Industry Committee on March 5th, 2008

[The Chair, Conservative, James Rajotte]

We'll call this meeting to order. This is the 24th meeting of the Standing Committee on Industry, Science and Technology.

Members, we have 13 votes at 5:30, so we'll have to end this meeting at 5:15.

I believe our last guest is here. We have with us today four guests.

The orders of the day today are, pursuant to Standing Order 108(2), for the study of the proposed sale of part of MacDonald, Dettwiler and Associates Ltd. to Alliant Techsystems.

We have with us in the room, first of all, the chair of the Rideau Institute on International Affairs, Mr. Steven Staples. Welcome.

From the University of British Columbia we have Professor Michael Byers. He's the Canada Research Chair in global politics and international law.

As individuals we have with us Mr. Hugh Thompson, spacecraft systems engineer with MDA Ltd., and last, by video conference from Montreal, the former president of the Canadian Space Agency, Mr. Marc Garneau.

Mr. Garneau, can you hear me okay?

[Marc Garneau, Former President, Canadian Space Agency, As an Individual]

I can hear you loud and clear, Mr. Chair.

[The Chair, Conservative, James Rajotte]

Thank you very much for that.

We will allow up to five minutes to each of you for opening statements. Thereafter, we will go to questions from members.

We'll start with Mr. Staples, please.

[Steven Staples, Chair, Rideau Institute on International Affairs]

Good afternoon, and thank you very much for inviting me to speak to you today.

I'm Steve Staples, the president and director of the Rideau Institute, an independent, non-profit research, advocacy, and consulting group based here in Ottawa. During my career I've had the opportunity to research and comment on many issues related to national security and Canadian industry, particularly in the field of defence. I was involved in the public debate on Canada's participation in the ballistic missile defence program. I'm the author of Missile Defence: Round One, a book on that subject that was published in 2006.

I've been tracking the development of RADARSAT-2 for a number of years and was invited to appear before the House of Commons Standing Committee on Foreign Affairs and International Trade in 2005 to speak about the Remote Sensing Space Systems Act, which was at that time called Bill C-25. At that time I was representing my previous employer, the Polaris Institute, and we raised concerns about the potential defence applications of RADARSAT-2 and the need for its sensitive technology to be firmly controlled by the Canadian government.

In recent years my work has become more involved in promoting Canadian leadership and ensuring that the benefits of space and its peaceful uses are made available to all nations and do not become another field of military and national security conquests that could result in disastrous consequences.

Canadian leadership internationally requires that the government have clearly defined goals. Hence the need for a comprehensive Canadian space policy to guide the development of Canada's space science, technology, and industry to maximize our benefits from the peaceful uses of space.

Today we've prepared a backgrounder for you as the committee examines the proposed sale of MDA's information system, which includes RADARSAT-2, and MDA's space robotics division, which is responsible for Canadarm2, the space station remote manipulator system, which is Canada's contribution to the international space station.

Since the beginning of the program, RADARSAT has been hailed as a breakthrough in Canada's ability to monitor our vast land mass and to better understand our geography, our natural resources, and monitor our coast lines. How prescient were its designers that today, with climate change and the eventual opening of the Northwest Passage to shipping, we would have this system available to us to ensure our security and to assert our sovereignty.

There are many green uses of RADARSAT-2, as portrayed in this brochure—literally coloured green—which was produced by MacDonald, Dettwiler, and Associates to promote the uses of RADARSAT-2. Its vision in this brochure is echoed by Michel Giroux, of the Canadian Space Agency, who in 2005 told the Canadian affairs committee that CSA has always maintained that RADARSAT-2, like RADARSAT-1, is an earth observation satellite intended for peaceful use. It exists to allow us to manage the earth's surface and to carry out environmental monitoring.

However, there is a darker side to RADARSAT-2, and that is its ability to provide imagery for military purposes. I say darker as it's encaptured by this other brochure by MDA, on RADARSAT-2 as well, which is literally coloured black, touting the satellite's usefulness to defence consumers—the green RADARSAT and the black RADARSAT.

Ironically, in this sale of RADARSAT-2 to the U.S. firm Alliant Techsystems, we may be undermining our own national security. We could be selling off our ability to monitor our coasts and provide our government with the data it needs to make decisions. As well, we could be eroding our industrial base and space industries, which will limit our future capacities.

Let me make five points about the sale of MDA's information systems.

This is a bad deal for Canadians. Taxpayers have invested close to $500 million in the remote sensing satellite RADARSAT-2. In contrast, MDA, the private owner of RADARSAT-2, has reportedly invested a much smaller amount—some estimates have been as low as $92 million. Yet it's selling this technology and its other space systems for a cool $1.3 billion.

There are also potentially grave negative implications of the sale of RADARSAT-2 for Canada's continued regulation of the satellite's operation to assure that it is “neither injurious to national security, to the defence of Canada, to the safety of Canadian Forces or to Canada's conduct of international relations, nor inconsistent with Canada's international obligations”, as prescribed in that 2005 Remote Sensing Space Systems Act, which was envisioned to regulate RADARSAT-2.

The third point—

[The Chair, Conservative, James Rajotte]

Mr. Staples, you are over time now, but I'm just going to encourage you to try to wrap up as soon as you can.

[Steven Staples]

Okay. Thank you. I have provided a brief.

I would just say that I believe that this deal will have no less an impact on Canada's space industry and our capabilities than the cancellation of the Avro Arrow had on our aerospace industry in the 1950s. I believe that the loss of technology and scientists, if we sell off this system, will be felt for generations.

So we are recommending that the Minister of Industry not approve the sale of MDA's information division to ATK, based on those primary national security concerns.

I thank you very much, and I look forward to your questions.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Staples.

We will now go to Mr. Byers, please.

[Michael Byers, Professor, Canada Research Chair (Tier One) in Global Politics and International Law, University of British Columbia]

Thank you very much for having me appear here today.

Thank you very much. I will be speaking in English, but I do understand questions asked in French.

I too have been following the issue of RADARSAT closely for some years now. Most recently, it's been in my capacity as the leader of a project on sovereignty and shipping in the Northwest Passage for ArcticNet, a federally funded consortium of scientists from 28 Canadian universities and five federal departments.

Prime Minister Harper has recently taken some significant steps to assert Canadian sovereignty in the north. He committed to a deep-water wharf on northern Baffin Island, a cold-weather training centre for the Canadian Forces, six to eight ice-strengthened patrol vessels for the navy, and most recently, $750 million for a polar icebreaker.

It is the latter commitment that I want to dwell on briefly in relation to the proposed sale of RADARSAT-2. Imagine that the new icebreaker was constructed as a public-private partnership with a hypothetical company called Northern Defence Associates, or NDA, a Canadian company based in Richmond, B.C. Under this hypothetical arrangement, the Canadian government contributes $445 million towards the construction of the icebreaker in return for a specified number of hours during which the vessel will be available for use on a priority basis by the Canadian Coast Guard.

Imagine also that ownership of the vessel vests in NDA, which is allowed—indeed encouraged—to create jobs and stimulate economic activity in Canada by chartering the icebreaker to other users when it is not required by the Canadian Coast Guard. Such other users might include, for example, shipping companies requiring icebreaking escorts through the Northwest Passage.

Everybody is happy, myself included. The Canadian government obtains a major tool for sovereignty assertion, NDA obtains significant subsidies in return for providing a public good, and there is opportunity to garner profits through private contracts on the side. Commercial shipping companies from around the world benefit, promoting trade and general prosperity. That is until NDA announces that it intends to sell the icebreaker to an American company called Southern Tech Systems, STK, that specializes in supporting Antarctic operations.

A controversy erupts, and rightly so. Will the icebreaker continue to be registered in Canada? You may ask if it will continue to be available for use on a priority basis by the Canadian Coast Guard, given that it might not maintain a Canadian registry, and will frequently be deployed in the southern ocean, tens of thousands of kilometres away from Canada's north. To what degree would Canada's new sovereignty assertion capabilities be lost, or at least compromised?

This is hypothetical. Does anyone think that the sale of the icebreaker would be allowed to proceed? Yet the parallel between this hypothetical and the proposed sale of RADARSAT-2 is very close indeed. RADARSAT-2 is a remarkable satellite; it provides imagery of incredibly high definition even at night and through clouds. It is the perfect tool for mapping Arctic sea ice and tracking ships.

Indeed, the Canadian Ice Service has been the largest domestic user of RADARSAT-2's less powerful predecessor, RADARSAT-1. With the Northwest Passage rapidly opening, RADARSAT-2 has become an essential tool in upholding Arctic sovereignty. Being able to monitor ships from space and map the presence and thickness of any remaining ice is a necessary complement to having naval patrol vessels, coast guard icebreakers, or helicopters available to interdict foreign vessels.

RADARSAT-2 was developed in a partnership between MDA and the Canadian Space Agency, with Canadian taxpayers paying $445 million of the total cost. In return for its investment, the Canadian government was promised large amounts of imagery as well as priority access in emergencies such as oil spills or a suspect vessel entering Canada's north.

Once RADARSAT-2 is sold to Alliant Techsystems, the United States will likely replace Canada as the country with licensing authority over it. I have sought to confirm this with several officials from the Department of Foreign Affairs and the minister's office, and all of them claim not to know what will happen to the licence.

If the United States becomes the licensing authority, Ottawa's ability to control what the satellite is used for and to commandeer the equipment in emergencies might be lost. And even if Canada were to retain some sort of notional control, one could well imagine that control breaking down in certain circumstances when the company in question is owned and located in the United States.

Suppose, for instance, that Canada wanted priority access for sovereignty assertion purposes just as a major war involving the United States was breaking out in the Middle East. One can even imagine the U.S. government using RADARSAT-2 in ways that directly contradict Canada's interests.

[The Chair, Conservative, James Rajotte]

Mr. Byers, we're over time as well. Can I ask you to wrap up?

[Michael Byers]

I will be finished in less than a minute.

Suppose that the United States sends a ship into the Northwest Passage without Canada's consent.

The Canadian government recently announced that it would introduce legislation enabling foreign investments to be blocked if they are contrary to Canada's national security interests, and as I understand it, this move is directed primarily at state-owned companies investing in the Alberta tar sands. But a similar concern should prompt the government to block the RADARSAT-2 sale. Indeed, in light of my sovereignty concerns, I find it hard to believe that this sale offers a net benefit to Canada.

Finally, I wish to remind the committee that there are also powers and a somewhat different test provided under the 2005 Remote Sensing Space Systems Act, which was enacted especially for RADARSAT-2. The test that the foreign minister must follow is to determine whether this will have a negative impact on the national security and the defence of Canada. I think this satellite is just as essential to our national security as the $750 million that the government has recently committed to a new polar icebreaker, and for that reason, I believe this satellite should stay in Canadian hands.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Byers.

We'll now go to Mr. Thompson, please.

[Hugh Thompson, Spacecraft systems engineer, MacDonald, Dettwiler and Associates Ltd., As an Individual]

Good afternoon, and thank you for inviting me to speak.

It's not easy for me to be here today. I'm a loyal MDA employee and have been for eight years. I do not want to damage the good name of MDA or curb our prospects as a strong Canadian company. However, there are aspects of this proposed sale that I feel are not well known by the people of Canada, who help pay for many of the great things that MDA has done as a company.

I do not claim to represent large numbers of employees. I do, however, represent the views of more than just myself. In the short time I had to prepare, I received confirmation from 12 other employees that what I say here today represents their views as well as my own.

There are three main points that as a professional I would like to bring to your attention. First, I do not see that jobs will stay in Canada with this deal. Some employees like me will leave because they cannot in good conscience work for ATK. Some already have left. But this will be minor in comparison to the central reason why this deal will not maintain jobs in Canada.

ATK has announced that the key to the success of this deal is their ability to win U.S. classified programs. Only U.S. citizens are allowed to access U.S. classified information. Even on non-classified programs, it is very difficult for Canadians to work with U.S. companies on space technology. For example, early in my own career at MDA, we as a company were unable to work with Orbital Sciences, our own parent company, to build part of RADARSAT-2. Why was that? The technology was protected under ITAR, the international trafficking in arms restrictions. That's a much less severe restriction than classified designations. Jobs will not stay in Canada.

Secondly, when ATK buys the systems division of MDA, they will be buying our intellectual property. When ATK bids new technology developed in Canada for U.S. classified projects, it seems highly likely that this technology will also become classified. Canada will lose access to technology that has been developed by Canadians in Canada for the benefit of Canada.

Canada is on the verge of losing unique and world-class capabilities. Canada has not maintained a consistent and reliable level of funding for Canadian space programs. For example, projects like the follow-on to RADARSAT-2, the RADARSAT Constellation mission, had $200 million allocated in the 2005 federal budget. Up until now, less than $20 million of that funding has been spent by the CSA. The result of these kinds of delays is that a deal like this one from ATK is forced upon MDA in order to maintain shareholder value. As a result, cash will replace Canadian ingenuity and skilled industry. Sure, this deal will open new markets for our technology, but ATK will bid it to U.S. military markets, and those are closed to Canadian engineers.

Maybe in the short term some small pieces of that work will stay in Canada, but the specialized leading-edge capabilities of MDA to be a prime contractor for space missions will not continue. The skill and know-how that have taken years to build will disperse and be lost as a result of this deal.

Separately from these points, on a personal level, there are two additional aspects of this transaction that concern me as an employee. First, when I read the text of the Ottawa treaty banning land mines, it seems clear to me that although working for ATK might not violate the letter of the treaty, it certainly violates the spirit of the treaty. I personally have a problem with working for a company that violates international law, even if they don't violate the law in their own country.

Secondly, many of my co-workers and I, as well as many other Canadians, are against the weaponization of space. Canada opposed national missile defence and did not support U.S. efforts to advance this program. ATK is heavily involved in this work. I do not want to be associated with a company doing this work, even if I am not directly involved.

MDA management tells us that this is the best thing for jobs. ATK management tells us that this is the best thing for Canada. Well, I am both a Canadian and an MDA employee, and I assure you that this is not the best thing for me. I cannot and will not work for ATK. As a result, my skills are unlikely to contribute to future Canadian space projects. But regardless of people with views like mine, the jobs, technology, and expertise that Canada has invested so much in will not hang together in Canada over the long term as a result of this deal.

The only sensible thing for Canada to do now that we have reached this state, is to reject this deal and reject the transfer of the RADARSAT-2 operating licence, and immediately move forward so that MDA can get on with building the things that Canada wants and needs for our security, our sovereignty, and our contributions to global environmental monitoring. This will continue our tradition of building a healthy, high-tech space industry that is not beholden to whatever the next plans of the U.S. military might be.

I am outraged as a taxpayer that ATK will receive the benefit of so many of our tax dollars. I am outraged as an employee that ATK will receive the benefit of so much of our hard work.

Maybe this could have been foreseen, and maybe the best time to act was indeed years ago, but please do what you can now to prevent this tragic loss of Canadian industry and technology.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Thompson.

Now we'll go to Mr. Garneau, please.

[Marc Garneau]

Good afternoon.

Thank you for the opportunity to speak. I'll get to straight to the point.

MDA is not just another Canadian company being reviewed under the Canada investment act. It's a company that has received significant and deliberate funding from the Government of Canada, either through the Canadian Space Agency or such programs as Industry Canada's Technology Partnerships Canada.

Over the years, the Canadian taxpayer has invested heavily in the growth of MDA in order to help create a world-class Canadian company capable of building the hardware that Canada needs to meet its national strategic objectives in space--monitoring our sovereignty in the Arctic or maritime traffic and fishing activity off our coasts; assessing environmental change; monitoring our many natural resources; helping relief teams in the event of national or international disasters; assisting winter navigation of ships through ice; and so on.

For example, the Canadian government agreed to pay about $430 million of the roughly $520 million RADARSAT-2 price tag as part of a public-private partnership aimed at helping MDA develop its commercial market for space-based imagery. In return, MDA would own and operate the satellite, and provide the government with specific imagery. This was a bold move back in the late nineties, aimed at positioning Canada as a leader in this developing international market.

There is no question that ownership of this satellite by MDA allowed it to get an extremely attractive offer from ATK of over $1.3 billion. In essence, the Canadian taxpayer allowed MDA to secure a very lucrative deal for its shareholders, and yet the Canadian public, which should be viewed as a shareholder, is giving up a great deal if this sale proceeds.

I believe the Government of Canada should take into account the fact that MDA is the only space company in Canada capable of building large, complex satellites, and that its sale would mean that from now on, the Canadian government would have to buy future satellites from foreign-owned companies.

It is certain that other countries with strategically important space companies would not allow such foreign takeovers.

Canada was the third country in space with the launch of Alouette I in 1962. It happened because the Department of National Defence wanted to understand the ionosphere and why it sometimes interfered with high-frequency communications. In other words, there was a need, and the Government of Canada, at that time under a Progressive Conservative leadership, demonstrated great vision by moving out into the brand-new frontier of space.

In the mid-sixties, the federal government again took a position of leadership in deciding that Canada needed to have its own national communications satellite to connect all Canadians, and particularly those in the far north. That led in 1972 to the communications satellite Anik E1 and its operator Telesat, and made Canada the first country in the world with its own national communications satellite. Again there was a need, and Canada took a position of leadership.

In the early nineties, the federal government made another important decision, this time to build an earth observation satellite to monitor Canada's vast territory. That satellite was RADARSAT-1, an outstanding example of both success and innovation. Again, the government recognized a need and took action.

The bottom line is that space is a critically important strategic tool for the Government of Canada. That importance will continue to grow as more and more countries head for space. Canada will require new and more capable satellites in the future.

Let me get to the crux of the matter. There will be times when Canada will want to design spacecraft itself, as it has done in the past, and for reasons of national security or for reasons of economic competitiveness will want to have them built by a Canadian-owned company. That option will not exist if the proposed sale goes forward. And a great deal of effort and taxpayer money over many years will have benefited MDA shareholders but not Canadians.

Having said that, if the government recognizes the importance of keeping MDA capability under Canadian ownership, it must also ensure that it provides the means to ensure the continued viability of such a company.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Garneau.

Thank you all for your presentations.

We will now go to questions from members. Members will typically direct their question to one person, but if you do wish to respond, please indicate to the chair, and I will endeavour to give you some time to respond.

I just want to remind the witnesses that the time for questions and answers is very short: six minutes in the first round and five minutes in the second round. So if you can keep your answers as brief as possible, we would appreciate that.

We will start with Mr. Brison for six minutes.

[Scott Brison, Liberal, Kings—Hants, NS]

Thanks to all of you for spending time and imparting wisdom to us today.

On February 4, I met with the president of MDA Information Systems, and he told me that one of the challenges MDA Information Systems has had is the difficulty accessing NASA and U.S. space industry contracts due to ITAR and other prohibitions. He also stated that this was not merely a financial transaction for the shareholders of MDA but a strategic one, that in order to actually access these contracts you almost had to be owned by and located in the United States.

What I'm hearing here today from Mr. Thompson and others is in fact if this protects MDA jobs, then in all likelihood, based on ITAR, they will not be Canadian jobs; they will be American jobs.

My concern is why the Canadian government isn't seeking exemptions to ITAR, similar to the U.K. and Australian governments, and protecting what is an extremely strategic industry, the aerospace industry here in Canada.

Second, should the minister add a national security test to the net-benefit-to-Canada criteria under Investment Canada and in conjunction with that fight for ITAR exemptions, such that Canadian businesses can actually compete with U.S. aerospace industries and succeed?

In the fall, he indicated he would bring forward the legislation. He hasn't in fact done that, but would those two measures help? Once again, I mean adding ITAR exemptions for Canadian companies, but beyond that bringing in a national security test that would apply to this transaction and potentially block it.

[The Chair, Conservative, James Rajotte]

Mr. Garneau, Mr. Brison?

[Scott Brison, Liberal, Kings—Hants, NS]

Mr. Garneau, perhaps.

[Marc Garneau]

Thank you, Mr. Brison.

I would say that certainly within the space industry the presence of ITAR restrictions has been extremely frustrating for Canadian industry in terms of its dealings with the United States, particularly since 9/11.

I think every effort should be made for Canada to recover what was a most-favoured-nation status before 9/11, and this would certainly help to loosen up, if you like, our possible access to the American market.

The Canadian space industry has done a remarkable job, all things considered. Fifty percent of what the space industry builds in this country is exported, but it is an extremely difficult climate with the current regulations such as ITAR.

Second, as is evident from my presentation, I certainly believe that the Investment Canada Act or a benefits test with respect to possible foreign takeovers should definitely incorporate a national security criterion among the deciding factors.

[Steven Staples]

Just very briefly on the ITAR issue, this has been a problem that has confounded the Canadian government, I think going on for a decade now, in terms of trying to get around these regulations. Most of the international community views ITAR as a rather protectionist measure that the U.S. invokes in order to protect it. It is not really about protecting intellectual properties from getting in the hands of possible opponents.

I think there have been some developments in this regard. I understand the Canadian government has negotiated exemptions for federal employees in terms of ITARs, but I do not think that's extended down to private firms and contractors and even subcontractors. That is my understanding. This is causing real problems, especially in terms of our charter of rights and freedoms.

Certainly on national security grounds, absolutely. Certainly we have seen that this government has not shied away from using national security criteria and exemptions in the past. I note in particular that national security clauses of trade agreements were invoked in the recent major defence procurement contracts that were announced in 2006. It was in the advance contract award notice process, which some have said is the sole source, but national security exemptions in that process were invoked by the government. The contract actually went to a U.S. firm. Some would argue that it was to prevent others, perhaps European firms, from participating in it, but certainly I don't see why that principle shouldn't be invoked to protect a Canadian firm.

[Scott Brison, Liberal, Kings—Hants, NS]

My point is, would you agree, with Canada being a NORAD, NATO, and defence partner with the U.S. and a trade partner, and given that we have a shared interest in North American and international security, that we should be seeking equal national treatment for any Canadian aerospace company doing business in the U.S? That should be really where we start.

My concern, and what I'm being told by industry, is that the future is not there for Canadian aerospace companies without having that access guaranteed.

[The Chair, Conservative, James Rajotte]

Do you want Mr. Byers to answer that one?

Mr. Byers.

[Michael Byers]

There are two points. First, on the national security element of a test, there already is a national security test. That is in the Remote Sensing Space Systems Act, and in a joined-up kind of way I would like to think that the Department of Industry and this committee would consider the kind of test that Mr. Bernier has to apply in the Department of Foreign Affairs. There is this test that needs to be met for the sale of RADARSAT-2.

The second thing to point out is that the Canadian space industry, in order to fulfill these sorts of green purposes that Mr. Staples was identifying, whether mapping crops, supporting fisheries enforcement or the forestry industry, or ice mapping, is going to need government money, just as we need government money to build icebreakers for the coast guard. This is a public good, and you can't get away from that.

If you don't actually provide that financial stream, then the financial stream that remains is going to be from departments of defence, and most predominantly the U.S. Department of Defense. That is the default position.

[The Chair, Conservative, James Rajotte]

Okay, thank you, Mr. Byers. Thank you, Mr. Brison.

We'll go to Madame Brunelle.

[Paule Brunelle, Bloc, Trois-Rivières, QC]

Good day. Thank you everyone for being here.

This satellite produces extremely clear pictures of Canada. For several minutes now, we have been talking about national security. This is something that concerns me. Obviously, the use of this satellite is regulated.

You are an expert in international law, Mr. Byers. Did the Department of Foreign Affairs in fact issue the licence to operate the satellite last November? The minister can either grant or deny the new company permission to use this satellite. Given the activities taking place and the need for a license, does the foreign affairs minister have precedence over the industry minister when it comes to granting permission to use this satellite?