Government support for the arms industry

Analysis and Commentary, Conventional Weapons, Featured, Ploughshares Monitor

Published in The Ploughshares Monitor Volume 42 Issue 4 Winter 2021

For more than half a century, Canadian arms manufacturers have been selling weapons to foreign states. Much of this economic activity is the direct result of government assistance. From brokering contracts to staffing international arms fairs, the Canadian government goes to bat for Canadian weapons manufacturers.

Understanding government support

The Canadian government provides more support to the defence industry than to other business sectors. Why? First, it’s common practice – many states do this. It is also commonly believed that the production of military goods creates a range of economic benefits. As well, a domestic arms industry is seen to buttress national security by ensuring a weapons supply and reducing reliance on foreign sources.

To ensure the long-term viability of Canada’s defence industry, the government helps to secure foreign contracts and facilitate trade. In most years, more than half of all military goods produced in Canada are exported.

There are also political and strategic benefits. The ability to supply weapons to old and new allies strengthens ties with likeminded states and is seen to promote national security interests.

These reasons, among others, incentivize the Canadian government to, in effect, subsidize domestic manufacturers of military goods. Subsidies can take a variety of forms. For example, the Canadian military might opt to procure domestically manufactured weapons instead of cheaper foreign alternatives (see the ballooning cost of the Canadian Surface Combatant ships). The government also offers grants and funding opportunities to support relevant domestic research and development through bodies such as Defence Research and Development Canada.

However, the relatively small Canadian Armed Forces need only so many military goods, especially in times of relative peace. Not enough to keep many manufacturers in business. And so arms manufacturers turn to foreign markets. To ensure the long-term viability of Canada’s defence industry, the government helps to secure foreign contracts and facilitate trade. In most years, more than half of all military goods produced in Canada are exported.

The Canadian Commercial Corporation

Established in 1946, the Canadian Commercial Corporation (CCC) is a Crown corporation, wholly owned by the Canadian government. It brokers deals between Canadian businesses and foreign governments, with the Canadian government acting as the prime contractor between supplier and recipient government. Between 60 and 70 per cent of CCC-brokered deals involve military goods.

In 1956, the CCC was critical in negotiating the Defence Production Sharing Agreement (DPSA) between Canada and the United States. DPSA established a unique bilateral trade agreement in military goods. Even today, most CCC-brokered deals for military goods involve exports to the United States, which is Canada’s largest foreign customer for arms. In a 2021 publication for Canadian suppliers, the CCC applauded the outlandishly large budget of the U.S. Department of Defense (731.8-billion USD in 2019) for “creating a lot of opportunity for [Canadian] businesses with something to offer.” In FY2020, the CCC directly brokered weapons contracts with the United States valued at nearly $900-million.

The CCC also negotiated the 2014 deal in which Saudi Arabia purchased Canadian light-armoured vehicles (LAVs) and services valued at $14-billion from General Dynamics Land Systems-Canada (GDLS-C). As the prime contractor, the Canadian government is liable for any disruptions in the supply of goods or hiccups in payment.

Export Development Canada

The relationship between Export Development Canada (EDC) and the Canadian arms trade is not widely understood. EDC describes itself as “Canada’s Export Credit agency.” A 2019 article in The Globe and Mail describes EDC’s mandate as helping “Canadian exporters succeed in foreign markets by providing government-backed loans, guarantees, insurance and other financial services,” while noting that it “enjoys one of the broadest mandates of any of its peers worldwide.”

Although most EDC support is geared to the commercial sector, some is extended to industries that deal in both commercial and military goods. However, EDC data lacks sufficient detail to determine the exact proportion of transfers destined for military use.

Aerospace companies that engage in both civil and military exports have been greatly assisted by EDC. Bombardier, CAE, Pratt & Whitney Canada, and Bell Helicopter Textron Canada have collectively received billions of dollars in financial backing.
The Streit Group manufactures armoured vehicles primarily for military and security services. Originally based solely in Canada, but now headquartered in the United Arab Emirates, it has received support from EDC on several occasions. The seven separate loan guarantees that Streit Group received from EDC between 2003 and 2015 allowed the company to transfer armoured vehicles to the Philippines, Singapore, the UAE, and some unspecified locations. In 2008, EDC also helped finance Streit’s foreign direct investment to the UAE.

Streit’s expansion into the UAE has been viewed as a way of circumventing Canadian export controls. The company is arguably Canada’s most scandal-plagued arms manufacturer in operation today, and has directly or indirectly provided weapons to belligerents in Libya, Sudan, South Sudan, Yemen, and a host of other countries embroiled in conflict, including those under United Nations Security Council arms embargoes. Such transfers have led to investigations from the UN, the Royal Canadian Mounted Police, and the U.S. Commerce Department.

There is clear evidence that EDC facilitated the transfer of Canadian-made technology to repressive regimes in 2016. Netsweeper, a Waterloo-based company that produces content-filtering software, secured financing support from EDC to sell their products to Bahrain. According to reporting from human rights and technology monitoring groups Citizen Lab and Above Ground, this technology was being used by the Bahraini government to detect criticism directed against it on websites and filter content associated with minority religious groups.

These revelations eventually led to a study by the Canadian Standing Senate Committee on Human Rights; the findings of the study called for more oversight of the transfer of Canadian tech abroad and greater protection of human rights by both EDC and Canadian industry. EDC has not supported Netsweeper since 2016.

According to the most recent filings from GDLS-C, Saudi Arabia is 1.9-billion USD behind in payments. In August 2019, Global Affairs Canada announced a $650-million loan to GDLS-C. The transfer was made through EDC’s “Canada Account,” a major windfall fund about which little is known. EDC uses the Canada Account to promote the “national interest.”
At the same time that the loan was announced, Canada’s Department of National Defence announced a surprise purchase of up to $3-billion in GDLS-C LAVs for the Canadian Armed Forces. Canadian journalists and academics have viewed this purchase as an additional measure to make up for missing Saudi payments.

A dependable ally

When responding to negative stories about the proliferation of Canadian weapons, government officials frequently characterize Canada as a reluctant player in the international arms trade. But the activities of government departments and agencies suggest the opposite. Perhaps it is time for Canadians to decide if they want their government to support such activities.

Photo: Bahraini security forces and police SUVs patrol the besieged village of Eker in October 2012. Public Domain

Spread the Word