The federal government has unveiled a new defence industrial strategy and committed about $6.6 billion to steer more military procurement toward suppliers with substantial operations in Canada. The target is ambitious: raise the share of contracts awarded to domestic firms from roughly 43 percent last year to 70 percent. But the policy stops short of a single legal definition of “Canadian,” leaving a lot of room for interpretation and debate.
A capability-first approach
Rather than focusing narrowly on ownership, the strategy emphasizes where key skills and production actually take place — aerospace, ammunition, ship sustainment and digital services, for example. That capability-first stance opens the door to foreign-headquartered companies that have deep Canadian operations. It also forces trade-offs: widening the supplier pool can boost competition and domestic activity, but it complicates questions about jobs, intellectual property and national security.
Who counts as Canadian?
The government has deliberately avoided a tidy legal test. Eligibility appears to rest on operational substance: payroll, manufacturing footprints, R&D spending and where crucial production or maintenance occurs. In practice, that could let large Canadian subsidiaries of U.S. defence contractors — Lockheed Martin or General Dynamics, say — qualify if their local operations are truly substantive.
Existing procurement rules, including Buy Canadian provisions, already consider “meaningful presence” and curb subcontracting that simply ships work overseas. Still, industry groups are calling for clearer, enforceable metrics. Without transparent rules on how to measure Canadian content, procurement officers may face repeated disputes over what counts: local wages, parts manufactured in Canada, R&D activities or the location of intellectual property.
The branch-plant concern
Many in industry — notably the Canadian Association of Defence and Security Industries (CADSI) — warn that vague standards risk entrenching a branch-plant model: local sites that handle maintenance, assembly or logistics while core design, engineering and IP stay overseas. Past offset rules and reinvestment mandates have sometimes nudged foreign firms to buy Canadian companies, blurring the line between genuine domestic capacity and cosmetic compliance. Clear definitions, CADSI argues, would nudge companies toward substantive investment instead of box-ticking.
The IP dilemma: shipyards and sustainment
Shipbuilding makes the tension stark. Canadian yards can build hulls and install systems, but long-term operability depends on access to design files, tooling specs and software licences — the intellectual backbone of a vessel. If those rights remain tightly controlled by foreign vendors, sustainment becomes dependent on licensing terms and external supply chains, a fragile basis for sovereignty.
Ottawa says it will try to secure or negotiate access to critical IP through partnerships with allies. That’s a delicate balancing act: pressing too hard could scare off foreign technology and investment; conceding too much leaves Canada vulnerable if licences lapse or partners restrict support.
Alliances, interoperability and limits
Canada sits inside tightly integrated North American and allied defence ecosystems. Many domestic suppliers are woven into U.S. supply chains, and several multinational firms already maintain significant Canadian footprints. The government’s “build‑partner‑buy” approach reflects that reality: where domestic capacity is lacking, partnering with allies or procuring from trusted partners remains on the table. The challenge is to strengthen homegrown capabilities without severing vital interoperability or access to cutting-edge technology.
What happens next
Officials say they will consult industry to flesh out how “Canadian” will be defined in practice, and to develop clearer, enforceable standards. Until that guidance appears, companies weighing investments, acquisitions or joint ventures will do so amid uncertainty — and procurement officers will have to make judgment calls that could shape the country’s industrial base for years.