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Focus of Diet deliberation of economic security bill is on areas subject to regulations

On March 17, the Lower House plenary session began deliberation on the economic security promotion bill presented by the government. The legislation will allow the government to grasp supply chain information on semiconductors and other critical goods, such as where they are sourced and their inventory status. The opposition camp points out that it is unclear which goods are subject to regulations, and some parties are making counterproposals.


In the plenary session, Prime Minister Kishida Fumio explained the purpose of the legislation and took questions from the floor. The government identifies it as a signatory bill and seeks to enact it during the current Diet session.


The bill has four pillars: making domestic supply chains more resilient; securing the safety of infrastructure; promoting public-private research on cutting-edge technology; and non-disclosure of patents. The government envisions the enforcement from around fiscal 2023 on a phase-in basis.


The objective of the strengthening of supply chains is to reduce the risk of relying on foreign countries in the sourcing of critical materials, such as semiconductors, storage batteries and rare-earth metals. The bill stipulates that the government will provide financial support to concerned industries and be allowed to examine where they source raw materials and how much inventory they have.


Another focus of the bill is to ban foreign products that may pose a threat to national security in terms of critical infrastructure. Fourteen industries, including electricity, finance, and rail services, are designated as providers of critical infrastructure and operators in these industries will be required to report in advance to the government general information on the equipment they purchase, the origin of the source, and the details of parts [used in equipment].


The Diet debate is expected to focus on addressing concerns about economic activity restrictions, the legislation’s effectiveness in light of national security, and coordination with the United States and Europe.


The bill does not specify critical goods and business operators of critical infrastructure. The government expects that the legislation will be operated through government and ministry ordinances.


Meanwhile, the opposition camp is raising the question of the ambiguity in areas subject to regulations.


In the Diet interpellation on March 17, Shinohara Go of the Constitutional Democratic Party of Japan (CDPJ) called the government’s definition of critical items “too broad.” He noted that “if the Diet debate deepens with the definition of economic security left ambiguous, the aspect of the cost effectiveness of economic security could be ignored.” 


Aoyanagi Hitoshi of the Nippon Ishin [Japan Innovation Party] pointed out: “In the name of economic security, more money could be poured into vested interests, and companies and industries that should be subject to an industrial shakeup based on market principles might become overprotected.”


Ishin has submitted to the Lower House its economic security bill, which includes a provision that will specify items and technology subject to regulations based on objective criteria.


In answering the question concerning the designation of critical items, Prime Minister Kishida gave examples of risks that may surface by relying on overseas for product sourcing and through supply chain disruptions. “We will narrow down critical goods when we set forth requirements and will present our concrete ideas in a basic guideline so as to secure the foreseeability,” he said.


On infrastructure that will become subject to regulations, he said that the government will coordinate with the private sector. “By working closely with business operators, we will secure their foreseeability and encourage them to take action.”


The government and the ruling parties want to avoid the extension of the current Diet session and any conflict with the opposition camp over the economic security bill to better prepare for the upcoming Upper House election. Right before the bill was approved by the Cabinet in late February, penalties on business operators who will not comply with the government’s surveys on supply chains were partially deleted from the bill.


Some LDP members had opposed it by saying that the “[law] effectiveness cannot be secured if penalties are deleted.” Nonetheless, the government decided to delete penalties to pay consideration to concerns expressed by the business community and the Komeito Party.


Asked about the survey’s effectiveness, Kishida answered: “We will explain to business operators in detail about the importance and objective of the surveys by keeping in mind a possible increase in companies’ burden and their response to our request.”


There is an opinion within the government and the ruling parties that the legislation’s effectiveness may be weakened if the scope of products that will become subject to regulations is narrowed down through the clear definition.


Meanwhile, the Democratic Party for the People (DPFP) is making its own proposal from a different perspective. It calls for the implementation of a “security clearance” system, which is aimed at limiting access to sensitive security information to prevent information leaks.


The government had considered this option but decided not to include it in the bill this time. Minister in charge of Economic Security Kobayashi Takayuki explained: “This can become one of issues that we may consider in the future.”


The security clearance system has already been introduced in major economies, including the United States and Europe. It has been pointed out that Japan’s not having such a system may become an obstacle to Japan-U.S. joint research projects on quantum computing and artificial intelligence (AI). (Abridged)

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