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Two big developments last week highlighted both the difficulties and the opportunities for Australian defence industry to make headway (as Australia sees it) in the so-called Asian century. The first development relates to a lost opportunity with a South Korean firm, the other to a potentially huge opportunity with Japan. To give these stories a bit of context, it’s worth highlighting how the Asian Century White Paper ^[2] described prospects for cooperation with our current second and sixth biggest trading partners ^[3]:

The more advanced economies in the region—particularly Japan and South Korea—will remain important drivers of economic activity, especially as suppliers of critical, high‑value elements of the region’s production networks and as consumers of final goods.

Imagine the disappointment the report’s authors would have felt last week to learn that a major South Korean firm, the Poongsan Corporation, had pulled out of an arrangement with Raytheon Australia and Chemring Australia ^[4] to tender for our domestic munitions manufacturing. The managing Director of Poongsan was quoted in the Australian Financial Review ^[5] (paywalled) expressing concerned about the ‘acquisition system in Australia’ and that ‘the sovereign risk … the Australian program represents to Korean companies has become too large to ignore’.

We might never know if the business case for Poongsan’s involvement in domestic munitions manufacture would have been attractive, but the possibility of linking Australia’s production needs into a global supply chain would potentially have offered a more promising future to a domestic business that looks barely viable at the moment.

It’s a major problem when a big company from a trading partner as important as South Korea chooses not to compete for business in Australia on the basis of ‘sovereign risk’—a term indicating serious lack of confidence in our policy settings. Let’s not forget the last-minute decision by the Australian government in May 2012 not to proceed with a $220 million acquisition of self-propelled howitzers from South Korea’s Samsung Techwin ^[6]. Samsung was reported ^[7] as saying the Australian government was ‘disingenuous and dishonourable’ in its dealings with the firm.

These developments provide some sober context for the aspirations ^[8] of the National Security Statement to ‘enhance our dialogues with Japan and South Korea on areas of common security interest’.

A more encouraging piece of news came from Japan, where serious consideration is reportedly being given in the Japanese Ministry of Defence ^[9] to share submarine technology with Australia. There’s great potential in this possibility. Both countries have significant plans for submarine acquisition, both will remain focussed on conventional diesel-electric power for propulsion and both are close allies of the United States. Late in 2011, Japan relaxed its export controls on military technology, and in April 2012 agreed to increase defence industry cooperation with that (re)emerging player in Asian security, the United Kingdom ^[10].

Close cooperation between Australia and Japan on submarine technology has the potential to save money and indeed in Australia’s case save SEA1000 from the ignominy of being unaffordable and unachievable. But we shouldn’t expect that the Japanese will open access to such cooperation without them making a few judgements of their own about sovereign risk. As this Asahi Shimbun article ^[9] makes clear, there’s a still hurdle Australia must clear:

… an issue that still has to be addressed is the nature of technology being provided only one-way instead of mutual sharing.

In other words, the Japanese want to know what’s in it for them—just as we would if they were eyeing a piece of our technology. So an urgent task for Australia should be to demonstrate to Japan that the benefits of collaboration will run both ways. There are some real possibilities here: the Defence Capability Plan (Public Version) ^[11] (PDF) of 2012 lists a number of ‘priority industry capabilities’ which are highly relevant to future submarine capability development. These include acoustic technologies and systems, electronic warfare, high end system and ‘system of systems’ integration, signature management and the in-service support of the Collins Class submarine. There’ll always be some areas of technology that both countries will want to keep to themselves, but in other respects the aim should be to collaborate—not least as a way to support the survival of these industries in Australia.

Here then is an early opportunity for Australia’s new Minister for Defence Materiel, Dr Mike Kelly ^[12]: an early visit to Japan to further the dialogue on technology cooperation, as foreshadowed by Stephen Smith last September. That visit needs a heavy emphasis on what our defence industry base can do for Japan. And while he’s in that part of the world, Dr Kelly could also drop into Seoul to undertake a badly-needed repair job about prospects for defence industry cooperation.

Peter Jennings is executive director of the Australian Strategic Policy Institute. Image courtesy of Flickr user pasukaru76 ^[13].