Japan’s economic security bill strikes a balance between business and bureaucracy

Author: Toshiya Takahashi, Shoin University

While the Japanese media was busy with the Russian invasion of Ukraine, Japan’s economic security bill passed without strong opposition in the Diet in May 2022. and advanced technology. But the new security policy will have uncertain effects on Japanese security and business.

Focusing on four areas of economic security – supply chains, basic infrastructure, advanced technology and the publication of patents for sensitive technologies – the law allows the national government to intervene in the relations of Japanese companies with foreign companies.

The law encourages Japanese companies to diversify supply chains with critical materials, while the government provides funds for diversification if companies meet certain conditions. If the procurement and provision of basic infrastructure has the potential to facilitate foreign obstruction, the government identifies the sector and directs it to provide a pre-arranged procurement or supply planning plan to ensure the security of its infrastructure. The law lists 14 sectors, including electricity, water supply and information technology, as candidates to become “specified social infrastructure enterprises”.

For the protection and promotion of Japan’s cutting-edge technology, the law requires the national government to establish a technology council – made up of officials, experts and think tanks – and to commission research from think tanks. The government can suspend publication of a patent if the product is found to be security-sensitive technology.

While the business sector has expressed concerns about the new regulations, the only clear objection has come from the Japanese Communist Party. The other political parties generally accepted the bill. A conservative nationalist group from the Liberal Democratic Party has backed the counter-China bill, saying the importance of building strong national security institutions. Moderate conservatives also backed the bill, arguing that Japan lacks the legal framework to defend its advanced infrastructure and technologies from malicious foreign investment and commercial espionage like advanced countries with legal institutions. similar.

Japan’s Economic Security Law gives the Japanese government the power to define economic threats and risks related to foreign economic activities. But it is a difficult business. The lack of consideration of what economic security is, as well as its relationship to commercial activity, creates uncertainty about the effectiveness of the law.

While the law lacks a clear definition of economic security, Economic Security Minister Takayuki Kobayashi reiterated that defining the term is difficult as economic security is a new and evolving idea. Yet the legislation contained no rationale for focusing on four policy areas, nor did it explain how these areas actually contributed to Japan’s economic security.

The law is optimistic about the impact of safety regulations on the competitiveness of Japanese companies despite the possibility that government intervention will interfere with market mechanisms and harm competitiveness. The Diet announced an additional resolution for the bill, expressing concerns that the bill would likely negatively impact businesses. Although these risks were vaguely perceived by the government, a sense of urgency about Japan’s economic security allowed the bill to pass.

Identifying threats and risks to Japan’s economic security is the responsibility of relevant ministries, such as the Ministry of Economy, Trade and Industry and the Ministry of Land, Infrastructure, Transport and tourism. While the law stipulates the procedure of the policy, the scope of the law and the implementation of the policy will be determined by ministerial orders, the content of which is decided by the offices and divisions of the responsible ministries – a process that does not is not often open to the public.

Incorporated associations will be selected by the government to coordinate between Japanese companies and the government to facilitate supply chain diversification. But it can expose these affiliated organizations to Amakudari – the practice of senior Japanese bureaucrats retiring to high-level positions – whether the employment of former national security officers benefits the associations.

Government intervention and the use of government-appointed affiliated bodies in the name of economic security are reminiscent of bureaucracy-centric post-war Japanese society, but the law has already had a positive effect on relations outside of Japan.

The law helps Japan’s security cooperation with the United States and Australia, both of which are receptive to economic countermeasures against China. Tokyo can use the law to investigate Japanese companies if allied states raise risks and concerns, while simultaneously justifying its commitment to the Quad and the Indo-Pacific Economic Framework (IPEF).

Despite the law’s external merit, it is uncertain whether Japan’s economic security can be ensured without harming overseas trade relations. Business in China is crucial to Japanese corporate profits – and economic prosperity is the foundation of national security.

The emerging national security bureaucracy is tightening government authority over Japanese companies in the name of economic security. But market interference and the bureaucracy that comes with it are inefficiencies that cannot be ignored.

Japan has begun to prioritize economic security, but there is a long way to go before Tokyo strikes the right balance between security regulations and business competitiveness.

Toshiya Takahashi is Associate Professor of International Relations at Shoin University.