Foreign Affairs Committee on May 4th, 2021

[The Chair, Liberal, Sven Spengemann]

Honourable members, welcome to the 32nd meeting of the Standing Committee on Foreign Affairs and International Development.

Pursuant to Standing Order 108(2) and the motion adopted by the committee on Thursday, October 29, 2020, the committee is continuing its study of the granting of arms export permits, with a particular focus on permits granted for exports to Turkey.

As always, I would encourage you to remain on mute when you're not speaking. When you have 30 seconds remaining in your questioning or testimony time, I will signal you with this yellow piece of paper.

Interpretation as always is available through the globe icon at the bottom of your screens.

I would like to now welcome our witnesses for the first panel. We have with us the Honourable Gar Knutson, P.C., chair of the Canadian Turkish Business Council; Christyn Cianfarani, president and chief executive officer of the Canadian Association of Defence and Security Industries; and Mike Mueller, interim president and chief executive officer, Aerospace Industries Association of Canada.

Mr. Knutson, the floor is yours to lead us off with introductory remarks for five minutes, please.

[Gar Knutson, Chair, Canadian Turkish Business Council]

Thank you, Mr. Chair and esteemed members of the committee. Also, if Dr. Fry is on the call, I wish her a personal hello as a former colleague.

On behalf of the Canada Turkish Business Council, or CTBC, I will begin by thanking the committee for the invitation to appear as part of your deliberations on the issue of export permits for Canadian defence products to Turkey.

As some of you know, I am a former member of Parliament who served as Minister of State for Central and Eastern Europe and the Middle East, and Secretary of State for International Trade.

I am here today in my role as chair of the Canada Turkish Business Council.

The CTBC is a chartered, not-for-profit organization formed in 2001. We carry out a variety of activities to serve our members and enhance commercial relations between the two countries, including coordinating two-way trade missions, conducting outreach in Canada and Turkey, and advising members on how to facilitate commercial opportunities.

Specific initiatives we have supported include the negotiation of a double taxation agreement between Canada and Turkey and the establishment in 2019 of a bilateral joint economic and trade committee, or JETCO, headed by the respective Canadian and Turkish trade ministers.

The members of the CTBC are part of a broader business community that exports annually approximately $1.2 billion of goods to Turkey, the largest sector being aerospace, followed by agriculture particularly from Saskatchewan.

Our members see Turkey as having huge potential for their individual businesses and more generally increasing imports from Canada. Our hope is that the issue of cancellation of these export permits and the process of re-establishing confidence in the end-use assurances will not unduly hurt the relationship so as to put exports outside a specific segment within defence at risk. We hope that in the immediate term the government continues to actively support an expansion of Canadian non-military exports to Turkey, or qualifying military exports, thereby helping facilitate the continuation and growth in Canadian jobs.

At the risk of stating the obvious, our members share Canadian values that underpin the robust export control system.

Having provided you views that originate with our members outside the defence industry, I would be remiss if I did not pass on concerns of our members that export group 2 controlled goods regarding the current process.

From my work as a lawyer and a consultant, I am aware that the process of approving or denying an export permit is too often non-transparent, particularly if concerns are raised during the internal consultations, and most importantly, too often takes too long to provide an answer.

To be clear, I've had many interactions over the past year with the export control desk at Global Affairs and they've been nothing but professional. It is not Global Affairs personnel who are the challenge to permit issuance, but the process itself, which at times seems to be designed without consideration for the implications for businesses, small, medium, large and very large, that are trying to sustain jobs and industrial capability in Canada.

In short, businesses require transparency, predictability and accountability when they apply for permits. Service standards that are not met are a poor guide for suppliers and customers and lead to reputational damage for all parties. If companies know that permits will take longer and are told up front a realistic time frame, it is easier for them to plan accordingly and give customers an accurate sense of delivery expectations.

Global Affairs staff should be able to set some time limits on consultee responses such that if there is no response within a certain time, there is a presumption of no concern. Only by having some measure of accountability from the consultees can Global Affairs hope to keep to their service standards. Similarly, companies would appreciate an opportunity to engage with consultees who raise questions or objections. Often technical or confidential commercial information can add clarity to a permit request that a non-technical evaluator might not immediately grasp. Such engagement adds to the sense of transparency since companies are often left feeling that the process is arbitrary, capricious and unpredictable.

I know of at least two companies at present that are considering relocating their manufacturing outside Canada because the export permit issue has made doing business as a Canadian firm impractical. Those two companies alone would represent the loss of approximately 300 direct jobs and affect several hundred indirect jobs.

We should be focused on understanding what is in Canada's interests. Supporting a company that is going to export a product through Turkey to a country with which we are on good terms seems to make perfect sense but is now impossible. Supporting such a company during hard times also makes sense. Supporting companies that are equipping UN missions or working with the U.S. to supply humanitarian supply missions also makes sense.

Finally, there should be no need to go through the entire permit review process any time a piece of equipment that has been bought and paid for, and is now wholly owned by another country, is sent back to Canada for repair as part of the initial permit terms. Having a separate stream for such repair and maintenance permits would seem to be an obvious correction that could be implemented fairly quickly.

I hope I haven't run over time. On a personal note, I want to say hello to Dr. Hedy Fry.

Thank you.

[The Chair, Liberal, Sven Spengemann]

Thank you very much, Mr. Knutson, for your testimony and your greetings.

We'll turn the floor over now to Ms. Cianfarani for five minutes, please.

[Christyn Cianfarani, President and Chief Executive Officer, Canadian Association of Defence and Security Industries]

Thank you very much for inviting me to share our views on Canada's export control system.

We presently represent over 400 Canadian firms—over the last five years, we have represented, at times, nearly 1,000 firms—that produce technologies and services for the Canadian Armed Forces and authorized foreign customers.

First off, CADSI does not advocate on behalf of individual companies, their defence procurements or their export permits, and we are not privy to the details of company-specific business pursuits. I am not able to comment on any specific transactions. I'm here to give you an industry-wide view on Canada's export control system.

Accounting for over 50% of industry revenues, exports are critical to our industry. The Canadian market is too small to sustain it, and our firms produce products that are sought around the world. For these reasons, our companies need a timely, efficient, consistent and predictable export control system with clear rules.

Unfortunately, in recent years, Canada's export control system has not met these considerations. It's now a competitive disadvantage for an industry selling into a fiercely competitive and export-intensive global market.

We believe that it is possible to have a timely, efficient, consistent and predictable export control system that also keeps Canadian-made defence products out of the hands of adversaries or regimes that use these exports to abuse human rights. We used to have such a system, and we need to get it back on track.

The export permit is the last step in a long business process. The government needs to provide companies with more information and transparency upfront as to the countries and end-users it considers high risk. We need to know where there's a low probability of export permit approval.

I shared this very message when I spoke before this committee in 2017, to express industry's support for Bill C-47 and Canada's accession to the United Nations Arms Trade Treaty. Unfortunately, according to the annual report to Parliament on military exports, Global Affairs' record in meeting its own service standards for permit approvals has steadily declined since then.

In 2017, GAC met its standard for reviewing permits of group 2 items to Canada's closest partners 96% of the time. In 2019, this fell to just over 70%. GAC's own performance target is to meet the standard of 10 days for Canada's closest partners and 40 days for other destinations 90% of the time. There are examples of export permit applications that have languished in the department for more than 500 days without a decision.

We estimate that these delays and uncertainties have cost our members hundreds of millions of dollars in lost contracts and business opportunities. Furthermore, industry's inability to tell its customers, typically other nation states, when they will receive their goods is damaging Canada's reputation as a reliable trading and security partner.

The inability to meet service standards is not attributable to Canada's accession to the UN ATT. The trend predates that. In addition, the new obligations of the UN ATT only apply to conventional weapons systems, of which Canada produces very few, nor has there been an increase in the number of defence export permit applications that could account for this problem. In fact, GAC received $13 million in budget 2017 to help implement the UN ATT.

This committee is looking at defence exports to Turkey. The 2019 temporary suspension of new export permits to this country is an example of the government's lack of transparency and poor communications with industry. The industry has been exporting to Turkey, a NATO ally, for decades. We learned of this suspension through the media, with no further information provided by the government until April 2020—six months later.

In addition, we were not told whether the suspension applied to all or some of the seven groups of controlled goods. We were not told whether it applied to all Turkish end-users or only those that posed a substantial risk, which is the legal test under the Export and Import Permits Act. Issuing a suspension is the government's prerogative, but there should also be an onus on government, the regulator, to explain exactly what those changes mean.

It's hard for companies to follow the rules when they're not told what the rules are or when the criteria are applied and not explained. I cannot emphasize how important government clarity and predictability are in this regard.

The last thing companies want is to be in violation of laws, regulations and export policies. It would be devastating to their reputations and their businesses. We need to return to a timely, efficient, consistent and predictable export control system with clear rules. Our industry depends upon it.

Thank you.

[The Chair, Liberal, Sven Spengemann]

Thank you very much, Ms. Cianfarani.

Just to give you a quick heads up, the interpreters are saying that the sound from you is marginal; it's a bit low. Somebody from our technical team will give you a call just to see if there's any way that we can elevate the quality of transmission.

Thank you very much for your opening remarks.

We will now turn the floor over to Mr. Mueller, please, for five minutes.

[Mike Mueller, Interim President and Chief Executive Officer, Aerospace Industries Association of Canada]

Thank you, Mr. Chair.

Good afternoon, everyone.

Mr. Chair, I'll still keep my remarks to five minutes even though there's some time there.

It's a pleasure to be here on behalf of the Aerospace Industries Association of Canada. As always, we appreciate your interest in our industry and your willingness to work with us on the challenges we are facing.

With respect to the export permit process, there's a lot of frustration within the aerospace and defence industry. We've been raising these frustrations to government for many years now. Unfortunately, the situation is not improving. Let me just state at the outset that, given the current economic situation, this isn't simply about businesses being frustrated. There are real economic opportunities being missed, opportunities that could yield significant financial dividends here in Canada.

As most of you will know, aerospace is an industry that is highly export intensive. The inability to get product out of Canada has severe economic impacts, impacts that ripple across the supply chain.

I should preface my remarks by saying that our industry is also concerned about ensuring that Canadian values are respected in all of our dealings, and we support an effective export permitting process, but why do we have concerns and what exactly are the challenges we're facing?

Hundreds of millions of dollars of work have been lost, and hundreds of millions more are still at stake, all supporting good-paying Canadian jobs. There are four main issues from our perspective, and they involve clarity, timing, transparency and process.

On clarity, companies are looking for some assurances of where they can and cannot export. Right now we don't have that, and while industry is sensitive to the fact that government needs to be keep certain aspects of its diplomatic work pertaining to security confidential, surely there's a way for government and industry to work in better alignment to ensure significant time and resources aren't wasted on ventures that will never move ahead because permits will never be issued. Companies are spending a lot of time and capital to tee up new business and, in many cases, years of work. Significant costs are incurred. Significant energy is expended, only to be told, “Sorry, better luck next time”. Clarity is needed.

We're asking the government to work with us to strengthen the process. It's not in anyone's interest to waste time and resources, and this is currently the case on all sides.

On timing, when it comes to timing, the service standards for permits are all over the map. We have issues that have taken months and, in certain cases, even longer. Businesses need assurances that, if they are exporting from Canada, the timing to secure the permit is not going to jeopardize the sale. We've raised this issue several times. We know that officials at Global Affairs Canada oftentimes are hampered by the time other stakeholders take to review the application, but delays are delays, and the result is lost business opportunities.

That brings us to transparency. It would be extremely helpful for businesses to have the ability to find out where their applications are within the system. Currently, once the application is submitted, businesses are in the dark. It doesn't have to be this way. Our friends and allies like the United States have a system that offers businesses more detailed information in terms of the progression of the application. We've shared this with officials, and it's something that deserves to be explored.

Finally, on the overall process, it is our firm belief that an overall review is needed to ensure that the process doesn't inhibit the ability of business to export from Canada. As part of the review, we believe the concept of a triage system should be explored. This is just one of the potential ways to streamline things to better improve timelines. For example, if an application is submitted that is part of previous application already approved by the department, there should be a mechanism to fast-track the process. Why repeat cumbersome duplications when they're not needed?

Improving clarity, timing, transparency and the overall process is long overdue. Work packages and, more importantly, the good-paying jobs and capability we have here in Canada have the potential to leave the country, and I don't think anyone here wants to see that.

We were encouraged to see funding in Budget 2021 to strengthen the administration of Canada's trade control regime. This is a good first step, but more resources are required specific to the export permitting process, so we ask for your support on this and on the need for an overall review of Canada's export permit process. A signal has to be sent from the political level to ensure that this is deemed a priority.

Please help us ensure that our businesses are able to responsibly export their product without undue delay and compete in the global marketplace.

Thank you, Mr. Chair.

[The Chair, Liberal, Sven Spengemann]

Thank you very much, Mr. Mueller.

We'll now go to round one of questions from members with six minute segments.

Leading us off this afternoon will be Mr. Morantz.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Thank you, Mr. Chair.

Mr. Knutson, I'll start with you.

The testimony has been very interesting so far. The reason we're here and having this study is really that a piece of Canadian defence technology wound up on the ground in a conflict for which it was not intended.

The Turkish government transferred this technology to Azerbaijan and, as we now know, it wound up in the Nagorno-Karabakh conflict. That's the reason for the cancellation of permits.

I recognize—and it's very interesting to hear the testimony—that this also highlights problems with the permitting process. Before we get into that, I want to stick to this particular question with Turkey. I'm asking you because of your experience as an MP, and I think you did some lobbying a number of years ago for the Turkish embassy.

Is there any diplomatic work being done with the Turkish government to try to mend fences and to provide assurances to the Canadian government that would allow for future export permits to Turkey?

[Gar Knutson]

Well, I can't comment on what's going on inside Global Affairs, but just on what's been said publicly. The minister was clear when he cancelled the permits that he would work with his Turkish counterparts to come to a better understanding so that the assurances regarding the end use of the technology would be upheld.

In a real world sense, though, you can send a product to a country, and in good faith, that country will say that the product will only be used for certain circumstances, and then five years later the situation changes, or you get a change in leadership of the country, and you find that Canadian technology is being used in a war that no one would have anticipated.

It's a difficult task, but to your question specifically, from what I understand publicly and from Mr. Christie's testimony to your committee, work is being done. Certainly, the diplomats at the ground level are working hard to make sure that this issue doesn't completely cause the whole Canada-Turkey relationship to go off the rails.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Thank you.

Ms. Cianfarani, to that point, no matter what export control regime is in place, no matter how many safeguards are in place, I have a great deal of sympathy for industry here. The expertise, the investment and the technology that go into creating these systems is huge, and the frustration in the industry is clear from your testimony and Mr. Mueller.

Is it not a risk of doing business in this industry that something might happen, an event might happen, such as happened with Turkey, after the transference of this technology?

[Christyn Cianfarani]

It is indeed always a possibility that something [Technical difficulty—Editor]

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

I'm sorry, I hear the translator.

[Christyn Cianfarani]

Yes, so do I.

It is always possible that goods will arrive in the hands of people who do not follow the rules that are set, or the end-user assurances that are given. It is a risk of doing business in this particular industry. Yes, it is.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

I hear the frustrations of Mr. Mueller and Mr. Knutson about the industry. I think Mr. Knutson touched on this. He didn't use these words, but in my mind the words “brain drain” came to mind.

If these problems are ongoing with the export control regime, are we losing talented engineers, scientists and technicians to other jurisdictions that may have an easier time exporting their technology?

[Christyn Cianfarani]

I believe, yes, we absolutely will. Large multinationals with foreign head offices and footprints elsewhere will look to moving their technology, which means essentially moving their lines of business outside of Canada. It actually creates a huge effect for the supply chain. In Canada, 90% of the supply chain consists of small to medium-sized enterprises. When you get one of these large firms, they create a clustering effect around them, so if the line moves outside of Canada, it's not just the multinational that is affected, but the entire supply chain. Why would you do business with a Canadian company if you're now located in a different country, right?

The trickle-down effect is vast, and in some cases some of these large multinationals have 400, 500, 600 companies in their supply chains, so the toppling effect could be devastating.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Do you have a sense of how many people are employed in the defence export industry in Canada?

[Christyn Cianfarani]

There are approximately 62,000 of them and over 50% of our revenues come from the export business, so we are not sustainable in the Canadian market alone.

[The Chair, Liberal, Sven Spengemann]

Thank you very much, Mr. Morantz. We'll have to leave it there in the interest of time.

We'll go to our next round now, with Ms. Saks.

[Ya'ara Saks, Liberal, York Centre, ON]

Thank you, Mr. Chair, and thank you to all of our witnesses today. We've had some technical ups and downs, but we made it.

Ms. Cianfarani, I'm going to start by piggybacking on your opening statement. On November 7, 2017, you appeared before this committee during its study of Bill C-47 on Canada's accession to the Arms Trade Treaty, the ATT. In your opening remarks then, you said:

Canada's accession to the UN ATT will further enhance our very strong defence export regime and raise the bar globally for other countries whose defence export control processes are not up to Canada's very high standards. The treaty places additional burdens on countries that export small arms and military equipment, to ensure the weapons are not diverted to third parties or misused by the actual recipients. It will also regulate the practice of brokering, where weapons are exported from one third country to another. This is in part why CADSI called on the government last year to accede to the UN ATT.

Now that we're today, after Canada's official accession to the UN ATT, which placed human rights considerations at the centre of our export control regime, can you update this committee on your organization's positions towards Canada now that we're officially part of the ATT?

[Christyn Cianfarani]

Yes, of course. We have absolutely no issue with being a part of the UN ATT. I would echo my remarks in 2017, which is that under this regime, in particular with the exports to Turkey, you have seen an instance of diversion and permits were indeed cancelled, so the regime is working.

The challenge is that at the time there was no expectation that the export permit system writ large would be slowed down or affected by the UN ATT. What we are effectively seeing is not necessarily related to the UN ATT, but related to additional criteria, potentially political criteria, being overlaid on top of UN ATT, with a lack of clarity, lack of transparency, and lack of predictability being introduced into the system. As I said, I do not believe that is directly correlated with our accession to the UN ATT. I believe we are seeing a systemic problem in the export permitting process.

[Ya'ara Saks, Liberal, York Centre, ON]

Okay, I understand.

Just going back to that same appearance in 2017, you also said:

Bill C-47 has been recently amended to place the criteria used to review exports into the legislation itself, rather than into regulation as originally proposed. That means that Canada is going above and beyond what is required in the UN ATT.

Could you explain what that meant for the industry when Canada decided to go beyond what was required by the ATT? How has the industry adapted to this legislation since its implementation?

I hear about delays, but let's talk about the overall impact on the industry when we are trying to go above and beyond what's expected because we place human rights at the centre of that.

[Christyn Cianfarani]

What I would say is that Canada has gone above and beyond by putting it into legislation, as opposed to regulation. That nuance is simply that most countries would put it into regulation, which would allow them to be slightly more flexible over time in how they transform or modify, if need be, their standards, specifically their legal terms and their understanding of the application of the UN ATT.

That said, we have waited for quite some time to find ourselves in possession of documents—and I would say that it is this committee that has caused the release of these documents—that have crystallized what the terms are and what uses the government will apply to terms such as “substantial risk” and “mitigating measures”. These criteria need to be defined and then applied by each government entity.

During the period 2017 to 2021—where we are now—the definitions of what the government would look at in terms of “substantial risk” were opaque to us. I would argue, in fact, that as each instance of an export control issue gets raised, these definitions seem either to get clearer or get murkier, depending on what has occurred within the country.

[Ya'ara Saks, Liberal, York Centre, ON]

I understand.

Okay, I have one last question. Let's move there.

Have there been any collaborative initiatives between industry and Global Affairs Canada to address these issues of mutual concern? What avenues do you see for addressing export permit problems faced by the industry?

We're talking about the problems, but how have we worked with you to try to solve them?

[Christyn Cianfarani]

There have been multiple attempts, first and foremost at the political level, to talk to the Minister of Foreign Affairs, going back to 2017. We have sent multiple letters requesting conversations. Only recently—that is, within the last three weeks—have we had a conversation with a minister of foreign affairs on this file. There has been no direction by a minister of foreign affairs to the department to actively work with industry.

That said, we are in contact with the department regularly with regard to this file and have made numerous attempts to have working groups with that department to get clarity on permits, to get clarity on definitions for permits, and to find ways to expedite permits for countries that are not risk areas.

As I think some of the other panellists mentioned, our challenges are not necessarily coming from the willingness of the department itself, but from our ability to have conversations with those at the political level on this particular file.

[The Chair, Liberal, Sven Spengemann]

Thank you, Ms. Cianfarani.

Thank you, Ms. Saks. You are out of time.

We will now start the next round.

Mr. Bergeron, you may go ahead. You have six minutes.