Is Canada able to build a modern navy on its own? This was the question when the Royal Canadian Navy was established in 1910. Opposition members of Parliament at that time decried that the federal government was wasting money and resources on creating its own “tin pot navy.” The Opposition at that time wanted instead to send money to Britain, which would then use it to manufacture state-of-the-art ships for the British Royal Navy which would then protect Canadian waters.

In 2010, history repeated itself when the federal government announced what is now known as its national shipbuilding strategy. As happened a century earlier, critics of the strategy questioned if the Canadian shipbuilding industry was up to the task of building new ships for the Royal Canadian Navy instead of commissioning proven and capable foreign shipyards in the United States and Europe to build new ships and to refit existing ships.

The national shipbuilding strategy is a plan for Canadian shipyards, using Canadian-sourced labour, materials and technology, to build modern ships and upgrade existing ships for the surface fleets of Canada’s navy and coast guard. The strategy has three major objectives. The first is to refit existing ships and to eventually replace them by building new, state-of-the-art ships. The second is to encourage Canadian shipyards to upgrade their infrastructure so they can compete for contracts in the international commercial shipbuilding industry. The third is to encourage Canadian skilled labourers in other industries to transition to working in the shipbuilding industry and to encourage more Canadians to enter the skilled trades needed by the shipbuilding industry.

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Twelve years into the strategy, it is shaping up to be a tin pot navy 2.0, as the Canadian economy and the ministries of procurement, defence and economic development are proving unable to meet the three objectives. There are several policy options that could help but while they would be prudent, they are generally considered political suicide to try to implement. So the problems mount.

In terms of project management for refitting, building and replacing ships of the fleets, the budget for the large-ship component – primary fighting ships of the fleet – has more than doubled to $84 billion from $35 billion. In terms of the delivery schedule for completed ships, at least eight ships were initially expected to have been built and commissioned by now, but only three have been delivered. While a few refitting contracts have been issued for existing ships, work has not begun on any of them.

In terms of upgrading the infrastructure of Canadian shipyards, this too is failing. Thus far, only three shipyards have received contracts for shipbuilding and refitting (Seaspan Shipyards in Vancouver; Chantier Davie in Lévis, Quebec; and Irving Shipbuilding in Halifax.) While more shipyards are expected to receive contracts to construct and refit various ships, there are few shipyards in Canada that have the capital, workforce or size to accommodate the requirements of Public Services and Procurement Canada.

To make things even more complicated, Irving Shipbuilding has requested that the federal government provide it with $300 million to cover the costs of upgrading its infrastructure, saying that otherwise it will have to withdraw from the national shipbuilding strategy. The dilemma is that if the federal government subsidizes Irving, Canada will violate the General Agreement on Tariffs and Trade, which could cause a trade war with Canada’s allies. Under Article XVI (Subsidies) of the GATT Treaty of 1947 (of which Canada is a signatory), it is illegal for member nations to subsidize domestic firms in industries where they are in direct competition with foreign firms (such as the shipbuilding industry). Under Article XXI (Security Exemptions), the federal government can legally favour the commissioning of Canadian shipyards to build military ships. However, if such subsidies for the shipyards could support the civilian shipbuilding industry, these subsidies are not protected under Article XXI while simultaneously violating Article XVI. This is the main reason why the federal government has refused to subsidize the renovations to the Canadian shipyards which have been awarded contracts – because such renovations would allow these shipyards to also be better-prepared to accept civilian contracts.

In theory, not only would Canada be subject to grievances and retaliatory tariffs by rival nations such as Russia, China, North Korea and Iran, but also from allied nations such as the United States, Britain, France, Germany, Norway, Sweden, Japan and Australia to name a few. Why? Because all of Canada’s friendly countries have a significant stake in the international shipbuilding industry and if they see an opportunity to justifiably weaken their competition, why wouldn’t they?

In terms of the third objective – upgrading and increasing the pool of skilled labour in Canada through domestic education – this too is failing. In September, 2022, Irving Shipbuilding, in conjunction with the governments of Canada and the Philippines, announced it would hire Filipino shipbuilders to immigrate to Canada and work at its shipyard in Halifax, constructing ships as part of the national shipbuilding strategy. While there is nothing wrong with increasing Canada’s skilled labour force through immigration, this deal to hire Filipino workers contradicts Canada’s own procurement policy, which emphasizes the employment of Canadian citizens, and the spirit of the national shipbuilding strategy.

These examples show that the national shipbuilding strategy is failing to meet its three objectives. So the question is not whether the program is a success or failure, but rather whether the program should continue? As the aforementioned examples demonstrate, the national shipbuilding strategy has major policy contradictions and project mismanagement issues that are causing it to fail.

A major remedy would be to centralize all military procurements in one ministry and one department within that ministry (an idea included in the Liberal Party platform during the 2019 federal election). This could start to deal with the conflicting economic and strategic interests that Canada’s current, decentralized procurement practices create.

Another remedy would be to scale back current orders for various large combat ships with existing Canadian shipyards based on their less-than-impressive performance thus far. Instead, the federal government should start to consider bids from NATO-affiliated shipyards in the U.S. and Europe. While this option would be highly unpopular, it would also be prudent. It would allow Canadian shipyards to still construct smaller ships and auxiliary ships. It may be a bitter pill to swallow, but as the recent agreement between the Canadian and Philippine governments and Irving Shipbuilding has shown, the Canadian workforce needs to be supplemented with foreign help. Maybe the navy and coast guard need foreign-built ships as well?

But let’s be realistic. Canada will almost certainly pursue one short-term policy option for the national shipbuilding strategy: the one that stays the course. Both the Conservative Party and Liberal Party have placed large amounts of political capital into this strategy and are determined to see it succeed regardless of the costs. Therefore, excessive taxpayer money and government resources will continue to be spent on a tin pot navy 2.0.

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Joel Montagnes
Joel Montagnes has a double major in history and public policy from the University of Calgary. His area of research is Canadian defence and national security policies.

You are welcome to republish this Policy Options article online or in print periodicals, under a Creative Commons/No Derivatives licence.

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