Foreign Affairs Committee on May 4th, 2021

[Yan Cimon]

I would add that social acceptability of the defence industry and defence product is also undergoing a lot of swings in public opinion. That also would have an effect, oftentimes because the misunderstanding of the types of systems that Canada sells abroad for military and defence applications.

[Kerry Diotte, Conservative, Edmonton Griesbach, AB]

Thank you.

[The Chair, Liberal, Sven Spengemann]

Thank you very much, Mr. Diotte.

Dr. Fry, you have six minutes, please.

[Hedy Fry, Liberal, Vancouver Centre, BC]

Thank you very much, Chair.

Thank you, everyone, for coming and helping to explain to us a very complex process and issue.

We heard from a lot of people in the industry who said there were two things they wanted most specifically: predictability and transparency. Also, we heard that they have not been able to have any kind of relationship or conversation easily with GAC.

What do you think can improve the conversation with GAC in a reasonable manner? What do you think can improve that ability for you to talk to the department about things you are concerned about, and about your concerns about predictability and transparency?

Mr. Agnew.

[Mark Agnew]

There are two suggestions that I would have. One is, informally, we would encourage departmental officials to be able to engage with companies. There can be sufficient caveats in place that no one is going to be bound by anything said in one phone call. I think things could be couched appropriately, as this is an informal, non-binding opinion or review of the department.

The other piece I would say is providing some kind of written guidance. I'm not looking to have some kind of naughty list of countries that are bad and countries that are good; it's more complicated than that. However, given that we are able to manage bilateral relations with travel advice—the EDC also publishes country risk guidance—there should be a suitable path forward that would allow companies to have something written to be able to look at.

[Hedy Fry, Liberal, Vancouver Centre, BC]

I have another question. You and others talked about a triage system.

What would that look like?

[Mark Agnew]

There are a lot of details that would have to be worked out.

Essentially, if a triage system were introduced, it would focus on companies that are reapplying for an existing permit, where there are no changes in context around that application. Hopefully, that would have an expedited service scanner attached to it.

[Hedy Fry, Liberal, Vancouver Centre, BC]

That would be the only criterion for companies that have an existing relationship, and have been doing good work, etc.

Is there nothing else? Isn't there any other level within your triage that you would think about?

[Mark Agnew]

That would be the main criterion. There might be others once we get into it.

We do want to be reasonable about this. If there is a change in context, we would say that it would probably not fit that triage circumstance. We want to be fair and recognize that there are a number of competing issues that need to be balanced, whether it's foreign policy, human rights, or commercial considerations.

[Hedy Fry, Liberal, Vancouver Centre, BC]

Everyone has talked about balancing the government's decision, and also the need for industry to function, and the jobs it creates. Again, I go back to the terms “predictability and transparency”.

What do you think is the industry's responsibility in terms of being predictable and transparent? In other words, industries are talking to countries about providing arms and other defence technologies.

Should they also be able to say to the government, “Look, we've been doing this for this country for x years. There is a change in regime, and we're beginning to think this is not good to be used, in keeping with human rights and other values that Canada has placed on arms control.”

Do you do that? Do you do this due diligence? Do companies do due diligence on their part?

I'm saying that it's not just the government that needs to do due diligence.

[Mark Agnew]

Companies will have a diligence process, yes, of some kind. This is where, again, providing more specific criteria would help companies with that due diligence process. For example, when we talk about the substantial risk of gender-based violence, what is the government looking for in that evaluation, so that companies can make sure the application is addressing all of those points adequately?

[Hedy Fry, Liberal, Vancouver Centre, BC]

That's one example of being values-based.

What about a country with a strange regime that is now unpredictable? What if, at the beginning, the industry that was selling drones to Turkey had known that Turkey was going to get involved in the Nagorno-Karabakh conflict? Should industry walk away from that if there is an unethical use? Should it speak up about it? Should it warn, in terms of transparency, government that something is going wrong on the ground?

We talk a lot about the government's response and responsibility. Is there a responsibility on the part of industry to also do some things that will flag this, especially when some countries do not believe in international rules-based order or are no democracies?

[Mark Agnew]

I would encourage people, as a general matter, to never put their heads in the sand on these issues. What that looks like in specific circumstances, I think, will vary.

As for what went on in Turkey, I've not made a comment on L3Harris Wescam's approach there.

[Hedy Fry, Liberal, Vancouver Centre, BC]

I'm not asking you to be specific. I'm just asking, is there a duty on the part of industry to be transparent and upfront about what it considers to possibly be a change in the government, or a change in the relationship with the country that it's dealing with, and the way it sees an unethical use of the arms happening?

I'm wondering about that.

[Mark Agnew]

Yes, absolutely.

Companies should be transparent and accurate to the fullest extent in their applications and engagements with government regulators across the board.

[Yan Cimon]

I would add that these companies' lenders and financing institutions also have mechanisms in place. They impose fairly robust compliance measures when it comes to exposure to political risk and product diversion.

One option is to look at what's happening in the insurance sector. Assurances are given in relation to these transactions, so that is another tool. Nevertheless, you are right that the industry has a duty to be more transparent and accountable.

Again, I would say it's important to distinguish between the actions of industry and those of government in respect of product diversions, especially when the sale is complete and does not include a service component. I mentioned this in my opening statement: the preferred business model is one where the sale ties an intellectual property or service requirement to the use of the module or platform. It would then be possible to more effectively monitor how the item was being used, and services could be withdrawn if problems arose.

[Hedy Fry, Liberal, Vancouver Centre, BC]

Thank you very much. My time is up, I think.

[The Chair, Liberal, Sven Spengemann]

Thank you very much, Professor Cimon.

Thank you, Dr. Fry. Thank you very much.

[Hedy Fry, Liberal, Vancouver Centre, BC]

Thank you very much for your answer. That's an interesting response, and I wouldn't mind seeing some of those tools that you are proposing. Thank you.

The chair is giving me an eye here that says that my time is well over.

Thank you very much, Mr. Chair.

[The Chair, Liberal, Sven Spengemann]

Thank you very much, Dr. Fry.

Mr. Bergeron, the floor is yours for six minutes.

[Stéphane Bergeron, Bloc, Montarville, QC]

Thank you, Mr. Chair.

My thanks to our witnesses for their comments, which are most helpful for our work.

Professor Cimon, would you say that there is a difference between selling arms to countries in Asia, Africa or Latin America, and selling arms to countries that are part of the Western bloc, such as the countries of NATO, or Australia, New Zealand and Japan?

Do you see a difference between the countries in those categories, in terms of arms sales?

[Yan Cimon]

There is a de facto difference, in that member countries of NATO are generally considered a lower risk by our government and are not necessarily governed by the same framework. However, you will notice that Turkey is not on that list of low-risk countries. In fact, Turkey's status is that it is not on any list. We can add the fact that Turkey and other countries are on the Export Development Canada list, but they are designated as countries “open on restricted basis”, precisely because of those issues.

Generally, it is easier to sell systems for military use or for dual use to countries that are part of an alliance like NATO, which already has mechanisms that work well, or to allies like the countries in the Five Eyes, for example, with whom we have excellent relations.

[Stéphane Bergeron, Bloc, Montarville, QC]

Has the status of Turkey on that list not changed quite recently?

[Yan Cimon]

Yes, you are right to point that out. Some allied countries exhibit behaviours that the alliance is not necessarily in favour of. Those countries, of which Turkey is one, have suffered consequences from their allies in their trade relations. Think about what happened in Canada with the drone affair. We can also think about Turkey's acquisition of the S-700 missile system, which cost the country a major part, if not all, of its participation in the joint strike fighter program, or JSF. So there are mechanisms that can sanction behaviours that do not serve the alliance's interests.

[Stéphane Bergeron, Bloc, Montarville, QC]

I believe that the Government of Canada should have been alert to the fact that Turkey was using remote detection equipment in its drones in operational theatres outside its borders. A United Nations report in fact referred to the use of those drones in Libya.

If Turkey had clearly indicated to Canada that it intended to provide drones to Azerbaijan, do you believe that Canada would have proceeded with the sale?