Economic Security Study GroupFY2022 Report

March 2023

Economy Security Study Group1. Introduction
Amid growing interest in economic security against the backdrop of high-tech friction
between the U.S. and China, the Economic Security Promotion Act was enacted on May
11, 2022. The four pillars of the Act are (1) Resilience of supply chains for key products,(2) Cyber security of essential infrastructure, (3) Support for development of cutting-edge
critical technologies, and (4) Non-disclosure of selected patents. The Act has been in force
since August 2022. The concept of security is characterized by the extension of themilitary-based concept of “countering threat to the security of the nation and people’s
lives” to economic issues such as the security of key commodities (supply chains) andessential infrastructure.
In addition, with the advancement of science and general-purpose technologies suchas AI and biotechnology, advanced technologies and their utilization (innovation) havebecome an important perspective when considering issues of economic security.
Therefore, support for their development is stated as one of the pillars of the Act.
“Designated critical technologies” in the law are defined as “advanced technologies that,
if leaked improperly or are dependent on external parties, could risk impairing the securityof the nation and its people.” For the proper treatment of technology outcomes,
international transfers of advanced technologies may be subject to restrictive measures in
addition to current trade control regulations.
In addition, as the distance between science and technology is shrinking, regulations
now cover not only the results of private-sector R&D but also research activities atuniversities and other public research institutes. Scientific research is advanced by freeinternational research exchange, and it is especially significant to have access to theglobal research frontier for cutting-edge science and technology. In other words,
excessive regulation will hinder the development of a country’s scientific andtechnological capabilities, so it is important to strike a balance between “offense” tostrengthen a country’s competitiveness and “defense” to ensure that economic security is
not threatened by technological outflows.
In this study group, members from a variety of disciplines discussed how to “attack”
and “defend” this advanced science and technology from the viewpoint of economic
security and have examined institutional design and diplomacy. In this section, based on
the results of the study from various perspectives by the various study group members,
we provide the overall discussion in which the basic ideas are described, followed by asummary of the opinions expressed in the study group as recommendations foruniversities, businesses, and the government, respectively, as individual discussions.
Finally, the report concludes by discussing future measures including foreign policy.

12. General remarks
The development of science and technology is based on open international collaboration,and restrictions on international activities from the standpoint of economic security
generally hinder such development. Therefore, the restrictions should be limited, but it is
impossible to identify the target areas in advance, including future development,
regarding the details of the wide variety of science and technology areas. In addition,international activities may involve collaboration in various management resources suchas human resources, funds, intellectual property, etc., and. in addition to companies,
universities and other public research institutes may be subject to restrictions.
The content of research at public research institutes such as companies anduniversities is specialized and diverse and changes dynamically on a daily basis. It is
impossible for the government to establish detailed regulations and implement them in a
way that allows companies and universities to conduct their activities in accordance withthe regulations. Therefore, in the operation of individual specific systems, it is necessary
for companies and universities, and others to make voluntary efforts toward economic
security. In addition, it is necessary for the government to consider support measures,
including the provision of non-binding guidelines and advice and financial incentives, forefforts by universities and companies to address economic security issues.
What specific areas should be considered as “designated critical technologies”(technology that, if improperly leaked or relied upon outside the country, could cause
damage to the security of the nation and its people)”? What to protect and what to attack
depends on the relative competitiveness and industrial competitiveness of Japan in eachtechnological field. For this purpose, it is necessary to analyze the relationship between
science and technology and Japan’s relative competitiveness in each layer.
While Japan has strong scientific and technological capabilities in some fields, suchas materials engineering, it lags far behind the U.S. and China in other fields, such as
computer science. Since software-related technologies such as AI are mainly embodied
in human resources, it may be necessary to actively involve Chinese human resources inorder for Japan to catch up in AI technology.
Furthermore, for important technologies such as space technology, it is essential toset up control targets and control levels according to the characteristics of the technology,
such as the case in which the technology is generally operated with a high degree ofcertainty, and the main focus is on preventing the leakage of confidentiality of individual
items, rather than the leakage of technology.
Although more detailed studies are needed in individual academic andtechnological fields to implement this concept into the system, it is considered that there
should be basically no restrictions on international or research exchange for scientific2research that does not have a specific intended use. However, even at public research
institutes such as universities, applied research close to the stage of practical application
may be conducted, and it is necessary to consider sensitive technologies such as thosewith a high possibility of being converted to military use as subjects to be protected. In
other words, it is necessary to analyze the position of the technology to be considered in
the process from scientific discovery to its realization as an innovation, and to take into
account the uncertainty of the process up to its realization.
3. Theories
3-1. Issues related to research activities at universities
As mentioned above, in order to improve Japan’s competitiveness relative to othercountries in terms of scientific and technological capabilities, there must be a balance
between international collaboration and cooperation for access to international cuttingedge technologies, on the one hand, and prevention of the outflow of Japan’s own
advanced technologies outside the country, on the other. In particular, since the current
economic and security policy is premised on the Japan-U.S. alliance and U.S.-China
friction, measures are being considered with China in mind. However, China’s scienceand technology, including computer science, has made remarkable progress, andChinese researchers have become indispensable to Japan’s science and technology
activities.
Therefore, it is unrealistic to expect foreign researchers, including Chinese nationals,
to be barred from universities and other research institutes, and systematic measures are
required at each institution. In addition, the current situation is that individual researchers
are left to make substantive decisions regarding the recognition of “deemed export” under
the current trade control regulations. It would be appropriate to establish a specializedorganization to receive information from the government, including think tanks to beestablished in accordance with the law, and to perform a check and balance function withthe research members within the organization.
At present, universities and public research institutes are still taking organizational
measures to comply with the current trade control regulations. However, it can be said
that they are still in a state of limbo as on-site responses amid the ongoing considerationof a new system. Universities and other research institutes should be actively involved in
the government’s consideration of the system in order to develop highly feasible
initiatives. It is also important to promote the best practices of institutes that have madeprogress in this area to other organizations.
Furthermore, while the ethical code of conduct for academic research is based on“research integrity” (fairness in research), the issue of economic security requires a3

response that also takes into account the security aspect, such as responding tounauthorized access to research information. Therefore, it is necessary to clarify the codeof conduct for dealing with economic security issues at each institute with reference to“research security,” a concept that is being increasingly adopted in the United States.
Furthermore, it is important not only to manage foreign researchers in Japan but also
to consider subsidies for international research activities, etc., based on the recognition
that Japanese researchers should actively expand overseas and help build international
networks, which will enhance Japan’s scientific research capabilities and indirectly help
ensure economic security. It is important to consider subsidies for international research
activities.
3-2. Response from businessIn the industrial world, there is a growing concern that various regulations related toeconomic security will impede free economic activity. It is inevitable that the governmentand business are at odds to some extent regarding regulations. However, as mentioned
above, economic security covers a wide range of issues, and the situation changes
dynamically on a daily basis, so it is not possible to achieve zero risk through government
regulation. It is important for companies to recognize that economic security risks are an
important factor among more general business risks and to take voluntary actions.
Industry needs to not only lobby the government for deregulation, but also take aproactive stance in designing a system that reflects the actual situation of the industry bypresenting its own voluntary measures.
Japanese companies are generally said to lag behind their Western counterparts inrisk management. As the global economic environment changes drastically, theintelligence function regarding domestic and international regulations and market trends
is becoming increasingly important. In particular, large companies engaged in global
business need to establish specialized risk management departments to systematicallyanalyze and manage risks, including economic security issues. In addition, in order toensure economic security, it is also important for small and medium-sized enterprises(SMEs) that handle high-tech technologies to take measures. It is necessary to provide
guidelines that clarify whether or not measures beyond the current trade control
regulations are necessary and to provide necessary support for SMEs with limited
management resources to take such measures.
3-3. Government response
What is important for the government to do is first to determine the details of various
systems and measures based on the Economic Security Promotion Act and then to steadily4implement them. In doing so, as mentioned in the General Remarks section, it is important
to maintain a highly effective balance between “offense” and “defense” with regard toadvanced science and technology through dialogue with universities and other research
institutes, private companies, and other research and development sites.
The “think tank function,” referred to in Cabinet Office documents, plays animportant role in this regard. Although trends and analysis of science and technology are
conducted at various public research institutes and private think tanks, it is necessary toorganically link various domestic resources to improve and strengthen cross-disciplinary
technical intelligence.
Furthermore, it is necessary to evaluate the potential of advanced science andtechnology that will be realized as practical technology in the distant future, and it isnecessary to incorporate an element of future forecasting. In doing so, it is effective topromote not only conventional technology forecasting, which extrapolates thechronological development of technology by vertical segmentation by field, but also
future insight (the formation of collective knowledge and strategic planning with theparticipation of stakeholders such as the government and private companies who areresponsible for medium- to long-term policies and corporate strategies).
In the short term, it is considered realistic to provide practical training to current
administrative officials to provide them with the perspective to enhance their foresight insuch work. In the long term, however, we believe that specialized human resources areneeded that transcend the layers of organizational structure, such as international law, thelegal system at the national level, the administrative structure, and the underlying
organizational level, such as corporations and universities. To this end, it would beappropriate to encourage the creation of networks of experts and personnel exchanges
among organizations that transcend the organizational structures of government,
universities, and corporations.
Regarding the non-disclosure system of patent applications based on the law, it isnecessary to pay attention to coordination with operations in major developed countries
regarding the criteria for selecting the targets of preservation of such a system, from theperspective of not discouraging Japanese companies from filing foreign applications. In
addition, as a matter for future consideration, it is necessary to clarify the definition of“Japanese domestic invention” as a requirement for the prohibition of foreign applications.
Furthermore, as mentioned above, it would be appropriate for the department specializing
in economic security issues in a company to conduct an analysis of the foreseeability ofthe subject matter of the non-public system in the relevant system.
4. Foreign policy
5Recent policy developments related to economic security have been greatly influenced
by China’s rise as a scientific and technological superpower and the U.S. response to thisrise. Security issues are inextricably linked to developments in other countries
surrounding Japan, and it has become increasingly important for Japan to engage in
diplomacy with the U.S., China, European countries, and other foreign institutions.
Although it is considered effective to utilize multiple fora such as the World Trade
Organization (WTO) for reaching out to other countries’ institutions, regional agreements
such as Free Trade Agreements (FTAs) and Economic Partnership Agreements (EPAs)
that complement the WTO are becoming increasingly important amid the global divisionof interests against the backdrop of the U.S.-China confrontation. There is also amovement toward expanding friendships to counter hegemonic powers through issueoriented dialogue mechanisms rather than treaty-based ones, such as the U.S.-EU Tradeand Technology Council (TTC).
In this sense, Japan has made “a Free and Open Asia Pacific” an important foreign
policy, and the Indo-Pacific Economic Framework (IPEF) is an important initiative torealize this policy. The IPEF has many areas of overlap with the TTC, and it also aims at
flexible policy coordination among countries, rather than hard treaty conclusion.
However, it is difficult to find common merits in the IPEF, since the participating
countries are at different stages of economic development and have diverse politicalsystems, such as India and ASEAN countries, in addition to Japan and the United States.
A possible approach would be to include content that is beneficial to each country andagree on the contents as a package. However, the current participation is on an issue-byissue basis (for example, India does not participate in “trade”), and even if an agreement
is reached, there is the issue of whether the loose policy coordination will ensure that theagreed contents will be implemented. Therefore, Japan needs to exercise leadership in
identifying and reconciling the awareness of the major countries of the issues and innegotiating policies.
The relationship with Europe is also important in the context of the U.S.-China
relationship, as seen in the TTC, where Europe and the U.S. are closely linked politicallyand economically. However, Europe is also at odds with the U.S., as seen in the area of
personal data protection in the General Data Protection Regulation (GDPR). Japan has
launched the Data Free Flow with Trust (DFFT) concept for the international movementof personal data, and international negotiations are underway, including those with the
U.S. and Europe, based on the concept of trust. European countries are developing
diplomacy with other countries based on common values that go beyond economic issues
such as human rights and the environment. Japan has the background to accept thesevalues and is capable of presenting its unique inclusive values such as trust.
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In any case, as the importance of issues related to advanced technology in diplomacy
grows, it is necessary to enhance the monitoring function of the policies of foreigncountries, etc., and to improve the structure and coordination of the Ministry of Foreign
Affairs of Japan and other relevant ministries and agencies in order to strengthen scienceand technology diplomacy.

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