National Defence Committee on Feb. 27th, 2007

[The Chair, Conservative, Rick Casson]

I've recognized the minister, and the minister will have the floor.

[Maxime Bernier, Conservative, Beauce, QC]

Thank you, Chair.

I just wanted to take 30 seconds to finish saying what I thought, and I will answer that question. I am very pleased to answer that question because it's a good question and I'm proud of what I am doing as the Minister of Industry. So if you can wait 30 seconds, I'm going to finish answering this question.

I said that our government had made public its intention to acquire medium to heavy transport helicopters, which will result in benefits of $3.7 billion; we will also be purchasing combat support ships representing economic benefits of $2.3 billion.

This government has done more in terms of economic benefits in 12 months than the previous government did in 12 years. The benefits amount to $12.6 billion for Canada.

That said, to answer my colleague's question, as the Minister of industry, I must meet with all of the stakeholders in Canada's aerospace industry. I met with most of these people in Farnborough, as I said in my presentation. I also met with the people involved in Canada's industry as well as in the international industry, the presidents of various companies, including Boeing and others.

As part of my official duties, I attended a meeting in Washington, to which my honourable colleague referred; this was in conjunction with the Partnership for Prosperity and Canada's Security. My American and Mexican counterparts and I spent a productive day working on plans to ensure continued prosperity and security in the relations among the countries that share this continent.

On that note, I also met—

[Denis Coderre, Liberal, Bourassa, QC]

No, just a minute please.

[Maxime Bernier, Conservative, Beauce, QC]

Still in response to the question, I must also say that I met with the people from Boeing and from other companies in my capacity as Minister of Industry.

[Denis Coderre, Liberal, Bourassa, QC]

I am asking you the question because your lengthy response shows that negotiations had taken place earlier, before everything was finally settled. Last June 22, I asked you a question about the procurement of aircraft for the Department of National Defence. At that time, the Prime Minister had said that no choice had yet been made, that things were progressing normally, etc.

However, on that very day, June 22, the file was being given final approval by Treasury Board, which is a Cabinet committee. The Prime Minister had decided to circumvent the truth in order to avoid having to answer to parliamentarians, preferring to embark on a one-week coast-to-coast marketing tour, and in so doing, demonstrating his lack of respect for parliamentarians' questions on procurement totalling $17 billion, which represent almost 10% of Canada's annual budget; that is not insignificant.

These choices were already so firm that you were dispatched to Washington one week earlier by the Prime Minister's Office to enter into secret talks with Boeing and Lockheed Martin. We see that it works. You claim to not be involved in political interference, but CAE will be given a contract for training. You mentioned the Chinooks and the Hercules, for example, but no mention is made of—

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

On a point of order, Mr. Chair, I'd like the honourable member opposite to provide the evidence to substantiate the allegation he just made.

[Denis Coderre, Liberal, Bourassa, QC]

That's not a point of order.

[The Chair, Conservative, Rick Casson]

I'm not sure that's a point of order, but, Mr. Coderre, could you get to your question, please?

[Denis Coderre, Liberal, Bourassa, QC]

Fine, but I hope that my time will not be reduced.

Regardless, in awarding the contract to CAE... Given that you do not interfere, I imagine it's the Prime Minister's Office that does. We're talking about Chinooks and Hercules but obviously not about C-17s because we were swindled on those. You don't want to do anything but we were swindled.

You therefore bypassed all the federal bureaucracy's expertise. This is the first time an industry minister has negotiated before people from his own department and in my opinion it's unacceptable.

For the first time, Canada will not be fully responsible for the maintenance of one of its aircraft fleets, thereby depriving its aeronautical industry of significant industrial benefits related to technological transfers. The cherry on top is that the ITAR regulations were not negotiated. If one wants maintenance, one has to obtain intellectual property. There is absolutely no intellectual property. Even if there was a will to get a percentage for Quebec, that control 60% of the industry, you negotiated peanuts. You took a nice little trip to Washington with nothing to show for it, except making a few new friends for yourself.

You must be aware, minister, that the Government of Canada negotiated licence agreements on engineering and technical data in order to allow Canadian companies to provide maintenance directly to the Defence department, and not to the manufacturers.

Could you tell me if this still stands, and if not, why? Why is it that companies like Lockheed Martin and Boeing now decide on how regional benefits will be distributed? Why is the government now useless? Finally, what is your role in government? What is the purpose of having a Minister of Industry under the Conservative government if he can't fulfil his duties, except for making little trips to Washington, and help people in their regions, especially in Quebec, in obtaining the percentages they have a right to? If you want the industry to be successful, you have to have intellectual property. There has to be research and development as well. We want benefits, not just compensation.

[The Chair, Conservative, Rick Casson]

Mr. Minister, the time is up. Just keep that as a thought, and as we go through the rounds, they'll get an opportunity to come back to it.

Mr. Bachand, for ten minutes.

[Claude Bachand, Bloc, Saint-Jean, QC]

Thank you, Mr. Chairman.

I will try to keep the debate civilized and not stoop too low.

First, welcome. I must admit, minister, that this is an extremely frustrating issue for the Bloc Québécois. I will try to explain why we feel that Quebec is a victim of your method of awarding contracts. The Canadian government will be investing $16 billion in the aerospace industry. We have analyzed these contracts and have found that there will not be many benefits for Quebec.

I will tell you why I have become more frustrated since July. First there were announcements, and we asked the Minister of Defence in the House if we were truly going to acquire C-17, tactical and search and rescue aircraft. In the last few days of the session, the minister replied that no decision had been made. The following week, when the House rose, he began travelling across Canada making announcements.

On July 7 or 8, I turned on my computer and went on to the Public Works and Government Services Canada's MERX's website. I noticed that the contracts had already been posted, right in the middle of the summer break. You mentioned Farnborough. In fact, the entire aerospace industry was in England for the air show in Farnborough.

I could not let this pass and on July 31^st, I decided to meet with the big aerospace industry stakeholders in Montreal. They were somewhat discouraged and felt that things were moving quickly. The call for tenders was closing on August 4^th. They asked me why Boeing had 60% of the aerospace content and Lockheed Martin had 50%. Why not 100% for the aerospace industry?

I would like to point out that the Bloc Québécois is currently the only party—I repeat the only party—that stands up for the Quebec aerospace industry. The other parties are established throughout Canada and hesitate to stand up for Quebec. I am speaking for Quebec only and it happens that Quebec controls 60% of the aerospace industry in Canada.

I subsequently met with Boeing representatives at the Ritz Carlton, who brought me up to their royal suite to meet with their officials responsible for industrial and regional benefits. I told that 60% of the aerospace industry was in Quebec, that there was 60% Canadian content...

Mr. Chairman, may I finish? Could you ask my colleagues to calm down? I know this makes them a little uncomfortable, but it does not matter.

[The Chair, Conservative, Rick Casson]

Go ahead. The floor is yours.

[Claude Bachand, Bloc, Saint-Jean, QC]

So I told the Boeing people that 60% of the aerospace industry was in Quebec, that 60% would be in the aerospace contracts and that they would therefore be giving 36% to Quebec. They hesitated and said that it didn't work like that.

We learned later that your government had told Boeing that they could invest wherever they wished to. I don't want to have to tell my red Camaro story again and how my father taught me how to negotiate contracts. Regardless, when I write a cheque out to a garage to purchase a car or anything else, I expect to get what I want because I'm the one paying. But that's not what you did. That's what I would like to hear you comment on.

When you last appeared before this committee, you stated that you signed the Boeing contract on February 2^nd. Did you hesitate for one single moment? Did your hand shake when you signed the contract? Did you figure that you were putting Quebec in its place and that Boeing would be allowed to decide where it invested its money? You're a minister from Quebec. Normally you would be standing up for your home region.

I'm sorry if my frustration is apparent but given that this is the first time I have you in front of me I want to take advantage of this time.

[Maxime Bernier, Conservative, Beauce, QC]

Thank you very much and you're forgiven.

I'll give you some background because your comments and questions raise other related questions. Last July 5^th we posted an advanced contract award notice on the Internet; you're absolutely right. That was done transparently. Then, on July 16^th and 19^th last, I met with Boeing and Canadian companies in Farnborough. In August, in the wake of January's announcement of the Boeing contract, my colleague, Michael Fortier, the Minister for Public Works and Government Services Canada, closed the call for tenders.

I'd like to put this in perspective. Before meeting with you, I read the various party platforms on defence. I was shocked to see that the Bloc Québécois platform paid very little attention to defence. Investing in the armed forces so that they have modern and cutting-edge technology is not one of their priorities. I think it's a little strange that my colleague from the Bloc Québécois is happy with announcements for the military and for economic benefits for Canada.

The government's main role is to acquire equipment for the armed forces. The previous Liberal government neglected the armed forces for about 12 years. I read the campaign speeches and platforms of my Liberal colleagues who were promoting the Canadian Forces. In reality, no investments were made in that sector over the past 12 years.

Therefore, the main purpose of this exercise is to provide equipment to the Canadian Forces at the best price possible. We also have an industrial and regional development policy, like all countries in the world. Under that policy, we must ensure that for every contract dollar awarded to a foreign company, Canada gets one dollar in economic benefits. By "economic benefits", I mean real benefits flowing from technology transfers. Multinational companies such as Boeing, Lockheed Martin and Airbus are used to this because all developed countries have similar industrial benefit policies.

As the Minister of Industry, my role is to make sure, along with the senior public service and the Department of Industry, that these companies comply with our industrial development policy by obtaining benefits for the Canadian aerospace industry.

I am the member for Beauce and the Minister of Industry. I am grateful to the Prime Minister for his trust in me and for giving me the privilege of serving as Minister of Industry. In that capacity, I must serve the general interest, Canadian interests. I decided to go into politics not to partake in patronage or to decide which private company we were going to do business with, but rather to ensure that Canadian laws and policies are applied.

I am very proud, as I announced last January, that Boeing does follow our policy. I would even say to this committee that the contract that the Government of Canada negotiated with Boeing provides for significant financial penalties in the event that the company does not meet its commitment to provide high-quality industrial benefits to Canada.

Boeing has signed contracts with the Government of Canada in the past. Those contracts included provisions for industrial economic benefits and the company fulfilled that obligation. I am confident that Boeing will comply with its contractual obligation.

[Claude Bachand, Bloc, Saint-Jean, QC]

I will begin by responding to your statement about the Bloc Québecois election platform. Minister, the Bloc Québecois obviously won't just sit back and do nothing while contracts are being awarded. It won't tell Canadians that the contracts weren't part of its platform and therefore they can be awarded to whomever. I am here to speak up for Quebec and Quebec's aerospace industry.

One would think from listening to you, Minister, that the law of the jungle prevails. That's unacceptable. You're the one paying with the taxpayers' money. You're the one who should be telling the company what it has to do, and that if it doesn't do as you say, you'll go elsewhere. Why shouldn't the law of the jungle also apply to the automobile sector? Do you think that Ontario would just sit back if you were awarding automobile sector contracts and you announced that they would be distributed across Canada, including Quebec, which is very important?

You have always said that an industry's critical mass, or industrial clusters, are very important. They're important for the auto industry and they should be just as important for the aerospace industry. There's a double standard.

I'd like to go back to the 40%. You stated that 60% of the contracts will go to the aerospace industry. What about the other 40%? People have said, as I have, that they are not interested in putting the 40% into Northern spruce and B.C. sockeye salmon. These are aerospace and advanced technology investments. One hundred per cent of the benefits should go to the aerospace industry.

[The Chair, Conservative, Rick Casson]

Excuse me, Mr. Minister, the time has expired. We're going to have to move on.

Ms. Black.

[Dawn Black, NDP, New Westminster—Coquitlam, BC]

Thank you, Mr. Chair.

Thank you, Minister, for appearing here today, and to your officials as well.

We've had the Minister of National Defence here, and we've had the Minister of Public Works and Government Services as well, and neither of them has indicated that he is the lead minister responsible for defence procurement. It's very hard to find out which minister takes the final responsibility on all of this.

I want to ask you if you consider yourself to be the minister who is responsible for industrial regional benefits.

Further to the contract on the C-17s, for every dollar that's spent on maintenance in the U.S., I would like to know how many dollars will be spent in Canada. So regardless of who those dollars are paid to in the U.S., whether it's the U.S. Air Force or to U.S. industry, what is the ratio of those dollars to the dollars that will be spent in Canada, exactly?

My final question in the first round is what your own role, your personal role, has been in determining the industrial regional benefits. In this contract, the Agreement on Internal Trade does not apply, because the national security exemption was invoked, so I think it's even more important to understand exactly how the regional industrial benefits have been determined.

[Maxime Bernier, Conservative, Beauce, QC]

Thank you. Your question gives me an opportunity to specify what my role is, as you requested, and to clarify some percentages. Our Bloc Québécois colleague mentioned 60% and 40%. I would like to clarify that. The 100% policy applies to foreign manufacturers. When a contract of that kind is signed, 100% of the money you receive over the course of that contract must be reinvested in Canada in the form of industrial benefits.

In my opening statement, I quoted percentages, including 50%, 30% and 15%. I would like to explain what they mean. Fifty percent is the minimum economic benefits for the aerospace and defence sector. Thirty percent is the minimum in economic benefits for key technologies as I pointed out in my opening statement. Nine-key technology areas were identified, for the first time, through analyses undertaken with the aerospace industry. Officials from my department met with aerospace industry officials in order to determine what the key technologies of the future would be in the aerospace and defence sector, technologies that were the most important for the development of that sector. Together, they drew up a list of nine-key technologies. Thus, 30% of the contracts must be in those key technology sectors and 15% must go to small- and medium-sized businesses. It's important to understand that these are not exclusive percentages.Therefore, a contract between Boeing and a company might fall under the 50% category because it's in the aerospace and defence sector. It might also fall under the 30% category because it deals with a key technology and finally, it might fall under the 15% category because it's with a small business. The percentage categories are not mutually exclusive.

That said, it's important to understand something about the 60%, that we talked about during our press conference with Boeing. Before the contract was signed, 60%—that is, $577 million—of an $869 million contract was identified in industrial benefits for Canada, that meet the criteria. As I stated during the press conference, and as I am repeating it now, Boeing will be announcing those contracts over the next few months.

I'd like to take the opportunity to clarify some figures. We announced the acquisition of four C-17 aircraft, totalling $3.4 billion. How is that $3.4 billion spread around? An amount of $1,8 billion goes to aircraft acquisition, including $869 million for the purchase of the Boeing aircraft. There will be $869 million in economic benefits—one dollar for every dollar—because the purchase involves a foreign manufacturer.

Also $660 million will go to National Defence infrastructure development and to various projects National Defence manages. This involves items such as the construction of hangars for the airplanes. That money is spent directly in Canada, and therefore the policy does not apply.

The third part of this $1.8 billion is $271 million that will go to the purchase, from the American armed forces, of equipment to support these aircraft. As you know, the policy does not apply to the $271 million because this is a government-to-government purchase. The policy only applies if the purchase is from a foreign manufacturer. One portion of that $271 million will go to engines. Under this contract, the American armed forces will work with Pratt & Whitney to make sure that the aircraft have the necessary engines. The dollar-for-dollar policy applies to that portion. There will therefore be 100% in economic benefits for the acquisition of aircraft and engines and we will be receiving more than $1 billion in benefits.

Furthermore, the overall amount of $3.4 billion includes another $1.6 billion. That will be spent on services from the Canadian armed forces to pilot training. Out of that $1.6 billion, $900 million will go to Boeing in its contracts with the American armed forces for aircraft maintenance. Our policy applies to that $900 million.

That is why I can tell you that the $3.4 billion contract for the four C-17 aircraft will result in a minimum of $1.9 million in economic benefits, as well as $660 million in direct purchases in Canada. I think it's important to give you that context and I thank you for giving me an opportunity to do so through your question.

[The Chair, Conservative, Rick Casson]

Ms. Black.

[Dawn Black, NDP, New Westminster—Coquitlam, BC]

In terms of the response that you gave me, you threw out a great many figures, and it's a bit difficult to sort through them all right here.

My question was very specific. With regard to the C-17 contract, for every dollar that's spent in the U.S. on maintenance, regardless of where it's spent in the U.S., how many dollars will be spent in Canada, on Canadian industry here?

I have a further question on that. Back in November, it was reported that there would be industrial regional benefits to British Columbia from the contracts. I'd like to hear you, if you could, please, outline those for us. It would support what my colleague from the Bloc Québécois said. He said that Canadian taxpayers fund these contracts and fund the maintenance, and surely the regional benefits should be spread to industry across the country, and into the west as well. We had the horrible example a number of years ago, under a different Conservative government, with the CF-18 contract, where Winnipeg won the contract and the industrial benefits did not go to the west.

So I would like to ask exactly where you see the benefits going, and how much of that will go into British Columbia?

[Maxime Bernier, Conservative, Beauce, QC]

Thank you for the question. First, I spoke to several industry stakeholders and politicians in Canada about this military procurement. Everyone had their own opinion. I can tell you that the Premier of Manitoba was very pleased with our method of proceeding because he was concerned about the price the Government of Canada would be paying for its aircraft. He wanted to be sure that Canadian taxpayers would get the best value for their money. That is why we followed an open and transparent process, which resulted in a purchase of aircraft at the best possible price, without any political interference and without any dictating. We were able to get the best possible price without having to dictate to anyone who to do business with.

That said, I would like to clarify my role. You asked me a question about the role of the Minister of Industry. That is a very relevant question. I stated earlier that calls for tenders fall under Public Works and Government Services Canada. The role of the Minister of Defence is to establish equipment procurement criteria because he is in the best position to know what the Canadian Forces need. My role, as the person responsible for industrial development policy, is to ensure that the policy is applied. My role is that of a facilitator between businesses and industries. I am proud to tell you that Industry Canada, Boeing and Lockheed Martin undertook several presentation tours, participated in several trade meetings throughout the country with our aerospace industry stakeholders, in the East as well as in the West, in order to ensure that all industry stakeholders were aware of the business opportunities available to them. This is a very important role because we in Industry Canada want to ensure that we fully understand industries' concerns and that the industries also fully understand the opportunities available to them. That also explains why we were able to craft a policy that applies broadly and that is respected by all stakeholders. The Canadian industry is pleased that it can count on us for development, especially in terms of the nine-key technologies that I outlined earlier.

[The Chair, Conservative, Rick Casson]

Thank you, Mr. Minister.

Over to Mr. Hiebert for 10 minutes.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

Thank you, Mr. Chair.

Thank you, Mr. Minister, for being here. It's a pleasure to have you answer some questions that have emerged over the last number of meetings that we've had.

I want to start my questioning with respect to enforcement. You talked in your opening statement about the obligations that Boeing will have in terms of IRBs, outside of the other portions of the contract. My question is a little bit along the lines of Mr. Bachand's in terms of making sure Boeing fulfills its commitments. You mentioned that over the acquisition portion of the contract, which must be completed in eight years, Boeing has to participate in a healthy way with the IRB process. Could you elaborate for the committee how Industry Canada will ensure that Boeing fulfills those commitments within the next eight years?

[Maxime Bernier, Conservative, Beauce, QC]

Thank you. It's a very good question.

Each year, with Boeing in this case, they must report annually to Industry Canada, and Industry Canada does a review of the IRBs and the achievement of the commitment that Boeing and other companies offer us in specific contracts. It's very accurate, and with that we're able to know and to follow the IRBs and the commitment by a specific company. We have a verification process, and this process is very fair and transparent, and it outlines the IRB policy in the section. When the contractors sign a contract with the Government of Canada, they know that, and they have to respect that. They know that Industry Canada will do a verification each year. The contractors are required to keep up records and provide annual progress reports to my department, and the government officials and the civil servants do a review each time, each year, to confirm this activity, and they do it very seriously, to be sure the contractor respects his obligations on the contract.

This process is important for us, and it's also important for the contractor, because at the end, there is always the possibility of economic damage if a contractor doesn't meet his obligations. In the contract it's usually well specified that if they don't meet their obligations, the Government of Canada will be able to have liquidated economic damage. They understand what they have to do, and they're used to dealing with our government, and they're also used to dealing with other governments around the globe. They're committed, and I'm very proud to let you know, as I said before, that Boeing had a previous commitment with us, and all the commitments they had were on schedule for the IRBs.

I think it's good news, and it shows that our policy is working and working very well. It's why the industry is happy and proud of our announcement and what we're doing right now for our military.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

When the Minister of National Defence was here, he talked about how the military identifies the requirements that they have. The requirements are then sent along to Minister Fortier of Public Works, and they identify the products, or preferably off-the-shelf items, that will fill those requirements. They refer to it as performance-based specifications for the military.

I understand that Industry Canada has its own requirements criteria. Could you describe for us the strategic airlift requirements criteria that were used by your department in evaluating the IRB package submitted by Boeing for the C-17s?