CANADA

Caught in the cross-fire

MADELAINE DROHAN March 9 1987
CANADA

Caught in the cross-fire

MADELAINE DROHAN March 9 1987

Caught in the cross-fire

The U.S.-Canada Defence Production Sharing Agreement, which dates back to the late 1950s, was a historic milestone for Canadian defence contractors. The accord put Canadian firms on an equal footing with Americans in bidding for U.S. defence contracts. Major Canadian contractors, most of which are subsidiaries of U.S. companies, have used the agreement for the past three decades, gaining access to an annual pool of funds now worth $128 billion and helping to equip U.S. troops with everything from berets to battle tanks. One recent success: the U.S. army’s award of a $300-million contract to Matrox Electronic Systems Ltd. of Dorval, Que., for a computer system. That award was especially notable because it resulted, in part, from a campaign to educate smalland medium-sized Canadian companies about procurement opportunities in the United States. But now the agreement—and Canadian defence exports—are threatened by the rising tide of protectionism in the U.S. Congress.

Disturbed by their country’s $227billion trade deficit, U.S. politicians are training their sights on every aspect of American trade—including the cross-border flow of defence products. Next week the Senate subcommittee on

the defence industry and technology begins hearings into defence procurement. Its chairman, Senator Jeff Bingaman, has already served notice that he intends to look closely at the $12billion worth of contracts that the American military awarded to foreign companies last year. Said Bingaman: “There’s no question that contracts with foreign companies impact on the trade deficit as our dollars go overseas.”

In fact, contracts awarded outside the United States represented less than 10 per cent of total U.S. military procurement last year—and Canadian companies accounted for less than $1 billion. But industry and government officials in Canada are concerned that this country might be caught in the cross-fire if Congress decides to restrict where those dollars are spent. Said Brian MacDonald, executive director of the Canadian Institute of Strategic Studies: “If we were to lose access to the American market, the [Canadian] defence industry would be in a very tricky situation.” Jack Waugh, an aide to Bingaman, said it is too early to speculate on what the subcommittee will recommend—but he did note that Bingaman was “not too friendly to Canada” because he be-

lieves that cheap Canadian imports of potash, natural gas and uranium are hurting producers in New Mexico. Waugh said Bingaman’s subcommittee will report to the Senate’s armed services committee in April, with plans to have a bill written by the summer.

Canada could be seriously affected by such a bill, because the Defence Production Sharing Arrangement is not a formal treaty between the two countries and so can be undermined by U.S. legislation. But External Affairs officials in Ottawa who oversee the accord said that the Americans are benefiting most from the current system. Last year, said one official, Canadian defence purchases in the United States totalled $1.43 billion, while sales to the 3 amounted to $947 million-giving Washington a net surplus of $482 million. And since 1959 total two-way trade in defence products has left the United States with a $2.4-billion surplus. But even that, noted Sandor Cox, chairman of the Canadian Manufacturers’ Association’s defence forum, may not be enough to dissuade American congressmen from imposing restrictions. Said Cox, who is spearheading a drive to help Canadian companies win more U.S. procurements: “It’s one of these things where you can say all you want to the Americans and they just dig their damn heels in.”

Others share those concerns. Kenneth Lewis, president of the Aerospace Industries Association of Canada, said that the Pentagon and some members of Congress recognize the desirability of Canada’s maintaining a share of North American defence production. But Lewis, whose members account for about 70 per cent of Canada’s approximately $5-billion-ayear defence industry, said that “one can’t be too optimistic” in view of protectionist trends south of the border. Canada’s aerospace industry will not be destroyed if the Americans slam their border shut, Lewis said, but “we could be damaged very easily and very quickly.” And that could put thousands of Canadian jobs in jeopardy.

—MADELAINE DROHAN in Ottawa