Japan Prepares for Defense Exports as China Looms

Jun. 9, 2014 - 08:33PM | By ZACHARY FRYER-BIGGS



WASHINGTON — Following an April decision to rewrite its export laws to allow broader sales of defense products, Japan is preparing for a new wave of deals as it tries to strengthen security bonds in the face of rapid Chinese military growth and continued regional tensions.

The change to the rules that govern defense exports were years in the making as Japan increasingly moves from its post-World War II, purely pacifist, defense ideology. But in recent years the security equation has shifted, with major players such as the US confronting reduced or flat budgets and the cost of advanced weapons programs necessitating international cost-sharing.

It was the need to participate in international programs that drove the latest round of reforms, said Jun Kazeki, director of the Security Export Control Policy Division of Japan’s trade ministry.

“We decided to go ahead with the F-35 program but we needed additional exemptions because of the third party transfer issue,” said Kazeki, who was in Washington for meetings.

With parts for the F-35 program being manufactured around the world, participating nations have to ship parts all over the globe to be re-exported down the line. That was exceedingly difficult for Japan, since the policy created an almost impossible standard for export that recipient countries could neither be involved in a conflict nor “likely” to be involved in a conflict.

Given the uncertainty of security arrangements in the modern era, guaranteeing that a country would avoid conflict is ostensibly impossible.

So special exemptions were created for the F-35 program, and then the system as a whole was revised to strip out the “likely” requirement, as well as antiquated references to Communist bloc countries.

With the new standards in place, Japanese companies will be looking for new market opportunities. But Kazeki said the government has no estimates for how much growth might occur, emphasizing the decision is not based on helping defense.

“There is no statistics, no estimation, not at all,” he said. “From the beginning we looked at this policy as a security policy, not an economic policy.”

Japan generates less than 1 percent of its gross domestic product from the defense sector.

Experts have been skeptical of the potential for large growth, given high labor costs in Japan and the fact that much of the nation’s defense technology is licensed from the US. But there’s another factor: the need to improve relationships around the world to hedge against the growth of China’s military.

A report released this month by Deloitte on global defense spending trends highlighted not only the growth of spending in China and Russia, but in China’s case, the potential for even more spending in the near future.

“The fact that China spends less than 3 percent of [gross domestic product] on defense makes it an economizer,” Jack Midgley, one of the report’s authors and a director with Deloitte consulting, told Defense News.“Its rapid growth in sheer size make it possible for it to substantially increase its expenditure on defense. This is catch-up on a massive scale.”

Midgley said if Japan wants to remain technologically advanced by retaining a domestic industry through sufficient order volumes and participating in international programs, it had no choice but to change its policy.

Politically, the move will allow Japan to improve its ties to other nations without the direct involvement of troops.

“I think the Japanese see defense exports as a way to extend their influence without putting themselves in a position of looking militaristic,” Midgley said. “Japan is looking at a world that is very different than the world of 30 years ago. Most of the economic growth in the region has been Chinese, not Japanese. Most of the growth in defense spending has been China, not Japan.”

The Deloitte report points to continued growth from countries such as China and Russia as those two nations try to catch up to the US on a variety of technological fronts. That coincides with the US and many of its major allies who, having provided a shield for Japan, have also been cutting or flattening defense spending curves.

Opening exports does create the potential for products to wind up in Chinese hands. That has led to separate negotiations between Japan and France, since the French have been known to do business with the Chinese, Kazeki said.

“Our official priority is to stop their exports to China,” he said. “France officially has a policy to keep an embargo after Tiananmen in 1989. In reality it exports some concerning items to China.” ■

Email: zbiggs@defensenews.com.

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