Jeffrey D. Wilson’s research while affiliated with Murdoch University and other places

The establishment of resource networks in Australia during the 1960s brought a new range of actors into contact with the Japanese steel industry. In some respects, Australia was ideal for the role of resource supplier to Japan — richly endowed with the iron ore and metallurgical coal needed for steel production, and with national and state governments promoting development strategies that prioritised the expansion of the mining industry. But Australian-based actors — both governments and firms — had goals and priorities of their own. While willing to supply low-cost raw materials to Japan, mining firms aimed to develop their mining projects as profitable enterprises in their own right, and governments sought local development payoffs from the mining industry. These goals were not an automatic fit with those of the JSM, and meant that processes of bargaining and negotiation were required between Japanese and Australian actors to reach a mutual accommodation of interests. However, comparatively disadvantageous institutional features of the Australian political economy weakened the ability of both state and firm actors in Australia to push for governance arrangements conducive to the full realisation of their interests. When cast into negotiation with the JSM and its coordinated production network strategy, these institutional features proved critical factors accounting for why the Asia-Pacific resource networks constructed during the 1960s fell under Japanese control.

The role of states and firms as sources of economic governance is a key issue for the analysis of global production networks. Unlike the nationally based industries they are increasingly replacing, global production networks span multiple national spaces and unite many economies while belonging exclusively to none. As production network governance arrangements are critical in determining how the gains from global industries are spatially distributed, this raises important questions over which actors are able to shape governance arrangements in their favour. For some, the transnationality of global production networks is argued to result in a heightened role for multinational corporations (MNCs), and a challenge to the primacy of nationally-bound state actors, in what has been described as an ‘epochal shift’ in economic governance associated with contemporary patterns of globalisation (Amoore et al. 1997: 181). Nonetheless, the purported retreat of the state from governance functions in global industries is arguably only a partial process, and the extent and nature of this state-to-firm shift remains a central and highly contested debate in contemporary international political economy (IPE) scholarship (Phillips 2005). An examination of the governance of global production networks therefore requires a coherent, explanatory, and theoretically informed analytical framework that can come to terms with the respective governance roles of states and firms.

In the early 1970s, the resource networks that had been established between the Japanese steel and Australian mining industries were largely under Japanese control. While these production networks had solved Japan’s need for low-cost minerals supply, many Australian actors felt they failed to deliver satisfactory returns for the Australian mining industry and economy more broadly. However, in the insecure climate of the 1960s Australian governments had been reluctant to act on these concerns, and acquiesced to the demands of the JSM and multinational mining corporations to avoid jeopardising the development of export-oriented iron ore and coal industries. This pattern was soon to end, however, when the Australian Commonwealth government dramatically changed its approach to its mining firms and Japan in 1973. Claiming that Japanese steel and foreign mining firms had ‘ripped off’ the country, it adopted a ‘resource nationalist’ approach to its mining sector. This new approach involved a series of aggressive state interventions, which aimed to reduce Japanese control and increase the share of value generated in the production networks that was being captured in Australia. These state interventions proved extremely effective, and by the early 1980s had both decisively ended Japanese control and resulted in a redistribution of value in the production networks toward the Australian economy.

This book has demonstrated how both states and firms contribute to the governance of global production. Despite the transnationality of global production networks, the emergence of these historically novel industrial systems does not imply a definite shift in the locus of economic governance from states to firms. As the experience of the Asia-Pacific resource networks attests, global production networks are to a large degree privately governed, and are organised through the sets of inter-firm relationships that regulate and manage the functional integration between firms. However, states remain capable of exercising influence in production network governance arrangements — both directly through purposive policy interventions, and indirectly through their contribution to the institutional environments within which firms operate. Moreover, as competing sources of governance states and firms interact, negotiate and bargain over the arrangements within production networks. The governance structures resulting from these bargaining patterns prove central in determining how value is distributed between the states and firms in global industries.

To begin the historical study, this chapter considers the factor that called forth the development of resource networks in the Asia-Pacific region — the post-war rise of the Japanese steel industry. In the early 1950s, the Japanese government launched a heavy industrialisation strategy that aimed to build a modern, internationally competitive steel sector to act as a core industry for its economic development programme. Owing to Japan’s almost complete lack of mineral resources, its rapidly growing steel industry was forced to import iron ore and metallurgical coal from suppliers in the Asia-Pacific, providing an early impetus to resource production networking in the region. However, the distinctive characteristics of the resource networks formed by the Japanese steel industry owe as much to features of the post-war Japanese political economy as its paucity of raw materials. Industrial coordination, achieved through institutionalised patterns of firm-firm and state-firm cooperation, was a critical factor that both facilitated high-speed growth in Japan’s steel industry, and shaped the characteristics of resource networks the industry would develop to secure its supply of minerals from overseas sources.

Australian resource nationalism during the 1970s would prove an existential challenge for the Japanese steel industry. Coming at a time when deteriorations in the world economy brought the JSM’s post-war expansion to an abrupt end, nationalistic state interventions in Australia further compounded the industry’s problems by sending regional mineral prices soaring. Its previous production networking strategy — collective management of its Australian minerals suppliers — was now largely ineffective in guaranteeing Japanese control, and a new approach was needed if the JSM was to survive in the new economic climate. A new production networking strategy would ultimately come in the form of a relaunching of the kaihatsu yunyu investment programme to sponsor new mining projects in Brazil and Canada. This was intended to undermine the effectiveness of Australian state interventions by broadening membership at the mining end of the resource networks, and to ultimately re-establish Japanese control by promoting international competition between mineral suppliers in Australia, Brazil and Canada. As this new Japanese strategy gained pace during the 1980s, it set off an acrimonious struggle between the JSM and its mineral suppliers over which side would exercise control of production network governance.

The rise of the Chinese steel industry proved transformative for the Asia-Pacific resource networks. From around 2000, the boom in Chinese steel production saw the Chinese steel mills eclipse the JSM to become the predominant steel industry (and iron ore importer) in the Asia-Pacific region. However, the arrival of Chinese steel mills did more than just shift the centre of gravity at the steel end of the resource networks. By adding large volumes of additional iron ore demand, and displacing the JSM from their leadership role on the steelmakers’ side, the rise of the Chinese steel industry also upset the delicate balance of market power that existed between the involved steel and mining firms. With the balance of market power thrown into disarray, a series of contests began over how, and in whose interests, the Asia-Pacific resource networks would now be governed. The opening move came from the Chinese government, which in 2005 launched a state-led strategy to establish a degree of Chinese control over the resource networks. This programme challenged the privileged position of many of the existing players, and elicited a set of counter-responses from affected firms and states that in turn moved to defend their positions in the face of the Chinese efforts. The result of these competing strategies was the outbreak of what one industry analyst dubbed the ‘iron ore war’ (Xie 2006).

Until the early years of the twenty-first century, the Asia-Pacific resource networks were predominantly oriented to supplying mineral resources to Japan. However, the rise of the Chinese steel industry was to see Japanese dominance give way. Catalysed by China’s post-socialist economic reforms, the Chinese steel industry began a period of rapid growth in the mid-1980s that within two decades had seen it emerge as not only the primary steelmaking centre in the Asian region, but also account for almost half of world steel production. The transition from central planning to an internationally-open and market-based economy proved difficult for the Chinese steel sector, with recurring crises threatening to derail the industry’s growth. State leadership, achieved through interventionist industrial policy initiatives, was a critical factor that allowed the Chinese steel industry to overcome crises and emerge as the world’s dominant steel producer. It was also of considerable importance to the Asia-Pacific resource networks, as it shaped the characteristics of a Chinese production networking strategy that would have major consequences for how the resource networks were governed.

This paper reviews the restructuring of the Asia-Pacific iron ore market in the wake of the rise of the Chinese steel industry. Prior to the 2000s, this market was characterised by two key features—high firm-level concentration on both the producer and consumer sides, and price determination through annually negotiated benchmark pricing between Australian mining and Japanese steel firms. However, owing to rapid growth in the Chinese steel industry and its emergence as the region's principal iron ore consumer, the Asia-Pacific iron ore market has been dramatically restructured during the last decade. This process has been accelerated since 2005 by Chinese governmental resource security policies, which have sought to address current record high iron ore prices through the use of foreign investment to sponsor new market entrants and the formation of an import cartel amongst the Chinese steel firms. This paper evaluates how these policies have driven restructuring in the Asia-Pacific iron ore market, through an analysis of the growth of China's steel industry, Chinese resource security policies aimed at lowering iron ore import costs, and their effects upon the regional market's ownership structure and price determination mechanisms. It argues that while Chinese investment and cartelisation policies have catalysed significant changes to the ownership and pricing structures of the Asia-Pacific iron ore market, they have carried only mixed benefits for the Chinese steel industry's resource security.

Following a historical commitment to multilateralism, in the last decade the trade policy initiatives of many states in the Asia-Pacific have turned to bilateralism through the negotiation of free trade agreements (FTAs). The corresponding proliferation of regional FTAs has thus far been understood to result from three broad motivations: a desire to advance trade liberalization beyond World Trade Organization (WTO) disciplines; mercantilistic efforts to secure preferential access to key export markets; and/or attempts to use FTAs to secure non-economic political gains. This paper argues that since the middle of the decade a new motive has emerged – the use of FTAs to improve resource security – particularly by import-dependent resource consumers in Northeast Asia. As yet unexamined in the literature, this paper seeks to document and explain this trend. It analyses the recent emergence of resource security concerns as a new FTA motive; the corresponding shifts in the FTA strategies and initiatives of Japan, Korea and China; and the dynamics of an emerging race for resource-related FTAs between the three governments. Based on this analysis, it demonstrates that resource-related FTAs could potentially improve consumers’ resource security through either the liberalization of trade, the extension of investment protections or broader diplomatic gains with the targeted supplier. However, owing to supplier reluctance to enter into binding policy commitments for resource industries, their track record shows success in only the diplomatic dimension, and the prospects for a strengthening of their effects are poor. As a result, it is argued that while resource concerns have become a key motive for FTA initiatives in the Asia-Pacific region, they have not substantively improved resource security for its import-dependent states and are unlikely to do so in the future.