Canada didn't go to war, but our businesses did
Star analyzes deals from 1997-2002
Defence contracts with U.S. top $1.8B

STEVEN THEOBALD, CHRIS SORENSEN AND JIM RANKIN
STAFF REPORTERS

Building 6, Tank Ave., Nepean, Ont.

The address isn't on any Ottawa tourist map but the custom-built hangar on the grounds of General Dynamics Canada houses one killer attraction.

A 60-tonne Abrams M1A1 battle tank, still sporting its Gulf War desert-tan paint job, is here on business in the nation's capital region — on loan from the U.S. military as part of a program to refit the aging giants with sophisticated, Made-in-Canada control and weapons guidance systems.

This scene, 15 kilometres from Parliament Hill, isn't supposed to be happening.

Back in March, Prime Minister Jean Chrétien enraged U.S. President George W. Bush by refusing to join the U.S.-led invasion of Iraq — a mission aimed at destroying Saddam Hussein's alleged and still undiscovered weapons of mass destruction.

A more-than-willing coalition of business leaders, academics, politicians, even the U.S. ambassador, warned this snub would have serious economic consequences.

But a decade's worth of publicly available U.S. government contract data, obtained and analyzed by the Star, shows just how integrated Canadian companies are in the U.S. business of war.

Records show more than 4,300 contracts — worth $2.5 billion (U.S.) — were won by Canadian companies from 1997 to 2002, the period this investigation focused on.

Of that, more than $1.8 billion was doled out by the U.S. Department of Defense, and that figure doesn't even account for subcontracts.

From big-ticket light armoured vehicles and sophisticated weaponry to protective gear and mundane, low-tech products, Canadian business is cashing in.

The Star also surveyed a wide range of Canadian exporters specializing in U.S. government contracts and found, for all the political warnings and rhetoric, there's nothing but relief among the executive ranks of Canadian businesses supplying the U.S. war machine.

Although the numbers aren't in for contracts awarded post-Iraq, there's a growing sense amongst Canadian exporters that the threats were just that. Some companies are already seeing post-war spin-off orders and rising stock prices.

Meanwhile, executives at companies in Britain and Australia — members of the so-called coalition of the willing — are increasingly upset that they are not reaping any material rewards from their countries' decisions to join Bush.

They want what Canada has enjoyed for decades, and continues to enjoy — a cozy 51st state status when it comes to dealing with the U.S. military.

It can well be said, Canada didn't go to war in Iraq but Canadian business did.

Human rights groups and anti-war activists have long argued as much, criticizing Canada's military industry for its behind-the-scenes involvement in American and other military conflicts. They say it contradicts Canada's more visible — and palatable — image as a peacekeeping nation.

In a time when the ability to track arms is global, it has actually been impossible here in Canada to get a handle on exactly how much — and what kind of business — Canadian companies do with the U.S. military. Ottawa discloses military exports by Canadian companies to every country in the world, with one lone exception — its biggest trading partner.

That's because since World War II, when the North American defence industry was integrated, U.S.-bound military exports don't require special permits. As a result, there simply isn't any reliable Canadian data.

Canadian businesses are free to offer up details of their dealings with the U.S. military, but few are willing to provide such information.

South of the border, however, the customer is keeping track.

The U.S. government contract data, which forms part of the Federal Procurement Data System, was obtained from an annually updated database maintained by the U.S. General Services Administration.

Although it, too, has some shortcomings, the U.S. federal records show several million transactions — each worth $25,000 (U.S.) and up — over the past decade, and provides a detailed look at the highly lucrative military contracts being won by Canadian companies.

Colin Smith gingerly lowers his body into the belly of the Abrams, taking care not to bump bone on steel. Nothing gives in this rolling beast, not without great force. Inside, the turret smells of ripe hockey equipment, hardly surprising when one considers a crew of four endured 24-hour stints locked up inside a space not much larger than a $1 photo booth during the heat of the Gulf War.

Inside, it's clear how integral the General Dynamics Canada Ltd. components are to the operation of this machine. One of the Canadian-made control panels is mounted to the right of the gunner's head, another rests within reach of the tank commander's right hand. Among other vital functions, the commander's system warns of a nuclear, chemical and biological attack.

"The tanks have serious obsolescence problems with the electronics," explains Smith, one of three General Dynamics staff trained to drive the Abrams. "How many times have you upgraded your PC?"

His Nepean-based employer, a subsidiary of a U.S. defence industry behemoth, employs 1,400 people in Canada, 45 on the Abrams tank refit. The work has to be done and the best people for the job just happen to be here, says Smith, the program's manager.

GD Canada's parent, General Dynamics Corp., started manufacturing Abrams tanks a couple of decades ago. The Canadian unit had engineered and built some of the original electronics systems.

Today, the firm is fulfilling a contract to design and build state-of-the-art weapons guidance systems for tank gunners and navigational controls for the commanders.

Smith says the U.S. military's willingness to ship an Abrams to Canada underscores the special relationship between the two countries. "It's the only U.S. battle tank in a foreign country for engineering development work."

The current contract covers the first 1,000 of the 4,000 active Abrams tanks. Smith is confident the deal will be extended. "As long as the tank remains in service there is a good chance we'll get to do the rest," he says.

That degree of confidence certainly wasn't making headlines six months ago.

Under Bush's orders, Paul Cellucci, the U.S. ambassador to Canada, had embarked on a decidedly un-diplomatic series of "disappointment in Washington" speeches aimed at Canadian business executives, first stop Toronto.

Reaction from Corporate Canada and conservative politicians was swift.

The common theme among scaremongers was the need to stand up for Canada's best buddy in times of need or face economic reprisals. Ontario Premier Ernie Eves, taking his cue from Alberta's Ralph Klein, sent his own letter to Bush supporting the American war effort.

Now, even retired Canadian military history professor Jack Granatstein, who six months earlier predicted Canadians would be dining on "boiled or sautéed" lawn clippings, is having to explain why his crystal ball was on the fritz.

"I am surprised. The U.S. has not punished us as I expected and others expected," he said in an interview with the Star. "It may mean we are producing good product that the Americans need and can't get elsewhere."

U.S. government contracts are filtered through a network of 200,000 procurement officers, and they are focused on getting the best product at the best price, not politics, says Robert Ryan, director of operations for Canadian Commercial Corp.

"We are not political animals and they are not political animals," he says. "We deal with Department of Defense contracting officers sitting in Montgomery, Ala., trying to put in eight hours' worth of business so they can go watch football."

CCC is a Crown corporation that, through the 1956 Canada-U.S. Defence Production Sharing Arrangement, acts as the lead contractor for Canadian exports to the Department of Defense and the National Space and Aeronautics Administration.

This allows Canadian firms to essentially be treated as if they were American.

Last year, 215 Canadian firms — 106 based in Ontario — funnelled $951.7 million worth of exports through CCC, with 80 per cent sent to the U.S. military and NASA.

The corporation, which has held a low profile, made headlines in August when an Ontario Superior Court judge ordered it to pay now-defunct Amertek Inc. $70 million for destroying the company it was supposed to help. Amertek claimed the CCC withheld crucial information relating to a huge contract for the sale of 362 fire trucks to the U.S. Army, defrauded the U.S. government, then attempted to put the company into bankruptcy to block the threat of a hefty lawsuit.

"In my view it was shocking behaviour on the part of federal civil servants," wrote an outraged Justice John O'Driscoll in his ruling. CCC has since appealed the verdict and isn't talking about the case.

Patrick Hanson, president of Toronto-based On Target Tracking Systems (Canada) Inc., spends three weeks a month in the U.S. pitching his software, which keeps tabs on firearms within organizations. His client list includes all levels of U.S. governments, from the Federal Bureau of Investigation to local police forces.

Initially, American clients were "a little upset" at Canada over Iraq, and, over beers, clients gave him a hard time about Iraq.

"My comeback was, `Canada would have been happy to help, but you guys got rid of half our armed forces through friendly fire,'" he says. "They laughed and then the topic changed."

One person not laughing was Derek Burney, chief executive of Montreal-based CAE Inc., an aerospace company specializing in flight simulation and training equipment. Military sales were $446 million last year, or 39 per cent of CAE's total revenues.

On March 18, more than a week before Bush sicced Cellucci on Chrétien, Burney told an audience at the Monteal Board of Trade that Ottawa must join the U.S. coalition against Iraq to preserve vital Canadian interests. Newspapers and wire services carried his warnings about the potential economic fallout.

Funny thing is, CAE's share price has more than doubled in the past six months and U.S. military contracts keep rolling in, $99 million worth in June and July alone.

In fact, Burney is so confident in his relations with the U.S. government that, during CAE's annual shareholders meeting in Toronto in August, he promised "substantial" new U.S. military orders in the months ahead will help offset the havoc 9/11 wreaked on the civil airline part of the business.

He even went so far as to fly in and introduce to shareholders four board members — two retired generals and two retired admirals — from his U.S. division.

After the meeting, he acknowledged no U.S. customers have raised the Iraq issue.

When asked about his earlier warnings, Burney, former ambassador to the United States under Brian Mulroney, insisted his public comments were simply intended as personal shots against the Liberal government.

"When I was then asked, `Are you concerned about your implications for your business?' I said, `Of course, I am.'"

Sometime this fall, Stryker light armoured vehicles are scheduled to roll off C-130 transport aircraft onto the Iraqi desert.

The eight-wheeled machines will be driven by American soldiers, but 1,700 pairs of hands at a London, Ont., plant helped build the vehicles.

The vehicles were part of a $4-billion (U.S.) deal in 2000 that saw GM Defense, including GM Defence Canada, and General Dynamics Land Systems, win six contracts to equip the U.S. army with more than 2,000 Strykers, the U.S. version of the LAV-III being used by Canadian armed forces in peacekeeping missions.

Ken Epps follows the Canadian arms and military trade for Project Ploughshares, a peace research centre in Waterloo.

His group argues that there is a troublesome contradiction between Canada's foreign policy and its industrial policy when it comes to the manufacture and sale of military products.

"If (the U.S.) is invading Iraq, when we don't think it should be, and they are using Canadian equipment, then we are caught in this contradiction where our foreign policy is doing one thing and our industrial policy is doing another."

Epps says another concern is the potential for the Canadian defence industry, closely tied to the U.S. military, to exert an influence on Ottawa's foreign policy, as was attempted during the run-up to the Iraq war.

"It could have been the case that an economic decision could have counted heavier than a foreign policy decision."

Epps' organization has been trying for years to build a comprehensive database which tracks Canadian-made military products to ensure they don't fall into the hands of undesirable countries or terrorist groups. One of the big holes in the available data, however, are Canadian products sold to the U.S., which don't show up in the government's often-touted "1 per cent" figure, which refers to Canada's contribution to the global arms trade.

Ottawa, he says, should provide the same disclosure provided by the U.S. government contracts database.

"This is really quite outrageous that we have to go to a foreign government to get information that our government doesn't have, particularly when it's dealing with an issue as important as arms sales."
 
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