【Cooperation between European and Indo-Pacific Powers in the US alliance system project：Policy Paper Vol. 6】
How to Facilitate NATO-IP4 Defense Industrial Cooperation: The Case of Italy and Japan

Publication of Policy Papers for the SPF Project “Cooperation Between European and Indo-Pacific Powers in the U.S. Alliance System”

　IINA (International Information Network Analysis) hosts a series of policy papers featuring analyses and insights from U.S., Japanese, South Korean, Australian and European experts, which discuss constructive cooperation among U.S. allies in Europe and the Indo-Pacific. The series aims to provide readers with valuable perspectives on the future of NATO-IP4 (Indo-Pacific 4) cooperation for regional and global security.

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Mainstream analysis of NATO-IP4 defense industrial cooperation differs over whether these countries should leverage partnerships in the strategic competition with Russia and China. However, geopolitical drivers are but one factor, and often a contingent one. Adding to the strategic argument, this paper examines the technological, economic, and political drivers of defense industrial cooperation through a case study of Italian-Japanese cooperation.

Three major interconnected structural transformations influence NATO-IP4 defense industrial cooperation:[1]

1. 1. Geopolitical contestation, the return of multipolarity, and the unraveling of the Western-led order.
2. 2. A race to reap the technological, economic, and strategic benefits of emerging disruptive technologies (EDTs), such as the internet of things, robotics, AI, and quantum technology.
3. 3. The comeback of state interventionism, including protectionism, as a byproduct of the two factors above but also of market failures; of the mimetic response to the economic system challenge from successful dirigiste and neo-mercantile “developmental states,” such as China; and of widening socioeconomic inequalities within mature economies.

Innovation has pushed technological frontiers to levels that are often unsustainable for the defense industrial apparatuses of individual countries, especially when public finances in mature economies are under greater strain with high state debt. As a result, state-backed technological industrial cooperation among allies and partners may favor economies of scale.

NATO and IP4 players are aware of the dual-use risks and opportunities embedded in EDTs. Their government officials and business executives acknowledge the strong competitive ele¬ments behind China’s quest for superiority in EDTs, which would give Beijing strategic and economic advantages. These competitive dynamics are especially evident in strategic sectors, such as the information and communications technology industries.

The aim is to gain first-mover advantages, and conversely to prevent competitors from having them, at the dawn of a fourth industrial revolution because these advantages allow their possessor to dominate the market and set new technological standards. Technological and economic dynamics give rise to competition among allies and partners as well.

The development of new military technology goes beyond geopolitical dynamics. The Italy–Japan–United Kingdom Global Combat Air Program (GCAP) framework aims to develop a sixth-generation combat aircraft, which can positively impact national economies. GCAP consists of a combat aircraft system integrated with uncrewed cooperating systems, satellites, and other military assets. An “intelligent” network—based on a dedicated cloud architecture, artificial intelligence, and next-generation datalinks—will connect all elements of the system. Italy intends for the new aircraft to replace the current Eurofighter capability. GCAP aims to enhance defense capabilities with emerging technologies, thereby strengthening cooperation on air combat systems, supporting national industrial capabilities, contributing to national security and international influence, and increasing national arms exports.

While the abovementioned three transformations—geopolitical contestation, the race to master EDTs, and changing state-market relations—drive collaboration, priorities differ.[2] Japan derives strategic advantages from GCAP due to its need to achieve naval and air superiority by 2035 in the severe geopolitical environment of China’s massive military buildup. While Italy’s operational environment also requires preservation of naval and air superiority in the Mediterranean Sea, the UK and Italy arguably have the primary ambition of deriving technological and economic advantages from GCAP. For these very reasons, the UK will likely successfully push for Saudi capital injections into GCAP. In fact, long-standing UK-Saudi ties in commodities and procurement made Saudi Arabia an attractive partner for the UK. By contrast, Tokyo was initially wary of GCAP because Saudi-China ties created a potential for trade diversion to China and because of Riyadh’s low defense security standards.

At any rate, commercial and industrial considerations are important elements of GCAP dynamics for all partners. The three governments and defense actors behind GCAP are driving a hard bargain in the allocation of R&D expenses and production of specific jet components because some, such as its engine, might have more remunerative spinoff applications.

Geopolitical tensions have prompted Japan to overhaul its security regime, to modernize and make its military products more interoperable and appealing to foreign buyers, paving the way for defense industrial collaborations. In little more than a decade, Tokyo relaxed arms exports rules, such as by green-lighting the export of next-generation fighter jets and foreign-licensed but Japan-produced defense products, such as PAC-2/PAC-3 missile munitions to replenish US stocks.

As a byproduct of the three strategic documents unveiled in December 2022,[3] Japan’s defense budget will increase by approximately 60 percent between 2023 and 2027, and its military R&D will increase fourfold. A new institution within the Japanese Ministry of Defense’s Acquisition, Technology, and Logistics Agency will function as a think tank. It will monitor global research trends in cutting-edge technologies, manage subsidy programs for studies of dual-use technologies, and promote collaboration among government, industry, and academic stakeholders and foreign counterparts. This will generate additional momentum for Italy-Japan projects, including GCAP. The two countries will enter a new era through a new strategic partnership and the unveiling of an ambitious action plan aimed at the state-backed promotion of new projects, particularly those with potential industrial applications.

Apart from US-China strategic competition, a main geopolitical driver behind GCAP is a fourth factor: US structural power and capacity to link the Indo-Pacific to the Euro-Atlantic. The first Trump administration saw China’s inclusion on the NATO agenda and the initiation of NATO-IP4 cooperation. And the Biden administration attempted to deepen defense cooperation between European and Indo-Pacific allies and partners. US encouragement of enhanced defense cooperation has engendered greater intelligence sharing, interoperability, and interchangeability of defense assets between allies and partners. It has also promoted access to the military bases of allies and partners, including logistical support, and modernization of armed forces. As several examples, the Biden administration facilitated a network of allies and partners, which empowered allies and enabled them to diversify away from, but in concert with, the US in the context of strategic competition. And Italy dispatched its carrier strike group to the Indo-Pacific and participated in the Pitch Black 2024 multilateral exercises in Australia, which included F-35B cross-deck operations. It also signed the Acquisition and Cross-Servicing Agreement with Japan.

Technological and economic drivers,[4] as well as US-led geopolitical initiatives,[5] have increased the security engagement of European allies and partners in the Indo-Pacific. Still, while the Italian government has aligned with Washington’s desire to push back against China, it ought to prioritize its near abroad. From Italy’s perspective, NATO’s eastward focus and strengthened strategic relations with IP4 countries are taking place at the expense of the transatlantic alliance’s southern flank because numerous threats against Europe emanate from North Africa and the Middle East.

The above US-led logic encompasses defense industrial cooperation, as the Biden administration’s support for GCAP demonstrated. The embeddedness of the Japanese, UK, and Italian military-industrial complexes with those of the US, especially in the aviation industry, favors this logic. For example, the US government has designated Italy and Japan as hosts of the only two final assembly and checkout facilities for the assemblage and production of F-35 fighter aircraft outside the United States. These facilities may double as service and repair sites. Moreover, GCAP will also depend on US technology and components, given US defense industrial superiority, with implications for export controls.

More recently, the US prodded Japan to become the first Asian member of the Multinational Industrial Security Working Group, with the purpose of strengthening US-Japan and possibly NATO-IP4 defense industrial cooperation.[6] Along the same lines, DICAS identifies areas for integration of Japanese defense industry equipment into the US defense industrial base. For instance, Japanese shipyards and companies will repair damaged warships (and aircraft) that the United States has deployed in the region. The two countries may expand this program to encompass Italy’s shipbuilding industry because Fincantieri, a state-controlled company, builds many of the FREMM/Constellation-class frigates. A DICAS-like arrangement would fit Italy’s interest in the rich, growing regional procurement market and contribute to US grand strategy in Asia.

GCAP provides a window into the multiple dynamics driving defense industrial cooperation between NATO and IP4 countries. Still, political and economic unknowns call into question how far NATO-IP4 cooperation can go, especially in defense industrial cooperation. Notably, the second Trump administration might put a high premium on exports of US military products, consider joining GCAP, or even reconsider the merits of defense cooperation between allies and partners across the Euro-Atlantic and Indo-Pacific.

Giulio Pugliese would like to acknowledge precious help and feedback from Fabrizio Bozzato, Liselotte Odgaard, Matteo Mazziotti di Celso, Matteo Piasentini, Hugh Whittaker, Andrea Gilli, and Nanae Baldauff.

(2025/03/21)