Thank you very much, Chair, ladies and gentlemen.
There is no more important role for government than the security of its citizens and the protection of its national economic infrastructure. The government's commitment to reinvest in the Canadian military is fundamental to Canada's national security interests. CADSI applauds the government's decision to move quickly to begin the rebuilding process. Like the majority of Canadian taxpayers, our 500 members expect the government to achieve the best possible value from its acquisitions and to maximize the opportunities for competitive Canadian businesses to participate in a meaningful way.
We say this because we believe that Canada's defence and security industries are vital contributors to the government's ability to protect and defend Canada and Canadian values. We appreciate the opportunity to appear before the committee at the front end of the government's multi-year, multi-billion-dollar rebuilding commitment. Taken together, these procurements for our land, air, and sea forces have the potential to transform Canada's defence and security industrial base. The federal government's procurement strategies are at the centre of that transformation and are therefore the main focus of our input to you this morning.
My remarks to you will be divided into three main subject areas, which I will address briefly, in turn: defence procurement, industrial and regional benefits, and export controls. Each form an integral part of Canada's ability to proceed successfully with defence procurements and to achieve a maximum return for Canada in industrial capabilities of strategic national interest.
As it relates to defence procurement, CADSI recognizes the importance of a federal defence security and foreign policy agenda to set the framework for Canada's long-term military and security requirements. We understand the importance of a federal commitment to long-term stable and predictable funding levels for our military and security forces.
In addition to a policy framework and adequate sustained funding, CADSI believes there's a third crucial ingredient to successful defence procurement, and that is a front-end political and interdepartmental decision-making mechanism that engages the government, the military, and industry in aligning the acquisition of military equipment with strategic government objectives for industry, domestic economic innovation, and trade competitiveness in defined areas of national interest. Unlike our allies, Britain and Australia, Canada does not engage these related interests in a concerted strategic fashion at the front end of defence procurements.
For this front-end work to be successful, CADSI members believe the government would have to articulate what it believed to be capabilities of strategic value to national security and economic interests. Let me be unambiguous. I am talking here about an industrial strategy for Canada's defence and security industries, a strategy that would consider, in its design and priorities, the current and future equipment, technologies, and in-service support needs of the military. It would consider international market and supply chain growth opportunities. It would also consider the distinctive security requirements of Canada as a maritime and northern nation that shares, as we do, a continent with the powerful United States.
There is a broad spectrum of opportunity for indigenous businesses to play in these environments. An industrial strategy, leveraged through defence procurements, would strengthen Canada's security and promote its economy in key technology areas.
Over the past couple of minutes, I have talked, as you might expect, about the economic and industrial opportunities available from effectively managed defence procurements. Let there be no doubt, however, that it is the military's responsibility to define its operating requirements, based on the missions the government has asked it to perform, and there should be no compromise in what the military decides it needs.
While business inherently supports the basic principle of competition, CADSI members agree that the key issue is not whether the government ultimately decides to build or buy off the shelf, to compete or sole source any particular procurement to meet its stated requirements. The most important issue, regardless of the chosen procurement strategy, is whether the government has established objectives up front and a strategy to achieve those objectives that maximize military, economic, industrial, and trade benefits to Canada, from the acquisition stage through the full life of the purchased equipment. It also has to involve industry as a contributor to that discussion.
One final comment on procurement. CADSI members support the government and the military in finding a faster process, one that delivers the required equipment in a timely and cost-effective manner and that assures maximum value for taxpayers and maximum involvement of the Canadian industry. We believe this is best accomplished through a process that is transparent and in which industry has a fair, open, and competitive opportunity to present solutions that respond to the customers' requirements from the earliest time in the procurement process.
The recent example of the joint support ship program, or JSS, may provide the committee with a process model worth supporting. Industry has described the JSS process as being one with open dialogue, where relevant documents are posted on a website in draft form for review, and where there is perceived to be an open and genuine interchange between the navy and industry around functionally oriented specifications—and by that I mean broad mission performance specifications. The procurement is focused on getting the best solution, and it is based on a front-end strategic interest in nurturing competitive Canadian industry. There is no ambiguity in regard to the process or how industry fits into the process. Consequently, to date there has been broad-based acceptance from all stakeholders.
As for industrial and regional benefits, Canada was among one of the first countries to develop and implement a program that sought to generate domestic economic value from the acquisition of military equipment supplied by offshore manufacturers. The program remains an important weapon in the government's arsenal to leverage Canadian companies into the supply chains of major defence contractors and to help nurture and develop Canadian-based capabilities that support our national security and long-term economic interests.
In the context of the IRB program, we ask the committee to consider a number of suggestions that we believe would strengthen the program and bring greater value to taxpayers. We ask for the program to encourage investment in Canadian-based companies and transfers of technology, IP, and R and D, by allowing credit for upfront investments, by properly valuing the technology being made available to Canada, and by offering a multiplier as appropriate. Currently, IRB credits are only provided when the recipient of the technology is able to generate downstream sales from the use of that technology.
We invite the committee to consider an IRB program that includes more flexibility, one that would allow banking a lower percentage of IRB obligations committed at contract signing. We believe this ultimately will lead to higher-value economic outcomes for Canada.
We recommend that a significant percentage of each IRB program be dedicated to investments in key capabilities of strategic importance to Canada and to the needs of Canada's military and security forces. We encourage winning contractors with IRB obligations to look across the spectrum of their business units to find benefits consistent with Canada's strategic interests.
As it relates to the export market, in the context of maximizing Canada's export potential through defence procurements, we ask the committee to consider that since the Hyde Park Declaration and the Ogdensburg Agreement from the 1940s, Canada and the United States have established a unique relationship for the mutual defence and shared security of North America. Much to Canada's economic and political benefit, our two defence and security industrial sectors, as a consequence, have become deeply integrated on both sides of the border.
Fully 50% of Canada's defence and security revenues are earned through trade with the United States. However, this traditional, deeply integrated industrial relationship is at risk because of U.S. interpretations of its export controls regime under the international traffic in arms regulations—ITAR—that reinterpret what it means to be a registered Canadian person. Left unaddressed, ITAR may significantly weaken Canada's technology and industrial capabilities. At a time when Canada is making the most significant reinvestment in its military and security forces for the past 30 years, much of the new equipment may well come from U.S. prime contractors. This situation therefore deserves the attention of the federal government at the highest political level.
In that context, CADSI recommends that the government, through senior political intervention, negotiate with the U.S. government an ITAR solution that applies equally to employees of the federal government and industry. We encourage a mutually agreed upon security clearance process and an enhanced Canadian-controlled goods program to be agreed to, to create an ITAR-certified Canadian company competing on a level playing field with U.S. companies. And we encourage that a process be created to expedite technical assistance agreements and manufacturing licensing agreements for companies that have been ITAR-certified.
Ladies and gentlemen, in conclusion, Canada has the industrial capacity, a highly skilled workforce, and the technical expertise to play a meaningful role in supplying and supporting a substantial part of Canada's current and future defence and security equipment requirements. What role Canadian industry will play in the rebuilding and long-term support of Canada's military will depend on decisions being made by the government now and over the next 18 months.
With the requisite political will, Canada can use its procurement, IRB, and other policy and program tools to obtain the equipment needed by the military to perform its duties. At the same time, we can maximize benefits for the Canadian economy, sustain high-quality jobs in Canada, and generate substantial export sales opportunities.
Thank you for your attention.