Japan seeks sub sale to Australia in first big weapons export in 70 years

Demetri Sevastopulo and Hiroyuki Akita, Financial Times
11 January 2016
WASHINGTON/TOKYO – As U.S. navy ships, spy planes and satellites monitor Chinese activity in the South China Sea, officials in Washington are keeping a close eye on a big submarine deal that could bring the U.S. closer to its Pacific allies Australia and Japan.
In Tokyo’s first large-scale attempt to export weapons in 70 years, Japanese, German and French companies are bidding for an A$50bn contract to replace Australia’s current fleet of submarines. The deal, one of the world’s biggest defence contracts of recent times, has strategic implications in a period when the U.S. and its allies face an increasingly assertive Chinese navy in the waters of the Asia-Pacific region.
“As Australia is one of our closest allies, and given that they are positioned at the heart of one of the most important areas in the world, it goes without saying that the fact that Australia is investing in increased security capability, particularly in submarines, is significant,” says Vice Admiral Chris Aquilino, deputy chief of U.S. naval operations for operations, plans and strategy. “This investment should significantly improve Australia’s – and by extension – our collective security efforts in a region of vital importance.”
The competition has huge significance for Japan as it marks the country’s first substantial attempt to export weapons since Shinzo Abe, prime minister, ended a ban on selling arms overseas in 2014, as part of his push to make Japan a “normal” nation.
The U.S. has not taken an official position even though Japan is clearly a more important ally in the Pacific region than Germany or France, which have less at stake in Asia. But Kurt Campbell, a former top U.S. diplomat, says: “Privately there is a strong recognition that a deeper partnership between Japan and Australia is in the best strategic interests of the U.S.”
Admiral Gary Roughead, former head of the U.S. navy, adds that a Japanese victory would “strengthen ties between two significant Pacific allies and create the opportunity in the Pacific for increased interoperability.”
Japan also believes that selling its Soryu-class submarines to Australia would boost joint operations with the U.S. and Australia in the Pacific. “If there was not such a common strategic ambition, Japan would not be trying to export its treasured submarines to Australia,” says a senior Japanese official. Richard Armitage, a former U.S. deputy secretary of state, adds that Washington would like to see Japan win since it pushed Tokyo so hard to change the law to allow arms exports. “It makes a big difference in terms of solidifying the relationship between Australia and Japan,” he says.
The main champion for Japan’s bid is not drawn from among the bidding companies, which include Mitsubishi Heavy Industries (MHI) and Kawasaki Shipbuilding Corporation, but is Mr. Abe himself. Japan’s premier originally believed the country would win the contract outright because of his relationship with Tony Abbott, until recently Australia’s prime minister, who wanted the Japanese submarines. Mr. Abbott, though, was forced by critics within his party to hold a tender, partly because of domestic concerns that Japan originally did not intend to build the submarines in Australia. He was subsequently ousted by Malcolm Turnbull, who has been more supportive of a competitive process.
This has presented a hurdle for the Japanese defence companies, since they lack experience selling overseas and penetrating foreign markets.
While France and Germany are offering submarines that many believe are less technologically capable, they have been lobbying Canberra more aggressively. They have also hired local advisers – something Japanese bidders have appeared more reluctant to do.
Before the Japanese companies submitted their bid in November, some of their executives held meetings with Mr. Abe. According to three people familiar with the talks, he expressed concern that they were not being aggressive enough. His office said it was unaware of any criticism being delivered. But Mr. Abe conveyed a similar message to Japanese officials. “I am committed to this project and I expect you to proceed on that understanding,” Mr. Abe told senior government officials working with the companies on the bidding.
Shunichi Miyanaga, chief executive of MHI, would not say whether Mr. Abe had rebuked the company, but he told the FT that the company “reached a decision that we should be doing this actively after consulting closely with the Japanese government and considering the interests of Australia.”
Mr. Campbell says that Japan’s push to secure the deal shows that the nation is “dramatically entering the big league in defence procurement.” But the Japanese defence companies have been less enthusiastic than Mr. Abe. Some have argued that it would have been wiser to start the arms export push with an easier contest that did not involve the kind of sharing of classified information required in this highly sensitive deal.
Since Mr. Abe voiced frustration with the Japanese groups, they appear to have stepped up their efforts. In addition to considering the hiring of Australian advisers, they now accept they will have to build some – if not all – of the submarines in Australia. “The Japanese started very slowly and the fall of Abbott is perceived to be a big problem ... They are starting to realise that this is a real contest,” said one person familiar with the deal. “It has moved for Japan at warp speed. Three or four months ago, they were almost on their arse, but they have closed the gap. But they are not in front.”