Government Operations Committee on May 17th, 2007

[Marshall Moffat]

We don't have them, but it might be possible for Statistics Canada to break that out. It depends on how their data is organized. I think it would be a challenge for even Statistics Canada to be able to break that out. We can't do it, because we don't differentiate between the U.S.-based value versus Canadian value when we buy in procurement. There are, however, trade data that StatsCan has. The problem would be differentiating government procurement within the trade data that StatsCan has. That would be exceptionally difficult to do, to deliver what you're looking for. In theory, it could be done, but in practice it would be quite difficult to carry out.

[Peggy Nash, NDP, Parkdale—High Park, ON]

But without that kind of data, the actual outcome of greater access to the U.S. market is anecdotal and speculative if we don't have hard data to back it up.

[Marshall Moffat]

We have some hard data, but in large measure we have to rely on the U.S. government for information on that. We know there is a healthy amount of Canadian supply involved in supplying the U.S. government, but we'd have to investigate with them through their data sources how to measure that more effectively.

[Peggy Nash, NDP, Parkdale—High Park, ON]

And no one has ever tried to do that?

[Marshall Moffat]

We haven't tried to do that yet.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Does the federal government have a list of goods and services that are not subject to international trade agreements and that we could apply industrial or regional policy to?

[Marshall Moffat]

I can do the first half. Do you want to rescue me?

[George Butts]

Yes, sure.

[Marshall Moffat]

There are two aspects where we can maximize Canadian content. The first is for large military procurements where we can declare an exemption from trade law, for the military, for the really big military, and there we make sure that there are significant Canadian industrial and regional benefits. So for those really big military procurements, we can do it.

For the smaller procurements that are under the threshold levels, where there is a requirement to treat foreign and national companies equally, in that area we can also act to ensure Canadian content.

In the middle area, that's a little more tricky, because we have to follow the international trade law and we don't have any outs.

[The Vice-Chair, Conservative, Daryl Kramp]

I'm sorry, but we're through the time on that one.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Is that something that perhaps you could follow up in writing with me?

[George Butts]

By all means. It would be my pleasure.

[The Vice-Chair, Conservative, Daryl Kramp]

Thank you.

The last bit of time for questioning our group here will go to Mr. Simard.

[Raymond Simard, Liberal, Saint Boniface, MB]

Thank you, Mr. Chair.

Just following up on that, Mr. Moffat, with the industrial and regional benefits, as a rule, what is the percentage? For instance, if we're buying a product that is made only in the U.S.—a plane—and that happens all the time on military equipment, we normally insist on having that company reinvest a certain amount of money in Canada.

What has been the rule of thumb for that? Is it a dollar-for-dollar match or how does that work? Is it dollar for dollar?

[Marshall Moffat]

Yes, it's pretty much dollar for dollar. So the capital cost of the planes we're buying, for example, have to be matched by the same dollar value of industrial and regional benefits to Canadian companies.

[Raymond Simard, Liberal, Saint Boniface, MB]

How about the maintenance contracts? That usually amounts to almost as much as, or sometimes even more than, the product itself.

[Marshall Moffat]

Right.

Industry Canada looked very hard at that to see two things: whether there are Canadian companies that are already qualified to provide that kind of service; and then secondly, whether there is a way that Canadian companies can be trained, as it were, or licensed by the manufacturer to carry out the maintenance.

In some cases, it's possible. In other cases, you really have to go to the manufacturer because it is just too commercially confidential or too technical for another company to do. But definitely Industry Canada looks at exactly that kind of an opportunity, and they push hard with the supplier to ensure Canadian content.

[Raymond Simard, Liberal, Saint Boniface, MB]

Is it true that the industrial and regional benefits, for instance, can be basically anything? It can be the purchase of toilet paper. We always use that example, and I've always wondered if that's true or not.

[Marshall Moffat]

It falls into two parts. First, my understanding of what Industry Canada does is that they try to maximize the indirect benefits to Canadian industry—in other words, Canadian industries that would supply components to actually be used in the equipment, or Canadian companies that would provide servicing for that equipment over its lifetime. They try to maximize and get the most there, because that's very long-term, 20 to 30 years, so you can build an industry on that.

If that isn't enough to equate to this balance between the capital cost and an equivalent amount of industrial and regional benefits, then they look for offset benefits, which are other commercial relationships between that company and Canadian companies that end up with more—

[Raymond Simard, Liberal, Saint Boniface, MB]

But it doesn't have to be high-tech stuff. It can be purchasing any Canadian product, basically, so the toilet paper thing does in fact apply. You can buy any Canadian product and it applies as an IRB. No?

[George Butts]

Mr. Chair, may I jump in on this one for a moment?

To come back to more basic principles first, it's important to know that every procurement that the government undertakes over $2 million is subjected to a procurement review policy of the Treasury Board. So we go out and let other departments know—Industry Canada, Western Economic Diversification Canada, Quebec, ACOA, Fisheries and Oceans, DND, all of the interested people—that there is a procurement over $2 million, and they identify if there is something in their program that might benefit from this procurement as well. We'll see, at times, agreements in the Miramichi for armour for vehicles. So these things come up. Everything is out.

On procurements greater than $100 million, industrial benefits are dealt with as a distinct function. There are clauses written in the contracts to deal with the industrial and regional benefits. They are managed, they're followed, and we really look at things that are of direct benefit, as opposed to the toilet paper example.

There are stories of toilet paper, by all means. It goes back quite some time. Now you'll see windshields for vehicles or oil tanks, something much more specific, and they're specified in the contracts.

[Raymond Simard, Liberal, Saint Boniface, MB]

Thank you.

With regard to the less than 1% being challenged, it's still $120 million. I'm just wondering who's challenging and what they're basing their challenges on. Are they Canadian companies challenging that it was opened up to foreigners, perhaps, or are they American companies, for instance, challenging that it wasn't opened up?

What are the bases for these challenges?

[Liliane Saint Pierre]

With regard to the 1% figure, if you look through the applications or the complaints filed to the trade tribunal over the last five years, you will see that we have 330 related to that. At the end, some are accepted or rejected after being heard. We found a little more than 60 of them to be valid.

Challenges are mainly from Canadian companies. The challenges are mainly related to the evaluation, the way in which the evaluation was proceeded with. More and more we get statements or comments related to potential conflicts of interest--for instance, when one person worked for one company and then went to another, or from a government department to a company.

Those are some of the areas in which there have been challenges.

[The Vice-Chair, Conservative, Daryl Kramp]

Thank you.

Our last questioner in the first round is Mr. Poilievre.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

On the subject of directing benefits to Canadian enterprises, if we were to abrogate our agreements under NAFTA and other trade agreements in order to favour Canadian bidders, would you expect to have some retaliation from trading partners who currently make their procurement available to Canadian enterprises?