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Chapter 1 Preface
1.1 Purpose
The purpose of the study is to contribute to the prosperity of Japan’s defense industries by creating favorable political circumstances for changing the “Three Principles of Arms Export” policy. For this purpose, the JFSS formed a Committee to survey present international cooperative development programs of defense equipment in the US and Europe, deliberate the impact on Japan’s defense industries of not being allowed to participate in such programs due to current policy, and develop proposals to revise present arms export policy.
1.2 Definition of “International Cooperative Development” programs
“International Cooperative Development” includes not only development but also production. And it implies programs with three or more participant countries, thus distinct from bilateral co-development projects.
1.3 Structure of the report
Chapter 2: Changes in the international environment surrounding the development of advanced defense systems.
Chapter 3: Examples of international cooperative development of advanced defense systems in the US and Europe -- policies and challenges.
Chapter 4: Problems of international cooperative programs presently facing JMOD.
Chapter 5: The influence of international cooperative development programs in the US and Europe on Japan’s defense industries.
Chapter 6: Proposals to revise present export control policy.
Chapter 2 Changes of environment in the R&D of advanced defense systems
2.1 Changes of international security environment
The September 11 attacks changed the international security environment significantly. Unconventional threats represented by proliferation of WMD and missiles and war against terrorism are the common threats facing international society. In Asia, strengthening Chinese sea and air power is creating competition for US Asia-Pacific strategy, and thus emerging military frictions between two countries. Opaque enhancement of Chinese military power is becoming the destabilizing factor in East Asia. The nuclear ―development of― North Korea also creates anxiety.
International society must take cooperative actions against these common threats. However, while defense budgets in many countries have been decreasing gradually since the demise of the cold war, defense equipment has become more sophisticated and expensive. Because of this, it becomes very difficult and inefficient to develop, produce and acquire such advanced defense equipment in the same manner as before.
2.2 Globalization of industries
There has been significant globalization among civil industries in recent years. As a result of privatization among national defense industries (in Europe) as well as rapid technological innovation, globalization of both defense industrial production bases and defense equipment markets has advanced significantly.
2.3 Advances of defense technologies
There has been significant technological innovation in civil industries, mainly lead by IT. Revolutionary changes in military affairs －known as RMA－have taken place through introduction of advanced civil technologies into defense equipment. There are also innovative civil technologies that can be applied to defense equipment, known as dual use technologies. Since defense equipment inherently uses the most advanced technologies, it follows that such equipment is becoming more sophisticated－often developing into “system of systems”－and getting significantly more expensive.
2.4 Changes of defense production and technology base
Because of the increased application of dual use technologies, advanced civil technologies and the introduction of equipment to cope with new threats like terrorism, a growing number of civil industries now participate in defense equipment programs. In this context, companies that have solely engaged in defense production are decreasing in number, which industries engaged in both defense and civil programs are increasing. As a result, the boundary between defense and civil industries is becoming ambiguous.
2.5 Progress of international cooperative development
The increasing sophistication and rising cost of defense equipment makes it not only inefficient but unaffordable for any one country to bear the risk of developing defense equipment by itself. As a result, it has become quite natural for advanced countries to acquire defense equipment through multi-national cooperative development programs. In addition, these programs bring benefits of access to a wider range of advanced technologies, increased interoperability and promotion of mutual reliance among allied and friendly countries.
On the other hand, there are risks of relying on foreign capabilities for national defense as well as risks in proliferation of advanced technologies. Therefore, countries must cope with these risks while pursuing international cooperation.
2.6 Enhancement of arms export control and information security
The flow of information has significantly increased with globalization of defense industries, greater international cooperative development and IT advances. Information leakage to hostile countries, and potential for illegal acquisition of advanced equipment have also increased. To cope with such incidents, arms export control and information security systems have been strengthened through international regimes and/or by individual Government efforts.
Chapter 3 International cooperative development of advanced defense systems;
policy and problems
3-1 International cooperative development policy
US Defense Acquisition Policy: Discussion of policy per the US FAR, DOD Directive No. 5000.1 and 2; CJCS Instruction 3170.01G. Discussion of policy changes through the “Bottom-up Review”, the Clinton Administration’s “National Security Science & Technology Strategy”, TRP, “Dual Use Application Program” and JCTD, QDR 2001 and Transformation roadmaps.
US Arms Export Policy: Arms export policy is influenced by national security and economic policy, however fundamental rules are legislated by the Arms Export Control Act (AECA) and International Traffic in Arms Regulations (ITAR). Discussion continues through references to the AECA, and ITAR provisions, as well as emerging criticism of ITAR. Discussion concludes with a summary of changes in arms export policy from the cold war to present.
US Defense Industrial Policy: The objective of US defense industrial policy is to create, maintain and develop reliable, cost-effective, and sufficient industrial capabilities to meet requirements for national defense. Defense industrial strategy relies on market forces to the maximum extent practicable to create, shape, and sustain such industrial and technological capabilities. DOD creates market forces through its budget, acquisition, and logistics processes. DOD’s policies, analyses, and decisions guide and influence industry in four ways: 1) Defense budget and defense build-up programs, 2) Defense system acquisition strategies and decisions, 3) Incorporation of industrial base-related policies into acquisition regulations to protect national security, promote competition and innovation, and preserve critical defense capabilities, 4) Review of mergers and acquisitions involving defense industries.
International cooperative development policy of the US and European nations: The US and almost all European nations adopt acquisition policies to select the most cost effective and efficient option of acquiring defense equipment among options that include international cooperative development programs. When selecting the international cooperative development option, governments will seek to ensure logistic supports from partners and/or acquire lacking technologies. Among measures to strengthen their defense production and technology bases, governments encourage industries to promote arms export, and simplify arms export procedures, while strengthening information security procedures.
Examples of international cooperative development programs: Discussion of eleven international cooperative development programs of advanced weapon systems:
Names of projects;
1) F-35 Joint Strike Fighter, 2) Euro Fighter Typhoon, 3) Gripen Multi-Role Fighter,
4) Rafale, 5) Russia and India Co-Development Fighter,
6) F-15K (Off-set production of F-15 in Korea), 7) Airbus A 400M Air Cargo,
8) Arrow Weapon System, 9) Evolved Sea-Sparrow Missile (ESSM),
10) LINK-16/MIDS, 11) Galileo
Details of projects; Mission, Function, Performance, Participant countries, Development schedule, Cost share, Work share, Challenges.
Problems in international cooperative development of defense systems: There are problems as well as benefits in international cooperative development. One typical problem is the difficulty of reaching agreement on requirements for performance, work share, technology release, types of participation, cost sharing, etc. It is impossible to satisfy all participants’ requirements, and thus they must accept compromises. Secondly, the success of cooperative development projects partially depends on the ability of participants to supply necessary capabilities; therefore governments must take measures to ensure operational sovereignty. Thirdly, political instability can cause risk through changes in defense programs, budgets and security of supply.
Chapter 4 Present conditions and problems of international cooperative development of defense systems in Japan
4.1 Japan’s unique background on cooperative development of defense systems
Since JMOD is only the customer for Japan’s defense industries, the scale of defense industry production, as well the defense sector relative to overall industry is very small. For example, the proportion of defense production to gross mining and manufacturing industry in Japan is less than one percent. There are few companies that specialize in defense business except ammunition and aircraft manufacturers. Therefore, the defense department of a company cannot take an initiative in deciding its business policy.
4.2 Examples of international co-development of defense equipment projects in Japan
Japan has conducted very few and limited defense co-development projects because of the “Three Principles of Arms Export” policy (thereafter 3P policy). Concerning international transfers of defense technologies, Japan concluded the Defense Technology Exchange Agreement with the US to promote cooperation in defense technology development. Thus, the GOJ adopted an exception to its policy of banning arms exports by allowing defense technology transfer to the US only. There have been 18 technology transfers from Japan under Agreement, including man-portable SAM technology.
The US and Japan have also undertaken 17 joint research projects under the US-Japan Science and Technology Forum.
Co-development projects with the US include the F-2 fighter and the SM-3 BlockⅡA ballistic missile defense system.
4.3 Problems of international cooperative development of defense systems in Japan
The principal problem is that the GOJ has not established a systematic and consistent defense industrial policy. Japan should have established a national security policy system consisting of national defense policy/strategy, defense build-up plan and defense industrial policy. The defense industrial policy should have specified measures to bridge the gap between defense requirements and defense industrial capabilities.
The following examples of concrete problems are based upon recent experiences: 1) During co-development/production of F-2 fighter aircraft, the GOJ did not approve export of component manufacturing facilities developed by Japanese industry except for technical documents, to the US. As a result, US industry had to produce the same manufacturing facilities as those in Japan －an inefficient and uneconomic exercise. 2) Concerning US-Japan co-development of the SM-3 BlkⅡA missile; despite expected export of this missile to third countries, the project is about to enter its final development phase with a still ambiguous GOJ position on third country exports. 3) Although Japan concluded a General Security of Military Information Agreement (GSOMIA) with the US, Japan’s legal framework for information security remains incomplete. 4) The GOJ’s budget process is so rigid that appropriations for once approved projects cannot be changed.
4.4 Foreign views of Japan’s participation in cooperative development of defense systems
The summary of the survey that the overseas study team conducted are as follows; European countries acknowledge that Japan has technological capabilities and is a mature nation in many aspects, but responded negatively to cooperative development of defense equipment with Japan under the current 3P policy. If Japan revised the current 3P policy, its participation in international development projects would be welcome.
Policy level officials in Europe and US expressed a common view: If Japan continues its present 3P policy, its defense production and technology base will inevitably decline. Although it is a matter for Japan to decide, Japan should change its present 3P policy to allow Japanese defense industry participation in international armaments programs. To participate in such programs, Japan should establish complete information security and arms export management systems.
Major European countries changed their defense and industrial policies after the end of the cold war from reliance on domestic defense industrial capabilities to use of foreign industrial capabilities while preserving sovereignty. By doing so, they have revitalized their defense industries while integrating with those of friendly nations. Based upon these experiences they recommend that Japan change present policies to allow participation by Japan’s defense industries in armaments cooperation programs.
Chapter 5 Influence on Japan’s defense industries
5.1 Differences in conditions and views on cooperative development of defense equipment between Western countries and Japan
The US and European countries have a long history of arms exports; their share of arms exports in the global defense market amount to nearly 80%. These countries have acquired most advanced defense equipment through cooperative programs since the end of the cold war.
The following conditions cause the US and European governments and their defense industries to acquire advanced defense equipment through cooperative programs.
1) US and European populations understand that the existence of healthy and competitive defense industrial base in their countries is a fundamental factor of national security.
2) It is inefficient and uneconomical for one country to develop and procure sophisticated defense systems by itself. Therefore, acquiring defense systems through international cooperation is readily understood to be the most realistic and cost effective solution.
3) International cooperative development programs provide participant industries with opportunities to acquire advanced technologies.
4) Common systems among participants in cooperative programs promote interoperability of equipment and enhance logistic support capabilities. These factors promote mutual reliance and result in a stronger alliance.
5) The common concept of “Best Value for Money for the Taxpayer” lies in decisions on methods of acquisition, source of acquisition, and cost evaluation.
6) International armaments cooperation has been promoted through development of diverse policies, strategies, agreements and organizations. Typical of these are:
- Selection of core technologies and preserving that technology and production base in a given country;
- Establishment of the European Defence Agency (EDA);
- Establishment of a European Joint Armament Cooperation group (OCCAR－UK, France, German, Italy, Spain, Belgium);
- Conclusion of Framework Agreement (UK, France, German, Italy, Spain, Sweden);
- EDA publication of Strategy for a European Defence Technology and Industrial Base;
- Capability Development Plan / European Armaments Cooperation Strategy / European Research & Technology Strategy also being published by the EDA;
- Code of Conduct on Defence Procurement / EU Code of Conduct on Arms Exports.
On the other hand, Japan’s government and defense industries have virtually been unaffected by either changes in the post-cold war international security environment or industrial globalization. Factors that promote cooperative development of advanced defense equipment in the US and Europe have not functioned as driving forces in Japan. Major reasons for this are: isolation from the global defense market because of the 3P policy; restricted defense budgets held at less than 1 % of GNP; the small proportion of defense business to the gross turnover of major companies.
5.2 Influence of international cooperative development of advanced defense equipment upon Japan’s defense industries
Dynamic changes in defense industries and progress on armaments cooperation in Western countries have virtually not affected Japan up to now. However, we are concerned that if Japan continues present policies related to its defense industry, its defense capability could be significantly damaged, jeopardizing national security. Therefore, Japan should not ignore recent progress in cooperative development of advanced defense equipment. The Japanese Government should revise its “Three Principles of Arms Export” policy to allow its defense industries to participate in cooperative development of defense equipment in the near future.
There are merits and demerits to participating in cooperative development of defense equipment. Major merits are: opportunities to access to advanced technologies; encourage technological innovation through severe competition in the global defense market; clarify a direction of investment in research and development. Potential demerits are: lack of access to technological information beyond that available to a lead system integrator; no chance to acquire advanced technologies from a particular vender or supplier.
Chapter 6 Japan’s response
6.1 Establishment of a consistent and comprehensive national security policy that includes a defense industrial policy:
Nations implement foreign, economic, national security policies to preserve and pursue national interests. The core of a national security policy is a defense policy. The fundamental point of the defense policy is to maintain armed forces that have effective capability to defend the nation. Defense industries’ responsibility is to provide armed forces with effective equipment to meet their requirements. Governments need to decide what capabilities defense industries should have and how to develop their capabilities to meet these needs, which should be stipulated in a defense industrial policy. Thus defense industrial policy should be part of a comprehensive and published security policy.
6.2 Establishment and execution of consistent and comprehensive policies and strategies
A defense industrial policy must be consistent with related policies such as arms export control, defense acquisition, science and technology development, information security procedures and budget process.
Arms exports control: Establish an arms export control law based on national interests and consistent with international laws and agreements. This law should include clear examination criteria for arms exports consistent with international standards and define responsibility of the Diet, Government and Ministry officials. An inter-Ministerial mechanism should be established to examine arms exports from a broader perspective.
Acquisition strategy for defense equipment: Clarify defense production and technology capabilities that Japan should preserve in country. Confirm the priority of acquisition sources, including foreign sources, by cooperative development of defense equipment. Clarify a competition policy that specifies decisions based best value for the taxpayer.
Research and development strategy: Military victory owes greatly to technological advantage of defense equipment. It takes long time to foster technological capabilities; thus Japan must develop a long-term technology strategy with its defense industry to help focus and manage its research efforts. This policy should include access to all available technology resources in Japan.
Defense industrial strategy: The GOJ should develop a defense industrial strategy that specifies the existence of a healthy and competitive defense industrial base as a fundamental element of a national defense.
Information security system: Progress in globalization of industries and international armaments cooperation brings increased transfer of equipment and information, which results in increased opportunity for leakage to adversaries. International organizations as well as many nations struggle to cope with these risks and have established various regimes to strengthen information security. Japan concluded a GSOMIA with the US in 2007, but this measure is not enough. Because of lack of experience with arms exports for more than thirty years, no practical comprehensive system of arms exports control exists in Japan. Japan should establish an information security system that meets Japan’s unique requirement and incorporates relevant models from Western countries.
Revision of budget system: As the present budget system in Japan is a fixed system of single fiscal year budgets, it is impossible to accommodate changes of components and costs in the approved budget and program schedule. This budget system must become more flexible.
The JMOD should also revise its present competitive tendering system, emphasizing selection of a contractor not only through the lowest estimated cost for a new system but also various longer-term considerations.
6.3 Defense industries’ response
Japan’s defense contractors have never competed with foreign industries in defense markets because of the 3Ps policy. During this time, international society has become a technological innovation age society. It can be said that Japan’s defense industries have been in a state of technological isolation. Japanese defense industry has been left out of access to advanced technologies while avoiding technological contribution to international society. Japan’s defense companies must recognize that they cannot maintain a state of technological isolation in the future.
While the Japanese Government must establish new arms export control, defense industrial and defense technology policies, Japan’s defense industries must evolve world class competitive technologies by themselves and build up industries’ posture to participate in international armaments cooperation programs.
Thus Japan’s defense industries’ efforts to evolve technologies and the Government’s consistent policies and strategies to strengthen its defense industrial base will enable their participation in international armaments programs.
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