OTTAWA - A controversial project to build German-designed armoured vehicles in Canada made no economic sense but was kept alive for years for political reasons, a public inquiry was told Wednesday.
Harry Swain, a retired senior bureaucrat, testified that the Industry Department was never convinced of the merits of the project championed by German-Canadian businessman Karlheinz Schreiber.
"We spent a lot of analytical time on it," said Swain. "I don't believe we ever changed our view."
The so-called Bear Head project, first proposed in 1985, lies at the heart of the inquiry into business dealings between Schreiber and former Conservative prime minister Brian Mulroney.
The project initially won favour with key ministers in Mulroney's government because it promised to generate jobs in economically depressed Cape Breton.
In later versions, pitched by the German manufacturing firm Thyssen AG to both the Mulroney Tories and the Liberal government of Jean Chretien, the focus shifted to job-creation in Quebec.
But Swain, who dealt with the file first at the Privy Council Office and later as deputy minister of industry, said inviting Thyssen into Canada could have undercut the London, Ont., operations of General Motors, which had long supplied the Canadian Forces with armoured troop carriers and also exported them to other countries.
Swain made the point forcefully in a December 1993 memo to John Manley, the incoming industry minister in the new Liberal government.
After recounting the history of the project under the Tories, Swain added in a handwritten note:
"Thyssen's persistence in this folly has been encouraged by far too many ministers, each of whom was willing to subsidize production in some desperate place at the expense of London. The Forces do not need their (Thyssen's) hardware, and Canada hardly needs a second exporter."
Swain said Wednesday he made the same point to Manley in more direct language when he later spoke to him personally.
"I was encouraging the minister to, in effect, shut this down," he testified.
The paper trail shows, however, that some Liberal cabinet members took a different view. Andre Ouellet, then foreign affairs minister, was described in one memo as backing the project "based on the projected 500 jobs to be created in the Montreal area."
Negotiations with Thyssen and its subsidiary, Bear Head Industries, went on for another year and a half until the Chretien government finally put an end to the project in mid-1995.
The internal debate echoed previous splits between Mulroney-era cabinet ministers when the Tories held power.
Evidence at the inquiry has shown Nova Scotia Elmer MacKay and Lowell Murray backed the original plan for a manufacturing plant in Cape Breton. But two successive defence ministers, Perrin Beatty of Ontario and Bill McKnight of Saskatchewan, were opposed.
A memo drafted in 1986 by Robert Fowler, then a senior Privy Council official, described Mulroney himself as appearing to favour the project in its early stages -- "strongly encouraged by both Messrs Doucet and McMillan."
Swain said those were references to Charlie McMillan and Fred Doucet, both senior aides to Mulroney at the time.
That assertion was challenged by Doucet's lawyer, Robert Houston, who suggested the memo referred to Gerry Doucet, a lawyer, lobbyist and brother of Fred.
The issue is important because Fred Doucet later acted as an intermediary between Schreiber and Mulroney in their business dealings.
Schreiber, who was chairman of Bear Head Industries, says he paid Mulroney $300,000 to lobby for the project in 1993-94. He claims the deal was struck just before Mulroney stepped down as prime minister, although the money didn't change hands until later.
Mulroney has admitted taking $225,000 from Schreiber but says he violated no federal ethics rules. He says his lobbying was confined to foreign leaders whose countries might have provided export markets for Thyssen.
