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International relations

Tokyo to cover Pentagon costs for faster arms deliveries

Funding will allow US to hire additional staff in hopes of streamlining process

A Lockheed Martin F-35A prepares for takeoff. Purchases of the stealth fighter are swelling Japan's defense spending.   © Reuters

TOKYO -- Japan has agreed to shoulder some American administrative costs for defense equipment orders in return for quicker deliveries and more transparency over prices as U.S. President Donald Trump pressures Tokyo to buy more arms.

The U.S. Defense Security Cooperation Agency, the Pentagon branch responsible for the country's Foreign Military Sales program, had previously declined Japanese requests for detailed price breakdowns and shorter delivery times, citing staff shortages.

By the end of June, both sides had reached a compromise wherein Japan would pay for extra workers the agency had to hire, among other administrative costs. Japan's government is also looking to lower procurement costs by signing a long-term contract with Washington.

Some of Japan's orders have taken several years to fill, with some delays lasting years. In negotiations, American officials have reportedly said they would work to halve delivery times.

How and how much Japan will pay remains to be settled. Tokyo assumes the cost for hiring several additional workers will run to several hundred thousand dollars. The U.S. already charges 3.2% of defense contract prices for administrative and other costs.

Other American allies such as Germany and South Korea likewise pay extra to cover Washington's administrative expenses, said a Japanese Defense Ministry official.

The Trump administration has been leaning on Japan buy more American arms as a way to slash the roughly $70 billion U.S. trade deficit with Japan.

U.S. Defense Secretary James Mattis, left, meets Japanese counterpart Itsunori Onodera in June.   © Kyodo

The value of Japan's FMS contracts with the U.S. reached 410.2 billion yen ($3.71 billion) in the fiscal 2018 budget, up from 63.7 billion yen a decade earlier, and the figure looks set to keep growing. Tokyo intends to purchase the Aegis Ashore missile defense system, which costs about 100 billion yen per installation, as well as continue buying advanced F-35A stealth fighters at more than 10 billion yen each.

The U.S. is hoping to ease discontent on the Japanese side by showing willingness to improve the process. In April, Trump announced an initiative to speed up defense equipment sales to allies. That same month, Secretary of Defense James Mattis told visiting Japanese counterpart Itsunori Onodera that the U.S. would work to ensure transparency in the FMS system. Both sides have engaged in multiple working-level talks on the matter. On June 29, following another meeting with Onodera in Tokyo, Mattis told reporters he was "encouraged by our joint efforts to improve" the FMS process.

Besides quicker deliveries and clarity on prices, Japan -- which generally pays up front for U.S. defense equipment -- also wants to be reimbursed for advances that ended up exceeding the actual price. At the end of fiscal 2016, the value of such unresolved overpayments stood at 107.2 billion yen, of which 62.3 billion yen had gone unresolved for two years or more.

The U.S. sometimes refuses to quote prices for orders, and Japan has been seen prices increased after the contract was signed -- another issue it has asked Washington to address.

Tokyo is also considering entering into a six- to 10-year contract to secure lower prices. Japanese law limits national contracts incurring payments to five years, but the idea has been floated of using a special exception carved out in 2015 for long-term defense equipment deals.

After years of the U.S. responding slowly to Japan's requests for improvement, the Trump administration's raising of FMS as a political issue has encouraged some in Japan's Defense Ministry. Some remain skeptical that it will lead to a major overhaul, however, as the U.S. side controls the system.

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