Abe's bid to boost Japan defense exports flounders with sub contract loss

Isabel Reynolds, Bloomberg News
26 April 2016

Soon after a Japanese Soryu submarine sailed out of Sydney Harbour on Tuesday, the Australian government rejected Japan’s bid for a $39-billion contract to renew its aging sub fleet.
The decision dealt a blow to Prime Minister Shinzo Abe’s effort to globalize Japan’s defense industry and build a bulwark against China’s growing naval power. Australia chose France’s DCNS Group to produce the 12 vessels over Japan’s Mitsubishi Heavy Industries and Thyssenkrupp AG of Germany.
Japan’s bid was a manifestation of Abe’s push to loosen the restrictions of Japan’s seven-decade-old pacifist constitution in the face a territorial dispute with an increasingly assertive China. A successful bid would also have helped Abe promote his idea of a “security diamond,” linking Japan with Australia, the U.S. and India to counter China’s maritime expansion and secure freedom of navigation in the region.
“Abe has really put his neck out there,” said Richard Bitzinger, a senior fellow at the S. Rajaratnam School of International Studies in Singapore. “He had to contend with 50 years of reluctance to export arms. A big sale like this would have really proven the rightness of his cause."

Fierce Opposition

Abe has faced fierce public opposition to his plan to ease the constraints of the postwar constitution to expand the role of the country’s self-defense forces and strengthen alliances. His decision to abandon a ban on weapons exports in 2014 was meant to help build defense partnerships with allies, as well as nurture Japan’s defense
industry, whose exclusive focus on the small, domestic market has resulted in high prices for its weaponry.
Winning the Australian deal, one of the world’s largest current defense tenders, would have spelled a sea change for the fragmented industry. In 2014, Japanese companies manufactured about 2.3 percent of the arms produced by the 100 biggest defense contractors, excluding China, according to the Stockholm International Peace Research Institute. That compared with the U.S. at 54.4 percent, the U.K. with 10.4 percent and French companies with 5.6 percent.
As part of his effort to win the bid and promote his “security diamond,” Abe cultivated bilateral ties, and also formed a close personal bond with former Prime Minister Tony Abbott to build on the joint declaration on security cooperation signed in 2007. A winning bid would have meant Japan sharing sensitive submarine technology, which is not even shown to its only formal ally, the U.S., and would have bound the two countries into an intimate security relationship for decades to come.
"We will now join up in a scrum, just like in rugby, to nurture a regional and world order and to safeguard peace," Abe said when he became the first Japanese prime minister to address the Australian parliament in 2014.
One reason that cultivating Abbott didn’t pay off was that the Liberal leader was ousted by Malcolm Turnbull in a party revolt in September, a shakeup that also led to a new defense minister, Marise Payne, overseeing the final decision on the subs.
"The sub decision would have taken the relationship a quantum leap forward,” said Murray McLean, a non-resident fellow at the Lowy Institute of International Policy and Australia’s ambassador to Japan from 2004 to 2011. “There would be deep disappointment on the Japanese end."
Payne on Tuesday cited superior sensor performance and stealth characteristics among the reasons for picking the French offering. Considerations also included cost, schedule and Australian industry involvement, she said. Mitsubishi Heavy said after the decision that Japan’s proposal had not been fully understood.

Not Ready

But Tetsuo Kotani, senior fellow at the Japan Institute of International Affairs, said Japanese companies and defense officials did not share Abe’s enthusiasm and didn’t go flat-out to win the contract.
"Neither Japanese defense companies nor the Maritime Self-Defense Force were very willing to provide sensitive submarine technology. They didn’t even want to provide secrets about our submarine technology to the U.S.," he said. "Although Prime Minister Abe himself was very willing to provide the technology, which meant the government officials had to do something, overall the Japanese government wasn’t ready."

Military Drills

The strength of the Japan-Australia alliance was on display this month when the two countries participated in drills with the U.S. in the Java Sea and with the visit by the Soryu sub this week. Even with military cooperation increasing, Australia needed to weigh the risk of angering China, its biggest trading partner, if it chose Japan for the sub contract. Resentment in China over Japan’s past aggression in Asia still runs deep and the two countries remain locked in a dispute over ownership of a group of uninhabited islands close to Taiwan.
The onus will now be on the Turnbull government to make clear to Japan that appeasing China was not the reason for the decision and to find other ways of cooperating on defense, said Mark Thomas, a defense economics analyst at the Australian Strategic Policy Institute. Sending Foreign Minister Julie Bishop to Japan soon would be a good start, he said.
"There’s no way you can paint a happy, smiling face on losing a multi-billion dollar contract," Thomas said. "Whether it’s a serious blow depends upon how both Australia and Japan handle it going forward."