In 1987, protestors descended on a cathedral in the Myeong-dong district in Seoul as part of the country’s push for democracy — banishing the authoritarian government that had ruled for decades. With a GDP per capita a quarter of Canada’s at the time, the country would go on to engage in a process of rigorously coordinated industrial strategy that produced many economic powerhouses. Walking through the district today, the towering corporate headquarters of Hanwha Group is one of those successes.
Once dwarfing South Korea in wealth and expertise, Canada is now considering becoming a customer of Hanwha’s talents. As Canada nears a decision to renew and expand its submarine fleet — a decision that will shape its maritime power for decades — it is looking seriously at Hanwha Ocean, a subsidiary of Hanwha Group, as a potential supplier. And while it is difficult to imagine where Canada will be 40 years from now, the examples of Myeong-dong, Hanwha and South Korea from 40 years ago offer an important lesson.
Canada’s proposal to acquire up to 12 “conventionally-powered, under-ice capable submarines” for patrol capability addresses a critical gap in which Canada — the country with the largest coastline in the world — has had just one operational submarine at any given time in recent years. The shortlist has been narrowed to Germany’s ThyssenKrupp Marine Systems (TKMS) and South Korea’s Hanwha Ocean. Both companies submitted their final proposals by the March 2 deadline. The federal government has reserved the power to seek additional information and also issued a request for information to Canadian businesses.
To date, Canada’s approach to the tender has exhibited relatively short-term thinking. Even South Korea’s foremost expert on submarines recently chided Canada for its overt focus on industrial “gifts.” He noted that issues such as job creation “are now widely rumored to account for as much as 80 percent of the evaluation.” Indeed, when Secretary of State for Defence Procurement Stephen Fuhr was asked who would win it, he said that Ottawa would favour the pitch that creates the most Canadian jobs. Anonymous sources also recently told the CBC that Ottawa wants the winner to boost other aspects of the economy.
The bidding countries have responded accordingly. Because the bid for Canada’s submarines is “the largest single defense export opportunity in Korea’s history,” South Korea has launched a sweeping charm offensive. Federal and provincial ministers have been invited to the country’s Geoje shipyards. Hanwha has made a savvy hire by appointing as head of its newly established Hanwha Defence Canada a former senior officer of the Royal Canadian Navy, who also played a key role in the major modernization of the Halifax-class frigates. And the company is buying ads around Ottawa and placing advertorials in The Globe and Mail.
TKMS has done the same. In early March, it signed an agreement with the Canadian aviation and defence simulation and modelling giant CAE to support future submarine capabilities. Earlier this year, the company was in talks with Norwegian and German private actors to “offer a multibillion-dollar investment package to Canada.” The CEO of the company said these investments would “go beyond the submarine parts supply chain and cover possible investment commitments in rare earths, mining, artificial intelligence and battery production for the automotive sector.”
Both companies have launched publicity campaigns to spotlight these conditional spending promises. By signing memoranda of understanding with lots of Canadian partners, and acquiring spokespeople such as former national news anchor Peter Mansbridge, Hanwha has leaned on trusted domestic advocates for the deal and generated a steady drumbeat of positive media coverage for politicians handling the purse strings — such as the $345 million agreement with Algoma Steel, which is conditional on Hanwha winning the bid. Politicians seeking to protect and create Canadian jobs will be eager to take the credit for those announcements. For its part, TKMS reportedly has 20–40 staff working on the investment offsets it is promising as part of its deal.
But even with all of these handouts, most money will still leave Canada and much of the know-how will not be imported. Based on public details, the deal would see the entire fleet constructed abroad, not in Canada. And, as South Korea and Germany both know, that is not a path to create longer-term expertise and prosperity.
A Lesson in Sovereignty From South Korea
When South Korea procured submarines in the 1980s from Germany, it insisted on gradually fully building them in South Korea. Despite facing clear threats from a belligerent North Korea, the country insisted on taking the time to acquire industrial expertise and build sovereign manufacturing capability. It obtained the licence to build German submarines, which served as the base for the country gradually refining its own domestic capacity. Forty years later, it is selling submarines to us with a potential price tag of $41 billion.
Under the terms of the current bid, that is not what Canada will be doing 40 years from now. Part of this problem is baked into the terms of the tender itself. By prioritizing speed and headline-friendly foreign direct investment handouts, Canadian officials have poured cold water on the idea of technology transfer and building up domestic manufacturing capacity, with the exception of smaller downstream benefits in the supply chain for Canadian actors.
A smarter move would be to learn from South Korea or Germany, the former of which built domestic capacity from the ground up and demanded technology transfer as conditions of their work with Germany — the country they are now competing against in this bid.
Speed is an understandable concern of Canadian government officials, given the troubling fact that Canada has just one serviceable submarine. Poor capability is yet another reason why South Korea has made its “fastest path” a selling point, while TKMS has emphasized speedy delivery, too. Tantalizingly, Hanwha promises to deliver its first submarine by 2032 and the last of the 12 subs by 2043. With their 20-year lifespan, that will give Canada operational capability rather quickly — from 2032 — until 2063.
But speed and splashy foreign direct investment should not be the only variables, especially when one considers the future of Canadian sovereignty. The purchase will be one of the largest in Canadian history. While it could buy speed and other advantages, that speed will be due to automation and skill perfected in — and remaining in — South Korea’s and Germany’s shipyards. While it will buy jobs created or maintained by foreign direct investment, it will keep know-how and intellectual property — real generators of wealth — overseas.
In short, the deal appears to overlook some of the other ways Canada could utilize this tender to bolster its industrial sovereignty and position Canada as a leader in defence production — a key objective of Canada’s recent Defence Industrial Strategy.
This should give pause. Even if Canada rushes the purchase of the “fastest path,” it should recognize some other obvious shortcomings. First, there is no mention of submarine retrieval in the tender. Indonesia’s purchase of South Korean naval expertise, for example, involved a tragedy in which one of its submarines sank — causing the country to stall a deal with South Korea and then pivot to France. While no audit was conducted, some Indonesian politicians blamed a South Korean retrofit for the tragedy. Retrieval must be in the details of either the Hanwha or the TKMS deal.
Second, the tender for submarines emphasized the Arctic. Yet the submarines Canada intends to procure are all diesel-powered. Such technology faces real constraints in the Arctic. By contrast, nuclear-powered submarines are uniquely well-suited for the Arctic, as the recent national defence policy Our North, Strong and Free notes. This should give pause. While many will say that nuclear-powered submarines are not viable for Canada, Australia cancelled a $90 billion contract for submarines at the last minute to join the AUKUS security partnership and obtain its nuclear-powered advantages. There is precedent here for reflecting, even at this stage.
Finally, broader strategic questions about alliances are at play. Poland opted for Swedish over South Korean submarines to favour greater interoperability with a North Atlantic Treaty Organization ally. Canada may do the same with TKMS. Alternatively, Canada may use the deal to develop closer relationships with emergent powers in the Indo-Pacific, cementing an alliance with another middle power. Regardless of the decision it takes, while Canada is in tension with the United States under the administration of President Trump, a move away from the Americans may come with strategic downsides that may be undesirable or costly (or both) under a future, friendlier administration.
At the end of the day, Canada intends to spend a lot of money on this deal. That should give rise to questions about the type of sovereign power it intends to become, not just tomorrow, but 40 years from now.
