Thank you, Chair and committee members, for the opportunity to speak to you today.
When we first started talking about and prioritizing critical minerals—probably around 2019—it was largely in the context of the energy transition and the need for minerals to replace fossil fuels. Following the COVID-19 pandemic, the Russian invasion of Ukraine and American concerns with Chinese rivalry, the policy focus has recently turned to critical minerals' roles in defence supply chains. After a late start, I would say that the G7 and western nations, including Canada, are starting to take the issue seriously, and some advances are being made, but this attention has also served to reveal how serious and complex the issue is.
I want to make a few points in my opening remarks to kick off the discussion.
First is how we define critical minerals. There is a clear distinction among minerals that are important to the economy and trade, minerals that are important to electrification and minerals that are essential to defence and industrial processes but have been intentionally monopolized by China. I think the focus of defence policy should be to intervene in markets for niche products that the free market can't or won't resolve on its own because the market has been manipulated. I don't think that's nickel and lithium. I think that's gallium, germanium, graphite and rare earths.
Second is the issue of stockpiles. The issue is getting thrown around without much thought or sophistication. It's obvious that stockpiles are not the solution for most critical minerals. A stockpile would disrupt normal market functions, be too expensive to manage or be too logistically difficult, or we would be stockpiling a resource that we don't have the capability to process and refine. I think the processing and refining capacity issue is much more difficult and should be the focus of coordination with allies, in coordination with manufacturers and processors. I expect those conversations are happening behind the scenes, but it would be good to bring more political attention to them.
I want to highlight one more issue. Canada excels at resource extraction, and we have ample supplies. This would be enormously helpful in the case of a protracted conflict with an adversary, as we have latent capacity to supply raw materials into NATO defence supply chains.
We have lost much of our expertise and knowledge in how to translate raw materials into energetics, munitions and products needed for weapons. Some of this is a result of ideological preferences over the last two or three decades that have shunned research for military purposes. As I understand it, we have lost internal government capability in defence labs and have precluded NSERC funding for research focused on offensive military technology.
I bring this up because the new defence industrial strategy specifically mentions nitrocellulose, which is a by-product of forestry that is essential for energetics. We need to translate raw materials into something useful for weapons, and I suspect we have lost much of that technical ability. As much as we are focused on the value-add for raw materials in the broader economy, we need to ensure we have more value-add capability in Canada in defence supply chains.
Finally, I will point out that much of China's dominance in critical minerals has come from its willingness over the last decade to invest in the supply chain counter-cyclically. That has allowed it to take much more market share, and our reliance on private investment and the free market has meant we've been largely on the sidelines. We are now in the upswing of the commodity cycle. Some shortages and scarcity will now be resolved by the market, so I think we need to focus our scarce resources on those few goods that won't be. I would say that the NATO critical minerals list and the China export restrictions list point us in the right direction.
Thank you for your attention. I look forward to questions.