Here’s a story to chill the Canadian soul. A Canadian company working on defence-related computer software for a firm based in Texas sent a team down south at the end of April for consultations. They were a mixed group—mostly Canadian citizens, but including a couple of Americans working in Canada. As they settled in for their meeting, their U.S. host made an unusual request: “Would all the Canadians please leave the room?”
As it turned out, the Texans were spooked by new U.S. regulations that severely curtail Canada’s once-favoured status for cross-border defence, satellite and aerospace contracts. For almost six decades, Canadian contractors were treated essentially the same as Americans in bidding on U.S. military work. No other country had such a special relationship.
But now Washington is worried that sensitive military know-how might be diverted through Canada to unfriendly places like Iran or Iraq. On April 12, the state department removed Canadas exemption under the U.S. International Trafficking in Arms Regulations, or ITAR, which govern the sale of American weaponry and defence technology. Canadian companies now must follow cumbersome approval procedures before doing defence-related work for the U.S. government—even as subcontractors to U.S. firms. The Texans may well have been overreacting (as well as being rude) by inviting their Canadian visitors to step outside, but it’s part of the chill that has suddenly descended over Canada’s defence exporters. “No one knows how far this will go,” says one industry official.
This is the kind of thing that really matters for Canada. Cross-border trade in defence products is worth about $ 1 billion a year to Canadian companies, and the industry says that up to a third of its 50,000 jobs are at risk, many of them the kind of high-tech engineering and computer positions that have “21st century” written all over them. Related work in aerospace and satellite technology may also be affected. Canadian firms now must wait 100 days, or more than 14 weeks, to get technical specifications for sensitive contract work, even though bids typically close in six to eight weeks—effectively ruling them out of the competition.
That’s bad enough. Even worse is how we got here—and what it says about the nature of the trading relationship that Canadian officials are fond of reminding us is the biggest in
the world. Defence industry leaders are quietly steamed at Ottawa for letting the issue get away from them. While the industry was trying to focus attention on heading off the new U.S. rules, Ottawa’s trade agenda was dominated by another touchy issue, one that exploded in spectacular fashion last week: Bill C-55, the legislation to protect Canada’s magazine industry. “It was all C-55, C-55, C-55,” says an official.
The irony is that the stakes are far higher in defence and aerospace, at least in straight dollar terms. To be sure, there are weighty issues of culture and national identity involved in the magazine dispute. But it’s not huge bucks. Bill C-55 aims to protect the Canadian advertising market for Canadian publishers—a market worth some $300 million a year. Even if U.S. magazines manage to grab a significant slice of that, it pales beside the billion dollars a year at risk in the defence spat. But while C-55 has fuelled emotional headlines for months, defence technology has been a stealth issue.
It’s also another example of how Canada can get sideswiped by U.S. concerns over other countries. Despite the modest stakes, Washington has fought hard against Bill C-55
largely to drive home its point that “culture” must not be invoked to keep American business out of lucrative foreign markets. Likewise, Canada has had to fight a running batde in Washington to block a measure that would impose cumbersome entry and exit controls at the U.S. border—a move inspired by the flood of illegal immigrants from Mexico.
On defence exports, Washington has been driven by the spreading scandal over how sensitive technology has leaked out to potentially hostile countries. China managed to buy satellite know-how that could be used to improve the targeting of its nuclear missiles from U.S. companies linked to a top Democratic party fund-raiser, prompting Republicans to question whether American security has been compromised for cash. Worse, congressional investigators were expected to conclude in a report this week that China has stolen U.S. nuclear secrets for a decade or more. The mood in Washington is understandably harsh. The best Canada’s defence industry can hope for now is to get the new regulations softened at the end of a 120-day review period. That might at least reassure nervous Texans that the next group of Canadians who come their way can actually be allowed to stay in the room.
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