The Japan Times
New economic bill lays foundation for national security
Success will depend on embracing of ‘friendshoring’ and global cooperation
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.”