Saturday, October 3, 2009

Japan Weighs Procurement Reform To Fight Corruption

Defense News


Japan Weighs Procurement Reform To Fight Corruption


TAIPEI — After months of scandal, Japan’s Ministry of Defense (MoD) has recommend­ed reforms for its procurement process, part of an effort to restore public confidence and restart several stalled acquisition efforts.

“Since late 2007, the Defense Ministry has experienced major setbacks, first in the cov­er-up of the false reporting about U.S. use of Japan-supplied fuel in Operation Enduring Freedom, then the procurement scandal, and finally the Aegis ship’s collision with a tuna boat,” said Yoichiro Sato of the Asia-Pacific Center for Security Studies, Honolulu.

On March 31, the MoD issued a report pre­pared by the “comprehensive procurement project” panel, which calls for more direct procurement between the MoD and its for­eign and domestic suppliers, shrinking the role of “shosha” trading companies. Cutting out the middleman could save 15 percent in procurement costs, the report says. It also suggests tripling the financial penalty for vio­lations by trading companies, among other recommendations, an MoD spokesman said.

Created in October and led by parliamen­tary secretary Minoru Terada, vice minister of defense, the panel is made up of senior mili­tary officials from all three services.

The scandals begun with accusations that Yamada, a Tokyo-based trading company deal­ing with arms, was involved in document for­gery, fraud, bribery, overbilling and bid-rigging. Former Yamada executive Motonobu Miyaza­ki and former Vice Defense Minister Takemasa Moriya were indicted for bribery. The investi­gation has evolved into a meticulous docu­ment search into every arms deal over the past two years, involving 69 companies.

Bid-rigging has been common in Japan’s government contracts, from construction and equipment supplies to defense procurements, Sato said.

Some said the panel’s recommendations don’t go far enough.

“If we are to drastically restructure the pro­curement system of MoD and build up an ide­al system, we must rule out the big influence that a particular group has upon the current procurement system,” said Naoki Akiyama, director of the Tokyo-based Congressional National Security Research Group. “This is re­ferring to a group of former SDF [Self-Defense Force] members, which backs up the current system and exerts great influence. The cur­ rent decisions are made as if in choosing a toy, and unfortunately, this group is support­ing such decisions. A former SDF member po­sitions at the top of this group, and we must be aware of such situations in order to con­sider these issues seriously.”

Akiyama may be in a better position than most to comment. In January, he was sum­moned to face questions by the parliament’s Upper House Foreign Affairs and Defense Committee about his own connection with Ya­mada. He allegedly received about $1 million from Yamada for subcontracting work while he was executive director of the Japan-U.S. Center for Peace and Cultural Exchange, a Tokyo-based organization advancing cultur­al relations between the countries.

Akiyama’s assistant denies the allegations. “The media reported facts without evi­dence, and it was a great pity that such poor coverage was made,” Ayaka Takahashi said. “It is a fact that he has introduced consultants and former officials to companies, but in most cases, the companies asked for such intro­duction, and he introduced various people to various companies, depending on the scale. There were cases in which the company’s side was delighted to have been able to keep the contracting price down. There are politicians and groups that their names should have ap­peared on this case, and Mr. Akiyama thinks that the true problem lies there.”

Akiyama argues Japan’s defense establish­ment, with all the quirks of a pacifist Consti­tution, severely restricts the way the military conducts itself.

“Under such conditions, when it came to setting up a defense organization of its own, their wish was to build a shielded system which could not be interfered from the out­side,” he said. “And so, the procurement process was built up where they could make decisions under their sole discretion.” Constitutional restrictions include a ban on exporting weapons to a third country, which critics claim discourages the development of indigenous defense industry. Japanese com­panies produce a wide variety of military equipment, none of which can be exported, including advanced naval vessels, tanks and artillery, fighters, patrol and cargo aircraft, and missiles. Exports are banned under the “Three Principles on Arms Exports” policy, which industry leaders have been trying to overturn.

Unlike Western countries, argues Akiyama, where defense firms spend their own money to develop new technologies to compete in multibillion-dollar arms competitions, “the Japanese government is in charge of such de­velopments, and the companies hardly bear risk. The principle of competition is scarcely found in the bidding system, and combined with the aforesaid situation where the MoD could make decisions on their own, small companies such as Yamada were able to boost profits.”

Akiyama believes one reason the MoD used trading companies in the procurement system is “due to the one-year budgeting system.” Akiyama supports the creation of a new MoD procurement department to handle fu­ture arms sales in the future, but argues that in the past the “reimbursement system was of great use, and so the function of trading com­panies became important.”