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close this bookConflict over Natural Resources in South-East Asia and the Pacific (UNU, 1990, 256 pages)
close this folder3. The Japanese economy and South-East Asia: the examples of the Asahan aluminium and Kawasaki Steel Projects
View the document(introductory text...)
View the document3.1 The Japanese miracle
View the document3.2 Eyed of the miracle?
View the document3.3 A new vision of economic: development
View the document3.4 The vision in action: Asahan
View the document3.5 Japan's overseas steel industry
View the document3.6 Kawasaki in Mindanao: the export of pollution
View the document3.7 Conclusion: the comprehensive security system - What price?
View the documentReferences

3.6 Kawasaki in Mindanao: the export of pollution

The Kawasaki Steel project is another example of Japan's overseas industrial relocation of pollution-intensive processing industries. In August 1974, Kawasaki Steel Corporation began to construct a sinter plant with an annual production of 5 million tonnes of sinter ore in Mindanao in the Philippines. The total construction cost was US$214 million. In December 1974 Kawasaki Steel established the Philippine Sinter Corporation, a fully owned subsidiary with an initial capital of P50 million (around US$7 million), which was increased to P485 million (US$70 million) at the end of January 1975 The plant was completed in April 1977.

The project was one of the largest overseas plants in the steel industry, the first to use the sintering process outside of Japan and to make iron sinter for export to Japan. The entire process-from the application for the sinter plant project to the granting of permission, the acquisition of the land, the granting of beneficial treatment, and thence to construction-demonstrated characteristics typical of the behaviour of Japanese firms in South-East Asian countries. Both the Philippine government and Kawasaki Steel promised that the sinter plant as well as the proposed industrial estate would improve the quality of life in the region. However, many people in the Villanueva and Tagoloan areas in Misamis Oriental Province and near Cagayan de Oro City, who used to live by farming and fishing, were deprived of their means of making a living. The anger and disappointment of the people who were forcibly relocated by the project have forged strong public opposition to Kawasaki's entry into the area. In Japan, too, there is increasing criticism of Kawasaki Steel for its 'pollution export' (Kido Junko, 1977).

Kawasaki Follows the Vision

Kawasaki Steel Corporation is eagerly pursuing overseas expansion congruent with MlTl's vision. The company not only plunged into construction of an ultramodern sinter plant in the midst of coconut trees, small barrios, and a population dependent on subsistence agriculture and fishing, it also decided to launch another project, the Tubarao in Brazil. This project involves the construction of slab and blooming plants in Tubarao with a production capacity of 6.8 million tonnes a year. Kawasaki Steel has invested US$820 million for the construction of the plant jointly with Siderbras, a Brazilian stateowned steel investment company, and Findider International, an Italian steel firm. The total investment amounted to US$3.1 billion, and the plant was completed in April 1983.

Locating such projects in pristine natural areas is not new to Kawasaki Steel. It boasts of transforming the Chiba coastal area in Japan, with its small fishing villages, into an industrial area-'like building a factory in the middle of the desert'. Starting as an open earth-furnace steelmaker, after the Second World War it purchased pig and scrap iron to be refined into steel, rolling and producing steel products without a blast-furnace. With its huge profits from war procurement contracts during the Korean War, Kawasaki Steel expanded in 1950 into reclaimed area along the Chiba coast north-west of Tokyo Bay, a calm shoaling beach that residents had hitherto found ideal for shell-gathering, farming, fishing, and swimming. Although common sense in the steel industry dictates locating a blast-furnace near the site of iron-ore and coke production, Kawasaki Steel built an integrated steel mill with a strip mill at this 'playground for children', and, through drastic rationalization and decreasing transportation costs, expanded annual crude steel production at its Chiba plant from 2 million to 4 million tonnes between 1958 and 1961 to 5 million tonnes in 1965, and to 6 million tonnes in 1966. The company now has nine blast-furnaces with an annual crude steel production of 15 million tonnes. 'High productivity and profit' became the Kawasaki Steel slogan.

Establishment of infrastructure was fully supported by the Chiba prefectural and city governments, which were eager to invite industrial capital. The advancement of Kawasaki Steel into the Chiba coastal area triggered a boom in construction of steel mills along sea coasts by major Japanese steelmakers with blast-furnaces. By the 1960S, this process had become the normal pattern-even to the extent of being referred to as the 'Chiba method'-for setting up plants in undeveloped areas. The main feature of the method was that the land was sold to private companies which had to promise to pay the costs in advance. Funds for large-scale development can be raised more easily when several big enterprises want to locate in an area. Reclamation in Chiba was aimed strictly at attracting industry rather than at benefiting the people living there. Of course, it was claimed the industries would make the whole prefecture prosperous and people would thereby enjoy a happy life.

In 1960, a 'Plan to Construct the Keiyo Coastal Industrial Area' was announced, in which huge tracts of reclaimed land were given to big businesses such as the Mitsui and Mitsubishi groups. In 1968, spacious oil-storage stations appeared in the area. Furthermore, Nippon Steel moved on to another reclaimed land site, stating that it would construct the largest steel mill in Asia there. There are now more than 30 big companies located in 4 340 ha of reclaimed land. The sky and land soon became completely covered with smoke and waste waters. Crude oil and industrial wastes turned the sea a coffee colour and the air is a reeking, dirty, violet haze. The deadly fruit of industrialization was pollution.

From the early 1970s, increasing numbers of Chiba residents began to realize that their health had been seriously undermined. By the end of August 1976, more than 30 known pollution victims had died. The management of Kawasaki Steel must have taken into consideration the demands for compensation from pollution victims and the growing popular movement against pollution when it made its decision to move the sinter plant, one of the major sources of pollutants, out of Chiba to Mindanao. In 1972, a Kawasaki executive expressed the company's intention to leave the country: 'With pollution becoming an issue, Kawasaki Steel is to build sinter plants within the resourceproducing countries. However, it wouldn't pay to manufacture halffinished products such as slub, steel ingot at overseas plants and then bring them back to Japan.' (Toyo Keizai, 8 November 1972.) Kawasaki therefore decided to build on its experience in Chiba and move to Mindanao to cut costs. It is now much cheaper to build a plant outside the country than within Japan because of the rise of environmentalism there.

In October 1973, Kawasaki Steel's President Fujimoto visited the Philippines to meet with President Marcos and Industrial Minister Paterno and applied for permission to construct a sinter plant there. The process, from the application to the formal granting of permission, was accompanied by political negotiations.

In the Philippines, Kawasaki Steel had been operating a pellet plant since 1967-Pellet Corporation of the Philippines. The plant had to be closed in dune 1974 when the iron resources in Ralap, Luzon, were exhausted. The company used to produce 700 000 tonnes of pellet annually, all of which was exported to Japan. According to Kawasaki Steel, the Philippine government recommended that the company stay and begin other industries (Kokusai Keizai, July 1976: 107).

The Selling of the Project

On 8 January 1979, at the summit meeting between Japan and the Philippines, President Marcos told visiting Premier Tanaka, 'Industrialization is what we are aiming for. We expect strongly Japan's support and aid.' He also reassured Japan on its pollution problems: 'If it gets difficult to expand plants in Japan, we are willing to accept them.' (Asahi Shimbut 9 January 1979.) The following day, when Tanaka was departing for Bangkok, the next stop Oil his tour of five ASEAN countries, the Philippine government announced that President Marcos had given his consent to Kawasaki Steel's plan to construct the sinter plant. This approval came while the Board of Investment was still studying the desirability of having the plant in the Philippines. However, President Marcos claimed that the location of the plant would be his decision. At first, Kawasaki Steel was offered Tawi Tawi in the Sulu Archipelago as a site but it was turned down. Finally, on 10 January, the Mindanao site was offered. It is evident the Philippine government considered the project a countermeasure to the Muslim problem in Mindanao, where well-armed guerrillas scattered all over the island were rebelling against the government and conducting ambushes and harassment raids. Kawasaki Steel was fully aware of these problems. President Fujimoto stated that 'our project will contribute to the stabilization of the area by preventing Muslim guerillas from continuing their activities in southern Mindanao. Economic development will expand job opportunity, which will bring political stability....' (Kaminogo Toshiaki, 1975: 101.) Kawasaki Steel accepted the proposed area, which faces the Macajalar Bay in Mindanao. The company was happy with the area, for, as another executive pointed out, '. . . the entire area is out of the typhoon belt. Limestone needed as catalyst for the sinter process is available from nearby Bohol Island. The site is very suitable as a transit base between Australia and Brazil, suppliers of iron ore, and Japan.' (Kokusai Keizai, July 1976: 107.) The site also could be amply supplied with electricity from Maria Christina Falls and with fresh cooling water from the Tagoloan River. The port can accommodate 250,000 d.w.t. ore carriers; the harbour will have a water depth of 25 m; and Kawasaki Steel plans to build a sea berth with modern loading and unloading equipment capable of handling 6 000 and 1 800 tonnes per hour respectively. The approximately 40 000 kWh electric power demand will be tapped from the National Power Corporation. This amount is more than that consumed daily by the entire population of Cagayan de Oro City.

About 4.42 million tonnes a year of required sinter feed is supplied from Australia and Brazil. About 350 000 tonnes a year of coke freeze is also imported from Japan. To obtain around 900 000 tonnes of limestone a year from Bohol, Kawasaki Steel founded a mining company called Consuelo Mining Company headed by a Filipino, as foreigners are prohibited by law from freely disposing of natural resources. Furthermore, the Japan Philippine Treaty enabled Japanese vessels to transport the limestone through the inland sea. This agreement was necessary because '... the waters, around, between and connecting the islands of the archipelago, irrespective of their breadth and dimensions, form part of the internal waters of the Philippines'.

Although the Asahi Shimbun (15 January 1974) lauded the start of the project as 'the first concrete achievement of the consensus between the two countries for mutual economic development negotiated at the Tanaka-Marcos Talks', Bulletin Today in Manila wrote, 'This is a case of a "dirty" industry that can no longer be located in Japan because of pollution concerns. But the Philippine authorities have no objection to its installation in the under polluted southern island.'

Meanwhile, some Filipino people began to raise their voices against bringing the 'dirty' plant into their living area. The news that 'pollution is coming' spread rapidly, and in response, Kawasaki Steel initiated a 'clean industry' campaign in Misamis Oriental. When local officials opposed the sinter plant project because of fear of pollution, Kawasaki Steel's management maintained that pollution would be minimal and would involve mainly the discharge of small amounts of sulphur into the air. Water pollution would be nil, as the water cooling system would be closed and waste water would not be discharged into the bay or river. To allay the fears of local officials, Kawasaki took ten of them on a tour of Taiwan and Japan, after which no further complaints were heard from them.

The pamphlet Kawasaki prepared for the campaign stated that:

(1) waste resulting from the production of iron sinter includes dust and waste gas but no waste water;
(2) dust collection system consisting of a blower, a cyclone-type dust collector, and collecting fans will be installed at several locations in the sinter plant to control dust and waste gas;
(3) the Philippine Sinter Corporation will use iron ore with very low sulphur content, and thus sulphur discharge would be minimal; and
(4) the calculated quantities of effluents in the waste gas from the sinter plant are far below the limits set by the National Pollution Commission and are even lower than the very strict limits set in Japan.

However, in Japan' Kawasaki Steel has to allocate more than 25 per cent of the total construction cost for pollution-prevention facilities, whereas in Mindanao the ratio is far less than 10 per cent. Based on the original project cost, 4.5 billion yen was allocated for pollutionprevention measures out of a total cost of 52 billion yen. It was thus doubtful that Kawasaki Steel would comply with Japanese standards.

In November 1975, Kawasaki Steel invited the Governor of Misamis Oriental to Japan. After an observation trip to Chiba, he stated at a press conference that 'reports from the Philippines regarding opposition in Japan to Kawasaki Steel's project are not true at all. All the residents there are welcoming realization of the project and the state government is also giving strong support to it.' (Nikkei Sangyo Shimbun, 22 November 1975.) Kawasaki Steel exploited this statement in a pamphlet entitled 'Clean Industry', which was distributed in Chiba and stated: 'The sinter plant, which is the major source of nitrogen oxides and sulphur oxides, will not be built. The sintered ore required for the No. 6 blast furnace will be imported from the sinter plant in Mindanao and the authorities of the province and the city have shown their full support and understanding for our project....' More than 100,000 copies were distributed throughout the area. Kawasaki Steel even blatantly stated they did not intend to take measures to counter pollution in Mindanao. As one executive put it: 'When we talk about pollution, it is not suitable to apply the consciousness about pollution in Japan to Mindanao. The sinter plant was [sic] located far away from the city, and there is no residential area or factories. Every evening a strong wind blows the polluted air away.... Only a little dust will be produced since the process is just to mix powdered iron ore and burn it into sintered ore.... In principle, we have to take every measure to prevent pollution, but that depends on the location and surrounding[s] of the plant. It is ridiculous to bring the pollution-prevention facilities of Chiba to Mindanao as they are. First of all, people in the Philippines don't know anything about pollution ... I have never heard of their complaining about a pollution problem. The people there go barefoot; shouldn't that be called pollution?' (Kolcusai Keizai, July 1976: 108.)

The Costs of the Kawasaki Project

But a sinter plant produces more than just 'a little dust'. The sintering process produces sulphur oxides, nitrogen oxides, arsenic, cadmium, zinc, and lead, in addition to dust containing poisonous metals emanating from the raw-material stockpile. The nitrogen oxides produced by a sinter plant accounts for about half of the total nitrogen oxides produced in an integrated steel mill; that is why Kawasaki Steel asked the local authorities to move people more than 8 km away from the site.

Because the Philippine Sinter Corporation is 100 per cent foreignowned, it is not allowed to own land. Former Executive Secretary Alejandro Melchor found a way around this obstacle by assigning the Philippine Veterans Investment Development Corporation (PHIVIDEC) the task of acquiring 138 ha of land so that Kawasaki Steel could then lease it. PHIVIDEC was created soon after the country was placed under martial law by Presidential Decree 243 in 1972 By establishing PHIVlDEC, President Marcos may have intended to give his patronage to retired military personnel and to prevent a coup d'etat by keeping on good terms with this group, which formerly had been largely excluded from domestic economic actlvltles.

An area encompassing the flatland of Tagoloan and Villanueva in Misamis Oriental was designated for the plant site, and the people living there were threatened with expropriation unless they sold their land to PHIVIDEC. Although PHIVIDEC was a quasi-governmental agency, it was specifically given the authority of eminent domain and probably could have expropriated the land. However, the appearance of legality is an important feature of Philippine martial law. Thus the PHIVIDEC Industrial Estate Authority (PIEA) was created by PD No. 538 on 13 August 1974 as a 'subsidiary Agency of PHIVIDEC', possessing both governmental and proprietary functions. It was then announced that a 3 000-ha industrial estate would be created in the area with Philippine Sinter as its first occupant.

Kawasaki Steel did not have to deal directly with the people in the affected area, except for the workers in the actual sinter project. After the land was acquired, the future of the people of the former barrio was handled by the Inter-Agency Task Force (IATF) created by Melchor and administered directly under the office of the President. Melchor created the Andam Mouswag project, which was to be carried out by IATF. Approximately 20 government departments and agencies were involved in the IATF, ranging from the Department of Public Highways for road building to the Public Housing and Homesite Corporation for architectural and construction expertise to the Bureau of Plant Industries for teaching agriculture, together forming a conglomeration of bureaucrats and technicians.

Those technocrats laboured hard and finally chose barrio Kalingagan. The selection was purportedly based, among other factors, upon the majority's preference. Kalingagan is located 7 km from the highway and rises 500 m above sea-level. It is a rolling rocky plateau, home to 14 farm families. Because the land was characterized as being agriculturally sub-marginal, the national government bought up 100 ha in 1975 at Po.30 per sq. m or P3,000 per ha. It has been renamed 'Andam Mouswag', which means 'Ready to Progress'. What alternatives did the displaced people have? A few families chose to relocate by their own efforts, but the majority favoured the proposed housing at the relocation site. In the meantime, work had to proceed on the sinter plant, notwithstanding that the proposed housing was still in the blueprint stage.

The Benefits of the Kawasaki Project

What was the dominant motive behind the Philippine government's decision to invite Philippine Sinter? Aside from the attempt to maintain political stability in Mindanao, the Philippine government had a strong desire for its own integrated steel mill. Kawasaki Steel explained, 'As our project is in line with the Philippines' national strategy to build an integrated steel mill of its own, we were able to get every kind of preference, taxes are exempted, a basic survey of the sea and port was conducted by the Philippine Navy, eviction and land exploitation were carried out by the Philippine government and loo% investment was specially granted.' (Kaminogo Toshiaki, 1975 )

According to the prospectus prepared by Kawasaki Steel, the project was expected to make a substantial contribution to the economic development of the Philippines, particularly in the integration plan of the local steel industry. The prospectus proclaimed that:

1. Since the plant is in Misamis Oriental, it would immensely boost the Philippine government's plan to develop northern Mindanao through large investments in infrastructure and plant facilities. The company intended to make its port and material handling facilities available to the government-proposed integrated steel mill in the area.

2. Iron sinter would become a major dollar earner in the years to come. The project was expected to generate some US$280 million in net foreign exchange during the first ten years of operation.

3. The project would directly employ some 600 workers with an initial annual payroll of about P7 million. In addition, over 2,000 workers were to be employed in the construction.

4. During the first ten years of operation, the government stood to collect about P362 million in taxes.

5. Although the product of the proposed sinter plant was primarily geared to the Japanese market, the company was ready to service the raw material requirements of the government proposed integrated steel mill in the area.

6. The experience to be derived from the construction and operation of a sintering plant and equipment capable of handling modern material would contribute to the advancement of local expertise in steel-related technology.

7. The project was also expected to give an added boost to the already burgeoning mining industry, considering that the plant would require substantial amounts of limestone and iron sand.

Will the Objectives he Realized?

At the ASEAN Economic Ministers' meeting in February 1976 in Bali, Indonesia, Philippine delegates presented the ambitious iron and steel plant in Mindanao as a regional ASEAN project. According to their proposal, the plant project envisages an investment of US$1661 billion to produce 2.5-3 million tonnes a year of slabs, blooms, billets, and plates. They claimed the northern Mindanao plant would meet between 15 and 25 per cent of the five ASEAN countries' steel demand in 1985 (Far Eastern Economic Review, 26 March 1976: 50).

The Philippines is not the only ASEAN country attempting to promote industrialization by building an integrated steel mill-lndonesia and Malaysia have the same goal. Although the proposal was not approved at the meeting, the Philippine government still has a strong desire to establish a state-owned integrated steel plant None the less, neither the Japanese government nor Kawasaki Steel, nor any other steel company, is necessarily ready to co-operate with steel plant projects in ASEAN countries. 'The problem is that their expectation lacks reality since they give consideration to national prestige before thinking about social and industrial foundations' (Kolausai Keizai, July 1976: 106).

According to the report of the Japan International Cooperation Agency, the Philippine government's integrated steel mill project may be premature. The report points out that basic study or policy-making should be completed first to thoroughly examine the potential problems. Domestic raw material supply may be inadequate. Raw materials available domestically comprise only iron sand and iron ore; other major raw materials would have to be imported. Infrastructure-electricity in particular-is weak, and electricity consuming industries need to be supported by favourable electric rates. Related industries should also be developed and fostered.

Although Kawasaki Steel promised to contribute to the advancement of local expertise in steel-related industries, it showed no interest in the steel plant project in Mindanao proposed by the Philippine government. The company's major overseas project is the Tubarao mill in Brazil. The Mindanao plant is only a transit base for Kawasaki Steel, which was deliberately selling an illusion to the people of the Philippines. This lack of understanding may one day cause conflict.