Thank you, Mr. Chair.
Thank you, everybody, for being here this morning, at this hour.
Honourable members of the committee, I thank you for the opportunity to appear before you today to discuss an important matter: the administration of the industrial and regional benefits policy managed by my department, Industry Canada.
I’m here today with Richard Dicerni, my deputy minister, on my right, and with Tom Wright, on my left, assistant deputy minister at Industry Canada.
Canada's new government, as you know, is committed to rebuilding our nation's place in the international community. That pledge includes meeting commitments made to our international partners, like NATO, thus making appropriate defence procurements to upgrade aged equipment.
Whether here, at home, or around the globe, the women and men of our Canadian Forces demonstrate their commitment to protecting Canada, its people, and our nation's interests. Through our announced military procurements, this government is demonstrating its commitment to our brave and dedicated soldiers.
First and foremost, ladies and gentlemen, we want to ensure that our personnel have the right transport to move them, and their equipment, to wherever they need to be, when they need to be there. Whether that's here in Canada or abroad.
As you are well aware, we need equipment to move the Canadian military around the world, as well as for rescue missions or disaster relief here in Canada.
Canada's new government is also committed to fostering a strong, competitive economy that benefits all Canadians. To achieve this goal, I firmly believe in the direction our government is taking to create an environment that encourages and rewards people who work hard, that stimulates innovation, and promotes Canadian industry.
We are strengthening the Canadian economy, giving Canada's industry the chance to participate in shaping future technologies and providing new, high-quality opportunities. Our commitment to a sustainable aerospace and defence sector and strong Canadian economy guides our approach to the administration of the industrial and regional benefits policy.
Ensuring that benefits to Canadian industry come from military procurements has been informally pursued since the 1970s and became formal government policy 20 years ago. The purpose of that policy is to make sure that no matter what company is selected to provide equipment our hard-working troops require, Canadian industry benefits as well. This is often referred to as industrial participation, or offsets, a practice utilized by many governments around the globe.
Our policy can attract quality high-technology work with lasting economic value for the Canadian economy, and that is why I’m here before you today. As you know, our aerospace sector ranks fifth in the world in terms of sales. I saw firsthand our people working in this industry at the Farnborough International Air Show in London last summer, and I can assure you that Canadian companies are global leaders, able to compete with anyone. This sector makes a huge contribution to Canada's economy, accounting for about $9.2 billion--yes, $9.2 billion--of our total gross domestic product.
I have had the opportunity to read some of the testimony your committee has already heard. As you have been told, whenever the federal government undertakes significant defence procurements, three departments are involved. The Department of National Defence determines what requirements the equipment must meet; Public Works and Government Services Canada is responsible for the procurement and contracting process; and Industry Canada, my department, develops an industrial benefits approach that looks to ensure there are real, high-quality, strategic benefits for Canadian industry.
As you know, on February 2, 2007, the government announced the purchase of four C-17 Globemaster III aircraft for a total acquisition cost of $1.8 billion.
The cost includes infrastructure built at National Defence, and the administration of the program done by the Government of Canada.
Infrastructure upgrades, training and administration by the government are direct investments into our economy, with no industrial benefit requirements.
Nonetheless, for the capital acquisition of the equipment, the Canadian industrial benefits will exceed $1 billion. Once the aircraft have been purchased, the government must also contract for their in-service support, or maintenance.
On this front, a contract has been signed with the U.S. Air Force for $1.6 billion. This contract is in two parts, the first, services performed by the U.S. Air Force do not qualify under the industrial benefits policy as the U.S. AF does not meet requirements that are in place for foreign companies.
The second part, approximately $900 million, will be subcontracted to the Boeing corporation. Boeing does meet the requirements of under the industrial benefits policy, thus we see a dollar-for-dollar return on investment.
These are the same types of benefits we will see from the acquisition of the aircraft, and will be spread over 20 years.
The suppliers that win the contracts with Boeing will be in a position to announce the contracts as they are received over the coming weeks and months.
Other procurements have taken two to three years to develop, but I am pleased to say that we have been able to develop the strategic airlift procurement in matter of months, and have secured approximately $1.9 billion in Canadian benefits on the acquisition and the in-service support.
As the members of the committee know, we have also announced acquisitions of helicopters, ships, trucks, and tactical airlift. Each acquisition will also bring significant benefits to Canadian industry.
Under the industrial benefits policy, every dollar companies receive from the defence procurement is matched by a dollar of economic activity in this country. That is a 100% return on investment within the contract duration. That is a dollar-for-dollar investment in Canada. And that is not negotiable.
What's more, we require companies that obtain these contracts are not only investing in Canada, but are investing in advanced technology in long-lasting and meaningful ways. The goal is to help Canadian companies become or continue as part of the global supply chains that are so important to this industry.
This means Canada's industry benefits from our procurements regardless of where the successful contractor is located.
In addition, benefit transactions must meet three criteria to be deemed acceptable to Industry Canada. First, the work must be causal; it should be brought about because of this procurement. The work must occur within the time period stated in the contract. The work must meet the incremental principle, which states that existing business relationships can be used but only the new work will count toward the obligation.
Moreover, for the C-17, we are stating that 50% of the benefit spinoffs will be in the aerospace and defence sectors, with at least 30% targeted into key technologies. The key technologies are as follows: advanced manufacturing and emerging materials, avionics and missions systems, communications and control, propulsion and power management, security and protection, sensors, simulation, training and synthetic environment, space, and unmanned vehicle systems.
We also require that 15% of Boeing's benefits contracts be with small and medium-sized businesses. As you know, small and medium businesses are vital to the growth and sustainability of the aerospace and defence sectors, and in general, small and medium-sized businesses are primary drivers of our economy as a whole.
The ultimate goal of the industrial benefits policy is to allow Canada's aerospace and defence companies the opportunity to demonstrate their ability and form long-lasting, sustainable business relationships with companies in other countries.
Our policy increases Canadian industrial competitiveness, marketing and market access, and investment in high technology sectors. While we encourage contractors to undertake partnerships that make real business sense, we work with the aerospace industry to make the best of the opportunities in this field, and we will continue to do so.
In fact, we have been working to improve the benefits process, making it more smoothly integrated into procurements overall and focusing on real strategic benefits for our industry.
For example, for the first time, the Aerospace Industries Association of Canada and the Canadian Association of Defence and Security Industries have collaborated with the government to develop the list of nine key technologies that I was referring to earlier. These are technologies that the industry sees as vital to its future development.
In addition, we work closely with the regional development agencies--the Atlantic Canada Opportunities Agency, Western Economic Diversification, and the Economic Development Agency of Canada for the Regions of Quebec--to identify Canadian companies that might be interested in the opportunities available right now.
We also work directly with Canadian companies to highlight the opportunities that are available, that meet their unique abilities, and work with contractors to emphasize the importance of cross-Canada involvement. We work diligently to make sure international companies are aware of our forces and our strength here in Canada and are aware that we are proud of Canadian industry.
Canadian benefits are serious contractual obligations, and Industry Canada requires annual audits and performance guarantees.
Each year, contractors must report on what they have achieved when it comes to Canadian benefits. There can even be financial consequences for non-performance.
Industry officials continue to work with Boeing to help identify the partnerships that make good business sense for Boeing, meet the key technologies list, and provide real opportunities for our industry.
Our approach to industrial benefits is very much in keeping with the government's overall approach. Over the past year, our new government has taken significant steps to improve Canada's economy. Early in our mandate we presented budget 2006, which contained measures aimed at improving our quality of life by building a strong economy that is equipped to lead in the 21st century. These measures focused on making Canada's tax system more competitive and attractive to international investment and outlined our commitments to reduce regulation on businesses, such as the paper burden, and support science and technology in Canada.
Last fall, we presented a long-term economic plan in Advantage Canada: Building a Strong Economy for Canadians focusing on five Canadian advantages that will give incentives for people and businesses to excel and to make Canada a world leader.
We will continue our focus to draw maximum benefit for the Canadian economy through the Canada First defence procurement.
And we will continue our work with the aerospace and defence industry in order to capitalize on the opportunities that are presented.
Thank you very much.
Thank you very much.
My officials and I are available for your questions.
