A Deal That Nearly Came Undone

By Christine Gorman

When it finally flies, Japan's FSX fighter jet (top speed: 1,300 m.p.h.) will represent technology at its peak. But the aircraft may represent an even loftier accomplishment in diplomacy, since it has become a centerpiece in the friendly but fierce economic rivalry between the U.S. and Japan. For more than four years, the two governments have been negotiating a joint effort to develop a new generation of fighter jet that would patrol the island nation's shipping lanes and support its defense forces in the 1990s. When a tentative deal was first reached last November, the project drew heavy fire from officials within the Commerce Department, who contended that the U.S. would reveal so much advanced aviation technology to Japanese defense contractors that they could develop a civilian aircraft industry that would compete with such U.S. producers as Boeing and McDonnell Douglas.

This month the FSX's proponents at the State and Defense departments, who see the deal as an economic and strategic boon for the U.S., argued heatedly with critics who wanted to scrap the plan. Finally last week, President Bush called an unusual National Security Council meeting to thrash out the issues. In the end, he decided on a compromise: to go through with the deal but to apply safeguards that will prevent Japanese contractors from getting access to the most important technology. According to presidential spokesman Marlin Fitzwater, Bush has yet to decide on "at least three or four basic issues regarding the agreement," which he is expected to announce this week.

Japan originally wanted to build its own fighter from scratch but eventually agreed to a deal in which the U.S. would share more of the F-16 fighter jet's aviation and military secrets than it had before with any of its allies. In return, the U.S. would acquire some Japanese developments in radar-absorbing, or Stealth, materials that would be used in the plane's wings and fuselage. General Dynamics, which first developed the F-16 in 1972, would design and build 35% to 40% of the FSX prototype. Later, U.S. contractors would expect a 30% share in the production of 130 to 170 airplanes. The project would also ensure that the Japanese and U.S. air forces remained fully compatible for the next two decades.

Tempers flared during last week's NSC meeting, which lasted more than two hours. U.S. Trade Representative Carla Hills argued vehemently that Bush should scrap the agreement in favor of persuading the Japanese to buy standard F-16s, minus the instructions for putting their most sensitive components together. On the other side, National Security Adviser Brent Scowcroft and Secretary of State James Baker contended that the agreement should proceed unchanged. But the lack of a Defense Secretary to argue the Pentagon's side handicapped the pro-FSX forces. Covering the middle ground, Commerce Secretary Robert Mosbacher thought he could abide the deal as long as the most crucial U.S. design secrets were not given away.

Mosbacher's view prevailed. He scored an even greater victory by persuading the President to promise that henceforth the Commerce Department will be included at the start of any new negotiations involving the exchange of military or technology secrets.

In deciding this week just how to modify the FSX agreement, the President must walk a fine line between foreign-policy and economic considerations. If the deal preserves too many secrets, the Japanese Defense Agency is likely to scrap it and build an advanced fighter without the U.S. "If Japan needed outside help, it could turn to the Europeans," says Joel Johnson, vice president of the American League for Exports and Security Assistance. Currently, the U.S. provides more than 95% of Japanese defense imports. Says Johnson: "Not only do we risk losing an important share of the FSX program, but we would also be assisting our toughest competitors to penetrate one of our major defense markets."

Some of Japan's own staunch protectors of their country's technology might secretly welcome the demise of a joint FSX program. Japan agreed to co-develop the plane only after very hard bargaining by the Pentagon. "It's a fallacy to suggest that we ever seriously considered buying the F-16 off the shelf," says Ryoji Onodera, director general for international affairs in Japan's Defense Agency. "From the beginning we said that it had to be something new."

A primary issue is how much of the F-16's computer software will be shared. Bush has not yet decided whether to include the so-called source codes of the plane's mission computer, which integrates radar, navigation and weapons systems. If the Japanese fail to receive these codes, they may not share their new radar technology. Lacking the codes, Japanese engineers would have trouble coordinating the plane's hardware and software. The likely result: a less flashy and efficient plane.

In terms of civilian aerospace competition, even outspoken critics of the jet deal admit that the FSX's secrets alone are not enough to make Japan competitive in commercial aircraft, a market it has yet to enter. But, on principle, should the U.S. give away its advantages? "The real question," observes Clyde Prestowitz, a former Commerce Department negotiator, "is whether we actively help Japan cut into our lead in aircraft and component design." The battle over the FSX proves that trade issues have become just as important as national security or foreign relations in determining U.S. policy.

With reporting by Jerome Cramer/Washington and Barry Hillenbrand/Tokyo