Japan's Economic Security Law- A Laudable Policy

By Liz Lee

On May 11, 2022, the Japanese parliament enacted the "Act on Promotion of Economic Security by Integrated Implementation of Economic Measures”, in hopes of resuscitating the downspiraling economy amid the coronavirus outbreak. The Honourable Akira Amari, a member of the House of Representatives of the National Diet of Japan (bicameral parliament), explained the core components of Japan’s new economic security strategy:

1. To achieve “strategic autonomy” and “strategic indispensability” in global supply chains,

2. To secure and stabilise fundamental infrastructure,

3. To enhance research and development for advanced technologies,

4. To ensure non-disclosure of sensitive technology patents

To go into further detail, constructing resilient supply chains of 'critical material', such as semiconductors, is one of the top four priorities of the new legislation Recent years have witnessed Japanese growing reliance on China's import and export market, especially on devices like smartphones and laptop computers. These materials are crucial to the ordinary lives and economic activities of the public. While Japan was appealed to by China’s market in its strategic economy, any disruption of exports from China would likely target consumer spending.

Shipping delay is a case in point amid the pandemic situation. By then, it would be difficult for Japan to switch to other alternative sources Thus, the new economic security strategy aims to diversify supply chain partners across nations. Japan will establish reliable supply chains between Japan and trusted stakeholders, who possess the materials and manufacturing capability to produce next-generation semiconductors.

The new legislation will alleviate the heavy reliance on China while increasing the world’s dependence on Japan in the supply of critical technologies. Moreover, semiconductors are of significant importance in improving the functionality of society by increasing the ability to extract, accumulate, and analyse data. However, a considerable boost to semiconductor production requires a large amount of investment - the fundamental improvements can only be expected later in 2022 or 2023.

On top of that, the Japanese government will invest significantly in companies and institutions conducting research and development of ‘specified critical technology’. According to Articles 60 to 64, the designated technology is defined as advanced technology that may become critical in the future for the safety of the Japanese public and economic activity. The appointed members of the related companies and institutions are obliged to provide necessary documents, explanations, and opinions on cutting-edge technology and production methods. Under the government's order, the patent applications will be subject to restrictions. For instance, applicants must obtain the Cabinet Office’s permission before working on the inventions. They are also obliged to take necessary and appropriate measures to prevent the leakage of information concerning the inventions. This new act not only enhances the competitiveness of Japan’s research and development (R&D) efforts, it also helps pool in talents and capital in the companies, in hopes of flourishing the technology sector in Japan. In the last ten years, there has not been much breakthrough in the advancement of technology in Japan. Thus, it is hoped that the development of robust legal protections for patents will allow greater innovation in the development of cutting-edge chip manufacturing techniques, which would keep pace with global digital transformations The public will be able to reap the benefits from the technology advancement.

Ensuring supply chain reliability aside, the new act also addresses the area of strengthening key infrastructure. According to Articles 49 to 59 of the Act, the government would establish the guidelines that describe the basic policies and criteria for the ‘specified social infrastructure business operators’ to introduce equipment and choose suppliers. The designated companies in the infrastructure sectors will be required to submit installation plans to the government. After the minister receives them, the minister may order the modification or discontinuation of the plan. Anyone who does not comply with the law will be punished by imprisonment for not more than two years, or a fine of not more than JPY one million. Since the degradation of the functions of their “specified critical equipment” would endanger the stable provision of the related services, the new policy impairs national security and public safety. Given the support of the government, a larger number of companies are motivated to expand their production and increase their investment. Thus, the companies earn greater profits and the employees (approximately 68.8% of the private sector labour force) will receive a higher income. This in turn raises the quality of living conditions of the public

To conclude, the Japanese government’s new guidance, requiring all ministries and agencies to account for economic security in their operations, is a step toward developing a rise in a secure and competitive research environment where innovation for the economy can flourish. This new legislation will take effect over six months to two years and will enhance the country's national security and guard key technology as well as critical supply chains.