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Global rules on foreign direct investment (FDI)
Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
Formed in 2003 from the combination of a number of governmental agencies, the Japan Aerospace Exploration Agency (JAXA) (or in Japanese 国立研究開発法人宇宙航空研究開発機構, literally meaning, the “National Research and Development Agency, Aerospace Research and Development Organization”) is the national air and space research and development agency in Japan. This Japanese government agency has a wide remit responsible for the research, technology development and utilization of the aerospace sector in Japan.
A key guideline published by the Cabinet Office of the Government of Japan (Cabinet Office) on 30 June 2020 – the “Basic Plan on Space Policy” (Basic Plan) – is intended to propel Japan to a new era in aerospace development and use.
The Basic Plan was developed pursuant to Article 24 of the Basic Space Act of Japan (Act No. 43 of 2008, as amended) (Basic Space Act), which sets out the most fundamental principles and responsibilities of the Government and is hence considered to be the most fundamental governmental policy of space activities in Japan. One of the key focuses of the Basic Plan is to ensure the utilization of private sector resources and initiatives as well as the enhancement of business creation and open innovation by JAXA.
In relation to private sector engagement and utilization, many Japanese companies are now increasingly focusing on outer space investment, with approximately 60 companies, ranging from property and construction giants to start-ups, currently pursuing space programs in one way or another.
Mitsubishi Heavy Industries Ltd (MHI) is one of the front-runners in Japan which started providing launch services with its H-IIA (in 2007) and H-IIB (in 2013) rockets upon receiving technology transfers from JAXA. Both the H-IIA and the H-IIB have become the primary launch vehicles for Japan’s space program and have been used to launch various satellites into orbit, including weather, communication and other intelligence satellites as well as scientific probes. In many cases, satellite launches have been successfully achieved through MHI’s continued partnership with JAXA and its alliance with its global partners.
MHI has recently announced its collaboration with Sierra Space Corporation, a leading commercial space company in the United States, on the commercially developed, owned and operated space station to be built in low Earth orbit called “Orbital Reef.” MHI has also previously teamed up with Inmarsat plc in the United Kingdom on the launch of a satellite fleet and with the United Arab Emirates on the first Arab mission to deliver a Mars orbiter.
Another example (as of 2023) is Astroscale Holdings Inc (Astroscale), which is the first private company established in 2013 with the aim of “developing innovative and scalable solutions across the spectrum of on-orbit servicing, including life extension, in situ space situational awareness, end-of-life and active debris removal, to create sustainable space systems and mitigate the growing and hazardous buildup of debris in space.”
Astroscale entered into a MOU with MHI in 2021 to undertake active debris removal and other projects with the objective of improving space environmental protection. This is recognized as a significant collaborative initiative which is expected to help tackle the growing issue of rocket upper stages left behind in orbit (which are known to be the most dangerous pieces of space debris) and to ultimately contribute to the advancement of sustainable space operations.
In February 2023, Astroscale achieved its Series G round with more than US$76m in funding from new investors Mitsubishi Electric Corporation (Mitsubishi Electric), an entrepreneur Yusaku Maezawa, MUFG Bank Ltd, Mitsubishi Corporation, the Development Bank of Japan and FEL Corporation. In connection with its participation in the Series G funding round, Mitsubishi Electric, as a leading defense and space company, has agreed to collaborate with Astroscale in the joint development and manufacturing of sustainably-designed satellite buses to be utilized for national security purposes.
There have also been IPOs in the aerospace sector. Among them, ispace inc (ispace) announced on 8 March 2023 that the Tokyo Stock Exchange had approved the initial listing of its shares on the Tokyo Stock Exchange Growth Market. ispace is a lunar exploration start-up established with the aim of building space infrastructure by utilizing the water resources available on the Moon and constructing a single, sustainable ecosystem comprised of the Earth and the Moon. Despite its unsuccessful attempt to make the first private sector Moon landing in April 2023, ispace has demonstrated its strong commitment in taking cooperative leadership and contributing to the efforts to build a living environment beyond planet earth.
The Cabinet Office is the primary regulatory body in relation to commercial outer space activities. It is responsible for the management and administration of space licenses under the Act on Launching of Spacecraft, etc and Control of Spacecraft (Act No. 76 of 2016) (Space Activity Act).
Japan is a party to four of the five United Nations treaties on outer space (other than the Moon Agreement).
The main legislation that has been enacted by the Japanese Government to give effect to the treaties and to regulate the agencies dealing with space activities are as follows:
Further to the Basic Space Act, another key piece of legislation regulating the Japanese space industry is the Space Activity Act. This Act specifically regulates the following activities and imposes licensing requirements (with respect to each of these categories) on any person intending to engage in these activities:
In the case of launch activities under the first point above, a space license will need to be obtained for each launch. In the case of operation and control activities under the second item above, a space license will need to be obtained in respect of each spacecraft.
Further, for the purpose of the above, vehicles defined as “spacecraft” under the Space Activity Act include any artificial object which is used by:
This wide definition therefore means that “spacecraft” includes not only satellites but also any payload delivered to outer space (whether to any space station, the Moon or otherwise).
Insurance is necessary in order to obtain a space license. The Space Activity Act provides that appropriate third-party liability insurance and an appropriate government indemnity in each case is required for the purpose of any launch and such insurance must sufficiently cover the liability amount set pursuant to the relevant regulation. Without this insurance, a launch license will not be issued by the Government. Interestingly, following launch, there is no mandatory requirement for “in-orbit” third-party liability.
In relation to, and in compliance with, the Convention on Registration of Objects Launched into Outer Space 1976 (Registration Convention), the Cabinet Office administers the register of space objects, although this register is not made publicly available. Based on the information made available to it in the register, the Cabinet Office regularly furnishes such information to the Secretary-General of the United Nations as required by the Registration Convention.
Proper regulation of how space resources will be developed, owned and managed is key to the commercialization of outer space.
For this purpose, the Japanese Government has enacted the Space Resources Act to essentially allow companies to explore, extract and utilize space resources (such as water, minerals and other natural resources existing in outer space) provided the relevant permission is obtained from the Government in advance.
In order to apply for this permit, an applicant must submit an application attaching a business activity plan (setting out details of the applicant’s activities, including the purpose of the proposed space resources exploration and exploitation activities, term, location, method and other matters as specified by the relevant regulation) which must also be approved by the Government before a permit is granted.
The Space Resources Act expressly provides that persons who conduct business activities related to the exploration and development of space resources (with the Government’s permit to do so) shall acquire ownership of space resources that have been exploited, or mined in accordance with the approved business activity plan. By enabling acquisition of ownership of space resources, the Space Resources Act aims to ensure the accurate and smooth implementation of the relevant conventions and treaties concerning the development and use of outer space and to promote exploration and development activities by private business operators.
In Japan, there is no regulation which expressly requires the removal of space debris. However, the Government has put in place guidelines for those persons seeking a space license under the Space Activity Act, providing that all such space license holders must take all measures to limit debris released during their operations.
There is no regulation specifically designed to deal with export controls, environmental, land planning or hazardous materials requirements in relation to outer space activities, but depending on the outer space activity being pursued, consideration needs to be made to check whether there are any such general regulations as are applicable to that outer space activity.
Japan is a party to the Artemis Accords, which endorses the ability to extract and use space resources.
Japan has to date launched 315 satellites, 216 of which are in orbit as of May 2023, according to the Online Index of Objects Launched into Outer Space provided by the United Nations Office for Outer Space Affairs (UNOOSA) website. While the country is conscious of the technological and other challenges it would need to overcome in furtherance of its outer space activities, the general positivity and optimism expressed and demonstrated particularly by those working for, or closely involved in, various space programs in Japan, including advisers to the responsible committee under the Cabinet Office, will likely reinforce the overall motivation for both the private and public sectors to continue to learn from past and ongoing challenges and to achieve further developments in this field.
One of the major near-term challenges for the Japanese government is that currently there is no legislation that regulates commercial manned missions (including manned launches and manned sub-orbital flights). The Space Activity Act does not expressly limit the scope of its applicability to unmanned missions, however it is not expected that the licences under the Space Activity Act will be issued in respect of manned launches. In addition, there is no law regulating manned sub-orbital flights. If Japan has greater aspirations for its space industry, it will have to legislate on manned missions.
JAXA started a public-private partnership program called J-SPARC (JAXA Space Innovation through Partnership and Co-creation) in May 2018. The projects that have been co-created by JAXA and private enterprises are published, and include programs related to: (i) space media businesses; (ii) radar and lidar technology; (iii) space transportation services; (iv) satellite-related businesses; (v) sub-orbital related technologies; and (vi) food-related businesses.
In 2022, JAXA also partnered up with toymaker, Takara Tomy, the Sony Group and Doshisha University to create an ultra-compact transformable lunar robot, “SORA-Q.” SORA-Q, which is about the size of a baseball, gets ejected from the Moon lander in the form of a sphere and transforms into a moveable vehicle upon landing on the Moon’s surface. It then travels on the lunar surface and captures images of the surroundings through its onboard camera. Following completion of its mission on the Moon, it stops operating and remains on the Moon surface.
Most recently in April 2023, JAXA announced its co-creation initiative (under the J-SPARC framework) with ElevationSpace Inc, a space start-up spin-off from Tohoku University, in connection with “high-frequency re-entry and recovery” services from the low Earth orbit. This project is aimed at achieving “return flights” from space to the Earth, thereby further expanding the scope of space utilization and building an infrastructure that can maximize the value of the microgravity environment.
In terms of Japan insurance markets, major insurance companies in Japan, such as Mitsui Sumitomo Insurance Company Limited, Tokio Marine & Nichido Fire Insurance Co Ltd and Sompo Japan Insurance Inc, are now actively engaging in outer space insurance and developing their products specifically designed for outer space activities.
In terms of financing transactions in outer space, while it is still early stage for banks and financial institutions to provide financing in connection with space projects, DBJ (as mentioned above) and Innovation Network Corporation of Japan, which are both Government-affiliated financial institutions, have (together as well as individually) invested in some of the outer space initiatives in Japan and we are increasingly seeing some of the major Japanese commercial banks participate in outer space efforts as well.
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