A Third Option for Canadian defence SMEs after the Permanent Joint Board on Defence Pause | CDA Institute

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A Third Option for Canadian defence SMEs after the Permanent Joint Board on Defence Pause

Al Vigier

Opinion

May 28, 2026

A third option for Canadian defence SMEs after the Permanent Joint Board on Defence pause<br>For a small Canadian defence company, the Pentagon’s decision in May was clarifying. On May 18, U.S. Under Secretary of Defense for Policy Elbridge Colby announced that Washington was pausing its participation in the Permanent Joint Board on Defence, the 86-year-old advisory body that has coordinated continental defence since Franklin Roosevelt and Mackenzie King created it in 1940. He accused Canada of failing to make credible progress on its defence commitments.<br>The board itself is not the central concern. It is a forum for consultation, not a pipeline for contracts or technology, and Prime Minister Mark Carney was right to say he would not overplay the importance of a body that has met only seven times in the last decade. The point is what the pause reveals to small and medium-sized enterprises (SME) – the firms that make up most of Canada’s defence industrial base.<br>The largest defence customer on earth has shown it will suspend a long-standing instrument of cooperation, unilaterally and without warning, when the politics suit it. It did so amid Canada’s reconsideration of the F-35 and Carney’s push to diversify defence relationships toward Europe. For a Canadian SME that has built its business on access to American programs, that is not a diplomatic abstraction. It is a direct warning that the terms of its survival can change overnight, and a reason to restructure before they do.<br>The clearest verdict came from John McKay, the former Liberal MP who served seven years as the Canadian co-chair. He called the move short-sighted and foolish, but said he was not surprised. That is the right register: small in itself, large in what it signals.<br>The signal SMEs cannot ignore<br>The willingness to pause the board is the same willingness that governs everything else in the relationship. Export-control determinations, data-residency rules, and program eligibility can all shift on the same logic, and they cut in directions a Canadian firm cannot control.<br>The American market is the largest in the world, and no serious Canadian defence company can ignore it. Yet the terms of access are written and revised in Washington, and a firm tied to them holds none of the pen. This is a structural exposure Canadian defence SMEs have carried for years and rarely priced.<br>Why both instincts fail<br>The two instinctive responses both fail. The first is to walk away from the United States and build for Canada and allied markets alone. This forfeits the world’s largest defence market and leaves Canadian firms a customer base too small to sustain the research that dual-use technology demands.<br>The instinct to diversify away from the U.S. carries its own trap, and it is on display this month. A South Korean submarine sat in Victoria harbour, courting a multibillion-dollar Canadian contract through a web of memorandums with Canadian steelmakers, space firms, and parts manufacturers. Diversification is sensible, but a subcontract under a foreign prime is still a dependency. It only changes who holds the pen.<br>The second instinct is to carry on as before, treating the relationship as stable because it has been stable for eighty years. The events of May suggest stability is now a planning assumption rather than a fact.<br>The paired-entity model<br>There is a third option, and it is structural rather than rhetorical. A Canadian company and an American firm form paired entities. The Canadian company primes Canadian bids; the American company primes American bids; each is exclusive to the other in agreed jurisdictions. The agreement writes in firewalls that politics cannot override: intellectual property (IP) sovereignty so core technology stays owned where it was built, data residency so sensitive material does not migrate across the border by default, and export-control segregation so a determination affecting one partner does not strand the other. The two companies share a capability. They do not share a single point of regulatory failure.<br>Most Canadian defence SMEs do the opposite. They structure their U.S. relationships as subcontracts, in which the American partner holds the prime relationship, the customer, and often the IP. There, a shift in Washington’s posture transmits directly into the Canadian firm’s order book. The paired-entity model inverts that exposure. It treats sovereignty over IP and data as the asset to protect first, because it is the asset that cannot be rebuilt once surrendered.<br>A case study: Caseway and Valtec<br>The structure is not theoretical. Caseway, a Vancouver firm, runs exactly this arrangement...