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More than commerce at stake in Japan’s bid for S$51b submarine deal

TOKYO — Less than two years after lifting a decades-old ban on arms exports, Japan is navigating one of the most complex and sensitive areas of the defence market: Submarines.

A Soryu-class submarine, during a fleet review. Japan faces a Nov 30 deadline to submit a final proposal to Australia for its next-generation submarine. PHOTO: BLOOMBERG

A Soryu-class submarine, during a fleet review. Japan faces a Nov 30 deadline to submit a final proposal to Australia for its next-generation submarine. PHOTO: BLOOMBERG

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TOKYO — Less than two years after lifting a decades-old ban on arms exports, Japan is navigating one of the most complex and sensitive areas of the defence market: Submarines.

The country faces a Nov 30 deadline to submit a final proposal to Australia for its next-generation submarine, the largest such tender in the world right now.

A team of government officials, military officers and corporate executives with no experience in international arms marketing is facing off against global heavyweights ThyssenKrupp AG of Germany and DCNS of France for the A$50 billion (S$50.8 billion) programme.

More than commercial interests are at stake. Winning the race to design and build the submersibles would cement the “special” relationship Prime Minister Shinzo Abe has sought to build with a fellow United States ally against an assertive China. For Australia, cooperating with Japan — whose Soryu is widely seen as the best submarine of its type —risks angering China, its biggest trading partner.

“We are basically prepared to share all our technology,” Mr Masaki Ishikawa, a Ministry of Defense official working on Japan’s bid, said in an interview. “Until now, we had never even shown our submarine technology to our ally, the US.”

The submarine competition comes as Japan agonises over how far to loosen the constraints of the pacifist Constitution imposed by the US after World War II and revered by many Japanese. The passage of laws to expand the role of the military met with street protests over the summer.

“Make no mistake: A decision in favour of Japan would have tangible strategic implications,” said Mr Mark Thomson, a defence economics analyst at the Australian Strategic Policy Institute.

“It would assist Japan down the path of military normalisation, and it would also send an unambiguous message to both Beijing and Washington about the willingness of Australia and Japan to work together.”

With Australia and the US set to jointly develop a combat system to be installed in the new submarines, a Japanese deal could tighten ties between the three countries’ armed forces, said Mr Ishikawa.

The A$50 billion contract would be to build the subs and service them over their decades-long lifetime. Defence Minister Marise Payne said at the Submarine Institute of Australia on Tuesday the number of subs would be announced next year, though the country needs between eight and 12, analysts said.

Japan is set to ratchet up its sales pitch. Defense Minister Gen Nakatani left yesterday to meet South Australian Premier Jay Weatherill and shipbuilder ASC, with that state a hub for naval manufacturing. He will join Foreign Minister Fumio Kishida for a meeting with Ms Payne and Australian Foreign Minister Julie Bishop on Sunday and plans to raise the deal at the meeting, he told reporters .

Japan has deployed its conventionally powered, 3,628-tonne Soryu class subs — the largest of their type in the world — since 2009. The latest models cost about ¥60 billion (S$692 million).

ThyssenKrupp, Germany’s largest steelmaker, has said its marine unit could build 12 submarines for Australia for about A$20 billion. Germany has experience exporting submarines, but it has not constructed one to the size Australia requires.

“Our design will be customised according to Australia’s requirements and will be exclusively offered to Australia,” Mr John White, chairman of ThyssenKrupp Marine Systems in Australia, said on Wednesday. The company targets about 70 per cent Australian involvement, pledging to create thousands of jobs.

“It’s a fact we have no experience selling submarines overseas,” said Mr Ishikawa. “I have seen in the newspapers the view that our pitch has not been good enough. I think it’s necessary to explain in detail why this is the best choice for the Australian Navy’s needs and for Australian companies.”

Australia has asked for three build options: Australia only, overseas only or a hybrid of the two. It is likely to announce its decision next year.

It is not just Japan’s pride in its technical prowess that could be dented by a rejection, bilateral ties could also suffer, said Mr Thomson.

“If it’s a purely commercial matter, a loss would merely be disappointing,” said Mr Thomson. “But my instinct is that the original deal had much more to do with strategy than money. If I’m right, a Japanese loss would amount to, or at least be perceived as, Australia rejecting a closer strategic relationship with Japan.” BLOOMBERG

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