Without foreign sales, Canada’s defence industry would not survive
by David Perry
The Globe and Mail
January 11, 2016
Canadian soldiers fight from a world-class light armoured vehicle built in Canada in the mid-1990s by a Canadian company. The vehicles’ manufacturer, General Dynamics Land Systems-Canada (GDLS-C), is now in the middle of a major upgrade that will extend their useful life for an additional two decades. This domestic industrial capacity and the made-in-Canada equipment it provides for our military would not exist if the company were unable to export its vehicles abroad.
This fact has been largely lost in the controversy over the company’s multibillion-dollar export deal with Saudi Arabia. The deal doesn’t just benefit the company – it bolsters Canada’s domestic defence industry and the country.
While the Saudi deal is atypically large, unusual for the degree of public discussion and somewhat unique in that it represents the sale of a complete vehicle rather than a subsystem or component, it also highlights the dynamics of the Canadian defence industry as a whole.
International exports account for roughly half of our defence industry’s work, the bulk of which involves the sale of components, subsystems, software or services into international supply chains. Historically, most sales have gone to the United States, by virtue of Canada’s privileged access to that defence market, with a secondary focus on traditional allies, such as North Atlantic Treaty Organization members. Given the recent budgetary pressures in those countries, most of which possess robust, government-supported industries of their own, Canadian firms have been looking to non-traditional markets for new sales, including in the Middle East.
Without exports, many Canadian defence firms simply could not stay in business. Ottawa’s purchase of defence goods is simply too infrequent, with decades passing between major sales. And as a recent report points out, even when the federal government has launched new acquisition efforts, the recent majority of these projects have been delayed. The infrequency of domestic orders makes it difficult to sustain a viable business, let alone one that produces cutting-edge technology. In the case of GDLS-C, in between sales of a few hundred vehicles at a time to Ottawa, it has exported thousands of others to international customers.
Foreign sales allow Canadian firms to keep plants operating, work forces employed, supply chains intact and engineers busy researching and developing new technology. The Saudi deal will keep the thousands of unionized shop-floor workers and engineers at the GDLS-C plant in London, Ont., employed for years. It will also fill the order books for dozens of other Canadian firms in the industrial cluster around Southwestern Ontario and across the country that form part of the company’s supply chain. In addition, it will allow the company to conduct further research to develop its products. All of this benefits the Canadian economy.
Beyond this, Canada will benefit decades from now when the military next decides to buy new equipment. If export sales permit the company to keep producing LAVs, Ottawa will at least have the option of buying highly capable, modern equipment in Canada if it so chooses. Foreign sales allow Canada to retain strategic industrial capability.
Success in winning this type of work is difficult, given the highly competitive international marketplace. It requires both good products and good reputations as suppliers. For GDLS-C, this deal represents the continuation of a Saudi relationship dating to the early 1990s. While it was former prime minister Stephen Harper’s Conservative government that approved the most recent deal in 2014, this represented a continuation of several decades of Canadian government support for this type of contract.
Many other national governments actively support foreign military sales. In the case of the Saudi deal, it was actually signed by Canadian Commercial Corp., a Crown corporation that facilitates international trade by Canadian industries with a focus on international governments. By acting as the deal’s prime contractor, Canadian Commercial has provided the government of Canada’s backing for the deal, in addition to permitting it in the first place following an export control review.
This context is important in lieu of the controversy this deal has generated because of Saudi Arabia’s human-rights record.
The deal is not simply about arming a foreign government or generating profit for large defence company. It promotes domestic economic activity, employment and research and development, and helps maintain a strategically important industry that supplies the government of Canada with national assets.
David Perry is a senior analyst and fellow with the Canadian Global Affairs Institute.