2021 Fiscal Year End Report
Economic Security Study Group

March 2022

Economy Security Study Group1. Introduction
Against the backdrop of high-tech friction between the U.S. and China, there is growing
attention to economic security. The Japanese government has approved an economic
security bill in the Cabinet and submitted it to the Diet. The basic directions are as follows:(1) improve self-reliance (eliminate vulnerabilities in core infrastructure and supply
chains), (2) ensure superiority and indispensability (improve technological and industrial
competitiveness by strengthening R&D, etc., and prevent technology leakage), and (3)maintain and strengthen the international order based on fundamental values and rules.
One of the most important issues is to strengthen R&D capabilities to ensure Japan’s
superiority and indispensability. In the U.S. and China, core technologies related tosemiconductors and telecommunications, as well as emerging technologies such as AI
and machine learning, are subject to export control, and both countries are making efforts
to improve their technological capabilities as a priority of their industrial technology
policies. The confrontational structure between the U.S. and China has sharpened themovement toward decoupling from reliance on the other country’s technologies.
In Japan, on the other hand, the economic security perspective is being considered inindividual policy goals, such as trade management policies and comprehensive
innovation strategies for security purposes. The U.S., as a security ally, and China, which
is becoming more and more important economically, are both important states to Japan,and there is no way to prioritize one over the other diplomatically. In addition, as theconfrontation between the U.S. and China becomes more acute, relations with thirdcountries, such as those in Europe, and India are also important.
In any case, based on the premise that a country’s advanced technological capabilities
can create an advantageous diplomatic position, and given Japan’s current advanced
technological capabilities, it is necessary to consider what kind of technologies Japan
should invest in from the perspective of mid- to long-term economic security, and whatkind of technology policy it should pursue.
In fiscal year 2021, our Study Group took up AI/machine learning, quantumcomputers, and next-generation communication technologies, and examined them fromthe perspective of ensuring Japan’s superiority and indispensability, especially related tothe abovementioned (2), and compiled recommendations.
2. Technology-specific Considerations and Response Policies
2-1. AI and machine learningAI, with a focus on machine learning, is at the core of information and communication
technology (ICT) and is undoubtedly an area in which Japan should focus its investment
from the perspective of economic security. In this field, where the U.S. is leading the wayand China is rapidly gaining strength, Japan should differentiate itself from the Internet-

based AI (machine learning using big data on the Internet) of Internet platformers in theU.S. and China, utilize high-quality data in the real world, and work on real-world AI thatis highly reliable when implemented.
However, the U.S. and China are leading the way in development of cutting-edge
software, such as the most advanced machine learning algorithms, so it is important forJapan to have an open strategy that includes international cooperation, including humanexchange, and a strategy to catch up with advanced technologies that are making rapid
progress.
Japan’s competitiveness in this field is due to the existence of big data in the private
sector, such as manufacturing sites. Therefore, for cross-border transactions of such data,
certain controls should be applied to security-critical data, based on the basic policy oftrading highly reliable data in the Data Free Flow with Trust (DFFT). In addition, it isnecessary to take measures to utilize a multi-regime to ensure that rules for reliable datatransactions are adopted and observed internationally.
2-2. Next generation computers, mainly quantum computers
In terms of computer hardware technology, semiconductor miniaturization has reachedits limit, and technological innovation is slowing down in accordance with Moore’s Law.
It is necessary to have a strategy for domestic production of semiconductor technology
and manufacturing processes as a basis for high-tech industries. However, the amount ofinvestment required for the most advanced fabs is enormous, and it is necessary to verify
the cost-effectiveness of injecting public funds into a field that is dominated by private
business, including from the perspective of security.
Computers using quantum bits are highly important, as they enable massively parallel
computations and provide a revolutionary improvement in computer processing power.
However, the scope is considered to be limited. In addition, while practical applications
based on superconductivity methods are in progress (Google, IBM, Alibaba Group, etc.),
applications based on other principles are also being used (ion trap, silicon photonics,etc.).
Although quantum computing can be said to be a technological field that should bewatched closely, it is still in the basic research phase and has not yet reached the stage
where the technological development can be harnessed for practical use. Therefore, on
the premise of fair and interactive information exchange among the research institutes
involved, it would be appropriate to proceed with an internationally open strategy.
2-3. Next-generation communication technologies
5G technology standards have been established and are in the stage of practicalapplication. Standard Essential Patents (SEPs) for 5G technology are held by SamsungElectronics Co., Ltd., Qualcomm Technologies, Inc., Huawei Technologies Co., Ltd., andothers. All of these technologies are necessary for the implementation of 5G
communication networks, and they are interdependent in terms of technology.
With regard to Beyond 5G (6G), major companies in each country have started tostudy the required specifications from around 2018, and technical standardization work
(technical standardization is essential because it is a communication technology that
requires connectivity) is expected to be carried out for practical use in 2030. As with 5G,
6G is expected to be implemented based on international technical standards, so it should
not be enclosed on a company or country basis. However, since 6G is a technology thatwill be used for communication in the air, sea, and space, it is necessary to pay attention
to the implementation of the system from the perspective of security.
In addition, in the post-5G to 6G era, it is necessary to consider a new architecturethat virtualizes and optimizes the entire digital infrastructure, not just the wireless domain.
Photonics-Electronics Convergence Technology, which is technologically advanced inJapan, will be the key to eliminating the bottlenecks that will occur.
3. Recommendations for Ensuring Economic Security
3-1. Basic concept
As advanced science and technology and innovation become more and more closelylinked, the degree of progress in science and technology of a country has become an
important factor influencing not only industrial competitiveness but also diplomacy. For
the development of science and technology, policies that promote international
cooperation and coordination with the U.S., China, Europe, and other countries will beimportant. However, depending on the technological field, it is necessary to also consider
the policy direction for overcoming competition with other countries.
In other words, in order to improve Japan’s relative competitiveness in science andtechnology, the key point is how to strike a balance between international collaborationand coordination to access international cutting-edge technologies and how to prevent theleakage of Japan’s own advanced technologies.
To successfully achieve this balance, it is also necessary to consider thecharacteristics of each technology. Many of the technologies that could be problematic interms of security are General Purpose Technologies (GPT) that can be applied to various
fields, and Dual Use Technologies that have a commercial use as well as the potential formilitary use. For this reason, it is necessary to make wide-ranging forecasts and managethe complex threats and risks posed by emerging technologies and associated innovations
not only from the perspective of economic security but also from the perspective ofcomprehensive security.
It is important to note that advanced technologies are constantly evolving, and therelative competitiveness and technological characteristics described above are changing.
Therefore, it is necessary to take measures for each technological field flexibly whileconstantly updating information.
3-2. Economic security policy
Public research funding with the view to improving scientific and technologicalcapabilities needs to be considered in terms of priority areas from the perspective ofeconomic security. It is also important to enhance cross-sectoral science and technology
innovation policies, such as measures to support industry-academia collaboration andR&D taxation.
To prevent and protect against technology leaks, there are measures to control
information such as data and technical know-how through export and investment
restrictions. At present, measures are taken under the Foreign Exchange and Foreign
Trade Act, which was established from the perspective of security, but it is necessary toconsider the pros and cons of a framework based on a broader perspective such aseconomic security.
In addition, there may also be restrictions on human resources, including academicpersonnel. However, as Japan’s declining birthrate and aging population make it
increasingly difficult to secure domestic human resources in the advanced technology
fields, adopting a policy that is seen as isolationist in terms of human resources will only
serve to further reduce Japan’s relative competitiveness. While Japan’s scientific andtechnological capabilities are declining worldwide, and international cooperation islagging behind due to various internal and external factors, closed measures on scienceand technology should be applied to sensitive fields to a limited extent so that Japan will
not be left behind in the brain circulation of global human resources.
3-3. Systems to ensure economic security
Measures that affect Japan’s economic security, such as measures to restrict exports andinvestment in other countries and compulsory technology transfer, should be addressed
through international organizations and multi-diplomacy. In addition, with the growing
importance of issues related to advanced technologies in diplomacy, it is necessary toenhance the monitoring function of foreign countries’ policies, etc., and to improve thestructure and coordination of relevant ministries and agencies, including the Ministry ofForeign Affairs, in order to strengthen science and technology diplomacy. In particular,
since this has become an issue at the level of summit diplomacy, as seen in the agreementon advanced technology cooperation at the summit meetings of Japan, the U.S., and theQuad, there is a need to strengthen the system for technology diplomacy in the Ministryof Foreign Affairs.

Technologies that are important from the perspective of economic security arechanging daily. Therefore, in addition to the implementation of routine export controls
and prevention of technology and data leakage, it is advantageous to establish a systemof analysis and examination that goes beyond vertical divisions in order to prepare for the
potential threat of new discontinuous innovation and game changers that combine
emerging and existing technologies.
As a basis for anticipating, identifying, and dealing with these threats and risks, it isnecessary to improve and strengthen cross-sectoral technological intelligence. It iseffective to promote activities for future insight (formation of collective knowledge andpractice of strategic planning with the participation of stakeholders such as governments
and companies in the private sector that are responsible for medium- and long-term
policies and corporate strategy), rather than the conventional technology forecasting thatextrapolates the chronological development of technology in a vertical manner by field.
It is necessary to enhance the think tank function in order to strengthen the network amongcross-disciplinary experts and present options for forward-looking strategic planning.
This report is one part of the results on “Security” (Field B) related to the grant for
research and study on diplomacy and security from the Ministry of Foreign Affairs ofJapan.
This report was written and compiled by Motohashi Kazuyuki (Professor, University ofTokyo), the chair of the study group. Comments from the study group members wereincorporated into the writing of this report.
Study Group Members: Arai Hisamitsu (Chair, Vice President, Nakasone Peace
Research Institute), Motohashi Kazuyuki (Chair, Professor, University of Tokyo),
Hirami Kenta (Assistant Professor, Waseda University), Murayama Norimitsu (SeniorVice-President, The National Institute of Advanced Industrial Science and Technology),
Saitou Kousuke (Associate Professor, Sophia University), Shirakawa Nobuyuki(Associate Professor, Niigata University), Takakura Shigeo (Professor, Meiji University
Law School), Yokozawa Makoto (Center for International Economic Collaboration),
Yoshioka-Kobayashi Tohru (Assistant Professor, Hitotsubashi University)

This is an English translation of the original Japanese-language NPI Commentary posted on the NPIJapanese website on March 31, 2022.
The views expressed in this work are solely those of the author and do not necessarily reflect the viewsof Nakasone Peace Institute.