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Trade with Japan: a question of balance.

Trade With Japan: A Question of Balance

For years, Japan was the trading partner that Alaskans loved to hate. Long powerless to protect local fisheries from foreign incursions, struggling to throw off the cobwebs spun by years of federal economic inertia prior to statehood and constantly embattled with domineering commercial interests in Seattle, state residents often sounded alarm at the prevalence of Japanese investment in Alaska resource production. To many, it seemed that the Japanese were high on a long list of interlopers who kept a young state in economic bondage, preying on provincial naivete and insecurity.

Now that the partnership between Alaska and Japan is three decades old, the emotional, sometimes paranoid, rhetoric makes fewer headlines. Still, with the rest of America, Alaskans ponder ways to emulate Japanese business prowess. And among some there is a persistent concern that Alaskans are not realizing all possible benefit from the connection with Japan.

"I think we're vassals to Japan, only because we provide natural products, and they buy such a volume of them, they dictate the price," says Jane Angvik, assistant commissioner of the Alaska Department of Commerce and Economic Development.

"I think we are perceived (by the Japanese) as a third world nation that is abundant in natural resources that they can buy in their natural state. The volume is astounding. They buy 80 percent of our stuff; maybe 85 percent of our fish. It's a staggering amount. It becomes the only game in town."

Japan leads all other nations in the volume of its trade with Alaska in several key areas, including fish and other marine products, metallic ores and concentrates, lumber and wood products, paper and allied products and petroleum and coal products. In almost all areas, trade has been on the rise in recent years, especially petroleum, coal, fish products and lumber and wood products. According to the U.S. Department of Commerce, Alaska's total exports to Japan were worth nearly $1.9 billion, a 23 percent increase over the year before.

Angvik says the marketing of Alaskan seafood illustrates the Japanese trade muscle that keeps the state at a disadvantage: "From their perspective, they get fish from many sources. We represent 40 percent of their source, they represent 90 percent of our market. We are dependent on them for our market."

Jim Campbell is a Republican candidate for governor with 10 years experience on the North Pacific Fisheries Management Council. From that position he helped oversee the eventual Americanization of Alaska's fisheries. Campbell agrees with those who say the partnership with Japan has matured. The establishment of shore-based surimi plants in the Aleutians to process bottomfish into edible paste is a notable success story. But Campbell notes that Alaskan plants could be manufacturing additional products based on the surimi.

Losing their fishing rights was a blow to the Japanese. "It created a substantial hardship for them," says Campbell. But while Americans from Alaska and the Pacific Northwest have duked it out for control of North Pacific and Bering Seas fisheries harvest, important processing opportunities have been overlooked and Japanese companies have quietly re-entered the scene.

"They went out fighting. They lost out, but now they're buying their way back. What concerns me is it's a steady supply of jobs to them. They have outsnookered us everytime. Just look at the history of Alaska," says Campbell. Loren Lounsbury, a former commissioner of Commerce and Economic Development, now a consultant to businesses operating in the Orient, warns of the dangers of over-simplifying any analysis of Alaska's relationship with Japan. He agrees Alaska could be profiting more from trade, but notes that many people ignore the long-term commitment the Japanese have made to Alaska.

"Of course you'd like to have all the value-added possible. We haven't been taking advantage of these situations," Lounsbury says. But he cites the example of Alaska Pulp Co. in Sitka, one of the original targets for Japanese investment in the 1950s.

"That plant didn't make money for a long, long time," he points out. "They're in it for the long haul. They're willing to take the ups and downs while many American companies are not." The result, Lounsbury says, is jobs for Alaskans where no jobs would otherwise exist.

Most observers agree there are ways for Alaskans to earn more from trading with Japan. Although there is no unanimity about the best approach to accomplishing this goal, one frequently cited development has sparked considerable, and hopeful, speculation about the future of the Japanese market: the rise of the Japanese consumer.

Pio Park, vice president for corporate development with Chugach Alaska Corp. of Anchorage, a Native regional corporation, describes the trend as a "minirevolution" brought on by a number of factors, including the high rate of personal savings among the Japanese and the rising influence of mass media that is doing its part to separate the Japanese from some of their wealth.

Park notes, too, the impact of the rising yen. The increased value of the yen against the dollar has translated into greater economic strength for smaller Japanese trading companies that have begun challenging the supremacy of giants - such as Mitsubishi - with their rigid, complex, vertically-integrated empires stretching around the globe.

According to Park, the changes affecting Japan are long term and will have considerable impact on the way Alaska postures some of its major industries. Steven Hasegawa, vice president for international banking at National Bank of Alaska, explains that very fundamental developments are occurring in the Japanese market.

"The Japanese lifestyle is changing. They find it more convenient to have Western-style homes with a Japanese-style room. It's a long-range shift. The younger generations just keep changing," he says.

From sitting on floors around low tables to sitting on chairs, from futons to beds, the Japanese are embracing a wide variety of Western ways. According to Jane Angvik, the trend is pervasive.

"What is happening in Japan is consumerism now, plain and simple," she explains. "The young generation is acting just like Americans. It's every level of consumerism you can imagine. It's changing at lightning speed over there."

Angvik says the predicted outcome of emerging consumer trends is eventual collapse of Japan's stratified distribution system as the old trading giants fail to read the winds of change and consumers chase goods they can get more easily abroad. In her words, the Alaskan dilemma is similar to that of the Japanese conglomerates: how to turn on a dime.

"We sell millions of tons of whole raw fish. What if we sold millions of tons of fish fillets that were packaged for microwaves? Will the fishing industry take advantage of new consumer trends by diversifying product?" Angvik asks. "The greatest concern I have is that Alaska has established patterns of how we relate to the Japanese market, (that) we will not be quick enough to change those established patterns. Are we going to sell raw product and allow the value to be added on the Japanese side of the equation?"

Whether it's the staple commodities like fish or timber or marketing in new areas like coal or tourism, capitalizing on Japanese consumerism depends on successfully navigating a complex set of factors in each area. Here's a brief look at the basic elements of the Alaskan partnership with Japan.


According to NBA's Hasegawa, Alaskan companies involved in wood product manufacturing may be able to make inroads selling value-added products to the Japanese. The traditional value placed on wood by the Japanese is legendary. But their own mills are on the wane, the land they sit on increasingly sold off to feed the voracious national appetite for home-building property.

"The real estate prices went so high. For the last 20 years they have appreciated so much. The labor in Japan increased so much, so Alaska can compete with mills in Japan," says Hasegawa.

He adds that Alaskans need to keep a close eye on the Canadians, and learn: "Canadians do a good product. In order to expand Alaska's (share) in the Japanese market, we need to keep increasing the quality of the product."

Hasegawa says there's nothing magical about accomplishing this aim. It's just a matter of knowing the market. For aesthetic purposes, the Japanese traditionally prefer the tightringed, old-growth woods for use in homebuilding.

"Processing is a little bit different than U.S. 2 x 4s and 4 x 4s," he points out. "How the grain shows, how they cut it makes all the difference to the Japanese. It's just a matter of training."

He says the emerging direction is away from traditional homes featuring many types of wood to a more American style with less exposed wood. This may arise as much from the worldwide scarcity of old-growth timber as from new consumer values. The Westernization of the housing market doesn't necessarily represent a lessening of demand for the aesthetically preferred wood, but rather an overall high demand for cut lumber that tolerates a greater mix or quality range in the product.

Chugach Alaska's Park predicts that the Japanese will eventually switch to American dimension calibrations for cut lumber. And he sees a bright future for Alaskan timber destined for Japan, due primarily to the demand for homes. "There' a tremendous housing boom. It peaked last year; it's kind of ebbing now," he adds.

Park says that Chugach Alaska is biding its time developing the corporation's extensive timber holdings. Its new mill in Seward, the largest building in Alaska in terms of square footage, is producing chiefly for local consumption.

"Right now, all our cut timbers are for the domestic market," he notes. "Eventually, when we come up to 100 percent capacity, we will develop a long-term trading relationship with a few selected housing companies and lumber import companies in Japan." Park says he expects exports to dominate the firm's efforts, with about 60 percent of the product destined for Japan.

John Sturgeon, as president of Koncor Forest Products Co., represents a consortium of other Native timber interests who have pooled their risks under one roof. As he sees it, Alaskans have the know-how to sell a wide variety of timber products in Japan. In fact, he says he's observed measurable improvement in the quality of American lumber products in the last two years.

But Sturgeon feels that potential development is hampered by domestic policies: "I think the markets are probably going to stay pretty good. (But) the political climate makes me real nervous. To invest that kind of money, you'd better be sure you have a reliable supply and an acceptable political climate for harvest. These I wouldn't consider real stable right now."

Sturgeon cites recent efforts to increase the regulatory powers of the Alaska Department of Environmental Conservation. While he supports revisions to the Forest Practices Act laboriously negotiated between loggers, environmentalists and legislators, Sturgeon is concerned that the new regulatory regime may shift again if the hard-won agreements unravel.

He notes Alaskans seem to have an authentic ambivalence as a body politic about the timber industry. On the one hand, he says, are legitimate environmental jitters following recent catastrophes like the Exxon Valdez grounding. On the other, a failure to recognize that to keep the nation's newspapers rolling on the presses, one million acres of trees must be harvested every five years.

Sturgeon says one solution to this dilemma is to shift the focus of state government, specifically the governor's office, away from nurturing markets with trade missions to providing leadership in creating rational policies for timber cutting. This would stabilize the supply, an important factor in any marketing strategy.

Having coherent timber policies at home would make it a lot easier to market one of Alaska's most precious timber resources for top value, he points out. "What Alaska has that nobody has now is the largest stands of old-growth timber. Alaska has the last real good stand of old-growth timber the Japanese really want. It's part of their culture. That puts Alaska in a very powerful position."

Sturgeon also advocates formation of export trading companies for selling timber and other commodities. This would give Alaskans more control over the market because it would allow American, including Alaskan, forest products companies to combine efforts and strengthen their collective positions in the world market-place. Presently, domestic antitrust laws strictly forbid such networking.

"I see us gaining clout substantially. There's no reason we can't be producing the products the Japanese want. There's an extra margin to be gained there. There's extra jobs there," Sturgeon adds.


Alaskan fish exports to Japan last year totaled $999.4 million. By comparison, Alaska sold only $46.4 million worth of fish to Korea, its second-ranked partner in this category.

According to Jim Campbell, this figure represents a marked over-reliance on the Japanese: "Absolutely, we've got to start spreading our risk, looking for new partners. We lost the European market in fish and we didn't have to. We just paid too much attention to the Japanese market."

NBA's Hasegawa notes that the Japanese market can't be ignored, either. He says the strength of wild Alaskan salmon is being challenged by pen-reared salmon. Several nations in Europe and South America have successfully established such operations.

According to Hasegawa, the Japanese prefer wild, frozen red salmon. Always quality conscious, Japanese consumers are increasingly price-sensitive as well. Somewhere there's a threshold where high-quality, lower-priced pen-reared salmon may appeal more to the Japanese than higher-priced wild salmon. Adds Hasegawa, "If we do not produce good quality product at a reasonable price, we may lose the market to someone else."


The potential for a dramatic increase in the number of Japanese tourists traveling to Alaska has the industry buzzing. This summer saw the first cruise ship load of all-Japanese vacationers calling at Southeast ports. Though there are obstacles, and skeptics, Angvik asserts the potential is real.

"The attraction of the Alaskan mystique in the Japanese market is significant. It's similar to other parts of the world, it represents cold. But the flif side is clear and natural," says Angvik.

"The other real surging image of Alaska in Japan is the northern lights. Japanese visitors are coming to see the northern lights, which means they're coming in the winter. There were actually Japanese honeymooners who went to Barrow to see the northern lights."

She points out one problem is getting air carriers to dedicate blocks of seats that can carry Alaska-bound travelers on a reliable and convenient basis. "There's a significant effort going on right now to attract Japanese visitors. We're reasonably encouraged about volumes of Japanese visitors coming to Alaska. It's an opportunity - we just need to figure out how to get the airplanes here," Angvik says.

One long-term strategy for attracting Japanese visitors involves tying Alaska to Vancouver - a cosmopolitan city already favored by the Japanese - in a package that could be sold year-round. But skeptics point out that Japanese visitors will buy their packages in Japan, suggesting a greatly reduced economic return.

Chugach Alaska's Park is bullish on prospects for tourism, but says Alaska is a long way from being able to accommodate the sophisticated Japanese traveler. "It's a tremendous potential, but we don't have our act together: number one, shortage of rooms; number two, we're short of infrastructure in this vast territory; number three, we're pretty funky."

Park explains funky as the lack of international-scale shopping centers, insufficient entertainment and spa resorts not up to Japanese expectations.

"They're really urbane folks. They want like a buffet in their travel experience, a little bit of everything. You can overdo it with wilderness," Park notes.


As the first 30 years of the Alaska-Japan connection drew to a close, a new chapter on this lucrative trade was begun. Idemitsu Kosan, a Japanese energy company, began efforts to develop high-grade coal reserves at the Wishbone Hill mine near Sutton.

Under an agreement reached between Gov. Steve Cowper and the Japanese, and approved by the legislature, the state will invest $9 million for new locomotives and coal cars to transport Wishbone Hill coal to tidewater at Seward for shipment to Japan.

The mine is expected to ship a million tons a year beginning in 1991. It is also expected to make Sunneel Alaska's coal-loading facility at Seward profitable. A payroll of about $10 million a year is projected.

Says Commerce's Angvik, "The international price and demand for coal are going to increase for the next 10 years. Idemitsu Kosan is in the forefront in the production of clean energy. The biggest issue for Gov. Cowper was: Do we subsidize people to come and develop our resources? That is not something he wants us to do."

The governor established two broad criteria for deciding the nature and extent of state involvement in the project. The first was employment. With an estimated 250 local jobs over a 15-year period, the project "became very compelling as far as jobs are concerned," says Angvik.

The second criteria was how involvement with the Wishbone Hill project would contribute to positioning Alaskan coal on the world market. Ultimately, it was decided that getting behind Idemitsu Kosan constituted a sound $9 million marketing investment that would help sell Alaskan coal in general.

Angvik says, "(The project) furthers the efforts of Alaska to demonstrate that coal can be used as a clean fuel. If we can diversify our customer base, that is good."

Bob Poe, director of the Governor's Office of International Trade, adds that the Japanese company has been "real responsive" to environmental regulatory agencies, even assuming leadership in researching moose-browse rehabilitation techniques. Unlike some American corporations who come to Alaska thinking they own the place, Idemitsu Kosan has adopted a sincere good-neighbor policy. "They've done their best to really do the right things. They've done it right. The Japanese know they're guests here," Poe says.

The arrangement with Idemitsu Kosan is similar in several respects to that negotiated by the Sheffield Administration with a Canadian corporation to develop the Red Dog mine in Northwest Alaska. There was a high level of state analysis, monitoring and involvement, including legislative approval.

Still, Wishbone Hill preserves the traditional Japanese preference for a vertically integrated system of resource extraction, owning the means of production from source to ultimate sale to Japanese consumers. It is an approach borne not only of a desire to maintain favorable pricing structures, but also stemming from the insecurity of a resource-starved nation feeling the need to secure certain supplies of essentials like food, fuel and shelter.


Why is it that Americans don't mover more aggressively to gain control of some of these resource developments and related trading opportunities?

"If I knew that, I'd be rich," quips Lounsbury. But he suggests America's self-sufficiency in resources is part of the picture. In a reversal of the Japanese outlook, Americans have not had to trade sharply at the same level of survival as the Japanese. Lounsbury also laments the inability of American corporations to take the long-term perspective of many foreign competitors.

"Our companies look to a short range timeframe for a return on their investments. The Japanese are satisfied to make a smaller return over a much longer term. We tend to want to get in and get out and make a killing. They're looking for long-term relationships," Lounsbury explains.

Park calls this the "greed factor." He explains, "It's a big problem with us. It's a long process, people don't realize it. Natural resource development is a lifetime commitment."

A bigger problem in Alaska, Lounsbury feels, is lack of essential infrastructure, chiefly transportation to get the resources to market. And he agrees with Koncor's Sturgeon and others that to expect more resource development investment from any quarter, Alaska needs to develop a more friendly business and political climate.

"I don't see any dramatic increase in our trade with Japan, or any other country for that matter unless we participate in making our resources available in a consistent manner," Lounsbury says.

Jim Campbell agrees: "Our image around the world right now is not good with our trading partners. We keep changing all our ground rules."

Angvik says the Cowper administration made a good, thoughtful deal with the Japanese for Wishbone Hill. To her way of thinking, the next key step in improving Alaska's trading position is to work at eliminating the barriers to capitalizing manufacturing and trading ventures.

"There's very little export financing in Alaska," says Angvik. Without strengthening and diversifying Alaska's economic muscle, the potential remains for the state to remain vassal to the sheer size of the Japanese market.

Adds Angvik, "It would be really important for Alaskans to retain ownership of the means of production when we enter into relationships with the Japanese, which is how wealth will be accumulated on our side of the ocean."

Table : Alaska's Exports to Japan in thousands of dollars
Exports 1986 1987 1988 1989
Fish 468,726 540,484 865,996 999,383
Timber 201,264 272,702 344,980 441,654
Petrol Products 254,675 277,377 242,670 265,363
Coal 0 0 1,392 0
Minerals 0 160 68 2,808
Other 32,028 36,687 66,934 161,231
Total 956,693 1,127,410 1,522,040 1,870,439

Source: U.S. Census, Department of Commerce. Compiled by Alaska Center for International Business. Totals may vary due to rounding.
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Title Annotation:International Trade
Author:Richardson, Jeff
Publication:Alaska Business Monthly
Date:Aug 1, 1990
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