Author: Brad Glosserman, University of Tama
In May 2022, the National Diet of Japan passed its long-awaited economic security bill. The legislation reflects a growing concern about vulnerabilities created by extended supply chains, reliance on foreign sources of critical materials and the theft of intellectual property. This is the latest in a series of measures aimed at better preparing Japan for the intensifying geopolitical competition of the 21st century.
While timely and logical, this approach could be used to justify the country’s tried and true techno-nationalism. During the COVID-19 crisis, Japan – like other countries – became aware of its dependence on foreign suppliers for vital products such as personal protective equipment. This prompted Tokyo to set up a $2.2 billion fund to help Japanese companies ease supply chain bottlenecks.
The fund was part of a larger package of measures designed to strengthen the government‘s ability to develop economic security policy. Other measures included the creation of an economic office in the National Security Secretariat, the formation of economic security divisions in key ministries, and the reorganization of law enforcement to focus on China.
The Economic Security Act builds on these efforts. Its four pillars are resilient supply chains, critical infrastructure security, strengthening the technology base through public-private partnerships to promote innovation, and secret patents.
The Liberal Democratic Party (LDP) laid out the logic behind the legislation in a study group concluding that economic security rests on two principles: strategic autonomy and strategic indispensability. The first is through self-reliance, which reduces vulnerability, and the second through innovation, which increases Japan’s role and importance in global production networks.
But there are downsides to giving more weight to economic security in national security policy.
The first is the constant concern that legitimate fears will be used to justify ordinary commercialism. The Foreign Exchange and Foreign Trade Law, amended in May 2020 to screen foreign investment in Japan and protect against foreign acquisition of key domestic assets, adopted a broad definition of national security, leaving the Ministry of Finance the care to fill in the blanks. The ministry decided that the law would cover companies that accounted for around 40% of the market capitalization of the TOPIX index.
The Economic Security Act is equally broad and not very detailed. According to an analysis, 138 sections of the legislation provide for future Cabinet or Ministerial Orders. The “concerned or competent” minister is often empowered to decide who is subject to oversight and can ask them “to submit reports and documents to the extent necessary for the implementation of a series of measures”.
This discretion must be put into perspective. The economic security program is unique in that it is run by politicians, not bureaucrats. While flexibility is a good thing, such discretion can be abused to fend off virtually all foreign incursions into the domestic economy, thereby protecting Japan’s status as a developed economy with one of the lowest levels of ‘Foreign direct investment. For critics, economic security is another way to implement protectionist measures, promote commercialism and strengthen bureaucratic power.
Counterbalancing this protectionist trend is Japan’s determination to promote economic security through multilateral cooperation. Tokyo launched a supply chain resilience initiative with Australia and India in 2021. These three countries, together with the United States, have made supply chain security one of the of the quadrilateral dialogue on security. At the May 2022 summit, Japanese and European leaders also agreed to “strengthen the resilience of our economies in the area of critical infrastructure and supply chain resilience, as well as cybersecurity and exports”.
Working closely with the United States on these issues is a priority for Tokyo to ensure access to advanced technologies and to promote its image as a reliable ally. An expression of this cooperation is the formation of the United States-Japan Economic Policy Advisory Committee at the ministerial level. This will mirror the Security Advisory Committee process which brings together senior foreign and defense policy officials from both countries and is expected to be launched in July 2022.
Progress requires Japan to take additional steps, including developing a security clearance system. Tokyo’s failure to put in place a mechanism to protect secrets from unauthorized disclosure is an ongoing US complaint. A security clearance provision was included in the Economic Security Bill, but was deemed too sensitive. The perception that Prime Minister Fumio Kishida is a less radical figure than former Prime Minister Shinzo Abe may alleviate some fears.
Another item on the agenda is the creation of an organization to identify and assess emerging technologies and guide government and the private sector on how to foster and protect their development.
All are awaiting the new National Security Strategy (NSS), tentatively scheduled for the end of 2022. The first revision since the publication of the first NSS in 2013, economic security would be a key pillar of the new document. But an LDP document with recommendations for the NSS doesn’t even use the term “economic security.” If this is the case in the new strategy, it would suggest that opacity is preferred to clarity and that fears of a rejuvenated protectionist and techno-nationalist agenda are justified.
Brad Glosserman is Associate Director and Visiting Professor at Tama University’s Center for Rule-Making Strategies and Senior Advisor (non-resident) at Pacific Forum. He is author of Peak Japan: the end of great ambitions (Georgetown University Press, 2019).