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Japan: Revising arms export regulation

Recent changes to Japan’s ‘Three Principles on Arms

Exports’ relax controls held tightly for decades.

Crystal Pryor reviews the revisions while pointing out

an important gap in Japan’s munitions regulations

while article 48 covers goods.Legislation supporting the act includes(1) cabinet orders, (2) ministerialorders, and (3) notifications andguidance. The most important statutesunder the act are two cabinet orders:the Export Trade Control Order(‘ETCO’, or Yushutsu-rei) and theForeign Exchange Order (‘FEO’ orGaitame-rei). The ETCO refers tocontrolled goods (article 48 of theTrade Law) while FEO specifiescontrolled technologies (article 25 ofthe Trade Law). Ministerial ordersprovide details like the specification oflisted items. Finally, notifications andguidance/ notices (interpretations) sitbelow ministerial orders in Japan’slegal structure. Japan’s ETCO and FEO(and lower) are akin to how the U.S.Export Administration Regulations(‘EAR’) and International Traffic inArms Regulations (‘ITAR’) respectivelysit below the EAA and the AECA.Japan’s Center for Information onSecurity Trade Controls (‘CISTEC’)notes that Japan’s multi-layer legalstructure, although pervasive in theJapanese legal system, makes anyregulatory change in export controlsdifficult to implement.2

The revision of the Three Principlesis a cabinet decision and, as such, doesnot impact this legal basis. Rather, thenew principles serve to clarify in whichcases arms exports are banned,especially with regard to countries inconflict, and in what cases thegovernment can make approvals underthe principles. Yet the legal basis isimportant in the actualimplementation of these rules.

The new principles repeat theexisting definition of ‘defenseequipment and technology’: ‘For thepurpose of this policy, “defenseequipment and technology” refers to“arms and military technologies”;“arms” refers to items listed in section1, Annexed List 1 of the ETCO (CabinetOrder No. 378 of 1949), and are to beused by military forces and directlyemployed in combat; and “militarytechnologies” refers to technologies forthe design, production or use of arms.’3

Referring to this definition, CISTECnotes that the distinction between whatis ‘directly employed in combat’ versusindirectly employed is not obvious, noris why the items must be used by

principles to allow exports in cases thatwill contribute to global peace andserve Japan’s security interests. Therules themselves were renamed the‘Three Principles on DefenseEquipment Transfers’.

In July 2014, the Japanesegovernment approved delivery ofseeker gyros to the United States foruse in Patriot Advanced Capability-2(PAC-2) missile interceptors. (ThePAC-2 will ultimately be sold to Qatar.)Japan also agreed to conduct jointresearch with the UK on usingJapanese seeker technology in air-to-

air missile technology for fighter jets.In early 2015, it became clear thatJapan was hoping to sell its P-1maritime patrol aircraft to the UK, butthe UK decided to go with the tried-and-true Boeing P-8 Poseidon. Thesale of Japanese submarines toAustralia, however, is still on the table.We should know by mid-2016 whetherJapan could beat established armsexporters France and Germany to landits first third-party defence exportsince the rule revision.

Legislation on arms exportsThe legal basis for Japan’s arms exportcontrols is the Foreign Exchange andForeign Trade Act (Law No. 228; the‘Trade Law’ or Gaitame-ho), which wasoriginally enacted on 1 December 1949,and is the equivalent of the U.S. ExportAdministration Act (‘EAA’) and ArmsExport Control Act (‘AECA’). Article 25of the Trade Law covers technologies,

Japan is one of the frontrunners forthe sale of submarines toAustralia, vying with France and

Germany. Japan arguably produces theworld’s best non-nuclear submarine,its Soryu class. The Australiangovernment initially approached Japanabout the $35 billion deal in 2014. It isnoteworthy because, if realised, itwould be Japan’s first major defenceexport to a third party (i.e., not theUnited States) in four decades.1 PrimeMinister Abe’s strategic vision forJapan has been a key element of thesubmarine deal, but enabling it are thechanges in Japan’s ‘Three Principles onArms Exports’. This article addressesthe background, significance, andfuture implications of the ThreePrinciples revision.

Background: ‘Three Principles’In 1967, Prime Minister Eisaku Satoestablished the ‘Three Principles onArms Exports and Their Related PolicyGuidelines’, which prohibited armsexports to Communist countries,countries subject to arms embargoesunder UN Security Council resolutions,and countries involved in or likely to beinvolved in international conflicts.Then, in 1976, Prime Minister TakeoMiki strengthened these regulations tosay that Japan shall not promote ‘arms’exports, regardless of the destination –creating an effective blanket ban onarms exports. These rules held for thenext four decades, with the majorexception of exports to the UnitedStates from the 1980s, most notably incollaboration on ballistic missiledefence.

Since at least the end of the ColdWar, Japan has recognised the need toengage in arms exports and overseasdevelopment projects to maintain itsdomestic defence industry and nationalsecurity. In December 2013, Japanreleased its first National SecurityStrategy, which promised to review theban on arms exports based on high-level discussions in years prior. In April2014, the Abe cabinet revised the

Japan has recognised

the need to engage in

arms exports and

overseas development

projects to maintain its

domestic defence

industry and national

security.

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maintenance, (checking), repair,overhaul and refurbishing.’8 Yet onlyAnnexed List 1 employs a differentdefinition than WA of ‘use’: ‘any

process other than design ormanufacture, including operation.…’This definition is both broad andvague. If you follow this definition, nomatter what the type of information, ifit includes technical content related toweapons, you may not so much as talkabout that information to anotherperson without a licence. Therefore,CISTEC sees the scope of ‘use’ as theprimary reason for difficulty in makinga concrete, quantitative reference inbusiness discussions.

Nor is ‘use’ of arms limited to the sixtypes of technology use defined in WA(‘Operation, installation (including on-site installation), maintenance(checking), repair, overhaul andrefurbishing’). For Japan’s dual-usetechnologies, METI revised itsnotification in 2011 to be in line withWA (through limited enumeration ofthe ‘use’ definition), except for

Annexed List 1. Therefore, as toinformation related to Annexed List 1arms, it is unclear what is subject tocontrols, in both qualitative andquantitative terms. CISTEC proposesthat in line with WA, defencetechnologies should be limited to its sixtypes of technology use; and thedevelopment, production, and use ofthese technologies should be subject toexport controls.

Moreover, when it comes to defencetechnology, its scope is not limited to‘required’ technology for the‘development’, ‘production’ or ‘use’ ofa product.9 The ‘required’ technologycould instead be defined – as a METInotification (kaishaku tsutatsu)interprets – as ‘necessary technology’:as ‘the necessary technology to meet orexceed the regulation performancelevel, property, or function.’ If thegovernment switched to this approach,it could better consider qualitative and

multilateral regimes – the NuclearSuppliers Group, Australia Group,Missile Technology Control Regime,and Wassenaar Arrangement (‘WA’)dual-use lists. The distinction betweenAnnexed List 1 and the other lists existsbecause Annexed List 1 has not beenupdated over the years, while theothers have.6 This state of affairs is theresult of Japan restricting its armsexports over the decades whileroutinely exporting dual-usetechnologies.

Meanwhile, with regard to the use ofdefence technologies, Japanesecompanies now contemplatingdefence-related exports are concernedthat the definition remains vague. Botharticle 25 of the Trade Law and theFEO (Cabinet Order No. 260 of 11October 1980) describe ‘technologypertaining to the design, manufactureor use’ of listed items, in line with theWA definition.7 The scope of ‘use’according to a Ministry of Economy,Trade and Industry (‘METI’)notification (ekimu tsutatsu) effective26 December 2011, and in line withWA, is ‘Operation, installation(including on site installation),

‘military forces’ (as opposed to, say,terrorists). More importantly, neitherthis definition nor the list of arms inAnnexed List 1 considers new forms ofwarfare and relevant IT technologies,such as in the cyber and outer spacefields.4 This results in a gap betweensection 1, Annexed List 1 of the ETCOand the Wassenaar Arrangementmunitions list (‘WAML’). In particular,Japan’s list does not cover speciallydesigned IT technology or informationcommunication-related technologies.5

CISTEC also notes that some itemson the WAML are covered underAnnexed List 14 of the ETCO ratherthan Annexed List 1. Further, amongthe items in Annexed List 1, items forpolice, industry, and civil use areincluded. For these reasons, CISTECargues that Japan’s list should bebrought into line with the WAML. Onlythen will it be appropriate for the newThree Principles to refer to the‘Annexed List 1 items’ as subject tocontrols.

The state of Annexed List 1contrasts with the dual-usetechnologies covered in other lists,which all correspond with the

Arms and arms production related equipment listed as Item 1

of the Annexed list 1 of the Export Trade Control order

l Firearms and cartridges to be used therefor (including those to be used for emitting

light or smoke), and accessories thereof, as well as parts thereof.

2 Ammunition (excluding cartridges), and equipment for its dropping or launching, and

accessories thereof, as well as parts thereof.

3 Explosives (excluding ammunition) and military fuel.

4 Explosive stabilisers.

5 Directed energy weapons and parts thereof.

6 Kinetic energy weapons (excluding firearms) and equipment for their launching, as

well as parts thereof.

7 Military vehicles, and accessories and bridges specially designed for military use

thereof, as well as parts thereof.

8 Military vessels, and hulls and accessories thereof, as well as parts thereof.

9 Military aircraft and accessories thereof, as well as parts thereof.

10 Anti submarine nets and anti torpedo nets as well as buoyant electric cable for

sweeping magnetic mines.

11 Armour plates and military helmets, as well as bullet proof jackets and parts thereof.

12 Military searchlights and control equipment thereof.

13 Bacterial, chemical, and radio active agents for military use, as well as equipment

and parts thereof for dissemination, protection, detection, or identification thereof.

13-2 Chemical mixtures specially formulated for the decontamination of objects

contaminated with biological agents and radioactive materials adapted for use in

war and chemical warfare agents

14 Biopolymers for detection and identification of chemical agents for military use and

cultures of cells for production thereof, as well as biocatalysts for decontamination

and degradation of chemical agents for military use and expression vectors, viruses

or cultures of cells containing the genetic information necessary for production

thereof.

15 Equipment and parts thereof for the production or testing of military explosives.

16 Equipment for the production or testing of arms, as well as parts and accessories

thereof.

Source: METI

With regard to the use of

defence technologies,

Japanese companies

now contemplating

defence-related exports

are concerned that the

definition remains

vague.

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quantitative aspects with regards to alimited number of items and be in linewith WA, CISTEC argues.

METI retains final authority to issueall export licences, including those forarms, in contrast to U.S. practices formilitary items on the USML list, whichthe State Department regulates.

The Three Principles on DefenseEquipment Transfers set out two newand noteworthy requirements. First,the National Security Council (itselfonly established in 2013) must reviewmajor defence-related exports, as withthe seeker technologies to the UnitedStates and the United Kingdom.10

METI is then responsible forimplementing the Foreign Exchangeand Foreign Trade Act appropriately inaccordance with the NSC’s decision.Second, the government must publishthe NSC’s decisions as well asinformation on the arms exports thatthe NSC does not review. Unlike theUnited States or the United Kingdom,Japan has not traditionally publishedinformation on its licensed arms ordual-use exports. Japan published thefirst of these reports in October of lastyear, which includes historical exportsmade on the basis of exceptions to theThree Principles.11 In these tworespects, there are additionaldeliberative and transparencyrequirements in place which make itdifficult to describe the ThreePrinciples revision as a ‘loosening’ ofJapan’s arms export controls.

METI’s first licensing report showsthat in fiscal 2014, Japan approved1,841 defence equipment exports underthe new principles and guidelines onarms exports. The vast majority (1,731)were articles for use by governmentalorganisations including the Japan Self-Defense Forces (‘SDF’) and involvedtemporary exports to return, exchange,or repair broken items purchased fromoverseas or for outsourced processingof domestically-produced products –and more than 80% of these were tothe United States. Under the defencetransfer rules, individual licences arethe standard, but special bulk licencesare available for returning items. Thegovernment approved 45 such bulklicences, primarily for the SDF and theMinistry of Defence (‘MOD’)’s overseasactivities. (There is no bulk licencesystem for business activities such assale discussions, inquiries, or financialstatements.12) The report alsoelaborates on the Patriot PAC-2 seekergyro and provision of technical

information for joint developmentrelated to seeker technology with theUnited Kingdom.

Establishment of ATLAOn 1 October 2015, the Japanesegovernment established theAcquisition, Technology & LogisticsAgency (‘ATLA’). ATLA brings togetherdisparate parts of the MOD working ondefence R&D, procurement, andexports under one roof. The goal is toimprove efficiency, and eliminateorganisational bureaucracy andduplication. Compared to similaragencies in Japan’s peer countries, likethe United Kingdom and France, ATLAis small, at 1,800 people and with abudget of about 2 trillion yen ($16.3billion). Yet this is a massive agency byJapanese standards, representing athird of the total MOD budget.

It has only been half a year since theformation of ATLA, so whether it willbe an effective institution for assessingthe impact of defence equipmenttransfer on Japan’s security remains tobe seen. As Morimoto notes, ideallyATLA will have a function like theDefense Technology SecurityAdministration (‘DTSA’) in the UnitedStates, meaning it can implement aframework for assessing the impact ofarms exports on Japanese security in aholistic manner.

Future challenges

l Industry engagement

With the revision of the ThreePrinciples and the establishment ofATLA, the administrative and theinstitutional structure is in place forJapan to engage in international armssales and co-development. While thereare still questions about how the new

rules and ATLA will work in practice, abig piece of the puzzle is Japan’sdefence industry. Having spent somany years having only needed to sellto one major consumer (the SDF),Japanese industry must now figure outhow to appeal to a much broadermarket. While there is evidence thatJapanese industry generally supportedthe opening of the arms export market,companies have retained a passivestance since the changes. For one, theyare concerned about being branded a‘merchant of death’ in a still largelypacifistic society. Moreover, defenceexports make up a small amount ofrevenues (less than 10% even of themajor defence contractors’). And,unlike Japanese commercialbusinesses, the defence agents sorelylack experience in sales andnegotiations.

Moreover, when it comes tobusiness discussions, in the case of theU.S. ITAR, general explanations areexempt from export controls (basicmarketing information on function,objective and system explanations,even if not public, is not subject tocontrols). Japan lacks such guidancefor its companies, and salespeople arecurrently struggling with how muchthey are able to reveal at internationaltrade shows.

l Inter-bureaucracy relations

As mentioned above, METI has beenthe authority for issuing exportlicences, and this situation remainsunder the new rules. Major arms dealswill have to be approved by theNational Security Council, at whichMOD and the Ministry of ForeignAffairs (‘MOFA’) play major roles inaddition to METI. As Japan is the onlydeveloped country with no extensivehistory of exporting arms, MOD has to

While Japan is new to the contemporary

arms export market, it has a long history of

exporting sensitive dual-use technologies.

The United States censured Japan for

practising lax export controls during the

Cold War, particularly after the Toshiba

machine tools scandal was disclosed in

1987.

In 1989, Japan reformed its export

control system including the amendment

of Trade Law, and today it is seen as a

regional standard-bearer.13 Japan is the

only major country to have a third-party

organisation (the Center for Information on

Security Trade Controls, ‘CISTEC’) that

serves to liaise between the government

and industry. CISTEC retains and produces

a wealth of resources and knowledge

about export controls, and has regularly

been publishing articles on the new arms

export principles, primarily geared for

Japanese exporters.

Given Japan’s history in exporting

sensitive dual-use technologies, there is a

consensus among Japanese experts that

Japan must build from the skillset and

knowledge it has developed in this field to

apply to arms exports. 14

Japan’s (dual-use) export controls

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Crystal Pryor was a resident

Sasakawa Peace Foundation

Fellow (SPF Fellow) at Pacific

Forum CSIS and a Ph.D.

candidate in the Department of

Political Science at the

University of Washington.

pryorcd@uw.edu

get up to speed quickly to increase itspresence in export licensing, not onlyfor arms but also for sensitive dual-usetechnologies. MOFA also needs to stepup as a player in determining to whichdestinations Japanese defence itemsand technologies will safely go. As

Japan expands its military cooperationwith advanced arms exporters like theUnited Kingdom and France and alsowith countries in Southeast Asia,MOFA’s input will be essential. Ofcourse, the potential is great for turfwars with METI, the established playerin exports. As one Japanese exportcontrol expert notes, the NSC will takecentre-stage in Japan’s major armsexports decisions, which requires inter-

agency coordination, and also meansother governmental bodies will bearresponsibility for licensing decisions.15

In terms of cooperation with theintelligence community, Japan’scapacity to collect and analyseintelligence is underdeveloped relativeto some of its peer countries. Suchintelligence is critical in determiningwhether arms should be exported andkeeping track of them once they havebeen exported.

l Technology controls

Technology leakage is also a majorconcern in the export of militarilysensitive technologies, so Japaneseproducers must consider steps likeincluding anti-tampering and reducingthe capabilities of (potential) militaryassets. Of course, Japanese companieshave taken safety measures in the dual-use field, such as incorporatingrelocation detectors into its machinetool exports. Japanese companies canbuild on these efforts and useinformation the government providesto assess what other measures theyshould take.

l International standardisation

Moving forward, Japan can also use

this opportunity to take two steps thatwill improve internationalcoordination on controlling the exportof sensitive technologies. The first is topublish not only its arms export data,but also its dual-use licensing data.Such data can provide an overview asto whether Japan’s dual-use licensingpractices are in line with those of itspeer countries. The other step isharmonisation of Japan’s exportcontrol numbers with the EU, whichnow maintains the internationalstandard. Japanese companies havebeen pushing for this latter change foryears. Only recently – and reluctantly– has METI issued a correlation tablefor exporters between the Japaneseand EU export control numbers basedon 2012 lists.16 Asian countries likeSouth Korea, Singapore, Malaysia,Singapore, and Hong Kong havealready harmonised their numbers.Harmonisation would not only makethings easier for exporters, many ofwhich are multinational companies,but also for the government to reflectfuture changes at the multilateral levelin the domestic rules.

ConclusionDespite the revision of the ThreePrinciples and the potential landmarksubmarine deal, Japan has bothinstitutional and cultural hurdles toovercome before it becomes a majorparticipant in the international armsmarket. Under the revised rules, Japancan only export to other governmentsand for limited purposes such asinternational co-production or armingthe SDF. Further, it may still be inJapan’s best interest to stick toexporting dual-use items andparticipating in the co-development ofarms rather than exporting full armspackages. The latter move risks raisingboth domestic and regional concerns(while not necessarily bringing morerevenue to Japanese companies).

Links and notes1 Crystal Pryor and Llewelyn Hughes, ‘PacNet #11 — Domestic interests and ‘strategic benefits’ in Australia-Japan

submarine deal,’ available at http://csis.org/publication/pacnet-11-domestic-interests-and-strategic-benefits-

australia-japan-submarine-deal.

2 CISTEC, ‘Overview of Japan’s Export Controls (Third Edition)’ (October 2012), p. 5.

3 Ministry of Defense, ‘Three Principles on Transfer of Defense Equipment and Technology,’

http://www.mod.go.jp/e/pressrele/2014/140401_02.pdf.

4 CISTEC Request to METI, 「防衛装備移転に係る手続き的環境整備に向けた課題について」 (‘Issues Related to

the Procedural Environment for Defense Transfers’), available at:

http://www.cistec.or.jp/service/boueisoubi_data/youbou_20151211.pdf (11 Dec. 2015; Japanese only).

5 List in English available at: http://www.meti.go.jp/policy/anpo/securityexportcontrol1_3_1.html.

6 Masamitsu Morimoto,「武器輸出管理の課題」(‘Issues with arms export controls’), PHP Policy Review (Vol. 9, No.

68) (30 March 2015), available at: http://research.php.co.jp/policyreview/pdf/policy_v9_n68.pdf.

7 ML22(a) ‘Technology’, other than specified in ML22.b, which is ‘required’ for the ‘development’, ‘production’,

operation, installation, maintenance (checking), repair, overhaul or refurbishing of items specified by the Munitions

List.’

8 This modifies the previous scope, ‘Operation, installation (including on-site installation), maintenance (inspection),

repair, overhaul, refurbishing, etc., which are stages other than development and manufacturing.’ According to trade

compliance professional Tatsuya Kanemitsu, this change was instituted because Japan’s definition of ‘use’ tended

to be interpreted more broadly and covered more ‘use’ technology than other Wassenaar Arrangement countries.

9 WA definition of ‘Required’ Cat 6, 9: As applied to ‘technology’, refers to only that portion of ‘technology’ GTN which

is peculiarly responsible for achieving or exceeding the controlled ML 22 performance levels, characteristics or

functions. Such ‘required’ ‘technology’ may be shared by different products.

10 ‘Significant cases that require especially careful consideration from the viewpoint of Japan’s security will be

examined at the National Security Council (NSC)’ (available at

http://www.mod.go.jp/e/pressrele/2014/140401_02.pdf).

11 Available from http://www.meti.go.jp/press/2015/10/20151015007/20151015007.html (Japanese only).

12 CISTEC Request to METI.

13 Crystal Pryor, ‘From Global Straggler to Regional Exemplar: Japan’s Export Control System 1990–present,’ in

Jankowitsch-Prevor, Michel & Paile-Calvo (Eds.), Modelling Dual-Use Trade Control Systems (Peter Lang: 2014).

14 See, for example, Heigo Sato, ‘Japan’s Arms Export and Defense Production Policy,’ available at

http://csis.org/files/publication/150331_Sato_JapanArmsExport.pdf.

15 Morimoto.

16 Available at http://www.meti.go.jp/policy/anpo/eulist_taihihyo.html (Japanese only).

In terms of cooperation

with the intelligence

community, Japan’s

capacity to collect and

analyse intelligence is

underdeveloped relative

to some of its peer

countries.