By Tim Kelly
TOKYO, July 26 (Reuters) - Japan's promised review of itslongstanding ban on arms exports, as part of a push for a morerobust military, could help make its defense contractors moreglobally competitive by reducing costs and expanding markets.
The Defense Ministry said on Friday it would review adecades-old self-imposed ban on arms exports and take action asneeded. Media reports have said Japan could issue new guidelinesto replace the ban, which has already been eased several times.
A lack of clear guidelines on what arms gear could be sold,and to whom, by firms such as the builder of the wartime Zerofighter, Mitsubishi Heavy Industries Ltd, submarinemaker Kawasaki Heavy Industries Ltd and licensed Apachehelicopter maker Fuji Heavy Industries Ltd, has held upefforts to translate the policy shifts into actual deals.
"To improve the technology of our production base from theviewpoint of strengthening our international competitiveness, wewill aggressively promote joint international developmentproduction with the United States, Britain and other countries,"the Defense Ministry said in an interim report on its review.
The moves form part of Prime Minister Shinzo Abe's review ofthe nation's long-term defense posture in the face of perceivedthreats from China and North Korea.
Allowing more arms exports and joint production could helpJapan to forge a stronger military as its budget for newequipment dwindles.
Japan's defense spending has remained at around 1 percent ofGDP for decades, but swelling maintenance costs have shrunk itsprocurement budget by a third over the past 20 years.
PAYING A PACIFIST PREMIUM
Industry sources say Japan often pays up to three times morefor military gear than other nations, because of the smallvolumes its manufacturers, unable to sell overseas, produce.
A wider customer base for Japan's military suppliers,particularly in the United States, where defense spending is tentimes more, could help lower those costs and give the nation abigger bang for its yen.
But Japan is unlikely to find foreign customers lining up tobuy its weapons, defense industry experts warn.
"The Japanese will find that exporting into the worlddefense market is going to be tough sledding for most, if notall makers," said Lance Gatling, an aerospace and defenseconsultant at Nexial Research in Tokyo.
"It is an increasingly globally competitive market, and newentrants in Israel, Singapore, Korea, India, and East Europemake increasingly competent equipment at attractive prices."
Instead, Japan may seek a place in the global supply chainof bigger global defense contractors, in the same way thatMitsubishi Heavy, Kawasaki Heavy and others are already majorcomponent suppliers for Boeing Co commercial aircraft.
U.S. INTEREST
Lockheed Martin Corp, which helped Japan build itsF-2 fighter and will supply it with F-35 fighters assembledlocally by Mitsubishi Heavy, wants to widen its supply chain toJapan, in a move to cut costs amid tighter defense spending athome, through access to a larger pool of potential suppliers.
With fewer restraints on exports, Japanese firms could beready to become suppliers to the whole F-35 program within fouryears, Richard Kirkland, Lockheed's executive in charge ofinternational business development, told Reuters in October.
But fitting the Japanese into the global consortium thatbuilds the fighter would mean taking work away from others.
"We understand Japanese industry has the quality and has theprocesses to be an integral part of this, should they decide toparticipate," Kirkland said.
Also interested in Japan as a supplier is Raytheon Co., which is seeing revived demand for its Patriot missiledefense system. Tapping firms that make the system in Japanunder license, with Mitsubishi Heavy as the prime contractor,could help keep down production at the U.S. company.
The same logic could work for Boeing, too, as it revamps itstwin-rotor Chinook transport helicopters. The aircraft, deployedby Japan's Self-Defense Forces, is built locally by KawasakiHeavy.
IMMEDIATE GOAL
The government's immediate goal is to hash out guidelinesfor military exports, said Nexial's Gatling, perhaps to allow anupgraded ship-based SM-3 missile to be sold to third countriesbeyond the United States and Japan.
Designed jointly by Raytheon and Mitsubishi Heavy, it ismeant to take out intercontinental ballistic missiles at theedge of space as part of a defense shield Japan is deploying tocounter any potential threat from missile-armed North Korea.
To begin with, however, Japanese firms may find it easier tohawk dual-use technology to overseas military buyers, equipmentthey already sell, competitively, to commercial customers.
Japanese components, such as cameras in surveillance drones,communications equipment, and other electronic gadgets arealready in common use by military forces worldwide.
The U.S. army and British armed forces have already takenPanasonic Corp's logo to the battlefield, using its ruggedToughbook PCs, acquired through third-party vendors, rather thandirectly from the company, to guide surveillance drones.
Our Standards: The Thomson Reuters Trust Principles.
