Why Did Korean Defense Firms Fail to Win Canada’s Submarine Contract [Yang Nakgyu's Defence Club]

Technology and Military Capabilities on Par with Germany

Canada’s Decision Swayed by Germany’s NATO Proposal

The assessment is that the reason why the Korean submarine was not selected as the preferred bidder for Canada’s next-generation submarine project (CPSP) was not due to shortcomings in meeting technical or military requirements, but rather because it was outmatched by Germany in terms of economic impact. From Canada’s perspective, the core criterion was how much industrial ripple effect the project could generate for their economy.

Dosan Ahn Changho, the first domestically made submarine to cross the Pacific Ocean, at the naval base pier in Esquimalt, Victoria, Canada. Photo by Yonhap News Agency

The CPSP is a large-scale initiative to introduce up to 12 diesel submarines to replace the aging Victoria-class submarines. When including the cost of building the submarines as well as maintenance, repair, and operations (MRO) over the next 30 years, the total project value is estimated to reach up to 60 trillion won. For this project, Hanwha Ocean proposed the 3,600-ton Jangbogo-III Batch-II model, while Germany’s Thyssenkrupp Marine Systems (TKMS) offered the jointly-designed ‘Type 212CD’ submarine developed with Norway. It is reported that, from the beginning of the bidding process, Canada believed that both proposals met all military requirements. Canada had determined early on that both options satisfied its military needs.

Technology on Par, Economic Impact Gives Germany the Edge

The key issue was the industrial ripple effect. Hanwha Ocean presented a variety of proposals. The company promoted an industrial cooperation package centered on local production, technology transfer, and supply chain participation involving more than 100 Canadian companies and institutions across diverse sectors such as shipbuilding, defense, automotive, energy, aerospace, and advanced technology. It signed a memorandum of understanding (MOU) with Canadian energy company Kanata Clean Power & Climate Technologies to explore direct LNG procurement, construction, and support. Hanwha Ocean also joined forces with affiliate companies and Canadian lithium developer Frontier Lithium to secure a supply chain for battery minerals in the defense and marine sectors. This was intended to counter Germany’s ‘Lithium Alliance,’ which aimed to incorporate Canadian lithium into the submarine supply chain. Hanwha Ocean also highlighted job creation, signing agreements with Alberta—the center of Canada’s defense manufacturing sector—to build infrastructure for natural gas, hydrogen, and ammonia-based energy production and management, thereby emphasizing local job creation and broader economic impact.

Korean Defense Firms Provide Support, but to No Avail

Other Korean defense companies contributed as well. LIG Nex1 considered establishing a local facility in Canada for the production of submarine torpedoes. Hyundai Rotem worked to expand cooperation with Canada in the train and defense sectors following its first-ever supply of trams to Edmonton, Canada, in the North American market last year. Korea Aerospace Industries (KAI) emphasized that it uses Canadian jets in the development of the Korean Maritime Patrol Aircraft.

However, Germany’s proposals were a step ahead. Germany highlighted the interoperability among North Atlantic Treaty Organization (NATO) allies, focusing on military logistics and operations. To narrow the gap with Korea’s advantage in ‘quick delivery,’ Germany even offered to give up its pre-ordered submarine production slots (originally reserved for the German and Norwegian navies) so that Canada would receive them first. The German and Norwegian governments reportedly agreed to each yield one Type 212CD submarine, allowing Canada to receive priority delivery. This move was designed to compensate for Germany’s weakness of still being in the design and development phase, lacking actual hardware to offer.

Germany’s NATO Joint Proposal Proved Decisive

The strength of the NATO alliance was even more pronounced. Germany proposed that if Canada adopted its model, Canada would jointly operate a total of 24 submarines in the Arctic Ocean and North Atlantic together with Germany and Norway. For Canada, this would mean 100% shared military logistics and maintenance systems with allied nations, drastically reducing long-term MRO costs. In addition, the cohesion at the NATO level and strengthened security control in the Arctic could prove to be highly attractive options.

Financial programs were also provided. Canada’s signing of SAFE, the European defense joint-procurement financing program, as the first non-European country, also worked in Germany’s favor. This mechanism enables member countries purchasing European-made weapons to receive comprehensive financial support, including low-interest loans.

On this day, policy chief Kang Hoonshik wrote on Facebook, “This situation shows that technology alone cannot explain everything,” adding, “It was, after all, difficult to overcome the strong wall of NATO, a powerful security alliance that has endured since 1949.” He went on to say, “We feel the historical weight of a close security alliance and military interoperability built up over more than 70 years.”

Future Competition Will Require Comprehensive Packages, Not Just Performance

The defense industry sees this contest as a competition not just of submarine performance, but of comprehensive packages involving delivery schedule, local industrial contribution, MRO costs, alliance interoperability, and financial support. They emphasize that future challenges in the European market should not be viewed as one-off events.

Russian President Vladimir Putin’s invasion of Ukraine has awakened Europe, while U.S. President Donald Trump’s ‘America First’ policies are now pushing Europe to rearm itself. For Korean defense companies, this signals the opening of a structural market as Europe embarks on rearmament for the first time in decades. The decision of President Lee Jaemyung to attend the NATO summit (July 7–8, Ankara, Türkiye), where defense will be a major agenda item, is also based on this context.

Technology Transfer and Local Production Will Be Needed for European Market Entry

In the future, local production requirements are likely to become even more stringent; to increase the proportion of European-made parts, it may become essential to either set up factories or secure local partners. There is a growing consensus on the need for long-term investments—such as establishing educational centers or joint research and development (R&D) centers—for technology transfer and other initiatives.

Moon Keunshik, special professor at Hanyang University’s Graduate School of Public Policy, said, “While Korea won on the grounds of an all-out national effort in the submarine bidding war, the unified political decision of NATO allies ultimately led to disappointment. However, Korea’s ability to demonstrate world-class submarine performance will be a major asset for exports to non-NATO countries in the future.”

This content was produced with the assistance of AI translation services.