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By Tim Kelly and Nobuhiro Kubo
TOKYO, Sept 1 Japan and Australia are leaning
towards a multibillion-dollar sale by Tokyo of a fleet of
stealth submarines to Canberra's military in a move that could
rile an increasingly assertive China, people familiar with the
An agreement is still some months away, three people said,
but the unprecedented sale of off-the-shelf vessels based on the
Japanese Maritime Self-Defence Force's Soryu class sub is
emerging as the likeliest option.
Such a deal would signal a major expansion of Prime Minister
Shinzo Abe's controversial drive for a more active military
after decades of pacifism. Rival China regularly accuses Abe of
reviving Japan's wartime militarism.
Australia is eager to get the quiet-running diesel-engine
subs from Japan, despite the political backlash that would
follow from abandoning a government pledge to build the vessels
at home, said a person with knowledge of Canberra's thinking.
"It is the best option out there," said the source.
Abe and his Australian counterpart Tony Abbott agreed in
July to "enhance our security and defence cooperation",
including the transfer of military equipment and technology.
Discussions have since moved rapidly from engine-technology
transfer to a full build in Japan, with the goal of replacing by
the 2030s Australia's six outdated Collins-class boats with 12
scaled-down versions of the 4,000-ton Soryu, the world's biggest
"Discussions between Japan and Australia are gathering
pace," one source said.
For Abe a deal, which could come as soon as January, would
send a strong signal that Japan will be less constrained by its
pacifist Constitution. He has already this year loosened curbs
on arms exports, ended a ban on defending friendly nations and
reversed a decade of military-spending cuts.
Selling a fleet of subs would mark the first time since at
least the end of World War Two that Japan had sold a complete
weapons platform overseas.
Bulk orders for Japanese arms makers would help bring down
weapons-procurement costs for Tokyo, which has the biggest debt
burden in the industrial world.
For Canberra, the sale would avoid the costs and risks of
developing a homegrown champion from scratch, after the locally
made Collins-class subs were panned for being noisy and easily
A state-owned shipyard in the South Australian capital of
Adelaide would handle maintenance and overhaul, which can cost
as much as the purchase price over the life of the fleet.
Options under discussion run from working jointly to develop
the technology, to Australia importing the engines and building
the rest, to building the fleet in South Australia under licence
from Japan, to - most controversially - Canberra buying finished
subs designed and built by Mitsubishi Heavy Industries Ltd
and Kawasaki Heavy Industries Ltd, the sources
A visit last week by representatives of the two Japanese
companies to the Adelaide shipyards of government-owned ASC Pty
Ltd - formerly Australian Submarine Corp - sparked fierce media
speculation in Australia.
A spokeswoman for ASC referred all questions to Australia's
"No decisions have yet made on the design and build of the
next generation of Australian submarines," a spokeswoman for
Defence Minister David Johnston said. "It is entirely proper and
prudent for the government to consider these strategic decisions
through the Defence White Paper process."
Spokesmen for Mitsubishi Heavy and Kawasaki Heavy said they
were not in a position to comment on the government-led talks.
Japanese Defence Ministry spokesman Hirofumi Takeda declined
comment, saying only that "Japan and Australia are conducting
various exchanges of opinion, including on equipment and
technology transfer, as we move toward strengthening bilateral
Australia acknowledged in July for the first time it might
allow the subs to be built overseas.
Cost is an issue for Canberra. Defence Minister Johnston
told Reuters in June that he was "very disturbed" by the A$40
billion estimate for the homegrown option.
Twelve top-of-the-line Soryu subs at $500 million each, plus
maintenance and overhaul, would work out cheaper for Australia
as it grapples with austerity.
Abbott's government is to make a final decision on the type
and number of submarines it wants in a broad defence review
expected early next year. But already there is strong opposition
in Australia to building the subs overseas.
South Australia's defence and trade minister, Martin
Hamilton-Smith, said there was alarm within the state
administration that the federal government was about to do a
"backflip" and reverse its policy.
He warned that any decision to build the submarine overseas
would have a broader impact on the economy than the recent
decisions by Ford Motor Co, Toyota Motor Corp and
General Motors Co to cease manufacturing in Australia.
South Australia is home to 27,000 defence jobs, 3,000 of
them in shipbuilding, and Hamilton-Smith said the submarine
project would generate industry activity worth A$250 billion
over 30 years.
"I think a number of state governments, a large segment of
the defence industry and the shipbuilding and defence workforce
would be shattered, absolutely shattered and devastated by such
an announcement," he told Reuters.
The United States, which has strong military ties with both
Japan and Australia, would welcome the improvement to Canberra's
naval capabilities, which could help Washington monitor China's
underwater activity as its own fleet shrinks.
"The Japanese have got the (technological) lead right now,"
said Admiral Stuart Munsch, the chief U.S. undersea naval
officer in Asia.
Cooperation on subs "is a national decision for them to make
with each other, but we would certainly be welcoming of that
partnership," Munsch told reporters aboard a U.S. submarine
during a visit to the Yokosuka naval base near Tokyo last month.
(1 US dollar = 104.0500 Japanese yen)
(1 Australian dollar = 97.1411 Japanese yen)
(Additional reporting by Matt Siegel in Sydney; Editing by
William Mallard And Alex Richardson)