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 16, 1999

• 1528

[English]

The Chairman (Mr. Pat O'Brien (London—Fanshawe, Lib.)): I would like to call to order the meeting of the SCONDVA committee—national defence and veterans affairs—and I note the excellent attendance, with members on time. It's much appreciated. My memo may have had a salutary effect. We'll look forward to Thursday morning and the same prompt and punctual response from the members. We appreciate your being here on time.

Following this meeting, for the members of the steering committee, Monsieur Laurin, Mr. Hart, myself, and the Liberal members on the steering committee, there will be a brief steering committee meeting following our discussion with our witnesses.

With no further ado, as you'll recall, Mr. Nichols, of the Canadian Commercial Corporation, was here before as part of an earlier group of witnesses. We've asked him to come back, and he is accompanied by Mr. LePage from the Department of Foreign Affairs and International Trade.

Welcome, gentlemen.

Mr. Nichols, I understand that you are going to begin.

Mr. Glenn Nichols (Executive Director, Business Development and Corporate Planning, Canadian Commercial Corporation): No. I'm going to leave it to my colleague at Foreign Affairs. They usually take the lead.

The Chairman: That's fine.

We're in your hands, Mr. LePage. It's all yours.

• 1530

Mr. Richard LePage (United States Business Development Division, Department of Foreign Affairs and International Trade): Thank you very much for the opportunity to come back and speak before the committee.

Glenn and I are going to make this quite brief today in recognition of the fact that you have another meeting following this one. This will be a short presentation. I only have two slides that I will speak to. Some background information has been handed around in the briefing notes prepared by the parliamentary research branch. I think you'll be able to follow the slides. They are in French and in English.

I represent the Department of Foreign Affairs, specifically the U.S. business division. We are responsible for seeking out business opportunities in the aerospace defence and procurement area, both military and non-military, in the United States. We have a program that works in a very complementary fashion with our departmental colleagues, including CCC, Industry Canada, Public Works, and National Defence. We have a long history of success, I think, in terms of providing good, solid business leads for Canadian companies to follow up on.

I'll do just a quick overview, really, of the bilateral defence economic arrangements between Canada and the U.S., which I believe is the issue that was going to be addressed at the end of the last session before it was closed. I'll follow that with a very short picture of Canada versus U.S. procurement opportunities to show why we think it's so important to keep that border open and transparent between Canada and the U.S. I have a short prepared text and then I'll follow with some comments on the slides.

A unique defence economic relationship has existed between Canada and the U.S. since early in the Second World War. Successive governments have recognized that the cooperative use of research, development and production resources is in our mutual defence and economic interest. This economic relationship is embodied in the defence production sharing arrangement, the DPSA, and a complementary program, the defence development sharing agreement or DDSA. I'll speak to both of those in a second.

Both of these are covered in the U.S. defense federal acquisition regulations supplement, which is universally known as DFARS. This arrangement, the defence production sharing arrangement, provides market access to Canadian companies that would not otherwise be available under more generic agreements such as the World Trade Organization or NAFTA, which you heard about at length last week.

On the defence production sharing arrangement side, there is a letter of agreement on joint defence production, dated July 1956, and signed between the Department of Defense and our own National Defence in Canada, which really triggered a whole series of agreements, MOUs and other forms of contractual understandings between our respective countries. This has become collectively known as the defence production sharing arrangement. If I were to bring you a complete compilation of the DPSA, it would likely encompass something in the area of about 180 separate documents; it would likely be a two-foot high document.

While it's known as the defence production sharing arrangement in Canada, it's known as a single program in the U.S., also under the same acronym, DPSA. Under DPSA in Canada, Canadian firms may compete with U.S. firms on a basis of price, quality and delivery, effectively on a non-discriminatory basis. Canada reciprocates by looking primarily to the U.S. as its major supplier of weapons systems. More recently, the Government of Canada has offered reciprocal treatment to the U.S. suppliers in the Canadian acquisition system.

While the spirit of the arrangement is that there should be a rough balance of trade between Canada and the U.S., the cross-border defence trade has in fact favoured the U.S. to some degree in recent years. Getting data unfortunately has been very difficult. We used to have a group within the Department of Foreign Affairs that was dedicated to the task of producing information on two-way trade. That group unfortunately was a victim of budget cuts in the mid-1990s.

It's very difficult now, given that we don't need export permits to move goods of a defence nature between the two countries, but we do have some studies that would indicate that as much as $1 billion in Canadian defence sales finds its way into the U.S. market, and that would be compared to approximately $1.8 billion that would go worldwide. The lion's share of Canadian defence exports clearly goes into the U.S. market. Just to put a bit of framing around those statistics, the U.S. defence market is estimated to be, in terms of annual revenues, somewhere in the range of $5.5 billion.

• 1535

The defence development sharing agreement was initiated in 1963, approximately 10 years or so after the defence production sharing arrangement was inaugurated, and it was to complement the DPSA. Canada and the U.S. Department of Defense signed a memorandum of understanding, which is now known as the DSSA, or in the U.S., once again, as the defense development sharing program. This program is designed specifically to meet U.S. research and development requirements with Canadian technology where the developmental costs are shared by both the U.S. Department of Defense and various Canadian units—often the Department of National Defence. Both parties then benefit from the resulting technology development, and hopefully Canadian production opportunities will ensue.

In summary, looking at these arrangements, the basic rationale for the U.S. to give Canada the preferential defence economic treatment was really of a strategic or national security orientation. It was in the national security interests of the U.S. to maintain a North American defence industrial base and rely on Canadian sources of production, technology, and in fact raw materials in case of a major outbreak of war.

I want to make a quick reference for you to the defence procurement opportunities and highlight for you why it is so important to keep that border open for Canadian companies. I don't want to beat too many statistics into this particular presentation, but I think it's very instructive to look at what the U.S. defence budget has to offer. The entire budget of the U.S. Defense Department was some $250 billion, which, converted into Canadian dollars at approximately 1.5%, yields $375 billion worth of budget. That was for 1998. In 1999, the President, just in November, signed an appropriations bill that has increased that budget to about $270 billion U.S.

Now what we want to take from that budget, though, are the defence procurement component of that, which is $50 billion U.S. In addition, the defence R and D side is $36 billion. The reason I've split those two out is that those represent the actual procurement opportunities for Canadian companies. When we compare that against the Canadian side, we have a total defence budget of $9.4 billion Canadian. That's up against $250 billion U.S. You can see the orders of magnitude involved here. The defence procurement for fiscal year 1998-99—I wanted to harmonize the data for you—is about $1.4 billion Canadian, and the defence R and D in Canada is $95 million.

By way of illustration, the U.S. has four aircraft programs alone this year—like the F-18 programs and the C-17. Those four budgets alone will dwarf the entire Canadian R and D budget, procurement budget and total defence budget, so it's very important for us to be able to maintain access to the U.S. market.

As a last indicator, I've mentioned that Canadian sales to the U.S. of $1 billion, which I referenced in my opening comments, represents less than 1% of the total U.S. market that is open to Canadian companies. That's something we should perhaps keep in mind during our discussion today. We are only reaching the tip of the iceberg in terms of what the procurement opportunities are. It's very important that the border remain open, transparent and available for Canadian companies to take advantage of.

At this point, I will allow my colleague Glenn Nichols to speak on behalf of the CCC and how they go about promulgating opportunities via their contracting expertise.

Mr. Glenn Nichols: Thank you very much, Richard.

Again, thank you, Mr. Chairman and the rest of the committee, for your interest in my organization. We are not terribly well known, and it's always a good opportunity to meet with parliamentarians and give you a sense of what we are trying to accomplish in certainly a large portion of our business with the Canadian defence industry.

What is CCC? We are an export sales and procurement agency. As I indicated last time, we have been around since 1946. We have a very wide mandate, which is to assist Canadian exporters to develop trade between Canada and other nations.

A voice: There's something wrong with the microphone.

[Technical Difficulty—Editor]

• 1540

The Chairman: It might be easier to move.

Mr. Glenn Nichols: Again, just to give you a sense of where we fit into the overall work with defence industries in Canada, my colleague of course is with the Department of Foreign Affairs and International Trade, and he started the presentation because they are the people who are in charge of preserving the agreements, the environment we work in. We are more the people who actually make it work on a day-in, day-out basis with actual Canadian businesses, bringing them in touch with American opportunities and hopefully getting business done.

To quickly recapitulate, CCC is a crown corporation established in 1946, and we have a broad mandate to assist Canadian business to develop trade between Canada and other nations. In practice, what that means is that we are the centre of excellence within government for government-to-government contracting. We assist Canadian business to sell largely to public sector buyers. We can assist with private sector buyers, but about 90% to 95% of what we do each year is with government departments, agencies and parastatal organizations around the world. We report to Parliament through the Minister for International Trade. Since 1995, our president has actually been the Deputy Minister for International Trade. We're part of the trade portfolio.

In regard to just the key facts and figures, essentially last year we were involved in sales of about $1 billion to customers in about 48 countries around the world. Each year we're working with approximately 1,750 to 1,800 companies, and of those, last year 275 actually signed new business through us for that value of $1 billion. About 75% of our business is with small and medium-sized enterprises in Canada. We define SMEs the same way the Export Development Corporation does, that is, companies doing less than $25 million in business.

With respect to contract losses, we do not have contract losses as such, and I'm going to take a minute to explain how we actually are involved in these sales. As I said, we're actually a procurement agency and what we consider losses are in fact extra procurement costs. We keep those at less than one-tenth of 1% of business volume, so in actual fact the risk we are taking on behalf of the taxpayer in supporting this volume of exports is actually $1 million on $1 billion worth of business.

It's a small organization with approximately 90 people, most of whom are headquartered in Ottawa, although we do have regional offices in Vancouver, Calgary, Montreal, Toronto and Halifax. The parliamentary appropriation last year was $10.3 million.

As I said, our major role in the transactions is that of prime contractor. This actually happens when we are signing a deal on a government-to-government basis. You're probably wondering why a Canadian business would want to get involved in that, why they would want a public third party between them and their buyer. The simple reason is that it works for the buyer. It works for the buying agency overseas. In some cases, it's because of a stipulated agreement. Certainly that's the case with the defence production sharing arrangements with the United States Defense Department and any agreements we have with NASA.

Additionally, there are many other countries around the world that, if they are sourcing from a lesser-known Canadian source, would like to have the government involved in that transaction in some way or another. Similarly, there are a lot of goods and services the nature of which you would want to have some government control over or some government touch on that contract. Certainly that's the case in the aerospace and defence field.

Finally, last and certainly not least, there are many countries around the world that have procurement rules under which, if the transaction is signed on a government-to-government basis, they are allowed by their own procurement laws to sole-source the contract. Again, where they've identified those sorts of opportunities, it is a definite advantage to Canadians.

Similarly, the main thing that CCC is involved in is actually raising the credibility of Canadian suppliers in the eyes of the foreign buyers. There are a lot of Canadian manufacturers or providers of goods and services that are very competitive; they have found better products and they have found their niche, but in many markets around the world, they're simply less known than the competition.

Essentially, as a procurement agent and a prime contractor, I am taking on the risks of reprocurement for the buyer, which allows the buyer to have greater confidence in that Canadian supplier. It allows the buyer to free up on some business terms, to be a little more flexible on payment terms and on some of the other terms and conditions of the contract, and allows the Canadian to take on that business on somewhat more favourable terms than they could get on their own. That's why we're involved in these transactions.

• 1545

Finally, the last point I will make is that we're not alone. Every trading nation has a mechanism for facilitating trade on a state-to-state basis where that's the wish of the buyer. We're probably unique in that we have all facets and all sectors in one place in CCC. There are many countries where they will hive off the defence on one side and some other sector on another, and they're not as coordinated as the CCC function.

I guess I should just briefly say what is involved in the prime contractor role. When a company comes to us with an opportunity in the work that we do day-in and day-out with the U.S. under the DPSA, we essentially do a technical, financial and managerial check on the company. This is not a global insurance or portfolio management; we're actually looking at the transaction proposed to us, at the actual company and the buyer. We are trying to determine whether this particular company can perform this particular contract for this buyer according to its terms, and we are trying to get a sense of the associated risks of each of those contracts.

If we are able to step in and take on those deals—because we do run under some very tight risk parameters, as you would expect a government agency to do—we then take on the role of prime contractor, which means we are signing the contract directly with the foreign buyer. Then we flow those requirements from the foreign buyer through a domestic contract to the Canadian company. All of those terms and conditions are then flowed through.

In practice, what that does for the buyer is that the buyer, who is a public agency and is not concerned about what their legal remedies are but actually wants a program established on time, with goods and services delivered, knows that the Government of Canada is guaranteeing that the contract will be performed according to its terms. That's a measurable, tangible benefit to the Canadian company, because essentially the public servants of those other governments can now choose on their merits, not fears.

For a lot of Canadian companies that are less known than their foreign competition, it means that the foreign buyer can choose on the merits. We are taking on the risks of reprocurement. If we have misjudged in our calculation, we are on the hook for providing through those alternative suppliers at our additional cost. As I said before, we do a very diligent job. We have kept those additional contract costs to less than one tenth of 1% of our business volumes.

Just to recap, the value to exporters is obviously that if I am reassuring the foreign buyers, raising their confidence levels, a more confident buyer tends to offer better terms than they might otherwise do, certainly in terms of payment.

Just to give you a sense of where we are active, essentially if a government buys it, we've probably sold it. Vehicle and rail equipment—that includes our largest contract for the past 10 years, which has been a series of contracts for the sales of light armoured vehicles from General Motors' diesel division. Also, aerospace has steadfastly been between 25% and 33% of our work each year. In terms of a trend, certainly the services, the 7.5%, is a change from five years ago. That's a growing area for us.

With respect to the U.S. in particular, since that would seem to be the main focus of why we're here today, the main advantage we are bringing is that we are the custodians of that special access window that is provided into the U.S. defence and space markets under the defence production sharing arrangements.

Essentially, in regard to the breadth of that activity, we're working with about 700 firms bidding on U.S. opportunities each year. They are signing contracts that range in value literally from $10,000 to $250 million. These are businesses of all sizes from every part of the country, with large contracts and small ones.

I brought along quite a few slides on the DPSA. I don't think I want to get into a lot of the detail, but I wanted to give you a sense that there are a lot of rules to it. It does require management and it does require monitoring, but that's why it works.

Essentially, the base on it was in 1956 and 1963, with first the DPSA, and second, as my colleague mentioned, the DDSA, which was more on the research and development side of things. The strategic objectives were basically these: to lead to an integration of defence production in North America; to assist in standardizing defence equipment; to help rationalize the defence industries in North America; and to allow each government to become acquainted with additional sources of supply.

• 1550

Now, the reason I brought these DOD regulations with me.... I guess this is how it works, more so than in some of the other trade treaties that you were talking about in recent weeks with the witnesses from Foreign Affairs. How it is different is that the way in which American purchasing officers access Canadian sources of supply is actually established under the DPSA through their own procurement rules. These are what we call FARs, federal acquisition rules, or DFARs, defence federal acquisition rules. These are the rules. This is the play book that procurement officers in the United States use every day of their working lives.

What you will see in these next two pages are the actual terms under the DPSA that set out how they deal with Canadian producers. It makes our job a lot easier when we're dealing with American purchasing officers if I can say to them that this agreement is referenced in their rules and that they have to give access to Canadians on these terms because it's in their rule book. It's a whole grid, a matrix of rules and regulations that provide virtually unhindered access to those markets for Canadian companies. That's the value of them. You can see where it actually stipulates how CCC will be used and how CCC's involvement is accepted by the U.S. buyer under the terms of the DPSA.

I will just give you some sense of some of the things we're doing for U.S. buyers. Again, I explained the prime contractor role through CCC. On the U.S. side, we are again involved in the whole relationship under the DPSA, in all phases of it. Again, we are confirming the supplier's financial, managerial and technical capabilities.

More importantly, the real term of what the DPSA is doing is that we are saying to the Americans that the Canadian government would be buying from these Canadian companies on these terms if we were buying in our own right. As a result, they are accepting our audits and our assessments, and they are accepting that they would be adhering to Canadian government profit rules. That's what gets the company that additional entree into that particular market. It is not just a window of opportunity; it's an enhanced window of opportunity. It's saying that you can access the U.S. market virtually on Canadian rules. There are some exceptions, which we can get into, but it's saying that you can play by the terms as if you were selling to your own government.

I'll just give you a sense of some of the activities around the DPSA that CCC is involved in. We register Canadian companies on U.S. source lists. That's not just a clerical function. That is actually fairly time-consuming; it is actually making sure that Canadians are registering with the proper codes. It also helps us then match opportunities to those Canadian companies.

Actually, we have just gone through, in the last year, a major re-registration of Canadian firms with American buyers. They have gone through an acquisition reform. It involved updating the profiles and centralizing the registrations of Canadian companies for that particular market.

We do identify Canadian sources of supply. We actually are in the sourcing business as well, matching U.S. opportunities to the capabilities of Canadian firms registered through us.

In addition to the work through bidding, we are of course implicated in the whole life cycle of procurement, which includes monitoring the quality and the progress of the work, right through the auditing of invoices and certifying progress claims and also getting involved in any dispute resolution if that comes up. That can involve the performance of either discretionary or mandatory audits at the request of the U.S. buyer or assisting in resolving any payment discrepancies, because much of what we are able to do is to actually arrange progress payments for Canadian companies on American contracts.

My colleague had mentioned there are 180 elements or different sub-parts of the defence production sharing arrangement. There are some other aspects we're involved in. One is provision of assist audits, which again tends to be Canadian sales to private sector firms acting as prime contractors in American requirements, and another is the industrial base program, which is an entirely different program whereby Canadian companies can be named as part of something called the North American industrial base. There are special benefits that flow through that—and obligations as well—and we manage that program for the Americans.

• 1555

We also survey U.S. government property in Canada and we assist in the Defense Department's programs for the training of their own personnel and procurement—to again establish that these are the rules for accessing Canadian sources of supply.

Finally, with respect to bid matching, this is an area we have increasingly spent attention on, because there is a demand from Canadian companies. Each day we actually get an electronic feed from the U.S. on U.S. government requirements, particularly defence requirements. We then filter them to remove those that are not truly accessible to Canadian companies because of small business set-asides or the Berry amendment or some of the other exemptions to free access. Those are filtered out and we match those opportunities against the capability of Canadian firms registered to do business with CCC in those markets.

Just to give you a sense of what we did last year—this is actually for the current fiscal year—as of February 28, we had provided over 12,500 opportunities to about 1,400 firms across Canada. That has to date generated about $575 million in offers. Of those, about $130 million in contracts have been received. Again, that's proactive matching of U.S. opportunities with Canadian capabilities to generate some business that might otherwise not occur.

Just to give you a sense of it—again, we're not quite at the end of the fiscal year—this has certainly been a record year for us in purchases from the United States. We are going to have probably our largest “ex” light armoured vehicle total with buyers in that market. We certainly see it as a good market for Canadian companies. Canadian companies are extremely competitive in those opportunities and we're expecting significant growth again next year with select buying commands.

I hope that's given you an overview of what we do. As I say, it's far more of the day-to-day bringing of businesses together under an umbrella agreement, which my colleagues at Foreign Affairs arranged for us.

Thank you.

The Chairman: Thank you, gentlemen. I think that was a very good overview.

Before we go to questions, could I just have two clarifications? You mentioned that Canada does $1 billion a year in defence sales to the U.S. Is that of the $2.8 billion total or the $1.8 billion total?

Mr. Richard LePage: The total exports of the Canadian defence industry worldwide are $1.8 billion—

The Chairman: Okay.

Mr. Richard LePage: —and the segment that goes to the U.S. is $1 billion.

The Chairman: Thank you. Also, I just wonder if you could clarify for the committee.... I'm assuming that these two agreements you mentioned, the defence production sharing agreement and the defence development sharing agreement, both flow from the Second World War and the sharing of defence production during wartime. What's the connection to NORAD? Is there any direct connection to the NORAD alliance with the U.S.?

Mr. Richard LePage: There is no direct connection. The DPSA is considered to be an umbrella: it reaches out and touches any other agreement out there. NATO would be a separate stand-alone arrangement between Canada and all member countries. The DPSA is strictly Canada-U.S.

The Chairman: I misspoke myself. Is there a direct connection between those two agreements and NORAD, the bilateral defence agreement with the U.S.?

Mr. Richard LePage: I would have to best explain it by saying that, DPSA once again being the umbrella, NORAD is strictly on the air defence side—

The Chairman: Right.

Mr. Richard LePage: —whereas DPSA covers the full gamut of military—land, air and sea.

The Chairman: Thank you.

We'll start a round of questions now with the Reform Party. Mr. Hart.

Mr. Jim Hart (Okanagan—Coquihalla, Ref.): Thank you very much, Mr. Chairman.

Welcome, gentlemen. That was a very informative presentation. Thank you very much.

I have a couple of questions. One of the illustrations that really struck home was the one regarding the U.S. defence budget compared to the Canadian defence budget, with the U.S. at $250 billion and Canada at $9.4 billion. As well, the R and D budget is certainly quite dramatic when you compare the two. The U.S. ambassador recently expressed his concern at the shrinking Canadian defence budget. Have American officials that you deal with reflected this concern as well?

Mr. Richard LePage: Not the officials that we deal with now, but I think a lot of Canadian companies, for example, have expressed some dismay that the old DIPP program, the defence industry productivity program, was also cut back in the early 1990s. It was somewhat replaced by Technology Partnerships Canada funding, but not to the same level obviously.

• 1600

Now, of course, there's been some collateral damage with the recent WTO decision that there may be some problems with TPC funding. The difference is that in Canada we do things—if I can say this editorially—above-board when it comes to partnership funding under the technology program. In the U.S. and other countries, they often hide things in their defence R and D budget, and it's something that Canada may have to look at as a solution.

Mr. Jim Hart: Have we had a drop in major joint defence projects that we normally would have participated in because of the drop in our defence budget? Can you specifically pinpoint projects that we have lost out on?

Mr. Richard LePage: It's hard to pinpoint, but I will say that where we perhaps have lost a bit is at the very front end of the technology pipeline. You often talk about a hierarchy of five levels of technology development. At the very front end, a lot of it is a sort of pre-developmental research. That is the type of activity that used to be widely funded under the DIPP program, and those technologies would find their way down the pipeline, often into something that was meaningful from a commercial point of view.

The mandate of Technology Partnerships Canada is to fund only at the pre-commercial level, not at the pre-research level, so you're not doing a lot of pure science. You're doing a lot of very applied science that's specifically linked via a business plan to a commercial opportunity.

Mr. Jim Hart: I'm glad you mentioned technology. A couple of months ago I participated in the revolution in military affairs program here in Ottawa. I was just wondering if you have any thoughts on how Canada has fallen behind, specifically in technology with the RMA, because of our defence budget and the spending that we're allocating to R and D.

Mr. Richard LePage: It's interesting that you raise that topic, because we have a number of science and technology counsellors, Canadian-based, who are located in embassies around the world and who are having a colloque next week in Ottawa. That is one of the issues that happens to be on the agenda. This will take place next Tuesday—at Foreign Affairs, in fact.

Mr. Jim Hart: Are we falling behind in the revolution in military affairs?

Mr. Richard LePage: Canada, certainly in certain niche areas, is doing very well. On the peacekeeping side, we have our facility in the Maritimes. They're doing extremely well. They're attracting a lot of people and a lot of NATO representation. I think Canada's strength always has been in niche areas. We can't pretend to compete head-on with an elephant like the U.S. I think Canada is doing things in a smart way and I think that in certain areas we are certainly holding our own—and excelling.

Mr. Jim Hart: One of the joint projects, I understand, is the joint strike fighter program. Canada is allocating between $3 million and $4 million. That seems to pale in comparison to what other countries involved in this project are allocating. Is it enough money? What should we be spending on something like that?

I'll let you editorialize. Go ahead.

Some hon. members: Oh, oh!

Mr. Richard LePage: Okay, since I have free licence.... Just to put a bit of framing around that question, the joint strike fighter program is the new generation of fighter aircraft in the U.S. The prime contractor will likely be announced this year. They are down to two companies, Boeing and Lockheed Martin, two giants. It's a project that is worth $100 billion U.S., just to put some numbers on it. If you compare that to the budget that we have assigned to it, our budget pales even in comparison to what the U.K. has put into the pot.

That's the kind of complaint that I believe Giffin, the U.S. ambassador to Canada, was speaking about a few weeks ago during his speech at the chamber in Montreal. It's something that will have to be looked at at some point. Quite frankly, these become political decisions about how you allocate budget dollars.

Mr. Jim Hart: How much time do I have?

The Chairman: You have about another five minutes if you want it.

Mr. Jim Hart: My goodness. Well, we have time to talk about regional development. One of the other witnesses we had suggested that maybe my questions regarding regional offset and regional development might be put to other witnesses. Maybe I'll try Mr. Nichols and see how we make out there.

One of the reasons for the high cost of capital equipment is the result of industrial offset. The Auditor General has said that sometimes industrial offset tends to be exaggerated. Can you give us any input about industrial offset?

Mr. Glenn Nichols: Again, we are strictly an export agency. I'm not involved in any of the rules the Government of Canada has in purchasing under its own name.

• 1605

What I can say is that one thing we have been looking at doing, and one thing that we think our agency can be particularly effective at, is assisting Industry Canada in ensuring that those companies who are taking on offset obligations, regardless of whether they're American or whatever, are actually following up; and that we can have a role to play in making sure they are introduced to as many potential Canadian sources of supplies as possible and that those obligations are met. That has certainly been something we've continued with.

On the substantive issue of that policy, I'm just not in a position to comment on it.

Mr. Jim Hart: Okay. Thank you, Mr. Chairman.

The Chairman: Thank you, Mr. Hart.

[Translation]

For the Bloc Québécois, Mr. Laurin.

Mr. René Laurin (Joliette, BQ): Mr. Lepage, in your presentation, you stated that Canadian defence sales to the United States total $1 billion, whereas Mr. Nichols talked about sales of $1 billion to 48 other countries. Is that an additional $1 billion? I'm not certain I understand the distinction you're making.

Mr. Richard Lepage: I will answer that question in English, since I am more comfortable speaking that language.

[English]

The export data that we have are from a recent study commissioned by the Canadian Defence Industries Association. The data are about two years old. Those data are that $1.8 billion worth of exports go worldwide from Canada to the world. Of that $1.8 billion, the lion's share of $1 billion goes to the U.S. specifically.

The Canadian Commercial Corporation has its numbers, which suggest x amount of activity in other countries. I'm only looking at the U.S. when I talk about that $1 billion.

[Translation]

Mr. René Laurin: Does this figure of $1 billion represent sales to the US government?

[English]

Mr. Richard LePage: Yes, this is the total revenue that's brought in through export to the U.S., both commercial as well as dual-use.

[Translation]

Mr. René Laurin: You have explained to us the role of the CCC and as I understand it, this corporation deals exclusively with government-to-government transactions. Couldn't the EDC handle this task? Even though you deal with different customers, to some extent, isn't there some duplication here? Couldn't the EDC do what you do, or vice versa?

[English]

Mr. Glenn Nichols: Actually, that matter has come up on a number of occasions in recent years, and certainly the last time it was looked at by the government was in the context of the recommendations of the Senate banking committee, I guess three years ago.

Our users themselves, exporters who use the services of CCC, are quite opposed to a melding with EDC. Ours is a very specialized service. How I would differentiate it for you is that EDC is involved in the provision of general financing insurance services. They are services of general application, and they're based on the probabilities of risks and assessments and tables that they develop over the years. CCC is actually, as I said, a specialized niche player that is actually in the job of assessing, not on the basis of probabilities...but it's actually a hands-on commercial assessment, almost like a consultancy, saying this company can do this deal according to its terms and we are so convinced that this is the case that we are willing to take on the risks of reprocurement. That's a very specialized skill within government.

The concern on the part of exporters has been that if you meld it with a larger organization like EDC, which is working purely on commercial principles, you're going to lose a little bit of the focus of that, and that's what they've said in previous governments when governments have studied that issue.

The other thing basically is that the EDC is run purely on profit. It's a public agency, but it's totally self-funded. We are run on parliamentary appropriation, largely because the activity with the United States, the DPSA that I outlined, is not cost-recoverable. I only put charges on exporters who are participating in transactions where the use of CCC is optional.

[Translation]

Mr. René Laurin: If I understand correctly, as the prime contractor, you select certain companies and subsequently recommend to foreign governments that they do business with these companies. Is that correct?

• 1610

[English]

Mr. Glenn Nichols: We are involved with companies on the basis that either they come to us directly or in some cases foreign governments are coming to us to ask for sourcing. It can be either exporter driven or buyer driven. That's how we get involved.

[Translation]

Mr. René Laurin: How do you go about selecting companies? According to the terms of your mandate, it seems that you tell certain companies that you are prepared to recommend them, whereas you tell others that they do not meet the criteria. Are the criteria you use objective? Are companies selected on the basis of objective standards? Or is it that you rely more on the judgement of a team of officials. They are the ones who decide if a company has a reliable record and if they are prepared to guarantee its contracts and to recommend it to foreign buyers? How does it work? How exactly do companies get selected?

[English]

Mr. Glenn Nichols: On the bid matching what we are actually doing is...just as an example, we register companies to do business in the United States. That involves filling out a very lengthy procurement form. Quite often Canadians would be very surprised if they saw the rules Americans have to follow in trying to sell to their own government. They're quite a bit more onerous than what the Canadian government puts on its own suppliers. But they fill out a profile that says this is what we produce, this is what we're prepared to do, these are the product categories and areas in which we want to be registered to do business with the United States. That goes into our data bank, and in that case what we are doing is matching requirements on all those companies that register with us, and they will all be informed of whatever opportunity flows down to meet that requirement.

It's not a case where I'm doing a selection in the United States; it's a case where companies have identified that this is a market where they want to be active. They will fill out the profile, and that allows me to match opportunities to them according to it.

In other instances, United Nations agencies, for example—-

[Translation]

Mr. René Laurin: Mr. Chairman, I realize that our time is limited, but I would like an answer to my question. If I own a company that manufactures a certain product that I would like to sell to the US government, then obviously, I would get in touch with you. How will you go about assessing me and my company to determine if we are sufficiently reliable to do business with the US government? Unless I get your endorsement, I won't be able to do business with the US government. You decide if I have the necessary abilities or financial resources or if the quality of the goods I produce meets the grade. You ultimately decide all of this. Is your assessment based on objective criteria?

[English]

Mr. Glenn Nichols: Yes. Well, it's based on the objective criteria related to the terms and conditions of the contract that's being proposed, or according to the opportunity that's being proposed.

I'm trying to give you some concrete examples, because I understand what your fear is: What is this? Is this a non-transparent process here, where there's a possibility that some are favoured and some are not? I think the misunderstanding is....

It is not a process where I'm passing judgment on the company. I'm not registering a company and saying “You can do business.” Anybody can register to do business with the United States government. The notion of selection comes in when it's a particular contract. Any small business can say “I produce the following widget and I'd like to sell it to the Government of the United States.” That's fine. Then the question becomes, when the actual opportunity comes forward, can that company, according to its size, according to delivery times, actually perform that one? That's where it becomes an issue.

Do you know what I mean? It's not a case where you're screening people out at the starting point and saying you're in or you're out. We encourage people to register to do business with the United States and then we match according to the capabilities they have registered, their profile that they've given us, according to the requirement as it's been set out to us. In other words, can these people deliver this product in these sizes on this timeframe according to the wishes of the American buyer?

Is that helpful at all?

[Translation]

Mr. René Laurin: We are all familiar here in Canada with ISO standards. Wouldn't it be possible to evaluate products based on their compliance with ISO standards or with other objective standards to be determined? Do we really need an independent body to administer this process?

• 1615

Couldn't we have a system in place whereby the CCC could recommend that companies in compliance with ISO standards are authorized to do business with foreign governments, including the US government?

[English]

Mr. Glenn Nichols: It's totally up to the foreign buyer. If I have a foreign buyer who imposes that as the condition, or if that's the threshold they want to observe for Canadian suppliers, I'm more than happy to fulfil it for them.

I don't establish those sorts of rules; we are responding to foreign requirements. We try to get Canadians in through the front doors of the procurement rules of other countries. They're the ones who set the standards.

The Chairman: Now on to the majority side, Mr. Bertrand.

[Translation]

Mr. Robert Bertrand (Pontiac—Gatineau—Labelle, Lib.): Mr. Nichols, you stated that contracts awarded are guaranteed by the CCC, or by the Government of Canada. Are you saying that you guarantee suppliers will fulfill their obligations, or are you guaranteeing that foreign countries, for example the US, will in fact pay the suppliers? What kind of guarantee are we talking about here?

[English]

Mr. Glenn Nichols: It's actually a guarantee of contract performance. What we're doing is placing ourselves in the role of prime contractor, which means I am on the hook with the foreign buyer to complete a contract according to its terms. We then sign a domestic contract with a Canadian supplier, flowing all of those obligations through to that supplier. All of the obligations, the terms and conditions, of that contract are mirrored in the domestic contract I sign with the supplier.

Essentially, the risk I'm taking on is the risk of reprocurement. If the company in fact fails, I'm going to then take on the obligation of finding another alternative.

Maybe the best example I can give you would be a small company we worked with three years ago. It basically had invented a better mousetrap. It was an inventive type of radar. It was a unique specialized good and it was selling to foreign navies. Its competitor internationally was actually Hewlett-Packard and it was looking at selling to European navies.

Now, if you are a procurement officer for a navy in Europe and you have a choice between buying from Hewlett-Packard or a company from a small community you've never heard of somewhere in Canada, you tend to be a little risk averse. What the mechanism of CCC allowed was essentially that I was taking on.... In that case it was a Norwegian buyer. In the mind of that person with the Royal Norwegian Navy, they were saying, “Okay, I like this product better; I like this Canadian version better. I'm not too sure about this small company from a city I've never heard of, but on the other hand, I seem to have this government agency who's willing to take on the costs of procuring from Hewlett-Packard if it doesn't work out, and I will get my product delivered on time, to spec, at cost. That's worth it to me. I'll do that.” That's how it worked for that company, and that company went on to sell to the French navy and the Dutch navy in the next year timeframe.

That's how it works in practice and that's the nature of the guarantee I'm giving. Again, I tie that back because, obviously, ours is a government agency. The tests we put on suppliers are quite rigorous; we do not just sort of stamp companies. The reason we're valued by exporters is that we're valued by buyers. They know we're rigorous and they know the company can do the job. That's why my additional contract costs are kept at one-tenth of 1%, and that's why it's an effective marketing tool with these types of buyers. That's why we can facilitate sole sources. This is why all those sorts of benefits flow from it.

[Translation]

Mr. Robert Bertrand: I was my understanding that this didn't cost suppliers anything.

[English]

Mr. Glenn Nichols: On the United States, under the terms of the DPSA, both governments have agreed they will not impose user fees, because when the Canadian government, I suppose, is buying on its own account from American suppliers, similar reciprocal services are available to them from American sources. Canada and the United States do not charge each other on that.

Most of my parliamentary appropriation goes to fund my American work. In all of those instances where the use of CCC is wholly optional, and that's most countries in the world.... We don't charge on UN, for example, for other reasons. But in most other countries in the world, other than the United States, or even on sales to, for example, state or municipal governments or civilian agencies in the United States, we do have a cost-recovery policy.

• 1620

Mr. Robert Bertrand: Okay. I have a couple more questions for Mr. LePage. What does Canada do to support and commercialize Canadian defence firms and industries abroad?

Mr. Richard LePage: The real expertise the Department of Foreign Affairs and International Trade brings to the table is a network of about 15 trade offices in the U.S. I'm including the embassy, the various consulates general, and the satellite trade offices we have. To run through them briefly, of course we have the major centres covered, like New York, Washington, Boston, and Atlanta; through the central part, Chicago, Detroit, and Minneapolis; down through Dallas; and on the west coast, Seattle, San Francisco, and L.A. We have specialists in each of those places who are dedicated to the aerospace and defence file.

In Washington, by way of illustration, we have one specialist on the military side, as well as a specialist on the civilian procurement side. These are people who every day are dealing one on one with Canadian companies that are looking to find their way through the morass of bureaucracy that is involved at both the federal and state levels for procurement opportunities. What we have tried to do over the last year is to really focus on some very specific opportunities for Canadian companies.

There was reference made to the joint strike fighter program earlier. We have in mind to work this year in close cooperation with CCC, as part of their prime contractors initiative, to visit with the Lockheed Martins and Boeings of this world, who of course are the prime contractors of record for the joint strike fighter. Also, on the aircraft engine side of the JSF program, you have the Raytheons and Pratt & Whitneys, who both offer significant opportunities for Canadian companies.

So we have a schedule of about 15 dedicated events by which we're going to bring down very leading edge Canadian capability in the aerospace side to see how we can best partner up with the U.S. companies. We're never going one on one competitively. What we're doing is working with them on a project collaboration basis, and we seem to get the most returns for our money this way.

I might just add that these visits are all run on a full cost recovery basis. We don't in any way defray travel costs for Canadian companies, and they also pick up any ancillary costs that are associated with these events. We find it's a good use. The Canadian business people have told us they like this, they like the approach, they like the focus. And that's where we're going to be putting our diminishing dollars this year.

Mr. Robert Bertrand: How do we compare to what other nations would do, for instance, to help their defence firms? How do we compare?

Mr. Richard LePage: In terms of an export development program?

Mr. Robert Bertrand: Yes.

Mr. Richard LePage: Certainly for years I think we used to pump more money into export promotion than we do now. We used to, for example, have national stands at most of the major aerospace shows in the world. We don't do that any more. We don't do Canada stands. What we will do is attend these events and have a special Canada Day partnering type of event. As I said, it's complete cost recovery. Also, the companies have told us they prefer it. They would rather be down there and see where the salient opportunities are. They don't just want to hang around at a booth any more. Those days seem to be very much behind us.

But to answer your question specifically, I would say compared to countries such as the northern European countries...certainly up in the U.K., and right through the Nordic countries, they tend to put more dollars into their export promotion now than we do. There's no question about that.

Mr. Robert Bertrand: And is it paying off for them?

Mr. Richard LePage: We'll see. Certainly one illustration will be when we get the joint strike fighter program underway and see what kind of input or payback Canadian companies have on that. As was noted before, we're only putting a few dollars toward that, comparatively, from the Canadian side. It doesn't mean, though, that Canadian companies won't be able to get in the doors of the prime contractors when that deal is signed and get a significant share of the business from a secondary or tertiary contracting point of view.

But I can just very quickly tell you that on the aerospace side, particularly on the commercial aerospace side, the industry in Canada has been growing tremendously. We have the champion firms for Canada, like Bombardier, and from that we are now building second- and third-tier suppliers. We're doing extremely well on that file. Frankly, I think we're getting a very good return on the investment dollar in Canada.

Mr. Robert Bertrand: Okay. Thank you.

• 1625

The Chairman: Thank you, Mr. Bertrand.

Just for information, can you tell us how many Canadian firms export defence products?

Mr. Glenn Nichols: I've always been afraid to answer that question, simply because what do you qualify as a defence product? Most of the companies we are dealing with are actually selling goods of commercial application. They just happen to be selling them to people who wear uniforms.

But I'd say, from my own sense, I think we can grow the list of companies that are active and interested in the U.S. defence and space markets. Currently registered we have about 4,000, and actively involved in that market about 1,300.

The Chairman: Thank you.

I'll go to Mr. Earle, NDP.

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

First, I want to make sure I understand correctly what I believe was said. The Canadian Commercial Corporation facilitates, say, buyers abroad to acquire services through Canadian companies. Is that correct? But you said there's no charge to either the buyer or the company, the contractors?

Mr. Glenn Nichols: We don't charge the buyer.

Mr. Gordon Earle: You don't charge the buyer.

Mr. Glenn Nichols: There are charges outside of the defence production sharing arrangement of the United States, some agreements we have with United Nations agencies that date back a number of years. There are modest cost recovery charges placed on the Canadian exporter.

Mr. Gordon Earle: I see.

Mr. Glenn Nichols: Again, it's because of the nature of what we do. I don't have a fee structure as such. What I do is cost-recover the actual amounts of labour or travel on a particular sale. I'm trying to give you an idea of what a percentage might be. It depends. If it's a small-dollar-value contract spread out over, say, a three-year performance thing with a lot of milestones and a lot of work, it might be a very high percentage. Conversely, on a very large project, spread over two years with a handful of milestones, it might be very small. On an average you're looking at 0.5% to 1.3%.

Mr. Gordon Earle: So for those situations covered by the defence production sharing arrangement, it's really the taxpayer who's paying for the services involved.

Mr. Glenn Nichols: But it's a reciprocal arrangement with the United States. So the Canadian taxpayer benefits, because again, when the Canadian Department of National Defence is accessing American sources of supply, they're getting reciprocal American government services at no cost.

Mr. Gordon Earle: Yes.

Now, the other thing I probably should know the answer to—and perhaps you could clarify it for me—is the difference between the defence production sharing arrangement and the defence development sharing agreement.

Mr. Glenn Nichols: Well, it can be either one, but the DDSA came later. Originally it was an agreement set up to try to identify those areas where both Canada and the United States were willing to joint-fund some areas in research and development in the defence field. And that has evolved into many different guises and has been supplemented by different programs. But that is essentially what it was trying to do. It was a way of matching or leveraging funds from various budgets to support particular initiatives that would be beneficial to both countries.

I don't know if you want to expand on that, Richard.

Mr. Richard LePage: No, I think that pretty much covers it. The idea was that there was a tremendous amount of basic research that could then be developed into a commercial product. The question was how we could go about doing that. Through joint funding, the idea was that the U.S. provides 50% and Canada provides 50%. That comes together, and then from that hopefully will stem products and services of commercial value.

Mr. Gordon Earle: I see.

I hope my last question is not too hazy, because I'm trying to go by memory of something I read just recently. I believe I read somewhere that the U.S. is now thinking about or has indicated it may put certain trade restrictions on Canada with respect to defence trading, because of their concern that the technology they're trading this way is getting into the hands of rogue states. Can you perhaps clarify that for me and tell me how that might tie in with your work?

Mr. Richard LePage: Yes, that was the question that my colleague Roger Lucy, from the Department of Foreign Affairs responded to last week. That's the ITARS issue, which is the international trafficking in arms regulations.

To be quite honest, I was specifically told I had to be muzzled on this issue, but that if you wanted to have a response, they would prepare one for you, and I would ensure that it gets back into your hands. It's a very delicate issue.

• 1630

I think what I can say in an open forum like this is that Canada has had a special exemption from these export permits for years, and that all stems from things like the defence production sharing arrangement. We've had privileged access. That access is very much in jeopardy. The Department of State in the U.S. is looking at ways now to become more consistent with the Organization of American States on the firearms regulations.

As I say, I really can't go much further than that. There are very high-level discussions taking place at both the bureaucratic and the political level between Canada and the U.S. on this. It's getting down very close to the last mile now. Within three or four weeks there will be a decision taken on just what will happen with the special Canada exemption. My instructions, because we anticipated it might come up, were that they will be fully prepared to provide the committee here with the very latest Q-and-A type of response to that issue.

Mr. Gordon Earle: I would be interested in receiving that, because I read that there was some suggestion that if it moved in that direction it would mean a substantial loss in jobs and economic benefits for Canada. So I would be interested in receiving just an outline of that nature to kind of indicate what the problem is, without divulging any kind of secret information that shouldn't be divulged, but at least give an understanding of what the situation is and give us some background on it.

Mr. Richard LePage: I'll be sure to get that back to the clerk of the committee.

Mr. Gordon Earle: Thank you.

Mr. Glenn Nichols: I would just add that it's the foreign affairs department that takes the lead in this, and obviously what we're involved in is trying to make sure that access point is maintained.

I think what that whole issue underlines is the importance of having a network in place that is able to preserve and protect Canadian access in the procurement markets. Procurement markets are only as good as the monitoring and the nurturing that goes on to make sure they are respected. You can negotiate as wide an access as you possibly can, but in the actual day-to-day application of how rules change, you must be diligent about tracking them and staying on top of them and coordinating activities and responses in government. That's really what makes them meaningful.

Mr. Gordon Earle: Thank you.

The Chairman: Thank you, Mr. Earle.

We will start the second round of questions with Mr. Hart.

Mr. Jim Hart: Just quickly, I wanted to get back to the joint strike fighter program.

Mr. LePage, you were saying that Canada is doing okay as far as getting contracts for business. I'd like to go back to this again, because I think it's fairly important. The project itself seems to be at the high end of the capability spectrum for Canada and other countries. We're putting in $3 million to $4 million a year. It seems to me that just a couple of years ago Britain put some $200 million into the project. So even though Canada is doing okay, we could do a lot better, couldn't we?

Mr. Richard LePage: Well, the fact that Canada is only putting in a few million dollars a year doesn't mean they won't have access through arrangements such as defence production to a much larger pie.

Mr. Jim Hart: So it's not influenced at all by the fact that other countries are putting in...?

Mr. Richard LePage: That's the kind of political pressure that is being played out, but in reality if a Boeing is to win the prime contractor role for the joint strike fighter program, they will very likely go to their established list of suppliers. Boeing has a commitment now not to take on any additional suppliers for the next few years. They're still digesting their acquisition of McDonnell Douglas. They have approximately 250 existing suppliers in Canada now. They are looking worldwide at cutting down the number of suppliers by 30% but increasing the business from each of those.

So our real challenge in the year ahead on the Boeing file specifically—whether or not they win the JSF, but they're certainly right at the very high end of the bidding cycle—would be to make sure that Canadian companies have the ability to go in and win a good segment of that business.

Canadian firms are very well regarded. You know, it's judged purely on the basis of price, delivery, scheduling—that's what they're looking for in Canadian companies. And zero tolerance—it's got to be zero tolerance. Canadian companies are developing a very solid reputation for that worldwide.

Mr. Jim Hart: So there is no political influence, or there is limited—

Mr. Richard LePage: The suggestion is that there is. In reality, the numbers that I see don't bear that out. In fact a Boeing or a Lockheed Martin will go where they think they can get the best value for their dollar, and right now Canada is doing very well on that scorecard.

Mr. Jim Hart: Okay.

Mr. Nichols, I have one question for you. I was wondering if you could assure the committee that your corporation is insulated from political influence when you're dealing with these contracts.

Mr. Glenn Nichols: Absolutely, yes.

Mr. Jim Hart: Good. Thank you.

• 1635

The Chairman: Thank you, Mr. Hart.

Anyone on this side of the table? Questions from the majority side? Seeing none, I'll go back to Monsieur Laurin.

[Translation]

Mr. René Laurin: Earlier, mention was made of the fact that Canadian sales to the US represent less than 1% of the total US market. Do have some idea of what sales by countries other than Canada represent, percentage-wise, in terms of the overall US market?

[English]

Mr. Glenn Nichols: I'd have to find other sources for that. I don't have it off the top of my head.

[Translation]

Mr. René Laurin: I was trying to find out whether the United States gives Canada a certain advantage over other countries, or whether in fact we're merely a marginal player.

[English]

Mr. Glenn Nichols: Certainly within the area of defence, the DPSA is unique. It's a unique arrangement, quite frankly, between those two countries. They have similar defence agreements. I guess the next one in line would be with Israel, for historical reasons and some other reasons. Certainly the DPSA works as very much an enhanced role.

Just to clarify a little bit, because you were asking about the statistics earlier, it is hard to get statistics on this. There are many different studies. All I know is this year we will finalize the year with almost $600 million in sales to the U.S. Department of Defense.

Based on what the trend is with privatization in that market as well, where they're increasingly using U.S. private sector prime contractors on their requirements, it could be higher than the $1 billion that's cited. I myself believe it's higher than that. I think your best source, frankly, if you haven't heard from them already, would be some of the industrial associations. Canadian Defence Industries Association, for example, and those sorts of groups would be your best way to get at that.

It's a unique arrangement, and it is the envy of other countries.

[Translation]

Mr. René Laurin: I'd like to come back for a moment to the whole matter of selecting companies. This process intrigues me a little. I want to be certain that it is truly transparent and that there is little opportunity for subjective action. Is a company in fact selected only when another government has expressed a need for a particular product? In other words, are companies assessed only when there is a possibility that they might be awarded a contract, or are they assessed in anticipation of being awarded a contract at some point in the future?

[English]

Mr. Glenn Nichols: Maybe I can divide the business into different business lines.

Most of what we do internationally is not where a buyer is coming to us and asking to source. There are a few exceptions, and they tend to be very specialized goods, with three or four prospective suppliers in Canada. We know who they are, and we go out to all of them. But in most instances internationally it is where the exporter has found an opportunity but they've got that credibility problem and there's something that's keeping them from closing the deal. They need CCC services and they come to us.

So that's not really an issue of qualifications. We're actually trying to overcome a problem and then we see whether we can endorse the project, get involved, and then make the deal happen.

I should clarify that on the bid matching, I do it in two ways. I have two clienteles, because I make it publicly available. I get the electronic feed from the United States. I do have companies that are registered with very detailed profiles, which allow me to do 100% match. In other words, yes, this company is registered and really wants to be bidding on this type of requirement in the United States. I do those matches and I send that out by fax to them so that they're aware of the opportunity.

At the same time, I'm making sure that it's also on the web site. It's not an exclusive club. There are some self-search mechanisms. Anybody can dial into our web site and take a look at what's happening on U.S. opportunities and decide whether that's something in the market they want. Similarly, where we are getting a request for offers from overseas and it's a fairly broad application, we'll post that on our web site as well.

The U.S. is very much a registration system. It's driven by registrations. We do make it open to everybody. Anybody can dial into our site and see what the opportunities in the United States are and decide whether that's a market they want to get into.

On the overseas side, it tends to be far more working with Canadian companies who themselves have identified the business opportunity and there's just something that's not allowing them to close the deal. Then what we're doing is working inventively with them, trying to come up with a solution or an innovation that's going to get that contract signed.

• 1640

[Translation]

Mr. René Laurin: Under the terms of the agreements in place, do procurements contracts between a Canadian supplier and a foreign country necessarily have to go through the CCC?

[English]

Mr. Glenn Nichols: In the DPSA people actually register to do business in the United States. Under the terms of the DPSA, if it is a contract valued at more than $100,000 the American procurement agency will say don't bid direct, bid through CCC, we want that, and that's how the agreement works. Anything under $100,000 they can do on their own.

The Chairman: Merci, Monsieur Laurin.

Mr. Earle.

Mr. Gordon Earle: You mentioned that CCC reports to Parliament through the Minister for International Trade. Would that be on an annual basis with an annual report?

Mr. Glenn Nichols: Yes, we have an annual report, we also have a corporate plan summary, which I believe gets tabled.

Mr. Gordon Earle: Would that annual report be on the fiscal year or the calendar year?

Mr. Glenn Nichols: We go by fiscal year.

Mr. Gordon Earle: So the latest one would be for 1997-98?

Mr. Glenn Nichols: Yes, 1997-98, and I can get you a copy of that, if you'd like.

Mr. Gordon Earle: Great. Is that generally sent out to a mailing list or is it just tabled and left up to people who are interested to get a copy?

Mr. Glenn Nichols: It's tabled. Actually, we did send it to every parliamentarian last year.

Mr. Gordon Earle: I see. Thank you. Would that also be available on the web site on the Internet?

Mr. Glenn Nichols: It's available on my web site, yes.

Mr. Gordon Earle: Could we have your web site address?

Mr. Glenn Nichols: It's www.ccc.ca.

Mr. Gordon Earle: Thank you.

Mr. Glenn Nichols: And I hope to God that it's on the web site.

Some hon. members: Oh, oh!

The Chairman: If there is a final question from any other member, I'm going to give them an opportunity and then we're going to have a very important brief from the steering committee. I'm going to ask those who are not technically on the steering committee to stay with us if you would, because we're within our timeframe and we might be able to make some useful decisions right here today if we have cooperation from all the parties.

Mr. Laurin, or any other members, do you have a final brief question for witnesses? No, okay. We've exhausted our subject.

Thank you very much for returning today, gentlemen, and helping elucidate an important area for us. We appreciate it. Thank you.

Mr. John Richardson: We're now literate.

The Chairman: That's right. We're a little more up on these matters now.

Colleagues, after excusing the witnesses, perhaps I might then go to the subcommittee on agenda and procedure of the standing committee, SCONDVA. There are several matters and I think we can deal with these in a few minutes.

Earlier there was a request tabled by Mr. Laurin, and he provided copies to all members in both official languages. I'm going to ask the parliamentary secretary for defence, Mr. Bertrand, if he would comment on item one on the steering committee.

Mr. Bertrand.

[Translation]

Mr. Robert Bertrand: Thank you very much, Mr. Chairman. I don't know if you are aware of this, Mr. Laurin, but I have already contacted the department and a meeting with representatives of this group has been scheduled for next March 26.

[English]

Mr. Jim Hart: On a point of order, Mr. Chairman, it is an in camera session, and I'm wondering if we should wait until the room is cleared.

The Chairman: I'm sorry. Actually, it does say in camera, but we have that option, and unless there's a motion to go in camera I don't really see a need to go in camera.

Mr. Jim Hart: That's okay, I was just wondering.

The Chairman: I'm sure you agree, and my preference as chair is that unless there is a real need to go in camera we would stay in public.

Mr. John Richardson (Perth—Middlesex, Lib.): We have a quorum anyway. What we can do is ask the people who are in the room at the moment, who probably haven't anything relevant to this and may not know that we're going into a steering committee now, to leave.

The Chairman: That's right. Thanks, Mr. Richardson.

The standing committee meeting is adjourned and now the steering committee meeting has begun. There's no real need I see to go in camera. You're right, though, it does say it in writing. This way we have a quorum of the standing committee and we might be able to move right now to some firm decisions on some important matters.

So with that clarification, thank you. I will go back to Mr. Bertrand, who's indicating a meeting date of this group.

• 1645

[Translation]

Mr. Robert Bertrand: Yes, Mr. Chairman. As I said, we have a meeting planned with representatives of the lac Saint-Pierre organization this coming March 26. I believe we have invited André Lagacé, Director of Ammunition Program Management here in Ottawa. I would suggest that we await the outcome of this meeting before discussing your proposal any further.

Mr. René Laurin: Who does Mr. Lagacé represent?

Mr. Robert Bertrand: The Department of National Defence.

[English]

The Chairman: Monsieur Laurin, will you be attending the meeting? Are you satisfied with that information?

[Translation]

Mr. René Laurin: Mr. Chairman, I'm quite willing to wait, seeing that a meeting has already been scheduled. I'd like us to put this matter on the back burner for the time being, so that we can bring it up again if, after the March 26 meeting, there are still outstanding issues. I don't want this swept under the rug or for anyone to say that the Defence committee has disposed of the matter. I want this item to remain on the agenda so that we can come back to it after March 26.

[English]

The Chairman: That's fine. Mr. Bertrand will report back, I assume, from the outcome of that meeting.

Mr. Robert Bertrand: I know there's a meeting planned. I was invited, but I don't know how I am going to report back unless we get feedback from the department.

[Translation]

Mr. René Laurin: You can rest assured that I will get some feedback—

Some members: Oh! Oh!

Mr. René Laurin: —if people are still dissatisfied with the outcome. Who, may I inquire, has been invited to meet with Mr. Lagacé?

Mr. Robert Bertrand: I don't have that information handy, but I could find out and let you know.

Mr. René Laurin: I would appreciate that. Could you get that information to me soon, possibly by tomorrow?

Mr. Robert Bertrand: Certainly, by tomorrow.

[English]

The Chairman: Maybe we can ask Mr. Bertrand to get in touch with you before the end of the week and provide you with a little more detail about the meeting.

[Translation]

Mr. René Laurin: Please.

[English]

The Chairman: All right. Thank you.

So then—

[Translation]

Mr. René Laurin: Will that be here in Ottawa?

Mr. Robert Bertrand: Yes. I believe the secretary of the group, a person by the name of Philippe Giroul, has been invited to appear on March 26. I will verify that information and pass along the names to you.

Mr. René Laurin: Thank you.

[English]

The Chairman: Thank you. So we'll await the results of that meeting, and keep it active on our list and look for some kind of report back. And if there's a need to continue to pursue it, we will do that.

Thank you, Mr. Laurin and Mr. Bertrand.

As for item two, if I could be candid here, we had a very important trip planned to Germany and some of us were able to attend that trip anyway. I know Mr. Hart was personally interested in attending. Unfortunately, though, just before the House broke for the Christmas season we were not able to get all-party agreement to go ahead with that trip, which meant we were somewhat short-handed. We couldn't, for example, take our clerk and our researcher, both of whom would have been invaluable to us on that trip—

Mr. Bob Wood (Nipissing, Lib.): We did take a translator, who did a fine job.

The Chairman: We did take a translator.

Mr. Bob Wood: He did a fine job and he should be commended for it. He flew there and he did a great job.

The Chairman: That's right. But it was just from the kindness of the German government that we even had the outstanding translator of whom you speak along with us.

My point really is that we managed to go ahead with the trip, but it was disappointing that we didn't have our normal complement and that we only had one member—although he was an excellent member—Monsieur Laurin, on the trip.

We'd like to do other trips, not as junkets or anything like that. We have some serious work to do as a committee and there are two or three very useful trips we could make. I don't think, though, that as chair I want to ask the staff to go ahead and do the necessary research for the trips and all the logistical arrangements unless we know we're going to have all-party agreement to try to actually proceed on these trips.

• 1650

So I really would like the parties and their representatives to lay their cards on the table as much as they can today. If there are any problems with these trips, we might as well know now so that we don't waste anybody's time, and proceed.

I'm going to ask the members of the parties, if they can't give the assurance now, to go back and seek the assurance of whomever in your party you need to seek it from, whether it's House leaders, whips or both, that if we commit to these trips we're actually going to be able to go ahead without having the rug pulled out at the last second and all the work go to waste.

With that kind of introductory comment as to why there's some concern, let me refer you to point two.

We have an invitation from the U.K. government to go to London, England, and environs, to check several important sites they have and to hear some of the important work they've been doing in procurement. They've undergone a major defence review in the last short while. They frankly shared with me that they have some of the same problems as we feel we have, and they think they are well on the way to starting to solve some of them. So that could be a very useful trip.

The second trip would be to go to Washington, and the Washington area, I assume—the staff feels it would take four days—to see some outstanding facilities in the area of procurement, and of course, as you would know, there are people in the American military whose whole career is to be specialists in procurement.

Finally, to our own Veterans Affairs, we have a standing invitation through Mr. Wood for us to go to Charlottetown, and the fine riding represented by Mr. Proud, to see our Veterans Affairs people in their location and to deal with what they want to discuss with us.

So those are the three trips that are on the table now. Are there reactions or comments?

Mr. Bertrand.

Mr. Robert Bertrand: Mr. Chairman, some of the mandate we have given ourselves as a committee was, number one, procurement, and number two, RMA, revolution in military affairs.

The Chairman: Right.

Mr. Robert Bertrand: I think it would be an excellent opportunity to combine those for the England and Washington trips.

The Chairman: Exactly.

Mr. Robert Bertrand: In Washington, for instance, instead of just procurement, have a few sessions on RMA also. I think it would be extremely important for the work we have decided to take on.

The Chairman: Right.

Mr. John Richardson: Mr. Chairman, to add to what Robert is saying here, there are two schools in this that are excellent: the U.S. National Defense University, which has four colleges, one of which is in what we call “the grand strategy”, and the revolution in military affairs would be well represented there; and the Imperial Defense College in London. So if you want to take a side trip that would have some real bearing on the committee's work in the future, they'd be two good ones, and they'd arrange the whole thing.

The Chairman: I think those are very good observations. Both governments have indicated they're totally willing to be as flexible with us as necessary.

So there we are. The priorities that our own committee established for ourselves are procurement and RMA, which Mr. Hart referred to earlier.

Are there any other comments on these trips? Mr. Proud and Mr. Hart.

Mr. George Proud (Hillsborough, Lib.): On what John Richardson was saying, one area you could include in the Washington trip is the U.S. Army War College at Carlisle, Pennsylvania, which is only a two-hour drive from Washington. It's really state of the art. I was there in January.

The Chairman: That's good to know.

So we would be busy, people, if we were to go on these trips. We wouldn't be sightseeing on a junket.

Mr. Hart, and then Mr. Laurin.

Mr. Jim Hart: I think the committee members know I support each and every one of these initiatives. I wonder about one that's not here, a visit to Colorado Springs and NORAD, and whether that's still something that's being considered. I think that would be of value, with the ballistic missile defence program in which the United States is asking Canada to participate.

• 1655

The Chairman: I certainly think we all share your sentiments there. Maybe the staff can speak to that. I know the possibility is actively in our minds. I guess we thought we'd try this first group initially.

Mr. Jim Hart: Okay.

The Chairman: Can you comment, Wolf, on Colorado Springs?

Mr. Wolfgang Koerner (Committee Researcher): It would be useful to go to Colorado Springs, but I think we also have to be careful, if we're going to do a report on procurement, not to start mixing up the two studies. There's an opportunity to get a good briefing in Washington; they'll do a super job. But on Colorado Springs and Norfolk, if we really focus on RMA, we should maybe look at doing a trip in the fall.

The Chairman: We could do it later on.

Mr. Wolfgang Koerner: Otherwise you're looking at being away for about two weeks.

The Chairman: Right.

Mr. Jim Hart: One other area is the trip to England. I wonder if it would possible, or if you've thought about taking a look at the Upholder class of submarines and maybe talking to some folks there about that particular project.

The Chairman: It's a good idea. I think that's an excellent suggestion. Mr. Hart, to what extent can you speak for the Reform Party today? Can you tell us if your party would be in support of these?

I'd like to call for a motion if the committee's formally agreeing to go on these trips. Can you comment? I don't want to put you on the spot, but we need to know whether your party will support these. If you can't tell us today, how soon can we find out?

Mr. Jim Hart: I'll support. I have given my recommendation to Art Hanger, the chief critic for defence, and stated I support all three. There was no objection on his part at that time. So I'm here today as the representative and I support these initiatives.

The Chairman: Okay. Thank you.

Monsieur Laurin and then Mr. Proud.

[Translation]

Mr. René Laurin: Mr. Chairman, I can appreciate that a visit to England and to Washington could prove useful to the committee since it has a mandate to examine the defence procurement process. However, I fail to see the connection between our mandate and a visit to Charlottetown to visit the offices of Veterans Affairs. I could understand if we were examining an issue like old age pensions, but we've already done that. I need additional information to justify our approving a trip to Charlottetown.

[English]

The Chairman: Thank you for that point. I'll ask Mr. Wood to comment on this.

Mr. Bob Wood: I think, René, it was actually Art who suggested he would like to have a look at how things work at Veterans Affairs—how they operate, how they process the claims and how it all works. It was just through Mr. Hanger's idea that we set this up.

I agree with you, there's no relevancy in the two and it doesn't matter when we go. It was just a suggestion from Mr. Hanger that he would like to go down there to see how it works. They agreed to accept us there on any three days. I don't think there's any time limit or anything like that. We can go any time, really.

The Chairman: Monsieur Laurin, the clerk has reminded me you weren't a member of the committee when the SCONDVA hearings were being held. But because of a lot of the problems SCONDVA identified, it would be useful for the committee to go to Charlottetown and, as Mr. Wood's says, see right on the ground exactly what happens.

One of the concerns in SCONDVA was not treating our people well enough when they retired, for example, or helping them exit the service and so on. I often remind people, when they talk about the committee on national defence, that it's also veterans affairs, as we well know. So it's more of a trip to see a major part of the mandate of our committee, veterans affairs, which is headquartered in Charlottetown. It's listed here with these other two because it's an outstanding trip that we had in our minds would be important for us to do at some point. That's why it's here.

Mr. Proud.

Mr. George Proud: I don't think that should be lumped in with the other two. We shouldn't talk about them in the same breath, so to speak. It has to be at a different time.

• 1700

The other thing is, you're asking everyone if they support these trips to England and Washington. You have to bring this to the House also, don't you?

The Chairman: Yes. That's the whole point.

Mr. George Proud: That's where you can run into a problem. Somebody can make a commitment, but if somebody in the House says no....

The Chairman: That's right.

Mr. George Proud: That's something you don't want to forget about.

The Chairman: I didn't, and that's a good point, Mr. Proud. It's fine to sit here as individual members and say we support the trip, but I'm asking each member, particularly in the opposition parties, to do more than that. I'm asking them to go back to their House leaders and whips, or whomever else they need to talk to, say these trips have been approved—if they are approved—by SCONDVA, and we want to know those parties are not going to oppose them in the House.

I don't think it's fair to our staff, and it's not a good use of resources, to ask them to do the work if we know ahead of time one or more parties may have a problem with them. So I'm going to ask the opposition members to undertake that for me.

Are there other speakers on these trips? Then we want to have a motion that the committee approve these three trips.

It is moved by Mr. Bertrand that the SCONDVA committee will seek authority to travel to England, to Washington and to Charlottetown, as scheduling permits. Is there a seconder?

Mr. Jim Hart: I'll second it.

The Chairman: It's seconded by Mr. Hart. Very good.

Speaking to the motion, Monsieur Laurin.

[Translation]

Mr. René Laurin: Mr. Chairman, I assume there will be a preamble to the motion. I would like us to draw some kind of distinction. Perhaps it would be best to split the motion in two, because we are really dealing with two different things here. I wouldn't want us to say that we are going to Charlottetown to review the defence procurement process because we would be seeking authorization to travel under false pretences.

The Chairman: I don't see any problem with that.

Mr. René Laurin: If we were to make this distinction, then I'd be satisfied.

[English]

The Chairman: Sure. That's a good point. It's a friendly amendment that the committee seek approval to go to England and to Washington on its study of procurement. That will be the first motion, seconded by Mr. Hart.

(Motion agreed to)

The Chairman: Now we have a second motion. Mr. Wood, would you like to make a second motion that we visit Charlottetown?

Mr. Bob Wood: Yes, I will move we visit Charlottetown at the convenience of the committee. That's fine.

The Chairman: All right, that the committee seek authority to travel to Charlottetown, related to its mandate for veterans affairs.

Mr. George Proud: In June.

Mr. Robert Bertrand: Did somebody mention going during lobster season?

Some hon. members: Oh, oh!

The Chairman: We want to stress that this is not a lobster trip.

Some hon. members: Oh, oh!

The Chairman: Is there a seconder to that motion?

Mr. Jim Hart: I'll second it.

The Chairman: Mr. Hart again.

(Motion agreed to)

The Chairman: Thank you very much, colleagues.

I will ask the three representatives of the parties in opposition here—I'll speak to Mr. Price—to as soon as possible take this to their House leaders and whips and tell them about the motions that have been passed. If there's a problem from those parties and they're not going to support these motions in the House, that's regrettable, but at least we would know and wouldn't waste our time and our staff's time any further. Okay. I appreciate that cooperation.

The third item is the role of parliamentary secretaries for members' questions. The clerk and I discussed this, and it's just to remind all members if you have a particular concern in your own riding, or anywhere in Canada, that's an isolated incident or one particular narrow incident—something like the matter Mr. Laurin raised—it's quite proper and you have the right to bring it to the committee. Mr. Laurin did that quite appropriately.

But it may be a good idea, if it's a defence matter, to first of all go to Mr. Bertrand, or if it's a veterans affairs matter to go directly to Mr. Wood, to see what help they can offer in their roles as parliamentary secretaries, because they're here to serve the committee, not just the government. Then possibly, after that discussion has taken place, we can take it to the full committee if necessary.

It's just a reminder that these two fine gentlemen are here to assist us, as we need their help.

Are there any thoughts from the parliamentary secretaries? Mr. Bertrand.

• 1705

Mr. Robert Bertrand: Just to go a little further than what you have said, it would be a pleasure for me if any of you on either side have problems and you wish to bring them to me. First of all, I would do whatever I could to find a solution to your problem. If for one reason or another you're not satisfied with the answer I have brought, as

[Translation]

as the Chair so aptly put it,

[English]

we can bring it back to the full committee.

The Chairman: Thank you, Mr. Bertrand.

Bob, do you have any thoughts?

Mr. Bob Wood: I don't think I'll do it now.

The Chairman: Sure.

Mr. Bob Wood: I mean, I think I did it with Gord one time. He had somebody who was madder than hell at me and he sent me the letter, and I responded to him and the letter.

The Chairman: That's great.

Mr. Robert Bertrand: He'll still mad at you.

Mr. Bob Wood: I know.

The Chairman: Okay. Very good.

Mr. Laurin, then Mr. Hart.

[Translation]

Mr. René Laurin: Mr. Chairman, I'm happy that the parliamentary secretaries have kindly offered to lend us their assistance when we have certain matters to discuss. I'm prepared to seek their help, provided this doesn't prevent us from tabling certain initiatives or from bringing certain problems to the committee's attention. This mustn't restrict us in any way.

The Chairman: No, absolutely not.

[English]

As I say, you certainly have a right and you did properly proceed and bring the matter to committee.

It's just a reminder that sometimes we forget, even on the government side, that these people are quite involved with their ministers, they're in close contact with them, and they're on top of a lot of those files, and maybe an approach to that person might be as far as it needs to go. But if a member wants to bring a matter to the committee, as chair I assure you that you have every right—I respect that—to bring a matter to committee, and we'll deal with it appropriately.

[Translation]

Mr. René Laurin: Mr. Chairman, if the parliamentary secretaries undertake to provide us with comparable efficient, high quality service, then I have no problem approaching them.

[English]

The Chairman: All right. Thank you, Mr. Laurin, for that.

I think our last point is this. Before the PSs buy everyone a refreshment—they're being so kind today—I just want to note that the new budget is $10,000. We're asking for this in addition—10 witnesses at $800 each, which is $8,000, and miscellaneous $2,000. Do we need a motion for this now? We do.

Mr. Wood is going to move the allocation, that the chair seek authority to fund these witnesses at—

Mr. George Proud: May I ask a question? Is included in this...? If we run into sessions where we're going late into the evening, is there money in there for supper?

The Clerk of the Committee: That's what the miscellaneous is for.

Mr. George Proud: Okay.

The Chairman: Or if for one reason or another we need an editor or for something in the draft, if we need a specialist.

This is an interim request for funding. It should cover all of our merchant marine witnesses and some more on procurement. If we need more, we'll have to come back.

Mr. Bob Wood: I so move.

Mr. George Proud: I second the motion.

The Chairman: Are there speakers to it? Mr. Bertrand, did you want to speak?

[Translation]

Mr. Robert Bertrand: No, Mr. Chairman.

[English]

The Chairman: Okay. Are there any other speakers to the motion to fund witnesses?

(Motion agreed to)

The Chairman: Thank you.

Next is future business. Mr. Bertrand.

[Translation]

Mr. Robert Bertrand: There are two things I'd like to briefly mention, Mr. Chairman. Some departments have already appeared before the committee. Are we planning to hear from Treasury Board representatives?

[English]

The Chairman: Yes. Treasury Board and the estimates we have to do at some point in the near future, as well as continue to hear, or get into, the important issue of the merchant mariners.

Mr. Robert Bertrand: Okay. But we will be talking on procurement to Treasury Board?

The Chairman: I'll ask the clerk to respond.

The Clerk: Yes. I couldn't put them into our schedule right now. We'll hear them after Easter.

Mr. Robert Bertrand: The second subject I wanted to bring up, and you brought it up also, Mr. Chair, was that the minister will probably be in to discuss the estimates some time after the Easter break.

The Chairman: Okay. Thank you.

Do you know, Mr. Bertrand, will he be able to come on the Tuesday or Thursday, our normal times? I understand sometimes the ministers like to come on Wednesday, which is fine. We would call a special meeting, or whatever. Do you have any information about that?

• 1710

Mr. Robert Bertrand: I have no idea, sir, but I can find out.

The Chairman: Okay. Well, we'll look forward to seeing the minister.

The researchers indicate—and the minister told me, too—that his response to SCONDVA's report, the report we tabled in the fall, should be coming quite shortly to us. At that time, the minister may want to take the opportunity to discuss his response to the SCONDVA report, as well as the estimates, but we'll see how that unfolds.

The Minister of Veterans Affairs, I understand, has also agreed to come after Easter to discuss estimates. So he'll be before us too.

Mr. Hart had a point.

Mr. Jim Hart: I just had a question regarding our study now. Would I be correct in assuming that there will be a committee report written on procurement?

The Chairman: Yes, you are correct on that.

Mr. Jim Hart: Will the opposition parties have the ability to offer minority reports if necessary? I'm not saying it is necessary.

The Chairman: No, that's fine, that's a good point. I assume you would.

Jim, you will have that opportunity. We're just hoping the committee's report is done first before you do.

Is there anything else? All right. Thank you, colleagues.

We're adjourned.