Japan’s economic security bill balances business and the bureaucracy

Author: Toshiya Takahashi, Shoin University

While the Japanese media were occupied by the Russian invasion of Ukraine, Japan’s economic security bill passed without strong opposition in the Diet in May 2022. Reflecting increasing concerns about China’s trade obstructionism and economic espionage, the bill outlines measures to defend Japanese supply chains, infrastructure and leading technology. But the new security policy will have uncertain effects on Japanese security and business.

Focussing on four areas of economic security — supply chains, basic infrastructure, leading technology and patent publication for sensitive technologies — the law enables the national government to intervene in Japanese companies’ dealings 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 supply of basic infrastructure have the potential to facilitate foreign obstruction, the government identifies the sector and orders it to provide a pre-made procurement or supply-planning plan to ensure the safety of their infrastructure. The law lists 14 sectors, including electricity, water supply and information technology, as candidates to become ‘specified social infrastructure businesses’.

For the protection and promotion of leading Japanese technology, the law requires the national government to create a technology council — composed of government officers, experts and think tanks — and to commission research to think tanks. The government can suspend the publication of a patent if the product is found to be security-sensitive technology.

While the business sector expressed concerns about the new regulation, the only clear objection came from the Japan Communist Party. Other political parties generally agreed to the bill. A nationalistic conservative group of the Liberal Democratic Party supported the bill to counter China, asserting the importance of creating strong national security institutions. Moderate conservatives also supported the bill, arguing that Japan lacked a legal framework to defend its infrastructure and advanced technologies from malicious foreign investment and business espionage like advanced countries with similar legal institutions.

Japan’s economic security law gives the Japanese government the authority to define economic threats and risks from foreign economic activities. But this is a difficult business. The lack of consideration as to what economic security is, as well as its relationship with business activity, creates uncertainties about the effectiveness of the law.

While the law lacks a clear definition of economic security, the Minister of Economic Security Takayuki Kobayashi reiterated that defining the term is difficult because economic security is a new and evolving idea. Still, the legislation contained no justification for focussing on four policy areas, nor did it explain how those areas actually contribute to Japan’s economic security.

The law is optimistic about the impact of security regulations on Japanese business competitiveness despite the potential for government intervention to interfere with market mechanisms and crimp competitiveness. The Diet announced a supplementary resolution for the bill, expressing concerns that the bill would probably have a negative impact on business. Although these risks were vaguely perceived by the government, a sense of urgency about Japan’s economic security allowed the bill to pass.

The identification of threats and risks to Japan’s economic security is the responsibility of related ministries, such as the Ministry of Economy, Trade and Industry and the Ministry of Land, Infrastructure, Transportation and Tourism. While the law stipulates the procedure of policy, the law’s scope and policy implementation will be determined by ministerial ordinances, whose contents are decided by the bureaus and divisions of ministries in charge — a process not often open to the public.

Incorporated associations will be chosen by the government to coordinate between Japanese companies and the government to facilitate supply chain diversification. But this may expose these affiliate bodies to Amakudari — the practice of senior Japanese bureaucrats retiring to high profile positions — if employing ex-national security officers benefits the associations.

Government intervention and the use of government appointed affiliate bodies in the name of economic security harks back to post-war Japan’s bureaucratic-centred society, but the law has already had a positive effect on Japan’s external relations.

The law helps Japanese 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 substantiating 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 secured without damaging foreign business relations. Business in China is crucial for the profits of Japanese businesses — and economic prosperity is the foundation of national security.

The emerging national security bureaucracy enhances the government’s authority over Japanese business in the name of economic security. But the accompanying market interference and bureaucratic red tape are inefficiencies that cannot be ignored.

Japan has started prioritising economic security, but there is a long journey ahead before Tokyo strikes the right balance between security regulations and business competitiveness.

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

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