Madam Speaker, I am pleased to participate in this debate. Let me reinforce the comments made earlier today by the Minister of Industry with reference to defence conversion.
The plan recognized that the time had come to help defence industries make the transition from high tech military production to high tech civilian production.
We are determined to reach that objective and we have already accomplished significant progress towards the development of an effective strategy.
Our defence conversion program has three major components: First, defining Canada's defence policy; second, rationalizing the military infrastructure; third, rationalizing the defence industrial base.
Later today in this debate my colleagues will describe the government's policy and program for expediting the first two components of our overall strategy. We will also discuss the nature and direction for defence conversion of the industrial base.
Conversion of defence production can be described as industrial adjustment with an added element of national security. To understand the scale and scope of the challenge which Canada faces one must appreciate the evolution of Canada's aerospace and defence industry.
We have followed a path quite different from that of almost every other nation in the western world. We have long maintained a relatively small domestic military procurement budget. In order to sustain themselves and indeed to grow Canadian defence firms pursue two avenues. The first has been to focus on export markets. The second has been diversification.
As I said the Canadian aerospace and defence industry pursued export markets as suppliers of components for the manufacturers of major military systems such as radar systems to detect low flying aircraft and military flight simulators. Their clients were generally not governments but defence companies world wide. Canadian manufacturers have designed, developed and sold world-class high tech products aimed at buyers of sophisticated, specialized equipment and our industries have produced these special components at competitive prices.
By contrast most of the western world's defence firms have relied on large domestic military sales. They have produced entire systems for a closed and essentially less competitive market. They have had little export focus and have sold almost exclusively to their national governments.
In many countries domestic military budgets were cut back severely at the end of the cold war. The shifts in geopolitical power required nations to re-evaluate their defence role.
Suppliers in other countries which focused on a domestic market for major weapon systems found themselves suddenly without a traditional market. Add to this equation the fiscal and budgetary problems facing all western governments and the result has been what might be described as a double whammy of radically different requirements and a rapidly shrinking market.
The inevitable results: Significant downsizing, rationalization and large layoffs, what we all too readily identify with defence conversion.
But here in Canada, defence industries are faced with a very different reality. Most have concentrated on export sales. The size of world markets, as well as the number of world suppliers, are diminishing.
The reduction of military spending at the international level could put out of business some competitors of Canadian companies and thereby create new market opportunities.
Canadian industry reliance on Canadian government procurement is already small by world standards and it is declining. In aerospace for example, 30 years ago defence products comprised 65 per cent of total sales. Today defence sales are less than 30 per cent of sales and projections indicate that by 1997 the percentage will fall to 25 per cent.
These figures indicate that in Canada defence conversion has been going on as a gradual process for almost 30 years.
The sudden and precipitous changes taking place in the United States and Europe in the defence industries will not occur in Canada to the same degree. For example, between 1991 and 1993 in the United States the aerospace and defence sectors lost almost 300,000 jobs. That is 10 per cent of their workforce. In Europe the experience has been similar. Over the same period, 150,000 people have lost their jobs in defence and in aerospace.
In Canada, in marked contrast, we have lost 5,000 jobs in this sector and forecasts indicate they will be regained by 1998.
Our successful Canadian manufacturers aim at small niche markets around the world. The export focus of Canadian manufacturers of subsystems and components has cushioned our industry from the worst of the fallout occurring in the United States and in Europe.
As I stated earlier, the other major factor in our success in avoiding severe contractions has been diversification.
A large number of defence industries have developed technology which can be sold for both military and commercial purposes. These companies have gained the necessary skills to successfully manage operations producing both military and commercial products.
The Canadian defence industry is in a good position to make the necessary transition from a high tech military production to a high tech civilian production, as illustrated by the changes which have occurred in recent years.
Canada's defence industry comprises more than 500 firms. The majority of them have already begun the diversification process both in commercial and military production and in domestic and export sales. On average 60 per cent of sales by Canadian defence firms are for the commercial market and only 40 per cent for the defence market. Many of these firms also have strong export sales. More than 80 per cent of all commercial sales are to export markets and 35 per cent of defence sales are abroad.
The only notable exceptions are the large shipbuilders in the Atlantic provinces and in Quebec and the munitions manufacturers in Quebec. In recent years they have depended almost entirely on defence production.
In United States, defence conversion has been quite different. The U.S. defence industry has been a domestic market nearly 40 times that of Canada. It produces large scale, fully integrated systems. These include, for example, military aircraft, submarines and sophisticated weapons systems.
Until now, a large number of American defence industries have been almost totally dependent on domestic military sales. These industries do not follow the Canadian tradition of either diversifying, being geared to operations, or relying on an important volume of commercial sales.
An American solution to a typically Canadian situation is a highly unlikely solution.
As I mentioned earlier, Canada's solution is threefold: first, a defence policy review which will of necessity take time to complete; second, the rationalization of bases and defence infrastructure, both of which elements will be addressed by the minister of defence; third, the rationalization of Canada's defence industry base, a complex question but one on which progress is being made.
In the Liberal plan for Canada "Creating Opportunity" the government made a commitment to expand the mandate of the defence industry productivity program to assist in the conversion and diversification of the industry.
I am pleased to say that earlier this year the government followed through with a provision in the budget to redesign, DIPP for 1996-97. This will help industry convert from defence to high technology civilian production. This is the first step in redirecting existing government programs and initiatives. We are also proceeding on other fronts and will be announcing further initiatives soon.
Some elements of the government's support program, however, must await the report of the defence policy review and therefore will not be fully developed for some time.
This type of measured response will be problematic if the Canadian context for the conversion of military industries is similar to that of Europe or the United States. As I pointed out, the situation is very different in Canada. Generally speaking, Canadian companies are in the unique position of being much less vulnerable to military world market slowdowns than their foreign competitors.
This is not to say that Canada does not face challenges in expediting a smooth transition. Rather the defence industry and therefore some Canadian workers face a unique situation.
Canadian companies are generally well positioned in international markets. They have strong order books. They have good employment prospects. They have solid, diversified international export markets for both their commercial and defence product lines.
There are some exception to the quite strong positions enjoyed by many companies in Canada. These exceptions include munitions and shipbuilding where a number of specific problems generally beyond the scope of a defence conversion program continue to cause concern. We will address these problems through a combination of defence conversion programs and other programs that can help provide solutions.
I have outlined the unique challenge facing us in the matter of conversion of defence industries. In some, while the defence conversion problem in Canada is similar in scope to that in other parts of the western world, it is not by any means of the same scale.
Sales and employment prospects vary by company: some positive, some neutral, sadly some negative. Specific problems affecting a particular firm require specific solutions. We do not need to embark on sweeping programs offering sweeping and expensive solutions. Programs that are carefully targeted require careful preparation.
Targeted programs take time to develop but in my view are the most effective in the medium term. It would be naive to assume that the defence conversion problem in Canada can be solved overnight.
The solution which the government is in the process of developing will be responsive to market forces, fiscally responsible, properly directed and effective.
As specific elements of the program take shape in the near future, the government will be providing information on the scope of its provisions.
The member who brought forth the motion also brought to the attention of the House a most important question. As I pointed out, companies in the Canadian defence industry have long diversified their products and their markets. They have been carrying out, some of them for as long as 30 years, what the defence industry in other countries is just beginning to try, that is to produce other products and to market in other markets.
The government is determined to continue on the path to success with policies and programs which meet the needs of all the Canadians who are part of the industry.
Those companies in sectors where the challenges have been more demanding and more difficult are to receive the attention and assistance of this government which understands the problems and intends to contribute to the solutions.