This time, Japan should import

Reading in yesterday’s Wall Street Journal that Japan is wrestling with a decision over acquisition of new fighter jets to replace its aging Vietnam era F-4s, I couldn’t help recalling the French adage that plus ca change plus ca reste le meme chose (the more it changes the more it stays the same).

With the F-4 rapidly approaching the end of its useful life, Japan’s Defense Ministry will this month choose a replacement. There are three possibilities: the all new, ultra advanced, ultra expensive Lockheed Martin F-35, Boeings lower cost and combat tested F-18, and the European consortium Eurofighter GmbH’s Typhoon.

The F-35 seems to have the edge in the competition because the Japanese usually like to go with the most advanced technology despite the higher costs that usually entails. But a new decision factor unrelated to the fighter’s performance and cost has entered the picture. That is how much of the plane’s production will be done locally in Japan. The last assembly of Japan’s mainstay F-2 fighter model was completed at the end of December, and its Mitsubishi Heavy Industries production line is now idle. Some Japanese leaders are now urging that the ministry choose the plane whose producer will agree to having the largest percentage of its production done in Japan. Having the fighter produced locally in Japan would raise its cost substantially because the production run would be small and thus lacking in economies of scale. Nevertheless, powerful voices in Japan are arguing that they need to keep the Mitsubishi line operating regardless of the cost. Lockheed Martin has offered to localize final assembly but is reluctant to transfer the entire manufacturing rights to such a cutting edge product. Boeing, on the other hand, is offering to have Japanese contractors do 85 percent of the production and Eurofighter has said it could localize 95 percent of the production.

The irony is that we went through precisely the same argument over the F-2 a quarter century ago. At that time, Japan was planning to replace its then aging fighters with what it called the FSX. The U.S. made F-16 was then coming into wide use in the U.S. and allied air forces and would have been much less expensive for Japan to buy than the indigenously developed FSX. Moreover, the F-16 would have maintained a high degree of interoperability between the U.S. and Japanese air defense fleets.

At the time, the United States had a chronically large and growing trade deficit with Japan which was selling autos , consumer electronics, and a host of other products into the U.S. market as if there would be no tomorrow. Aircraft were one of the few things we Americans made that could be competitively exported to Japan. Given that the F-16 was available immediately while the FSX would be delayed several years, and that the F-16 would cost about a third to a half as much as the FSX, and that acquisition of the F-16 by Japan would cut the U.S. trade deficit, there seemed every reason for Japan to halt its FSX development and just buy the U.S. made F-16 off the shelf, especially in view of the fact that the United States provided the bulk of Japan’s defense umbrella.

But that didn’t happen. A long, bitter controversy between the two governments ensued. In the end the a compromise was reached under which Japan modified the F-16 and turned it into the F-2. Japan developed about 60 percent of the plane and assembled it in Japan. The cost of Y13 billion per copy was far above the price of an off the shelf F-16 and, of course, interoperability with the U.S. Air Force was diminished.

We should not now have a repeat of this story. Japan continues to accumulate a large trade surplus with the United States. Producing any of the planes under consideration in Japan will substantially increase their cost. Japan could buy the very advanced F-35 off the shelf for about the same or perhaps even less than it could produce the older Boeing and Eurofighter planes in Japan. Or, it could buy the Boeing and Eurofighter planes off the shelf at an enormous saving to its defense budget. In buying abroad rather than producing at home, Japan would also be reducing its chronic trade surplus.

In view of all this, it is greatly to be desired that Japan will see reason and just import one of the planes. Japan does not have to make everything.