A worker at Volkswagen's facility in Dresden, Germany, in March, 2018. Ottawa wants the German company to boost automobile industry-related production in Canada.Jens Meyer/The Associated Press
Ottawa has asked the governments of South Korea and Germany, two countries with companies bidding to build the Canadian navy’s next submarine, to facilitate auto industry production pledges in Canada as part of the pitches, a source familiar with the matter said.
The Globe and Mail is not identifying the source, who was not authorized to speak publicly about the matter.
Canada last year narrowed its search for new submarines to two contenders: South Korea’s conglomerate Hanwha and the German-Norwegian bid that includes defence contractor ThyssenKrupp Marine Systems.
Any sub deal will be a government-to-government arrangement, the source said, adding that Canada has asked the South Koreans to arrange a commitment for Hyundai to establish production in Canada and for Germans to beef up Volkswagen-related auto industry production here.
The contract for up to 12 submarines could be worth tens of billions of dollars. Either submarine option would lead to a deep international partnership with the winning bidder – a de facto alliance – that would last more than 50 years on a contract worth upward of $100-billion, including acquisition, maintenance and upkeep.
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Hyundai does not have auto production facilities in Canada. Volkswagen has committed to building an electric vehicle battery factory in St. Thomas, Ont., through its PowerCo subsidiary.
Industry Minister Mélanie Joly’s office declined to comment on what Canada has asked of the bidder countries. But it said it wants to see robust industrial benefits from defence spending.
“Strengthening our military readiness goes hand in hand with strengthening our economy. In addition to securing the best possible tools and equipment for the Canadian Armed Forces, every defence investment must also generate real industrial and economic benefits here at home,” Gabrielle Landry, press secretary to Ms. Joly, said in a statement.
South Korea’s embassy in Ottawa did not directly respond when asked whether Seoul is willing to attach an auto-sector production pledge to the submarine bid.
However, Young-gi Ahn, chargé d’affaires at the embassy, said Korea and Hanwha are looking at what can be done.
“The Government of Canada has been clear that the Canadian Patrol Submarine Project is expected to generate meaningful industrial benefits - creating jobs and supporting long-term economic growth in Canada. In this context, the Government of Korea, together with Hanwha Ocean, is actively reviewing potential industrial and trade benefits across a range of strategic areas,” Mr. Ahn said in a statement.
“Korea has long stood side by side with Canada as a comprehensive strategic partner, and we intend to continue working closely with Canada as it seeks to drive economic growth and strengthen its industrial base.”
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Hanwha’s offer to Canada is the KSS-III Batch-II submarine, while TKMS, as part of a joint German-Norwegian project, is offering the 212 CD. Both are diesel-electric submarines because Canada has ruled out purchasing nuclear-powered vessels.
Stephen Fuhr, secretary of state for defence procurement, has repeatedly said Canada will pick the submarine bid that creates the most Canadian jobs.
The German embassy Wednesday said it could not say whether Berlin would insert an auto industry production pledge in the joint bid with Norway. “German automotive companies and suppliers already have a strong and well-established presence in Canada,” Valentina Goldmann, the head of the mission’s cultural and press department, said.
“We kindly ask for your understanding that the German government is not in a position to comment on potential investment plans of individual German companies.”
Flavio Volpe, president of the Automotive Parts Manufacturers’ Association, said this kind of strategy on Canada’s part is wise, noting Ottawa’s plans to significantly boost military spending.
“A Canada that will invest 5 per cent of GDP on defence annually has to find new ways to get additional industrial benefits for the hardware spend,” Mr. Volpe said. “Tying the purchase of some of the world’s most advanced military equipment to investments in Canada’s world class automotive sector seems pretty smart to me.”