The outgoing Conservative government had been committed to purchase 43 of the new EH101 helicopters from a consortium led by Westland in Britain and Agusta of Italy and to outfit them in Canada for anti-submarine warfare, operating them from a new fleet of frigates currently under construction.
Representatives of both the British and Italian governments had prevailed upon the Liberals to reconsider their election promise to kill the Cdollars 4.8bn ( pounds 2.4bn) project, but the overtures were dismissed by Mr Chretien, even before he was formally sworn into office.
Mr Chretien also sent a signal to Washington that his Liberal government will be taking a tougher approach on Canada-United States relations, especially trade, than the outgoing government which had made close links with the US a cornerstone of its foreign policy.
Although the Canadian parliament had passed a bill ratifying the North American Free Trade Agreement between Canada, the US and Mexico, that bill had never been proclaimed by the Conservatives.
Mr Chretien indicated at his first press conference following the appointment of his cabinet that he would delay proclamation until the US and Mexico agreed to provide more protection against anti-dumping and other punitive trade sanctions.
The Liberals said the cancellation of the helicopter contract marked the beginning of a fundamental review of Canada's foreign and defence policies. They will also make funds available to defence-related industries to help them convert to non- military production, especially environmental technologies and technologies tied to peace-keeping.
The Liberals plan to invest up to Cdollars 6bn in joint projects with local governments to improve highways, public transport and other infrastructure. The Conservatives had dismissed the scheme, claiming it would only create short-term jobs and add to the deficit. But Mr Chretien has named one of the authors of the infrastructure-investment plan, Paul Martin, as Finance Minister.