The boom in Canadian military exports

The CBC has just produced a fine series of radio reports on Canadian military exports[i] highlighting key issues such as the Government’s failure since 2002 to issue its promised annual report on arms exports, the upward trend in sales, and high volumes of armored vehicles shipped to Saudi Arabia and the United States. In the absence of official figures the CBC relied on Canada Border Services Agency reports to compile its own account of the arms trade, and while the numbers are revealing, they do not nearly reflect the actual levels and scope of Canadian military exports.

The CBC website materials acknowledge that its “analysis doesn’t capture total exports,” or that “these statistics may tell only part of the story” – so here is more of the story. The full story can’t be known as long as the Government fails to meet its annual reporting obligations – although even then gaps remain.

The figures compiled by the CBC focus on a narrow range of military commodities, notably tanks and armored vehicles (Canada makes the latter), munitions and some guns and components, but these constitute only a fraction of total sales. Canada produces a broad range of aerospace, electronic, communications and other military commodities for export. The CBC reports that total Canadian military exports for the seven years from 2000 to 2006 tripled to reach $3.6 billion, but the surge of that scale applies only to one category of exports and the reported total accounts for only about a quarter of all exports. The same goes for the report that $2 billion in arms sales went to the US over the same period.

The Project Ploughshares Military Industry Database maintained by senior program associate Ken Epps[ii] estimates an average of about $2 billion in exports annually – meaning the actual total for the 2000 to 2006 period is closer to $14 billion. Exports to non-US customers are conservatively estimated to have averaged around $500 to $700 million per year with another $1 billion or more going to the US.

Military exports fluctuate widely. The pace of the international arms trade is linked to the level of global military spending, and the level of Canadian military exports is in turn linked to these trends. Worldwide military spending has risen by about a third over the past decade, with most of the increase accounted for by the United States, which now accounts for 46 percent of the world total. World spending reached $1.2 trillion (current US$) in 2006, representing about 2.5 percent of world GDP or $184 per capita. The 15 top countries account for 83 percent of world military spending (Canada ranks 13 ^th on that list).[iii]Figures compiled by the International Institute for Strategic Studies for 2005 are similar, with the total at $1.2 trillion (current US$) and with Canada ranked 14 ^th from the top.[iv]

Of this annual one-trillion-dollar-plus outlay, at least 20 percent, or roughly $200 billion, is used for arms procurement[v] – that is, to acquire the weapons and related military equipment that make up national military arsenals. The vast majority of this procurement is for the arsenals of advanced industrial states and comes from their own domestic production. Between one-fifth and one-quarter of world military procurement is from foreign sources. The US Congressional Research Service (CRS), which also produces an annual report on global arms transfers, sets the value of international arms deliveries in 2006 (the last year for which its figures are available) at $27 billion.[vi]

While military spending has increased by a third since 1996, the bulk of those increases have occurred since 2001, and because they are largely a reflection of increased US spending rather than a broad global trend, there has not been a corresponding increase in global arms transfers. In fact, the global arms trade has been in steady decline since the mid-1980s, but that is now changing and the CRS shows a slight increase in 2006. The Stockholm International Peace Research Institute shows modest increases in each of the last four years.

Not surprisingly, the primary military exporters are the countries with the largest military establishments and domestic military industries to help supply their own forces. In 2006 the United States, Russia, the United Kingdom and Germany were collectively the source for about 90 percent of all arms transfers. Another seven suppliers provided most of the rest, and the CRS shows Canada as second from the top of that second tier group, just after China, with an overall ranking of 6 ^th.[vii]

Canada’s high ranking as a military exporter is disproportionate to the size of its own military spending primarily because of the integration of the Canadian industry into the continental military production economy through the Canada-US Defence Production Sharing Arrangements.

Canadian export figures, tabulated by the Department of Foreign Affairs and International Trade (DFAIT) from Canadian industry reporting, are considerably higher than those reported by SIPRI and the CRS (the methods of collecting data and of valuing transfers are different among all the sources and thus they are not readily comparable). For 2002, the last year for which official figures are available, the Government of Canada’s annual report[viii] on Canadian military exports to non-US customers showed exports of C$678 million. The CBC correctly notes that is double the sales in 1997 – but there is great fluctuation in sales and increases and decreases depend on the dates selected. In the period 1987 to 2002 total Canadian sales declined, and in the period 1994 to 2002 they stayed about level.

The government acknowledges that shipments to the US “are estimated to account for over half of Canada’s exports of military goods” yet there are no official figures on sales to the US. Independent tracking by Ken Epps of Project Ploughshares of Canadian prime contracts with the Pentagon arranged through the Canadian Commercial Corporation (CCC)[ix] indicates that in 2006 Canadian prime contracts with the US Department of Defence exceeded $800 million. Traditionally, when the Government still compiled US export numbers, Canadian subcontracts in military sales to US corporations were at least at the level of the prime contracts. If that pattern still holds, a combination of prime contracts with the US Department of Defense and subcontracts with US corporate prime contractors would now be about $1.7 billion per year – indicating total annual military exports to US and non-US customers of well above $2 billion.

But even that figure is on the low side. The gap in official figures occurs because they do not include certain goods, like some aircraft engines and helicopters that are officially designated as civilian even though they are sold to and used by military forces. For example, Ken Epps reports that Canada recently delivered more than $200 million worth of Canadian built Bell 412 utility helicopters to the Pakistan military.

The CBC reports point to a major Canadian enterprise that few Canadians are aware of and that is kept obscure by the Government’s failure four years running to produce its annual report on Canadian military exports. As a result of the CBC news series, we’ve once again been promised that the official export reports are coming, soon.

[i] “Arming the World” – http://www.cbc.ca/news/background/arming-the-world/.

[ii] See the website: http://www.ploughshares.ca/libraries/Control/ExportPubs.htm.

[iii] Stockholm International Peace Research Institute. SIPRI Yearbook 2007: Armaments, Disarmament and International Security. Oxford: Oxford University Press, pp. 267-271.

[iv] International Institute for Strategic Studies. The Military Balance 2007. Essex: Routledge, Taylor and Francis Group, pp. 406-411.

[v] The 20 percent figure is necessarily a very rough, and probably low, estimate. In the United States the 2005 procurement was 20 percent of the Department of Defense budget, and about 17 percent of total defence-related spending (which includes defence-related spending of the Department of Energy and others) (IISS, p. 18). SIPRI (2006, p. 388) reports that the world’s top 100 military contractors had $268 billion in military sales in 2004, compared with world military spending of $1,035 billion (SIPRI 2006, p. 307), or about 25 percent. In low-income countries procurement costs are relatively higher because of lower personnel costs.

[vi] Richard F. Grimmett, Conventional Arms Transfers to Developing Nations, 1999-2006. Report for Congress, Congressional Research Service, Library of Congress, September 26, 2007. http://www.opencrs.com/rpts/RL34187_20070926.pdf.

[vii] Grimmett, p. 89.

[viii] Foreign Affairs and International Trade Canada. 2003. Export of Military Goods from Canada: Annual Report 2002, December. http://www.dfait-maeci.gc.ca/eicb/military/miliexport02-en.asp.

[ix]The CCC acts as a broker and guarantor between Canadian companies and the US government, and all prime contracts of $25,000 or more have to go through the CCC.