Foreign Affairs Committee on April 15th, 2008

[The Chair, Conservative, Kevin Sorenson]

Good afternoon, everyone.

This is meeting number 24 of the Standing Committee on Foreign Affairs and International Development, on Tuesday, April 15, 2008. Today we will have a briefing on the proposed sale of Radarsat-2.

For our committee's information, we will also have the opportunity for committee business at the end of the second hour. In that business, we have a report from your steering committee that we would like reviewed and adopted. There will also be time for other committee business.

In our first hour we have a witness testifying via video conference from the University of British Columbia, Professor Michael Byers, Canada Research Chair in Global Politics and International Law.

Good afternoon, Professor Byers.

[Professor Michael Byers, Canada Research Chair in Global Politics and International Law, University of British Columbia]

Good afternoon. Thank you for having me.

[The Chair, Conservative, Kevin Sorenson]

We also have Steven Staples, who is the chair of the Rideau Institute on International Affairs, and Pierre Leblanc, who is president of Canadian Diamond Consultants Inc. Welcome, Mr. Leblanc and Mr. Staples.

From the firm Sack, Goldblatt and Mitchell, we have Steven Shrybman, a lawyer with this firm. We welcome you as well.

I think most of you have appeared at committee before. If we could ask you for your opening comments, that would be appreciated, and then we will move into rounds of questions and answers.

Mr. Byers, thank you for attending from British Columbia. You may begin, please.

[Prof. Michael Byers]

I would like to begin by thanking the committee for inviting me to appear, especially for allowing me to do so by video conference. It's my wife's birthday today, which made it imperative that I stay in Vancouver.

Six weeks ago I testified before the industry committee on the implications for Canadian sovereignty of the proposed sale of MacDonald Dettwiler's space division. I have a strong interest in that dimension of the issue, being the leader of two separate sovereignty-related projects for ArcticNet, a federally funded consortium of scientists from 28 Canadian universities and five federal departments.

I know that Colonel Pierre Leblanc will speak following my comments, and I will simply say in advance that I almost certainly endorse his views. As the former commander of Canadian Forces Northern Area, he knows more about the importance of remote sensing satellites to Canadian sovereignty in the Arctic than anyone.

Arctic sovereignty was a central factor in the decision announced last week to block the proposed sale. As Industry Minister Jim Prentice said in the House of Commons, “...we have stood up in space and we have stood up in defence of Canadian sovereignty”.

This aspect of the decision is entirely consistent with Prime Minister Stephen Harper's public assertion that he is “passionately committed to protecting and defending” the north. So am I, and I would be pleased to answer any questions that you might have on the sovereignty dimension.

But in the few minutes that I have today, I want to address a consequence of the government's decision that I believe falls clearly within the mandate of this committee as a body charged with studying foreign affairs.

With all respect, the government made the right decision, but implemented it in a less-than-perfect way. Instead of using the net benefit test in the Investment Canada Act, I believe that Mr. Prentice should have left the matter to Maxime Bernier, the Minister of Foreign Affairs, who could have refused to transfer Radarsat-2's licence without creating a precedent for other foreign investments.

The 2005 Remote Sensing Space Systems Act was adopted specifically in anticipation of the launch of Radarsat-2. That legislation empowers the foreign minister to deny any transfer of a licence that imperils “national security” or “defence of Canada”, as the sale of Canada's eyes in the Arctic would have done.

Having testified before the Standing Committee on Foreign Affairs and International Trade three years ago on this issue, on that specific draft legislation, I clearly recall both the Conservative and Liberal members concluding that the foreign minister has more than sufficient powers to block the satellite sale.

The Investment Canada Act is not nearly as clear and specific. The industry minister is directed to consider a number of economic factors, but there is no mention of national security, meaning that Mr. Prentice had to read that factor in as an implicit consideration. As a result, Mr. Prentice has created a degree of uncertainty for potential future foreign investors, and not just in the space industry.

Which Canadian assets and companies are protected by this implicit national security exception? Are shipyards that build navy and coast guard vessels off-limits? What about the companies that train pilots for the Canadian Forces? What about our ports and railways and the companies that operate them?

An implicit national security exception creates unnecessary political risk for investors, most of whom would not be deterred by an explicit test, especially an explicit test that was coupled with specific criteria. Markets do not require an absence of regulation. They require regulatory clarity and stability.

Free trade and foreign investment are entirely compatible with an explicit national security test. The United States has an explicit test that includes the protection of critical infrastructure in the energy, communications, and transportation domains. Britain, France, Germany, and Japan have explicit national security tests. So too does China, one of the greatest recipients of foreign investment and a full-fledged member of the WTO.

In my view, the Canadian government has little choice in the matter now. It has to place an amendment to the Investment Canada Act before Parliament that would bring our legislation into line not just with other countries, but also with Mr. Prentice's decision last week, and that amendment should be studied and debated, not just by the industry committee, but also by your committee. Any controls on foreign investment that are grounded in national security are centrally matters of foreign affairs.

Finally, it is important to note that consideration of an explicit national security test was already planned before last week's decision. Last December Mr. Prentice issued new guidelines on how the net benefit requirement of the Investment Canada Act would be applied to foreign state-owned enterprises such as national oil companies or sovereign wealth funds. This move was prompted by concerns that Chinese state-owned companies might buy into the Alberta tar sands. Last week's blocked sale was not covered by these guidelines, since Alliant Techsystems is not a foreign state-owned enterprise. It is a foreign private-owned enterprise that conducts most of its business with a foreign state, a difference that in retrospect is less significant than Mr. Prentice probably assumed last autumn.

Last November Mr. Prentice also announced that cabinet would be “examining the necessity for an explicit national security test for foreign investment”. “In doing so”, he said, “we will examine what other G-8 countries have done, as well as our obligations under international trade arrangements.”

This examination was made contingent, in part, on the conclusions of the Competition Policy Review Panel, which is due to issue its recommendations in June. We are therefore moving towards an explicit national security test, though hardly fast enough. In the wake of Mr. Prentice's decision, it is imperative that Parliament provide clarity for foreign investors, not next year, but as soon as possible.

At the same time it is important that Parliament get it right, and that, I respectfully suggest, requires that your committee, the foreign affairs committee, give the Investment Canada Act your careful yet immediate attention. Because when we start talking about blocking foreign investments on the basis of the impact that a foreign investment would have on something like sovereignty or national security or the defence of Canada, we are going beyond the investment realm and into the realm of foreign affairs.

I look forward to any questions you might have.

Thank you.

[The Chair, Conservative, Kevin Sorenson]

Thank you, Mr. Byers.

We will move to Mr. Leblanc.

[Colonel, Retired) Pierre Leblanc (President, Canadian Diamond Consultants Inc.]

Mr. Chairman, members of the Standing Committee on Foreign Affairs and International Development, thank you for the opportunity to share with you my concerns about the potential sale of Radarsat-2 to Alliant Techsystems.

From July 1995 to July 2000, I was the commander of Canadian Forces Northern Area, which encompasses our three territories. During that time I quickly came to the conclusion that the assets Canada had for the security and sovereignty of the Arctic were severely inadequate.

Until the end of the Cold War, the Arctic was basically a no man's land between the Soviet Union and NATO. There was little activity other than military activity. Since then, the Arctic has seen a huge increase in development, which has generated increased levels of human activity. More alarming, in my view, have been the multiplicity of reports about global warming and the speed at which it is taking place in the Canadian Arctic.

On the one hand, the government at that time was reducing the very limited resources required to ensure our security and sovereignty in the Arctic. On the other, I could see signs that the Arctic was opening up like never before from an economic, and more importantly, from an access point of view, which would lead to challenges to our claims regarding our internal waters and would increase significantly the threat to an extremely fragile ecosystem.

One of the challenges that was evident was that global warming was in the process of opening up the Northwest Passage, creating a shorter route between two large trading blocks--Europe and Asia--and improved access for resources exploitation. This would naturally lead to increased maritime traffic and to potential challenges to our sovereignty. The route between Japan and Europe is reduced by 37% if ships go through the Northwest Passage instead of the Panama Canal and by 64% for ships that have to go around Cape Horn because their size prevents them from going through the Panama Canal.

The potential increase in maritime traffic will increase the threat to a very fragile ecosystem, as I've mentioned. The cost of cleaning up the Exxon Valdez accident exceeded $2 billion, and it took place near a very large port facility. Given the value of crude oil, it is only a matter of time before its exploitation resumes in the Arctic. How much would it cost to clean up a similar accident near Resolute Bay? What if it was a ship with a flag of convenience and no assets?

Canada has in place the Arctic Waters Pollution Prevention Act, but to date we lack the resources to monitor the situation in the Arctic and the assets to intercept in a graduated and timely manner. It is similar to posting speed limits when everybody knows that the police have no radar or patrol cars. Most people will respect the rules; the bad guys won't.

Back in 2000, I briefed the defence department on my concerns. In 2001 I also wrote a paper on the lack of security assets to protect the Arctic. I understand that a copy has been or will be provided to you. At the time, I recommended surveillance of the Arctic using space-based assets, along with a number of other recommendations. I was very pleased two years ago to see the present government start to allocate new resources to our sovereignty in the Arctic. It is, in my view, a wise investment.

Two systems showed great promise for monitoring the access points to the Arctic archipelago: Radarsat-2 and Canadian-developed high-frequency surface wave radar. Unfortunately, the project to install the high frequency surface wave radar has been cancelled. And now there remains the possibility of the sale to a foreign company of the best asset we have to monitor maritime traffic in the Canadian Arctic.

I can see a number of scenarios in which Canada may not be well served by the sale, depending on the specifics. If the satellite and its controls belong to a U.S. company, it will fall under laws such as the Patriot Act, and the company may be compelled to act in a manner not consistent with Canadian interests. For example, some information of interest to Canada may not be provided if it is not in the national interest of the United States. Another scenario could be that the priority of effort for the satellite will be redirected to support a U.S. situation, leaving Canada with no coverage of the Arctic.

What if, in a number of years, there are compelling reasons to move the controlling facilities outside of Canada? What if the company is then sold one more time, this time to a company from a nation with which Canada has some concerns?

The U.S. recently blocked the sale of a stake in 3Com to a Chinese company for national security reasons. 3Com produces routers and networking equipment. I am of the opinion that to maintain positive control of the satellite, its assets must be based completely in Canada and not be subject to the influence of any other jurisdiction.

We must remember that our claim to the waters of the Arctic Archipelago is not recognized by the U.S. or the European Community. It is a contested area. For Canada to assert its sovereignty over that area, it has the duty to monitor it adequately and enforce its laws upon it. Until Radarsat-2 becomes operational, Canada does not have the means to monitor the Arctic properly.

To effectively monitor surface maritime activity, we must use Radarsat-2 and cross-reference the data to NordREG, the regulatory maritime system in the Arctic. NordREG, unfortunately, is still done on a voluntary basis, despite the improvements to our security regime post-9/11. Making it compulsory would provide a solid database against which Radarsat information can be cross-referenced, allowing us to quickly identify discrepancies and take appropriate action when necessary.

I therefore urge the government to act very cautiously with regard to approving the sale of Radarsat-2 and to continue to block the sale, unless it is absolutely convinced that it will retain full control of this essential asset now and in the future. It is in the security and sovereignty interests of Canada.

Thank you for your attention.

[The Chair, Conservative, Kevin Sorenson]

Thank you, Mr. Leblanc.

We will move to Mr. Staples and Mr. Shrybman. Am I correct in assuming you're splitting your time?

[Steven Staples, Chair, Rideau Institute on International Affairs]

Yes, you are.

[The Chair, Conservative, Kevin Sorenson]

Thank you very much. Continue, Mr. Staples.

[Steven Staples]

Mr. Chair and members of the committee, thank you very much for inviting me today.

I'd like to introduce Mr. Steven Shrybman, our legal counsel, who is prepared to provide you with information and take your questions regarding our legal opinion on the Remote Sensing Space Systems Act and the conflict with U.S. law should Radarsat-2 be purchased by a corporation subject to U.S. law.

We have long expressed at the Rideau Institute our concerns about the proposed sale of the MDA space division to Alliant Techsystems, or ATK, and we have similarly expressed our support for Industry Minister Prentice's decision to not approve the deal under the Investment Canada Act. In our view, the government is moving in the right direction.

However, we've also underscored the need for the government to address the long-standing lack of a clear direction for Canada's engagement and use of space. What we need now, maybe more than ever, is a national space policy.

Now that the deal is dead, or at least barely moving, the government needs to assure the industry, the scientists, and the engineers working in the industry that Canadians cherish our space capability and will make a commitment to see it flourish.

In 2005 the Canadian space industry generated over $2.5 billion in overall revenues, of which 50% stemmed from exports, a testimony to Canada's international recognition as a reliable and sought-after space partner.

Globally, space is a $100-billion market worldwide, growing at nearly 7% yearly. The space sector is a proven catalyst, enabler, and driver for innovation, knowledge, state-of-the-art technology, and the development and delivery of cost-effective services. Yet Canada's investment in space, in civilian space in particular, is declining. According to Athena Global, between 2000 and 2004, as expressed as a percentage of GDP, Canada's investment in civilian space declined by 10%. Meanwhile, in the U.K., for instance, their investments in space increased by 25%.

Currently, there is a fragmented approach by different ministries and departments to the role of space-based systems in meeting their respective mandates. There is an urgent need to pull these various interests together under a coordinated and coherent framework. Such an approach would help the Government of Canada focus on developing space technologies and programs useful for implementing a wide range of government policies, make a more cost-effective use of federally appointed budgets, and favour an integrated Canadian policy-making approach.

By the way, 2007 marked the 40th anniversary of the entry into force of the outer space treaty. Ratified by 90 countries, the treaty has enabled the peaceful uses and exploration of space and has contributed to maintaining international peace and security.

Space technologies provide a critical infrastructure to the military, and today, space remains the only environment where no weapons have yet been placed. In order to ensure that space remains safe and secure for all space players, Canada should continue to advocate the non-weaponization of space, as well as strengthening the outer space treaty. We view this priority as part of a national space policy for both domestic policy and our representations internationally.

The adoption of a Canadian space policy based on the peaceful exploration of space would enable the government to achieve numerous objectives, such as developing space programs and technologies that serve Canada's public policy objectives; ensuring and protecting the safety and security of Canadians, the Canadian Forces, and Canada; and promoting a competitive space industry and providing economic leadership.

The time has come for Canada to consider space as a whole and to comprehensively address these issues, ranging from national security and the non-weaponization of space to providing critical infrastructure and promoting our industry.

Our recommendation would be that the Department of Foreign Affairs, and possibly even this committee, should structure a public consultation process to initiate engagement of Canadians in developing a new national space policy. This could include online consultations, regional hearings, and expert studies looking at the various aspects of space. The foreign affairs committee could prepare its own report to contribute to a government process, along with other affected committees such as industry and defence.

What's needed now is the political commitment to space as an area of important national priority.

I turn now to Mr. Shrybman to provide remarks on the legal study.

[The Chair, Conservative, Kevin Sorenson]

Thank you, Mr. Staples.

Mr. Shrybman.

[Steven Shrybman, Lawyer, Sack, Goldblatt and Mitchell]

Thank you very much, Mr. Chairman and members of the committee.

As Mr. Staples indicated, on behalf of the Rideau Institute and the Canadian Auto Workers we prepared a legal opinion and submitted it as a brief to Ministers Prentice and Bernier. The subject of the opinion is Canadian and U.S. law as they relate to Radarsat-2 and its ability to collect images of the earth and the way in which that information may be shared.

Because of the strategic importance of images collected by satellites such as this, Canada has legislation, the Remote Sensing Space Systems Act, which I'm sure you're familiar with, which stresses the strategic value of this information as, in the terms of the statute, being important to ensure “national security, the defence of Canada, the safety of Canadian Forces, Canada’s conduct of international relations, Canada’s international obligations”, and two other criteria that have been added by regulation under the act which have to do with the competitiveness of the Canadian space industry.

Under the act, in order to operate a satellite like this a company needs to obtain a licence. The act obliges the company to maintain control of the satellite and of the images it gathers, imposes certain constraints on the extent to which those images may be shared with other nations, and finally, asserts the right of the Government of Canada to priority access and in some cases to exclusive access to the information the satellite gathers, underscoring the strategic importance and value of the information that a satellite like this can collect.

The U.S., not surprisingly, has similar legislation. Their statute is called the Land Remote Sensing Policy Act, and it asserts the same types of public controls and public issue priorities that our legislation does. So the question naturally arose as to which legislation would apply if this sale were to go through, and it was quite clear—and we cite the provisions in our opinion—under the U.S. law that it would apply to Radarsat-2, if it were acquired by Alliant Technologies.

I'll just read the key provision from the consolidated federal regulations under section 960.2, as follows:

The Act and the regulations in this part apply to any person subject to the jurisdiction or control of the United States who operates or proposes to operate a private remote sensing space system, either directly or through an affiliate or subsidiary, and/or establishes substantial connections with the United States regarding the operation of a private remote sensing system.

We were told by ATK that it was going to incorporate a subsidiary, which would operate in Canada. But it's clear under the U.S. law that it would apply to a Canadian subsidiary of ATK operating in this country, with respect to the images collected by the satellite.

I'll just refer you to a couple of other provisions of the regulations. Under section 960.11:

The licensee shall maintain operational control from a location within the United States at all times, including the ability to override all commands issued by any operations centers or stations.

Because of the importance of the information gathered by the satellite, the U.S. is able to assert, as does Canada, priority control over the satellite and may issue directions, and this is under subsection (4) of section 960.11:

The licensee may be required by the Secretary to limit data collection and/or distribution by the system as determined to be necessary to meet significant national security or significant foreign policy concerns, or international obligations of the United States

I know the Minister of Industry has already made a preliminary determination, but given the importance of this legislation and the role of the Minister of Foreign Affairs, it seems appropriate for this committee to be inquiring into this issue as well.

We addressed our letter to both ministers because we believe that this issue of control of the images collected by the satellite has important implications for economic development in Canada, the north being only one such example. So it was appropriate for Minister Prentice to take all of this into account, but even more appropriate for your committee and for the Minister of Foreign Affairs to be apprised of the conflict between U.S. law and Canadian law as it relates to this satellite, if this sale were to proceed.

Thank you.

[The Chair, Conservative, Kevin Sorenson]

Thank you very much to all our guests.

We'll move into the first round of questioning. We'll go to Mr. Chan for seven minutes.

[Raymond Chan, Liberal, Richmond, BC]

Thank you, Mr. Chairman.

Thank you, gentlemen, for giving us that very detailed and useful briefing.

The first question is to Mr. Shrybman. With your analysis of the provisions of the legal conflict between the Canadian and American systems, would you be agreeing with Mr. Byers that the government has a less than perfect way to deal with this? Would the foreign affairs minister, based on the acts we have, have enough authority to block the sale? That's the first question.

The second question is to the rest of the panellists here. Of course, when we consider foreign affairs decisions we cannot base our decision purely on what the impact is on the industrial side, about the livelihood of our space sector. I would like to see whether any of you can shed some light on what kind of minimum investment you think the government would have to make to support a viable, vibrant space industry.

[The Chair, Conservative, Kevin Sorenson]

Thank you very much, Mr. Chan. I think you mentioned Mr. Shrybman and Mr. Byers, and then the others, if they want to join in.

We'll go to Mr. Shrybman first.

[Steven Shrybman]

With respect to the Investment Canada Act decision that Minister Prentice has made, as my client has indicated, we're entirely in support of that decision.

One of the difficulties we have with the Investment Canada Act process is that it's very opaque, so we have no idea really what transpired when the company ATK sat down with ministry officials to discuss the merits or demerits of the deal.

We certainly think he came to the right conclusion, one we believe entirely defensible, at least on the information that is part of the public record as we're aware of it. We think it was appropriate for the minister to also take into account, as I've just indicated, the implications of the application of U.S. law to the images collected by the satellite.

I don't think we have any complaint about the way in which the Minister of Industry has proceeded.

[The Chair, Conservative, Kevin Sorenson]

Thank you, Mr. Shrybman.

Mr. Byers.

[Prof. Michael Byers]

Let me say as well, to be entirely clear, that I support Mr. Prentice's decision. I also support his stated intent to seek a national security exception through an amendment to the Investment Canada Act in the future. My only point here is that of those two policies, one got ahead of the other, in the sense that he had to read an implicit test into legislation to which he was already intending to seek an amendment to put in an explicit test later.

The point here again is that we need an explicit test in the Investment Canada Act and that the situation of Radarsat-2 and MacDonald Dettwiler underlines that point quite dramatically.

In terms of the satellite in question and the specific legislation available to the foreign affairs minister, I believe that Minister Bernier could have blocked this sale by taking the “transfer of licence” necessity into consideration and refusing the request for the transfer.

But I must say as well that one advantage of doing this under the Investment Canada Act is that the actual blocking of the sale is not restricted to Radarsat-2. That's very important, because Radarsat-2 has an expected lifespan of only seven years. We need to be moving towards the next generation, towards Radarsat-3, if we are to protect Canadian sovereignty and national security in eight, nine, ten, fifteen, or twenty years' time. There, we have to think about the technology in terms of the intellectual property, and not just about the equipment that is currently in orbit.

In that context, I would encourage this committee to support Mr. Prentice's decision, but take it upon itself, in conjunction with the industry committee, to work as quickly as possible to introduce that national security test in an explicit fashion into the Investment Canada Act, so that this kind of unfortunate and unnecessary messiness does not occur again.

[The Chair, Conservative, Kevin Sorenson]

Thank you, Mr. Byers.

Mr. Leblanc.

[Col Pierre Leblanc]

Mr. Chairman, I don't have a position in terms of the resources we would need to invest in maintaining this company. I'm not familiar with the details.

I would take the opportunity, though, to raise a concern that I have about the amount of public funding used to develop this technology over the years benefiting a foreign company, ultimately.

[The Chair, Conservative, Kevin Sorenson]

Thank you, Mr. Leblanc.

Mr. Staples.

[Steven Staples]

I would only add briefly to this, and I take your point, Mr. Chan, that we have to look at the broader implications of these things, and not just industry ones.

I'm reminded of a U.S. ambassador who always reminded Canada that in the view of the United States, security trumps trade sometimes, the point being that national security interests sometimes have to come ahead of industry. I think that's a point we need to be reminded of here.

In particular, on the question of funding, the Canadian Space Agency's budget—and I think we have a representative from the CSA following us—has been stagnating for about a decade now, at about $300 million. That is very small when you consider, for example, that the sticker price of a C-17 transport aircraft is almost three times that, and we've bought four of those planes. Just in terms of that comparison, the entire CSA budget is only a fraction of that. So I would see at least another $300 million in the next budget that could be devoted to getting some of the programs that are on the books and waiting for the release of funds moving again.

We've spoken to MDA staff, who say they are looking for direction on particular programs, such as Radarsat Constellation—Radarsat-3, 4, and 5. We could get that moving. But I would say that $300 million in the next budget would be a good figure to get started with.

[The Chair, Conservative, Kevin Sorenson]

Thank you, Mr. Staples.

We'll move to the Bloc, Madame Deschamps and Madame Bourgeois.

[Johanne Deschamps, Bloc, Laurentides—Labelle, QC]

I would like to go first, Mr. Chairman. Before the witnesses spoke, I had raised my hand and you did not give me the floor.

After listening to the panellists' testimony, in particular that of Mr. Staples and Mr. Byers, I think it is very relevant that I speak at this stage of the Bloc's motion that I recently sent to the clerk. I would like to have the support of committee members. This motion is extremely pertinent and relates to the current study of the sale of Radarsat-2 and MDA assets, among other things.

[The Chair, Conservative, Kevin Sorenson]

Madame Deschamps, I'm questioning how it is best to proceed. What I would suggest is that at the conclusion of the meeting we take the time to have this motion. If you bring the motion forward now, we can debate the motion now, but I will cut debate off at seven minutes, so that every party gets the opportunity to question the experts in the panel.