Japan tightens rules on cross-border technology leakage for semiconductors, robots, batteries, aviation

The Japanese government is tightening rules to stop the cross-border leakage of critical technologies such as semiconductors. By introducing new guidelines, Japan aims to prevent cutting-edge technology from being transferred abroad by government-subsidized companies and their employees.

In 2022, the Japanese Parliament passed the "Economic Security Promotion Act". This law defines twelve categories of critical goods whose production can be subsidized by the Japanese government. As the Nikkei Shimbun reports, the Ministry of Economy, Trade and Industry (METI) is now tightening the rules for granting such subsidies in five of these categories, namely semiconductors, advanced electronic components, batteries, work machines/industrial robots and aircraft components.

Under the new rules, subsidized companies will have to declare to METI their "core technologies" whose cross-border leakage shall be prevented. These will include, for example, manufacturing methods for semiconductor materials and carbon fibers for aviation. Businesses are to reduce the number of employees working with these technologies to a minimum and oblige them not to disseminate the technologies even after the termination of employment. In case the technology is shared with business partners, confidentiality agreements must be concluded.

Companies that commence or expand the production of critical technologies abroad must consult METI in advance. In the case of semiconductors, an increase in overseas production by five or ten percent triggers this consultation requirement, depending on whether it concerns advanced semiconductor or "legacy chips". In the event of non-compliance, granted subsidies can be reclaimed.

Japan's decision is in line with efforts by the United States and other governments to prevent the outflow of semiconductor and other critical technologies to rival countries. Even if the move mainly targets the technology transfer to countries such as China and only affects government-subsidized companies directly, its indirect ramifications will likely to go beyond this: Also in Japan, cross-border cooperation in the field of critical technologies is increasingly viewed as a risk and therefore subject to stricter regulatory supervision. The corresponding administrative burden will be felt not only by Japanese companies, but also by their international business partners.

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