Tuesday, August 18, 2015

Japan slips chasing Australian submarine deal

Secrecy surrounding government-led bid hurts public image of Tokyo’s proposal

Rob Taylor and Chieko Tsuneoka, Wall Street Journal
18 August 2015

Six months ago, two Japanese companies better known for producing trains and motorcycles were favorites to win a roughly U.S. $20 billion Australian defense contract to build submarines, launching them into the nearly U.S. $1.8 trillion global military hardware market after an almost 50-year ban in Tokyo on weapons exports.
But secrecy surrounding the government-led Japanese bid – in contrast to public charm offensives waged by German
and French rivals – might scuttle the firms’ chance to win one of the world’s most lucrative weapons deals.
The makers of Japan’s Soryu-class submarine, Mitsubishi Heavy Industries Ltd. and Kawasaki Heavy Industries Ltd., haven’t made a single public appearance in Australia. They didn’t attend a government submarine-planning conference in March and declined to appear before a parliamentary hearing last month in Adelaide, the capital of South Australia, where scores of local jobs are at risk if the successful bidder decides to build the submarines overseas.
Meanwhile, Germany’s ThyssenKrupp Marine Systems GmbH and France’s DCNS Group have set up Australian offices bristling with lobbyists, defense experts, public-relations teams and technical employees to advance their bids and exploit public unease about the Japanese bid.
ThyssenKrupp last month signaled that if its Type 216 sub wins out, the company could create shipyard jobs and turn Australia into a submarine-industry hub for much of Asia. Many influential lawmakers now believe that the German company is the favorite.
Both Mitsubishi and Kawasaki said they support the push for the Australian contract, but each said the government’s involvement made their approaches different from the European companies’ bids.
“That is where Japan’s weakness lies. Japan is handling this project in a Japanese way and working on it as purely a case of exporting defense equipment, transferring technology and making Australian production possible,” said Yoji Koda, a retired vice admiral and former commander of the Japan Maritime Self Defense Force Fleet. By contrast, Mr. Koda said, “competitors are adding value with their proposals,” such as creating a submarine service hub in Australia.
The contrast underscores the challenges facing Japan as the semi-pacifist country seeks to enter the global weapons market after a decadeslong absence. Japanese troops haven’t engaged in any conflict since World War II, restricting their operations to international peacekeeping and disaster relief. The Australian contract is by far the largest Japan has sought since Prime Minister Shinzo Abe eased the ban in April 2014, and is seen as a test case for how Japan could reposition itself in the region as Mr. Abe seeks to use military hardware trade to help build ties with neighbors who are also wary of China’s power.
Japan and Australia deepened security ties last year amid worries over Chinese muscle-flexing in territorial disputes, a deal senior defense officials had thought would give the Japanese bid an edge. India has expressed interest in buying Japan’s US-2, a large seaplane built for the navy by ShinMaywa Industries Ltd.
Australia is one of many Asia-Pacific nations looking to modernize its submarine fleet with diesel-powered vessels. More than half of the world’s submarines are expected to be in Asia by 2030, as countries including Indonesia, Malaysia, Vietnam and Singapore look to hedge against instability by building undersea fleets, which are harder for enemies to detect than conventional ships.
Prime Minister Tony Abbott has pledged to boost military spending to 2% of gross domestic product from the current 1.8%, adding 3.5 billion Australian dollars (U.S. $2.6 billion) a year to the current A$32 billion military budget.
Japan is confident in the technological superiority of the Soryu, the world’s largest diesel-electric submarine, over its competitors, including Australia’s aging Collins-class submarine, manufactured by government-backed Australian Submarine Co. While the Collins sub has been plagued by reliability and noise problems since its introduction in 1996, the Soryu’s stealth propulsion system allows it to operate underwater for almost two weeks, comparatively long for nonnuclear vessels. It can also dive deeper than the Collins, making it better able to evade enemies.
But several factors have inhibited a full-throated sales effort by the Japanese companies. Japanese weapons exports are still controlled by the government, and the companies have taken a back seat to government leadership in the negotiations. The government has never exported big-ticket defense technology before, and is handling the talks with Australia as a strategic matter rather than a business opportunity – making it difficult to craft a pitch that will appeal to Australian political sensitivities, defense experts said.
Japan’s foreign-affairs ministry said it plans to send technical information on the bid to Australia’s government. The ministry declined to comment further.
Toru Hotchi, director of the Equipment Policy Division of Japan’s Ministry of Defense, said Tokyo could work with Sydney to ensure a deal would satisfy domestic concerns. “If the Australian side attaches importance to industrial elements such as employment and maintenance, we will address the issues seriously and earnestly,” Mr. Hotchi said.
Several Australian government lawmakers have said that if the Japanese win, it will be seen as a politically unpalatable “captain’s pick,” in which Mr. Abbott agreed to a deal with his Japanese counterpart to build submarines in Japan, at the expense of Australian shipbuilding jobs. Mr. Abbott was already pressured in February by lawmakers to open the bidding to a 10-month competitive tender, after reports he had favored the Japanese in a handshake deal with Mr. Abe.
The Japanese side has recognized its low profile compared with the European companies might prove damaging, and has vowed to step up efforts in coming weeks to persuade Australian voters and lawmakers.
In a rare televised address last month to Australia’s National Press Club, Japan’s top envoy to Australia, Sumio Kusaka, said a 40-member Japanese delegation including trade and defense officials, as well as Mitsubishi and Kawasaki representatives, would meet with Australian industry groups this month.
“I think Japan will lose this deal unless it brings in consultants or gets some kind of help,” said Mr. Koda, the retired vice admiral. “It is like a person who doesn’t know how to dance making his or her debut in international society. You’ll need to learn how to dance, right? And the Japanese don’t know anything about dancing.”

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