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The domestic defense industry is an important pillar that supports Japan’s national security. The industry should be regarded as part of the nation’s strength, and efforts must be made to strengthen the foundation of its production.
In recent years, one company after another has withdrawn from the defense industry.
Komatsu Ltd. has stopped manufacturing light armored vehicles, while Sumitomo Heavy Industries, Ltd. has halted its production of the next series of machine guns. Mitsui E&S Shipbuilding Co. has transferred its naval vessel business to Mitsubishi Heavy Industries, Ltd. According to the Defense Ministry, more than 100 companies have exited the industry since 2003.
With the Defense Ministry as their only customer, companies in the nation’s defense industry produce only small numbers of tanks, fighter jets and other products with special specifications. The sector is difficult for companies to generate steady earnings in.
Japan’s defense spending has increased for 10 consecutive years. The increase is largely attributable to a surge in the procurement of defense equipment through the U.S. foreign military sales (FMS) program. Procurement from domestic companies had remained flat until fiscal 2018.
Relying on foreign entities to procure defense equipment and ammunition is a great risk. Such dependence would make it difficult for a nation to replenish and repair defense equipment in the face of a threat. It is essential to stop the trend of businesses withdrawing from the industry and to enable technology to be passed on.
From next fiscal year, the Defense Ministry plans to set higher profit margins for defense equipment in line with corporate efforts to improve quality, cut costs and achieve other goals. Given the important role played by the defense industry, extensive support measures are needed.
Procurement through the FMS program has the advantage for Japan of being able to introduce state-of-the-art equipment, but costs tend to balloon as the U.S. side takes the lead in determining prices.
The ministry should improve its negotiating skills. It is hoped that consideration will also be given to the balance between domestic procurement and imports.
Expanding sales channels for defense equipment to overseas buyers is also an important task.
In 2014, the government replaced the Three Principles on Arms Exports, which had effectively banned the nation from exporting defense equipment, with the Three Principles on Transfer of Defense Equipment and Technology, paving the way for exports of such equipment for specific purposes. However, an air defense radar system to the Philippines is the only fully assembled product that Japan has exported so far.
Currently, the three transfer principles allow defense equipment exports in five areas, such as rescue, transportation and surveillance. It is desirable that the current application of the principles be reviewed to expand their use. The government is urged to explore ways to respond to the needs of potential recipient countries, while maintaining the ideal of a peaceful nation.
If orders from overseas customers increase, the competitiveness of defense equipment will improve and this would bring down unit prices. The defense industry wields influence in a wide range of areas. Ripple effects on the economy can also be expected.
The government has launched a panel of experts on bolstering defense capabilities. It is hoped that discussions will be held from various perspectives, such as fostering the defense industry, expanding research and development and utilizing advanced civilian technologies.
