The United States has agreed to waive restrictions on Japanese components used in military equipment, making it easier for Japanese firms to supply U.S. arms contractors and tap the world’s most lucrative military market.
U.S. Defence Secretary Ash Carter and Japanese Minister of Defence Gen Nakatani signed the Reciprocal Defence Procurement Memorandum of Understanding during a meeting Saturday on the sidelines of the Shangri-La Dialogue (SLD) gathering in Singapore.
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Japanese Prime Minister Shinzo Abe in 2014 lifted a decades-old ban on arms exports. While Japanese off-the-shelf components have been used in defense equipment for years, the removal of the arms export ban meant companies could for the first time supply parts designed specifically for military projects.
It has also opened the way for U.S. defense contractors such as Lockheed Martin (LMT) and Raytheon (RTN) to directly tap Japanese technology companies as suppliers.
When procuring military equipment, the United States typically restricts the use of materials from overseas, such as titanium and other metals, imposes a “Buy American” policy and adds tariffs and other duties on foreign parts.
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The new agreement applies a blanket waiver to those restrictions, easing access to the U.S. defense market. With an annual budget of close to $600 billion, the United States accounts for about a third of global military outlays, outspending its nearest rival China by as much as four times.
The United States has inked reciprocal defense procurement pacts with 23 other countries, mostly European North Atlantic Treaty Organization partners. Its Japanese ally is the first Asian country to join that list.