3

The Context for U.S.-Japan Defense and Industrial Technology Cooperation

SUMMARY POINTS

  • U.S.-Japan defense and industrial technology cooperation takes place within a context of wide and persistent imbalances in the overall science, technology, investment, and trade relations between the two countries.

  • Although cooperation in the defense technology area itself has also been asymmetrical, for most of the post war period this pattern has been judged by both countries to advance their respective national interests.

  • Enhanced reciprocal U.S.-Japan technology relationships could make an important contribution to maintaining and strengthening the alliance. However, changing traditional patterns of interaction has been difficult. Despite efforts over a number of years, Japanese military technology transfers to the United States have not been significant and have not measurably contributed to U.S. capabilities.

PATTERNS AND TRENDS IN OVERALL U.S.-JAPAN SCIENCE AND TECHNOLOGY RELATIONS

In an issues paper published in 1990 the National Research Council ’s Committee on Japan called attention to the persistent imbalances in the science and technology relationship between the United States and Japan and to the structural features of the innovation and market systems of the two countries that underlie those imbalances.1 The committee also underscored the importance to the overall U.S.-Japan relationship of increasing the flow of Japanese technology to the United States, as well as improving the utilization of Japanese technology to produce concrete benefits for U.S. national security and economic well-being. Throughout the post-World War II period and even prior to the war, the bilateral science and technology relationship has been characterized by several distinct patterns of interaction: (1) technology flows predominantly from the United States to Japan; (2) licensing fees and royalties flow predominantly from Japan to the United States; (3) the flow of technical personnel for long- and short-term visits aimed at training, education, and technology acquisition has been predominantly from Japan to the United States; and (4) the predominant flow of technology personnel for short-term stays to teach is from the United States to Japan and has been for over 125 years.

During the 1970s and 1980s, an additional pattern emerged—a large Japanese merchandise trade surplus with the United States and the rest of the world, with high-technology and other

1  

National Research Council, Committee on Japan, Science, Technology, and the Future of the U.S.-Japan Relationship (Washington, D.C.: National Academy Press, 1990).



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Maximizing U.S. Interests in Science and Technology Relations with Japan: Report of the Defense Task Force 3 The Context for U.S.-Japan Defense and Industrial Technology Cooperation SUMMARY POINTS U.S.-Japan defense and industrial technology cooperation takes place within a context of wide and persistent imbalances in the overall science, technology, investment, and trade relations between the two countries. Although cooperation in the defense technology area itself has also been asymmetrical, for most of the post war period this pattern has been judged by both countries to advance their respective national interests. Enhanced reciprocal U.S.-Japan technology relationships could make an important contribution to maintaining and strengthening the alliance. However, changing traditional patterns of interaction has been difficult. Despite efforts over a number of years, Japanese military technology transfers to the United States have not been significant and have not measurably contributed to U.S. capabilities. PATTERNS AND TRENDS IN OVERALL U.S.-JAPAN SCIENCE AND TECHNOLOGY RELATIONS In an issues paper published in 1990 the National Research Council ’s Committee on Japan called attention to the persistent imbalances in the science and technology relationship between the United States and Japan and to the structural features of the innovation and market systems of the two countries that underlie those imbalances.1 The committee also underscored the importance to the overall U.S.-Japan relationship of increasing the flow of Japanese technology to the United States, as well as improving the utilization of Japanese technology to produce concrete benefits for U.S. national security and economic well-being. Throughout the post-World War II period and even prior to the war, the bilateral science and technology relationship has been characterized by several distinct patterns of interaction: (1) technology flows predominantly from the United States to Japan; (2) licensing fees and royalties flow predominantly from Japan to the United States; (3) the flow of technical personnel for long- and short-term visits aimed at training, education, and technology acquisition has been predominantly from Japan to the United States; and (4) the predominant flow of technology personnel for short-term stays to teach is from the United States to Japan and has been for over 125 years. During the 1970s and 1980s, an additional pattern emerged—a large Japanese merchandise trade surplus with the United States and the rest of the world, with high-technology and other 1   National Research Council, Committee on Japan, Science, Technology, and the Future of the U.S.-Japan Relationship (Washington, D.C.: National Academy Press, 1990).

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Maximizing U.S. Interests in Science and Technology Relations with Japan: Report of the Defense Task Force manufactured products making up the bulk of that surplus. U.S. firms in a number of industries have faced formidable competition from Japan, and in the 1980s Japanese manufacturers solidified their export success with U.S. acquisitions and other direct investments. By the late 1980s, stagnant U.S. productivity growth, large trade deficits, and setbacks for U.S. high-technology companies in several global industries, combined with the rapid and marked success of Japan along these same parameters, gave rise to considerable concern and anxiety about the future among many Americans. The need for U.S. companies and the United States as a country to develop new ways to cope with the rise of Japan as an economic and technological superpower had become obvious and compelling to some. Over the past few years, several factors have combined to produce a somewhat lower anxiety level in the United States regarding our economic and technological future and our standing relative to Japan. To begin with, the U.S. economy has enjoyed a cyclical recovery from the recession of the early 1990s at the same time that the Japanese economy has experienced its most prolonged economic recession since postwar reconstruction. In addition, a number of U.S. companies in industries that have faced intense pressure from Japanese competitors —such as automobiles and semiconductors—appear to have achieved significant turnarounds in terms of manufacturing prowess and product design. However, large imbalances in U.S.-Japan technological and economic relations remain, as illustrated in Tables Table 3-1, Table 3-2, Table 3-3, and Table 3-4. Since these imbalances are caused by long-standing characteristics in the innovation and market systems of the two countries, it will likely require significant time and effort from both sides before imbalances are substantially ameliorated. The U.S. innovation system, particularly since World War II, has been characterized by a number of interrelated structures and institutions that have served to establish and maintain U.S. leadership in basic science and technology development across a wide range of fields. 2 The main features of this system are (1) a high percentage of U.S. research and development (R&D) has been funded by the federal government during the postwar period (currently about 40 percent, but it has been as high as two-thirds); (2) a large proportion of this federal investment has been targeted at agency missions, with defense traditionally accounting for 50 percent or more; (3) in contrast to other countries, well over half of federally funded R&D has been performed in private institutions (primarily industry and universities) rather than in government laboratories; (4) while the proportion of funding devoted to basic, investigator-driven research in universities and private institutes is not large relative to the total federal R&D budget, the absolute amount is quite large, particularly in comparison with similar investments by other countries; and (5) new, start-up companies have played a major role in commercializing new technologies.3 2   For a concise overview, see David C. Mowery and Nathan Rosenberg, “The U.S. National Innovation System,” in Richard R. Nelson, ed., National Innovation Systems: A Comparative Analysis (New York: Oxford University Press, 1993), pp. 29-75. 3   For R&D funding and spending patterns, see National Science Board, Science and Engineering Indicators 1993 (Washington, D.C.: U.S. Government Printing Office, 1993), particularly Chapter 4. Although information necessary to make direct international comparisons of national government support for investigator-driven basic research is not available, U.S. government support for basic research performed in universities, nonprofits, and federally funded research and development centers administered by universities and nonprofits was about $8.5 billion in 1991, or roughly 14 percent of U.S. government R&D spending. Converted at market exchange rates, this would be equivalent to 45 percent of the Japanese government R&D budget and over 50 percent of the German government R&D budget.

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Maximizing U.S. Interests in Science and Technology Relations with Japan: Report of the Defense Task Force TABLE 3-1 Flow of Technology: Royalties and License Fees Generated from the Exchange and Use of Industrial Processes with Unaffiliated Foreign Residents, million dollars   U.S. Receipts from Japan U.S. Payments to Japan U.S. Surplus Ratio of Receipts/Payments 1990 1,028 141 887 7.3 1991 1,219 138 1,081 8.8 1992 1,268 145 1,123 8.7 1993 1,392 194 1,198 7.2 NOTE: Figures do not include transactions between affiliated foreign residents. SOURCE: U.S. Department of Commerce, Survey of Current Business, September 1994. TABLE 3-2 Flow of Research and Technical Personnel Between Japan and the United States by Purpose, 1988 and 1992   1988 1992 Japanese in the United States     For academic research 9,182 29,857 For study, training, and technology acquisition 43,042 76,023 Total 52,224 105,880 Americans in Japan a     For study 1,993 2,600 For training 531 330 For teaching 1,131 1,778 For cultural/academic activities 785 14 To provide technology 28   For research   432 For technology   1,968 For skills   78 Total 4,468 7,200 Ratio of Japanese in the United States to Americans in Japan 11.7 14.7 a The Ministry of Justice changed its classification categories for foreigners entering Japan between 1988 and 1992. SOURCES: Japan Ministry of Justice, Annual Report of Statistics on Legal Migrants, 1993 (Tokyo: Okurasho Insatsukyoku, 1993), and Akio Nishimoto and HajimeNagahama, Wagakuni to Kaigai Shokokukan ni Okeru Kenkyugijustusha Koryu (The Interchange of Researchers and Engineers Between Japan andOther Countries) (Tokyo: NISTEP, 1991).

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Maximizing U.S. Interests in Science and Technology Relations with Japan: Report of the Defense Task Force TABLE 3-3 Flow of Technology-Intensive Manufactured Products, 1992, million dollars Product/SIC Code U.S. Exports to Japan U.S. Imports from Japan Balance Chemicals and allied/28 4,502 2,935 1,567 Electronic components and accessories/367 1,190 6,600 -5,410 Selected metalworking equipment/3541, 3542, 3544, 3546, 3548 233 1,851 -1,618 Selected electrical and renewable energy equipment/3612, 3613, 3621, 3625 132 1,253 -1,121 Aerospace/37A 4,442 593 3,849 Selected industrial and analytical instruments/3821, 3823, 3825, 3826, 3827 926 1,167 -241 Computers and peripherals/3571, 3572, 3575, 3577 3,308 11,226 -7,918 Telephone and telegraph apparatus/3661 312 1,665 -1,353 Search and navigation equipment/3812 296 106 190 Drugs/283 963 685 278 Medical instruments and supplies/384 988 1,023 -35 Motor vehicles and automotive parts/3711, 3715, 3465, 3592, 3647, 3691, 3694, 3714 1,900 33,100 -31,200 Total 19,192 62,204 -43,012 SOURCE: Compiled from U.S. Department of Commerce, U.S. Industrial Outlook 1994 (Washington, D.C.: U.S. Government Printing Office, 1993). TABLE 3-4 Stocks and Flows of Foreign Direct Investment and Cross-Border Research and Development, million dollars   A B A/B   Japanese Firms in United States U.S. Firms in Japan Japan-U.S. Ratio Net flow of FDI, 1993 -1,324 4,803 N/A Accumulated stock, year end 1993 96,213 31,393 3.1 Accumulated stock, manufacturing, year end 1993 17,746 13,610 1.3 R&D expenditures, 1992 1,642 658 2.5 NOTE: R&D expenditures includes those funded by affiliates. SOURCES: U.S. Department of Commerce, Survey of Current Business, various issues and communications with the Bureau of Economic Analysis,April 1995.

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Maximizing U.S. Interests in Science and Technology Relations with Japan: Report of the Defense Task Force The result of these long-standing funding, performance, and commercialization patterns is a system that encourages basic scientific discovery and the creation of new technology, which encourages open access to knowledge through support for nonproprietary performers of R&D (mainly universities) and where the focal application areas for technology policy have been mission oriented (mainly defense but also space, energy, and public health). U.S. primacy in technology and the ready availability of resources for technology development have meant that U.S. companies and other organizations have few incentives to seek out or apply technologies developed in other countries. Therefore, there is little corporate investment or public infrastructure for doing so. Opportunities for technology commercialization in the United States are so abundant and the pace of technology development is so rapid that established firms have often been unable to leverage their considerable organizational and resource advantages to capitalize on all of them, leaving ample room for entrepreneurs and new entrants.4 The U.S. market for goods has generally been open during the postwar period, so Japanese and other foreign manufacturers have been able to gain access without transferring technology or making other trade-offs. The contrast of the U.S. system with the structures and incentives that have traditionally operated in Japan could not be greater. In Japan the government funds only about one-fifth of R&D activities.5 Table 3-5 shows U.S. and Japanese government R&D funding priorities. Since the time of the Meiji Restoration in the mid- to late-nineteenth century, Japan has seen technological capability as a key to economic development and national security. Government and industry have worked in a cooperative and complementary way to build mechanisms for acquiring foreign technology, capabilities for effectively utilizing it, and market incentives and management structures to indigenize and improve upon imported know-how.6 Prior to World War II the Japanese innovation system was largely oriented toward military and national security objectives. With defeat and occupation, national priorities as reflected in government policies and corporate strategies were reoriented to emphasize technology development for commercial industries. The focus on technology acquisition from abroad has been a consistent feature since the middle of the last century and has been facilitated during the postwar period by Japanese policies, corporate strategies, and resulting market structures that denied or brokered market access in order to promote indigenous industries and extract technologies from leading foreign companies.7 Today, most formal barriers have been removed, but deep-rooted government and private practices in areas such as procurement, distribution, and regulation combined with the accumulated legacy of past discrimination against foreign products 4   Particularly in the microelectronics and computer industries, this tendency was promoted by U.S. government policies that mandated licensing at reasonable terms of breakthrough technologies developed by several large U.S. companies. These policies, based on antitrust concerns, prevented these large companies from making full and exclusive use of their innovations. 5   See Science and Technology Agency, Indicators of Science and Technology 1994 (Tokyo: Okurasho Insatsukyoku, 1994), p. 25. About half the Japanese government total is accounted for by the Ministry of Education. It is also likely that salary accounting practices introduce an upward bias in the Ministry of Education figure, meaning that Japanese government R&D expenditures would be even lower if they were counted in the same way that they are in the United States. 6   See Hiroyuki Odagiri and Akira Goto, “The Japanese System of Innovation: Past, Present and Future,” in Nelson, op. cit., pp. 76-114. 7   Understanding of these issues has improved recently as a result of heightened attention from Western scholars, including Mark Mason, American Multinationals and Japan: The Political Economy of Japanese Capital Controls, 1899-1980 (Cambridge, Mass.: Harvard University Press, 1992).

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Maximizing U.S. Interests in Science and Technology Relations with Japan: Report of the Defense Task Force TABLE 3-5 Distribution of Government R&D Budget Appropriations, by Socioeconomic Objective, 1992, percent Objective United States Japan Agriculture, forestry, and fishing 2.2 3.6 Industrial development 0.3 3.9 Energy 4.5 21.3 Infrastructure 2.2 1.9 Transportation and telecommunications 2.0 1.5 Urban and rural planning 0.2 0.3 Environmental protection 0.7 0.5 Health 14.7 0.5 Social development and services 1.3 2.9 Earth and atmosphere 1.2 1.0 Advancement of knowledge 3.9 50.8 Advancement of research 3.9 8.3 General university funds a 42.5 Civil space 9.6 7.1 Defense 59.4 5.9 Total 100.0 100.0 a The United States does not have an equivalent to Japan’s general university funds. NOTE: Percentages may not add to 100 because of rounding. U.S. data are based on budget authority. Because of general university funds and slight differences in accounting practices, the distribution of government budgets among socioeconomic objectives may not completely reflect the actual distribution of government–funded research in particular objectives. Japanese data are based on science and technology budget data, which include items other than R&D. Such items are a small portion of the budget, and therefore the data may still be used as an approximate indicator of relative government emphasis on R&D by objective. SOURCE: National Science Board, Science and Engineering Indicators, 1993. and companies continue to result in a hostile market environment for foreign entrants in a range of high-technology markets.8 The technological capabilities of Japanese companies and industries were rapidly upgraded and supported by a complementary set of policies and institutions that encouraged high levels of investment.9 Japanese consumer electronics, automobiles, machine tools, capital equipment semiconductors, and other products have gained first acceptance and then outstanding success in world markets. In 1992 Japan produced 28 percent of the high-technology products made in 8   See U.S. Trade Representative, 1994 National Trade Estimate Report on Foreign Trade Barriers (Washington, D.C.: U.S. Government Printing Office, 1994), pp. 141-184. 9   There is evidence that Japanese companies have put relatively more emphasis on process as opposed to product R&D than U.S. companies do and that Japanese companies are faster at commercializing products based on external technology. See Edwin Mansfield, “Industrial Innovation in Japan and the United States,” Science, September 30, 1988, pp. 1769-1774.

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Maximizing U.S. Interests in Science and Technology Relations with Japan: Report of the Defense Task Force OECD countries, second only to the 37 percent share held by the United States.10 Through its innovation and market systems, Japan has achieved a remarkable economic and technological miracle and serves as a model for other countries, particularly in Asia, seeking the rapid development of economic and technological strength. When viewed from the point of view of the national goals that they have served, both the U.S. and Japanese innovation systems should be viewed as outstanding successes. However, it is clear that the wide differences in how technology development is organized, funded, and performed in the two countries have a profound impact on bilateral technology flows.11 Without significant changes in either or both systems, these patterns may well persist. In both the United States and Japan there are debates and movement under way that may eventually result in change of the required magnitude, including recent technology policy initiatives in the United States, and perennial calls for greater university research funding in Japan. Even if significant changes in the policies of the two countries were to be implemented, it is possible that we would not see an impact on the U.S.-Japan science and technology relationship for some time.12 OVERVIEW OF U.S.-JAPAN DEFENSE INDUSTRIAL/TECHNOLOGY COOPERATION Chapter 2 outlined the framework of the U.S.-Japan security alliance over the postwar period, as well as the basic motivations and trade-offs on each side in defense industrial and technological cooperation. This section will describe the evolution of U.S.-Japan cooperation in greater detail, placing it within the context of the relevant political and economic forces at work within each country and in U.S.-Japan relations. The 1954 Mutual Defense Assistance Agreement serves as the basis for defense industrial cooperation.13 During the latter half of the 1950s, Japan launched the licensed production of U.S. weapons systems, most notably the F-86 fighter aircraft, and also built up design capabilities with the independent development of a jet trainer. At first, a large percentage of Japan ’s defense production was financed by the United States, but this aid gradually declined and was phased out in the 1960s. By the early 1960s, defense production accounted for about a tenth of overall industrial production.14 10   National Science Board, Science and Engineering Indicators 1993 (Washington, D.C.: U.S. Government Printing Office, 1993), p. 440. 11   The predominant continuing pattern of technology transfer from the United States to Japan can also be seen at the sector and individual-firm levels. See Committee on Japan, U.S.-Japan Strategic Alliances in the Semiconductor Industry: Technology Transfer, Competition, and Public Policy (Washington, D.C.: National Academy Press, 1992); U.S.-Japan Technology Linkages in Biotechnology: Challenges for the 1990s (Washington, D.C.: National Academy Press, 1992); and High-Stakes Aviation: U.S.-Japan Technology Linkages in Transport Aircraft (Washington, D.C.: National Academy Press, 1994). 12   In contrast to the science and technology relationship—narrowly defined as flows of licensing income and technical personnel —U.S.-Japan trade in high-technology products could be impacted if Japan implements significant market opening and deregulation policies. Recent progress can be seen in selected markets, such as personal computers. 13   For the broader context of U.S. defense industrial cooperation with NATO allies, South Korea, and others, see U.S. Congress, Office of Technology Assessment, Arming Our Allies: Cooperation and Competition in Defense Technology (Washington, D.C.: U.S. Government Printing Office, 1990). 14   Michael J. Green, Japan’s Search for Autonomous Defense Production 1945-1993: Arms, Technology and Alliance (Ph.D. dissertation, 1993, forthcoming from Columbia University Press), p. 91.

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Maximizing U.S. Interests in Science and Technology Relations with Japan: Report of the Defense Task Force With the end of U.S. assistance, the Japanese government exercised greater autonomy over the defense budget. In 1967 it adopted the “three principles” restraining arms exports.15 Momentum built throughout the late 1960s for higher Japanese defense budgets and a significant increase in indigenous weapons development and procurement. Indigenous projects launched during the late 1960s and early 1970s, such as the C-1 transport, the T-2 trainer, and the F-1 fighter, reflect this trend. However, movement toward a substantial, independent Japanese defense industrial and technology base stalled in the early 1970s owing to the shallow political support outside the circle of defense contractors, the military establishment, and the prodefense group of conservative politicians in light of the large budget increases that would be required. With the end of fixed exchange rates and the U.S. rapprochement with the People’s Republic of China in 1971 (the so-called Nixon shocks), U.S. weapons became relatively less expensive and the Chinese military threat lost its force as a rationale for a significant Japanese defense buildup. 16 From the late 1970s, the Japan Defense Agency shifted its R&D funding priorities to emphasize support for “spinning on” technologies from Japan’s commercial sector. In addition to recognizing the growing importance of dual-use technologies in weapons development, this focus turned the budgetary limitation on large new indigenous systems into a virtue. 17 The spin on process in Japan, seen most frequently at the supplier tiers, typically involves the application of existing commercially-based capabilities to emerging weapons development opportunities. When Mitsubishi Electric began its research on active phased array radar in the late 1960s with partial support from JDA, it applied its commercial gallium arsenide integrated circuit know-how, eventually developing the radar for the FS-X years later.18 The development of Japanese capabilities in superconductivity and composite materials has been characterized by a process of “interdiffusion, ” in which military-related R&D helped to leverage the work of key companies such as Mitsubishi Electric and Toray to create a broad business base for these technologies in commercial markets.19 The late 1970s also saw the genesis of several other significant shifts in the U.S.-Japan security relationship, prompted by changes in the international environment. The intensification of the Cold War after the Soviet invasion of Afghanistan led to increased U.S. interest in building up and integrating Japan’s military capabilities into a more effective common defense structure in the Western Pacific. After some fits and starts on the Japanese side, closer coordination and increased Japanese procurement to support the defense of sea lanes around Japan and other missions were accomplished by the Reagan administration and the Nakasone cabinet. 15   A more detailed description of the “three principles” is given in Box 4-3. The impact of the three principles and Japan’s export control policies on U.S.-Japan cooperation is considered in greater detail in other parts of this report. In the mid-1970s a new interpretation of the policy effectively banned all weapons and weapons technology exports, although a 1983 exchange of notes allows weapons technology transfers to the United States. 16   See Green, op. cit., pp. 112-114. 17   Incorporating commercial technologies into military systems is one of the two meanings of “dual-use” technology given in the introduction and is increasingly important for the United States as well. Because of the major focus of the United States on military technologies since World War II, the other context for dual-use, military technology “spinning off” to commercial uses, has been more relevant. 18   Richard J. Samuels, Rich Nation, Strong Army: National Security and the Technological Transformation of Japan (Ithaca, N.Y.: Cornell University Press, 1994), p. 293. 19   Ibid., pp. 293-294 and 304-306.

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Maximizing U.S. Interests in Science and Technology Relations with Japan: Report of the Defense Task Force The second shift was the increasing interest shown by the U.S. Department of Defense in gaining access to Japanese technologies to meet American and common security needs. In 1980 the Systems and Technology Forum (S&TF) was established between the two countries to explore possible joint R&D projects in military technology. In 1983 the Japanese government announced that transfers of military technology to the United States, and only the United States, would be allowed as an exception to the “three principles” on arms exports. An exchange of notes between the two governments established the Joint Military Technology Commission (JMTC) and formal mechanisms for the transfer of Japanese military technology to the United States.20 These new institutions have opened up possible new areas of cooperation, and the progress to date and future prospects are examined in more detail in Chapter 4. However, the S&TF and JMTC have not yet facilitated significant cooperation or transfers of technology to the United States. Throughout the 1980s and up to the present, the predominant forms of U.S.-Japan defense industrial cooperation remain what they had been throughout the Cold War—Japanese licensed production of U.S. systems and off-the-shelf purchases of U.S. systems. Japanese licensed production of the F-15 fighter and Patriot missile and Japanese procurement of AWACS illustrate this pattern. The only departure has been the FS-X codevelopment, discussed more extensively in Chapter 4, which represented a compromise between Japan’s desire to develop an indigenous fighter and the U.S. preference that Japan buy or license-produce a U.S. fighter. In Japan the groups that have favored greater Japanese independence in developing and producing defense systems, allied in many cases with those that would use the defense budget to promote broader commercial technology goals, have had to contend with the fundamental political limitations on growth in the defense budget and with Japan’s ultimate reliance on the security treaty with the United States. The interplay among Japan’s political and economic interests has evolved and shifted over time, with tensions always inherent. During the 1950s and 1960s, arguments that greater capability in defense technology would give Japan more leverage in its relationship with the United States mostly prevailed. During the 1970s, the argument that minimal defense capability and greater reliance on the alliance with the United States would maximize Japan’s freedom to act politically and economically in world affairs, particularly in Asia, came to prominence. Despite constraints on defense budgets and military activities, Japan has built a small sophisticated defense industrial and technology base that is well integrated with its commercial technology and manufacturing capabilities, without the expensive overhead of a full-fledged military industrial complex comparable to that of the United States. Japanese government and industry have become quite skilled over the years in effectively utilizing scarce resources to sustain and enhance technological capabilities. This has been facilitated by the commercial technology orientation of Japanese defense contractors. For major Japanese weapons makers, defense contracts make up a relatively small share of their overall businesses, in contrast to most U.S. defense contractors. Table 3-6 lists major U.S. and Japanese defense contractors. Some of the grander visions for “spin-off” benefits—such as the 60-seat YS-11 commercial transport— 20   U.S. Department of Defense, Office of the Under Secretary of Defense for Research and Engineering, Japanese Military Technology: Procedures for Transfers to the United States, February 1986.

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Maximizing U.S. Interests in Science and Technology Relations with Japan: Report of the Defense Task Force TABLE 3-6 Top U.S. and Japanese Defense Firms, 1993, million dollars   Defense Revenue World Rank Total Revenue Percentage of Revenue in Defense R&Da Expenditures R&D as Percentage of Revenue Top U.S. Defense Firms             Lockheed Corp. 10,195 1 13,071 78.0 449 3.4 McDonnell Douglas Corp. 9,052 2 14,487 62.5 341 2.3 GM Hughes Electronics Corp. 6,600 3 13,500 48.9 612 4.5 Martin Marietta Corp. 6,320 4 9,435 67.0 280 3.0 Raytheon Corp. 4,700 6 9,200 51.1 279 3.0 Northrop Corp. 4,532 7 5,063 89.5 97 1.9 Boeing Co. 4,407 8 25,438 17.3 1,244 4.9 United Technologies Corp. 4,000 10 20,700 19.3 1,137 5.5 Loral Corp. 3,608 12 4,009 90.0 125 3.1 Top Japanese Defense Firms             Mitsubishi Heavy Industries 2,372 21 24,931 9.5 992 4.0 Kawasaki Heavy Industries 1,120 38 8,556 13.1 195 2.3 Ishikawajima-Harima Heavy Industries 840 47 7,726 10.9 318 4.1 Mitsubishi Electric Corp. 820 49 27,806 2.9 1,542 5.5 Itochu Corp. 475 69 149,914 0.3 n/a n/a NEC Corp. 390 79 32,053 1.2 2,627 8.2 Toshiba Corp. 353 86 41,466 0.9 2,288 5.5 Mitsui Engineering and Shipbuilding Co. 306 92 3,111 9.8 59 1.9 Fuji Heavy Industries 276 100 9,095 3.0 212 2.3 a Japanese figures converted at ¥118 per dollar (March 1993). SOURCES: Defense News, July 18-24, 1994; Japan Company Handbook: First Section, Toyo Keizai, Summer 1993; U.S. firm annual reports. were not successful. But over the longer term Japan has been quite successful in leveraging the technological and manufacturing base benefits of licensed production, supplemented by indigenous defense programs, to establish a significant foothold in commercial aircraft production. Through most of the postwar period, an important goal for U.S. policy was to increase Japanese defense capabilities to the extent possible within the political limitations of public opinion and the “Peace Constitution.” The United States also sought to discourage Japanese deployment of systems that could be destabilizing in the Asian regional environment (such as aircraft carriers). But defense industrial cooperation with Japan was not a major concern for the United States through much of this period. Only in the 1980s did Japan’s strides in industrial technology prompt the Department of Defense to begin thinking in terms of acquiring technology from Japan and only with the FS-X did concerns over the broader industrial and commercial

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Maximizing U.S. Interests in Science and Technology Relations with Japan: Report of the Defense Task Force impacts of U.S. military technology transfers to Japan come to the forefront. Tables Table 3-7 and Table 3-8 illustrate Japanese technological strengths in areas critical for future defense systems, mainly areas of commercial technology that are increasingly incorporated into these systems. TABLE 3–7 U.S. Department of Defense Key Technologies and Areas of Japanese Technical Strength Key Technologies and Subareas Broad Technical Achievement Moderate Technical Capability Computers (overall)   x Specialized computing systems   x Optical processing   x Software (overall) x Software and systems engineering x Human-computer interaction   x Artificial Intelligence x Software for parallel and heterogeneous systems   x Sensors (overall)   x Radar sensor technology x   Electro-optic sensor technology   x Multisensor integration   x Communications networking (overall) x Network management and capacity utilization subsystem x Data retrieval and information production system   x Electronic devices (overall)   x Microelectronics x   Radio frequency components   x Electro-optics   x Environmental effects   x Environmental sensing   x Environmental characterization and prediction   x Science generation and environmental decision aids   x Materials and processes (overall)   x Structural materials, processing and inspection   x Electronic, magnetic and optical materials x   Special function and biomolecular materials and processes   x Energy storage (overall)     Power sources   x Propulsion and energy conversion (overall)   x Missile, space, and aerospace vehicle propulsion   x Design automation (overall)   x Product and process definition   x Information flow and integration   x Human-system interfaces     Information management   x SOURCE: Compiled from U.S. Department of Defense, Key Technologies Plan, 1992.

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Maximizing U.S. Interests in Science and Technology Relations with Japan: Report of the Defense Task Force The context has changed dramatically in recent years. Table 3-9 shows defense budget and defense R&D trends in the United States and Japan. Flat and declining budgets have prompted different reactions in the two countries. In the United States the major trend has been consolidation, with defense companies merging, selling, and acquiring businesses. Particularly for the major contractors, there is a smaller number of larger companies than there was several years ago. Japan’s defense budget has been flat in recent years, and, as Table 3-10 shows, overall aircraft production has declined as well. Although the recently announced plan of Ishikawajima-Harima Heavy Industries (IHI) and Sumitomo Heavy Industries to merge the marketing and R &D functions of their defense shipbuilding operations is seen by some as a harbinger of extensive consolidation, Japanese defense industry restructuring is likely to take a very different form from that of the U.S. and European industries, with fewer moves toward consolidation or outright exits from the business.21 Concerns have been expressed in Japan about companies cutting defense R&D and moving their most talented engineers out of defense businesses. While it would seem that the trends toward lower defense budgets, greater utilization of commercial technologies, and Japan’s greater relative strength in these areas would provide a favorable environment for expanded reciprocal U.S.-Japan cooperation, this has not materialized and will likely prove difficult to bring about. The controversy surrounding the FS-X negotiations TABLE 3-8 U.S. Department of Defense Key Technologies and Areas of Foreign Strength   NATO Allies Japan CIS Others Overall areas of broad technical achievement 0 0 0 0 Subareas of broad technical achievement 4 6 4 0 Overall areas of moderate technical capability 10 9 6 0 Subareas of moderate technical capability 31 22 14 2 NOTE: A total of 11 overall areas and 41 subareas were evaluated. SOURCE: Compiled from U.S. Department of Defense, Key Technologies Plan, 1992. 21   Hisayuki Mitsusada, “Major Shipbuilders Merge Defense-Contract Operations,” The Nikkei Weekly, May 1, 1995, p. 1. IHI and Sumitomo Heavy will maintain their separate production facilities. In the United States or Europe, a comparable restructuring would almost certainly involve the outright purchase by one company of the other’s shipbuilding operations.

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Maximizing U.S. Interests in Science and Technology Relations with Japan: Report of the Defense Task Force TABLE 3-9 Defense and Defense R&D Spending in the United States and Japan, billion dollars   1989 1990 1991 1992 1993 United States           Total defense budget 299.5 303.3 288.9 282.1 267.1 Defense spending (as a percentage of GDP) 5.9 5.5 4.8 5.0 4.6 Defense R&D budget 37.5 36.4 36.2 36.6 37.7 Defense R&D (as a percentage of defense budget) 12.5 12.0 12.5 12.9 14.1 Defense R&D (as a percentage of total government R&D spending) 66.4 64.3 60.0 58.9 59.0 Japan           Total defense budget 35.6 37.8 39.8 41.3 42.1 Defense spending (as a percentage of GNP) 1.01 0.99 0.95 0.94 0.94 Defense R&D budget 0.75 0.84 0.93 1.04 1.12 Defense R&D (as a percentage of defense budget) 2.1 2.2 2.3 2.5 2.7 Defense R&D (as a percentage of total government R&D spending) 4.2 4.4 4.5 4.7   NOTES: All figures reflect government outlays; conversions at ¥100 per dollar. Japanese companies have traditionally funded a larger portion of early-stage defense R&D than U.S. firms. This corporate funding is not reflected in these figures. SOURCES: Office of Management and Budget, Budget of the United States Government—Historical Tables, 1995; Japan Science and Technology Agency, Indicators of Science and Technology, 1994; Michael Chinworth, Inside Japan’s Defense, 1992; Japan Defense Agency, 1993 Defense White Paper; National Science Board, Science and Engineering Indicators, 1993. TABLE 3-10 Japanese Aircraft Production Trends, million dollars   1992 1993 Percent change Forecast 1994 Percent change Production 8,423 8,001 (−5 %) 7,609 (−5 %) Exports 1,416 1,035 (−27 %) 1,001 (−3) Orders 7,892 8,020 (2%) 6,879 (−14%) NOTE: Currency conversion at ¥100 per dollar. SOURCE: Nihon Koku Uchu Kogyokai (Society of Japanese Aerospace Companies), Kokuki Kanren Seisankaku Nado no Mitoshi ni Tsuite (Update on Aircraft-Related Production), August 1994.

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Maximizing U.S. Interests in Science and Technology Relations with Japan: Report of the Defense Task Force illustrated the pressures on each country mitigating against a continuation of the traditional asymmetrical patterns in the relationship. Leaders in both the United States and Japan are well aware of the value of continued and expanded cooperation in security affairs, economics, and science and technology, but governmental institutions and private incentives reflect and help perpetuate long standing asymmetries. Table 3-11 shows that a few Japanese defense technologies have been transferred to the United States since the 1983 exchange of notes. However, these very limited transfers have not resulted in a measurable contribution to U.S. defense capabilities.22 TABLE 3-11 Japanese Military Technologies Transferred to the United States Since 1983a   Year Japanese Company Technology for the construction and remodeling of U.S. naval systems 1986 Ishikawajima-Harima Heavy Industries Technology related to the next-generation support fighter (FS-X) 1990 Mitsubishi Heavy Industries Technology related to joint research on ducted rocket engines 1992 Nissan Motor Transfers of Japanese technology related to portable surface-to air missiles (Toshiba) and for the digital flight control system on the P-3C antisubmarine patrol aircraft (Kawasaki Heavy Industries) were also approved but never carried out. SOURCES: Japan Defense Agency, Defense of Japan 1994 (Tokyo: Japan Times, 1994), p. 74, and Nihon Keizai Shimbun, November 29, 1994. 22   For a discussion of several of the early transfers, see Steven K. Vogel, Japanese High Technology, Politics and Power—Research Paper #2 (Berkeley: Berkeley Roundtable on the International Economy, 1989), pp. 36-41.