Tokyo and Canberra need to pick up the pieces
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Tokyo and Canberra need to pick up the pieces

Originally published in the Nikkei Report.

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Executive Summary

Submarines take a long time to build but can sink very quickly. It now appears likely that Japan's prospects of supplying Australia's future submarine lie dead in the water, holed by official leaks.

Local media reports surfaced in Australia in late April claiming that Japan has been "all but eliminated" from the three-way competitive evaluation process for the submarine contract, leaving France and Germany as the remaining bidders. The Australian government did not deny the reports. Instead, the announcement of a police investigation into the leaks served as a virtual confirmation.

Despite a slow start, Japanese officials and industrialists in recent months campaigned hard to promote the bid led by Mitsubishi Heavy Industries, raising its profile in Australia. But that was apparently not enough to prevent an abrupt slide in Japan's fortunes. While Japan was once regarded as the frontrunner under former Prime Minister Tony Abbott, it sank to last place under his successor, Malcolm Turnbull.

Compounding the humiliation for Prime Minister Shinzo Abe, the leaks coincided with a highly symbolic visit by a Japanese Soryu-class submarine and her escorts to Sydney Harbor, prior to naval exercises with the Royal Australian Navy. For a "special" partner officially described by Australia as its "closest and most mature in Asia," it was an inappropriate way to receive bad news.

Turnbull has promised an official announcement on the submarine decision "soon." This is likely to be after Japan's naval contingent leaves Australia on Tuesday. The ultimate decision rests with the Australian cabinet, led by Turnbull. He could still opt for Japan on strategic grounds, ignoring the technical advice of the defense department. But even allowing for last-minute chicanery in this most byzantine of procurement processes, such a controversial decision appears unlikely since campaigning is already under way for a general election on July 2.

With up to $50 billion Australian dollars and a clutch of vulnerable governing coalition seats in South Australia at stake, the government's announcement is likely to focus on the economic benefits for Adelaide, where the submarines will be built. Realistically, the most Japan can hope for as a consolation prize is a future subcontractor role.

But Turnbull's election calculations must also factor in Abbott, who has publicly and perhaps counterproductively backed Japan's bid since being ousted from office, sparring on national security with his usurper, as he views Turnbull. This should motivate Turnbull to soften the blow on Japan as far as possible, though the question arises: why announce the successful bidder before the election?

That is harder to answer, unless he plans to fudge it somehow. Turnbull is likely to win the popular mandate he currently lacks on July 2, but not by the scale that appeared possible earlier. He can ill afford further attacks from within his own party.

Those who support a closer strategic alignment between Australia and Japan will no doubt feel a sense of deflation and disappointment if Japan is turned down. But let us be clear: if Japan's bid has fallen substantially short on cost, capability and schedule (key criteria in the selection of the submarine contractor), then plainly it would be irresponsible to choose "Option J." That is despite the strategic benefits that a high-level defense collaboration would bring to the bilateral security relationship between the two key U.S. allies in the Pacific. Canberra must of course choose the best submarine design, because Australia's conventional deterrence posture will depend on it for decades.

To my mind, the most revealing point that has surfaced was not the concern about the "technical risk" among Australian defense officials. Rather, it was their perception that Japan's bureaucracy lacks enthusiasm for the deal in ways that would "undo it in the long run," as reported by national broadcaster the ABC.

Misplaced strategic risk

The most voluble criticism of Option J was that it would cause Australia to take on "strategic risk." This reflected the view that any long-term dependence on Japanese submarine technology would oblige Australia to side with Tokyo in its intensifying strategic rivalry with China. It is a superficially appealing but tendentious argument.

The more plausible "political risk" for Australia is that future Japanese leaders will be less committed to bilateral defense ties. Canberra needs to be assured of long-term support from Tokyo since the last of the new generation submarines may not be launched until 2050 and will remain in service for decades. Unless Japan's strategic circumstances worsen significantly, Abe's successors are unlikely to show the same enthusiasm for such defense partnerships.

This raises a legitimate concern that the proposed submarine collaboration was too politically driven. Japan and Australia have been drawing closer for many years. There are few sources of friction in the relationship, and many incentives to cooperate in defense and security, including shared -- though not identical -- strategic concerns about China. When it came to the submarine contract, Abe and Abbott resembled overeager fathers forcibly ushering a young couple toward the altar. Arranged marriages can last but often sow the seeds of simmering resentment.

This is not to criticize Japan's recent exertions. MHI mounted a valiant promotion effort. Senior executives visited and set up an office in Sydney. But while arms export legislation is now in place in Japan, defense is not a core area for any Japanese company and constructing submarines overseas would present a quantum leap into the unknown. Most Japanese officials are happy with the substance of Abe's defense reforms, but not all are comfortable with his conservative agenda. The rewards from the Australian contract are potentially great, but there may also be relief at dodging the potential liabilities.

The idea of a strategic project binding these two key U.S. allies remains attractive. But submarine collaboration was always an inherently high-risk, high-gain approach to elevating the defense relationship, and may have provided an unhealthily narrow foundation for a broad-based partnership.

The bid evidently meant a great deal for Japan, for Abe in particular. Woeful mishandling around the leaked evaluation results will inevitably deal a short-term blow to the budding bilateral bond. It is incumbent on Australia to undertake some diplomatic repair work to restore Tokyo's faith in the "special" relationship, if that is indeed how Turnbull values it.

Suspicions will linger in some quarters that Japan fell foul of Australian politics. Turnbull's recent return from Beijing is also bound to fan inferences of Chinese interference. While the U.S. has observed official neutrality in the procurement process, the strategic case for Option J was an easy sell to Washington. There will be disappointment there to manage, too, although one assumes that Australia has sought assurances that the U.S. submarine combat system preferred by the RAN can be made available to Canberra's preferred bidder.

In coming days, if Japan's failure to secure the submarine bid is officially confirmed, the doomsayers will proclaim it as a strategic setback. I am more optimistic about the resilience of Australia-Japan security cooperation.

The relationship is bigger than one project, or two leaders, and may develop at a more "natural" pace, less artificially centered on the defense relationship.

Diplomacy is one thing, but international defense sales is a tough business. If the decision goes against it, Japan will also take away valuable, bruising lessons from its first real venture into the international defense market: lose some, win some.


Euan Graham is director of the International Security Program at the Lowy Institute, in Sydney, Australia.

Areas of expertise: Asian strategy and geopolitics; Australian defence; the Korean Peninsula, Japan and Southeast Asia; maritime/naval security; the South and East China Seas