Japan Enacts Economic Security Law
The Japanese parliament has enacted the first comprehensive economic security legislation to enhance Japan's national security from an economic activities perspective, especially focusing on sensitive industry sectors such as rare earth, semiconductor, and infrastructure, as well as research and development ("R&D") of defense and dual-use technologies.
On May 11, 2022, the Japanese parliament enacted the groundbreaking "Act on Promotion of Economic Security by Integrated Implementation of Economic Measures." The framework of the legislation has been discussed since late 2021 and finally settled into the following four domains of economic security:
- Resilient supply chain for strategic resources. The government will designate certain strategic resources that are fundamental to the national economy but heavily dependent on overseas sources, such as rare earth, semiconductors, batteries, and pharmaceutical drugs, and it will draw up the basic policy and individual plans for resilient supply of designated resources. Suppliers of designated resources may apply for government certification and financial aid for stable supply. As for the most critical materials, the government will further stockpile strategic reserves.
- Security of fundamental infrastructure. The government will designate critical operators of the following infrastructure services: power supply, gas supply, oil and gas refinery and import, water supply, railroad transport, road transport, maritime transport, air transport, operation of airports, telecommunication and broadcasting, mail services, financing, and payment card services. The designated operators will be required to make prior filings when introducing or commissioning maintenance of important facilities affecting the security of infrastructure, and the government may issue an order (preceded by recommendation) to take security measures to prevent disturbance to such facilities from outside of Japan (including cancellation of contemplated activities).
- R&D aid for advanced technologies. The government will initiate public-private partnerships and funding for R&D of advanced technologies that are strategically important in terms of national security (such as aerospace, maritime, quantum mechanics, and artificial intelligence technologies).
- Nondisclosure of sensitive patents. Patent applications for inventions regarding certain designated technologies (designation will be made to limited nuclear technologies and high-tech weapons, but not to dual-use technologies) will be subject to the national security test and may be subject to nondisclosure measures, including restrictions on licensing and overseas applications. Such patent applications for inventions developed in Japan must be first filed in Japan, unless governmental clearance is given.
The law will come into effect in several phases beginning in 2023, and it is expected to have a substantial impact on a broad range of industry sectors. Designation of regulated areas and detailed requirements will be prepared by coming ordinances of relevant supervising authorities. We will continue to monitor regulatory developments and provide timely advice to clients on steps to be taken.