NyRAD

Canada’s Industrial and Technological Benefits (ITB) Policy was designed to ensure that defence procurement delivers meaningful economic benefits to Canadian industry. While our recent article highlighted how the policy unintentionally burdens small and medium-sized businesses (SMBs), it’s important to recognize the broader structural challenges affecting Canadian Prime Contractors and Tier 1 suppliers. These challenges risk undermining the very industrial base the policy is meant to strengthen.

The Hidden Burden on Canadian Primes & Tier 1 Suppliers

Unlike SMBs, Canadian Primes and Tier 1s typically have the internal resources and policy expertise to manage ITB obligations. However, this does not mean they are unaffected by inadvertent policy oversights. In fact, the policy’s eligibility criteria (specifically its causality requirements) often disadvantage Canadian firms compared to foreign multinationals bidding on the same contracts.

Take export credit, for example. When a Canadian company exports goods or services, the activity is frequently dismissed as “business as usual” and thus ineligible for ITB credit. Demonstrating otherwise often involves a cumbersome administrative process, requiring companies to construct elaborate compliance narratives that frequently fall short of satisfying causality requirements. In contrast, foreign firms face a lower bar – exporting from Canada is more readily accepted as ITB-eligible, with causality interpreted more generously. This imbalance penalizes Canadian firms for doing exactly what the policy is meant to encourage: growing their business and expanding into global markets.

Moreover, when Canadian companies invest in themselves, particularly in internal R&D, they are still required to demonstrate strong causality in order to receive ITB credit. Even when clear linkages to the policy are provided, such activities are frequently dismissed as “business as usual.” This contradicts the very purpose of the ITB Policy. A Canadian firm investing in its own innovation and capacity is signalling profitability, growth, and a long-term commitment to the domestic industrial base, which is precisely the outcome the policy is designed to promote. Imposing extensive justification requirements in these cases adds unnecessary administrative burden and discourages the kind of organic, self-directed development that should be incentivized.

Geopolitical Realities

In today’s volatile geopolitical climate, Canada must prioritize the resilience and growth of its domestic defence industrial base. The ITB Policy should be a strategic tool to build sovereign capability, not a bureaucratic hurdle favouring foreign bidders. This is precisely why national security exemptions exist in free trade agreements: to allow countries to protect and develop their own defence sectors.

Learning from Others

While there are many offset policies we could point to, Switzerland’s Offset Policy offers a compelling contrast. It explicitly advantages domestic industry by requiring only foreign suppliers to fulfill offset obligations. Swiss companies are not burdened with proving causality or navigating complex eligibility rules. Instead, the policy is structured to reinforce Switzerland’s security-relevant technology and industrial base (STIB), ensuring that foreign procurement strengthens domestic capability.

It’s time for a Recalibration

There’s no doubt that Canada’s ITB Policy is critical in building and protecting Canadian capability, but it must evolve. To position Canadian Primes and Tier 1 Suppliers for success, the Policy should:

• Recognize the strategic value of Canadian exports and make them more easily creditable.
• Relax causality standards for Canadian companies.
• Credit internal R&D investments by Canadian companies without requiring extensive causality proof.
• Adopt a policy stance that, like Switzerland’s, clearly prioritizes domestic industrial development.
• Prioritize intent over compliance.

Suppose the goal is to build a resilient, innovative, and sovereign defence industrial base. In that case, the ITB Policy must find a way to prioritize Canadian companies.