NDVA Committee Meeting

STANDING COMMITTEE ON NATIONAL DEFENCE AND VETERANS AFFAIRS

COMITÉ PERMANENT DE LA DÉFENSE NATIONALE ET DES ANCIENS COMBATTANTS

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, March 9, 1999

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[English]

The Chairman (Mr. Pat O'Brien (London—Fanshawe, Lib.)): Could we now call the meeting of the SCONDVA committee to order, please?

Before we go to our witnesses, I would like to refer colleagues to some documentation that was provided and has been translated by Mr. Laurin. It's about a subject of concern that he has raised with me and with the clerk. He sent out this information, and I'm going to give Mr. Laurin a moment, if he would like to say a brief word on this, and then we will attempt to schedule this in the near future at another meeting.

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Mr. Laurin.

[Translation]

Mr. René Laurin (Joliette, BQ): Thank you, Mr. Chairman. I would like to bring up an issue related to the activities at the Explosive Testing Establishment in Nicolet, in the province of Québec. This establishment for the testing of new ammunition is operated by DND and SNC-Lavalin, an engineering company. It is 40 years old. The testing has detrimental effects on the environment and causes noise pollution. But the worse part is that these tests have also resulted in injuries and casualties when fired shells that had fallen to the ground some distance away exploded later as children found them or as campers lit up a fire. Many lives were lost and many people were injured.

People have brought this problem to my attention and, for many years now, they have been looking for ways to remedy the situation. For your benefit, I have had all the material on the issue translated and it has been distributed to you. I realize that it is impossible to discuss this today, Mr. Chairman, but I would like it to be put on the agenda for our next meeting so that we can determine how to address the problem. Will it be decided that we examine the issue ourselves or will it be referred to some other forum? I wish we could do it ourselves and that is why I have had the material translated for your benefit.

Mr. Chairman, with your permission and if my fellow committee members agree, I would like the issue to appear on the agenda of our next meeting in order that we may consider whether it is appropriate for us to do a thorough examination of the problem. We might eventually call witnesses to try and find a solution.

[English]

The Chairman: Thank you, Mr. Laurin.

So we will accept these documents today, and I will undertake to... subject to any objections from the committee. Are there any comments, briefly?

[Translation]

Mr. Bertrand.

Mr. Robert Bertrand (Pontiac—Gatineau—Labelle, Lib.): Wouldn't it be best if we discussed it in a steering committee meeting and not in a full committee meeting? Our agreed agenda for the next two months is quite heavy and that is why I suggest we let the steering committee discuss it.

Mr. René Laurin: Mr. Chairman, I have no objections provided that I can be present when it is discussed so that I may explain the issue and present arguments in favour of examining the matter ourselves. I wouldn't want it to be dealt with while I am not there and be told later that it has been decided we will not be undertaking consideration of the matter.

Mr. Robert Bertrand: I would like to make a comment, Mr. Chairman. Mr. Laurin, are you not a member of the steering committee?

Mr. René Laurin: I'm not sure because every time I've sat on it, I found there were as many members as on a full committee. That left me wondering whether I was actually a member of the steering committee or simply a member of the full committee.

[English]

The Chairman: I might assist there. Each party is represented on the steering committee, and Mr. Laurin, you are—

[Translation]

Mr. René Laurin: I actually am a member?

[English]

The Chairman: That's right. You are the member for the Bloc. We had a meeting some three or four weeks ago, you will recall.

The steering committee will meet within the next week or so, and this committee has now received your documentation. I think Mr. Bertrand is correct to refer to the steering committee to look at the best time to schedule it. I don't think it would be possible at the very next meeting because we already have witnesses planned and notified and so on. But we will undertake to discuss it at steering committee and schedule that as soon as we possibly can.

[Translation]

Mr. René Laurin: All I want, Mr. Chairman, is that we decide next week whether or not we will examine the issue. We could make that decision quickly and hear witnesses at a later date.

[English]

The Chairman: We would not discuss it in your absence, that's for sure. Okay?

Mr. René Laurin: Okay.

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The Chairman: So we'll schedule it through the steering committee. Thank you very much.

I'd like to go now to the witnesses for this afternoon, from the Department of Foreign Affairs and International Trade. They are Mr. David Devine; Roger Lucy, deputy director of export controls division; and Glenn Nichols, executive director, business development and corporate planning. Welcome.

Could you introduce yourself, ma'am? I don't have the information in front of me here.

Ms. Susan Sheehan (Senior Policy Analyst, Investment Trade Policy Division (Procurement), Department of Foreign Affairs and International Trade): I am Susan Sheehan from the investment trade policy division, with David Devine.

The Chairman: Very good. Thank you.

Welcome, all. Mr. Devine, are you going to lead off? We're in your hands then. Please carry on.

Mr. David Devine (Acting Director (Procurement), Investment Trade Policy Division, Department of Foreign Affairs and International Trade): Thank you, Mr. Chairman. It's a great pleasure to be here today to address this issue of government procurement. It's an important one, and certainly anything we may be able to do to provide greater understanding to the committee of how the process works we're glad to do.

Clearly, the main elements of our responsibility lie in the area of the international trade agreements, particularly and specifically in the area of the NAFTA, the North America Free Trade Agreement. Chapter 10 of that agreement outlines a procurement chapter of obligations for parties, as well as the WTO, the World Trade Organization, Agreement on Government Procurement.

In my presentation I will go through the elements I think are relevant for your discussion today. I will try to provide an overview, particularly to give the context of the existing agreements in terms of their history and the genesis of how they developed. I will also try to examine for you the structure of both those agreements, some similarities, some differences, and also examine as well the application of those agreements specifically for the Department of National Defence.

Perhaps I should begin by looking at the aspect of purpose. The purpose of such agreements is to clearly delineate the issues and facilitate for Canadian businesses their ability to be able to sell to foreign governments in the area of government procurement.

Traditionally, government procurement has been a tremendously protected area that has had a great degree of controversy and history with respect to opening it up to foreign suppliers. To introduce this particular aspect, the main purpose of reducing the barriers to selling to foreign governments and to open government procurement markets abroad, Canada participates in these international agreements on government procurement, and these agreements provide access for Canadian suppliers on a non-discriminatory basis. That principle is quite important.

They provide opportunities to sell their goods and services to other governments. In other words, they ensure that foreign suppliers are treated no less favourably than domestic suppliers for the opened portion of government procurement markets.

If I may take a moment to perhaps examine the history of these particular agreements, discussions on government procurements date back to the origins of the General Agreement on Tariffs and Trade back in the late 1940s. However, at that time, even though government procurement was discussed among the members of the old GATT agreement, government procurement was not included in the coverage of the original GATT agreement. It was found to be perhaps too sensitive and not perhaps thought out as required at that time.

But as awareness of government procurement, especially as a share of GDP, was growing during the 1970s, particularly 1973-1979, during what's called the Tokyo Round of trade negotiations in the GATT, a number of countries were very successful in bringing government procurement under internationally agreed rules. As a result, the first agreement on government procurement, known as the GATT code, was signed as a subsidiary agreement to the GATT in 1980. Canada, the United States, the twelve-member European Community, and nine other nations signed that agreement at the time.

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Again, you can see here the incremental process of coverage. However, in 1989 Canada and the United States signed the Canada-United States Trade Agreement, which included as well a chapter on government procurement. It was designed to open up some of both governments' procurement to suppliers from either country.

Looking at perhaps the migration to the existing international agreements, the increased demands of the global economy motivated governments to further reduce barriers to trade in the 1990s. On January 1, 1994, the North American Free Trade Agreement, the NAFTA, replaced the Canada-United States Trade Agreement with expanded coverage of government procurements. In NAFTA, chapter 10 is referred to as the procurement chapter.

It broke new ground by broadening the scope of liberalized procurement practices to include both services and construction services in addition to goods, which were previously only covered by the free trade agreement and the previous GATT code. These additions of services were an unprecedented advancement in international procurement agreements.

During the Uruguay Round the current version of the agreement known as the World Trade Organization Agreement on Government Procurement, the AGP, was negotiated. The AGP entered into force on January 1, 1996 and superseded the previous GATT code. At that time, 26 countries, including Canada, the United States, the European Union, Japan, Korea, and others, mainly developed countries, were party to the agreement. The WTO Agreement on Government Procurement is estimated to cover in excess of $250 billion of public procurement expenditures worldwide.

Moving on the structure of the agreement itself, you will recall that the purpose of the agreement is to open government procurement markets. This is accomplished by defining what access will be provided, or otherwise known as “coverage”, under the agreements. When seeking to determine whether a procurement is covered for a party under the Agreement on Government Procurement, or the NAFTA, it is necessary to closely examine the provisions and annexes of these agreements and to determine whether the procuring organization is covered, the department or agency, whether or not it is specifically listed and whether the contract is above a threshold level—in other words, above a certain amount of money, over which at a point in time the agreement covers those contracts and below which they do not. I'll get into the aspect of thresholds in a few minutes. It also determines whether the good or service itself is covered and whether it falls within one of the exceptions that are listed.

If I could turn to the first element of this as to which organizations are covered under those agreements for Canada, the Agreement on Government Procurement and the NAFTA do not extend to all government procurement by the parties. Rather, they extend only to the procuring organizations listed in the annexes.

For the federal government, almost all departments and agencies are included. The agreements do not extend to Canadian sub-central government entities such as provincial, municipal, or regional government entities.

Now I would like to be able to address what goods and services are covered under those agreements. What is called a negative list approach was adopted under the Agreement on Government Procurement and the NAFTA with respect to goods covered for most departments. In other words, all goods procured by specified government entities are covered unless they're specifically exempted. The goods exempted under both the NAFTA and the AGP for Canada are virtually the same.

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However, for the Department of National Defence and a number of other agencies, such as the RCMP, what is called a positive list approach was adopted for those particular entities. That positive list approach specifies the goods to be covered. These are mainly commercial products such as motor vehicles, vehicular equipment components, furniture, fuels, lubricants, and such things as oil and waxes—and I will return in a few moments to be more specific as to what goods are covered and not covered by that particular agreement.

A negative list approach was also adopted in the NAFTA for the coverage of services. Indeed, chapter 10 of NAFTA applies to all services that are procured by the covered entities and enterprises, subject to the listed exceptions.

For example, services excluded by Canada, not covered by the agreement, include research and development; health and social services; financial and related services; communications, photographic mapping, printing and publication services; transportation, travel and relocation services; and utilities.

Specific exceptions for the Department of National Defence and the RCMP are also provided for, such as the operation of facilities, logistical support services, and all services with reference to goods purchased by DND and the RCMP that are not identified as subject to coverage.

I should perhaps explain that last line before I lose everybody. What does that mean? Clearly if a good is not covered, then the service related to that good is not covered. For instance, weapons systems are not covered, but a service related to that for the installation of a weapon system or the repair or the upgrade of that weapon system, which is a service, is not covered.

Again, under the AGP, the services covered are similar to the NAFTA.

With respect to thresholds, both the AGP- and the NAFTA-proposed procurements must meet certain minimum value thresholds in order to be covered. It doesn't cover procurement of something that would be, let's say, in the area of $1,000. Depending upon the type of agreement, that threshold level varies, and I'll explain that now.

Under the AGP, the minimum value of thresholds for procurement by federal government departments and agencies is $254,100 for goods and services. In other words, all goods and services above that amount are covered by the agreement, and with respect to construction services, contracts above $9.7 million.

Under the NAFTA, the thresholds are somewhat different. The minimum value thresholds are, for federal government departments and agencies, $76,200 for goods and services. I should note here, however, that the provision provides that for Canada and the U.S. the applicable threshold for goods will remain at the previous free trade agreement level of $34,100. For construction services, the threshold is $9.4 million.

For federal government enterprises covered under the NAFTA—these are crown corporations, and there are a number of them that have been listed under the NAFTA—the threshold is $363,000 for goods and $11.6 million for construction services. These thresholds are adjusted every two years to reflect changes in exchange rates and, in the case of the NAFTA, inflation.

I would like to address the issue of exceptions to the agreements. The AGP and the NAFTA provide some general exceptions applicable to the entire agreement or chapter, as well as exceptions set out in a country's general notes. Important examples of exceptions related to defence are measures necessary for essential security interests.

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In regard to set-asides for small and minority businesses, in Canada under this exception, Treasury Board has implemented a procurement strategy for aboriginal businesses and set-asides for comprehensive land claims agreements. In the U.S the exception that's taken under this is for small and minority business set-asides, and they have a program for that.

Additional exceptions include exceptions to shipbuilding and repair, and communications, detection, and coherent radiation equipment. You may ask what coherent radiation equipment is. It's radar equipment and elements such as that, I understand. So it's very clear to understand that while the international agreements are there, they apply only to a certain percentage of procurement by the Department of National Defence. In the case of DND, generally 25% or less of its procurement is covered by those agreements in any one year.

I'll just recap for you the DND goods and services element of that. Again, we see on the slides here examples of goods covered—they are mainly commercial products—under the agreement with respect to DND. As I indicated before, these include motor vehicles, vehicular equipment components, furniture, fuels, lubricants, oils, and waxes. Examples of goods that are not covered by those agreements include arms, ammunition, weapons, weapons systems, and other goods for national security purposes. Clearly there are elements that are covered by the agreements and those that are not.

With respect to services, again you see on the slide examples of services that are not covered, for example operation of government-owned facilities, logistical support services, and, as I mentioned before with respect to the weapons systems, all services with reference to goods purchased that are not subject to coverage.

Examples of more general exceptions include exceptions for national security. In fact, even if you did have an element that is technically covered but has national security exceptions, you have this mechanism as an additional exception. If it is national security, you can take that particular exception. There are exceptions for set-asides for small and minority businesses, and, as I indicated before, for Canada's shipbuilding and repair, and for communications, detections, and coherent radiation equipment.

Proceeding on the structural discussion, I'd just like to take a few minutes to look at the procedural requirements under the agreement. The AGP and the NAFTA set out tendering procedures that must be followed for covered procurements. All of these procedures are designed to ensure a procurement process that is effectively open—that it's fair, transparent, non-discriminatory, and predictable—to permit suppliers from other parties to bid on an equal footing with domestic suppliers.

The agreements include rules for the qualification of suppliers—who can qualify. They specify how the invitation to participate should be laid out; the content of the tender documentation—what the supplier should submit in submitting the bid, the time limits for tendering—how much time this tender will be open before the decision will be made, to assess it and determine a successful tender; negotiations—the submission, receipt, and opening of the tenders; and the awarding of contracts. You may think this is perhaps... but it's very important that these be specified on occasion so that it can be open and transparent for all suppliers.

With limited exceptions, covered entities are required to publish invitation to participate in designated publications. I believe the previous witness, Mr. Williams, described the Canadian publication, the MERX electronic tendering system, on which Canada is required to publish notice of tenders. The Government Business Opportunities bulletin is also used as a publishing venue.

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Now, there is a provision that for covered procurements, the use of offsets... Offsets are a requirement for local content. Mandatory licensing of technology, investment requirements, counter-trade, etc., are generally referred to as offsets. It is explicitly prohibited by both the AGP and the NAFTA to apply offsets to procurement covered by the agreement.

I would like to move along to the aspect of monitoring. There are different mechanisms provided in the international agreements to monitor compliance by the parties with their obligations.

The first aspect of it is bid challenge. The AGP and the NAFTA each require a country to establish a bid protest system that allows potential suppliers to seek a review of any aspect of the procurement process by an independent reviewing authority. The reviewing authority that is charged with ensuring that Canada's obligations under the AGP and the NAFTA are followed is the Canadian International Trade Tribunal, the CITT.

With respect to dispute settlement, as opposed to bid challenge, or bid protest, both the AGP and the NAFTA permit the recourse to state-to-state dispute-settlement mechanisms in the case of disputes between the two parties. The WTO dispute-settlement procedure is applied to disputes under the AGP, and the dispute-settlement procedure set out in NAFTA, chapter 20, applies for disputes under the NAFTA chapter.

In conclusion, Mr. Chairman, I would like to give you some idea what our coverage levels are under both the AGP and the NAFTA. In 1996, total procurement under the NAFTA for all federal departments and agencies was approximately $1.5 billion. DND's portion of that was approximately $375 million. Under the AGP, total coverage is somewhat less, mainly due to the variations and threshold levels. For federal departments and agencies, coverage under the AGP was a little less than a billion dollars—$983 million. DND's portion of that was $272 million.

Mr. Chairman, that concludes my presentation on the international trade agreements. We would be very pleased to answer any questions related to that. A number of my colleagues are specialists in other areas related to procurement, perhaps not specifically related to the trade agreements, and may have an opportunity to answer any questions related to the areas of their specialty.

The Chairman: Okay, thank you. Thank you for the presentation. We'll begin our first round of questions of ten minutes with the Reform party.

Mr. Goldring.

Mr. Peter Goldring (Edmonton East, Ref.): Thank you very much, Mr. Chairman. Thank you very much for your presentation, Mr. Devine.

I'll start with a question that deals with the small and minority business set-asides. Could you explain that in more detail? You mentioned aboriginal as one minority business set-aside. You must have a quantified list of ideas that you have in mind for classifying minority businesses and small businesses. How does that fit into the general gist of things? Do they not tender fairly with other companies too? How is the decision made? In other words, what is weighting? What weighting do you apply to a tender or a quotation from a small or minority business? But first of all, what is a small and minority business?

Mr. David Devine: Perhaps it would be useful if I could take a minute to go back and talk about the genesis of that particular exception.

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When the original GATT agreement was negotiated back in 1979, there was no such thing as a small business set-aside. The agreement was initialled by negotiators in Geneva. They came back to their respective countries and determined whether or not the agreement would be acceptable for them to sign. In the United States a congressional committee examined the provisions of the agreement and they noted that one requirement they had was to have a small business set-aside in order to provide special opportunities for small and minority businesses. They have a very well-defined program in the United States in that particular aspect.

The negotiator was effectively sent back, the agreement was opened up again, and the United States, in order to be able to obtain that exception, had to place on the table additional coverage of the National Aeronautics and Space Administration, as well as other procurement, because they felt it was important for them to have it. At that time we did not, nor did any other country in the agreement negotiations, require that. However, as the negotiations went on, the Americans insisted upon it, and we wrote that exception in as well.

Mr. Peter Goldring: What are the main businesses you're trying to identify here?

Mr. David Devine: This is a general exception. I don't wish to say it's self-defining. For instance, the United States has a fairly broad small business program. It effectively allows the United States, in their particular situation, if they're able to identify a number of small businesses that manufacture or provide that product, to effectively exclude that procurement from the provisions of the international agreement. So it's somewhat of a general exception that is provided, and they have a very comprehensive program dealing with that in the United States.

In Canada we do not have a very extensive program involving small business set-asides. The only one we do have is with respect to the aboriginal businesses. Treasury Board has authority for the provisions of that program, and I would suggest that perhaps in your questioning of the Treasury Board officials over the next few weeks they would be in a much better position to explain to you the provisions of that particular set-aside proposal, and as well provide you with details as to how they define eligibility under that particular proposal. Our responsibility here is to provide a framework for domestic departments or domestic considerations, define whether or not under those exceptions there will be programs.

Mr. Peter Goldring: But would you not be better to define it here partially yourself in the interests of not leaving this definition up to somebody else? Just call it small business and minority exceptions and don't go into the definition of aboriginal. As soon as you go down the road of aboriginal, you... My question is, what other minorities are we talking about here?

Mr. David Devine: That is in fact how it is structured. When you look at the agreement, the exception for Canada is only small and minority businesses. Under that exception we have identified... we only have one program in place, and that is the aboriginal small business program. However, if you read the agreement, it does not specify aboriginal set-asides. Our exception under the agreement is, on the schedule for Canada, set-asides for small and minority businesses.

Mr. Peter Goldring: But could you not read into that now that what you're doing is making an exclusionary area just for aboriginals? Do you know if there is other competition in that area by other groups that would be competing against this aboriginal group—other minorities competing?

Mr. David Devine: I should explain that what we do is we set up the framework for international agreements when we establish exceptions. It is the responsibility of domestic departments and agencies to determine, in their consultation with industry and with other government departments, whether or not there should be a program under that exception.

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We do not have a broad small business set-aside program in Canada. We are permitted to do so under the agreement. The result of consultations by other government departments on this issue has indicated to us that generally small business is not interested in a small business program that would specifically exempt them. I would imagine part of the problem would be the definition of who was eligible and who would not be.

So I would think that in the definition of aboriginal programs... what I'm trying to identify for you is that we set up the framework; we have exceptions here. It is up to each country to determine whether or not they take advantage of that exception through their domestic programs. That is something over which this department does not have effective control. The program was put in place in this particular situation by Treasury Board, with effective criteria to administer it.

Mr. Peter Goldring: The secondary question here is on the foreign suppliers being equal to domestic suppliers. Are different things taken into account as to government support in foreign countries for the product to develop, development grants that have been issued, any type of subsidization that would make their product more competitive than a Canadian-made product? Or, in reverse, do Canadian-made products come under the same type of scrutiny in the same way? Is that considered when we're evaluating a tendering from foreign suppliers against Canadian suppliers? Do we take all of these things into account? If so, how do we do that?

Mr. David Devine: The quick answer to that is no. That is not a part of the provisions. The provisions you look at are whether or not the country is a member of the agreement, whether or not the supplier qualifies, follows the rules of submitting the tender, provides a competitive tender. There is no particular provision beyond that for any other assessment or analysis. It is based upon the provision of the good or the service and the quality of that as reflected in the tender documents that are provided.

I should mention this as well. You note there are 138 members of the World Trade Organization. However, this is a subset of that. As you see, for the type of countries that are there, they are primarily industrialized countries, and so issues of aid and such things as that are not—

Mr. Peter Goldring: I'm thinking of money that the Canadian government has given Bombardier and others to develop products that may very well be sold internationally. And I'm thinking, by reverse, that countries all over the world have been putting development funds into their industries too. Is that weighted when a decision is being made? Or is it just a clear dollar sign on the quotation form?

Mr. David Devine: I'm just consulting with my colleague on this.

The procuring organization basically sets out an element of procurement requirements, standards of performance for a particular procurement. It should be non-discriminatory. It should be based upon the performance of the product as opposed to the design. In other words, you can't say you'd like to have a Xerox machine. You have to say you want a photocopier with the following specifications. You have to be very careful in doing it that the tender specification is based upon the performance.

There are no criteria that are provided above that. It has to be based upon the quality and the price element of the product itself for the service provided.

Mr. Peter Goldring: All right. Thank you.

The Chairman: Thank you, Mr. Goldring.

[Translation]

I now give the floor to Mr. Laurin from the Bloc Québécois. You have 10 minutes.

Mr. René Laurin: Mr. Devine, I would like to refer you to the threshold level you mentioned in your presentation. You said that under both the AGP and NAFTA, proposed procurements must meet certain minimum value thresholds that are different in Canada and in the U.S., as well as in Mexico for that matter, I suppose. How do you explain the varying threshold?

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[English]

Mr. David Devine: Thank you. It's an important question, and one that I would be pleased to answer.

If I may say so, it's very difficult to negotiate a number of agreements in which you have a one-size-fits-all requirement. These are different agreements, and there are different considerations at play. In negotiating an agreement with, say, 26 countries all over the world, there are different considerations that come into play, as opposed to negotiating an agreement with your next-door neighbour. When you have aspects of transportation, communications, and receipt of tender notices, such things as that are very important. There could be very different levels of development within the broader agreement, so it is a process of negotiation.

Clearly, with an agreement such as the WTO, in which you have a broad range of countries, there is more pressure to ensure that it really is worth their while to the procuring entities to be able to say that for $25,000, being able to put out a procurement for a particular piece of furniture might be useful in the context of Canada and the United States. But if you're dealing with having to be able to receive bid tenders from as far away as Korea, obviously there's an element of practicality here. The international trade agreement is trying to be able to reflect that practicality, first of all.

Second, we consult with our industries extensively—as do other government departments—as to that level of practicality, depending upon the particular agreements. At some particular points, it may be very easy to have a lower threshold. If you have a broader agreement, with all the complications that receiving tenders from all over the world involves, you would want to be able to ensure that you perhaps have a more practical application.

[Translation]

Mr. René Laurin: So, if I got this right, there are only two thresholds: one for Canada and the U.S., and another one set at $72,600 for all other countries. Is it correct?

[English]

Mr. David Devine: No, in our presentation I talked about two different agreements. If I can go back to my notes, under the NAFTA agreement, for goods and services it is generally $72,600 with respect to federal government departments and agencies. But between Canada and the United States, for goods only—not services, but goods only, and not for Mexico—the threshold value is lower. This is a reflection of the fact that the original Agreement on Government Procurement—

[Translation]

Mr. René Laurin: Therefore, the lower threshold, the one set at $34,000, applies only to contracts between Canada and the United States.

[English]

Mr. David Devine: That's correct.

[Translation]

Mr. René Laurin: The French version of your presentation could be read to mean that the thresholds are different for Canada and the United States. There is no reference to Canada and the U.S. in relation to other countries, only to dealings between Canada and the United States.

[English]

Mr. David Devine: The other country is Mexico. Technically, under the agreement for goods, it is in fact $72,600 for Mexico. For Canada and the United States, for goods, it is $34,100. I'm sorry for the—

[Translation]

Mr. René Laurin: Thank you.

Further down in your presentation, under the heading "Procedural Requirements", you say that:

The use of offsets... for covered procurements is explicitly prohibited by both the AGP and the NAFTA.

I'm not sure I understand the rationale for this part. It seems to me that when we bought helicopters, we asked for regional spin-offs. Are such regional spin-offs not the same thing as offsets? We wanted to create so many jobs in the Canadian provinces and I associated this requirement with offsets. If they are two different things, then what should we make of this?

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[English]

Mr. David Devine: The distinction here is clear. Helicopters are not covered under the international trade agreements. As part of what I've described in terms of what was covered and what was not, I mentioned arms and ammunition, but you can add aircraft, helicopters, to that as well.

From the point of view of not being covered by the agreement, you are then able to apply what are called offsets. But for covered procurements, those that are actually covered by the agreement, you cannot provide offsets. I'm sorry if I'm not making myself clear here, but do you understand the distinction? If it is covered by the agreements, you clearly have the process here of prohibition of offsets. In other words, you can't say you'll only open it up on the condition that there's a local content requirement. Once it's opened up under the agreement, you cannot apply offsets.

[Translation]

Mr. René Laurin: Okay, that's clear.

Mr. Devine, about the timeframe and complexity of the procurement process, how would you respond to critics who say that it is overly onerous for defence material? In your opinion, could simple solutions be applied to improve on the process?

[English]

Mr. David Devine: There is no doubt that, not unlike any procurement process perhaps anywhere in the world, there is an element of complication here. I would admit that. However, in saying that, I think we have to be very clear that there's a balancing here. In his presentation, I think Mr. Williams made that point to the committee when he was asked a somewhat similar question: Overall, does this added element of complexity make sense with our other obligations here? Quite clearly, I think I would agree with his position, because what it does is provide a minimum floor. It provides an element of security and transparency to all suppliers, but it also provides opportunities for guaranteed access into other markets.

As for the overall benefit to Canada on this, I don't think there's any question about them. It is a little bit complicated, and I would be the first one to admit that. But certainly the overall balance of benefits from these types of agreements imposes a very high standard on the procuring agency to, first of all, make sure they're put together in an informal way when they go out to tender. They make sure they're put together in a way that will withstand the scrutiny of international bidding objectives, of international standards, of making sure they can get the best product and service once they are put out there for international tendering. That's the other aspect of it: the other bonus of this particular process is that it does provide a quality of ensuring competition.

So I think the overall benefits of that are clear. From the point of view of ensuring that it will be improved, yes.

[Translation]

Mr. René Laurin: Mr. Devine, I would prefer you to tell me about the improvements that can be made to the process presently used.

[English]

Mr. David Devine: Again, on the aspect of improvements, in the Committee on Government Procurement in the World Trade Organization, and through the NAFTA committee on procurement, we are currently examining ways in which we can improve both of those agreements, and we are trying to simplify them. A lot of this text is the same text that came out in 1979, and it just flows from agreements. We have to re-examine that fact, and the committee is looking at it.

It is also looking at developments in electronic tendering in order to be able to improve the access requirements under those particular agreements. I think that's a way to make sure these agreements keep pace with technology and time. These are very important areas that we will be looking at, and it is certainly a high priority of the Government of Canada to move those elements ahead in these discussions as quickly as possible.

• 1620

[Translation]

The Chairman: Thank you, Mr. Laurin.

[English]

We'll now go to the majority side and Mr. Bertrand.

[Translation]

Mr. Robert Bertrand: Mr. Devine, can you tell me again what the acronym AGP stands for?

Mr. David Devine: The World Trade Organization Agreement on Government Procurement.

Mr. Robert Bertrand: According to the figures you have given us, the total value of contracts covered under the AGP is CAN $983,758,382 while the amount for the Department of National Defence is CAN $272,488,872. I would like to know in what proportions the Americans answered invitations to tender and what is the percentage of successful bids made by Americans.

[English]

Mr. David Devine: From the point of view of those that are successful, again, I don't have the figures here with me right now, but I'd be very pleased to provide them to the committee at a later time.

If I could clarify one component of this very quickly, it is that these agreements do not guarantee the contracts to either Canadian or American suppliers. What they do is provide a framework to open it up. It is up to Canadian business and American business to be able to bid on those contracts. They have to be able to bid on them to be successful. They do so in a way that is fair, open, and competitive. These particular contracts are not in the business of saying they must provide someone with 10% or 20% of those particular contracts.

When I'm able to get you the statistics, the second element that I think you should examine is that of... Statistics can do a lot of things, and there are a lot of things said about statistics. One thing I would caution you about, though, especially in terms of our access into the United States particularly, is that because of the nature of our market in Canada, Canadian suppliers generally tend to be niche suppliers or providers of specialty components to particular niche markets.

Canadian firms have been quite successful in the United States markets in bidding generally on procuring, or when doing so directly. Additionally, these international agreements open up the requirements for subcontracting opportunities. They allow Canadian firms to be able to sell to, say, other American firms with components of a particular system. Those numbers are very difficult to determine or to draw out. Nevertheless, when I provide those particular statistics—which I would be very pleased to do—I would ask that you remember that we also have to consider that component as well, because that is an extra bonus that is a very important element of it.

Mr. Robert Bertrand: These numbers that you gave us date from 1996, about two years ago. I gather that if Canadian companies hadn't been doing all that well under this agreement, we would have heard about it by now. What you're telling me right now is that Canadian businesses are benefiting from these agreements.

Mr. David Devine: They're benefiting from them, yes. On access into the United States, while we have covered $1.5 billion, the United States covers $50 billion under its agreement, so the opportunity for the Canadian supplier is quite significant. If you look at it as a market-access-opening opportunity, these are significant gains or potential gains for Canadian businesses if they are able to sell into that market effectively. Canadian firms have been successful in selling into it both directly and indirectly through the component element of that.

Mr. Robert Bertrand: Do you see a lot of impacts from these agreements on the procurement process—for instance, time constraints? Could you elaborate on that, please?

Mr. David Devine: Yes, as I mentioned previously, the agreement provides a framework. That's what it does. It doesn't specify that you have to have guaranteed contracts, but it provides a framework. It's open and it's transparent. I think one of the main elements of this is that an undercurrent of this entire agreement is that it supports the fairness of a procurement process that I think is quite fundamental. So the impact is both direct and indirect.

• 1625

Procuring entities now have the opportunity to be able to select from a broader selection of competitors, providing better price, better quality in an international environment, and get the opportunity of bidding in areas and winning contracts that ordinarily, especially in the procurement process, would have been closed because of the sensitivity of that particular market. So, overall, these agreements have had a very significant effect on the procurement process generally and, I would submit to you, a very positive effect.

Mr. Robert Bertrand: Can I have a couple more minutes?

The Chairman: That's about all.

Mr. Robert Bertrand: As a point of clarification on the set-asides for small and minority businesses, I believe Mr. Goldring touched on it a while ago. In the U.S. they have what is called small and minority business set-asides.

Mr. David Devine: That's correct.

Mr. Robert Bertrand: Canadian businesses don't have access to what they call set-aside procurements.

Mr. David Devine: That's correct.

Mr. Robert Bertrand: When you compare the Canadian and the American, I guess the American one is, as you say, a lot bigger just because of the sheer amount that they can afford to spend on procurements. Is there any way for Canadians to get at that market, or is it closed?

Mr. David Devine: Let's go back. We talked about the history of this and how close they came in the 1970s to not having agreements because of the sensitivity of that particular aspect in the U.S. domestic market.

To some extent, that domestic sensitivity remains, but I have been at perhaps upwards of about 100 bilateral meetings with my colleagues from the United States, discussing issues on procurements, and every single time this issue has come up, we have been tenacious in pursuing access to this particular market in the United States. We feel it's an important one. It's one that we feel we have, to a certain extent, been shouting about in the international wilderness, about the effectiveness. We will continue to do so, and we will continue to try to be able to obtain access to that market, because it's an important one.

Small business in the United States is big business in Canada. So you can imagine what it's like in that particular... Every Canadian business has an interest in that, and we have been, as I said, tenacious in pursuing that.

We have indications of some international support in recent discussions, particularly with the European Union, over the next coming years, who have indicated that clearly. This has all of a sudden come on their radar track as well, as to the interest, and we will be looking forward to pursuing this in future discussions and negotiations to upgrade the agreements in the upcoming months with the United States.

The Chairman: You have one more minute.

Mr. Robert Bertrand: As a point of clarification here, these minority business set-asides are for minorities that are in the United States?

Let me explain. Would an aboriginal company in Canada, for instance, be permitted under a set-aside for business minorities to bid on a contract in the United States? In U.S. government procurements, could only U.S. minorities bid on that contract?

Mr. David Devine: That's correct.

Mr. Robert Bertrand: Thank you.

The Chairman: All right, thank you. That's the 10 minutes. We will have a second round, though, so we can go to other members.

For the NDP, Mr. Earl, you have 10 minutes.

Mr. Gordon Earle (Halifax West, NDP): Thank you, Mr. Chair.

• 1630

I want to go back to the exceptions again. The exceptions, as I understand it, would involve things that are not covered by the agreements, right? So if we have shipbuilding and repair, if we had a good, strong, national shipbuilding policy here and we were building ships quite actively in Canada, does that mean DND could get their supplies through Canadian shipbuilders without necessarily being subject to the NAFTA or the AGP?

Mr. David Devine: Yes.

Mr. Gordon Earle: I'd like a little clarification on the minimum value thresholds. The $72,600 applies generally, but as I understood it more specifically to Mexico and Canada or Mexico and the U.S., whereas between Canada and the U.S., the minimum threshold would be $34,000. What is the rationale for that?

Mr. David Devine: Generally at the time of the negotiations, there was in place an existing agreement under the old free trade agreement between Canada and the United States that covered elements of procurement, goods. At that time we had a U.S. $25,000 threshold, which equated to approximately the $34,000 you're talking about here.

When the NAFTA was negotiated, there was a discussion among negotiators and it was agreed to by the parties that rather than raising the threshold, which would have been perhaps a trade restrictive move, suppliers on both sides were comfortable with the $25,000 threshold between Canada and the United States. They thought this new agreement, which is supposed to be trade liberalizing, shouldn't be all of a sudden raising the already established ceiling. So that's why historically it has been there. It's a bit of an anomaly, but that's the historical reason as to why it's there.

Mr. Gordon Earle: Right. I was wondering the other way, why the Mexico one would not have come to $34,000.

Mr. David Devine: Again, it's a matter of negotiation in these agreements. After its own domestic consultations, Mexico said it did not want to be able to do that.

Mr. Gordon Earle: I see.

Regarding offsets, if I understood it correctly, the offsets would apply in the situation where the goods or services are covered by the agreements. You can't then use offsets. Is that it?

Mr. David Devine: Yes.

Mr. Gordon Earle: For example, I believe motor vehicles, vehicular equipment components, and furniture and that sort of thing are covered by the agreement.

Mr. David Devine: That's correct.

Mr. Gordon Earle: So if one were purchasing motor vehicles, you could not put in a requirement that these vehicles, say, meet certain environmental standards? Is that the case? Let's say you wanted to insist that the vehicles have—

Mr. David Devine: An offset, no. Clearly these offsets are very specifically economic considerations. If in fact it's a tradeoff—for example, if you give me the contracts, I'll agree to be able to build my plants in your country. If in fact that provision was included in it, it would be an offset and it would be prohibited for the goods that are covered.

Environmental regulations would apply non-discriminatorily and there would be certain standards. One of the elements of the agreement is that you have to have certain justifiable standards. Nothing in the agreement prevents the application of standards for health reasons. These would apply and these would clearly kick in to be able to ensure that the health safety of the country would be protected.

Mr. Gordon Earle: So you could insist that vehicles would have certain pollution control equipment and things like that?

Mr. David Devine: Yes, as a general standard for that, but not for particular economic reasons. If you say, I want to be able to build that environmental emissions plant as an economic condition, clearly in those particular circumstances there would be some eyebrows raised. You would have to be able to justify clearly that these are done on the basis of health and safety for the population.

In terms of general standards such as when you're purchasing any particular product, there may be health and safety considerations such as making sure if you're buying a car that there are brakes on it or elements such as that. So these are standard elements that can be put into the contract that are not inconsistent with the agreement.

• 1635

The Chairman: Thank you.

For the Progressive Conservatives, Mr. Price.

Mr. David Price (Compton—Stanstead, PC): Thank you very much, Mr. Chairman. Thank you for being here, Mr. Devine. I think you're clearing up some things and probably clouding up a lot of others.

Mr. David Devine: I'm very sorry about that.

Mr. David Price: That's okay. We're used to it.

If we look at something that's going on—it has just come out recently; it's a problem between the United States and ourselves and about how our Canadian companies can't make it on their own. Of course, I'm talking now about National Defence procurement. Just selling to our own National Defence... usually they can't make it on their own, so their market usually ends up being the United States; they go across. Going across, of course, means they end up using a lot of American technology that is transferred back here and that they sell back. They end up using it in our own equipment. What we're hearing now, of course, is that they're starting to sell to other countries and that technology is going along with it. What we hear coming back, though, is that the Americans are not happy with this, with reason, and they're going to be creating some kind of licensing process where the Canadians are going to have to...

Could you explain a little bit?

Mr. David Devine: Actually, that's a very good question, Mr. Price.

I would ask my colleague, Roger Lucy, from our export controls division to address that.

Mr. Roger Lucy (Deputy Director, Export Controls Division, Department of Foreign Affairs and International Trade): I'll do my best. It's an arcane topic. The United States, like Canada, like most countries, has a series of export controls on goods that are considered militarily and strategically sensitive. We work essentially from the same list, which is the one that's derived from the Wassenaar organization, which is the successor to COCOM. It's an international suppliers' group whose aim is to ensure that militarily sensitive technologies do not go to dubious places or lead to destabilizing concentrations of weapons and such like. In the case of the United States, the military goods are incorporated on a thing called the United States munitions list, USML, and their export is governed under a set of regulations called the international trafficking in arms regulations. These are administered by the U.S. Department of State, just as we in Foreign Affairs are responsible for the Export and Import Permits Act and the export control list.

For a very long period of time, really back to the end of the Second World War, there has generally been what one might say a licence-free passage of military and other controlled goods between Canada and the U.S.A. This is unlike how they regard goods going to other destinations, or we deal with goods going to other destinations—in both cases, both Canada and the U.S.A. require export permits.

Over the years there have been, on both sides, certain categories of goods that have been removed from this exemption and where licences are required. For example, we require an export permit for automatic weapons that are going to the United States. They, some years back, have required export permits for certain categories of what they consider particularly strategic sensitive military equipment, what they call significant military equipment.

But on the whole there has been, for the vast majority of transactions in both directions, no requirement for an export licence. This of course has been one of the things that has allowed the Canadian-U.S. defence production sharing agreement to profit. It allows essentially a just-in-time delivery for pieces of materiel. A part is brought up from the United States to a Canadian company. It's incorporated into another product. The finished product is then re-exported to the United States perhaps or used by the Canadian Forces, or it may be exported to a third country, in which case our export permit regime applies.

• 1640

Mr. David Price: Of course, one of the reasons we are doing more of this, that we had this technology exchange, is our NATO agreements and our compatibility with our NATO partners. Now it seems to be spreading a little further out. We needed that just-in-time...

Mr. Roger Lucy: Exactly.

Mr. David Price: We have a possibility now, though, of losing a lot of jobs if this licensing thing happens.

Mr. Roger Lucy: What the U.S. proposed initially was that in order to carry out their agreements under this new OAS convention on firearms and explosives, which required that any firearm—and the way it's defined in this agreement really takes you from a .22 up to a nuclear missile—that's going to any country in the OAS cannot be shipped without an export permit, and that cannot be issued until there is an import permit.

That means that on both sides of the border we have to remove our exemptions for those categories of goods. At the same time, there's been a certain amount of pressure in Congress. I'd say more than a certain amount. You've heard all the business about satellites in China. Congress has asked the state department to take over more responsibility for the control of satellite-related technology. This has been interpreted as directions that there should be more goods removed from the Canadian exemption in order to meet the spirit of that.

We do regard this as serious because it could indeed affect the ability of Canadian companies to access parts they need. It could even affect their ability to get hold of tender documents that they need to bid on U.S. defence projects.

Mr. David Price: What kind of solutions...

Mr. Roger Lucy: Well, that's what we're trying to achieve right now. There was a delegation in Washington just last Wednesday, led by our assistant deputy minister, Mr. Fried. We have basically made the Americans aware of our concerns. They are listening. We are hopeful that the concerns can be met. It's premature to say just where it will end up. There obviously will be certain things that will require permits just simply out of the OAS. There may be certain other things because of their concerns about satellites and missile technology. It's too early yet to give the final outcome, but we're doing our best.

Mr. David Price: Okay. To follow up on one of Mr. Laurin's questions, right now when we go through the procurement process, we've got DND, Public Works, DFAIT, Industry—it just goes on and on. How do you coordinate this group? At what point do you get involved in the process? Let's take helicopters.

Mr. David Devine: We don't get involved in the process of particular specific procurements at all. Effectively what we do, our role in this, is to negotiate the agreements with the assistance of the departments concerned, such as Public Works, Industry Canada, Treasury Board.

Mr. David Price: Okay. We're looking at a helicopter process. Somewhere in the beginning, would they not approach you and ask whether there are bidders available there that they should be looking at? You don't get involved in that way?

Mr. David Devine: Not at all. For the responsibility we have for setting up the framework for the international agreements, it just simply is not part of our discussion.

Mr. David Price: At what point would you get into the—

Mr. David Devine: We would not get into that discussion at all. Clearly, on individual procurement aspects it is not our responsibility to be able to either determine what should be purchased or whatever. Again, we set the framework under which Treasury Board writes the policy manuals for departments. Public Works apply the rules and regulations. They do that knowing what is covered and what is not covered.

From the perspective of individual procurements we are just simply not involved.

Mr. David Price: Once the tender has gone out and tender documents come back in, do you get involved at that point?

Mr. David Devine: In the area I'm responsible for, not at all.

Mr. David Price: Okay.

The Chairman: Thank you, Mr. Price.

We'll start a second round now if colleagues have questions.

• 1645

Mr. Goldring for five minutes.

Mr. Peter Goldring: Thank you, Mr. O'Brien.

Mr. Devine, I have to return again to this set-aside, and I want to ask you, recognizing your role, which is to negotiate agreements, can you not do better description-wise, or is this meant to be an end-all description of it? I'm reading this, and when I read it again I see that it says set-asides for small business and minority businesses in Canada, procurement for aboriginal and set-asides for land claims, period, and then it says the United States, the U.S. small and minority business set-asides. That basically is telling me that in Canada there is no set-aside for small and minority business set-asides and that in the United States there is. Does that mean the small business in the United States can come in and compete in Canada because we do not have any set-asides for small businesses? Are we being that restrictive that we have only set up this small set-aside for aboriginals so far?

Mr. David Devine: Well, in the documents—and I apologize to you for not making it clear—these were simply for Canada, examples of small business set-asides. You're correct that in Canada we have a very limited program for small business set-asides and that it's only with respect—

Mr. Peter Goldring: This is blatantly discriminative the way it's written. It's just blatant discrimination against Canadian small businesses, and quite frankly it pads an area that is for the exclusive purview of aboriginals and nobody else. Who decides that?

Mr. David Devine: Clearly, the question of how there has been in Canada the decision not to have a broad small business set-aside program has been the subject of discussion for quite a number of years.

Mr. Peter Goldring: Would it be fair to say that to date we have none then?

Mr. David Devine: That is correct.

Mr. Peter Goldring: We have none.

Mr. David Devine: Other than a small program for aboriginal small business set-asides, we have no program. We have the right to take the exception if we wish it. In the discussions we've had extensively with industry on this subject we have asked them quite clearly what their views are on having a small business set-aside program similar to that of the United States. The answer has been quite clear and quite definitive. It has been that they do not wish to have a program such as this.

Mr. Peter Goldring: Then why do we frame it in this context that gives the impression that we do and that we're participating in it when we're not even at the table?

Mr. David Devine: There is a small and limited program that is administered by the Treasury Board.

Mr. Peter Goldring: Strictly aboriginal.

Mr. David Devine: Strictly aboriginal.

Mr. Peter Goldring: How do you calculate a small business? I've done numerous projects for the Department of National Defence over the years, projects ranging from $5,000 to $150,000, $200,000, $250,000—I would imagine that's small business. Where is your cut-off? Are you sizing by the company size or by the size of the project you're working on?

Mr. David Devine: Again, I would suggest that with respect to the description of that particular program that is outlined by the Treasury Board... questions about the details of how that is administered would perhaps be more appropriately directed to Treasury Board officials.

Mr. Peter Goldring: How do you define small business?

Mr. David Devine: Again, that is an issue I'm not familiar with. I was not the one defining it, so I'm not familiar with the process of it.

Mr. Peter Goldring: So we have no categorizing for small business then related to these figures.

Mr. David Devine: Again, the program itself outlines definitions as to eligibility. I don't have that information at this time. There is a fairly extensive policy. I imagine a contracting policy notice on this as to defining eligibility would be one of the components, but again, to be helpful—I want to be as helpful as I can—I think it would be probably more appropriate to address that particular concern to Treasury Board officials.

Mr. Peter Goldring: Would it be possible to have some kind of a written response on this, seeing as there is so much related to what a small business is? What is the yardstick for a small business?

• 1650

The Chairman: Mr. Goldring, I think you've raised some important questions. I think the witnesses are indicating to you that they're really not the people to give you that definition, but it's a valid point. The researchers have taken note of your questions and we will pursue that point with other witnesses as appropriate. Okay?

Mr. Peter Goldring: All right.

The Chairman: Thank you.

Mr. Nichols, do you want to jump into this general discussion and maybe elucidate a little bit from your point of view?

Mr. Glenn Nichols (Executive Director, Business Development and Corporate Planning, Canadian Commercial Corporation): I may just elaborate a little.

The Chairman: Okay, elaborate.

Mr. Glenn Nichols: As opposed to my colleagues, who are all from the Department of Foreign Affairs and International Trade, I am from the Canadian Commercial Corporation. We are a crown corporation wholly owned by the federal government, and it is primarily our mandate to assist Canadian exporters to sell primarily to government procurement markets. We help them sell to public institutions in the United States and abroad. We have been doing this since 1946. We're actually a child of C.D. Howe, and we are essentially the international contracting arm of the Government of Canada.

As I think my colleagues have been pointing out, government procurement markets are probably more open than they've ever been. There is greater access to Canadian companies than ever before. They are unfortunately not the easiest places in the world to sell to. They can be problematical; they can be expensive and require some commitment on the part of Canadian exporters to succeed in them.

Every one of our major trading partners has a mechanism to facilitate trade on a government-to-government basis where that's either the wish of the buyer, because many countries, when they are sourcing, say in Canada, would like to have the measurable, tangible involvement of the Government of Canada in that sale, or where the subject of the sale is a strategic good or has some policy implication like defence or space, where they want an involvement of the Government of Canada. We become the agency to do that. We operate in essentially government-to-government transactions.

What we are involved with every year is investment of about $10.9 million on the part of the Canadian taxpayer. We are working with approximately 2,000 Canadian companies on opportunities in about 65 countries around the world. Last year, of that activity, we actually landed sales with 275 companies with a value of $1.02 billion, and that was in 48 countries.

To give you a breakdown of what that involved, I would say 90% of it was... we can be involved in private sector sales as well, but it's mostly government buyers—about 90% government buyers. Of those government buyers, two-thirds of that is with the United States federal government, most of that in the defence and space field, the Department of Defense and NASA. The balance is with government agencies throughout the world, and about 65% to 70% of what we are involved in selling to governments is defence or defence related. The people buying them are in fact uniformed, although the goods can be, quite literally, everything from dental burrs or vaccine all the way to armoured personnel carriers.

So that's what we're involved with. We're perhaps not as well known as we should be, and we'd certainly welcome it if the committee was interested in having a better sense of how we fit in.

As I said, I think a number of members have been bringing up, “Well, exactly how are you involved in having Canadians succeed in these markets?” That's where we come in. My friends provide the framework, and then what we're involved in doing is actually rolling up our sleeves, looking at individual transactions on a case-by-case basis, saying, how can I bring that buyer and this Canadian company together to successfully conclude business?

The Chairman: All right. Thank you very much for that. We can certainly recall any of the witnesses we want to, and we may want to do that as things unfold.

I'm going to the majority side. Mr. Proud, did you have a question?

Mr. George Proud (Hillsborough, Lib.): I have one question. With all of the talk we've had here this afternoon, I wonder what the Department of Foreign Affairs and International Trade's position is on efforts to promote regional development in all of this.

Mr. David Devine: Industrial regional benefits, as pointed out in this particular aspect, are not covered by these international trade agreements. In doing that, it is effectively a domestic policy consideration of the Department of Industry in conjunction with—

Mr. George Proud: So they would be responsible.

Mr. David Devine: They would be responsible.

Mr. George Proud: You said to Mr. Price's question that you have no role to play in setting priorities for the defence procurement positions.

Mr. David Devine: No, certainly not in my area.

Mr. George Proud: Thank you.

[Translation]

The Chairman: Mr. Laurin, do you have any more questions?

Mr. René Laurin: Yes, Mr. Chairman, and one of them is about the Y2K issue. Are there any chances that Y2K could have repercussions on the procurement process of DND? Do you know whether our foreign trading partners are ready? Are they Y2K compliant? Does your department have to do something about it? If so, can you explain your actions?

• 1655

[English]

Mr. David Devine: Perhaps I'm missing the gist of the question, but we have no direct responsibility for aspects of Y2K within the international trade agreements themselves. There are divisions within our department looking at this question from the point of view of ensuring its own compliance.

Clearly, the question of compliance on an international basis has been taken care of in a number of fora, but I'm not au courant with the particular processes that have been undertaken there. I certainly will endeavour to find more information on that, but from the point of view of the international trade agreement side of things, we do not have a particular role to play on that element at all.

[Translation]

Mr. René Laurin: In effect, Mr. Chairman, we all know that DND must often go abroad for its supplies. Every day you hear that control panels and all other material have to be Y2K compliant. Are there chances that you will run into Y2K problems? Is the Department of Foreign Affairs and International Trade involved in this process or is DND wholly responsible?

[English]

Mr. David Devine: You would be looking at individual procurements and the development of specifications for those individual procurements. It is clearly within the role and responsibility of the individual procuring department to ensure that, in writing the technical standards for the equipment it is purchasing, it includes any requirements for Y2K. It is a procurement-specific issue; however, it is a responsibility of the individual department to ensure its inclusion when it is writing the technical specifications. We do not have a particular role to play in ensuring that this actual tender specification be included.

[Translation]

Mr. René Laurin: Could certain aspects of your international agreements be compromised because of Y2K or are you confident that nothing will threaten these agreements and that everybody will be able to live up to them without being afraid of Y2K?

[English]

Mr. David Devine: Again, it is the responsibility of the procuring department to ensure that when it writes the tender specifications, it ensures that it has included the appropriate level of requirement for Y2K compliance. At that stage, when the bids come in, it is again the responsibility of the procuring department, perhaps in conjunction with Public Works and Government Services, to review those bids to ensure that they live up to those levels of standards and specifications. I would think that is done on an individual, procurement-by-procurement basis, as opposed to a general regulation related to—

[Translation]

Mr. René Laurin: I assume that some of the contracts signed between Canada and a number of foreign countries are long term. If a foreign company could not fulfil its contract any more because of non-compliance to Y2K, would your department be called upon to take some measures and to make a complaint about the fact that the company has not lived up to its commitment or would you have to negotiate a new agreement? What would happen?

[English]

Mr. David Devine: Again, each of those contracts that is issued by the crown has provisions included in it for non-compliance by any of the individuals. The crown would then have remedies to pursue restitution, compensation or renegotiation of the particular contract, depending upon the particular specifications. But that is included in the contract with that procuring entity. It's a standard template of a procurement agreement. I have seen enough of them to know that in situations with non-compliance, the—

• 1700

[Translation]

Mr. René Laurin: To make a long story short, it means that your department would not be involved, not now nor ever.

[English]

Mr. David Devine: That is correct—on a procurement-by-procurement basis, no.

The Chairman: Okay, Monsieur Laurin.

Are there any other questions on this side? Seeing none, Mr. Earle, have you any other questions?

Mr. Gordon Earle: I just want to clarify that helicopters are not covered by the international agreement.

Mr. David Devine: That's correct.

Mr. Gordon Earle: So if, for example, there were a consortium of companies presenting a proposal to the government that the government felt was beneficial, value wise, good for the government in terms of Canadian content, and so forth, the government could proceed to consider that without fear of violating any international agreements. Is that correct?

Mr. David Devine: If it's determined to be a non-covered procurement, it would not be inconsistent with the international agreement.

Mr. Gordon Earle: Right, thank you.

The Chairman: Are there any questions? Mr. Price, have you any questions?

Mr. David Price: Yes, I have a couple of little ones.

You produced a brochure from the defence export control division, and it states that Canadian defence policies rely on imports. Do you have any comments on that?

Mr. David Devine: My colleague from the export controls—

Mr. Roger Lucy: Do you mean this one?

Mr. David Price: I guess so. Anyway, that statement is in it.

Mr. Roger Lucy: Essentially, a vast majority of our weapons systems tend to be ones that are produced abroad. We buy our tanks and airplanes... a lot of our major systems are in fact ones that are produced abroad. A lot of what we produce in Canada tends to be the subsystems, components and such. There are exceptions. We did make our ships here, but a lot of their innards are also made abroad.

Mr. David Price: But on the other hand, when you did your presentation you said in the case of DND, generally 25% or less of its procurement is covered by the agreements in any one year. Twenty-five percent is not very much. If we're looking at those two statements, then obviously there must be a lot of other stuff coming from outside of Canada. Probably Mr. Nichols would know more about that side of it. How much are we talking about coming from out of Canada?

Mr. David Devine: Again, we have to be careful not to mix apples and oranges here. What I was talking about with respect to DND's total procurement is that only a certain portion of it is in fact covered by the agreements, and we went through that element as to what's excluded. So where the individual inputs to that come from... It's a different question that you're asking, and I'm not sure if you—

Mr. David Price: That's what I'm getting at too. How much of the rest of that comes from outside, and what rules does that come under?

Mr. David Devine: In other words, where does the 75% or whatever that is not covered by the agreement come from? Again, I would not have that information available.

The Chairman: Can you add anything, Mr. Nichols?

Mr. Glenn Nichols: Actually, maybe my colleague at the end of the table might help out, because I think we got a little too focused in terms of the broader agreements as opposed to giving the committee the chance to understand how the defence production sharing agreement works on Canadian defence acquisitions and Canadian access to the American market. It's a supplementary agreement, and we haven't really had a chance to get into it in detail. And of course, it predates all of these agreements that my colleague has been talking about. I think that gets at the core somewhat of what you're looking at.

I haven't had a chance to read the booklet, but certainly, from my own perspective, one thing we know is that the Canadian defence industry relies on exports. We'll freely admit that if there is a future at all it has to be export driven, and we are looking to ourselves to support them in that.

Mr. David Price: But that's why I'm wondering why we're—

Mr. Glenn Nichols: They are doing it quite successfully under the DPSA as well. It's a good success story.

Mr. David Price: They wouldn't survive otherwise if we didn't have it.

The Chairman: The defence production sharing agreement is quite important, and we're going to want to make sure we get into that. I suspect we're going to want to have Mr. Nichols and whoever else is appropriate to come back for another session.

Mr. David Price: Okay, that would be fine, Mr. Chairman.

The Chairman: But if you have further questions right now, Mr. Price, go right ahead.

Mr. David Price: No, that was the direction I was going in.

The Chairman: Maybe we'll need to focus a particular meeting on that. It's pretty important ground, I think.

Are there other questions, colleagues?

• 1705

Seeing none, I want to thank Mr. Devine and all of your colleagues here for sharing this information with us. I'm sure we'll see some, if not all, of you again. Thank you very much.

The meeting is adjourned until... The committee will meet as usual on Thursday at 9 a.m. Thank you.

Mr. Laurin.

[Translation]

Mr. René Laurin: At the beginning of this meeting, Mr. Chairman, we talked about a steering committee meeting. Will that meeting be held this week or the next? I will be away on Thursday because I must accompany the minister.

[English]

The Chairman: No, that's the regular committee, René.

The meeting is adjourned.