Japan's industrial giants, which dominate the world's consumer electronics, semiconductor and automotive markets, quietly are preparing for the day when they will enter the one arena in which the United States is still dominant - the $500 billion-a-year global arms bazaar.
A confidential private sector report circulated recently in Japan concluded that if manufacturing giants such as Mitsubishi Heavy Industries, Ishikawajima-Harima and Toshiba were to begin exporting the military technology and hardware they produce for Japan's weapons market, Japan, in less than a decade, would control 45 percent of the world's tank and motorized artillery market, 40 percent of military electronics purchases, 30 percent of the aerospace market and 60 percent of global warship construction.But more importantly, say U.S. policymakers, Japan's emergence as a leading arms merchant would have a disastrous effect on everything from America's defense capability to its slight edge over foreign rivals in big ticket and basic technologies.
Theoretically, none of the 20 Japanese manufacturers that collectively account for most of the $15 billion in Japan's annual domestic defense contracts has begun to export their military wares, mainly because of a 1967 government ban on weapons exports.
However, according to the Washington-based Arms Control and Disarmament Agency, Japanese manufacturers have exported some $2 billion in military hardware in the last 10 years. Among the world's 47 arms exporters, Japan ranks 20th, it says.
The reason for this disparity? Loopholes in the government arms export ban allow Japanese firms to send "non-offensive" equipment abroad, such as Mitsubishi's T-2 trainer aircraft and four-wheel-drive vehicles used by the Nicaraguan army.
Diplomats in Tokyo say it is only a matter of time before Japan discards its export ban. Japan's industrial giants are looking for ways to offset business losses brought on by the 85 percent increase in the value of the Japanese yen in the last three years. As the yen's appreciation has made Japanese consumer products less competitive abroad, weapons and military hardware production have become increasingly attractive.
Mitsubishi Heavy Industries, for example, derives some 18 percent of its annual income (about $2.2 billion) from the sale of domestic military equipment and weapons systems. That's a threefold increase from just six years ago.
Kawasaki Heavy Industries earns almost 30 percent of its annual revenue from the sale of military aircraft and anti-tank missiles and military sales account for 24 percent of Japan Steel Works income and about 12 percent of Ishikawajima-Harima Heavy Industries annual earnings.
Though military production and weapons technologies account for less than 1.5 percent of Japan's industrial output (compared to the U.S. where the cost of military hardware equals about 11 percent of manufacturing production), there is little doubt in the minds of industry leaders here that the potential of the domestic and export weapons markets is growing.
This year Japan became the world's third largest defense spender, after the United States and the Soviet Union. Its $48 billion 1988 defense outlay is far below the $300 billion spent by Washington, but in the last decade (at the Pentagon's behest) Japan has increased its annual defense budget by an average 5.2 percent a year. Those increases are larger than those of any NATO member.
The Japanese Navy has 51 destroyers, twice as many as America's 7th Fleet, and in two years Japan will have 300 tactical aircraft, or about the same number defending the continental United States. If Japan wanted to build an atomic bomb, it could do so in two months, according to a former official with Japan's Defense Staff College.
A proposal is also under consideration to build an aircraft carrier, the first in Japan since World War II. In addition, Tokyo signed an agreement with Washington last June to build 100 advanced jet fighters based on General Dynamics F-16 Falcon and a bilateral pact to allow Japan to build its first Aegis destroyer, a ship equipped with the sophisticated integrated air defense missile system.
The sale of the $1 billion Aegis weapons system to Japan was not embraced by all of Congress, despite the profits that should be reaped by U.S. defense contractors.
Many American lawmakers, citing the Toshiba Machine Tool affair in which the Toshiba Corp. affiliate sold sensitive submarine technology to the Soviet Union in violation of Coordinating Committee for Multilateral Export Controls rules, say Japan cannot be trusted with American weapons technology.
They fear that Japan will "reverse engineer" the technology and become a competitive threat to U.S. defense firms in much the way companies such as Sony and Matsushita took latent American technology and created a wide range of consumer electronics.
Such fears are not farfetched. A classified report circulating in Japan's Self Defense Agency, points out that Japan's acclaimed "Bullet Train" uses high-speed bearings and disk brakes duplicated from American F-86 fighter planes.
Japan, say U.S. defense industry sources, is out to take advantage of America's declining industrial competitiveness in such areas as semiconductor production and leading-edge electronic technologies. America's growing dependence on foreign suppliers for these critical items, they say, is eroding the nation's technological lead and making the U.S. more and more vulnerable to the vagaries of global politics.
The Japanese, charge some American lawmakers, will follow a familiar pattern. First, they will master licensed American technology, then they will develop similar or spinoff products in a heavily protected domestic market and finally they will crank up their exports of military hardware.
The Japanese, who are convinced that they are in for a round of "defense industry protectionism," are pouring over recent reports on the woeful state of American competitiveness issued by the Defense Science Board and Office of Technology Assessment and a draft of a report issued by Robert Costello, undersecretary of defense for acquisition, which warns against employing protectionist laws to solve America's poor competitiveness.
Japanese defense contractors feel that Japan's domestic defense industry needs to think about creating more of its own sophisticated military technology, rather than relying on America for its next generation fighter planes and its naval missile defense system.
Under its five-year defense program, begun in 1986, Japan will spend some $142 billion on military hardware, 90 percent of which will be supplied by Japan's domestic weapons manufacturers.
When the five-year plan ends in 1991, many Japanese who recall the devastation wrought by Imperial Japan's militarists 50 years ago, fear that military spending will jump to 3 percent of gross national product from the current 1.1 percent, an increase that would propel Japan into the position of a full-blown military power.
Though many Japanese oppose a move that would push Japan into such a posture, a growing nationalism combined with the increasing political and economic influence of a right wing that has become testy from the "Japan bashing" in Washington and other foreign capitals, has created an aggressive atmosphere in Japan that was unthinkable 10 years ago.
That, combined with the rising yen and the resultant shrinking global marketplace for Japan's consumer products made less competitive than Korean, Taiwanese and even some American goods, is forcing Japanese manufacturers to scramble for new markets and products.