Canada nears decision on huge German submarine deal with side agreements attached

Canada is moving closer to a decision on buying as many as twelve submarines from Germany, a deal that would rank as the largest arms contract in the history of the Federal Republic. Negotiations have not yet been finalised ahead of the European Union-Canada summit, but officials involved in the talks say discussions have entered a decisive phase.

The submarine order, which has been under discussion for months, is not a simple sale of vessels. Officials familiar with the negotiations say the agreement under consideration includes a wide range of additional commitments beyond the warships themselves, reflecting the scale of political and industrial interests tied to a contract of this size.

Among the episodes that have emerged from the talks is a demand attributed to Canada's Minister of Industry, Mélanie Joly, who at one stage of the political side negotiations is reported to have said that nothing short of an entire car factory would be an adequate component of the package. The remark, relayed by people involved in the discussions, was widely understood in Berlin as a signal that competitors from South Korea could already be positioning themselves as an alternative, with carmaker Hyundai mentioned in that context.

The suggestion raised questions in Germany about whether Volkswagen might expand its industrial footprint in Canada beyond the battery plant it is already building in Ontario. Volkswagen has invested in battery cell production in the province as part of its North American expansion strategy, a project unrelated to defence procurement but one that nonetheless entered the conversation around the submarine negotiations.

Volkswagen chief executive Oliver Blume addressed the matter directly on 10 March. He said the carmaker did not intend to become part of the submarine deal with Canada, distancing the company from any expectation that it would expand its Canadian operations as a side element of the defence contract.

The submarine programme itself centres on vessels intended to replace or expand Canada's underwater fleet, with the number under discussion reaching up to twelve units. A contract of that size would surpass previous German arms exports in scale, according to officials tracking the negotiations, making it the most significant defence export agreement since the founding of the Federal Republic in 1949.

Talks between German and Canadian representatives have involved not only defence ministries but also economic officials on both sides, reflecting the broader industrial stakes attached to the order. Large submarine contracts typically carry extensive offset arrangements, under which the selling country commits to investment, technology transfer or local production tied to the host nation's economy, and people close to the Canadian-German talks say similar elements are under discussion here.

The timing of the negotiations coincides with the EU-Canada summit, where trade and security cooperation between Brussels and Ottawa are set to feature prominently. While the submarine deal is a bilateral matter between Germany and Canada rather than an EU-wide agreement, officials say the summit has added momentum to efforts to reach a conclusion, given the high-profile setting and the political attention it brings to transatlantic defence and industrial ties.

No final signature has been reported, and officials caution that details of the package, including the exact scope of any industrial commitments, remain subject to negotiation. The episode involving Minister Joly's reported remark about a car factory has not been officially confirmed by either government, and it is described by those familiar with the talks as representative of the kind of informal pressure exerted during high-stakes industrial negotiations rather than a formal demand lodged in writing.

Volkswagen's battery plant in Ontario remains a separate undertaking from the submarine negotiations, part of the company's broader push to build electric vehicle supply chains in North America. Blume's comments in March were intended to clarify that the company's existing Canadian investment should not be read as a precursor to further commitments tied to the defence contract.

German shipbuilders stand to benefit significantly should the agreement go through, given the scale of the order relative to past export contracts. Officials have not disclosed a timeline for a final signing, though the pace of talks around the EU-Canada summit suggests both governments are working toward a resolution in the near term.