When Abe Met Bibi: The Remarkable Blossoming of Israel-Japan Ties

Israel-Japan

You would have had to rub your eyes in disbelief.

Not at the event itself — a conference on cyber technologies, attended by many Israeli and international companies and government entities engaged in this burgeoning field. That an event of this nature took place in Tel Aviv early this year should surprise no one, given Israel’s acknowledged prominence in the area. That Japanese companies also attended this event is perhaps mildly surprising, but by no means unprecedented.

But that the Japanese ambassador to Israel was on the rostrum as a speaker at the closing plenary session on the first day? That is not merely unprecedented; it would have been entirely unthinkable until recently. That Koji Tomita lent his name, his presence and his warm support to an event of this sort is the latest and most visible evidence of the dramatic change in Japan’s relationship with Israel, which in two years has undergone a massive and across-the-board upgrading.

Yet no less remarkable than the facts themselves is the way they are perceived – or perhaps ignored, a more accurate term. Although both countries’ premiers and other ministers have led large delegations of high-ranking business executives and have signed agreements in full public view, with cameras flashing and their speeches recorded, the breakthrough and breakout in the bilateral relationship has gone largely unnoticed.

Part of the explanation lies in the fact that neither side, especially the Japanese, has made any effort to launch a noisy PR campaign – proving the modern dictum that if something isn’t given prominent media coverage, it simply hasn’t happened as far as most people are concerned.

“The [Shinzo] Abe government has initiated a far-reaching change in Japanese thinking, strategy and policies.” –Elchanan Harel

Yet mere misperception cannot change the facts. There has been a sea-change in this bilateral relationship, which inevitably raises three key questions: Why has this happened at all? Why now and not earlier? And what are its implications?

The Abe Revolution

The answers begin with the person directly responsible for this development: Shinzo Abe, prime minister of Japan since December 2012 (following a brief and unhappy stint as premier in 2006-07). “The Abe government has initiated a far-reaching change in Japanese thinking, strategy and policies – both in the Far East and globally,” notes Elchanan Harel, founder and partner in the Harel-Hertz Investment House, which specializes in developing links between Israeli and Japanese firms. Harel has been closely involved with Japan for almost three decades – hence his unofficial title of ‘Mr. Japan’ in Israeli business circles. Based on that long experience, he has no doubt that “the opening towards Israel was very much part of this global re-assessment,” rather than a standalone decision.

For veterans like Harel and Dan Catarivas, formerly the head of the finance ministry’s international department and now in the same capacity at the Manufacturers Association of Israel, this change is nothing short of revolutionary. Having suffered through many barren years and numerous false starts and disappointments in the Israel-Japan relationship, they are particularly appreciative of the significance of its current flowering.

Formally, the relationship goes back to 1952, shortly after the establishment of Israel and the reconstituting of Japan as a democratic – and pacifistic – state. However, diplomatic relations did not generate any meaningful trade between the countries – for a reason that was always clear but never enunciated: The boycott of Israel by the Arab League and most Moslem states, which extended to third parties doing business with the country.

“The Japanese were always much more sensitive toward the boycott than other (Western) countries,” Catarivas recalls, “because of their great reliance on oil imports from the Mid-East. This consideration far outweighed any business potential offered by a small and undeveloped country such as Israel then was.”

Consequently, none of the big Japanese business groups that powered the country’s phenomenal boom in the post-war era did any business in or with Israel. In the other direction, Israeli firms found it very hard to find the partners they needed to break into the Japanese market. As a result, Harel notes, “until the mid-1990s, Israel was one of the few countries that consistently ran a trade surplus with Japan. This stemmed from exports of diamonds and sales of chemicals from the Dead Sea Works. Japanese exports to Israel consisted mainly of industrial machinery and consumer electronics, usually sold via Europe.”

Israeli companies that did succeed in Japan in that era had to have some very special product or capability — and they could be counted on the fingers of one hand. In addition to Dead Sea Works, the only ‘traditional-economy’ firm on this list was Zim Shipping Lines, one of the biggest global players in its industry. But two of the first generation of successful Israeli technology companies ‘conquered’ Japan: Scitex, a pioneer in computerized design and printing, was the first Israeli company to establish a large-scale joint venture with a Japanese partner, while Orbotech (later merged with Orbot), which developed computerized control systems for printed-circuit board (PCB) manufacture, established a Japanese facility and won some 75% of the Japanese market. Perhaps most remarkably of all, Israeli machine-tool manufacturer Iscar was able to form a joint venture with Kyocera and sell machine tools to the Japanese – the ultimate approbation for the quality of its products.

Ze’ev Gutman was Orbotech’s representative in Japan from 1985 to 1989. He recalls that “in those early days, there was very little knowledge about Israel in Japan. The Japanese were aware of Jewish intellectual prowess — Albert Einstein, for example — and associated Israelis with that positive characteristic. At the same time, they regarded Israel as a dangerous, backward place in the Middle East. I’m talking about the perceptions among technology companies, where educational levels were obviously higher; among the general population, the situation was surely far worse.”

Nevertheless, on a professional basis, Gutman found his Japanese counterparts to be intellectually very curious and thorough, checking everything and asking many questions. But while Gutman was forced to learn about Japan and Japanese culture the hard way, having been thrown in at the deep end, the main challenge for most Israeli executives who did business with Japan was – and still is, to a large degree – to bridge the cultural divide in business and social mores.

Dan Falk, CEO of Orbot in the 1990s, found that the Japanese personnel in his firm’s customer service operation in Japan “were very hardworking and dedicated. But their primary loyalty was to their customer; they saw themselves as the customers’ representative vis-à-vis the firm’s, a very different mindset from the Israeli and Western one and quite disconcerting for management.”

War and Peace

The global upheavals of the 1990s, triggered by the collapse of the Soviet Union, were felt particularly strongly in the Middle East. The U.S. found itself in a hegemonic position, which it further enhanced by leading a broad coalition that administered a crushing defeat to Saddam Hussein’s Iraq in the First Gulf War of 1991 – a coalition which Japan refused to support in any capacity, claiming its constitution prevented it from doing so.

But the diplomatic developments following the Gulf War – the Madrid peace conference of 1991, the Arab League’s tacit abandonment of its boycott of Israel under American pressure and, above all, the breakthrough in Israeli-Palestinian relations encapsulated in the Oslo Agreement of 1993 – created new realities which demanded new thinking on Japan’s part.

To their credit, the Japanese governments of that period responded positively and enthusiastically. Harel takes up the story, in which he was personally and directly involved: “Japan defined the establishment of a Palestinian state as a central tenet of its Mid-East policy, so that over the 20 years since the Israeli-Palestinian treaty of 1994, Japan has contributed to and invested in the Palestinian Authority some $1.2 billion – the largest contribution of any country after the U.S.

“They have also been very actively involved in the establishment of two industrial zones, one in the Jericho area, which remains very successful, and the other in the Jordan Valley area. On the diplomatic side, Japan has maintained an office in Ramallah, headed by a charge d’affaires with the rank and status of an ambassador.”

On the business side too, a new era seemed to have dawned. “In 1994, many large Japanese companies visited Israel and even opened offices,” says Catarivas. “They were thinking in terms of future regional cooperation, which then seemed a realistic possibility, and saw Israel as a congenial environment for their regional base. However, when the peace process faded over the next few years, they concluded that there was no potential for large-scale operations of the sort they were looking for and most then withdrew – the Israeli market on its own was still too small to attract them.”

Only now, after decades of separate and very different paths of economic and political development, have Israel and Japan found each other and discovered that they actually have much in common.

Nevertheless, with the threat of the Arab boycott having largely evaporated, Japanese auto companies began exporting to Israel, both directly and indirectly, with the result that within a few years, Japanese models had seized the lion’s share of the market for passenger cars and, even more so, for light trucks.

The sharp moves from euphoria to disappointment were best captured in the two visits to Japan by Israeli premiers during the 1990s. Yitzhak Rabin became the first Israeli leader to be invited to Japan, flying there directly from Oslo in 1994, where he received the Nobel Peace Prize. His hosts made every effort to invest this visit with both ceremony and substance. Harel, who was in the large Israeli business delegation accompanying Rabin, remembers him being awarded the signal honor of being hosted in the Imperial Guest House in Akasaka, and how his Japanese contacts emphasized the strongly positive impression Rabin made on them. The changed Japanese stance towards Israel was further emphasized when Rabin’s opposite number, Tomiichi Murayama, became the first Japanese premier to visit Israel, in September 1995.

That, unfortunately, was as good as it got in the 1990s. Two months after Murayama’s visit, Rabin was assassinated and the peace process slowed to a crawl. The new Israeli premier, Binyamin Netanyahu, extracted a reluctant invitation to visit Japan in 1997, but this visit was a low-key affair and was marred by a Netanyahu gaffe in a speech to a large audience of senior government officials and business executives.

Thereafter – and especially during the second intifada period of 2000-2004 – Japan’s interest in and relations with Israel went back into cold storage. A brief interlude in 2006-08, when Israeli premier Ehud Olmert established a close personal relationship with Japanese premier Junichiro Koizumi – and Olmert renewed the effort to reach peace agreements with the Palestinians and with Syria – produced nothing of substance in either the bilateral or regional spheres.

Lift-off

Only now, after decades of separate and very different paths of economic and political development, have Israel and Japan found each other and discovered that they actually have much in common. The unlikely romance began at the top level, with Abe charting a new course for Japan and recognizing in Netanyahu a kindred spirit to his own brand of conservative nationalism.

Perhaps fittingly, the new process began with another visit by Netanyahu to Tokyo, in May 2014, this time as Abe’s guest. Although he didn’t receive the royal treatment accorded to Rabin 20 years earlier, this visit – which came after considerable preparatory work on the part of trusted aides of the two premiers – proved to be a genuine turning point in the bilateral relationship.

The joint statement issued at the end of that visit flagged both the break with the past and the shape of things to come. The Japanese commitments to Palestinian statehood and regional accommodations were duly mentioned, but the emphasis had moved to the bilateral relationship, which finally emerged from the shadow of regional issues. The topics listed as the new bilateral agenda showed that the two governments were now focused on identifying and developing areas of cooperation, primarily in technology-oriented areas. Most significantly, the statement mentioned explicitly, for the first time, “cooperation in the area of security and R&D.”

That proved to be the formal starting point of a process which has developed with unusual speed. Thus, only a few weeks later, in early July 2014, Toshimitsu Motegi became the first minister of Japan’s powerful METI (ministry of economy, trade and industry) to visit Israel. Motegi met with his Israeli counterpart, Naftali Bennett, and signed a memorandum of cooperation (MoC).

All this happened in full public view and was duly reported in the media. Yet the Israeli press failed to appreciate the singular role METI plays in the Japanese economy and the consequent importance of both the visit and the MoC in giving a green light to the Japanese corporate sector to proactively seek business opportunities in Israel.

Toshio Yamamoto, deputy chief of mission at the Japanese Embassy in Tel Aviv, traces what happened next: “Based on the MoC, Japan’s New Energy and Industrial Technology Development Organization (NEDO) and Israel’s Industry Center for R&D (MATIMOP) concluded a memorandum of understanding (MoU) which laid out how the governments would encourage and support joint R&D projects between Japanese and Israeli companies.”

The results were not long in coming and “in July 2015, three joint industrial R&D projects, each undertaken by an Israeli and a Japanese company, were approved for funding by NEDO and MATIMOP in three different technologies, including cyber security and ASR (automated speech recognition).”

Yamamoto also notes that by the end of 2015, the two countries had reached “substantial agreement” over a bilateral investment roadmap, which has been under negotiation since May 2015, while other agreements are also being worked on. Against this background, Japanese companies are moving rapidly to create or expand Israeli links, including establishing offices in Tel Aviv and making direct investments in Israel. On the Israeli side, the corporate sector is urging the government to pursue a free trade agreement (FTA) with Japan, to complement Israel’s FTAs with both the U.S. and the European Union.

For their part, the leaders who kickstarted the process are keeping their feet firmly on the pedal, in an effort to push things ahead further and faster. Abe himself visited Israel in January 2015 bringing with him another large group of Japanese corporate executives and, a year later at the Paris global climate conference in December 2015, he and Netanyahu utilized the opportunity to hold another meeting.

When seen against this intensive burst of diplomatic and commercial activity, the fact that ambassador-designate Koji Tomita took part in the CyberTech conference in Tel Aviv before he even had time to formally present his credentials to Israeli President Reuven Rivlin may be remarkable, but it fits in with the new spirit of Japan-Israel relations.

Given the record of false starts and disappointments in the two countries’ relations, it is only natural to be somewhat skeptical about the recent burst of activity. Indeed, the very intensity of that activity and its apparent dependence on the leaders, Abe in particular, seems to raise the likelihood that it will burn itself out – or be put on the backburner when Abe departs.

“The relationship will center on complementary benefits between Japan’s high-quality craftsmanship and Israeli out-of-the-box thinking.” –Toshio Yamamoto

However, both the Israelis in the vanguard of developing relations with Japan and, in a more circumspect style, the diplomats at the forefront from the Japanese side, are convinced that the change underway is irreversible. They stress that although Abe launched the process, it is not – nor can it be in the Japanese political system – the personal whim of one man. Rather, it reflects fundamental changes in Japanese politics and society and hence in Japan’s assessment of its national interest and needs.

Where Next?

On that basis, the focus should be not on how far the relationship has come, but how much further it can go. However, the evidence suggests that progress will be concentrated in specific areas. Thus the official data for 2014-15 show that bilateral trade in goods has been unaffected by the diplomatic breakthrough. Even allowing for the discrepancies between the Israeli and the Japanese data – stemming from methodological differences – with the latter showing a sharp increase in Japanese imports of Israeli goods, this is only relative and comes from a very low base. In absolute terms, bilateral trade remains marginal in terms of overall Israeli trade, and negligible in the context of Japan’s huge foreign trade flows.

Catarivas professes no surprise at these data. “The potential is much less in direct trade with Japan,” he says, “and much more in Japanese investments in Israeli companies, cooperation with them and possibly in joint developments aimed at markets in third countries.” As an example, he cites Israeli technology companies developing products for the auto industry, where the market is global rather than specifically Japanese.

Yamamoto also sees the Japanese interest focused on investments. He cites a list of investments made by major Japanese corporations in 2015, including Fujitsu, Mitsui and Softbank, as well as collaborations and joint ventures – such as that between Israeli pharma giant Teva and Japan’s Takeda. This year opened with another important development, namely Sony’s acquisition of Altair Semiconductor for $212 million. “Japanese companies are showing the greatest interest in areas such as IT, robotics, cyber and AI (artificial intelligence). In addition, medical technologies, agri-tech and water-tech are also attracting interest from Japanese firms.”

Yamamoto envisions a process in which Japanese and Israeli business people gradually deepen a relationship centered on “complementary benefits between Japan’s high-quality craftsmanship and Israeli out-of-the-box thinking.” Significantly, he believes it is crucial for both governments to facilitate this process, “utilizing all possible means.”

It therefore seems likely that, under the aegis of government encouragement and specific programs, technology, R&D projects and joint ventures will drive the budding relationship. This is a very different model from that characterizing the growing Chinese involvement in Israel and reflects the very different characteristics, needs and stages of development of the two Asian economic giants.

From the Israeli point of view, Japan has distinct advantages over China as a potential partner – especially in the defense sector, where Israel was forced to cancel a major deal with China because of American opposition. That is unlikely to happen with Japan, a long-standing American ally.

On the other hand, the Japanese defense sector is large and sophisticated in its own right and in some areas competes directly with Israeli firms. Finding the right balance between cooperation and competition – corporate ‘frenemies’ – will be key to developing a sound basis for the wider Israel-Japan relationship. Given that both countries have determined that doing so is in their long-term interests, they can be expected to succeed in this effort, surmounting the commercial and cultural barriers along the way.

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