February 23, 1959

NATIONAL DEFENCE

STATEMENT ON COST-SHARING IN DEFENCE PRODUCTION

LIB

Donat Raymond

Liberal

Hon. Raymond O'Hurley (Minister of Defence Production):

Mr. Speaker, I have

quite a lengthy statement concerning defence production sharing with the United States. As hon. members are aware, a Canada-United States ministerial committee on joint defence has been established as the result of discussions between the Prime Minister (Mr. Diefenbaker) and the President of the United States, to consult periodically on any matters affecting the joint defence of Canada and the United States. It was envisaged that these periodic reviews would include not only military questions but also the political and economic aspects of these joint defence problems. Defence production sharing has been and will continue to be one of the subjects of concern to this committee. At the last meeting held in December, production sharing was one of the important subjects discussed.

A committee of senior officials of Canada and the United States has been established to deal with the development and production sharing aspects of our military requirements. I would like to point out that this committee includes representatives of all the departments of our government which are concerned with this highly important subject. This committee has established working groups for certain specific programs and projects. These working groups are dealing directly with prime and subcontractors, as well as with the procurement agencies of the United States government.

Within the framework of these arrangements numerous meetings have taken place with appropriate authorities of the United States government. These discussions had as a starting point the fact that the economic interdependence of the two countries in relation to defence has been accepted as a general principle by the governments concerned for some time. The Hyde Park declaration of April, 1941 and the statement of principles for economic co-operation of October, 1950, recognized that the production and resources of Canada and the United

States should be used co-operatively for defence in order to achieve the best combined results.

We are now determined to make these existing agreements effective in action. The government is taking every step open to it to ensure that Canadian manufacturers be given access to the United States defence procurement program. This has an immediate importance in relation to the Bomarc, Sage and radar programs. Working groups have been established in these areas, and frequent meetings held with the United States Air Force and prime contractors. The approach has been to identify equipment for which Canadian industry is competent to undertake production as prime contractors or as subcontractors for United States prime contractors.

Both governments are helping to establish better inter-industry contact than has existed in the past. We are also facilitating the exchange of information and personnel between United States prime contractors and potential Canadian suppliers. United States prime contractors have made visits to Canadian plants to obtain a better knowledge of Canadian capabilities. As a result, Canadian firms are already having their names placed on United States industrial and governmental tender lists. Many of our companies have already submitted technical proposals and quotations, and several contracts for engineering services, development and the manufacture of components have been placed with Canadian firms. Progress along these lines will, I am sure, become more and more evident. However, time and continuing efforts will be required to achieve our objective.

I emphasize, however, that the efforts of our government can only be directed towards the setting up of the necessary arrangements whereby Canadian industry will have equal opportunities with United States industry to participate in the production of the technical equipment which is required for defence programs of mutual interest. The real success of production sharing endeavours depends, to a large degree, upon the determination of Canadian industry vigorously to seek defence business in the United States either as prime or as subcontractors. In assuming this responsibility, Canadian industry must bear in mind that it will have to

1270 HOUSE OF

Statement on Defence Production Sharing be competitive with United States industry in terms of technical competence, delivery and price.

We must look, however, beyond immediate programs in order to work out effective arrangements for sharing in the production of future weapons related to the defence of North America. Our continuing objective is to co-ordinate the defence requirements, development, production and procurement of Canada and the United States in order to achieve the best use of our respective production resources for our common defence. The attainment of our objective will be made easier if the sharing of tasks can be initiated at the development stage. It must be recognized that in the final analysis the degree of participation by Canadian industry in the production of major weapons will be governed largely by the extent to which Canadian scientific and engineering skills are able to share in co-ordinated programs of development.

There has always been co-operation between the two countries in utilizing each other's defence production resources. Production sharing arrangements will now place greater emphasis on across the border flow of defence work. From April, 1951 to the end of 1958 Canada has placed contracts for defence equipment in the United States amounting to $590 million. The United States, on the other hand, has contracted in Canada for defence equipment totalling $540 million for the same period. In 1958 Canada placed contracts in the United States to the value of approximately $55 million, but the net value of business placed was reduced to approximately $10 million primarily as a result of the termination of the Astra and Sparrow programs, and decreases in some older contracts for aircraft equipment. In the same year the United States placed $40 million worth of contracts in Canada. These figures represent prime contracts only, and do not take into account any subcontracting which is handled by prime contractors.

Here it is true that Canada subcontracts a greater volume of work into the United States than the United States prime contractors place in Canada. Although statistics on these transactions are necessarily approximate, I believe that about an average of 20 per cent to 25 per cent of our aircraft and electronic equipment contracts are subcontracted into the United States. It is in the United States subcontract field that the greatest results can be achieved through the production sharing arrangements which we have set up in conjunction with the United States.

One of the largest contracts placed in Canada by the United States was the mutual aid purchase of CF-100 aircraft for delivery to

[Mr. O'Hurley.1

Belgium. The United States has bought 5 Caribou aircraft for evaluation purposes, and continues to buy Beaver and Otter general purpose aircraft. There are also continuing contracts being placed for R-1340 engine spares, F-86 aircraft spares and maintenance support for the United States-financed Pine-tree radar sites. Other purchases include radomes and support items for the distant early warning radar line. Not included in the foregoing figures is a recent United States contract placed in Canada covering radar sets for installation in the United States-financed Pinetree radar sites amounting to $6.5 million.

As I previously pointed out, it will take time and continuing efforts on behalf of the government and Canadian industry to make any significant headway in our recently organized production sharing arrangements. I am pleased to point out that as a result of production sharing efforts, a Canadian company has been selected for the production of wings and ailerons for the Bomarc missile. The present value of this contract is $1.7 million. Also Canadian engineers are working on the Bomarc missile for the United States prime contractor on a subcontract basis. In addition, certain other contracts covering electronic equipment have been placed in Canada. We expect as time goes on that further contracts will be placed in Canada.

As the Prime Minister has previously pointed out, the defence of North America has become a joint responsibility of both Canada and the United States, and the skills and resources of both countries must be utilized in the most economic manner.

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Subtopic:   STATEMENT ON COST-SHARING IN DEFENCE PRODUCTION
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LIB

George James McIlraith

Liberal

Mr. G. J. Mcllraiih (Ottawa West):

Mr. Speaker, the house will be grateful to the minister for having made a statement on the subject of defence production, but I am sure the house is very much disappointed with the content of the statement. It was announced in the house on Friday last that the minister would be making a statement on production sharing with the United States. That announcement was contained in the Prime Minister's statement to the house that day on a very important aspect of defence.

It is not possible to comment on the minister's statement today in a detailed way, because we have not seen it; but as I followed the announcement it seemed to me that it emphasized two or three main points. First of all, the minister was very careful to point out that the companies would themselves have to go and get these orders. In other words the government had not been able to get very far in making arrangements

to protect the interests of Canadian productive capacity through sharing in the vast contracts required for the defence of this continent.

Reference was also made, and very properly so, to the fact that the ability to obtain production contracts would depend on the extent to which Canadian scientific, engineering and technical personnel had an opportunity to participate in the development programs leading up to the production stage. I can only comment with some feeling that such a statement unfortunately comes at a time when the government itself has been taking steps that cannot help but disperse Canadian scientific and technical personnel, and that there is very little hope of such personnel participating in joint development projects if scientific and technical personnel teams in this country have already been dispersed by government action. [DOT]

The figures given of the comparative expenditures in the two countries for the last few years only tend to emphasize the extent to which production activity in this field has tended to run down. Perhaps I should say no more at this point, Mr. Speaker.

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CCF

Hazen Robert Argue

Co-operative Commonwealth Federation (C.C.F.)

Mr. Hazen Argue (Assiniboia):

Mr. Speaker, in the context of the sweeping announcement made last Friday the statement that has now been made to the house by the Minister of Defence Production is exceedingly disappointing, and I am sure will constitute little comfort for the 14,000 people who were thrown out on the streets last Friday almost as unceremoniously as garbage is placed on the streets for collection.

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?

Some hon. Members:

Oh, oh.

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CCF

Hazen Robert Argue

Co-operative Commonwealth Federation (C.C.F.)

Mr. Argue:

We have listened to the statement of the Minister of Defence Production. There is little or nothing in it of a concrete nature. He has talked about joint committees, about working groups, about discussions that are going on. But where is the action? Where are the concrete results? They are not to be found in his statement.

The Minister of Defence Production does not talk about contracts of a sizeable nature in relation to the defence program of this continent. He talks about potential contracts. He talks about making the necessary arrangements. Then, as if to throw ice water on the possibility of Canada sharing in defence contracts with the United States in a real sense, he says that after all Canadian industry will have to compete with the Americans on a competitive basis. I think in the light of the experience we have had in the past, in the light of our knowledge of the pressure that is placed on the United

Statement on Defence Production Sharing States administration by congress, this statement is an empty one. In view of the loss to the Canadian economy occasioned by such steps as were taken last Friday, it is hollow and meaningless.

In my opinion, Mr. Speaker, this is a clear demonstration of the fact that the government has no policy, and that we are not sharing with the United States in an effective way in defence production orders. In order to illustrate how relatively insignificant the sharing to date has been, one needs only reiterate the figures given by the minister, namely that in 1958 Canada shared in prime contracts to the extent of just $40 million. This represents a very tiny proportion of the defence cost to our nation, not much more than 2 per cent of the defence cost to Canada.

The minister went on to say that we have a prime contract for the production of certain parts of the Bomarc missile, totalling $1.7 million. This, in my opinion, demonstrates to the country that the government has no policy; that this government is incapable of planning in the defence field, and that by this statement today, coupled with the statement of the Prime Minister on Friday and the lack of a firm agreement with the United States, the very sovereignty of the Canadian nation is today threatened. Our sovereignty is threatened because our government has not worked out an arrangement with the United States under which we could share in defence production in a realistic manner. I see smiles on the faces of members of the government, but I can tell them this is no smiling matter.

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EXTERNAL AFFAIRS


On the order: Government notices of motion: February 20-The Secretary of State for External Affairs-The following proposed motion:-That items numbered 76 to 105, inclusive, as listed in the main estimates 1959-60, relating to the Department of External Affairs, be withdrawn from the committee of supply and referred to the standing committee on external affairs, saving always the power of the committee of supply in relation to the voting of public moneys.


PC

Daniel Roland Michener (Speaker of the House of Commons)

Progressive Conservative

Mr. Speaker:

Pursuant to section 2 of standing order 21 this government notice of motion stands transferred to and ordered for consideration under government orders at the next sitting of the house.

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Subtopic:   EXTERNAL AFFAIRS
Sub-subtopic:   MOTION TO REFER ESTIMATES TO STANDING COMMITTEE
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LABOUR CONDITIONS

CRISIS IN AIRCRAFT INDUSTRY-MOTION FOR ADJOURNMENT UNDER STANDING ORDER 26

LIB

Paul Theodore Hellyer

Liberal

Hon. Paul Hellyer (Trinity):

I ask leave to move the adjournment of the house, Mr. 1272 HOUSE OF

Labour Crisis in Aircraft Industry Speaker, under standing order 26 for the purpose of discussing a definite matter of urgent public importance, namely the crisis in the aircraft industry caused by delays and confusion in air defence policy, involving mass lay-offs and threatened disintegration of this important sector of our Canadian defence production.

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PC

Daniel Roland Michener (Speaker of the House of Commons)

Progressive Conservative

Mr. Speaker:

May I say that the purpose of this statement appears to me to come close to the provisions of the standing order under which leave is asked to move the adjournment, except possibly for the phraseology of the clause, "caused by delays and confusion in air defence policy." This clause is reminiscent of the first amendment on the address in reply to the speech from the throne. However, before I put the request to the house I shall be glad to hear briefly any representations as to why leave should not be granted.

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PC

John George Diefenbaker (Prime Minister)

Progressive Conservative

Right Hon. J. G. Diefenbaker (Prime Minister):

I rose earlier, before Your Honour, for the purpose of saying this. The attitude taken by the government with reference to this motion is that if Your Honour feels it comes within the rules, the government will welcome the fullest discussion of this subject today. After all, none of us has any monopoly in our feelings for our fellow men. In that spirit I place the matter before Your Honour, firm in the belief that if the opportunity for discussion takes place it will be welcomed on the part of my colleagues and myself.

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PC

Daniel Roland Michener (Speaker of the House of Commons)

Progressive Conservative

Mr. Speaker:

I am not sure whether the hon. member who is asking leave of the house would be prepared to drop the clause which reads, "caused by delays and confusion in air defence policy", which seems to me to be a subordinate clause in any event which could open the door to a wider debate than would be justified.

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LIB

Paul Theodore Hellyer

Liberal

Mr. Hellyer:

I have no objection, Mr. Speaker.

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PC

Daniel Roland Michener (Speaker of the House of Commons)

Progressive Conservative

Mr. Speaker:

With the request under rule 26 in the amended form, it appears to me this is a matter of urgent public importance of recent origin for which there would be no opportunity of debate until next Monday at the earliest, and therefore it appears to me to come within the rule.

I will read the request of the hon. member for Trinity again:

Mr. Speaker, I ask leave to move the adjournment of the house under standing order 26 for the purpose of discussing a definite matter of urgent public importance, namely the crisis in the aircraft industry involving mass lay-offs and threatened disintegration of this important sector of our Canadian defence production.

Has the hon. member leave of the house to proceed?

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?

Some hon. Members:

Agreed.

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LIB

Paul Theodore Hellyer

Liberal

Mr. Hellyer:

Mr. Speaker, under ordinary circumstances it would be very appropriate on this day to discuss the history, the growth and the development of the Canadian aircraft industry. It is just 50 years ago today that the first powered flight of an aircraft in the British Empire was made at Baddeck, Nova Scotia, by Hon. J. A. McCurdy in his Silver Dart. This should be a day of rejoicing. It should be a day of applause. It should be a day when we can sing our gratitude in praise of the magnificent growth and development of the industry during those 50 years.

On that day 50 years ago the sun of Canadian aviation rose in the east. Last Friday it. went down. Today we hope that what we are doing is not paying our final respects, but assisting in an early recovery. Mr. McCurdy himself, I am sure, dared not dream of the magnificent progress which has been possible in the half century since and of the far-reaching events which would take place. It is a pity that our discussions today cannot take the form of a national celebration, but rather that we should have to discuss what we believe to be a great national tragedy.

Some of us were shocked by the government's decision to cancel the Arrow program. Most of the surprise and shock was on account of the way in which it was done, with no suggestion for an alternative project to take its place. It is worth while to take a look at some of the things the Prime Minister said in his statement to the house last Friday, and I propose to do that briefly if I may. I do not intend to make a lengthy statement on defence policy, but I do think it is necessary at this time to discuss some of the contentions made by the Prime Minister in his statement and some of the inevitable consequences to the aircraft industry and to the Canadian people.

It was reassuring, first of all, to hear the Prime Minister pay tribute to the Arrow aircraft and the Iroquois engine; to hear him say that they have been a success, and that they had shown promise of fine technical performance. We believe this was a well deserved tribute to a fine team of inventors, technicians, scientists, production engineers and the whole company of men who put the aircraft together. The Prime Minister commended those who had designed the aircraft and translated the plans into reality, but then he went on to say that they had been overtaken by events; that the bomber threat had diminished, and that alternative means

of defence, presumably against bombers had been developed much earlier than had been expected.

It is difficult to understand how the threat from manned bombers could have diminished. It has, of course, been some time since those of us on this side of the house who are interested in these matters have had access to the sources which the government uses as a means of reaching its decisions, but I am sure from the information we have and from the information we can obtain from technical sources, magazines and other places, that the present inventory of Russian bombers is greater today than at any time in history. If the Prime Minister had said that it was a continuing threat, and one which remained at the present time at least unabated we might have been able to accept it, but we cannot accept the Prime Minister's statement that it is a diminishing threat unless he can give us some further details as the basis of his statement.

If the alternative means of meeting the threat to which the Prime Minister alluded is the Bomarc missile, some of us would have serious reservations about that, and we should like the Prime Minister to give us some more information about it. The Bomarc has not yet, to common knowledge, been proven, and early models have been less than satisfactory in performance. We assume that the model which the Canadian government intends to acquire is an improved version, but we should like to know what its capabilities are; we should like to know whether it is going to provide us with some semblance of security or if it is true, as some observers have suggested, that Russian bombers would be able to fly under these missiles, fly around them or perhaps, if they could jam the homing device which the missiles carry, fly safely through them. I am sure the Prime Minister has information on this subject, and we should like it to be made available to hon. members so that we would have a greater fund of knowledge on which to base our judgment.

The Prime Minister went on to say that in the middle sixties the missile would be the major threat and the long-range bomber would be relegated to a supplementary role. This is consistent with what most military observers have been telling us, but these observers have also stated that the Russians would still have an inventory of between 1,000 and 2,000 bombers capable of coming over the ice cap and presenting a threat to our national survival. We have been told repeatedly that there is a continuing requirement for manned interceptors. The Minister of National Defence himself said so on several

Labour Crisis in Aircraft Industry occasions; the supreme commander of NORAD and his deputy have also made statements to the effect that defence was needed against the manned bomber. They have gone even further and said the Arrow was required as part of the defence against the manned bomber.

Obviously, the government does not think so. In such circumstances the logical question is who is right, the experts or the government? The Prime Minister went on to say in his statement that the United States government, after full and sympathetic consideration, in consultation with the United States air force with regard to its possible use for the Arrow, had reached the conclusion that it was not economic for them to use the aircraft. Not economic, Mr. Speaker, or not politic? Perhaps our salesmen were not persuasive enough.

The statement went on to say that the CF-100 was still an effective weapon in the defence of North America against the bomber threat. The Prime Minister's statement should have been more precise. Is the CF-100 still effective against the total Russian capability as far as manned bombers are concerned? Surely the right hon. gentleman is not suggesting that? It is true it might be effective against part of the Russian inventory of bombers, but certainly it would not be effective against their recent jets. As a matter of fact the air force placed a requirement for a new version of the CF-100, to be known as the mark VI, which was to have an after-burner to increase its power and be equipped with an air to air guided missile. This was to be a stopgap between the present CF-100, now in squadron service, and the CF-105, but one of the first things the government did when it came to office one and a half years ago was to cancel this requirement.

The inconsistency of the Prime Minister's statement seemed to lie in the fact that he found it necessary to rationalize the government's decision by speaking of the very extensive cost of the Arrow. The figures he used were not figures which were common knowledge; they looked as if they had been picked from a hat. What we ask is that the Prime Minister should break down these figures in order that we may know how they have been put together and whether they do in fact represent the actual probable cost had the project been continued.

Later in his statement the Prime Minister said that defence requirements were the sole justification for defence procurement. No one, I am sure, quarrels with that thesis. Certainly in normal economic circumstances military necessity and military necessity alone should be considered. But one wonders,

Labour Crisis in Aircraft Industry when one considers that there is today more unemployment than at any time since the thirties and there is simply no absorptive capacity available to the skilled workers engaged in the aircraft industry, if it would not have been better for the government to have negotiated some of these future production sharing contracts with the United States before it cancelled this program and threw these many thousands of workers out on the street. It was the way in which it was done which in our opinion is most tragic.

The Prime Minister was very forthright in his statement. "Frankness demands", he said, "that I advise that at present there is no other work that the government can assign immediately to the companies that have been working on the Arrow and its engine". This unequivocal statement was applauded by some newspapers, and one evening paper in Toronto described it as courageous. It was not courageous but cruel. It was cruel, heartless and incredibly short-sighted.

If the government decided that the Avro Arrow was not the most important machine necessary to our defence at the present time we would be obliged to go along with that decision and it must be accepted, but the fact which cannot be accepted is that at a time when there is obviously a very urgent military requirement for some defence machinery the government should, after 18 months, simply cancel the contract overnight without giving adequate consideration as to what it should do in lieu thereof.

This lack of consideration and consultation is something we deeply deplore. We are told by the company that from last September until last Friday noon there was no effort on the part of the government to sit down with the company to decide whether or not it should proceed, whether or not it should develop some new piece of military hardware, whether or not it should produce some piece of equipment of United States design, or just what it should do. There was no effort made to sit down across a table and make plans to salvage and keep in effect the accumulated benefit of billions of dollars of expenditure and years and years of technical advance. This is an unbelievable indictment, and if it is not true we would like the Prime Minister to say so.

It is not as though the goverment has had insufficient time for consideration. It has been in office long enough to have made up its mind. Surely 18 months-or even more, 20 -is sufficient time to evaluate the military requirements of this country, to consider our place in the North Atlantic Treaty Organization, our place in NORAD, what our contribution to the total defence effort of the Atlantic

[Mr. Hellyer.l

communities should be and how best we can proceed to provide it. Certainly what we need is positive decision, and not after these intervening months a negative decision only.

Had there been consultation with the company there is an infinite variety of possibilities that could have emerged from such meetings. We would like to hear from the Prime Minister what some of the possibilities are. Surely the defence experts have given to the government some indication of the things that are available, the solutions which should be considered. An executive of the Avro complex yesterday made a statement to the press in which he indicated that the government had not bothered to consult with the company and had not sat down with the highly trained technical and skilled people there in an effort to employ their collective judgment to assist the government in this matter. He went on to cite some of the possibilities which might have been considered, and I am sure he put forward just a few of them.

First of all the government should have made some arrangement for the orderly slowing down or the orderly discharge of the workers there if it made up its mind there was no other recourse. Surely it could have considered the possibility of building some other aircraft to make available to our air division overseas. Surely it could have considered the possibility of manufacturing missiles and other defence equipment. Surely the government has been considering these questions for 18 months. Has it reached any positive decisions yet? If not, why not? This is a very serious matter indeed, and the lack of consultation is something we cannot condone.

The dislocation this decision has caused is a matter of deep and grave concern to all Canadians. It is national in scope and affects people from one end of this country to the other. It also affects industry over a very broad band of our nation. The immediate result, of course, has been a crisis which has developed as to whether or not we will be able to salvage and retain in Canada the technical personnel who have been accumulated and whose skills have been built up over the years. As early as Saturday morning there were in Toronto representatives of United States aircraft manufacturing concerns ready and waiting. They telephoned our scientific personnel offering to engage them and take them south of the border.

Some of the individual cases are tragic indeed. A number telephoned me over the week end and told of their individual circumstances. Surely these people are deserving of our consideration. I should like to place on the record just one or two instances

of the personal circumstances of people involved in this crisis. One man came out from England with his two children aged 12 and 14. He has a house on which he pays $90 a month in respect of the first mortgage and $35 in respect of the second mortgage. He has a car on which he pays $100 a month. His gas bill amounts to $22 a month, his telephone bill $5 a month and his light bill $8 a month. How can he possibly prevent personal tragedy by drawing unemployment insurance?

Topic:   LABOUR CONDITIONS
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February 23, 1959