DND gas mask fight a sign of toxic Canada/U.S. trade climate, say experts

An attempt by National Defence to replace its inventory of gas masks has been the subject of both a military police investigation and a formal internal review at Public Services and Procurement Canada, CBC News has learned.

And both the investigation and the review took place even though the contract has not yet been awarded.

It's not unusual for companies to file so-called "sour grapes" trade and business complaints after losing out on contracts, but a challenge arising during the process is highly unusual.

The complaint involves a major U.S. manufacturer of safety equipment which refused to submit a bid on the masks, claiming the government's tender was biased in favour of Canadian firms and that an employee of National Defence offered to "steer" the contract to a competitor "for a fee."

Complaint about contract 'unfounded'

Documents obtained by CBC News under access to information legislation show senior Public Services officials conducted a review last spring of allegations made by Scott Safety, headquartered in Munroe, N.C.

The complaint about the structure of the contract was "unfounded," the officials told then-Public Services Minister Judy Foote in an April 25, 2017 memo.

Separately, military police have told CBC News their investigation is completed and the case has been closed without any charges laid.

The contract is not expected to be awarded until December of this year.

Scott Safety did not answer a request for comment this week.

The Joint Chemical Biological Radiological Nuclear General Service Respirator project isn't a terribly large contract — roughly $49 million for 77,800 masks.

But one defence expert says it represents another troubling sign of how aggressively competitive U.S. companies have become under the Trump administration, even over relatively small contracts.

'They're taking a lead from the White House'

It also may be a harbinger of the sort of trouble ahead for one of the world's oldest and closest bilateral defence relationships.

"It doesn't surprise me in the slightest the American position on defence procurement, vis-à-vis Canada, is stiffening across the board because they're taking a lead from the White House," said Eric Morse, a former diplomat and currently the co-chair of the Security Studies Committee at the Royal Canadian Military Institute in Toronto.

James Moore, a former Conservative cabinet minister and a member of Canada's NAFTA advisory council, said U.S. President Donald Trump has signalled Canada can't be trusted on trade.

"It stands to reason that firms would see that signal and run with it," he said. "In some ways, a lot of American firms see this as an opportunity to take a swipe at a Canadian process."

That's the way a lot of Canadian officials — particularly those in the defence industry — see some of the recent friction.

One senior official, speaking on background because of the sensitivity of the file, said the recent introduction of the 'value proposition' into procurement contracts — the federal government's insistence that Canadian companies receive some benefit when foreign suppliers are selected — has made U.S. and European firms more aggressive in their approach.

The federal government has not stood idly by — and has shown it's willing to play rough as well.

Boeing complaints, steel imports probe signal new climate of confrontation

Last spring, a bid by the Liberal government to spend up to $6.3 billion on a handful of interim replacement fighter jets dissolved after the U.S. manufacturer, Boeing, filed a trade complaint against Montreal aerospace giant Bombardier over passenger jets.

The Chicago-based Boeing defended its action by saying it was defending its turf in the commercial market and was clearly ready to give up a lucrative military contract.

Separately, Canadian defence officials have been wringing their hands about the U.S. Commerce Department's national security investigation of steel imports.

As internal briefings — obtained by CBC News under access to information legislation — point out, the North American steel market is highly integrated and "a change by the U.S. that would alter, for national security reasons, the presence of Canadian steel in the U.S. would have serious negative impacts for Canada as well as the U.S. from a defence perspective."

Canada "buys more military hardware from the U.S. than anywhere else" and that helps "reduce the cost" of defence purchases, say the briefings.

"It is hard to believe that imports of steel from Canada could be considered a threat to U.S. national security," said a May 12, 2017 briefing note prepared for Defence Minister Harjit Sajjan.

"Any conclusion that imports from Canada threaten U.S. national security interests would ignore the unprecedented alliance that we have."

At the conclusion of its investigation earlier this month, the U.S. Commerce Department did not let Canada off the hook.

It put a series of recommendations in front of the Trump administration. The first one calls for a global tariff of 24 per cent on all steel imports.

An alternative would be to target 12 countries, including China and Brazil, which export the most cheap steel to the U.S.

Morse said he believes it is only a matter of time before the tense cross-border atmosphere over procurement starts to affect the defence relationship.