Britannia Radio

From The Times

May 25, 2009

Japan's big guns prepare to rejoin global arms industry

Leo Lewis, Asia Business Correspondent

The huge engineering and technological might of Japan may be poised for a new lease of life as the country prepares to ditch a self-imposed ban on arms exports that was introduced in the mid-1970s.

The controversial decision, which is likely to encounter bitter opposition from the country's mainly pacifist middle classes, could deliver significant economic benefits to Japan and lead to a realignment in the global defence industry.

A ruling party MP said that the greatest significance would be the conversion of Japan's robotics industry from civilian to military use as the world's defence spending is directed to remote-control hardware, such as drone aircraft.

Lifting or toning-down the 33-year old embargo would unleash some of the world's most advanced heavy engineering companies into the international weapons market, one of the few areas of manufacturing where Japan's immense technical resources have, for purely political reasons, not produced a dominant global player.

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The expected move, which government insiders said may be announced by Taro Aso, the Prime Minister, before the summer, is likely to begin by relaxing the ban to allow Japanese companies to work on joint projects with American and European defence manufacturers, whose products could then be sold internationally.

To date, the single exception to the ban came as a dispensation in 2005 that allowed Japan to work with US companies on a missile defence system viewed as critical while North Korea continues to flex its military muscles.

Japan sees itself as a logical target for the nuclear-armed Pyongyang regime and has spent about £5 billion on the missile defence shield jointly developed with the United States.

Joint production and the scope to profit from a share of international sales could draw more Japanese companies into the defence industry and, the Government hopes, bring procurement costs down. Yet as the ban loosens further, government defence insiders say that Japan could be propelled into the top ranks of arms manufacturers.

Even with their sales limited strictly to the domestic market, several of the country's biggest engineering conglomerates, such as Mitsubishi Heavy Industries (MHI), already feature among the world's top 30 biggest military hardware suppliers. MHI already produces a fighter jet and a broad range of naval hardware.

Despite being rigidly observed, Japan's 1976 ban on arms exports was never passed as a law. It can, therefore, be reversed or amended by the sitting prime minister, without requiring passage through parliament. Such a process would almost certainly have seen the move blocked by the Democratic Party of Japan, the centre-left opposition. The wording of the new statement is expected to ensure that exports do not end up in the hands of countries that support or sponsor terrorism.

The decision to relax the ban is understood to have been under consideration for several years and comes as Japan's mainstay export industries — electronics and automotive — buckle under the pressure of the worldwide spending slump.

Mr Aso's Government, meanwhile, is struggling to reverse an unprecedented shrinkage of the economy while the strong yen has made Japanese goods even less price-competitive against South Korean and Chinese products. Defence analysts have long maintained that Japanese industry, once freed from its ban, could quickly rival British, American and European players. Japan's prowess in miniaturised motors, robotics and control systems would be especially competitive.

Japan's existing defence industry has been crafted around the peculiarities of its own military arrangements. Article 9 of the country's postwar Constitution declares that Japan will renounce war as a sovereign right and that “land, sea and air forces, as well as other war potential, will never be maintained”.

However, as the Cold War deepened, Japan identified a giant loophole in the Constitution and allowed itself to build up very considerable “self-defence forces”, whose equivalent of navy, army and air force are now among the world's most expensively and extensively equipped.

However, the prospect of being limited to the domestic market persuaded many Japanese companies that the effort and the research and development spending involved in producing military hardware would not give good returns and many dropped out altogether.