Industry and Technology Committee on Oct. 1st, 2025

[The Chair, Liberal, Ben Carr]

Hello, everyone. I hope you've had a good week so far. I'm sorry that we're a minute late. I just learned a valuable lesson: Don't call a constituent back within 25 minutes of having to start a committee meeting, because you might not get to that meeting on time.

I hope all members had a pleasant few days in their constituencies.

This is meeting number five of the House of Commons Standing Committee on Industry and Technology.

Just as a reminder for colleagues, as well as our witnesses, that these headsets are meant to help you with your translation. If they're not plugged in, they can be wherever. However, if they're plugged in and not on your ear, we just ask that you place them on the stickers in front of you. That is done to protect the health and safety and well-being of our interpreters, who work very hard on our behalf.

Colleagues, pursuant to Standing Order 108(2), we very recently adopted a motion, on September 22, to talk about the study of Canada's industrial defence strategy, and this will mark our very first meeting in that regard. We had a good conversation about productivity last week.

We have a couple of officials here with us today. From the Department of Industry, Kendal Hembroff, associate assistant deputy minister, joins us by video conference. From the Department of National Defence, we have Wendy Hadwen, assistant deputy minister of policy-industry. Major-General Jeff Smyth, chief of air and space force development, from the Royal Canadian Air Force, is also joining us.

I believe, Mesdames Hadwen and Hembroff, you are each speaking on behalf of your respective departments, so we'll allocate upwards of five minutes to you each, in whichever language of your choice. Then we will begin with a line of questioning from members of Parliament around the table, starting with the Conservatives, and then rotating.

Since we have members of the armed forces here, both in uniform and civilian, I just want to take an opportunity—both on my behalf, as a member of Parliament, and, I think, on behalf of everyone around this table—to thank you very much for your service to our country.

With that, I pass the floor over to Kendal Hembroff for opening remarks.

[Kendal Hembroff, Associate Assistant Deputy Minister, Department of Industry]

Thank you very much, Chair.

I'm very sorry that I'm not there this afternoon with all of you in person, but, unfortunately, I had a mishap a few weeks ago, and I'm on crutches. I'm nevertheless very happy to talk to you about the views of Innovation, Science and Economic Development Canada concerning the defence industrial strategy.

Planned defence spending represents a generational opportunity to invest in Canada's defence industry and economy at a time when many of Canada's manufacturing sectors are facing unprecedented challenges. In 2022 the Canadian defence industry comprised over 620 firms, which contributed over $9.6 billion in GDP and 81,200 jobs to the Canadian economy.

Canada's defence industry is at the cutting edge of technology development, and our defence sector is a driver of innovation, investing at more than three times the research and development intensity of Canada's manufacturing sector. Beyond world-leading capabilities in the design and manufacturing of commercial aircraft, Canada also has strong capabilities in maintenance, repair and overhaul; training and simulation systems; unmanned aerial systems; earth observation; space robotics; combat ground vehicles; munitions; shipbuilding; sonar technologies and more. Canada also has established and emerging capabilities in dual-use areas like artificial intelligence, cyber, quantum, biomanufacturing and critical minerals.

As you will be aware, the government has committed to publishing a defence industrial strategy later this year aimed at strengthening our domestic industrial capacity to meet the needs of the Canadian Armed Forces and those of our allies. Our goal is to reduce Canada's long-standing dependence on foreign suppliers by leveraging Canada's traditional defence, commercial and dual-use strengths to support CAF requirements where feasible. This will require focused investment in key defence industrial priorities, as well as ensuring that federal procurements are leveraged to strengthen industrial capacity through various tools. Canada's domestic market is quite small, so we are also committed to ensuring that we create an industry that is well positioned for export opportunities.

The defence industrial strategy, DIS, has not yet been finalized, but ISED and the Department of National Defence are working together to advance this work. More details will be forthcoming in the coming months, but in the meantime, Chair, I'm happy to talk about some of the existing building blocks for a more comprehensive strategy.

ISED is well positioned to play a leading role in the development and implementation of the DIS, and the Minister of Industry has publicly discussed her vision for the strategy, using a framework of buy, build and partner. This means leveraging the government's purchasing power to create benefits throughout the supply chain, building up Canada's industrial capacity in key areas and developing strategic collaboration with international allies.

As you may know, since the late 1950s, ISED has housed various programs that have funded companies for civil and defence activities. Today, ISED has a number of programs, such as the strategic response fund, innovative solutions Canada and our global innovation clusters program, which support the development and commercialization of technologies across the industrial economy, including defence. There are opportunities to leverage existing innovation programs in the short term to get funds out quickly to Canadian industry.

Also within my department's portfolio, the National Research Council is a key partner for Canadian industry, helping to bridge new technologies to market through programs such as the industrial research assistance program. We are examining ways that the NRC, with its world-class testing and research facilities, can play a greater role in supporting defence.

I would also note the role that regional development agencies can play in supporting the development and integration of businesses, mainly SMEs, into defence supply chains. Our tool box includes the national shipbuilding strategy, which, since 2010, has been helping to restore our shipyards, to rebuild our marine industry and to create sustainable jobs in Canada.

Canada also has an offset policy—the industrial and technological benefits policy, ITB. The ITB policy requires that a firm awarded an eligible defence or Canadian Coast Guard contract undertake business activity in Canada equal to the value of the contract. It's estimated to contribute approximately $4.7 billion to Canada's GDP and over 40,000 jobs annually in Canada. Many of the most successful defence, aerospace and marine firms operating in Canada have benefited from the policy, including companies such as CAE, MDA Space, Héroux-Devtek, IMP, PAL Aerospace and Genoa Design.

The last point I'd like to make is that a defence industrial strategy must include procurement, which is our most powerful tool. Canadian defence firms have indicated that the number one thing that the government can do to support their growth is for the Canadian Armed Forces to purchase from Canadian industry, so we're reviewing ways to improve the procurement process and to ensure that Canadian industry is engaged early on.

In closing, and before I turn it over to my colleague, Wendy, the forthcoming defence industrial strategy will ensure that our historic investments are focused on building and sustaining Canada's defence industrial base to meet the needs of the CAF and our allies while driving economic growth, resilience and innovation across the broader Canadian economy.

Thank you.

[The Chair, Liberal, Ben Carr]

Wonderful. Thank you very much, Ms. Hembroff. We appreciate that.

Ms. Hadwen, I'll turn the floor over to you.

[Wendy Hadwen, Assistant Deputy Minister, Policy-Industry, Department of National Defence]

Thank you, Mr. Chair.

Members of the committee, thank you so much for the opportunity to speak today about the defence industrial strategy.

I want to begin by acknowledging that we're meeting on the unceded and unsurrendered territory of the Anishinabe people. Against the backdrop of yesterday being the day of reconciliation, I want to just say that my team's commitment to reconciliation and to strengthening relationships with indigenous communities is a big part of the work that we're doing at National Defence on a defence industrial strategy.

We have a unique moment to embed collaboration with indigenous communities from the start. We have forums, for example, the Inuit-Crown partnership committee, to work together to plan for equipping the Canadian Armed Forces with greater reach, mobility and capacity to operate in the north and to improve access to key defence supply chain resources while also bringing benefits to indigenous communities.

Let me take you back to the beginning.

Almost a year ago, I started in a new role at National Defence as the assistant deputy minister, policy-industry. Our deputy minister created the role to lead the entire defence team in a coordinated effort to get to a defence industrial strategy for Canada. One of my very close partners in this work is Major General Jeff Smyth, chief of air and space force development.

Major-General Smyth has joined me, in case you have questions about what capabilities the Canadian Armed Forces may need and how their requirements get set. I also work closely with many colleagues in the Canadian Armed Forces, principally those charged with force development.

As you can see, this is already a whole-of-defence effort that requires the expertise of both our military and our civilian members.

From a policy perspective, we work with colleagues from across the public service—but most closely with Kendal and her team at ISED—to prepare advice for the entire government on a Canadian defence industrial strategy.

I want to thank the committee for undertaking this study at a very important time for Canada. The threat environment is intensifying, and we are witness to a rupture in the economic structures and partnerships that have underpinned our approach in the past and which we may have taken for granted.

Perhaps the starting question today is why should Canada need or want a defence industrial strategy?

When we think about why we want to do this work, we think it's an opportunity to bring coherence to defence spending, which, by any measure, is a massive amount of money. Last year’s defence policy, “Our North, Strong and Free”, committed to the development of a defence industrial strategy for just this reason.

However, in one short year, things have changed drastically. The Prime Minister has just recently committed Canada to investing 2% of GDP in defence. This year, that means an additional $9 billion. The rationale for the DIS is, therefore, all the more important.

We believe this strategy can explain how defence spending will intersect with the Canadian economy and how the results will accrue to Canadians in terms of the defence of Canada and our shared national security.

We believe the DIS will help establish a renewed and more dynamic relationship between industry and the defence team—not just the Canadian Armed Forces but also the civilians who support them and other members of the defence family: the Canadian Coast Guard, for example, and the Communications Security Establishment.

The DIS will help us access industrial capabilities we need to meet the threats of today and the threats we see coming. As you are aware, our adversaries—North Korea, Iran, Russia and the People's Republic of China—are aggressively scaling their military industrial ecosystems, and they have our western alliance in their sights. In response, Canada and our allies are rearming, reshoring and racing to secure access to next-generation defence technologies.

We are guided by a sense of urgency as we think about three priorities for the DIS: strengthening the Canadian industrial base, as Kendal described, and ensuring secure access to the capabilities we need to defend Canada; enhancing the resilience of the Canadian economy by aligning defence investments with national industrial strengths; and, most importantly, safeguarding our national sovereignty.

These priorities have come to us out of a lot of effort over the past 10 months. Let me tell you what that looked like.

We did benchmarking by conducting an in-depth analysis of defence industrial strategies of more than 15 allies and partners. Of course, we found them on the Internet, but we also interviewed the authors, and our defence attachés and our policy people met with all of these 15. We are not above stealing a good idea.

We began speaking with industry about what they imagined a DIS could entail. Through many more engagements than I can count, we have learned a lot about the expectations that are out there in this country, and they are high.

We put this together and we did some analysis. We saw some important things. We went about understanding how access to capital is a barrier to industries operating in this sector. We began looking at the role of the supply chain in defence industries. We also looked at the unique advantages of some parts of Canada’s sectors, such as quantum, for example. We have a unique ecosystem here, and it represents an advantage.

There are some other areas, like defence exports.

A recurring theme is the importance of communication and collaboration between government and industry. This strategy offers us an opportunity to create strategic partnerships unlike anything we've seen before. You may have noticed the announcement of some early examples, such as next-generation aircraft and pilot training.

Another point raised was the many advantages of Canadian industry: We have renowned researchers at major universities and research institutes, cutting-edge innovation in quantum and artificial intelligence, and key resource reserves.

One of the objectives of our strategy would be to optimize the way that all of these advantages exist in this country towards an objective that aligns with the defence of Canada.

Our allies are very adept at finding—and obtaining—what they need to defend themselves. We have the opportunity to do the same.

Fortunately, across our many government departments, programs and agencies already exist to support industry. Kendal has been through some of that list already.

I will simply conclude by saying that our goal for the defence industrial strategy is straightforward. We want to ensure that the Government of Canada has secure, timely and reliable access to the capabilities we need to defend the country, protect national sovereignty and meet current and future threats. In doing so, we expect that we will remain responsible stewards of public funds and be able to help Canada's industrial ecosystem.

Our teams are looking very much forward to following your study and to incorporating some of what you learn as we develop the DIS.

Thank you so much for the opportunity.

[The Chair, Liberal, Ben Carr]

Thank you very much.

We are going to begin our first round of questions, with six minutes allotted to members of each party.

Mr. Falk, the floor is yours.

[Ted Falk, Conservative, Provencher, MB]

Thank you, Mr. Chair.

Thank you to our witnesses for your testimony here this afternoon. It's very interesting.

I think it was Ms. Hembroff who indicated that we have 600-plus firms in our industrial complex that are supplying the defence industry, yet they supply only about half of all of our purchases for our Department of National Defence. When you talk to the suppliers that we have supplying our defence industry, what would be their top two frustrations in dealing with National Defence?

[Kendal Hembroff]

Mr. Chair, I guess I would say that, overwhelmingly, as I mentioned in my opening remarks, what Canadian defence companies are looking for is the opportunity to compete successfully in federal procurement processes. I really do think that requires a culture change in terms of how we approach procurement. It may mean looking at new and innovative procurement approaches. For example, that may mean looking more at strategic partnerships or direct procurements with Canadian companies that have leading capability.

I would also say that, overwhelmingly, Canadian companies have also told us that they're looking for opportunities to work within a broader Canadian supply chain. We are looking for leading companies in the defence ecosystem, whether they are Canadian companies or foreign companies with a major Canadian presence, to be able to work very closely with Canadian companies in the supply chain.

[Ted Falk, Conservative, Provencher, MB]

When they tell you that, what do you think they mean by not being able to work closely enough with...?

[Kendal Hembroff]

For example, I would say that, overwhelmingly, the majority of Canadian defence firms are small and medium-sized enterprises. They depend very heavily on things like the industrial and technological benefits policy, which drives investment into different parts of the supply chain.

I would say that they are also keen to partner with larger firms and to work together in bringing forward solutions. They are looking for the opportunity to put forward made-in-Canada solutions as part of the procurement process.

[Ted Falk, Conservative, Provencher, MB]

Okay.

Ms. Hadwen, you indicated that currently there is a “rupture” in our system. Can you expand on that a bit?

[Wendy Hadwen]

I think I was trying to recall the Prime Minister's remarks concerning a “rupture” in the trade and economic relationships that we have enjoyed in the past.

[Ted Falk, Conservative, Provencher, MB]

You also talked a bit about procurement. Can you talk about what our suppliers are telling you about our procurement policies?

[Wendy Hadwen]

In all of the defence industrial strategies we've looked at, procurement is an essential piece of how governments orient themselves to support industry better. This government has announced the intention to create a defence procurement agency. I am not a procurement professional myself. I am just a policy person. Some of the best minds in the public service are working on this exact challenge.

[Ted Falk, Conservative, Provencher, MB]

When it comes to policy for procurement, do we have a buy Canadian advantage in our tendering process? Is it a weighted system that would give more points to a Canadian supplier or manufacturer?

[Wendy Hadwen]

I can't help but want to refer this to Kendal.

[Kendal Hembroff]

The government announced just a few weeks ago that it would be introducing a new buy Canadian policy to the federal procurement process. This will apply to defence and other sectors. More information will be provided within the coming months in terms of exactly how this buy Canadian policy operates in practice.

The answer to your question is that currently we do not have a procurement regime that prioritizes Canadian solutions.

[Ted Falk, Conservative, Provencher, MB]

Well, that's interesting.

This is along the lines of procurement again. I've had an experience in my office here on the Hill recently. We have a bubble in our carpet that we've had for a couple of years. We've been trying to get that addressed. We've had about nine or 10 different visits from Public Works Canada or the House of Commons maintenance people to try to address a simple thing like a roll in the carpet that needs to be fixed. It's still not resolved. This has been going on for over a year.

Is that a frustration we have in our procurement at National Defence? Can we not get anything done without having 10 visits from half a dozen people each time or four to six people coming to look at a problem?

[The Chair, Liberal, Ben Carr]

Mr. Falk, I hate to burst your bubble, but we have about 20 seconds left here. I'm not sure who the question was for.

[Ted Falk, Conservative, Provencher, MB]

I would direct that to Ms. Hembroff again.

[The Chair, Liberal, Ben Carr]

Ms. Hembroff, you have about 30 seconds, please.

[Kendal Hembroff]

I'm sorry.

Chair, could the question be repeated?

[Ted Falk, Conservative, Provencher, MB]

How many visits does it take to get something done through procurement? How many proposals and how many meetings have to be had?

We've talked about F-35s for I don't know how many years. We've studied them, and nothing ever happens.

[Kendal Hembroff]

Mr. Chair, I don't think I can answer that. I certainly don't have any data in terms of the average time it takes for procurement from start to finish. Every procurement is very different. It's very possible that PSPC might have some data on that front.

[The Chair, Liberal, Ben Carr]

Okay.

Thank you very much.

Ms. O'Rourke, you have the floor for six minutes.

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

Thank you very much, Mr. Chair.

I agree with Ms. Hadwen. This is a really exciting time in terms of our economy, sovereignty, reconciliation and equipping our servicemen and servicewomen with made-in-Canada solutions properly and fit for the threats that we're seeing today. I'm very excited.

I'm wondering if you want to give us a picture of the range of things that the defence industrial strategy will be looking at. The quick description talks about everything from quantum and food to AI.

Can you give us a sense of what the landscape looks like?