The target is seventy per cent. Seven in every ten dollars of federal defence contracting is meant to end up with a Canadian company, up from a share Ottawa has never been especially eager to publish.
It is the cleanest number in the defence industrial strategy and the easiest to audit, which is presumably why it was chosen. It also rests entirely on a definition that has not been settled.
Mélanie Joly supplied the complication herself this week. Forty per cent of the Canadian companies in this sector, the industry minister told a defence audience, are subsidiaries of American ones.
Suppose two in five of the firms that would count toward a seventy per cent Canadian target are owned in the United States. The target can then be met in full while a large share of the money, the intellectual property and the eventual profit leaves the country on schedule. Or it can be met in a way that genuinely rebuilds an industrial base here. The difference isn't in the percentage. It's in the test used to decide who qualifies, and that test is being written now.
Joly described the test she's applying. Shareholders and presence in Canada are part of it, she said, but the weight sits on "the jobs impact, the IP production, the R&D sector, so the R&D investment."
That is the right set of things to count. It is also, notably, not ownership. A subsidiary that designs here, patents here and employs here would pass. A nominally Canadian firm that assembles imported parts might not. The minister is proposing a substance test rather than a flag test, which is more defensible economically and much harder to administer — and far harder to defend when a specific company is told it didn't qualify.
It's in the test used to decide who qualifies, and that test is being written now.
She gave the example that shows how it will actually work. General Dynamics Land Systems has been in London, Ontario for decades. Southwestern Ontario is being hit hard by tariffs. The plant is, in her words, at the core of that city's economy. So the relationship continues, and she was open that regional employment is why.
That is an honest answer and it is not a neutral one. A substance test weighted toward jobs will, in practice, favour incumbents with large existing payrolls — which in Canadian defence frequently means subsidiaries of American primes. The firms least likely to clear a jobs-weighted bar are the small Canadian companies the strategy says it wants to grow, because they do not yet employ many people. That is the tension at the centre of this, and nothing announced so far resolves it.
The second lever matters more than the percentage, and it got less attention.
Canada's industrial and technological benefits policy requires a foreign supplier winning a federal contract to put equivalent economic activity back into Canada. On the submarine deal with TKMS, Joly said the entire value of the contract has to come back in industrial benefits — and that this is precisely why the negotiation is taking the time it is taking.
She put the requirement in absolute terms. "The entire value of the contract needs to be also in industrial benefits here at home," she said — not a share of it, the whole of it.
Taken literally that is an extraordinary demand to make of a foreign shipbuilder, and it is the reason the talks have run as long as they have. It is also the only version of the policy worth having. A partial offset on the largest procurement in the country's history would be a rounding error against the cheque.
She was specific about the form those benefits can take, and it is broader than most people assume. Some of it is submarine work. Some is training for the navy crews. And some, she said, has nothing to do with submarines at all — she offered space launch capacity developed in Nova Scotia as an illustration.
That last category is where the real money and the real risk both sit. Offsets detached from the thing being purchased are the hardest to value, the easiest to inflate, and historically the most likely to be quietly renegotiated once the equipment is delivered. Every country that runs an offset regime has learned this. The accounting is only as good as the audit, and Canada has not said who audits it.
None of this makes the seventy per cent target wrong. A government that intends to spend a hundred billion dollars over a decade should absolutely insist that the spending builds something here, and the industrial-benefits requirement is the correct tool. Countries with far longer defence-industrial traditions than ours use the same one, and the United States has used procurement to anchor its own industry for as long as it has had an industry to anchor.
What's missing is published arithmetic. We have a target, a plausible test and a negotiation. We do not yet have the definition in writing, the current baseline the seventy per cent is measured against, or the name of whoever certifies that an offset was delivered.
Those three documents would turn a good target into a verifiable one. Ottawa has eight months of work behind this and a crown corporation on the way to run it. Publishing the rules before the submarine contract closes would cost the government nothing it should want to keep.
