Industry and Technology Committee on Nov. 5th, 2025

[Katheron Intson]

I am so excited about working with Canadian universities on special projects, special AI projects and special robotics projects. That is where the talent is going to come from and where we build that kind of IP. Some of our existing IP we've built from the talent that we already had in-house, but I have several projects in mind with specific Canadian institutions and, indeed, research labs to better develop that research into Canadian business IP.

[Sima Acan, Liberal, Oakville West, ON]

Thank you very much.

Do I have any time left?

[The Chair, Liberal, Ben Carr]

No.

Those were good questions.

Colleagues, we're going to wrap up here. We're running slightly over time, so in the second hour, we're not going to have time for the final three allocated spots, but I'll repeat that when we get to it.

Thank you very much to the witnesses who joined us both virtually and in the room today. We very much appreciate your insight. It's an incredibly important time, of course, for Canada's defence, and having your guidance and your expertise frame the conversation around our industrial strategy is of great use to us, so thank you very much.

Colleagues, we're going to suspend quickly before turning over to the next round.

[The Chair, Liberal, Ben Carr]

Colleagues, we're going to continue in our second hour here.

We have three witnesses with us who are appearing as individuals. From the Macdonald-Laurier Institute, we have Richard Shimooka, senior fellow. From the Defence, Security and Resilience Bank Development Group, we welcome Kevin Reed, president. From Carleton University, we have Philippe Lagassé, associate professor.

I want to start by acknowledging that Phil is the best-dressed witness we have ever had at the industry committee. He says that he's going to a gala later, but I don't believe it.

I also want to note that about 22 years ago, a young Ben Carr was about to fail political philosophy at Carleton University, and a somewhat younger Phil Lagassé was there to hold his hand and make sure he could understand whatever it was that professor was talking about. I owe it all to him. Don't hold it against him, please.

Professor Lagassé, we'll start with you. You have up to five minutes for your introductory remarks.

[Philippe Lagassé, Associate Professor, Carleton University, As an Individual]

Thank you, Mr. Chair.

Thank you to the committee for the invitation. My remarks this evening will focus on the tradeoffs Canada faces as it prepares its defence industrial strategy.

The tradeoffs Canada faces are between three considerations: alliances and operational advantage; sovereignty and industry; and money. I wish to focus on these tradeoffs because they have not been properly acknowledged in our national discussion about our new defence investments.

I wish to focus on these trade-offs, because it has not been a wise approach to not consider them. As we move forward with significant investments in defence, we should be mindful of the opportunity costs that we face.

Let us begin with the trade-offs between our alliances and operational advantage on the one hand and our national sovereignty and industry on the other. We should be clear-eyed that moving away from American capability will likely affect allied interoperability with the United States military and our ability to maintain an operational advantage against peer competitors such as China and Russia. The reason for this is simple: No other ally spends as much on advanced military technology, and NATO interoperability leverages systems underpinned by the United States.

Building more sovereign Canadian capabilities and domestic industrial capacity will be costly and result in less advanced capabilities, in many cases. Take a sovereign cloud. Creating one will be expensive and leave us with less capability than cloud services offered by the major American cloud service providers, such as Amazon Web Services, or AWS.

In the defence space, in particular, a truly sovereign cloud would also diminish our interoperability with the United States, United Kingdom and Australia, who are relying on the major American cloud service providers.

Acknowledging this reality is not meant to cast aspersions on Canadian know-how or ingenuity. Companies like AWS simply spend far more and are much further ahead in this field. I am also not suggesting that a sovereign cloud is bad policy. Controlling our own data is, all else being equal, a good idea, but we must be clear-eyed that there are trade-offs involved, and we should be mature enough to acknowledge them.

Focusing on our alliances and operational advantage alone, however, comes with its own costs in terms of sovereignty. Canada has spent upwards of 75% of its defence capital budget on American capability because it gave the CAF advanced interoperable capabilities at relatively low cost, yet that has meant we don't have as much sovereign capacity as we might like or need now.

One exception is shipbuilding. Canada decided to emphasize both advanced technology and sovereign capacity in building the River-class destroyer. As critics are quick to point out, though, this approach has been very expensive.

Looking ahead, Canada could choose to maximize sovereign capacity in many other areas. This would benefit the Canadian economy and help with economic growth, but it could leave the Canadian Armed Forces with less capability and interoperability.

Alternatively, we could try to balance operational advantages, sovereignty and cost. This would work best for missions that are focused on the defence of Canada rather than fighting alongside the United States and other allies. This balanced approach, I would argue, should be what we aim to achieve as part of the defence industrial strategy, but we should recognize that it will not be easy to achieve.

Sustaining a large domestic defence industrial base, however, may require buying capabilities the military does not need, potentially paying firms to keep production lines open even when they have no orders, or helping these firms sell far more defence materiel to overseas, including to regimes that may not share our values and commitments to human rights and democracy.

These are the realities that a country of Canada's size must accept to keep a national industrial base afloat. I would encourage the committee to examine the French experience here as an example of what must be done to maintain a vibrant defence industrial base.

In sum, the defence industrial strategy offers Canada enormous opportunities, but those come with opportunity costs.

Thank you.

[The Chair, Liberal, Ben Carr]

Thank you, Mr. Lagassé.

Mr. Reed, we'll go to you next for up to five minutes.

[Kevin Reed, President, Defence, Security & Resilience Bank Development Group]

Thank you, Mr. Chair.

Chair and honourable members of the committee, thank you for the opportunity to appear here before you today.

I serve as the president of the DSR Bank Development Group. I grew up in the great city of Belleville, and please bear with me one second. I grew up like most Canadian kids in my area: I wanted to play in the NHL, and as you can see, I didn't make it. My life took me in a completely different direction and that's why I sit here before you today.

I'm one of the few Canadians who—a long time ago when I played hockey at the University of Ottawa, just down the street from Carleton—said, “I want to start a bank,” and I did. I co-founded and served as the vice-chairman, CEO and president of Equity Transfer and Trust Company, an OSFI-regulated entity, one of the number of companies I have built. I also served as an honorary colonel in the Canadian Armed Forces for nine years, and I also have had the opportunity to serve as honorary consul general for the Republic of Singapore to Canada.

I appear here today on behalf of the DSRB, which is responsible for designing the legal, capital and operational framework for what will become the world's first multilateral financial institution dedicated to defence, security and resilience. It will be established by the end of 2026 through a founding charter ratified by its anchor nations and scaling up to include 40 member nations that will include NATO and our Indo-Pacific allies.

The blueprint for this proposed multilateral development bank was created by Rob Murray, our CEO. Rob also built the blueprint for the NATO innovation fund, which I think came out in yesterday's budget, and the blueprint for the NATO DIANA group, for which there are two accelerators and over 10 regional test centres in Canada.

The DSRB will be established as a global multilateral lender ready to deploy long-term capital with scale and discipline in support of national and defence security priorities. Our core partners with us as we started to lift off in 2025 were Royal Bank of Canada, J.P. Morgan, Deutsche Bank, ING, Natixis, Commerzbank and LBBW, and we will be adding a couple more in the month of November.

For Canada, this conversation arrives at a very pivotal moment. The government's stated intent to raise defence and resilience spending from 1.37% of GDP last year to 5% by 2035 represents one of the most ambitious industrial undertakings in recent Canadian history.

As the Prime Minister has noted, the goal of retaining 75 cents of every defence dollar in Canada makes this not only a national security imperative but a generational economic opportunity.

The question, as this committee and others before have rightly asked, is this: How does Canada convert ambition into capacity?

Across allied countries, the constraints are familiar: Budget ceilings, balance sheet pressures and regulatory frameworks, such as Basel III and Basel IV, which will come into effect by 2030, have made it difficult to lend into the defence sector.

Private sector capital has largely been absent from the defence industry for decades. The DSRB is designed to close that gap. Structured as a sovereign-owned, AAA-rated institution, it would enable participating nations to pool paid-in and callable capital, which the bank would then leverage through private capital markets, including our Canadian pension funds—which I know are discussed a lot with regard to how we can get Canadian pension funds back into the Canadian marketplace—so that commercial banks ultimately can provide full traditional credit packages to defence companies and the SMEs that are mission-critical for our supply chains.

For Canada, the capital economics are compelling. If Canada were to subscribe for $10 billion, $2 billion would go up over four years and $8 billion would be callable, and this would generate at least $50 billion of financing power delivered through the Canadian commercial banks, all without increasing sovereign debt. Contributions are treated as capital assets and also are attributed to the calculation of NATO's financial commitments.

For Canadian defence SMEs and suppliers, this will mean access to credit that does not exist today to grow, invest and automate their businesses.

Canada can and should lead these charter negotiations. Canada should also state that the global headquarters for the DSRB should be here in Canada.

These headquarters—if chosen, among the anchoring nations, to be in Canada—would have 3,500 defence finance jobs. I emphasize “finance.” This would create a cluster within our allies. Canada has a real opportunity not only to lead but to provide a global leadership in defence finance.

In closing, I have provided this committee with a business brief that demonstrates the absolute value of the DSRB to Canada.

I have three key take-aways to ask and then I'm done, Mr. Chair.

This is Canada's time to lead in NATO and with our allies in defence finance. Canada has the leadership. We are known for our financial prudence and we have the support of a lot of other nations if we choose to take the lead.

The private sector capital needs to build out the defence industrial plan that we're here to talk about in this session, but it will only come with Canadian institutional capital supporting the plan. We know how to bring them in and we will do this now.

My last point is really a question: Why wouldn't we do this?

Mr. Chair, it's back to you.

[The Chair, Liberal, Ben Carr]

Thanks very much, Mr. Reed.

Mr. Shimooka, you have up to five minutes.

[Richard Shimooka, Senior Fellow, Macdonald-Laurier Institute, As an Individual]

Thank you very much for allowing me to speak today.

A key part of understanding the defence industrial base today is that it is a product of over five decades of inattention to the actual defence needs of Canada. Like the Canadian Armed Forces, it is not ready to meet the threat environment we face today.

This brings me to a critical point, one that I'm going to return to several times: The defence industrial strategy must be subservient to the defence policy of the country, not the other way around. That is the essential element that has been missing, to an increasing degree, since the 1960s. The disconnect between Canada's defence needs and the resources allocated to meet them has had deleterious consequences for the defence industrial base. Defence firms lost a stable demand signal and the funding that would make it fit for the defence needs of the country.

The consequences of this failure have been clear. First, you see a boom-bust cycle in many of the defence sectors. It was most pronounced in shipbuilding. Many firms exited the defence market entirely or failed to modernize their production systems; others looked to foreign markets for revenue. Roughly half of the defence industrial activity in this country is export-related today. Of that, a further 60% is accounted to the United States due to existing defence production agreements, as well as the U.S. being a very large and stable market.

As a general trend, firms have specialized into subcomponent system suppliers and not finished systems. These are some of Canada's leading defence firms in terms of innovation and market position, but they are not well positioned to meet Canada's own defence needs. In some respects, Canada has highly globalized defence industries, and we need to protect that.

Going forward, this government has made some good initial steps, but pitfalls abound. I know there has been a strong desire to develop greater sovereign capabilities, yet the military capability development trends have been in the opposite direction, towards closer integration through battlefield networking and data-processing systems. Decision-making times are being compressed into milliseconds, and delays will result in lost battles and lost lives.

I understand the political moment Canada is in with regard to our southern neighbour today, but we must be careful not to overshoot that mark. We are deeply integrated into both their military systems and their supply chains.

As an observation, there is no viable path to become a defence industrial autarky. Our defence needs are vast. We need to pick and choose carefully what we invest in. Trying to chart a too-independent path can come at exorbitant costs, damage our industrial base's competitiveness and, most critically, result in a much less effective Canadian military.

Nevertheless, there are areas where Canadian firms have comparative advantages, and those should be exploited. Joining allied programs through the insertion of Canadian investments and industries can be a viable path, but we must be careful. Many of our allies operate highly protectionist and inefficient defence industrial bases. Despite their competitiveness, Canadian industries will find it difficult to make headway in these markets.

This leads to another key point. If the government wants to provide greater market opportunities for our defence industrial base, it must enter into development programs early and be willing to take calculated risks, with the acknowledgement there will be failures. The recent changes to the national security exemptions are good first steps in this path, but more must be done.

Relatedly, I also think we need a vast overhaul of our intellectual property regime, which perhaps is a key tool that Canada can use to improve its defence industrial base performance. We need to be flexible, realizing when to obtain IP, develop it or forgo it. That's a level of sophistication that the government needs to develop further.

Furthermore, our defence innovation system is largely broken and in desperate need of overhaul, over and above what is currently envisaged. I understand that we are in early days of this government's efforts to reform this space, but the challenges here are immense and deeply rooted. It is critical to get this right.

Our peer competitors have many advantages, but none is more clear than their ability to outproduce our own defence industries. Thus, innovation is widely seen as one of the key enablers for allied states to maintain a military edge. Rapid technological adaptation and change to meet a highly dynamic and lethal battlefield have become the defining features of emerging military systems. However, Canada and its defence industries lag far behind our peers in this regard. Our investment amounts are far too limited, even with the recent budget announcements, and there's no real pathway to get new technologies into the hands of Canadian Forces personnel. In other countries, this is often referred to as the valley of death. In Canada, it's become a chasm.

The military services even bypass the government's innovation pathways, redirecting funding from other budget streams to develop and acquire the systems they see as vitally necessary. The system must be much more flexible in order to harness defence industrial productive capacities.

Finally, there's a timeline discrepancy that we must acknowledge.

As I noted earlier, we have an immediate need to address the major capability gaps that currently exist; however, the development of the Canadian defence industrial base will be hard pressed to meet some of these needs. Development will be a decades-long process. We need to acknowledge that and follow a two-pronged strategy to address both issues. Canada needs to acquire capabilities now, but also pursue longer-term industrial development where it is warranted. Trying to proverbially hit two birds with one stone will almost certainly result in missing both.

I'll leave it at that. Thank you very much.

[The Chair, Liberal, Ben Carr]

Thank you very much, Mr. Shimooka.

Colleagues, we will enter into our rounds of questioning.

As I mentioned at the outset, given that we're quite significantly over our time, we'll have two questions from the Conservatives, two from the Liberals and one from the Bloc.

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

[Ted Falk, Conservative, Provencher, MB]

Thank you, Mr. Chair.

With that in mind, I'm going to be splitting my time with Mr. Guglielmin.

Thank you, witnesses, for your testimony here today and for the valuable insight that you provide to the committee.

Mr. Shimooka, I would like to begin with you. You talked about our peers and our allies a lot. Can you compare our procurement system to some of theirs? Can you extrapolate a little bit on what that looks like—where they're different, where they're effective, where they're broken?

[Richard Shimooka]

Sure.

I think we have to first acknowledge that we are significantly delayed on this defence modernization. A lot of our allies started this process around 2015, in response to the Russian invasion in Crimea and the Wales summit.

The United States and Australia have tried to streamline significant parts of their process. They've identified that new technologies are critical to the competitiveness of their military capabilities. They've developed new streams to sort of short-circuit some of these issues.

If you look at the United States, you see things like other transactional authorities, such as what is called an 804 program and a mid-tier acquisition model. What these are trying to do is identify where you can acquire something really quickly, remove some of the existing process—in the United States, it's the federal acquisition rules—and get a capability into the hands of what I would call a warfighter in a much more rapid fashion.

I think that has been a challenge we've faced in Canada for quite some time. The Defence Investment Agency is an approach to deal with some of this, but I think that to some degree, what our allies have done is just taken their entire system and started reforming the fundamental operation of that system, rather than just creating these separate pathways, realizing that this is a way to get innovative new technologies in.

You're starting to see that right now in the United States. The FoRGED Act and the SPEED Act, which are within Congress right now, are really trying to create a much more responsive system, because the nature of capabilities that we see in defence right now is changing. These are increasingly becoming software-enabled systems—

I'm sorry. Go ahead.

[Ted Falk, Conservative, Provencher, MB]

I want to get one more question in. My time is running out here.

Will this new Defence Investment Agency apply to all procurement for defence spending?

[Richard Shimooka]

It will not, at this time.

The government has said it's only above $100 million at this time. That accounts for about 8% of the existing defence procurement, if that's the threshold that they're going to use.

[Ted Falk, Conservative, Provencher, MB]

How do we fix the rest of the system? That's a big threshold.

[Richard Shimooka]

I think it requires a significant fundamental reform.

My suggestion is that we start looking at going to...not a single point of accountability model, because I think Treasury Board is going to always be there, given its position within the government, but certainly trying to streamline it so that we have points of accountability and somebody is actually responsible for pushing decisions through. That's my approach.

[Michael Guglielmin, Conservative, Vaughan—Woodbridge, ON]

Mr. Shimooka, based on your research, what lessons would you say we could learn from our allies to ensure that defence procurement and industrial policy work together instead of at cross-purposes?

[Richard Shimooka]

In the previous session, Professor Leuprecht pointed out that we have a national security strategy. That is a critical starting point to identify what's required, and we can have a line through to what we need to do to achieve that base.

One of the biggest changes I think you're seeing in the U.S. and our allies, especially since 2022, is that they realized that our stockpiles of munitions and other consumables required for war were far too low. They've spent tens of billions of dollars to develop the capacity to produce more systems if it comes to a point where we have a warfighting environment.

In Canada, we haven't done that. We've tried a little bit, but recently it was announced that we are able to produce 5,000 155mm shells in Canada.... That's one day of operations in Ukraine. That's insufficient for the requirements.

If we have a national security strategy, we have a line through to what's required on the defence industrial side. That's what's required.

[Michael Guglielmin, Conservative, Vaughan—Woodbridge, ON]

You've also observed that decisions like the F-35 purchase were completely politically based. Are you of that opinion now, and do you think politics are being played with the F-35 procurement?

[Richard Shimooka]

In the comments of the head of the air force and the deputy minister at the public accounts committee just a couple of weeks ago, clearly they say that this is the capability that's required. I think most seasoned defence analysts would agree with that view.

We have gone to the United States—to Congress and various administrations—saying that we are serious about national defence and we are buying this capability, and there's delay now. Clearly there are political considerations having to do with the Trump administration and what they have said, but clearly this capability is absolutely vital for basic national security going forward.

[Michael Guglielmin, Conservative, Vaughan—Woodbridge, ON]

Thank you.

Mr. Reed, you've argued that deterrence today means financial partnership. What are the main obstacles, would you say, preventing Canadian capital markets from investing in the defence industry base at scale?

[Kevin Reed]

My work in what we're doing at DSRB is on the credit side, and I can say that in speaking with just about every prime contractor within NATO, their biggest concern is that privately owned companies make up 95% of their supply chain. They're not public, so they depend on credit.

NATO is committed to going to another $2 trillion of future spending by 2035. That's another $1.5 trillion of credit that needs to come out of the banks. If you ask a supplier who has maybe $25 million or $50 million in revenue today, the forecasts being given by their primes are in the 15% to 20% bump that they've not had since the Cold War. Where do they get that money from? They have to go to the banks.

When we talk about capital markets, I look at it from the lens of the credit side, and that's what we are addressing. I believe firmly that the banks have to unlock the credit, which has been very shallow to date because of ESG and a bunch of other policies that have changed radically this year.

In terms of what Canada needs to unlock credit, if we hit $150 billion—or perhaps more, depending on where our GDP goes—we will need another $80 billion or $90 billion of credit, minimum, to support that growth in our supply chain.

When you ask about capital markets, I look at it from the credit side.

[The Chair, Liberal, Ben Carr]

Thank you.

Ms. O'Rourke is next.

[Dominique O'Rourke, Liberal, Guelph, ON]

I just want to say that I appreciated the conversation in the first hour about removing some of the politics, because we know what some of the challenges are in terms of moving forward with decisions and risk aversion.

Mr. Shimooka, you said this is sometimes a decades-long process or that it will be a decades-long process to get where we need to be. Mr. Lagassé, you talked about trade-offs.

At the beginning of this study, we heard from ADM Wendy Hadwen. She said that we are not in peacetime and that we don't have time for the usual silos. That was a bit shocking to me, and I think it's probably a little bit shocking to most Canadians to hear that.

There's an urgency to get things right and to move quickly, so how do we approach the defence industrial strategy from an immediate, a medium-term and a long-term perspective?

To really map out what our strategy needs to be is going to take some time. We've had very eloquent witnesses talk to us about all the criteria and how we're going need to set this all out. We could spend five years getting to the right model, and we will have missed the moment.

In a minute each, can you help me understand how we can plan and prioritize and how we can maximize the domestic capability that exists and how we develop it going forward? Something like extracting and using critical minerals is not done overnight. Some things need to happen overnight, literally, and others will take place in the medium and long term.

Can you want to tell us some paths to financing that? I'm going to ask you to be quick, because I do have a follow-up question in terms of where ethics fits into these frameworks.

[Philippe Lagassé]

In terms how we plan, there's some low-hanging fruit that we can immediately seize on. The current government has pledged to buy a Canadian AEWC plane, for instance. That would be a way to invest massively in the domestic aerospace industry. There are talks under way to increase production in Montreal of various other capabilities. The budget indicated that there's an ambition to try to replicate the shipbuilding success in the aerospace sector. As well, there is seed funding from the Business Development Bank of Canada that will be going to start-ups and SMEs and other things to get things going.

Very quickly, I think the reality is that you have to make choices between what you are going to be buying in 10 years and what are you going to be buying in the next few years. I think we have a good idea of that, but to Mr. Shimooka's point, we also need the government to release its national security strategy and a follow-on defence policy to provide guidance to the forces so that they can start planning their requirements for some of these things.

In the absence of requirements, industry will not invest. They need to know that there is a buyer. You cannot just build things without a buyer, and you need policy to indicate that there is a buyer.