally preferred, and for intermediate crushing, cone crushers are used. A number of different types of vibratory screens are in use depending on the conditions and preference, Screening efficiency is seriously affected in the treatment of sticky iron ores. The stickiness is greatly influenced by the relative amounts of clayey components and the moisture content, so a loose-rod-deck screen has been developed for the screening of such a material. Although a large variety of iron ores, each in small quantity, characterize the ore supply for the Japanese steel industry, ore blending 447 FIGURE 10-11 SIZE DISTRIBUTIONOF BLASTFURNACE CHARGE MATERIALS AT FUJI'S HIROHATA;JQRKS 100 90 R ORE (1966) 80 , '/ I ~ 70 , \ I \ ORE (1962) .... 60 X Q I w 50 r---X 3: +=' I ~-f-<>-, +=' I t- 00 z 40 w u er w Q. 30 COKE (1966) 20 I 10 SINTER (1966) 0 ------~...... 10 20 30 40 50 60 70 100 SIZE, MM is a relatively recent development. In 1953 a combination Hewitt-Robins stacker and reclaimer was installed at Kawasaki's Chiba Works. Bed blending systems established since then at Fuji's Hirohata Works, Yawata's Tobata Works, and Nippon Kokan's Ogishima ore yard effectively minimize the fluctuations in composition of charges prepared for blast furnaces and sinter strands. Agglomeration Since the increased emphasis on sizing of imported iron ores has resulted in an increase in screened fines, Japanese sintering capacity has been considerably expanded. The sintering process has an additional advantage in Japan of being able to utilize domestic raw materials such as cinder, iron sand, and mill scale, available locally at low cost. The percentage of sinter in the blast furnace burden has increased as shown in Figure 10-10. Prior to 1953 the sintering facilities consisted mainly of small scale, batch AIB and GW-type machines and of only a few continuous DL type machines with production capacities of up to 1250 tons per day. Since then twenty sintering installations have been added, which are all of the DL type. Recent trend is towards increasingly larger grate areas with daily capacities of 3000 to 5000 tons. The largest sinter strand at present is at Tokai Steel with a grate area of 180 square meters (1938 sq. ft.) and a maximum production record of 7000 tons per day. As the size of sintering machines became larger, a number of automatic control systems to regulate the moisture in the raw feed, the hopper level, the bed depth, the pallet speed, etc., have been developed. These systems centralize the control of the operation, stabilize the sinter quality, and maintain maximum production. With the increased use of sinter in the blast furnace burden, the physico-chemical properties of sinter have been studied extensively. Self-fluxed sinter has been a subject of much research in Sweden and in other countries for many years, but it was not until 1953 that the use of a 100% self-fluxed sinter charge in a blast furnace was first tested in Japan at Sumitomo's Kokura Works. A number of plant tests made in 1958 by other Japanese steel companies confirmed its advantages. Since then self-fluxed sinter has been widely accepted throughout the nation, and currently nearly all the sinter produced in Japan is of the self-fluxed variety. The effect of self-fluxed sinter on blast furnace performance was investigated in detail from April, 1961 to January, 1962 at Fuji.' s Hirohata Works. The experimental results are summarized in Figure 10-12, from which the following equations have been generated to relate the coke r~tio (CR) and the pig iron production (P) with the percentage of self-flux sinter used (X) in the blast furnace charge. 2 CR(kg/t-pig) = 627.1 - 0.20X - 0.008X 2 P(ton/day) = 1514 + l.23X + 0.22X 449 FIGURE 10-12 EFFECT OF SELF·-FLUXEDSINTER ON COKERATIO AlJD PRODUCTIVITYOF A BLASTFURNACE I I 10 9 _J 8 ~ Ii') 0 7 ... z 0 6 t- a.. ~ ::> 5 Cl) z 0 u 4 -...J 0 3 >- <(> w 2 :c QL...... J~----L ...... --...... 1..----...... &....-- ...... -&...... _...... &,-___. 1 1 1 1 1 1960 61 62 63 64 65 450 An example of the performance data of Tokai's No. 1 blast furnace with a charge consisting of self-fluxed sinter in excess of 90% is shown in Table 10-4. The optimum basicity of the self-fluxed sinter at each plant varies with the raw materials situation. At Kawasaki's Chiba Works the basicity of sinter is maintained at about 2.2 since their blast furnace charge consists of 20 to 25% pellets, and, therefore, the proportion of sinter is necessarily low (30 to 35%). At Takai Steel, where over 90% of the charge is sinter, the basicity is near 1.25, Many plants are, however, operating at about 1.5. As compared to the sintering capacity, the pellet production in Japan ons p year. Kawasaki Steel is the largest producer, amounting to 1,2 million tons, followed by the newly built one million ton per year plant of Kobe Steel, with the remainder shared by six companies. All of these producers, except Kobe who employs a grate-kiln, are using shaft furnaces with screened fines, pyrite cinder, or iron sand as raw materials. The power required for regrinding the returned undersized pellets contributed sig nificantly to the cost of pelletizing, Utilization of this return as raw sinter feed has been reported by Kawasaki's Chiba Works to improve the yield of their sinter strand, thereby reducing the overall production cost of both pellets and sinter. The Japanese steel industry in general has had only limited experience with pellets. When a few experimental furnace tests showed that pellets nearly equal self-fluxed sinter in their effects on blast furnace performance, much interest was shown on a study of self-fluxed pellets. Major research efforts on pellets at the present time are, however, directed towards establishing the necessary purchase specifications in order to eliminate pellets with such undesirable qualities as degradation in handling or during reduction, which has been experienced in some of the experimental furnace runs. Prereduced pellets are looked upon with great interest for their potential in reducing the freight cost, in increasing the blast furnace productivity, and in lowering the coke ratio by replacing the expensive coke with other forms of fuel. Fuel Injection Because of the high price of coking coal, the Japanese steel industry has placed major emphasis on the development of techniques for using other fuels than coke in the blast furnace. In 1961, Nippon Kokan's Kawasaki Works was the first in Japan to incorporate the injection of heavy oil to a blast furnace. Yawata Works followed with an injection of coke oven gas, also in 1961. Tar was used by Nippon Kokan's Kawasaki Works in 1963. Since that time fuel injection has spread rapidly, and at present all of the blast furnaces in Japan are operating with fuel injection, mainly heavy oil. Their individual practices differ somewhat, but the rate of injection averages about 30 to 40 kg. per ton of pig iron with a substitution ratio of one kg. of heavy oil per 1.3 kg. of coke, A further increase of the heavy oil results in a decrease in the substitution ratio and also in operational problems involved with incomplete combustion at the tuyeres. 451 TABLE 10-4 Operating Data of Takai No. 1 Blast Furnace (October, 1966) Specifications Hearth Diameter .. 9,8 m Inner Volume 2021 m3 Blowing In. September 5, 1964 Productivity • 2.00 MT per Blast Volume .•. 3420 Nm3 per minute Blast Temperature. 1.97 kg per cm2 Blast Pressure •.• 1001 °C 3 Moisture in Blast. 33 g ~er Nm Oxygen Enrichment. 21 Nm per MT pig Coke Rate ..... 493 kg per MT pig Fuel Oil Injection 29 kg per MT pig Slag Volume. , •. 306 kg per MT pig 2 Top Pressure .••. 0.40 kg per cm Top Gas Temperature .. 203 °C Flue Dust. • • 26 kg per MT pig Iron Analysis - % Burden C. 4.69 Sinter. 1457 kg per MT pig Si o. 78 Sized Ore 116 kg per MT pig Mn 0.70 Limestone 1 kg per MT pig s 0.027 Average FE. 58.33% P •• 0.122 Slag Analysis - % Sinter Sio •. 36.8 Minus 5 mm• 8.7% 2 . . Al o . 14.4 Average Size. 17.5 mm 2 3 . . Cao. 41.2 Shutter Index . . 89.0 MgO. 6.0 CaO/Si0 . 1.23 2 Top Gas Analysis - % Coke CO . 19,6 Size (75-25 mm) 91.8 percent 2 . co. 23.0 Ash . . . . 10.58 percent The latter problem was solved by atomizing the heavy oil with oxygen. The amount of heavy oil being consumed in Japanese blast furnaces is shown in Figure 10-13. A developmental study is under way to inject a slurry mixture of fine domestic coal and heavy oil. 452 FIGURE 10-13 HEAVYOIL CONSUMPTIONBY FUEL INJECTION INTO BLAST FURNACES ~ 700~ -12000 0 w0::: z Q.. 0 .... I, Cl) ,-- z 0::: .. 650 e ,, e 1800 0 w ,, .... Q. 0 . , • 0 0 ...... •' . z C) . 1'I I ,. 0 ~ 600 ,-- • 11600 ....- • u ~ -- Vl 0 -- :, L,.) -- ....- f!~----·; .. 0 < I 0 0::: ! 0::: 550 Q. w 11400 ~ z 0 I 0 0 ~I a::: 500 ~1200 C) a..- 8 I 0 20 40 60 80 100 PERCENT SINTER IN 8.F. CHARGE Current Problems Some of the unsettled problems in the raw materials field have already been mentioned in the text, viz., the handling problems with sticky iron ores, the utilization of red dust from open hearth and LD furnaces, a study of the relative advantages of pellets and sinters including self-fluxed pellets and partially reduced pellets, and the development of techniques for utilizing iron laterites. Besides these problems, much interest has developed in recent years in the study of thermal decrepitation of iron ores. For example, it has been known that specular hematite, such as itabirite, disintegrates upon heating. Not much attention has, however, been given to its behavior in blast furnaces because the Brazilian hematite ore, being of high grade, has phenomenon was observed on certain Australian ores, which raised much concern about this behavior, particularly on ores from South America, India, and Australia. Two methods have tentatively been proposed for testing thermal decrepitation behavior--one in air atmosphere, and another in reducing gas atmosphere. Recommended testing procedures and a few examples of test results are shown in Table 10-5. This problem is being taken up cooperatively within the Committee for Overseas Iron and Steelmaking Raw Materials of Japan (vide infra) for further study to establish the relation between the thermal decrepitation properties and the types of and the location within ore deposits; to test the effects on blast furnace operation when used in large quantities; and to investigate the cause and cure of the thermal decrepitation phenomena. PROFESSIONAL SOCIETIES AND TECHNICALORGANIZATIONS The Japanese steel industry, hitherto relying on techniques introduced from abroad, particularly from the United States, has started to devote considerable efforts in research activities for the development of its own technology. The investment by the Japanese iron and steel companies in research and development is steadily increasing, and in recent years several major steel companies have established central research laboratories, thereby emphasizing a more basic approach to their endeavor. The following are major organizations which provide cooperation and coordination of nation-wide research and development activities. Iron and Steel Institute of Japan The Iron and Steel Institute of Japan, established with the prime objective of promoting technical development in the iron and steel industry, celebrated the 50th anniversary of its foundation in 1964. It has some 10,000 members, and holds the Grand Lecture Meeting twice a year, providing engineers and researchers an opportunity to present the results of their work covering various topics from raw materials to finished products. The number of papers amounts to about 400 every year. The Institute sponsors panel discussions at each meeting on subjects of current interest. Two of the topics taken up in recent years in the raw materials field were "Properties of Pellets and Their Use" and "Behavior of Sinter during Reduction." The Institute published a monthly journal 454 TABLE 10-5 Tentative Methods for Testing Thermal Decrepitation Property of Iron Ores Thermal Decrepitation Thermal Decrepitation Test in Hot Air Test in Hot Reducing Gas Apparatus •.•..•.•. Same as Gakushin reducibility test apparatus. Reaction tube of inside diameter of 70 mm is Sample •. 20-25 mm, 50 gr ditto Air CO 30%, N 70% Atmosphere. 2 reducing gas Gas flow •• 15 1/min. Heating. Sample charged quickly Sample heated in the into the furnace pre furnace to 700 Cat the heated to 700 C and held rate of 5°/min and held at the temperature for at the temperature for 30 min. 30 min. Cooling .••••••.. Cooled in open air Cooled in nitrogen atmosphere Size Analysis •••••• 10 mm, 5 mm, 3 mm, ditto 1 mm Chemical Analysis .••• Deposited carbon Note: Other items not mentioned above should be consulted in Gakushin Reduction Test Method on Iron Ore Lumps (December 9, 1958). Exam:eles Thermal Decrepitation Thermal Decrepitation Test Test in Hot Air Reducing Gas Ore Sample +10 mm 10 'v5 mm -5 mm +10 mm 10 'v5 mm -5 mm A. 99.7 0 0.3 21.5 29.4 49.1 B. 92.4 5.7 2.7 75.7 14.9 19.4 C. 54.6 19.4 26.0 71. 9 18.2 9.9 D. 100.0 0 0 60.2 17 .4 22.4 E. 71.0 14.9 14.1 91. 3 4.8 3.9 455 Tetsu-to-Hagane (Iron and Steel). A quarterly journal, Tetsu-to-Hagane Overseas, is published in English in order to promote the exchange of technical information with the iron and steel circle overseas. Within the Iron and Steel Institute of Japan, the Joint Research Society has been o-.cganized with major emphasis on the study of complex practical problems in steel mills. Currently it has 14 divisions including the Steelmaking Division, Laterite Research Division, Atomic Energy Research Division and the Pigmaking Division. Since its reorganization in 1955, the Pigmaking Division has held 29 meetings, usually two to three times each year. Its membership is represented by the general managers of the blast furnace departments, although engineers of all levels attend its meetings. The following are Properties of coke and blast furnace operation (1965) Size distribution of sinter raw feed and the product quality (1965) Optimum basicity of sinters (1966) Effect of size of blast furnace burden materials (1966) Besides the above, the Pigmaking Division has established the following standardized methods in order to facilitate the comparison of plant data. Sintering test procedure (1960) Screen sizes for iron ores (1961) Standardized method for calculating the inner volume of blast furnaces, the volume of gas produced, the blast volume, the amount of iron tapped, the slag volume, etc. (1960). Method of calculating the standard capacity of blast furnaces (1960 revision) Gakushin 54th Committee The name "Gakushin," now widely known in the United States through its reducibility test procedure for iron ores, is the abbreviation of the Japan Society for the Promotion of Science. The Gakushin was established in 1932 in the form of a foundation for the purpose of encouraging scientific studies in Japan. The activities of the society cover all the fields of natural as well as humanistic sciences, and the number of committees thus established exceeds two hundred. For the iron and steel field the Nineteenth Committee (on Steelmaking research) was first organized in 1934, from which the present Fifty-fourth Committee (on pigmaking) was established as a separate group in 1943. Since then 68 meetings have been held. The members, consisting of scientists and engineers from universities, government agencies, and blast furnace departments and research laboratories of steel producers, participate in reporting and discussing the basic as well as the applied research work in the fields of ore beneficiation, agglomeration, chemical reactions in blast furnaces, and blast furnace 456 operations. In addition, a subcommittee has been organized to standardize various testing methods. The standardized methods thus established to date as the Gakushin procedure are as follows: Determination of shatter strength and porosity of sinters (1952) Reducibility test procedure for fine iron ores (1955) Reducibility test procedure for lump iron ores (1958) Identification of microstructure of sinters (1965) Testing methods for pellets (1964, tentative) Determination of tumble strength of sinters (1966, tentative) Currently, the topics under study by the subcommittee are directed towards (1) a study on the behavior of iron ores, sinters, and pellets at room and elevated temperatures, and (2) a study of the chemical reactions in blast furnaces based on a chemical engineering approach. The study on the testing methods is being transferred to the ISO Physical Testing Working Group described below. Japan Iron and Steel Federation The Japan Iron and Steel Federation, founded in 1948, is an organization of voluntary membership, composed of 78 independent companies engaged in the manufacture of iron and steel. The Federation conducts research and studies problems in the industry relating to production, equipment and facilities, raw materials, demand and supply, the market situation, technology, and labor; collects data and prepares statistics; acts as the industry's spokesman to the government, to other private organizations, and to the general public. ISO Committee on Iron Ores, Physical Testing Working Group The first international conference of the ISO Committee on Iron Ores (TC102) was held in Tokyo in 1963, and a study group on physical methods of testing iron ores, designated as WGl, was organized along with a sub committee on sampling (SC 1) and a subcommittee on chemical analysis (SC 2). The second international conference of the WGl was held in Washington, D.C., in 1966, and the first draft on "Tumble Strength of Pellets, Sinters, and Iron Ores" was submitted. The study group in Japan has prepared, based on the Gakushin procedure described above, test procedures for tumble strength of pellets, shatter strength of sinters, and the reducibility of iron ores. In addition, the group is studying methods for the deter mination of porosity, the tumble strength of sinters, the crush strength of pellets, and the swelling during reduction. The WGl has since become an organization for preparing a draft of the Japanese Industrial Standards (JIS), and the three methods, prepared as the ISO first draft and described above, have been established as JIS. The ISO Committee on Iron Ores is coordinated by the Agency of Industrial Science and Technology, Ministry of International Trade and Industry, but its operation is delegated to the Japan Iron and Steel Federation. 457 Committee for Overseas Iron- and Steel-making Raw Material of Japan This committee, established within the Japan Iron and Steel Federation and represented by the presidents and the directors in charge of raw materials of companies with integrated steel mills, coordinates the various efforts in the exploration, exploitation, and purchase of overseas raw materials for the whole steel industry in Japan. Its major activities include: 1. Investigation of the investment and exnloitation of various mines overseas. 2. Study of the construction program of ore carriers and recommendations to the 3. Study of loading and harbor facilities at supply sources and their improvement, 4. Organizing and sending of the investigating committee to major supply sources and mines overseas. A significant role is thus played by the committee on the investment in a number of mines overseas, and the conclusion of long-term contracts with major supply sources. CONCLUSIONS The Japanese steel industry, once set back by a staggering devastation during World War II, has recovered and attained today's activity and prosperity through the concerted efforts of research and development. Every possible measure has been taken to improve the productive efficiency of their blast furnaces in order to offset the predestined limitations in the raw materials procurement and to explore methods for stabilizing the costs of imported iron ores and coal at a lowest possible level. The cooperation and assistance of many nations, especially of the United States and the Free World, in the procurement of raw materials, tech nology, and funds were essential for the Japanese steel industry to achieve this position. 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