IFSEC Joint Report:
Revised US-Japan Statement of Mutual Interests

Introduction

The US-Japan Industry Forum for Security Cooperation (IFSEC) was founded in 1996 to promote dialogue between the two countries' defense industries and provide advice to their governments on matters that affect defense industrial cooperation. Dialogue among the industry participants on both sides resulted in agreement on an IFSEC Joint Report, the primary element of which was a "Statement of Mutual Interests" that included recommendations for the promotion of effective defense equipment and technology programs. This IFSEC Report was presented to Japan Defense Agency (JDA) and US Department of Defense (DoD) officials at the Systems and Technology Forum (S&TF) meeting of January, 1998.

Dialogue among IFSEC participants noted the great changes for defense industries brought on by the end of the Cold War. The need to maintain viable defense industrial/technology bases in the face of advancing technologies, reduced procurements, and rising costs underlined the importance of mutually beneficial cooperation in the acquisition of defense systems. IFSEC members also recognized an evolution in the nature of US-Japan defense industrial cooperation, from supplier-customer ties to the growth of partnerships in development of future defense systems. It was also clear that this growth of defense partnerships meant that collaboration must go beyond marketing and procurement to consideration of common needs for future defense equipment.

Conditions affecting US-Japan cooperation on defense programs have continued to change since release of the original IFSEC Report. Developments noted during recent IFSEC discussions include:

• External incidents: the North Korean's Taepodong missile launch over Japan; various East China Sea incidents; terrorist attacks.
• US-Japan cooperation: implementation of the revised Defense Guidelines; establishment of Strategic Dialogue mechanisms; expanded S&TF activities.
• Defense acquisition/industry trends: increased industry (and government) dependence on globally diffuse commercial technology; government acquisition practices that are adapting to accommodate the realities of technology diffusion and the transformation of defense forces.

These factors suggest that future US-Japan cooperation on defense programs will feature more long-term planning, greater collaboration on systems development, and increased interaction among defense industries. Government-government dialogue is already evolving to reflect these conditions; industry discussions with government officials as well as with each other should do the same.

Original IFSEC Report Conclusions and Recommendations

The 1998 IFSEC Report concluded that closer defense industrial cooperation would benefit the manufacturing/technology bases of both the US and Japan, support interoperability, and thus strengthen Alliance cooperation. The Report discussed various matters that affect US-Japan cooperation in defense programs, such as:

• Structural differences (organizational, budgeting and acquisition procedures; government-industry relations; industry characteristics).
• Policy issues (releaseability of US systems, Japanese arms export restrictions, protection of intellectual property).
• Attitudes (perceptions of one-way technology transfers, threats to indigenous development/production interests, negative experience with past programs).

Organizational structure and culture were seen more as conditions to be managed than problems to be solved. On the other hand, national security and industrial policy concerns were viewed as matters that must be adjusted to accommodate changing circumstances. In all cases attitudes could be improved through informed dialogue and the accumulation of positive experience.

Based on these observations the IFSEC Report made several recommendations for facilitating US-Japan defense industrial cooperation:

1. An expanded dialogue on equipment and technology cooperation.
2. Adopting more positive attitudes toward technology transfer.
3. A more flexible application of Japanese arms export control policies.
4. A clear statement of guidelines for intellectual property protection.
5. A better understanding of the impact of "Buy America" provisions.

Developments since the release of the IFSEC Report confirm the validity of its basic conclusions. Some of the original recommendations also remain valid, while others need to be reconsidered in light of current circumstances. Based on extensive discussions of current US-Japan security relations, defense acquisition policies, and defense industry trends, IFSEC members offer the following thoughts and recommendations for promoting effective defense industrial/technology cooperation between the US and Japan.

Recommendations to the US and Japanese governments from IFSEC

1) Expansion of Dialogue

When IFSEC first convened, defense industrial cooperation was focused largely on selling and licensing US equipment to Japan. R&D on defense-related technologies was undertaken as the exception, on a largely ad hoc basis with little thought to operational requirements. Since then increasing US-Japan interaction on regional security interests has placed greater emphasis on cooperative defense operations, which has in turn underlined the need to bring consideration of operational requirements into the forefront US-Japan defense program planning and implementation. This change in view can be seen in such current government activities as:

• Expansion of S&TF coverage from R&D interests to broader acquisition matters;
• Establishment of a Strategic Dialogue focused on operational defense concerns;
• Encouragement of "requirements dialogues" between US and Japanese Services;
• Movement toward a "cooperative acquisition" approach to defense MOUs that would cover not only sales and licensed production activities, but joint R&D on defense systems with emphasis on increased industry-industry cooperation.

In a trend seen worldwide, defense industries increasingly draw on global and commercialized technology bases while major defense programs are implemented through multinational consortia. Policy, operational, and industry developments thus combine to emphasize the need for more timely discussion of future defense interests among interested industry as well as government parties.

Industry dialogue can only be as effective as governments permit through their laws, policies, and regulations. Unfortunately, government practices still reflect the conditions of earlier times, restricting industry dialogue to a level well short of that needed for enlightened US-Japan cooperation on defense programs. US companies must go through elaborate "marketing license" procedures before they can even discuss the concepts underlying potential cooperative programs with Japanese counterparts. Japanese companies are not authorized by their government to undertake studies with US industry that are not part of established government programs. This combination of government policies and procedures actively discourages US and Japanese industry from even exploring possibilities for cooperation.

IFSEC members recognize that industry must respect government direction, but also note that industry must take initiatives in informing governments, as well as each other, of opportunities for cooperation. Like industry-industry dialogue, government-industry discussion must be open and two-way. One idea for encouraging more open dialogue, already being explored in Washington as part of the recent Defense Trade Security Initiative (DTSI), would be the conclusion of government MOUs to facilitate industry discussion in specified mission or product areas.

2) Release of Information and Export Licenses

Restrictive US practices on releaseability of information as well as inefficient export licensing procedures remain serious concerns for defense industrial cooperation. Recent policy initiatives like DTSI encourage the increased use of the "integrated product team" (government, industry, customer) approach to international programs. IFSEC believes that this practice should be more thoroughly applied to US-Japan programs to facilitate information disclosure and the processing of export licenses.

IFSEC members also recommend that the US government adopt a flexible approach toward the actual procedures used for US export sales. Foreign Military Sales (FMS) or Direct Commercial Sales (DCS) procedures should be used in whatever combination most effectively ensures required government support, while also encouraging necessary dialogue among government and industry participants. Such decisions should be reached through consultations among the two governments and their involved companies.

Meanwhile, IFSEC members are encouraged by evidence of a more practical approach by Japanese government officials to designating "military" vs. commercial items for export. This progress has diminished the concern over military/dual-use distinctions expressed in the original IFSEC Report. On the other hand, highly restrictive interpretations of Japan's "Three Principles" policy on arms exports remain a major obstacle to more effective defense equipment and technology cooperation. IFSEC members agree that a general relaxation of this policy is not feasible. Rather, a more flexible interpretation of the Three Principles policy should:

• Encourage effective collaboration between US and Japanese industries in the development and production of defense systems.
• Focus on specific objectives, such as case-by-case approval of hardware as well as technology transfers to the US and, where judged appropriate, to third countries involved in multinational defense programs.
• Build constructive precedents through actions on tangible programs (such as ejection seat upgrades, or joint research projects concerning missile defense or maritime patrol aircraft).

3) Protection of Intellectual Property

The original IFSEC Report raised concern with chronic DoD-JDA disputes over the designation of "derived" (from the US) or "non-derived" (indigenously developed) technologies embedded in Japanese defense programs. While such disputes have become less visible in recent years, increasing activity in joint development as well as upgrades of current equipment ensure that technology ownership will remain a critical issue in US-Japan programs. The IFSEC Report recommended that the US and Japan address industry concerns over intellectual property rights (IPR) through conclusion of an agreement that includes generic definitions of derived vs. non-derived technologies. IFSEC members believe that this remains a valid recommendation.

Summary of Revised IFSEC Recommendations

1. Both governments should encourage more open defense industry dialogue on future areas of equipment and technology cooperation. Such exchanges should not be confined to programs already under government agreement. Consider generic "area" MOUs (BMD, MPA, ASW, etc.) to facilitate such dialogue.
   
   
2. The US government should make further efforts to develop more forthcoming, efficient procedures for information disclosure and industry export licenses. The Japanese government should take a more flexible approach to its current arms export policy - such as broadening the scope of exceptions to restricted exports - in support of expanded US-Japan cooperation on defense development and production programs.
   
   
3. The US and Japan should conclude an agreement on intellectual property protection in defense programs that sets clear standards for determining ownership and rights to commercially-derived technologies.
   

Appendix: An Application of IFSEC Recommendations to US-Japan Cooperation on Ballistic Missile Defense (BMD)

Current Situation

• Joint research on four components of SM-3 missile.
• Parallel but separate government management structures; industry dialogue limited to prime contractors designated by governments.
• No industry dialogue authorized outside boundaries of Research MOU.
• Current application of Japanese arms export policy allows transfers of Japanese data and test hardware to US; no third country involvement.

Present framework for BMD cooperation is adequate for joint research, but not for collaboration on full systems development or production.

Cooperative development related to the AEGIS BMD System

• Encourage industry dialogue on AEGIS BMD systems development; include companies involved under the current Research MOU. Dialogue should not be limited to the current four missile components , but expanding areas of interest.
• Negotiate a BMD Development MOU that authorizes such industry dialogue; develop suitable IPR agreement for technology protection - either as MOU provision or as generic agreement for application to this and other MOUs.
• Recognize that AEGIS BMD is also a matter of interest to other US allies with emerging AEGIS-based missile capabilities; allow Japanese industry participation with US and other potential partners in multinational R&D consortia.

Cooperative production of AEGIS BMD-related systems

• Coproduction of AEGIS BMD missile and other components - not limited to the missile, but including elements of the AEGIS system.
• Authorize two-way transfers of hardware components between the US and Japan.
• Authorize, on case-by-case basis, transfers of AEGIS BMD systems and components with embedded Japanese technologies. [Third-country transfers of Japanese-produced hardware could be considered as the program develops.]

US-Japan Industry Forum on Security Cooperation: Member Companies