Japan’s Economic Security Legislation: Its Major Impact on Business in Japan

Additional Authors: Kota Fujii

On May 11, 2022, the Japanese parliament enacted Japan’s first comprehensive economic security legislation to enhance the country’s national security and guard key technology as well as secure critical supply chains.

This new legislation will take effect over a period of six months to two years and will broadly impact business operations for both Japanese and foreign corporations.

The new legislation addresses the following four areas of economic security:

• Ensure Supply Chain Reliability

To ensure supply chain reliability, goods that are vital to Japanese businesses and the public will be designated as “Specified Critical Materials.” Semiconductors, medical supplies, rare earth and high-capacity batteries are likely to be designated. The government will financially support companies supplying such goods on the condition that the companies comply with the requirements under the legislation, including reporting requirements with respect to their suppliers.

• Strengthen Key Infrastructure

Designated companies in 14 infrastructure sectors will be required to submit installation plans to the government. The 14 sectors are gas, petroleum, electric utility, waterworks, railway, trucking, airlines, airports, freight, telecommunications, broadcasting, postal service, credit cards and certain other financial transactions. If the government finds that such infrastructure will be impacted by international conflict, the government may recommend that these facilities be inspected and other action taken. If a designated company does not accept such recommendations without a valid reason, the government can order the company to cease using these facilities. Failure to comply with this order could result in imprisonment and/or a fine of not more than one million yen.

• Facilitate Public-private Development of Cutting-edge Technology

The Japanese government will set up a fund to support companies and institutions conducting research and development of Specified Critical Technology. Specified Critical Technology is defined as technology that meets both of the following requirements: (i) advanced technology that may become critical in the future for the safety of the Japanese public and economic activity and (ii) technology that could threaten Japan security if misused by third countries.

• Ensure Nondisclosure of Sensitive Technology Patents

Patent applications with respect to certain designated technology, which may threaten the safety of Japan and the public, may be subject to government order. Under this order, the patent applications will be subject to restrictions, including the requirement that patent information be kept confidential. Failure to keep the patent information confidential could result in imprisonment and/or a fine of not more than one million yen.