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Alaska-East Asia trade: new players, new scores.

With the election of Walter Hickel, Alaska may have become one of the better-connected trading nations on the Pacific Rim. Observers say the new governor's relationships with key players in the Asian arena are substantial and long-standing and could lead to a maturing of Alaska's commercial partnerships with Japan, Korea, Taiwan and China.

Hickel is a longtime visionary of closer ties with the Pacific region, a fact that apparently plays well in those countries who for years have been the state's preeminent customers. As the new year dawned, the governor was preoccupied with budgetary issues and had not selected a new international trade director. Although a number of names were frequently mentioned as likely candidates, there was also speculation that the trade office would be restructured - again.

Several years ago, Alaska's trade director was moved from the Department of Commerce and Economic Development to the Governor's Office, which many people feel gave the position some badly needed prestige for dealing with protocol-conscious partners. Now, Hickel is considering moving the trade director back to commerce. One reason may be Glenn Olds, the governor's choice to be commerce commissioner and himself a longtime cheerleader for high-powered Pacific Rim policies.

Some observers fear that such a move would send a negative signal, that moving the trade office away from the governor might be perceived as diminishing its importance. Another scenario has Olds essentially assuming the trade mantle himself. This would resolve the issue of proximity to Alaska's head of state, but not the possible dilution of Olds'focus on trade due to the press of other commerce duties, critics say.

For his part, Olds has had little to say about the potential change, telling Alaska Business Monthly it was strictly up to the governor. But in the meantime, he has in fact begun pronouncing the cornerstones of what are likely to be Hickel's trade policies, and it is no surprise that continued cultivation of Alaska's Asian markets is a high priority.

Despite the speculation about the state's trade director, it is important to remember that obstacles to expanding trade with Asia are complex and not likely to be directly or substantially influenced by the governor's initiatives. In many cases these hurdles are linked to the outcome of multilateral trade talks between the United States and other nations, as well as to resolution of international crises such as the conflict with Iraq.

The new administration comes to the marketplace at a time when Alaska's Asian trading fortunes have been marked by growth and change. Statistics for the third quarter of 1990, the most recent available, show that Alaska had sold nearly $2.5 billion in fish, timber, coal, petroleum products, minerals and other products to its four Asian trading partners - Japan, Korea, Taiwan and China.

According to federal trade estimates, a billion dollars in Alaskan exports equates to 8,000 Alaskan jobs, a rough but useful yardstick for gauging Alaska's international market performance in real terms.

Third quarter 1990 exports to Japan, Korea and China were running ahead of year-end totals for 1989. The distinction of largest increase in Alaska imports for 1990 goes to Korea, which posted gains exceeding $69 million. For all commodity areas except minerals, the Asian nations collectively represented more than 85 percent of Alaska's export market.

But while values are up, Alaska's competitors remain strong, especially in the crucial areas of fish and timber. In both of these sectors there is perennial concern about the high level of foreign investment and price control and the relatively low level of locally owned value-added processing.

Although Alaska is beginning to feel the benefit of new developments in the air cargo industry that have made Anchorage an important transshipment center for Asian-bound air freight, the state is still perceived as being a long distance from anywhere. This is true of potential customers who find Alaska's commercial infrastructure crude and undeveloped, as well as of local entrepreneurs who balk at the high costs of developing international markets.

According to Katelyn Carrigan, trade specialist with the state's Office of International Trade, many people underestimate the amount of effort, commitment and capital it takes to do business in the Orient, both to prepare a product for market and to ready the market.

There's so much mystique, so much sex appeal about international trade, everybody wants to get into it. But sometimes it just isn't that simple. You need to crawl before you can walk,' says Carrigan. Some would-be entrepreneurs have no business or marketing plan and freely admit their main goal is to travel to exotic places and write off the trip.

For those who are serious about developing new Asian markets, there can be weighty impediments. Carrigan notes there are limited sources, and limited amounts, of capital for product development and marketing, a potentially serious problem for markets that emphasize quality and sometimes have unique packaging requirements or other product specifications. When trade visionaries talk about the state's stunted business infrastructure, they are talking about local institutions and networks geared toward capitalizing production and trade ventures.

Another problem Carrigan cites is that Alaskan suppliers can't always provide product in sufficient volume to interest Asian buyers.

There have been local successes at selling products in the Asian market besides fish, timber, coal and petroleum products - vodka, glacier ice, jams - but the large-volume commodities continue to dominate the picture. A close look at these areas is needed to fully understand the current state of Alaska's relationship to the Orient. Funneling Fish. Statistics show that Asia absorbs 93 percent of the fish that Alaska sells in U.S. and international markets. Japan alone currently buys 86 percent of Alaska's catch. That represents a long way to travel to attain the kind of market diversity that experts feel is necessary to gain much-needed price leverage.

"We are not a price leader, we're a price follower," says Pio Park, vice president for corporate development for Chugach Alaska Corp., an Anchorage-based Native regional corporation with processing facilities in Prince William Sound.

Through the third quarter of 1990, the value of fish products exported to Japan totaled more than a billion dollars. By contrast, fish exports to Korea were running $64.4 million; to Taiwan, $18.8 million; and to China, $77,059.

Ironically, due to a number of factors, Alaska is losing fish market share in Japan at a time when new customers are only slowly coming on line. Koreans are buying more Alaskan fish; their share of Alaska's catch is up about two percent over 1989. In addition, Korea has just liberalized import restrictions on crab, scallops and sea urchins.

But these diversification developments pale beside the changes beginning to show in the fish houses of Tokyo. Japan now buys fish from 30 other countries, much of it farm raised salmon from Europe, Canada, South America and New Zealand. Through the Alaska Seafood Marketing Institute, the state has mounted new initiatives, notably in France, to recapture some of the market lost to countries with salmon ranching programs.

A novelty with an uncertain future just five years ago, farmed salmon has captured the culinary imagination of Japanese society, because it offers consistent quality, uniform size and a continuous, year-round supply of both fresh and frozen fish. Other factors affecting Alaska's market share and price: a current overall glut in salmon inventories, increased production of Japanese farm and wild stocks, and growing interest in other protein sources, such as beef.

While it is likely that Japan will continue to be a crucial market for Alaskan salmon, many agree it is important to diversify both products and markets. Park advocates such a course and points with regret to what he calls the piecemeal liquidation" of Alaskan-owned processing that could take advantage of numerous new fish market opportunities.

One example of the potential is the interest of Japan's Hankyu Oasis department store chain in selling gourmet Alaskan food items, including fish products, herbal tea, jams, vodka and beer. To give some perspective on the growing importance of such items in the Japanese markets, Park notes that such outlets spend upwards of $250,000 on weekly promotions of Alaskan products.

Park cites fish packaged for microwave cooking and a new low-priced salmon roe pack targeted at Japan's salary man' as the kinds of fish products that hold potential for Alaskan fishermen, processors and traders. The prospect is excellent. It's a logical trend for us to be taking," he says. Timber Rollercoaster. As with fish, timber purchases by Asian nations vary widely.

The Japanese are the state's biggest timber customer, buying more than $323.6 million worth of logs, pulp and cut lumber products through the third quarter of 1990. But due to uncertainties over timber supply in the United States, the Japanese have been stockpiling lumber, which has been pushing prices down for the last couple of years.

At Chugach Alaska Corp., which operates a new sawmill in Seward, Park closely monitors developments in timber markets. He questions the wisdom of some timber owners in the state who continue to pursue aggressive cutting schedules in the down cycle.

"Timber is not a renewable resource in our generation. We have to tighten our belt and not be too anxious to sell. We should cut that production, weather the storm out," says Park.

Park agrees with those who criticize the state for not providing a more consistent supply of logs from state lands, but says maximizing profitability in the Japanese market also requires more thoughtful, long-range strategic planning on the part of industry. Such planning requires a clear understanding of market forces, which are complex and often seem contradictory.

In Japan, demand for timber is closely tied to housing starts, which are expected to drop because of rising interest rates. Yet, despite the swollen stockpile and a restricted housing market, experts actually expect dimensional lumber exports to increase as Japanese tariff regulations continue to loosen. Further, Japanese demand for Alaskan old-growth round logs will remain strong due to ancient forests in the Northwest United States being put off limits.

Demand for Alaskan timber in other Asian markets is a fraction of that in Japan. Korea imports most of its wood and has taken note of Alaskan supplies, buying a little more than 5 percent of the state's timber products export volume in 1990. This volume is expected to grow. Taiwan bought slightly more than the Koreans last year, but growth for 1991 is expected to be flat.

China is a fickle wood buyer; experts say that China has native timber stocks and that imports can fluctuate wildly, from as little as 300 million board feet in one year to more than a billion board feet in another. Similar to Taiwan, China will not be a big customer for Alaskan timber in 1991.

Coal, Petroleum Potential. Asian nations comprise 100 percent of the market for Alaska's coal (with virtually all of it going to Korea) and nearly 89 percent of the 49th state's exports of petroleum products (chiefly produced from Cook Inlet oil fields; by law, North Slope crude cannot be exported). Overall, the cumulative value of these markets has held steady for the last several years.

The coal question on everyone's mind at the end of 1990 was how long progress on the Wishbone Hill mine near Palmer would be held hostage to a recent court decision involving disposition of Mental Health Trust lands. As Hickel rounded out his cabinet appointments and the legislature prepared to convene, the answer was not at all clear.

Wishbone coal is being developed by Idemitsu Kosan, a Japanese corporation that receives high marks from state officials for being a good neighbor and local employer. The project is seen as crucial to the opening of new markets for Alaskan coal.

Nudging Natural Gas. An even more provocative question about the next potential boom in Alaska's trading relationship with its Pacific Rim partners is what impact, if any, the Hickel administration will have on prospects for construction of the natural gas pipeline.

Hickel founded Yukon-Pacific, the corporation which holds permits to build the line and is currently trying to nail down contracts with Asian nations that would make it financially viable. Much of his standing among government and business leaders in the region is based on contacts nurtured in the course of trying to sell Alaska natural gas.

Skeptics remain doubtful the project will ever find enough capital to turn a spade of permafrost; critics doubt Hickel can use his incumbency as governor to advance the project without becoming entangled in conflict-of-interest issues, even though arguably he would command a legitimate promotional role as the state's top trade official.

Hickel's new commerce commissioner, Olds, feels Hickel is strongly positioned to influence a successful pipeline project. He adds, Gov. Hickel is fundamentally an action oriented governor. We're in a fastpaced track now. We are the energy bank of the free world."

That might be a little optimistic. Despite Olds' rather dated use of the term free world,' and notwithstanding new internal uncertainties in the Soviet Union, the Korean press recently reported that Mikhail Gorbachev would travel to Japan in April to deliver a project plan for a 55inch, 6,000-mile natural gas pipeline linking Siberia, South Korea, Japan and the Soviet-owned island of Sakhalin. The energy project is being advanced by the Soviet government in partnership with the Korean Hyundai Group and Tokyo Trade Co. of Japan.

Although there remains uncertainty about how the state's trade office might be restructured, Olds offers a four-point approach to trade that will underpin the new administration's dealings with Asian and other nations:

* Develop value-added features in our trade partnerships. We've been treated like a warehouse';

* Expand the state's role as an international center for cargo transshipment and tourism;

* Modernize Alaska's business and banking infrastructure and become a center for industrial research and development in communications and manufacturing;

* Export Alaskan know-how in resource management and public/ private-sector partnerships, especially to Eastern Europe, which is eager for models for privatizing heavily entrenched government economic and development agencies.

We are one of the few places in the world where East/West and North/ South dialogue takes place... The East Europeans are looking for this," says Olds. Despite his interest in Europe, Olds maintains that the Pacific Rim will continue to receive priority attention from the Hickel administration.

That's probably sound thinking. The Soviet Union, inspired by socialist failures to try capitalist adventures and rich in the same resources as Alaska, presents a special challenge as a competitor to Alaska in the tough and very dynamic East Asian marketplace. 4.
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Title Annotation:includes article on two Alaska companies which are developing Asian business partners
Author:Richardson, Jeffrey
Publication:Alaska Business Monthly
Date:Mar 1, 1991
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