1 Directorate of Industry Relations, Analysis and Policy (DIRAP) Paul Herring, Director “CASE FOR CANADIAN DEFENCE INDUSTRIAL POLICY” 27 February 2012

2 Canadian Defence Industrial Strategy: “No Strategy is Not a Strategy” Budget 2011: “Considerable progress has been achieved in streamlining and improving military procurement processes, including through the National Shipbuilding Procurement Strategy and enhancements to the Industrial and Regional Benefits Policy. The Government is committed to continuing these efforts by developing a procurement strategy, in consultation with industry, to maximize job creation, support Canadian manufacturing capabilities and innovation, and bolster economic growth in Canada.” A Defence Industrial Strategy would require a whole-of- government approach focused on: –Strategic Procurement –Export Market Development

3 International Comparison Canada is unique –No single point of accountability –Industrial base is closely linked with the U.S. –Primarily 2 nd and 3 rd tier suppliers –Heavy dependence on exports U.S. –No explicit defence industrial policy –Mosaic of laws, policies and regulations resulting in 98% of procurements being sourced domestically –Robust and comprehensive military industrial complex Europe –Multiple sovereign nations with similar and diverging national security interests –Robust (but not comprehensive) defence industrial base –Fragmented national defence industrial strategies

4 Key Issues Defence spending is not optimally leveraged in support of Canada’s broader economic goals. Lack of a broader strategy does not maximize economic benefits. Current procurement approach and contracting rules make it difficult to leverage Government investment in S&T. Not just a matter of adjusting procurement model – need to change defence procurement mindset.

5 Strategic Considerations A Defence Industrial Strategy would: –Strengthen the framework to help small, medium and large enterprises increase innovation, develop market share, and move up the Canadian and global value chain; –Improve the conditions for growing businesses and sustainable, quality jobs in Canadian communities and in the aerospace, automotive, marine and hi-tech sectors; and –Require a new mindset and mature partnership between the Government and industry.

6 Discussion Question: How do we leverage military procurement to support the Canadian defence-related industrial base and help Canadian companies become more globally competitive? Answers: 1.Strategic Procurement 2.Export Market Development

7 Strategic Procurement Advanced Procurement Management –Build on CFDS and defence investment plan –No change to the key features of procurement integrity: open, fair and transparent –Align the “pull” of defence procurement with the “push” of defence-funded R&D –Identification of critical technology capabilities for industrial regional benefits considerations –Continued emphasis on Best Value to Canada, not lowest cost compliant –Early, effective engagement of industry through the ACCORD model.

8 Strategic Procurement Strategic Capability Areas – identification of defence products, processes, technologies, and/or human factors of strategic importance to Canada that would: –Meet the crucial operational needs of the CF in a cost- effective manner; –Assist the industry in making its strategic investment decisions; –Facilitate a better ‘fit’ between industry capabilities and defence needs; –Enable strategic industrial regional benefits; and –Promote skills and technology development in Canada.

9 Strategic Procurement Policy Integration –Modernizing the implementation of industrial regional benefits –Creation of a defence innovation program (buy and try) –Intellectual Property Management –Human Resources and Skills Development

10 Export Market Development Adopting a whole-of-government approach –Alignment of existing tools and resources –Prioritization of regions/sectors –Supporting small, medium, and large companies –Coordination and follow-up with industry (and key associations) to help secure export business –Establishment of a NATO-based Canadian representative for the early identification of NATO procurement opportunities.

11 Implementation of a Defence Industrial Strategy Goals of a Defence Industrial Strategy –Stronger defence industrial base to support critical and strategic CF operational needs –Encourage Canadian manufacturing capabilities and innovation –Bolster economic growth in Canada Timing is synchronized with other reviews –Innovation/R&D, which led to the release of the Jenkins Report in October 2011 –Review of Aerospace Policies and Programs A Defence Industrial Strategy would shape new perspectives on the Canadian defence and security industry.

12 Closing Remarks Advantage Canada, the Canada First Defence Strategy, the National Shipbuilding Procurement Strategy, Munitions Supply Program, and the revised Industrial Regional Benefits program are current examples of policy initiatives that are creating or will create the systematic conditions for broader economic success. Unlike many countries, Canada lacks a formal Defence Industrial Strategy and risks becoming less competitive and realizing reduced growth. A formal Defence Industrial Strategy would: 1.Leverage all phases of the defence procurement process so that Canada can get more from its defence procurement dollar while ensuring that the CF gets the capabilities it needs; and 2.Coordinate government and industry resources to deliver on a common export market development approach.

13 Thank you – Merci Questions? Paul Herring Director, Industry Relations, Analysis and Policy (DIRAP) International and Industry Programs (DGIIP) Department of National Defence T: