The Ploughshares Monitor Volume 34 Issue 3 Autumn 2013
A look at how the federal government is helping Canada’s military industry find new export customers
Billed as the world’s leading defence and security event, the Defence & Security Equipment International (DSEI) exhibition in the United Kingdom showcases military equipment from around the world every two years. In early September 2013 it boasted over 1,500 exhibitors and 30,000 visitors. The Canadian arms industry was there, led by the Canadian Association of Defence and Security Industries in the Canada Pavilion.
The arms industry was not alone. The Canada Pavilion identified several Government of Canada ‘partners’. These included major federal government departments: the Department of National Defence (DND); Foreign Affairs, Trade and Development Canada (DFATD); Industry Canada; and Public Works and Government Services Canada (PWGSC). Also there were a host of federal agencies: Atlantic Canada Opportunities Agency, Canada Economic Development for Quebec Regions, Federal Economic Development Agency for Southern Ontario, Western Economic Diversification Canada, Export Development Canada, and the Canadian Commercial Corporation (CCC). Representatives of these government partners and the Alberta and B.C. governments formed a “Whole of Government Working Group” to provide a pavilion program “to educate both foreign and domestic companies on the services our government departments offer” (CADSI 2013).
The number and range of government departments and agencies at the DSEI exhibition illustrate recent efforts by the federal government to help Canada’s military industry find new export customers. The Canada Pavilion hosted trade commissioner briefings on India, Jordan, the UAE, and Israel as part of a larger federal effort to assist Canadian military industries in opening new markets. Most directly involved of many federal agencies and programs are CCC, DFATD, and PWGSC.
The Canadian Commercial Corporation
The CCC is the preeminent national agency supporting the commercial export of military goods from Canada. A Crown corporation, the CCC operates like a broker between Canadian companies exporting military goods and services and foreign government buyers (see Epps 2011). As well as helping to land foreign military sales, the CCC arranges back-to-back contracts that provide guarantees for both contract parties.
As the CCC acknowledges, military sales to the U.S. Department of Defense “form the backbone of CCC’s business” (CCC 2011, p. 3) and have for more than 50 years. Arms exports south of the border are more valuable than all other military exports combined. Under the terms of the Defence Production Sharing Agreement between the United States and Canada, the CCC is required to act as the prime contractor for all Pentagon contracts in Canada valued at more than $100,000. This service is paid for by the Canadian taxpayer through annual appropriations from Parliament.
With the Pentagon facing budget cuts CCC is eagerly seeking sales elsewhere. In 2010 it appointed a Director of Global Defence Sales to promote Canadian military exports in new markets. According to the Corporation’s CEO Marc Whittingham, the CCC is presenting itself as an alternative to the U.S. Foreign Military Sales program, offering service that is “faster, quicker and more flexible than the United States system” (Meyer 2011, p. 11). The approach has had success. The CCC arranged the recent sale of 12 Twin Otter aircraft produced by Viking Air in British Columbia to the Ministry of Defence in Peru. The first aircraft was delivered in 2011. In January the CCC (2013) announced that it had brokered a U.S.$65.3-million deal to supply 24 armoured vehicles built by General Dynamics Land Systems Canada to the Colombian Army.
To ease access to untapped military markets, in the past year alone the Crown corporation has signed memoranda of understanding with the Philippines (Department of National Defence, November 12, 2012), Trinidad and Tobago (Ministry of National Security, April 25, 2013), and Peru (Ministry of Defence, May 22, 2013). The government enthusiastically claimed that these MoUs would create “opportunities for Canadian businesses” (PM of Canada 2013).
The Department of Foreign Affairs, Trade and Development
For decades DFATD has managed contradictory responsibilities for Canada’s export of military goods. On the one hand, DFATD’s Export Controls Bureau is mandated to authorize or deny arms exports, a responsibility that includes the “close control” of military goods or services that could contribute to human rights violations, hostilities, or breaches of UN arms embargoes. On the other hand, DFATD’s trade programs are eager to secure sales of Canadian products, including arms.1
Two recent developments suggest that, if there is internal wrestling with this contradiction, the trade promoters at DFATD are winning. Parliamentary data released in January 2012 on the value of authorized export permits since 2006 shows that in recent years DFATD has been approving arms sales that have a much greater value than the shipments actually made (Epps 2012). Export permits averaging over $5-billion per year were approved during a period when average annual arms shipments totaled less than $500-million. The data points to a permissive export control regime that authorized military exports to 126 states between 2006 and 2011, including exports worth tens of millions of dollars to states at war (such as Algeria, Thailand, and Turkey) or where there were serious government-perpetrated human rights violations (such as China, Egypt, and Saudi Arabia). The evidence suggests that Canadian arms exports are constrained more by decisions of foreign governments than by Canadian export control guidelines.
The other development is the recent expansion of the Automatic Firearms Country Control List (AFCCL). The AFCCL is a uniquely Canadian export control tool designed to restrict the foreign market for Canadian-sourced automatic firearms to eligible countries (see AI & PP 2012). A country not on the AFCCL is automatically disqualified from receiving Canadian firearms. When the list was first announced in 1991, only 13 countries were eligible. By 2001 the number of countries had increased by one. In the subsequent 12 years, the number of countries listed has more than doubled, including 11 added in 2008. With the most recent addition of Colombia in early 2013, the AFCCL now has the names of 34 countries. In the past year DFATD has announced plans to add nine more states including India, Kuwait, Brazil, Chile, Peru, and South Korea. The AFCCL is losing its restrictive nature and is rapidly becoming a list of potential buyers of automatic firearms.
Public Works and Government Services Canada and the Jenkins Report
PWGSC arranges contracts to supply equipment and services to federal government departments, including DND. This role in military procurement has led PWGSC to support military industry sales to new markets.
In response to growing media and public concern about Canada’s broken military procurement system—exposed by government plans to acquire F-35 Joint Strike Fighters at expanding expense—an advisory team led by private industry CEO Tom Jenkins was mandated by then Minister of Public Works Rona Ambrose to provide recommendations on how DND’s procurement system could provide advantages to Canada’s defence industry. The Jenkins report (PWGSC 2013), Canada First: Leveraging Military Procurement Through Key Industrial Capabilities, was released this past February. It promotes the “market opportunity perspective” (p. xiv) to expand sales beyond traditional markets such as the United States and Europe to “emerging markets” in the Middle East, Asia, and Latin America (p. 10). The report notes, for example, that India’s defence market “is expected to grow 5-10% annually in real terms over the next fifteen years” (p. 10) (see Epps 2013a).
Since the release of the Jenkins Report, PWGSC has endorsed its recommendations and begun to implement them. This past May Ambrose met with defence industry representatives in Montreal and Toronto to develop a series of interim “key industrial capabilities” for new military procurement projects. In August the Minister announced additional government investment in a military industry support program, as recommended by the Jenkins report. Henceforth, the pilot Canadian Innovation Commercialization Program will become the permanent $30-million-per-year Build in Canada Innovation Program. The goal behind the expanded program is to make the Canadian government a first buyer and user of prototype products before they are marketed to other customers (Vanguard 2013).
Renewed government support raises questions
The recent initiatives of CCC, DFATD, and PWGSC illustrate the many publicly funded programs that have long supported Canada’s private military industry. Industry Canada finances several incentive and subsidy programs; foremost is the Strategic Aerospace and Defence Initiative (SADI), which provides “repayable” funds to Canadian defence and security companies for research and development projects. In the Economic Action Plan 2013 the government included $1-billion for five years of SADI funding. In September 2013 Minister of Industry James Moore announced the launch of the Technology Demonstration Program to support “large-scale technology demonstration projects” of the aerospace and defence industries. The new program, worth $54-million “in each application cycle,” will “contribute to greater Canadian success in export markets around the world,” according to one industry spokesman (Industry Canada 2013).
These new programs raise fundamental questions.
Will government-funded trade initiatives be effective in helping Canadian companies win new military orders? There is some evidence of early success. CCC has reported recent military contracts with Argentina and Bahrain in addition to the deals with Colombia and Peru already noted. Longer-term prospects are uncertain, however, as Canadian suppliers face growing international competition. The Stockholm International Peace Research Institute (SIPRI 2013, p. 207) reported a “new sense of urgency” in state assistance to U.S and European arms industries to pursue export markets. Australia, Spain, and Sweden are the latest supplier states to establish federal offices to promote military exports.
The markets are also changing. Military industries in South Korea, Singapore, Turkey, South Africa, and Brazil, for example, are emerging as significant suppliers to their own governments and to regional and global customers.
What risks are associated with exporting military goods to new and emerging markets? There are many. Supplying weapons to several governments carries a substantial risk that the weapons will be used in human rights violations. In some targeted countries such as Colombia and India internal armed conflicts correspond to the “hostilities” that call for restraint under Canadian guidelines. The international arms trade is notoriously corrupt, with bribes and kickbacks to procurement officials commonplace.
In such a problematic market, how will Canada manage transfer risks while it is boosting military exports? It will not be easy to square this circle. UN agreement on an Arms Trade Treaty has introduced higher global standards for arms transfer controls. The treaty provides the occasion for Canada to review its export controls and procedures to ensure that they meet or surpass treaty standards. The need to amend some Canadian regulations and practices is already clear (see Epps 2013b). Until this review has occurred, government programs to boost arms exports should operate with due caution. Canadian military goods must not be sold into foreign markets without the controls necessary to ensure that all provisions of international human rights and humanitarian law are observed.
1. The department’s Global Opportunities for Associations (GOA) program, for example, supported a 2011 defence trade mission to Kuwait that saw officials from DND, DFATD, and CCC and Canadian military industry representatives “discuss with Kuwaiti government and military leaders how Canadian and Kuwaiti businesses in the defence and security sector can work together effectively in Kuwait and more generally in the Gulf” (DFATD 2011).
Amnesty International & Project Ploughshares. 2012. Strengthening Canada’s unique export control instrument: The Automatic Firearms Country Control List. May 4.
Canadian Association of Defence and Security Industries. 2013. The Canada Pavilion.
Canadian Commercial Corporation. 2013. Colombia.
_____. 2011. 2011│2012 → 2015│2015 Corporate Plan.
Epps, Kenneth. 2013a. Canada First in emerging military markets? Project Ploughshares website, blog, February 15.
_____. 2013b. Additions and amendments. The Ploughshares Monitor. Vol. 34, Issue 2.
_____. 2012. Neither clear nor transparent. The Ploughshares Monitor. Vol. 33, Issue 2.
_____. 2011. Canadian Commercial Corporation: A Crown company as arms middleman. The Ploughshares Monitor. Vol. 32, Issue 1.
Foreign Affairs, Trade and Development Canada (DFATD). 2011. CADSI leads defence trade mission to Kuwait. News release, December 9.
Industry Canada. 2013. Harper Government launches Key Aerospace and Defence Program. News release, September 4.
Meyer, Carl. 2011. CCC sees ‘untapped market’ for Canadian arms. Embassy Magazine, June 15.
Public Works and Government Services Canada, Special Advisor to the Minister. 2013. Canada First: Leveraging Defence Procurement Through Key Industrial Capabilities. February.
Prime Minister of Canada. 2013. Canada strengthens defence and security ties with Peru. News release, May 22.
Stockholm International Peace Research Institute. 2013. SIPRI Yearbook 2013. Oxford: Oxford University Press.
Vanguard. 2013. New name, more support for defence innovation. August/September, p. 8.