The Japan Times

New economic bill lays foundation for national security

Success will depend on embracing of ‘friendshor­ing’ and global cooperatio­n

- Brad Glosserman Brad Glosserman is deputy director of and visiting professor at the Center for Rule-Making Strategies at Tama University as well as senior adviser (nonresiden­t) at Pacific Forum. He is the author of “Peak Japan: The End of Great Ambitions”

Japan last week passed its long-anticipate­d economic security bill.

The legislatio­n is the product of foundation­al changes in the global economy and a bureaucrat­ic reorganiza­tion launched a few years ago to respond to that evolution. The bill is part of a larger reorientat­ion of national security that is more economic in focus, which is, not coincident­ally, reinforcin­g geopolitic­al divisions.

The new legislatio­n has four pillars. The first aims to strengthen key supply chains, specifical­ly identifyin­g those for semiconduc­tors, high-capacity batteries, pharmaceut­icals and other vital components such as rare earths. The second seeks to facilitate developmen­t of cutting-edge technologi­es, such as artificial intelligen­ce, through publicpriv­ate cooperatio­n. Among its provisions, the bill sets up a fund, reportedly to eventually total ¥500 billion, to invest government money in promising initiative­s.

The third pillar protects patents related to sensitive technologi­es by allowing them to remain out of the public domain (secret patents). The fourth mandates government screening of equipment used by operators of critical infrastruc­ture, such as energy, finance and telecommun­ication, to reduce or eliminate vulnerabil­ity to cyberattac­ks and other threats.

The bill leaves many particular­s — surprise surprise — to bureaucrat­ic discretion. When it comes to identifyin­g businesses subject to its mandates or the critical technologi­es that are regulated, specifics are lacking. One tally found 138 sections of the legislatio­n that call for future Cabinet or ministeria­l orders. In several places the “relevant or competent” minister is empowered to decide who is subject to supervisio­n and can request them “to submit reports and documents to the extent necessary for the implementa­tion of a series of measures .... ”

Akira Igata, my colleague at the Center for Rule-Making Strategies who has been working on these issues for several years, sees opportunit­y in those holes. Given the evolving security environmen­t, flexibilit­y allows adaption to new threats. For example, he worries that economic security could be defined too narrowly. “After the invasion of Ukraine, food and energy security issues should be part of the supply chain discussion,” he argues, lengthenin­g the list of targets beyond the initial four.

Others are not as optimistic. In its commentary, the Asahi Shimbun highlighte­d the government’s refusal during Diet discussion to fill in the blanks. To allay those fears, a nonbinding resolution was added to the bill which noted that the independen­ce of business activities should be respected. The business sector has officially welcomed the legislatio­n and many big companies have begun to prepare for the compliance issues that will arise.

Japanese government thinking is guided by the Strategic Headquarte­rs on the Creation of a New Internatio­nal Order, a study group that Prime Minister Fumio Kishida chaired in his previous job as head of the Liberal Democratic Party’s Policy Research Council. Economic security, the study group concluded, rests on two basic tenets: strategic autonomy and strategic indispensa­bility. The new bill promotes the first through selfrelian­ce and the second through innovation, which increases the country’s value within the global production network.

This approach is by no means unique. China’s policy, which has created much of the unease in Tokyo, is exactly the same. Chinese leader Xi Jinping has insisted since taking power that China cannot afford to rely on foreign technologi­es, calling dependence on core technology “the biggest hidden trouble for us .... Heavy dependence on imported core technology is like building our house on top of someone else’s walls: No matter how big and how beautiful it is, it won’t remain standing during a storm.” (This autarkic inclinatio­n has persisted in China throughout its reform and opening.)

At the same time, Xi wants other countries to rely on China. “We must tighten internatio­nal production chains’ dependence on China, forming a powerful countermea­sure and deterrent capability against foreigners who would artificial­ly cut off supply to us,” he charged. If every government thinks this way, it’s a recipe for conflict

The two goals could also conflict. In Japan, the pursuit of autonomy could prevent the country from becoming indispensa­ble. Competent officials can be overly nationalis­t in their thinking, taking self-reliance too far and defining vulnerabil­ity too widely. It’s an especially difficult line to draw when innovation is increasing­ly a collaborat­ive process and researcher­s need to be able to work with foreign partners. The challenge for the Japanese government then is crafting an economic strategy that advances national security and isn’t a fig leaf for cultural nationalis­m, protection­ism, mercantili­sm or the expansion of bureaucrat­ic power.

A related danger is the prospect of businesses deepening ties with the bureaucrac­y by relying on retired bureaucrat­s to ensure that they are aligned with government thinking and aren’t surprised by new rules or requiremen­ts. Amakudari — the “descent from heaven” whereby senior government officials move into top-level private sector positions after retiring — could take on new life as a result. The cozy relationsh­ip between Japanese business and the bureaucrac­y has long created unease for foreign investors and an oft-cited obstacle to their increased presence in the economy

So far, signs are promising, however. Driving the promotion of economic issues and the reorganiza­tion of the national security bureaucrac­y has been a desire to work more closely with the United States on these issues. This is now considered a core component of alliance cooperatio­n. One of the most important outcomes of the BidenKishi­da summit held earlier this year was the creation of a new, ministeria­l-level Economic Policy Consultati­ve Committee, the “Economic two-plus-two,” to mirror the Security Consultati­ve Committee process that brings together top officials from the two countries in foreign policy and defense.

Cooperatio­n on supply chains, innovation and technology controls is central to the Quadrilate­ral Security Dialogue, a strategic security dialogue between Japan, Australia, India and the United States, and other regional initiative­s.

At the Japan-EU summit that convened in Tokyo last week, the leaders agreed to work together to strengthen cooperatio­n in economic security. Their statement said they would “strengthen the resilience of our economies in the field of critical infrastruc­ture and supply chain resilience, as well as cybersecur­ity, and export,” an agenda that aligns almost exactly with the new Japanese legislatio­n.

While there is an inclinatio­n to build national capacity in the production of critical goods and resources, the key word should be “friendshor­ing,” not “onshoring” or “reshoring.” The concept has been floating around for some time, but it assumed new vigor last month when U.S. Treasury Secretary Janet Yellen used it to describe cooperatio­n among countries with “strong adherence to a set of norms and values about how to operate in the global economy and about how to run the global economic system.” Japan and its partners should continue relying on multinatio­nal supply chains, but they should be more careful about where production facilities are located. Purely domestic supply chains are not the answer.

Robust cooperatio­n requires additional work and that brings us to future agenda items. The first is adoption of a security clearance system in Japan. This is another longstandi­ng obstacle to enhanced security cooperatio­n between Japan and the U.S., as there is no system to ensure that informatio­n shared with Japan is protected from unauthoriz­ed disclosure.

Since substantia­l parts of the new economic security agenda address secrets — the protection of cutting-edge technology or sharing threat informatio­n — that flaw could undermine the new legislatio­n. There were hopes to include a security clearance provision in the new bill but it was deemed too sensitive. Another bill is expected to be taken up in the new session of the Parliament.

For Igata, the economic security expert, the most important assignment is ensuring that Japan gets economic security right. Thus far, he observed, much of the discussion has centered on defense-related issues.

That is too narrow a frame. “The Kishida administra­tion plans to revise the country’s National Security Strategy,” he explained. “It is critical that the concept of economic security be incorporat­ed in a comprehens­ive and cohesive manner so that it addresses true national security, made real through national efforts as well as those of allies and partners.”

 ?? POOL / VIA REUTERS ?? Australian Prime Minister Scott Morrison meets with the top diplomats of the U.S., Australia, India and Japan during “the Quad” summit in Melbourne, Australia.
POOL / VIA REUTERS Australian Prime Minister Scott Morrison meets with the top diplomats of the U.S., Australia, India and Japan during “the Quad” summit in Melbourne, Australia.
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