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Before 2024, the European Union (EU) will present "initial ideas" for a new "Economic Security Strategy". This is what the President of the European Commission, Ursula von der Leyen, announced in a major China policy speech last March. Given the idea of "economic security" goes against the free-trade DNA of the EU, it is striking how fast and sudden it has chosen to  assimilate the notion. It is a necessary adjustment to a deteriorating international environment and to China’s ongoing transformation into a techno-security state. Yet, the adoption of an economic security strategy will face challenges and resistance across the EU, as many will question the risk of excessive securitization of economic activity.

 

Japan was the first advocate of an economic security agenda. In May 2022, the Japanese Parliament adopted the "Act on the promotion of national security through integrated economic measures", quickly incorporated the notion into its 2022 National Security Strategy and created a new Ministerial position to oversee implementation. In practice, Japan is strengthening its controls over technology transfers and acting to reduce supply chain disruption risks to better protect Japanese critical infrastructure from hostile foreign action. Japan is also reconnecting with its long history of strong sector-specific industrial policies to revive its declining semiconductor sector. Finally, the country is leading an international effort among industrialized democracies to adopt economic security measures. This agenda will be central to the May 2023 G7 summit in Hiroshima.

 

Against this background, this paper sets out what an EU-Japan economic security cooperation agenda could look like.

 

Although there is still no consensus in Europe on the definition of economic security, many of the EU’s new policy instruments fall into an "economic security"-like category. The EU is strengthening its controls over technology transfers. It is working on a Critical Raw Materials Act to improve the security of Europe’s supply chains. It is introducing changes to anti-subsidy rules and public market access to counter China’s exploitation of the systemic differences between its state-capitalist model and the EU’s open economy. An anti-coercion instrument is also in the final stages of negotiations with the aim of deterring coercive threats against European states and companies.

 

There are several differences between the European and Japanese approach to economic security, which should inform the EU’s planning of its future economic security strategy. There are important perception differences on how far the national security logic should expand into the economic domain. But there is also a lot of convergence between both approaches, for example over supply chain security, anti-coercion and controls over technology transfers.

 

These three areas are not properly addressed in the otherwise well-structured set of EU-Japan agreements and communication channels. This paper makes constructive recommendations on which existing diplomatic formats can be better used to improve EU-Japan cooperation in those areas.

 

One area where the EU and Japan differ in their approach is over industrial policy, which Japan currently embraces without reservation, unlike the EU. The EU’s Chips Act, now adopted,  provides a template for relaxing the EU’s stringent competition rules that, until recently, prohibited state aid use for industrial manufacturing – but only for the semiconductor sector. The EU continues to worry about measures that could be seen as ‘anti-market’, or contravening the openness of its single market. Reaching a compromise between Japan’s straightforward industrial policy and Europe’s remaining worries will be challenging. Yet, the Japanese example should prompt Europe to rethink its reluctance towards industrial policy tools.

 

Overall, economic security is an important notion that provides strategic coherence and clarity to the set of defensive, pro-innovation and (so far timid) pro-industry steps that the EU has been taking. It could also provide a convincing selling point to gain wider support across the EU for bolder public policies, including in the area of trade, in a way to guarantee European prosperity and resilience

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Policy paper ( 48 pages)
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