The government is considering measures to order businesses to change their parts suppliers if they pose overseas risks. This will be done as part of the legislation the government is considering to strengthen supply chains for fighter jets and other important defense equipment, the Sankei Shimbun learned on Dec. 19 from multiple sources connected with the government.

The government plans to formulate legislation and other measures to strengthen Japan’s defense equipment manufacturing posture by the end of next year. The Defense Ministry will earmark approximately 2.2 billion yen in its FY2022 draft budget to start full-scale measures [to enhance supply chains].

For key equipment such as fighter jets and submarines, the bill now being considered by the government to maintain and strengthen the defense industry targets custom-made products that are only manufactured by one company. The bill does not include general-purpose products.

The bill will require manufacturers to cooperate in investigations of their supply chains, and penalties for those who do not cooperate are under consideration.

The ministry will be able to order a company to change its supplier if an investigation finds there is a risk that parts are being procured from a country with a potential supply disruption. In addition, if there is a risk that a manufacturer may withdraw from its operations, the ministry can require suppliers of the withdrawing company to continue providing parts to the successor company.

The bill is regarded as the “defense version” of the “economic security promotion bill” (tentative name), which covers a variety of industries.

The defense industry is required to have a higher level of supply chain security than other industries and measures to prevent the leakage of confidential information. For this reason, the Defense Ministry has long been investigating the supply chains used in the manufacture of key equipment and taking measures to strengthen the security of system suppliers.

“We have been taking measures with the clear objective of defending Japan,” said a senior ministry official, stressing that the ministry’s measures differ from those for economic security.

On the other hand, the weak foundations of the defense industry have long been regarded as a problem. According to a survey by the Acquisition, Technology & Logistics Agency (ATLA), total defense-related sales account for less than 3% of total sales on average of companies receiving defense orders. Even for Mitsubishi Heavy Industries, which builds ships, defense orders make up only about 10% of all sales, significantly lower than that of defense companies in other countries.

While considering tougher regulations, the government will establish a new “defense industry policy office (tentative name)” within the ATLA in the next fiscal year to initiate support measures in a full-scale manner.

The initial budget for FY2022 earmarks a total of about 2.2 billion yen for defense, including 600 million yen to improve manufacturing efficiency through advanced technology; 500 million yen to help companies participate in the purchase of the U.S. military equipment; and 800 million yen to introduce cybersecurity equipment to small- and medium-sized businesses.

This is the first time for the Defense Ministry to develop a full-scale industrial support program.