TOKYO/SYDNEY, May 29 (Reuters) - Japan will get the chance to pursue an unprecedented military export deal when its defense and foreign ministers meet their Australian counterparts in Tokyo next month.
Japan is considering selling submarine technology to Australia - perhaps even a fleet of fully engineered, stealthy vessels, according to Japanese officials. Sources on both sides say the discussions so far have encouraged a willingness to speed up talks.
Any agreement would take months to negotiate and remains far from certain, but even a deal for Japan to supply technology would likely run to billions of dollars and represent a major portion of Australia's overall $37 billion submarine program.
It would also be bound to turn heads in China.
Experts say a Japan-Australia deal would send a signal to Asia's emerging superpower of Japan's willingness, under nationalist Prime Minister Shinzo Abe, to export arms to a region wary of China's growing naval strength, especially its pursuit of territorial claims in the East and South China seas.
A deal would also help connect Japanese arms-makers like Mitsubishi Heavy Industries and Kawasaki Heavy Industries to the world market for big, sophisticated weaponry, a goal Abe sees as consistent with Japanese security.
Abe has eased decades-old restrictions on Japan's military exports and is looking to give its military a freer hand in conflicts by changing the interpretation of a pacifist constitution that dates back to Japan's defeat in World War Two.
"There's a clear danger that aligning ourselves closely with Japan on a technology as sensitive as submarine technology would be read in China as a significant tightening in what they fear is a drift towards a Japan-Australia alliance," said Hugh White, a professor of strategic studies at the Australian National University. "It would be a gamble by Australia on where Japan is going to be 30 years from now."
Australia's proposed fleet of submarines is at the core of its long-term defense strategy. Although Canberra will not begin replacing its Collins-class vessels until the 2030s, the design work could take a decade or more and each submarine could take about five years to build, according to industry analysts.
A final decision on the type and number of submarines Australia will build is expected to be made after a review due in March 2015.
Australian officials have expressed an interest in the silent-running diesel-electric propulsion systems used in Japan's Soryu diesel submarines, built by Mitsubishi Heavy and Kawasaki Heavy. Those vessels would give Australia a naval force that could reach deep into the Indian Ocean.
More recently, Japanese military officials and lawmakers with an interest in defense policy have signaled a willingness to consider supplying a full version of the highly regarded Soryu to Australia if certain conditions can be met. These would include concluding a framework agreement on security policy with Canberra that would lock future Australian governments into an alliance with Japan, the officials said.
Mitsubishi Heavy had no comment. Kawasaki Heavy said it had not been approached about any proposal regarding the Soryu and could not comment.
Australian Prime Minister Tony Abbott has said he favors boosting strategic cooperation with Japan. For their part, Australia's military planners are similarly enthusiastic about cooperation as a means of hedging against an over-reliance on the United States, people with knowledge of their thinking said.
The Soryu's ultra-quiet drivetrain could avoid a problem that makes Australia's six current submarines prone to detection, said sources with knowledge of the discussions in Australia.
The Australian government has committed to building the A$40 billion ($37 billion) replacement for its Collins-class submarines at home. However, a government-commissioned report from U.S.-based think-tank Rand Corp found that Australia lacked enough engineers to design and build a vessel it said would be as complex as a space shuttle.
"The likely practical approach is that Australia would partner with a foreign partner company and government," the report published last year said.
Australian Defense Minister David Johnston met his Japanese counterpart, Itsunori Onodera, in Perth recently and the pair meet again in June in Tokyo along with foreign ministers. Abe will follow up with a trip to Australia in July, one of the sources in Tokyo said.
Johnston said this month he believed the Soryu was the best conventional submarine in the world. He has also said he expects Japan and Australia will work together on research in marine hydrodynamics as an initial area of cooperation while working toward a "framework agreement" on military technology.
It is possible that Australia could purchase submarine hulls from Germany or Sweden and then opt to buy Japanese drivetrains for the vessels, although that would add a layer of complexity and additional cost, officials said.
Participants in a joint-development deal could also include Britain's BAE Systems and state-owned Australian Submarine Corp, which maintains the nation's current fleet.
Australian Submarine Corp's head of strategy and communications, Sean Costello, said the ship-builder had hosted Japanese government officials at its shipyards in March 2013 but no technical discussions had yet taken place.
BAE spokesman Mark Ritson said the British firm was keen to play a major role in Australia's submarine program and was in regular contact with the Australian government.
In Japan, any submarine supply deal could face roadblocks.
Some senior officials in Japan's maritime self-defense forces are wary of any joint development that could risk a leak of sensitive information about the identifying "signature" of Japanese submarines, one official in Tokyo said.
However, exports would enable Japanese arms-makers to spread their costs over a bigger production base, making them more efficient. At the same time, Abe has pressed for a loosening of legal limits on Japan's military, including an end to a ban on helping allies under attack - though opinion polls show the Japanese public is divided on Abe's security policies.
The Soryu submarines have a range of more than 11,000 km (6,800 miles) and come armed with Harpoon missiles designed to hit enemy ships operating over the horizon. The export or transfer of such lethal technology would be a first in Japan and could face political opposition.
"It's impossible for us to move quickly on this. It has to be a gradual cooperation," one Japanese official with knowledge of the discussions said. (US$1 = 1.0815 Australian dollars)
(Additional reporting by Nobuhiro Kubo in TOKYO, editing by Kevin Krolicki and Mark Bendeich)