Ken Hansen is an independent defence and security analyst and owner of Hansen Maritime Horizons. Retired from the Royal Canadian Navy in 2009 in the rank of Commander, he is also a contributor to the security affairs committee for the Royal United Services Institute of Nova Scotia.
Boris Johnson’s Brexit plan appears to be an unmitigated mess. The Prime Minister of Britain seems set on taking the country out of the European Union by hook or by crook, proroguing government and tossing out party loyalists who dare stand in the way of his wrecking ball. And wreck, he might: As Britain careers toward a Brexit without an agreement with the EU, economic disaster could loom for one of the world’s oldest democracies.
The consequences will be manifold. And one of the lesser seen but highly costly ones may come for the shipbuilding industry here in Canada.
In 2016, the Liberal government decided that Canada would build a foreign-designed warship to replace our navy’s aging fleet, signalling its preference for the British-designed Type 26 frigate, ostensibly to save time in getting new ships. When it made that decision to farm out design – after the previous Conservative government made similar choices – Brexit was not a consideration. But their cautiously optimistic outlook around the British referendum’s surprise results has turned decidedly gloomy.
Since 2014, when British then-Prime minister David Cameron mooted the idea of Brexit, the pound has lost 21.8 per cent in value against the Canadian dollar. British businesses are moving their headquarters abroad, including vehicle technology company Aptiv to Dublin, Dyson to Singapore and Panasonic Europe to Amsterdam.
Canadian-born Bank of England governor Mark Carney has warned about price shocks for basic commodities and other dire economic effects. “There are some very big industries in this country where that which is highly profitable becomes not profitable, becomes uneconomic,” he said in an interview with BBC Radio. The uncertainty over the costs of imports and the future value of British labour and products, Mr. Carney said, could bring about “fundamental changes to the rules of the game” for the import-export business with Europe.
If and when Brexit happens, Canada will find itself aligned with the EU. In 2016, it signed the Canada-European Union Comprehensive Economic and Trade Agreement (CETA), which Europe considers “the most ambitious trade agreement that the EU has ever concluded."
Ottawa enjoys significant trade with Britain, “Canada’s most important commercial partner in Europe;" two-way merchandise trade in 2018 reached $25.51-billion. Britain ranks second only to the United States in Canadian defence science and technology trade. But there is no mention of what might happen if Britain crashes out, which might come on Oct. 31.
To make matters worse, long-held fears of a global recession, driven in no small part by U.S. President Donald Trump’s tariffs and sabre rattling, are shaking investor confidence and causing bond and equity markets to nosedive – the kind of global shocks that military strategic planners dread.
The Canadian government’s efforts to support domestic industry, the defence force, and the research network through shipbuilding are sound and productive. But it is time to reassess the outputs of the programs that stem from that strategy, especially when it comes to costs.
The Parliamentary Budget Officer’s report in 2019, which considered the Type 26 frigate specifically, suggested that construction would cost $8-billion more than the initial estimate of $61.8-billion two years earlier (Disclosure: I had submitted some files to the earlier report). Mr. Johnson has himself added to the confusion, announcing last week that the U.K.'s Royal Navy will receive five frigates derived from the Danish-design Iver Huitfeld class, and that they will cost a mere USD$1.54-billion. The message: the Type 26 is simply too expensive, even for the Royal Navy. The situation that confronts Canada now is, frankly, beyond anyone’s ability to assess.
Our naval and engineering officers are now examining whether the Type 26 design could be fitted with domestic technology, in support of our country’s industrial base – a rear-facing approach to design that only further drives up costs. But a domestically produced design would have had all of this already built-in, and come with far more cost certainty.
Calculating the value of trade-off benefits for the inclusion of British-supplied technology would be a practical impossibility. Sure, the falling currency exchange rate between Britain and Canada might produce some cost savings. But any short-term gains come at the cost of vital stability. How could one enter into a contractual agreement for a long-term process with so much uncertainty?
Canada should not go with the Type 26 frigate out of some misguided sense of loyalty to our common military lineage and historic economic ties with Britain. The shipbuilding strategy itself must drive programmatic decisions based on a sound assessment of what is best for Canada – and to do so, Ottawa must responsibly reassess the entire project, and recognize that designing the frigate replacement outside of Canada is now an untenable decision.
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