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THE NOMOS CORPORATION 1100 Connecticut Ave., N W. Suite 535 Washington, D.C. 20036 Tel: (202) 862-5479 Fax: (202) 862-3929 eJ^E>^N ' S S T=^T ~ G :I C REDID ~ C ONT=O~ S ~ NE:W ==A Introduction For nearly 35 years, Japan's administration of strategic trade controls and participation in COCOM were carried out effectively, albeit usually out of the public eye. Both the formulation of strategic trade policy and the day-to-day administration of high technology export controls were only occasionally mentioned in the public press and were rarely matters of public debate. Indeed, even within the Japanese Government responsibility for the formulation of strategic trade policy and the administration of export controls rested principally within specialized offices of the Ministry of International Trade and Industry (MITI) and the Ministry of Foreign Affairs (MOFA). In their adherence to export control regulations Japanese firms were guided not only by the letter of the published laws and procedures, but also by established understandings with these authorities based on formal and informal guidances. These guidances often reflected the shared Allied objectives of
maintaining technology security while still guaranteeing an environment which would promote the development of high technology industries and stimulate economic and industrial growth. The relationship between government and industry was based largely on -trust. The regulating authorities placed trust in Japanese firms to file their export license applications truthfully, while the firms trusted Tokyo to administer the controls quickly, fairly and effectively. Although there had been occasional unofficial accusations that Japan had become a fertile feeding ground for Soviet Bloc technology collection efforts, the system had worked without major controversy for over three decades. This trust was strained in 1987 with the revelations that Toshiba Machine Company had conspired to evade Japanese authorities in the illegal sale of high precision machine tools to the Soviet Union. The incident not only caused severe conflict in Japan's relations with its closest strategic ally, the United States, but thrust Japan's strategic trade control system into a public spotlight it had never known. Japan consequently set out to implement fundamental reforms to its system of strategic trade controls. The ensuing months saw amendments made to the underlying legal structure to Japan's export control system along with extensive changes to the administrative 2
structure and regulatory procedures. More importantly, the issue of strategic trade controls emerged for the first time as a major public concern. In effect, Tokyo had been called to demonstrate to broad based audiences both at home and abroad, that Japan's commitment to technology security and administration of multilateral strategic trade controls was both responsible and effective. - Now, nearly three years after the Toshiba incident, Tokyo appears committed to administering and enforcing a far more rigorous and visible system of strategic trade controls than at any previous time. Ironically though, Japan and other COCOM allies are also now having to consider the implications of events in Eastern Europe which seem to question much of the underlying rationale for maintaining the COCOM system. Japan's Export Controls In Japan, exports are regulated under the Foreign Exchange and Foreign Trade Control Law (Control Law), and through export agreements and cartels created under the Export and Import Transactions Law. Export control is used in Japan for a variety of purposes: to preserve supplies of rare materials; to prohibit the export of narcotics, weapons and pornography; to carry out orderly marketing agreements and voluntary export restraints with foreign 3
governments; and to observe international commitments such as the export restrictions on strategic and militarily critical equipment and technology required by Japan~s participation in COCOM. Controls on strategic high technology trade and adherence to COCOM commitments are administered solely under provisions of the Foreign Exchange and Foreign Trade Control Law, and through a series of related implementing ordinances. These regulations and a description of their hierarchical relationships are described in Appendix A. Unlike the United States, which views exporting as a privilege, in Japan exporting is construed as a fundamental right. Article 47 provides that the "export of goods will be permitted with such minimum restrictions thereon as are consistent with the purpose of this Law." Export restriction, including that required by COCOM, is allowed for under the Control Law through Articles 47- 51. (Restriction of technology transfer is allowed for under the Control Law through Articles 25 - 25.2.) The key sections of the law are Article 47, which sets forth a general principle of free export, and article 48, which, by providing for approval of exports t restricts that principle. 4
While the Law has been amended more than twenty times since its enactment in 1949, the most significant changes came in 1987 as a consequence of the Toshiba incident. The amendments effectively redefined the circumstances under which MITI could regulate exports by adding provisions which enabled MITI to restrict exports for international security reasons in addition to its established authority to limit exports for economic reasons. A new Export Control Order was issued by MITI specifying the products and countries to which trade restrictions apply in order to enforce the trade embargoes set by COCOM. Currently Japanese law allows restricting exports for any of the following types of goods or technologies: o Items of excess competition (textile goods, binoculars, and other items of excess competition whose export may invoke import restrictions in the foreign countries of destination; o strategic co D odities and technologies based on the agreement of COCOM, Missile Technology Control Regime (MTCR), Australia Group, etc.; o items which require export restrictions in order to secure a stable supply-and-demand equilibrium in the domestic market (rare materials such as tungsten); 5
o items of embargo ~ arms, weapons, counterfeit money, obscene literature, narcotic drugs, national treasures, etc. ); 0 - items which may inf range upon intangible property rights in the destination country. Japan's list of controlled commode ties is contained in a series of attachments to the Export Trade Control Order ~ Export Order ), one of the implementing ordinances of the Foreign Exchange and Foreign Trade Control Law. The commodities control list is made up cuff two parts (Annex I and Annex II to the Export Order ): o Annex I, which establishes 217 classes of commodities whi ch are contra ~ ~ ed f or s ecuri ty reasons; ~ Annex lI, which specif ies 4 2 items which are controlled for other reasons; ~ Japan's list of controlled technologies is attached to the Foreign Exchange Control Order (Exchange Order) as an Annex; o Annex to the Foreign Exchange Order, which specifies 38 categories of technologies which are controlled for security reasons. 6
Japan's authority to regulate strategic high technology exports was not always so clear. In 1969 MITI's authority to restrict exports based on COCOM guidelines was not only questioned, but was declared illegal by the Tokyo District Court. In what has become known as The COCOM Case (Pekin-Shanhai Nihon Kogyo Tenrankai v. Japan), the sponsoring association for the 1969 Peking-Shanghai Industrial Exhibition applied to MITI for approval to export nearly 3,000 items to be displayed at the exhibit in the People's Republic of China. MITI disapproved export of nineteen of the items, claiming that their export would conflict with COCOM guidelines. Consequently, the association brought suit against MITI in the Tokyo District Court. The Court held that MITI's disapproval was illegal since it did not fail within one of the limited exceptions to the general principle of free trade specified in the Control Law. In its decision the Court stated: The meaning of Article ~ of the Export Control Trade Order is that since the freedom of export is a fundamental human right, its restriction by MITI can be permitted only if such restriction is deemed purely and directly necessary for the sound maintenance of the balance of international payments and the sound development of international trade or the national economy. 7
The government contended that to deviate from the COCOM agreement would disrupt friendly relations with the United States and other allies as well and could possibly lead to economic retaliation. The government argued further that any retaliatory measures would seriously undermine the sound development of Japan's international trade and domestic economy, and therefore, the restriction based on COCOM criteria was consistent with the spirit of the Control Law and the Export Trade Control Order. In response, the Court declared that if Japan had chosen to participate in COCOM for political or strategic reasons (as it had), export controls, which are enforced for economic reasons, would have to be based on other domestic laws. The court held We must conclude that export restrictions imposed for other than economic reasons are not encompassed by Article I of the Export Trade Control Order, even if such restrictions have an indirect economic effect. In the long term, the Court's finding proved to be almost irrelevant. Despite the negative finding of the Court on MITI's authority to restrict exports for strategic and national security reasons, the Ministry continued to impose controls based on COCOM guidelines. MITI's authority and procedures were accepted by Japanese exporters who rarely questioned the Ministry's decisions. 8
New and Improved In order to prevent further recurrences of illegal sales like the Toshiba Machine case, the Government of Japan embarked in the early fall of 1987 upon a wholesale improvement of its export control system. Having its system of export controls thrust into the public spotlight forced Tokyo to demonstrate a more conscientious and effective system of strategic trade controls not only to domestic audiences, but to its allies as well. The changes made by the Government of Japan addressed all elements of strategic trade controls. Legislative amendments strengthened significantly the legal underpinnings of the system, while substantial additions were made to the administrative and regulatory structures as well. Enforcement and compliance were improved dramatically through the establishment of more effective interagency coordination mechanisms as well as through the institution of new requirements. Exporters themselves were, for the first time, to be given clear responsibility for complying with strategic trade controls through adoption of internal corporate security procedures. Among the most dramatic changes made to Japan's export control system were amendments made to the Foreign Exchange and Foreign Trade Control Law which fundamentally improved the legal standing of COCOM controls in Japan. In many respects they eliminated the 9
potential loopholes and ambiguities posed by the 1969 COCOM case, and set the stage for the more visible and firmly based system of administering export controls. As mentioned above, the new law goes beyond the limitations of the previous statute which limited MITI's authority to regulate exports to instances in which restrictions were necessary to either maintain the balance of payments or provide for the sound development of international trade and the national economy. The new statute now contains provisions authorizing Japanese authorities to restrict exports for reasons to maintain international peach and security. This has, from a legal standpoint, legitimized Japanese participation in COCOM and erased any ambiguity surrounding Japan's ability to fulfill its COCOM obligations that may have been created by the 1969 COCOM case. The new provisions are contained in amendments to Article 48, which regulates exports of goods, and to Article 25, which regulates exports of technology, technical data and other "services" by requiring MITI approval as follows: Article 48~: Those who intend to make exports of specific kinds of goods to a destination in specified areas which are recognized as an obstacle to the maintenance of international peace and security, as stipulated by government ordinance, must obtain authorization from the Minister of International Trade and Industry; 10
Article 25~1.1~: A transaction which is intended to provide to certain specified areas the design of goods of specified kinds or technology related to manufacturing or usage of a specific kind (henceforth described as specific technology) which are recogni zed in government ordinances as obstructions to the preservation of international peace and security. Further amendments to the law addressed concerns that surfaced during the Toshiba Machine affair over whether Japanese enforcement measures were an adequate deterrent to potential violators. Under the new law the penalties for violations had been raised substantially as follows: o Administrative sanctions were strengthened from the previous one-year revocation of export privileges to a maximum of three years. Fines were increased from the previous limits of 1 million yen or three times the value of the shipment to maximums of 2 million yen or 5 times the value of the shipment. O Criminal penalties were also increased from a maximum period of three years to five years, and the statute of limitations was also extended from three years to five years. Another important amendment to the law was the addition of penalties for attempted diversions of goods. Previously, only infractions which had actually been completed could be prosecuted under the law. There were Do penalties for attempts or proven
conspiracies to violate the Export Control Law. Prior to the amendment the only existing precedent which may have been applicable for prosecution of export control violations was contained in the Article 111 of the Customs Law. Under this article any attempt to evade the payment of customs duties was punishable as a criminal offense whether or not the transaction had ever been completed. Penalties included a term of imprisonment at forced labor for not more than three years as wall as a fine not to exceed 300,000 yen. Finally, the amendments also included establishment of a new article which in many respects was to form the basis for a greatly expanded administrative structure. The adoption of (Article 69-4) granted the Ministers of International Trade and Industry and Foreign Affairs their first formal authority to exchange views and opinions on matters of strategic trade, Previously a certain awkwardness existed as MITI possessed authority over export licensing and trade policy issues, while the Foreign Ministry represented Japan's interests at COCOM and in most bilateral discussions on export control and related bilateral security issues with the United States. Under this authority the administrative structure for export controls was also improved substantially. Tokyo's actions were focused principally on increased staffing and the creation of new offices devoted exclusively to the inspection and processing of 12
strategic technology export licenses. A summary of the responsible Japanese government agencies is contained in Appendix B. These included: o Establishment within MITI of the Screening Council on the Export of Strategic Commodities, headed by the Deputy Director General of the International Trade Administration Bureau. The Council conducts thorough examinations of many export license applications for highly strategic goods and technologies, goods valued at more than 100 million yen and so on. O Establishment within the Ministry of Foreign Affairs of the Economic Security Division within the Economic Bureau. This was the first body to be established within the Foreign Ministry devoted specifically to strategic trade issues. o Staff increase within MITI raising the number of personnel devoted to export licensing and strategic trade issues from 40 at the beginning of FY1987 to 103 in FY1988. Tokyo notes that the significant increase in staffing was accomplished during a period of strict fiscal austerity' and severe restraints on personnel Increases. 13
Coordination among all agencies responsible for administration and enforcement of export controls was improved through the establishment of interministerial councils" Where the law provided for discussions between the MITI and Foreign Ministers, the councils provided unprecedented and regular fore at the working to ministerial levels for informal and formal exchanges of information. These exchanges would ensure that implementation and enforcement of export control regulations would be handled in a coordinated and consistent manner. The various vehicles established to improve coordination include: o Inter-Ministerial Conference on COCOM Affairs which was established to facilitate deliberations on the most important issues of strategic trade and COCOM policy. The Conference consists of the Ministers of international Tracle and Industry, Foreign Affairs, Finance, Justice, the Minister of State for the Japan-Def ense Agency, the Chief Cabinet Secretary and the Chad rman of the National Public Safety Commission. The Conference held its first meeting on September 16, 1987 with the participation of then Prime Minister TaReshita. The Conference has since convened at irregular intervals to discuss strategic trade policy. O Executive Meeting of appropriate Directors General of the member ministries from the Conference. This body 14
again meets at irregular intervals to consider measures for preventing illegal exports and the strengthening of Japan's export control system. O MITI-Ministry of Finance Liaison Conference was established to strengthen the cooperation between MITI divisions engaged in export control work and the Customs Bureau within the Ministry of Finance. It consists of representatives at the Deputy Director General level. O Liaison Conference of Ministries Concerned consists of stat f-level members from the Ministries of Justice, Foreign Affairs, Finance, International Trade and Industry, the National Police Agency and the Japan Defense Agency. It meets periodically to exchange information and views on export control policy issues as well as on the investigation of specific violations. In addition to the increased coordination among Japanese ministries, Tokyo also sought a more active and regular dialogue with the United States on export control issues. Since October 1987 there have been three meetings of Japanese and US strategic trade officials to coordinate policies and exchange views on various export control matters. In addition, MITI has also expressed a willingness to engage in personnel exchanges with the US Department of Commerce to familiarize Japanese license examiners 15
with methods used to screen US license applications. Two examiners from MITI have already participated in such an exchange. Japan also moved to strengthen the role and expand the responsibilities of Japanese exporters in ensuring compliance with export control regulations. In July of lg87, shortly after exposition of the Toshiba scandal, MITI convened an emergency meeting of nearly 150 industrial organizations which represented between them almost all Japanese exporters dealing in strategic goods and technologies. During the meeting the MITI Minister called upon the organizations to formulate policies designed to ensure compliance with export related laws and regulations and to make their affiliated companies thoroughly aware of the necessity of observing Japan's export control regulations. In September of 1987 a second meeting was called during which MITI called upon the organizations and their affiliated firms to draw up internal control programs (ICP) to help ensure thorough adherence to export control regulations. As a result nearly 2,200 companies have set up an ICP. MITI has screened and approved nearly 700 of the ICP's thus far. In addition to providing the firms with a regularized procedure for submitting and monitoring export license applications the ICP's are also used as a licensing pre-requisite. Japanese authorities consider it useful that an application for an export 16
license be accompanied by evidence of an approved ICP. Evidence usually consists of a type of registration number provided by MITT following its favorable review of a company's ICP. Licensing Process Japan's license application, review and approval processes remain relatively unchanged in form since the Toshiba Machine incident. What is evident since the Toshiba Machine case, however, is a higher degree of thoroughness and detail in review by the authorities along with greater accountability demanded of the exporter at every stage of the process. Only those items contained in Annex I of the Export Trade Control Order are considered controlled for international security reasons, and therefore require an export license. In addition, Tokyo still maintains separate procedures for exports of goods controlled by Annex I to proscribed and non-proscribed destinations. Comparisons of the basic steps for exports to both proscribed and non-proscribed destinations are summarized in the charts contained in Appendix C. The Japanese licensing process retains three important differences from the license review and approval procedures practiced in the United States: a pre-examination procedure for COCOM-proscribed destinations' use of a Certificate of Non- 17
Conformity which can be requested by an exporter to identify items which are not subject to the COCOM embargo, and its lack of authority to control reexports. When a license request is made for shipments bound for a COCOM-proscribed destination, the exporter must first provide MITI with a Pre-Examination Application. MITI reviews the pre- examination application to determine the licensing status of the shipment based on the commodity, stated end-use and end-user. If the case requires COCOM approval, it is submitted to Paris for review. Only after receiving a favorable determination on the case from COCOM will MITI then process the export license application. If pre-approval permission is denied, the exporter is neither allowed to submit an export license application nor to appeal the · ~ decision. In submitting an export license request for a controlled item an exporter can also request MITI to make a formal determination of the licensing status of the item. If MITI finds that the item in question is not subject to COCOM controls it issues a "Certificate of Non-Conformity." The Certificate is valid for a period of three years. The principal value of the Certificate is in facilitating Customs inspections of goods. Strictly speaking Japan does not exercise formal authority to control reexports of Japanese goods from foreign countries. In 18
effect, Japanese governmental authority over goods ceases once the goods have left the borders of Japan. Due to Japan's strong opposition to any form of extraterritorial application of its laws, or of other nations' laws on Japanese interests, it is unlikely that Tokyo will ever formally adopt US-style reexport obligations. Nonetheless, Tokyo can at times practice de facto reexport controls. One method is by including private contractual obligations on the purchaser to seek reexport permission directly from the Japanese vendor in terms of the original sales contract. MITI will sometimes condition issuance of an export license on receipt of assurances that the Japanese exporter has entered a private agreement with the importer against unauthorized reexports. An example of this rests in Toshiba's internal compliance program. Under the terms of the internal compliance program Toshiba now prohibits importers and distributors of its products from reexporting those products without first seeking approval from Toshiba. Failure to do so would result in a termination of the contract. In 1989 Japan processed over 320,000 export license applications for controlled commodities. These included more than 2,000 applications for shipments to COCOM-proscribed destinations. MITT also received more than 9,300 export license requests for controlled technologies of which nearly 800 were for COCOM- proscribed destinations. In addition, MITI performed over 2,500
pre-approval reviews and issued 4,000 Certificates of Non- Conformity. Perhaps the most striking modification to the licensing process since the Toshiba Machine scandal is in the supporting documents required to be submitted with the license application. MITI now requires all exporters to submit the original export contract with their export license applications. In instituting this requirement, MITT reasoned that submission of the original contract would help limit the risk of fraudulent applications which could happen more easily if only copies of the contract were required to be submitted. Furthermore, MITI also now insists that a clause be inserted into any export contracts stipulating that the contract can only be valid "subject to government approval." In requiring this clause MITI is seeking to eliminate contractual obligations for delivery of goods which could at times pressure Japanese exporters to engage in illegal sales. One possible scenario would involve a contract specifying a delivery date which occurs prior to the time when government approval is likely to be given. In such a case the exporter may feel compelled to resort to illegal means to make the shipment without government approval in order to avoid any contractual penalties. 20
Performance Under the New Regime - There is no denying that strategic trade and questions of technology security have assumed a much higher public profile in Japan since the Toshiba Machine incident. Indeed, Japanese firms in conjunction with MITI have even established a trade association devoted exclusively to questions of strategic trade and COCOM policy, the Center for Information on Strategic Technology, or CISTEC. CISTEC was established in 1989 to be a clearinghouse on information related to trade in technologies and equipment which are restricted for export under the COCOM agreement. Some 300 major Japanese high-technology manufacturing and trading firms have joined or are expected to join the privately funded group. A major function of CISTEC is to familiarize its members with the export control requirements imposed by Japanese law and COCOM guidelines. The Center gathers information on products and technologies which are or might be included in the COCOM embargo. The information gathered by the group typically includes details of possible military applications as well as assessments of technology levels available in countries targeted by the embargo. The Center's findings are provided to MITI in order to ensure that Japanese industrial and trade interests are reflected in the Ministry's positions on COCOM list reduction and other issues in 21
multilateral export controls. The group also seeks to monitor the strategic trade policies and licensing practices of other COCOM participants to ensure that Japanese policies do not restrict business opportunities unfairly. Perhaps one of the most striking indications that Japan's revamped export control system is working lies in the frequency of cases prosecuted for export control violations since 1987. In addition to the Toshiba Machine case there have been at least five other cases in which criminal penalties have been applied. The recent cases are summarized in Appendix D. By contrast no more than three cases had been prosecuted publicly in Japan during the thirty-five years prior to the Toshiba Machine incident. More important still is the fact that many of these cases have been given wide publicity. Furthermore, press coverage of the incidents stresses that the violators have been brought to trial as a result of cooperative efforts between the Customs, Police and MITI. One case in particular has been trumpeted by the Japanese authorities as indicative of more effective coordination among enforcing agencies. The case involved a Tokyo machine maker which was accused of selling East Germany material that could be used in nuclear reactors. Tokyo police alleged that on several occasions in recent years, employees of Prometron Technics carried hafnium wire to East Germany in violation of Japanese export control laws. Japanese officials noted that measures to both improve interagency 22
coordination among responsible Japanese export control ministries and to demonstrate Tokyo's seriousness in enforcing strategic technology controls were evident in the Prometron case. Unlike past cases, they noted, the police took the initiative in mounting the investigation and then bringing the case to MITI for consultation before prosecution. Previously, MITI had usually been the sole agency to uncover violations. Greater publicity, and hence accountability, has also apparently given Japanese exporters a greater incentive to take their export control obligations seriously. To demonstrate the seriousness of their commitment to technology security, companies which have prepared internal compliance programs have assigned responsibility for their supervision to top corporate officials, who, in many cases report directly to the president or chairman of the firm. This stands in sharp contrast to the previous situation where individual sales divisions tended to operate autonomously. In addition, the higher public profile and even stigma now attached to export control violators has caused some firms to take unprecedented steps to demonstrate their commitment to effective compliance. One example is Daikin Manufacturing, which was prosecuted for illegally shipping high purity halon, which might be used in semiconductor manufacturing to the USSR. In addition to abiding by the court's punitive sentencing, Daikin also chose to publish a pamphlet for internal use detailing export control 23
procedures and obligations. The pamphlet, entitled "Never Again" describes the Japanese export licensing requirements, company procedures to ensure compliance, and the necessity of compliance for contributing to Japanese and overall Western security. It was distributed to each member of the company. An Awakening in COCOM As a result of the Toshiba Machine incident the Japanese government also pledged to take a more active role in COCOM affairs. Since deciding to participate in COCOM in 1952, Japan had been its most conspicuous wallflower, even as Japanese technological prowess and industrial strength grew. Japanese authorities are now quick to point that a more visible and forceful Japanese presence at COCOM would be commensurate with the responsibilities Japan has assumed for guaranteeing Western technology security through its development as a leading world technological power. While the precise details of COCOM deliberations are secret, there are some indications that Tokyo is serious about its commitment. First and foremost is the formation of CISTEC, noted above, to assist government authorities in preparing detailed initiatives and negotiating positions on issues such as streamlining of the COCOM control lists. 24
Within COCOM sessions Japan has already demonstrated a greater willingness to take the lead in substantive discussions. For example, during recent debates concerning liberalization of the controls on advanced machine tools, an initiative entered by Tokyo was used to break a stalemate by offering a compromise between proposals entered previously by the United States and West Germany. Japanese authorities have indicated that Japan will now be more willing to present concrete proposals containing specific technical parameters to COCOM discussions on liberalizing the control lists. In other ways, too, Japan has sought to support the COCOM objective of harmonizing participating countries' licensing and enforcement systems. Changes to licensing procedures have been made which have brought the Japanese system more in line with that of the United States and other COCOM partners. For example, in April 1989 Japan instituted its first distribution license system. To date approximately 25 firms in Japan have received distribution ~ icenses . In order to qualify for a distribution license an exporter must show that: o At least twenty-five export licenses must have been approved for the same recipient during the previous year; 0 The exporter must have an adequate and approved internal control program; 25
o Importers in non-COCOM member countries must also demonstrate adequate internal control programs; o An importer in a non-COCOM member country must demonstrate that it is subject to control by the exporter through any of the following relationships: o An overseas subsidiary exporter must have greater interest; or o An overseas subsidiary in which the exporter has a greater than SO% interest; or o An overseas subsidiary in which a company in a COCOM-member country has greater than a ~0% interest and that company has a greater than SON interest in the exporter. Only certain specified commodities and technical data are eligible for export under a distribution license. As can be expected, many more articles are eligible for export to the COCOM- member countries under the distribution license than to the specified non-COCOM member countries, which include all non- con~unist countries plus China. While distribution licenses can be granted for shipments to China, to date none have been approved. 26
~ second area where Japan has moved to make its licensing procedures reflect those currently in use by the United States and other COCOM partners is in issuance of its first general license. MITI began issuing its version of the US's G-COM or G-COCOM general licenses during April of 1990. The new license, called General Bulk License, will facilitate exports of controlled commodities to other COCOM-member countries. The New View Towards East Europe The disintegration of communist rule in East Europe and the continuing thaw in relations with the Soviet Union are now posing new challenges to the COCOM membership. Ironically, the calls for liberalization of the COCOM regime are coming at a time when Japan now sports its most effective strategic trade control apparatus since entering COCOM. Japan's response, from both official and business circles, can be characterized as conservative and deliberate. What is most striking about Japan's positions is the unanimity of opinion among foreign policy officials, trade policymakers and the business community. Japan states that it is clearly important to streamline the COCOM list. However' many Japanese trade of f icials and corporate leaders have taken a rather conservative view and claim to share many of the same strategic interests as the United States. 27
Japanese officials are quick to point out that while political events in Eastern Europe and the Soviet Union have greatly altered the strategic scene in Europe, the picture in the Eastern parts of the Soviet Union and the Pacific have not been changed significantly. In the strategic context, Japanese officials continue to view the Soviet Union as a potent military threat in the Pacific. There have been no reductions on Soviet naval forces nor have there been any indications of troop withdrawals from Soviet bases. From the political perspective, there remain major outstanding questions of Japan's relations with the USSR. First and foremost is the continuing question of Japan's Northern Territories which the Soviets have thus far refused to discuss with Tokyo. Continuing Soviet intransigence on this issue is a convincing signal to most Japanese political and business leaders that Soviet strategic objectives in the Pacific remain unchanged. Furthermore, a Soviet crackdown by force of arms in the Baltic or other dissident states would only reassure outside observers that the Soviet military is alive and capable of defending and perpetuating Soviet territorial claims. Nonetheless, a breakthrough on the Northern Territories issue is also possible, especially given Gorbachev's flair for the dramatic. We doubt, however, whether Gorbachev is prepared to meet Japanese expectations completely with an unconditional return of the islands. Instead, any moves by 28
Gorbachev to address the issue are likely to do little more than remove some of the cumbersome political draping to expanding Japan- Soviet trade ties, and focus attention instead on the question of their economic merits. The economic hurdles facing any significant renewal of Japanese trade relations with the Soviet Union remain rather substantial. There are, as yet, few compelling economic factors for changes Japan's positions vis-a-vis strategic trade with the soviets and East Europe. East Bloc markets remain only of minor interest to most Japanese firms. Even the largest trading companies continue to limit their exposure in Eastern European markets to only 2-4~ of total sales with few incentives to increase that share substantially in the near term. respite the monumental changes underway in the political fabric of Eastern Europe and the soviet Union many business leaders reflect official concerns and continue to regard the Soviet and East European markets as too unstable for major investment. Therefore, in the near term most Japanese officials and outside observers expect Japan's positions on COCOM and strategic trade issues to remain closer to those of the United States than to those of the European members calling for greater and more rapid liberalization. Some officials have even gone so far as to comment privately that Japan will undoubtedly continue take its lead in COCOM affairs from the US. 29
Outlook In the wake of the Toshiba Machine episode, Japan's moves to improve its system of strategic trade controls have had far- reaching implications for future Japanese positions in both the domestic and international arenas. First' and most obvious, is Japan's emergence as a more prominent player in multilateral policy issues. Through the almost complete renovation of its export control and export licensing system, Japan has taken a major step in demonstrating its willingness to accept both the responsibility for safeguarding Western strategic interests along with the economic benefits of its technological and industrial development. Japan can now boast of a system of strategic trade controls in which greater accountability and more extensive and thorough administration place it on a par with export control regimes in any COCOM-member country. Through the improvements in licensing and enforcement and its commitment to a more active role in COCOM, Japan has demonstrated that it can and will be an active, responsible and responsive member of the Western industrial alliance. Secondl y , Japan has established a strong foundation on which to build independent positions on strategic trade control issues. Formation of industry groups such as CIS.TEC, and the increased 30
resources devotee] to strategic trade policy formulation, administration and enforcement within the government show that Japan will no longer accept either the prevailing consensus in COCOM , or even US proposals at face value. Instead, Japan appears prepared and willing to offer its own interpretations, representing both its unique strategic concerns and economic interests. As a result, both the Europeans and the United States will now face the first strong representation of a uniquely Asian-Pacific perspective in the formulation of COCOM policies. Lastly, while opening the door for a more outspoken and independent Japan on strategic trade issues, both the Toshiba Machine incident and the events in East Europe, have also reemphasized common strategic interests between Japan and the United States. A Japan which is more active in COCOM and other fore for strategic trade issues will undoubtedly provide many challenges to US positions in the months and years ahead. However, the shared overall objectives of maintaining peace and security in the Pacific will most likely outweigh any disagreements which are likely to arise on specific technology control issues. Outside of serious, and now less likely, lapses in the administration or enforcement of Japan's strategic trade controls, such as the Toshiba Machine incident, there are few issues which would undermine or weaken this shared strategic objective. 31
In the end, Japan's heightened sensitivity towards strategic trade controls comes at a very opportune time. It comes at a period when the entire fabric of East-West relations is being rewoven, and the basic rationale behind the current strategic trade control structure is being questioned throughout the Western alliance. Indeed, Japan's more vigorous positions on technology security issues almost guarantee a more challenging but stronger system of strategic trade controls, which is more responsive to the political and economic demands of a rapidly changing East-West environment. In theory, at least, Japan should be ideally positioned to react to the changing events in a timely manner. The government and business communities have proven capable and receptive to fundamental changes in strategic trade policies and procedures. Furthermore, the issue of technology security and East-West relations continues to enjoy a high public profile. Japan may very well become a leader in the formulation of new Western policies towards trade with the East 310c and redefining strategic technology controls. The question which remains is to what degree will Japan's unique Pacific-oriented strategic perspective and shared strategic concerns with the United States limit Tokyo's decision making. 32
The risk Japan now faces is one of perhaps having come too late to the party. Japan's conservative view of Soviet strategic ob jectives, which Japan has only just recently institutionalized in a stronger export control system, could be rendered obsolete by political- developments in East Europe and the USSR. Japan could possibly be left alone with the United States in holding onto a restrictive trade policy whit e European allies move forward in f orging new economic alliances in East Europe . Unlike the United States, an in some ways because of the United States as well, Japan is probably less likely to change its course suddenly and deem that political liberalizations in East Europe and the USSR now warrant a significant and rapid liberalization of strategic trade controls. 33
o Importers in non-COCOM member countries must also demonstrate adequate internal control programs; o An importer in a non-COCOM member country must demonstrate that it is subject to control by the exporter through any of the following relationships: o An overseas subsidiary exporter must have greater interest; or o An overseas subsidiary in which the exporter has a greater than SO% interest; or o An overseas subsidiary in which a company in a COCOM-member country has greater than a ~0% interest and that company has a greater than SON interest in the exporter. Only certain specified commodities and technical data are eligible for export under a distribution license. As can be expected, many more articles are eligible for export to the COCOM- member countries under the distribution license than to the specified non-COCOM member countries, which include all non- con~unist countries plus China. While distribution licenses can be granted for shipments to China, to date none have been approved. 26