Protectionism, geopolitics trump cost in Australia-Japan submarines deal

Last week Australian negotiators reacted positively to a Japanese proposal for joint production of submarines to upgrade Australia’s fleet. No final agreement was reached, and while much of the process is deliberately not made public, they said a deal is possible by the end of the year.

14th Jan 2015


Protectionism, geopolitics trump cost in Australia-Japan submarines deal

Last week Australian negotiators reacted positively to a Japanese proposal for joint production of submarines to upgrade Australia’s fleet. No final agreement was reached, and while much of the process is deliberately not made public, they said a deal is possible by the end of the year.
Geopolitics plays a prominent role here, as Australia and Japan are already very close economic partners. In fact, a far-reaching free trade deal between the two will go into effect on January 15, freeing bilateral flows of goods and investments from tariffs. Their two economies are highly complementary, with Australia mostly exporting commodities, and Japan mostly exporting manufactured goods.
Japan’s role on the global stage is changing under President Shinzo Abe, who relaxed its self-imposed restrictions on arms exports and is more assertively nationalist. Japan would like to strengthen security ties with Australia, and the Japanese press even uses the term “quasi-alliance” to describe the two wealthy democracies (that each have a separate alliance with the U.S.).
But Australia has shied away from any such commitment, with its population overwhelmingly preferring to remain neutral in the case of any conflict between China and Japan — Australia’s two largest trading partners. That being said, Australia is not open to any hypothetical Chinese or Russian submarine offers, and if it uses Japanese technology, it would be integrated smoothly with the American-led security alliances. It might also be the first step to later joint naval exercises.
However, Australia’s top concern is protecting domestic shipbuilding jobs and those of associated industries. Thus, Australia balked at purchasing Japanese-built submarines and called for them to be built domestically. It didn’t matter if Japan could produce them for as little as half the total cost. As The Mainichi Shimbun reported, in Japan’s new proposal, its defense ministry would cooperate with Australia in developing special steel and other materials for its new submarines, while Japan will be in charge of assembling them. The Australian Department of Defence has said it is still considering submarine options with other countries, but it has come under fire for not having an open tender process, leading to suspicion that the game was always rigged for Japan to win.
Japan has never exported a submarine before, but it has a well-established submarine-building industry at home, part of its thriving shipbuilding industry that is the third largest in the world. With initial estimates of this deal going for roughly $20 billion, plus favorable geopolitical implications, Japan is willing to compromise in order to secure it.


 

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