National Defence Committee on March 22nd, 2018

[The Chair, Liberal, Stephen Fuhr]

Good morning. Welcome to our continuing study on Canada's involvement in NATO.

From Brussels, Belgium, we have Martin Hill, Honorary Chairman of the NATO industrial advisory group. We don't have a video feed from him right now. We have audio, but maybe I'll put him at the end so that we can get both audio and video. The worst-case scenario is that we'll just have audio.

We also have Janet Thorsteinson, Head of the Canadian Delegation to the NATO Industrial Advisory Group, and Daniel Verreault, Director for Canada, Military Systems Operation, GE Aviation.

I'll think I'll start with you, Ms. Thorsteinson. You have up to 10 minutes for your opening remarks.

Ma'am, you have the floor.

[Janet Thorsteinson, Head of the Canadian Delegation, NATO Industrial Advisory Group, As an Individual]

Thank you very much.

First of all, let me say that it will be much easier if you just call me Janet. The meeting will go much more smoothly.

[The Chair, Liberal, Stephen Fuhr]

Thank you. I will do that.

[Janet Thorsteinson]

Thank you for the opportunity to appear here today on an important subject that is very dear to my heart. I will make most of my remarks in English, but I'm more than willing to entertain questions in either official language. I believe you have the translation of my document.

Although I am a special adviser to the president of the Canadian Association of Defence and Security Industries, I appear before you today not in that role but rather in the role of the head of the Canadian delegation to the NATO industry advisory group, which, to save us all a lot of effort—just as with my last name—we'll now call NIAG for the rest of the meeting.

I have with me the deputy head of delegation, Daniel Verreault, who would also like to make some remarks this morning.

I would like to address very briefly four areas: the NATO environment, the role of NIAG, where Canadian industry stands with regard to NATO, and the support we receive from our federal government.

With regard to the NATO environment, this has been a period, over the last 10 years, of great change, great turbulence, and an expanded role for NATO. This has been exacerbated by such things as cybersecurity, international governments joining NATO, and certainly the reinforcement of conventional forces on the eastern flank. There are also political changes, not the least of which is Brexit, which we anticipate will have some significant impact that is as yet unknown.

Let's turn to the NIAG itself. I know that Martin Hill will address this in some detail in a few moments, so I will not dwell on that particularly—except to say that it's 50 years old, which makes me feel aged too. Recently, because of that 50 years, there has been a review conducted of its mandate. It has been reinforced and approved by the Conference of National Armaments Directors, the CNAD. In Canada's case, the national armaments director is Pat Finn. I believe you heard from him already.

Essentially, what came out of that review was a confirmation of the existing role of the NIAG but also an encouragement for NIAG to provide advice to other agencies within NATO, beyond the CNAD itself. That includes the science and technology organization; the NATO parliamentary assembly, where I believe one of your colleagues is at the moment; and an encouragement for the NIAG to reach out to non-traditional industries and to SMEs. So there is an expanded role there.

Where does Canadian industry stand with regard to NATO? First, I would be remiss if I did not acknowledge, right off, that Canadian industry does not find it easy to participate in NATO activities. It's a long way away. Proximity matters in this world, so we face a greater challenge than perhaps some of our European counterparts. But knowledge is growing within Canada that we are a member of that industrial club too, and that we have a right to participate. We don't necessarily have a right to win—there's no juste retour within the NATO environment—but we have a right to participate in their procurement activities. One of the things we're trying to do is spread the information to Canadian industry about that.

Speaking of juste retour, I would emphasize also that the NIAG operates in the pre-competitive environment, which I'm sure Martin Hill will expand on. We are not at the point where the NATO supply and procurement agency is buying material; we're at the providing of advice before competition. This is something we encourage not only NATO to do, to seek this advice, but within our own Canadian environment it's something we've asked our Department of National Defence to do. Recent changes in their processes reflect that, too.

Finally, I'd like to address the support that industry gets from government. It's 10 years. A long time ago, one of the previous secretary-generals of NATO said that one year was not a long time in NATO. I suggest that 10 years is not a long time in NATO. It moves with a certain lack of speed. But things have changed in the last 10 years. If I go back and compare that far, we now have a very active national armaments director participating in the meetings in Brussels on a regular basis. We have a Canadian chairperson of the agency board at the NATO procurement and supply agency, and this agency, by the way, is the environment in which Canadian industry does the most business.

There are essentially two agencies that carry out significant procurement within NATO. NSPA is the one where Canadians have had more success, so I understand the importance of having support in that environment. There are NATO technical advisers, and Canada has one and a half. We have one at NSPA, which, given the focus of Canadian industry, is a good place to have it. We also have the half affiliated with NCIA, which carries out the communications-type procurement activities. Those procurements tend to be very large, so Canadian industry—that's a whole different subject—is sometimes overwhelmed by the size of those procurements, but we have had recent successes through MDA, for instance.

Last year we had the NITEC, the NCIA conference, here in Ottawa, the first time that they have ever met in North America. We were very pleased that the Department of National Defence hosted them here. There have been three industry missions supported by National Defence and encouraged by the Canadian Association of Defence and Security Industries to NATO. There will be another one in June of this year.

Most recently, as you know from Minister Sajjan's remarks here on March 20, there has been increased engagement or commitment by the Canadian government to NATO, things like the AWACS, and sometime in the corridor we could talk about the impact of the pullout of the AWACS project. I'm hoping that the effect of rejoining the new AWACS will be as dramatic as our departure was.

I'm grateful for the increased support from National Defence and what we are receiving from the Department of Defence. It is better than it was 10 years ago.

That is much better.

Having said that, I would like to see Canadian industry and the Canadian government more aligned, more affiliated, along the lines that we see between, say, our European counterparts and their countries. They have an open dialogue, a more integrated relationship, and the fact that we do not have as integrated a relationship does put us at a disadvantage within the NATO environment.

To give an example of that, when you belong to a club, when you feel like you belong to a club, you participate more. If you don't participate, you don't feel like you belong to the club. The fact that we are not in great proximity to NATO headquarters, for instance, puts us at that kind of a disadvantage. For at least two years, I have been prattling on within the NIAG environment about the fact that we could do more video conferencing or even phone conferencing so that Canadian companies can participate, and they are improving, but not enough. They're not improving enough because they like to schedule those calls at 8 o'clock in the morning Brussels time. I know our companies are dedicated to participating in that environment, but maybe not that much all the time. That's 2 o'clock in the morning here, or I guess 11 o'clock at night in Vancouver. Maybe companies could just stay up for those calls. I'm not best pleased about that.

We also have other innovations that I'm not going to get into, because I'm conscious that time is clicking on.

I would say that the Canadian government has ambitious goals as it relates to defence and security. It's good to see Canadian industry recognized as a key player in achieving those goals. We are encouraged by the moves to integrate those relationships. In simpler terms, in the words of a little girl I know well, “We'd like more better.” They've got better, and we'd like more better.

Thank you very much.

[The Chair, Liberal, Stephen Fuhr]

Thank you for your opening remarks.

I'll yield the floor to Mr. Verreault.

[Daniel Verreault, Director for Canada, Military Systems Operation, GE Aviation, As an Individual]

Thank you. Merci.

The last time I presented to SCOND, I alternated between a French sentence and an English sentence and the whole room was trying to follow. This time I've decided to do it just in English, and the next time I'll do it just in French.

Good morning, and thank you for this invitation to appear before you today.

I'm Daniel Verreault. I'm the Director of Military Systems Operations at GE Canada, here in Ottawa. I've been here for 15 years.

Today in Canada, GE has a terrific portfolio with the military. We are the engine manufacturer for the Hornet and of course the Super Hornet; the Sea King and Cyclone maritime helicopters, the old and the new; the Cormorant and the Buffalo search and rescue platform; the Airbus tanker/transport; the Tutor, now flown only by the Snowbirds, but our trainer for many years; of course in the navy the Canadian patrol frigates; and we were proud to win the Arctic offshore patrol vessel propulsion that Irving is building.

Today I appear in front of you as the vice-chair of Canada's delegation to NIAG, but obviously these subjects could carry us through several meetings. I would be pleased to return at your discretion.

I have two major points from an industrialist point of view regarding NATO and NIAG. One is that it's a significant buyer of goods and services. NATO, as we heard from Janet earlier, represents huge opportunities for sales for businesses, whether from the NSPA, located in Capellen, Luxembourg, or NCIA in Brussels. Together these two organizations issue each year over $5 billion Canadian in solicitations. In a recent report from Colonel Martin Bedard, our Canadian Forces liaison officer, who's now embedded at NSPA, in Capellen, Canadian companies have not been as successful as they should have been in winning contracts at NATO. I agree with his finding, and in my view, remedies are required to rectify the situation.

The government recognized in Canada the importance of defence procurement in creating jobs and generating wealth when it revamped the industrial and technological benefits, the ITBs, and value proposition policies administered by ISED, where for every dollar spent on defence, industry must generate a dollar of industrial activities—and not just any type of industrial activities, but good industrial activities. Although NATO does not permit member countries to demand offsets in return for their NATO contribution—which for Canada represents 6.6% of the budget—perhaps an aspirational goal could be established to begin leveraging this investment.

To arrive at a reasonable target, though, and given the complexity of reporting, a more detailed review is required to better define the value of the contracts issued to Canadian companies. Today in a reporting, a large Canadian company that has an office in Brussels, as an example, is not counted as a Canadian sale. It's easy to determine; it just needs more granularity in the reporting. To that end, we welcome the decision by Jennifer Hubbard, DGIIP at DND, who spoke to you on February 1, to move the NATEX, that's our technical expert position occupied by a Canadian Forces colonel, from the NCIA in Brussels to the NSPA in Capellen. In his report, Colonel Bedard also shed light on the reasons for the weaker performance of Canadian companies relative to foreign ones in securing NATO contracts, and Janet has mentioned a few. The Atlantic is important. Time zone is important, but there is more to it, in my opinion.

My second point is that an action plan to increase Canadian companies' business performance at NATO is thus required, in my opinion. With Colonel Bedard in Luxembourg, and a recent addition of a half-time NATEX position in Brussels, Canada's share of the wallet should increase. Results in one year would demonstrate progress, and consideration should then be given to increase the number of NATEX positions based on a cost-benefit analysis. Just as a data point, I should note that France, with five NATEX positions embedded at NATO, is doing very well indeed.

A communication plan should be developed and implemented to increase industry's awareness of NATO procurement processes and opportunities. The webinars and NATO visits being organized by Colonel Bedard are an effective way of marketing NATO to Canadian companies. These, in my opinion, should be more frequent and definitely advertised more broadly.

Trade associations such as CADSI and AIAC are currently being used to reach their membership. One suggestion, perhaps, is to offer to all companies listed in the ISED Canadian company capabilities guide the opportunity to receive NATO solicitations and emails generated by our Canadian delegation in Brussels and Capellen. In short, push information to as many Canadian companies instead of waiting for companies to ask.

Finally, as a member of NIAG, we are encouraging Canadian industrial experts to participate in our studies that are used to develop or update STANAGs, the NATO standards. These standards often form part of the statement of operating requirements included in solicitations. In addition, participating in standards setting with the NATO sponsors could lead to better success in the future, because overall a lot of this depends on the relationship with she or he who is responsible for a certain piece of the business. This would then lead to better success in future procurements.

I'll stop here. I'd be pleased to answer any questions you may have.

Thank you.

[The Chair, Liberal, Stephen Fuhr]

Thank you very much for your opening remarks.

Mr. Hill, can you hear us?

[Martin Hill, Honorary Chairman, NATO Industrial Advisory Group, As an Individual]

Yes, I can hear.

Can you hear me?

[The Chair, Liberal, Stephen Fuhr]

Barely.

[Martin Hill]

[Inaudible—Editor]

[The Chair, Liberal, Stephen Fuhr]

The good news is that we can hear you and your name is easy to pronounce. The bad news is that we can't see you.

I'd like to give you up to 10 minutes for your opening remarks. Sir, you have the floor.

[Martin Hill]

Thank you very much indeed.

Look, I've been a bit thrown, in a way, by what I've just heard. I prepared some remarks that I thought were addressed to parliamentarians. Janet asked me to speak about NIAG, and I think we're confusing NIAG and NATO business slightly for the parliamentarians. What I'd like to do is touch very briefly on NIAG. I sent a presentation a couple of days ago, and I think if you read it, you'll understand NIAG better. Janet and Daniel can amplify that.

My key remarks about NIAG are these. NIAG is an advisory body that gives advice to NATO and to the nations. The nations can ask NIAG for advice if they wish, though advice is pre-competitive. The minute you say there is a contract or a competition, then forget NIAG. It's gone. We advise on potential requirements, potential standards, and it is an interesting body for all of industry. We have about 5,000 members, through the national trade associations, who can participate in NIAG activities. The initial entry cost is low. You have your head of delegation. That person will give you all of the advice that comes through the NIAG meetings. If you decide there is a topic you want to follow in more detail, then, of course, the costs will start mounting, because you actually have to think about travel, how you participate, and all the rest of it. Even then, in NIAG, it will only be a study that lasts somewhere between six months and a year, so that NIAG gives an answer to whoever's asked the question.

What I want the parliamentarians to be clear about is that there are no contractual implications in this work. It is inclusive, it is non-competitive, and it is open to everybody, even those who didn't participate in the work itself. If a Canadian company wishes to know what happened in a NIAG study, but it didn't participate, it asks Janet. Janet gives the company the report. There is one box, which is NIAG.

I wasn't going to touch on the next topic at all, but I think I will. I'm going to put on a different hat than that of the NIAG chairman. I'm going to say that I work for Thales. It does an enormous amount of business with NATO, one way or another.

I want parliamentarians to understand the NATO budget. NATO's budget, in total, is about two billion euros per year. The vast majority is spent on salaries and paying for the headquarters, and some on operations. It isn't available for procurement.

Every year, NATO actually spends, as common funding, about five or six hundred million euros on actual procurement. You have to be clear about that. NATO's is not a big budget. The reason we get to the five billion number is that, under the NATO umbrella, there are a number of coalition co-operative programs. For instance, the NH90 helicopter comes into that five billion. The Eurofighter is a NATO aircraft. So in the five billion are the co-operation programs. They're not specifically NATO funded. They're funded typically under program rules, each program having its own rules agreed to by the participating nations.

It's important to understand the difference between what I'm going to call a NATO common-funded project and a NATO program that is a coalition of the willing. The one, common-funded, Canada can participate in. Consensus is required, and it's a NATO program. With regard to the coalition of the willing, Canada participates where Canada participates. If Canada decides not to participate, of course Canada's not in the program.

Parliamentarians need to understand the difference between those two. Of course, the biggest of the coalitions of the willing coming up at the moment is the allied future surveillance capability, which is going to be the replacement of the AWACS program. I think Canada is probably in that at the moment, because it's still at its very early stages.

I'm going leave that for the business, and I'm going to turn to some remarks, if I may, that I thought I would address to parliamentarians and the role of parliamentarians. My feeling is that they should be involved.

The first thing I'd like to address is that over the last 20-odd years, government has, in its defence procurement, done more and more outsourcing. This means that more and more of the procurement process is actually being run by industry, because once you outsource supports, once you outsource the running of your base, it's industry that will start taking on that role. It means that what has changed over the last 20 years is the division between the parliamentarians, who basically have the overall say, yes or no, as to whether we will do this; the civil service, which does the administration and runs the actual contracts and actually writes the cheques; the military, who set the requirements and actually have to do the operations; and industry, which actually has to deliver something. The relationship has changed over the last 20 years. I think Parliament is probably not as aware as it should be of how big a change has occurred there. I think it's not just a NATO issue but also a national issue. I think something parliamentarians need to do is to put themselves more in the loop in that defence procurement process.

I think this leads on to a thought on acquisition reform. When I spoke to the CNAD in October last year, I put this to the national armament directors. The speed of technology change has increased in some areas. In electronics, of course, we're now talking about every six months, but when we're cutting steel, we cut a ship steel or a tank steel only once every 40 to 50 years. So for procurement of a system—a tank, for instance—whereas you used to buy a tank and that was it, today that isn't it. You have to upgrade that tank. You have to change the engines every 15 years. You have to change the electronics every two or three years.

The procurement process for buying these defence systems needs to be rethought. I don't have an answer, but I do think that Parliament should be pushing for how we redo the procurement process for big military systems, and I think industry is absolutely fundamental in helping to provide the answer. It's not just a NATO issue; it's a national issue as well, and I think if NATO and nations get their act together, a look at acquisition reform would be a useful way to go to try to make sure that we procure the systems we need and that we can make sure that they can be upgraded as and when needed.

That leads on to the issue of co-operative projects. I said Parliament needs to be involved more in big defence programs. Janet referred to a work share, and juste retour, or whatever you want to call it. I think when we're looking at these big programs—the big one going through NATO at the moment is the allied future surveillance—Parliament must follow them closely. Otherwise, we're going to get 10 years downstream in a very big procurement, tens of billions, and suddenly we're going to come up to a holdup because Parliament will go, “Oh, I didn't really like that.” I think we're missing the link, the input, of parliamentarians early enough into these big defence programs, which typically are bought as NATO programs even if they're not common-funded.

The last point I want to make touches on the same area. All these programs are bought with significant industrial partnerships. When you do an industrial partnership, give industry guidelines—as parliamentarians you can do that—but let industry decide on the actual partnerships and who will do what. If you don't do that, the first thing is that you're going to cause delay while industry reconsiders: “Oh, I didn't take that into account. I'm going to have to rethink.” The minute there's delay, there is of course extra cost.

I think those areas of thought are interesting for Parliament. I thought I'd put them on the table and allow you to ask questions. I have three topics. They are NIAG itself; what I'm going to call a procurement activity in NATO and under a NATO generic coalition and co-operation hat; and where I think parliamentarians can be more active, and even should be more active, in the procurement of NATO and of course national programs.

I'd like to stop there. Thank you very much indeed for your time.

[The Chair, Liberal, Stephen Fuhr]

Thank you very much, Mr. Hill.

I'll give the first seven-minute question to Mr. Robillard.

You have the floor.

[Yves Robillard, Liberal, Marc-Aurèle-Fortin, QC]

Thank you, Mr. Chair.

Welcome to the witnesses.

Please describe how Canada participates in the NATO Industrial Advisory Group, NIAG, and provide examples of that participation.

[Janet Thorsteinson]

Thank you, Mr. Robillard.

We have a very small team of four people who attend three or four meetings per year, sometimes in Brussels, sometimes elsewhere, to oversee the progress of the studies commissioned by NIAG.

The NIAG studies are established by expert organizations within NATO who feel they can benefit from those studies. Once the studies have been approved by NIAG itself, there is an made effort by Canada

... and by other nations to find appropriate experts in order to assist NIAG in those studies.

As I mentioned previously, it is a little difficult for Canadian companies to collaborate in those studies because usually they are almost all done in Europe. The Americans take part at times, but we have not found experts from Canadian companies whose collaboration we want to obtain. I am responsible for finding them.

[Yves Robillard, Liberal, Marc-Aurèle-Fortin, QC]

How is NIAG improving awareness in Canada's defence sector of NATO's procurement opportunities?

[Janet Thorsteinson]

As I said previously, we make efforts to have Canadian companies come to Europe. In June of this year, a group of Canadian companies will go to Luxembourg to meet the appropriate managers, so that they can familiarize themselves with NATO's procurement processes.

[Yves Robillard, Liberal, Marc-Aurèle-Fortin, QC]

Along the same lines, what can the Government of Canada do, and what should they be doing, to better support and assist Canadian companies to win NATO contracts?

[Janet Thorsteinson]

That is quite some question Mr. Robillard!

I'm sorry, I will revert to English in order to be precise in this area.

One of the issues that Canadian companies face, not just at NATO but in any foreign sale, is the question that will come up: “Have you sold this equipment or service to your own government?” This is because the practice in other countries is very much that if you have a good service, a good product, your government will buy it. There is a feeling in other nations that if your government has not bought it, there maybe something wrong with what you're trying to sell.

So one of the best ways the Canadian government can support industry in this environment is to be what we call the “first buyer”.

If our government needs a product from a Canadian company, I encourage them to buy it.

The PSPC first buyer program is being expanded, which is indeed a very good step, and we like to see it being expanded into the Canada innovation program. This is very good.

Second,

… as my colleague Mr. Verreault said, NATEX positions in NATO are extraordinary resources for Canadian companies. I am very encouraged that we now have one and a half NATEX positions. Given the distance, I wonder if it would not be better to have more positions.

[Yves Robillard, Liberal, Marc-Aurèle-Fortin, QC]

At the NATO summits in Chicago in 2012 and in Wales in 2014, NATO stressed the importance of maintaining strong defence industry ties across the NATO military alliance, emphasizing the need to strengthen the defence industry in Europe and to establish defence industry cooperation between Europe and North America.

In your opinion, what progress has since been made to enhance defence industrial cooperation between Europe and North America, and how has Canada contributed to that?

[Janet Thorsteinson]

NIAG Is currently reviewing a report entitled Transatlantic defence technological and industrial cooperation. Four countries are part of that study, including Canada.

[Yves Robillard, Liberal, Marc-Aurèle-Fortin, QC]

Thank you.

[The Chair, Liberal, Stephen Fuhr]

Thank you very much.

MP Yurdiga, the floor is yours.

[David Yurdiga, Conservative, Fort McMurray—Cold Lake, AB]

Thank you, Mr. Chair.

I thank our witnesses for joining us early this morning.

Can I call you Janet?

[Janet Thorsteinson]

Please.