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    "title": "Alaska Natural Gas Transportation Act",
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    "ocrText": "The original documents are located in Box 1, folder \"Alaska Natural Gas Transportation\nAct\" of the Loen and Leppert Files at the Gerald R. Ford Presidential Library.\nCopyright Notice\nThe copyright law of the United States (Title 17, United States Code) governs the making of\nphotocopies or other reproductions of copyrighted material. Gerald Ford donated to the United\nStates of America his copyrights in all of his unpublished writings in National Archives collections.\nWorks prepared by U.S. Government employees as part of their official duties are in the public\ndomain. The copyrights to materials written by other individuals or organizations are presumed to\nremain with them. If you think any of the information displayed in the PDF is subject to a valid\ncopyright claim, please contact the Gerald R. Ford Presidential Library.\nVL\nTHE WHITE HOUSE\nWASHINGTON\nXL\nMarch 10, 1976\nTO:\nVERN LOEN\nFROM:\nGLENN SCHLEEDE\nAttached is a copy of the\nAdministration's Alaskan Natural\nGas bill which is being sent\nto the Hill today by Frank Zarb.\nAlso attached is a copy of the\ncover letter and fact sheet.\nAttachments\nFORD & LIBRARY GERALD\nDEDERAL\nENERGY\nFEDERAL ENERGY ADMINISTRATION\nWASHINGTON, D.C. 20461\nOFFICE OF THE ADMINISTRATOR\nHonorable Nelson A. Rockefeller\nPresident of the Senate\nWashington, D.C. 20510\nDear Mr. President:\nI am transmitting herewith a bill entitled the \"Alaskan\nNatural Gas Transportation Act of 1976.\" This bill is\ndesigned to expedite the selection and construction of a\nsystem for the transportation of natural gas from the\nNorth Slope of Alaska to the lower 48 states.\nThe bill recognizes the importance to the Nation of prompt\nselection of such a transportation system, and will pro-\nvide a means to obtain a decision on this vital issue as\nsoon as feasible, but no later than October 1, 1977. At\nthe same time, it will provide adequately for the detailed\ntechnical, financial and environmental studies that must\nbe completed to assure a decision in the public interest,\nwith participation by both the Congress and the Executive.\nProduction of natural gas in the United States continues to\ndecline. This trend weakens the efforts the Nation must\nmake to promote domestic production of energy resources,\nto reduce our dependence upon foreign energy sources and\nour vulnerability to another embargo. Although natural\ngas from Alaska is not the only answer to our energy needs,\nwe must act now to assure that we can use this significant\ndomestic energy resource as soon as possible. The long\nlead times required by the scale and sophistication of the\nengineering and construction effort to transport Alaskan\ngas argue strongly for an efficient decision-making process.\nUnnecessary procedural delay would be unconscionable.\nTwo applications for a system to transport North Slope natural\ngas to the lower 48 states are now pending before the Federal\nPower Commission. The Commission is well along in the diffi-\ncult and complex task of reviewing and analyzing these\napplications as well as alternative systems. I believe that\nFORD\n- 2 -\nit would be a mistake, as some have suggested, to truncate\nthis carefully conducted deliberative process by the agency\nmost familiar with the natural gas industry. While we need\na prompt decision, we also need the right decision.\nNonetheless, selection of a system, because of the size of\nthe project and the complexity of the decision, will transcend\nthe responsibilities of any single Federal agency. Final\nselection of a route will involve national security, energy,\nenvironmental and diplomatic considerations which it is\nneither fair nor appropriate to ask the Federal Power\nCommission alone to resolve. Accordingly, the proposed\nlegislation provides for the Federal Power Commission to com-\nplete its review and make a recommendation to the President\nby January 1, 1977. The proposed legislation provides for the\nfinal decision to be made by the President, with such informa-\ntion and recommendations from other Federal agencies as the\nPresident deems appropriate. The bill would require the\nPresident to make a decision as soon as possible after receipt\nof agency recommendations, but in no event later than August 1,\n1977. The Congress would then have 60 days in which it might\nreview and act upon this decision. If the Congress takes no\nnegative action on the President's decision, the Federal Power\nCommission and other relevant Federal agencies are mandated to\npromptly issue, consistent with normal procedures and criteria,\nthe needed certificates, permits, leases, rights of way and\nother necessary authorizations, which would occur after com-\npletion of a final environmental impact statement. In addition,\nthe bill limits the scope and timing of judicial review, con-\nsistent with constitutional safeguards, so that lawsuits by\nprivate parties will not hamstring expeditious construction of\na system that the President and the Congress have agreed is in\nthe national interest.\nThese provisions of the bill are similar to those adopted by\nthe Congress in the Trans-Alaska Pipeline Authorization Act of\n1973. This legislation is no less urgent, and commends use of\nthe same means promptly to assure a decision which carries out\nthe public interest.\nThe Office of Management and Budget has advised that enactment\nof this legislation would be in accord with the energy program\nof the President. I urge early action by the Congress on this\nimportant legislation.\nSincerely,\nFrank G. Zarb\nAdministrator\nA BILL\nTo expedite the delivery of Alaskan Natural Gas to\nUnited States' markets, and for other purposes.\nBe it enacted by the Senate and House of Representa-\ntives of the United States of America in Congress assembled,\nSHORT TITLE\nSection 1. This Act may be cited as the \"Alaskan\nNatural Gas Transportation Act of 1976. \"\nCONGRESSIONAL FINDINGS\nSec. 2. The Congress finds and declares that:\n(a) A natural gas supply shortage exists in the United.\nStates.\n(b) Large reserves of natural gas in the State of\nAlaska can help significantly to alleviate this supply\nshortage.\n(c) The construction of a natural gas pipeline system\nto transport natural gas from Alaska to the contiguous 48\nstates at the earliest practicable time, is essential to the\nnational interest.\n(d) Alternative delivery systems for transporting\nAlaskan natural gas to the contiguous 48 states are avail-\nable, and the decision as to the selection of a system is\none which involves critical questions of national energy\npolicy, international relations, national defense, and\neconomic and environmental considerations, and which there-\nfore should appropriately be addressed by the Congress of\nthe United States and the Executive Branch, in addition to\nthe Federal Power Commission.\nSTATEMENT OF PURPOSE\nSec. 3. The purpose of this Act is to expedite the\nselection and construction of a natural gas transportation\nsystem for delivery of Alaskan natural gas to the contiguous\n48 states through establishment of new administrative and\njudicial procedures. To accomplish this purpose it is the\nintent of the Congress to exercise its constitutional powers\nto the fullest extent in the authorizations and directions\nherein made and in limiting judicial review of the actions\ntaken pursuant thereto.\nDEFINITIONS\nSec. 4. As used in this Act;\n(a) The term \"Alaskan natural gas\" means natural gas\nderived from the area of the State of Alaska generally known\nas the North Slope of Alaska, including the continental\nshelf thereof.\n(b) The term \"Commission\" means the Federal Power\nCommission.\n(c) The term \"Secretary\" means the Secretary of the\nInterior.\n3\nFEDERAL POWER COMMISSION REVIEW\nSec. 5. (a) Notwithstanding the provisions of the\nNatural Gas Act (15 U.S.C., $717-717w), the procedures es-\ntablished by this Act shall govern actions by the Commission\nwith respect to review and approvals of applications for a\ncertificate of public convenience and necessity filed by any\nperson with respect to proposals to transport Alaskan natural\ngas from the State of Alaska for use within other states in\nthe continental United States. The provisions of the Natural\nGas Act shall apply to the extent they are not inconsistent\nwith this Act. Any certificate of public convenience and\nnecessity related to the transportation of Alaskan natural\ngas from the State of Alaska shall be issued by the Commission\nin accordance with section 9 of this Act.\n(b) The Commission is hereby directed to complete its pro-\nceedings with respect to proposals for the transportation of\nAlaskan natural gas from the State of Alaska, which pro-\nceedings are pending on the date of enactment of this Act,\nand to transmit a determination thereon to the President by\nJanuary 1, 1977.\n(c) The determination required by subsection (b) of this\nsection may be in the form of a proposed certificate of\npublic convenience and necessity, or such other form as the\nCommission deems appropriate, and should include such in-\nformation as the Commission deems appropriate, including:\n4\n(i) estimated capital and operating costs, including\nanalysis of any likely cost overruns;\n(ii) analysis of construction schedules and possi-\nbilities for delay;\n(iii) extent of reserves, both proven and probable,\nand their deliverability into a transportation\nsystem;\n(iv) analysis of environmental considerations,\nincluding pipeline design criteria, and main-\ntenance and construction procedures;\n(v) financing capabilities;\n(vi) safety in design and operation;\n(vii) anticipated demand in, and deliverability to\nparticular markets, including analysis of dis-\nplacement questions and substitute fuels;\n(viii) anticipated transportation tariffs, both short-\nterm and long term.\nOTHER AGENCY REPORTS\nSec. 6. By February 1, 1977, the President shall\nrequire from such agencies as he deems appropriate the sub-\nmission of reports to him with respect to the alternative\nmethods for delivering Alaskan natural gas to the other\nstates in the continental United States. Such reports\nshould include information with respect to:\n(a) issues related to national energy policy;\n5\n(b) environmental considerations, including\na detailed study' of the air and water quality and\nnoise impacts;\n(c) issues related to pipeline safety and Liquified\nNatural Gas transportation;\n(d) foreign policy aspects, including evaluation of\nthe status of Canadian approvals and plans;\n(e) national defense, particularly questions of\nsecurity of supply;\n(f) issues relating to natural resources, use of\nFederal lands, and fish and wildlife resources;\nand\n(g) issues relating to financing.\nPRESIDENTIAL DECISION\nSec. 7. (a) As soon as possible after receipt of the\nreports required by section 6, but not later than August 1,\n1977, the President shall issue a decision as to which\nsystem for transportation of Alaskan natural gas, if any,\nshall be issued the necessary approvals in accordance with\nsections 9 and 10 of this Act. The Presidential selection\nof the natural gas transportation system shall be based on\nthe determination as to which system best serves the national\ninterest in bringing Alaskan natural gas to the contiguous\n48 states and shall include such terms and conditions as the\nPresident deems appropriate.\n6\n(b) The decision of the President made pursuant to sub-\nsection (a) of this section, along with a statement of the\nreasons therefor, shall be transmitted immediately to the\nSenate and the House of Representatives.\n(c) The decision of the President shall become final as\nprovided in section 8.\nCONGRESSIONAL REVIEW\nSec. 8. (a) A Presidential decision issued pursuant\nto section 7 shall become final after the close of the 60-\nday period beginning on the day on which such decision is\ntransmitted to the Senate and to the House of Representatives.\n(b) If, because of Congressional action, the Presidential\ndecision does not become final, the President may submit the\nsame or a new decision to the Senate and the House of Repre-\nsentatives. Any such new submission may only become final\nin accordance with the procedures specified in subsection\n(a) in the same manner as a decision issued pursuant to\nsection 7.\n7\nCERTIFICATION\nSec. 9. (a) The Congress hereby authorizes and di-\nrects the Commission, within thirty days after a Presidential\ndecision has become final in accordance with section 8 of\nthis Act, to issue all certificates, permits, and other\nauthorizations necessary for or related to the construction,\noperation, and maintenance of the transportation system\nselected in accordance with sections 7 and 8 of this Act.\nThe Commission, in issuing such certificates, permits or\nauthorizations, shall include the terms and conditions set\nout by the President in his decision pursuant to section 7\nof this Act.\n(b) No action may be taken by any agency pursuant to this\nAct until any environmental impact statements considering a\nsystem for transportation of natural gas from Alaska to the\ncontiguous 48 states, which statements are in draft form on\nthe effective date of this Act, are completed in final form\nand filed with the Council on Environmental Quality.\nSection 102 (2) (C) of the National Environmental Policy Act\nof 1969 shall not be applicable to the Alaskan Natural Gas\ntransportation system selected in accordance with this Act,\nexcept as provided in this subsection.\nOTHER ADMINISTRATIVE AUTHORIZATIONS\nSec. 10. (a) The Congress hereby authorizes and\ndirects the Secretary of the Interior, the Secretary of\n8\nTransportation, and other appropriate Federal officers and\nagencies to issue and take all necessary action to adminis-\nter and enforce rights-of-way, permits, leases, and other\nauthorizations that are necessary for or related to the con-\nstruction, operation, and maintenance of the Alaskan natural\ngas transportation system; provided that, nothing in this\nsubsection shall be construed to require the granting of any\nauthorization relating to federal financial assistance.\n(b) Rights-of-way, permits, leases, and other authoriza-\ntions issued pursuant to this Act by the Secretary shall be\nsubject to the provisions of section 28 of the Mineral\nLeasing Act of 1920 (30 U.S.C., $185) (except the provisions\nof subsections (h) (1), (j),,- (k), (q), and (w) (2) ) ; all\nauthorizations issued by the Secretary and other Federal\nofficers and agencies shall include the terms and conditions\nrequired, and may include the terms and conditions per-\nmitted, by the provisions of law that would otherwise be\napplicable if this Act had not been enacted, and they may\nwaive any procedural requirements of law or regulations\nwhich they deem desirable to waive in order to accomplish\nthe purposes of this Act. The direction contained in sub-\nsection (a) of this section shall supersede the provisions\nof any law or regulations relating to an administrative\ndetermination as to whether the authorizations for construc-\ntion of the Alaskan natural gas transportation system shall\nbe issued.\nFORD\n9\n(c) The Secretary of the Interior and the other Federal\nofficers and agencies are authorized at any time when neces-\nsary to protect the public interest, pursuant to the authority\nof this section and in accordance with its provisions, to\namend or modify any right-of-way, permit, lease, or other\nauthorization issued under this Act.\nJUDICIAL REVIEW\nSec. 11. The actions of the Federal officers concerning\nthe issuance of the necessary rights-of-way, permits, leases,\nand other authorizations for construction, and initial\noperation at full capacity of the Alaskan natural gas trans-\nportation system, including the issuance of a certificate of\npublic convenience and necessity by the Commission, shall\nnot be subject to judicial review under any law, except that\nclaims alleging the invalidity of this section may be brought\nwithin sixty days following the date of enactment, and\nclaims alleging that an action will deny rights under the\nConstitution of the United States, or that the action is\nbeyond the scope of authority conferred by this Act, may be\nbrought within 60 days following the date of such action. A\nclaim shall be barred unless a complaint is filed in the\nUnited States district court for the District of Columbia\nwithin such time limits, and such court shall have exclusive\njurisdiction to determine such proceeding in accordance with\nthe procedures hereinafter provided, and no other court of\nFORD\n10\nthe United States, of any State, territory, or possession of\nthe United States, or of the District of Columbia, shall\nhave jurisdiction of any such claim whether in a proceeding\ninstituted prior to or on or after the date of enactment of\nthis Act. Any such proceeding shall be assigned for hearing\nat the earliest possible date, shall take precedence over\nall other matters pending on the docket of the district\ncourt at that time, and shall be expedited in every way by\nsuch court. Such court shall not have jurisdiction to grant\nany injunctive relief against the issuance of any right-of-\nway, permit, lease, or other authorization pursuant to this\nsection except in conjunction with a final judgment entered\nin a case involving a claim filed pursuant to this section.\nThere shall be no review of an interlocutory or final\njudgment, decree, or order of such district court except\nthat any party may appeal directly to the Supreme Court of\nthe United States.\nSEPARABILITY\nSec. 12. If any provision of this Act, or the appli-\ncation thereof, is held invalid, the remainder of this Act\nshall not be affected thereby.\nFACT SHEET\nPROPOSED LEGISLATION RELATIVE TO CONSTRUCTION OF A\nNATURAL GAS PIPELINE FROM ALASKA\nBackground\nNatural gas is a vital source of domestic energy. It\naccounts for 30 percent of total energy consumption and\nover 40 percent of non-transportation needs. Yet,\ndomestic production of gas peaked in 1973 at 22.5\ntrillion cubic feet and has declined in each of the\npast two years. Domestic proved reserves have been\ndeclining since 1965, with the exception of 1969 when\nthe North Slope Reserves were added to the national\nresource base. As a consequence of declining supply,\ncurtailments have been increasing steadily since they\nwere first experienced in 1970.\nWhile the President has declared that deregulation of\nnew natural gas is the most important action that can\nbe taken to improve our future situation, it is also\nimperative to assure that all possible proven sources\nof additional gas supply are developed. Such a source\nis the vast reserves on the North Slope of Alaska,\nestimated at 26 trillion cubic feet.\nProposed alternative delivery systems for transporting\nAlaskan natural gas to the \"Lower 48\" States are now\nunder consideration. Current federal studies indicate\nthat proposals to deliver the gas are economically\nviable. Unless the federal selection and implementation\nprocesses are expedited, the delivery of this critical\nfuel will be delayed, and the costs of the proposed\ntransportation systems will rise markedly. Delay will\nalso increase the propsects of future curtailments and\ncosts to the consumer.\nStatutory Delays\nCurrent Alaskan gas transportation proposals involve\ncritical questions of national energy policy, international\nrelations, national defense, and economic and environ-\nmental considerations. These concerns are not, however,\ninsurmountable and indeed, must be resolved quickly if\ndelays in construction are not to inflate the ultimate\ncosts of the system.\nSome of the areas of potential delay are:\n-\nFederal Power Commission\n- 2 -\n1.\nIssue a certificate of public convenience and\nnecessity for the construction and operation\nof the transportation system (including the\nallowable tariff)\n2.\nAuthorize gas sale by Prudhoe Bay gas producers.\n3.\nApprove agreements, including quantities and\nprice, between parties affected by any\nproposed displacement of natural gas supplies.\n-\nInterior Department\n1.\nPermits for rights-of-ways over federal land,\nboth in Alaska and the \"Lower 48\" States.\n2.\nAssure that the interests of the Alaskan\nnatives are fully protected.\n-\nEnvironmental Protection Agency (and the affected\nStates)\n1.\nPermits for discharge of liquid waste into\nwaters of the State, if relevant.\n-\nCorps of Engineers\n1.\nPermits for river crossings and for dredging\nof river bottoms.\n-\nCoast Guard\n1.\nVarious approvals regarding construction and\noperation of liquid natural gas tankers, if\nrelevant.\n-\nOther Federal Agencies\n1.\nFederal Maritime Commission, Public Health\nService, Maritime Administration, Federal\nCommunications Commission.\n-\nIndividual State Approvals\n1.\nAlaska authorization on the natural gas\nMaximum Efficient Rates (MER) of production.\nAny other State authorization or permits\nregarding roads, sewage, coastal zone impacts,\netc. Some States may institute additional\n- 3 -\ncertification requirements to minimize\nadverse effects or to influence the selection\nprocess.\nHow Legislation Deals with These Factors\nThe proposed \"Alaskan Natural Gas Transportation Act of\n1976\" would expedite the selection and construction of\na natural gas transportation system for delivery of\nAlaskan natural gas to the \"Lower 48\" States through\nthe establishment of new administrative and judicial\nprocedures.\nThe Federal Power Commission is already engaged in\ncomprehensive hearings on Alaskan Gas transportation\nproposals which they expect to complete by the end of\nthe year. The Bill would require the FPC to complete\nits current proceedings and transmit a determination to\nthe President by January 1, 1977. Such determination\nmay be in the form of a proposed certificate of public\nconvenience and necessity or such other form as the\nCommission deems appropriate.\nThe President is required to obtain such other reports\nand recommendations with respect to the alternative\ndelivery systems from other Federal agencies by\nFebruary 1, 1977, as he deems to be appropriate.\nAfter reviewing the FPC's recommendations and other\ninformation, the President will select a route for the\ndelivery of Alaskan natural gas and will transmit this\ndecision, along with a statement to the Congress of his\nreasons, as promptly as feasible, but not later than\nAugust 1, 1977.\nThe Congress will then have 60 days to review the\nPresident's decision before it becomes final. If\nCongress takes action to disapprove this decision, the\nPresident may submit the same or a new decision which\nwould be subject to the same review process.\nIf Congress takes no negative action on the President's\ndecision, the Federal Power Commission shall issue all\nnecessary authorizations within 30 days after the\nPresident's decision is final.\nTo ensure adequate environmental safeguards, no authori-\nzations may be issued unless a final Environmental\nImpact Statement has been completed.\n- 4 -\nAll Executive Agencies would be directed to expedite\nthe issuance of all permits and authorizations necessary\nto implement the Presidential decision. The Act would\nalso limit judicial review of all actions taken under the\nAct, including those relating to environmental questions.\nFOR IMMEDIATE RELEASE\nApril 20, 1976\nContact: Roger Greenbaum\nNeil Newhouse\n(202) 225-0580\nFrom the offices of:\nJohn B. Anderson, (R.-Ill.)\nPaul McCloskey, (R.-Calif.)\nMark Andrews, (R.-N.D.)\nCharles Mosher, (R.-Ohio)\nPierre duPont, (R.-Del.)\nJoel Pritchard, (R.-Wash.)\nHamilton Fish, (R.-N.Y.)\nRalph Regula, (R.-Ohio)\nWillis Gradison, (R.-Ohio)\nPhilip L. Ruppe, (R.-Mich.)\nH. John Heinz, III, (R.-Pa.)\nGarner Shriver, (R.-Kans.)\nElwood Hillis, (R-Ind.)\nJ. William Stanton, (R.-Ohio)\nCharles Whalen, (R.-Ohio)\nFifteen Pepublican Pepresentatives today released the results\nof their study on U.S. - Canadian Relations and made 28 recommen-\ndations regarding U.S. policy with Canada. The study focuses on\nfour aspects of U.S. - Canadian relations: energy, communications,\ntrade and foreign investment, and transboundary issues.\nStating that \"it has been a rude surprise to find our govern-\nments engaged in an exchange of verbal and economic brickbats,' the\nRepublican Representatives conclude that \"the deteriorating rela-\ntions between the United States and Canada force us to re-evaluate\nthe friendship that we have long taken for granted.\"\nThe Congressmen note that \"both the U.S. and Canada are\ncaught up in a period of intense self-examination,\" but draw the\ndistinction that \"Canadians are caught up in a period of rising\nnationalism.\"\nHighlights of the 28 recommendations made by the represen-\ntatives include:\nIn view of Saskatchewan's proposed nationalization of potash\nindustries, the Pepresentatives urge the province of Saskatche-\nwan to give full and equitable remuneration to American\npotash industries which are purchased or expropriated.\nThe Special Representative for Trade should be asked to in-\nvestigate whether Canada's policies in the several cormuni-\ncations fields are discriminatory to U.S. trade with Canada.\nIf no progress is made in the negotiations over the deletion\nof U.S. television commercials seen on Canadian cable tele-\nvision, consideration should be given to endorsing U.S. border\nstations' requests for permission to \"jam\" their own signals\nbeamed toward Canada.\nEvery effort should be made to expedite legislative and ju-\ndicial proceedings necessary for the eventual delivery of\nAlaskan natural gas to the lower 40 states.\nThe provisions of the U.S. - Canadian Automotive Agreement\nshould remain intact.\nTO prevent dopletion of fish stocks, and to protect legiti\nmate U.S. fishing interests, the U.S. should explore with\nCanada the need for a new regime governing management of\nfisheries in Lake Lrie.\nOversight committees in Congress should weich the effective-\nness of present research, construction and quality control\nmeasures designed to bring about U.S. compliance with the\n1972 Great Lakes Water Quality Agreement with Canada, Congress\nshould also consider legislation to oncourage Great Lakes\nBasin States to participate in the supervision of waste\ntreatment programs.\nGERALD FORD LIBRARY\nU.S. - CANADIAN RELATIONS\nHon. John Anderson, Ill.\nHon. Paul McCloskey, Calif.\nHon. Mark Andrews, N.D.\nHon. Charles Mosher, Ohio\nHon. Pierre S. duPont, Del.\nHon. Joel Pritchard, Wash.\nHon. Hamilton Fish, N.Y.\nHon. Ralph Regula, Ohio\nHon. Willis Gradison, Ohio\nHon. Philip Ruppe, Mich.\nHon. H. John Heinz, Pa.\nHon. Garner Shriver, Kans.\nHon. Elwood Hillis, Ind.\nHon. J. William Stanton, Ohio\nHon. Charles Whalen, Ohio\nCONTACTS: Neil Newhouse\nRoger Greenbaum\n304 HOB Annex\nWashington, D. C. 20515\n(202) 225-0580\nApril 29, 1976\nFORD & 9E8ALD LIBRARY\nU.S. - CANADIAN RELATIONS\nTABLE OF CONTENTS\nPAGE\nINTRODUCTION\ni\nENERGY RELATIONS\n1\nRecommendations\n10\nCOMMUNICATIONS INDUSTRIES\n12\nRecommendations\n17\nTRADE AND FOREIGN INVESTMENT\n19\nRecommendations\n27\nTRANSBOUNDARY ISSUES\n29\nRecommendations\n36\nLIBRARY GERALD R. FORD\nINTRODUCTION\nThe United States has long felt secure in an aura of continental good-will\nbased on harmonious relations with our national neighbor to the North --- Canada.\nTherefore, it has been a rude surprise to find our governments engaged in an\nexchange of verbal and economic brickbats. The deteriorating relations between\nthe United States and Canada force us to re-evaluate the friendship that we\nhave long taken for granted.\nSo accustomed are we to the friendship and interdependence of Canada and\nthe United States that we forget that relationship is less than a hundred years\nold. For almost two hundred years, relations between Canada and America ranged\nfrom hostility to outright warfare. Since World War II, however, the U.S. and\nCanada have bound themselves together through formal mutual security arrangements\nbetween the governments and special trade relationships established by independent\neconomic interests.\nThe current strain in relations is a product of many factors. Subtle changes\nin each nation's perception of its role in the world order have contributed to the\naltered climate. Both the U.S. and Canada are caught up in a period of intense\nself-examination. There is a similarity in that both countries show a shifting\nemphasis to domestic, rather than foreign concern. Canadians are caught up in\na period of rising nationalism --- a factor not dominant in the U.S. self-evalua-\ntion. There is a strong desire in Canada to break away from dependence on the\nUnited States.\nRising out of this spirit of nationalism is a concern with economic relations.\nSpecific economic issues that are causing tension between the countries are:\nPending Canadian legislation which would require 80% different\ncontent in Canadian editions of U.S. magazines.\nPlans to nationalize American-owned potash companies in Canada.\nPirating of U.S. television programs by Canadian cable stations\nwhich pick up U.S. programs but black out. the commercials to\nreplace them with Canadian sponsors.\nThe termination of special tax breaks for advertisers in Cana-\ndian editions of U.S. publications.\nThe sale of Canadian gas and petroleum to the U.S. at higher\nprices than charged Canadians.\nWith the Canadian government reacting to, and stimulating, a strong sense of\nnationalism it is appropriate for us to review areas of mutual concern.\nFORD is GERALD LIBRARY\nU.S. - CANADIAN ENERGY RELATIONS\nBACKGROUND\nFor many years, Canada was considered the most reliable and secure source of\nimported energy for the United States. In 1973, for example, U.S. - destined\nCanadian oil exports reached a high of 1.3 million barrels per day. This repre-\nsented about half of Canada's crude oil production and a little over 7% of American\ncrude oil consumption.\nRecently, however, bilateral energy relations have been strained by the Canadian\ndecision to curtail energy exports to the U.S. Canada announced plans to phase out\ncrude oil exports completely by 1981, and to drastically reduce natural gas exports\nto ensure Canada's ability to meet domestic requirements. Further, Canada raised\nits energy export prices to reflect high world market prices for oil and natural\ngas.\nThe new Canadian energy policies are an integral part of the official government\n\"Canada first\" program, which maintains that only energy sources found to be surplus\nto domestic demand will be exported. Additional reasons for the reversal of Canada's\ntraditional oil and natural gas export policies are:\nthe dramatic change in the power of OPEC and the increased price\nof oil for Eastern Canada which is totally dependent on imported\noil;\nthe recognition of diminishing oil and natural gas reserves in\nCanada;\ngrowing sensitivity to foreign economic control of key sectors of\nthe economy (over 90% in petroleum).\nThe consequences of the Canadian policies of raising energy prices and\ncurtailing energy exports are numerous:\na previously accessible and reliable foreign energy source will\nno longer be available;\nmore energy must now be imported from \"unreliable\" foreign sources;\nNorthern states, which depend heavily on Canadian sources of energy,\nwill be hardpressed to find substitutes for Canadian fuels;\nthe U. S. will have to pay an artificial Canadian oil price which\nsubsidizes Canadian consumption of oil in the eastern provinces;\nU.S. energy independence efforts may be delayed.\nThe bilateral energy relations include not only oil and natural gas, but also\nother energy sources such as electricity, coal, and uranium. As well, the proposed\nconstruction of a natural gas pipeline to carry Alaskan Prudhoe Bay hydrocarbons to\nBERALD FORD LIBRARY\n-2-\nthe lower 48 states has focused much attention on U.S. - Canadian relations. To\nunderstand the formulation of Canadian energy policy, however, one must first under-\nstand the unique relationship between the provincial and federal governments.\nTHE PROVINCIAL - FEDERAL RELATIONSHIP\nThere are two distinct levels of government in Canada - the provincial and the\nfederal. As in the United States, policy decisions on both levels are made in\nresponse to separate sets of interests. In Canada, according to the British North\nAmerica Act of 1867, the federal government has jurisdiction over all subjects of\ngeneral or national concern while the provincial government presides over all matters\nof local interest.\nThe British North America Act, like the American constitution, outlines the\ndistribution of power between the federal and provincial governments. Under the\nCanadian system, provincial governments own the natural resources within their\nborders and are empowered to make decisions concerning development and sale of those\nresources. The federal government is responsible for regulating inter-provincial\ntrade and for protecting the interests of all Canadians: federal law does not, however,\nalways override provincial law. For example, the Canadian Parliament cannot legis-\nlate to implement an international treaty if the subject matter falls within the\nexclusive competence of the provinces. Thus, policy initiatives are generated in\naccordance with both local interests and national concerns.\nOne result of this dual jurisdiction over oil resources is what the Canadian\nChamber of Commerce calls \"the tug of war for revenues\" - both the federal and pro-\nvincial governments are competing for large shares of oil revenues resulting from\ntaxes.\nIn 1974, the producing provinces in Western Canada (Alberta, British Columbia,\nand Saskatchewan) instituted steep royalty. charges. on producing companies. These\nmeasures, by limiting company profits from oil and natural gas production, in\neffect also limited federal government revenue from taxation of those profits.\nThe federal - provincial taxes have caused quite a controversy in Canada; many\nCanadians feel that the separate tax policies should be coordinated and rationalized.\nCritics argue that the long-term interests of the energy industry and the economy\nwill be damaged by increasing government regulation of the industry and inter-\ngovernment squabbles about taxation of their revenues.\nIt is also argued that the taxes are frightening away companies which might\ninvest in energy research. Speculation that the provinces will take over energy\nproduction for their respective areas makes capital investment even more risky.\nCANADIAN. OIL POLICY\nSince the discovery of extensive oil fields in the Canadian province of\nAlberta in 1947, the Canadian oil industry, which is largely U.S. - owned, has\ngrown rapidly. Consequently, Canada has faced basic policy questions concerning\n-3-\nresource allocation and the regulation of exports. In 1959, the National Energy\nBoard Act authorized the creation of the National Energy Board (NER) to perform\nessentially two functions: to regulate specific areas of the oil, gas and electric\nindustries in the national interest; and to advise the federal government on all\nmatters relating to the development and use of energy resources.\nIn 1961, the National Oil Policy (NOP) was formulated. The NOP was designed to\ngive oil from western Canadian provinces (which produce all of the country's domestic\nsupply) full market access west of the \"Ottawa Valley Line\" (located approximately\nmidway between Toronto and Montreal) and to encourage exports to the adjacent United\nStates. The provinces in eastern Canada continued to be supplied by international\noil sources. By 1970, Canada was technically self-sufficient in oil --- meaning\nthat the country produced as much oil as Canadians consumed. However, due to\nCanadian west-to-east transportation difficulties, the eastern provinces are still\ndependent on imported oil. Presently about 50% of Canadian petroleum requirements\ncontinue to be met from foreign sources (compared with 79% in 1950).\nUnder the NOP, Canadian oil exports to the U.S. increased steadily during the\n1960's and into the 1970's. In 1960 the U.S. received about 250,000 barrels of\nCanadian oil per day; in 1972 the figure was approximately 1,108,000 barrels per\nday, supplying over 20% of our total oil imports. This increase occurred despite the\npresence of U.S. import restrictions which were subsequently removed in early\n1973. U.S. requests for Canadian oil then increased dramatically and the Canadian\ngovernment responded almost immediately by imposing export controls on oil, since\nU.S. demand was attracting oil away from Canadian refineries and threatening to\ncreate shortages in that country.\nBy 1973 Canada was the U.S.'s largest foreign source of crude oil - imports\nfrom Canada exceeded the total received from all of the Arab countries in OPEC.\nPresently, due to Canadian export controls, the Canadian share in the total American\noil market is down from 7% in 1972 to 4%, ranking third behind Saudi Arabia and Nigeria.\nIn many regional cases the Canadian share is much higher. In Minnesota, for instance, 20%\nof the total energy used is supplied from Canadian crude oil, and in other areas the\nCanadian supply approximated. 100% for some refiners and markets.\nFollowing the oil embargo and the subsequent energy shortage in both Canada\nand the U.S., Canada announced its intention to limit oil exports --- which will\nresult in the complete elimination of oil exports to the U.S. by the early 1980's.\nFurther, in 1973 Prime Minister Trudeau announced that the Ottawa Valley Line\nwould no longer determine the division of Canadian oil supply between imported and\ndomestic sources. Instead, he announced, Canada would embark on its version of\nProject Independence with plans to construct a $200 million pipeline from Sarnia,\nOntario, to Montreal, Quebec. The pipeline will carry 300-900 million barrels per\nday of west Canadian crude oil eastward. Work on the pipeline has begun with projected\ncompletion by winter 1976.\nCRUDE-OIL PRICING\nCanada's imposition of export controls brought Canadian oil pricing policies\nunder scrutiny. Until 1973, Canadian oil prices were determined by demand and supply\n&\nFORD\nGERALD\nLIBRARY\n-4-\nin the protected U.S. market and the segregated Canadian market west of the Ottawa\nValley, while the slightly lower prices in eastern Canada were determined by forces\nin the international market. As shortages of crude oil in the U.S. became evident\neven before the Arab oil embargo, and as U.S. market prices began to rise, Canada\nwas forced to re-evaluate its energy policies. Canada could either allow domestic\noil prices to parallel open-market prices in the U.S., or it could protect domestic\nprices and insulate Canadian consumers from U.S. oil-price developments.\nCanada chose the latter course. The government's decision was influenced chiefly.\nby the feeling that U.S. oil-price increases were due to factors unique to the U.S.\nand should not be imposed on Canadian consumers, as well as the feeling that the U.S.\nprice increases were likely to be relatively temporary.\nThe Ottawa government implemented their new policy by levying an export charge\non all oil shipments to the U.S. and using the proceeds from the charge to subsidize\nimports of oil in the eastern provinces. In October, 1973, the charge amounted to\n49c per barrel of light crude oil, but subsequently rose sharply to a high of $6.40\nand is now set at $4.50 per barrel. Basically, the export charge of $4.50 reflects\nthe difference between the delivered price of imported oil into Montreal and the\ncontrolled wellhead price of oil in Alberta - which is currently $8.00 per barrel.\nNATURAL GAS\nThe situation in the Canadian natural gas market is very similar to that of the\noil market outlined above. Canada feels that it does not have sufficient natural gas\nproduction capacity to meet domestic energy demands and to fulfill existing export\ncontracts during the balance of the decade. Thus, under the guidance of the NEB,\nthe Ottawa government has decided to cut back Canadian natural gas exports to the\nUnited States. In addition, the export price of Canadian natural gas has more than\nquadrupled in the past three years. Canadian officials explain that higher gas prices\nare intended to bring the price of natural gas in line with the market values of\ncompetitive fuels, both to conserve a non-renewable resource and to stimulate develop-\nment.\nEXPORT CUT-BACKS\nUntil a few years ago Canada was virtually the only foreign supplier of natural\ngas to the U.S. About 40% of Canadian gas production is exported to the U.S.\n(one trillion cubic feet), accounting for roughly 4% of the total U.S. natural gas\nconsumption. As in the case of oil, Canadian natural gas is far more important\nin many regional U.S. markets than the 4% figure would indicate.\nFor example, Canadian natural gas exports account for:\n71% of the gas consumed in New Hampshire, Vermont and Maine;\n60% of the gas in Montana;\n30% of total natural gas consumption in California, Washington\nand Oregon.\n15.3% of the natural gas in Minnesota, Wisconsin and Michigan.\n-5-\nWhile oil is exported on monthly contracts, natural gas is sold for export in\nlong-term contracts generally running for 25 years. There are presently a number\nof contracts permitting annual deliveries of up to one trillion cubic feet per year.\nHowever, since the early 1960's, U.S. importers of Canadian natural gas have known\nthat no new exports would be approved by the NEB after 1970. The NEB took this action\nwhen Canadian gas reserves were judged inadequate to meet Canadian needs.\nThe NEB recently conducted extensive hearings into the supply, demand and\ndeliverability of natural gas in Canada. The findings, released in July, 1975, show\nthat the gas supply in Canada will be tight in future years. It was concluded that\ndue to declining discovery rates, natural gas production in Canada would be insufficient\nfor domestic demand and export commitments.\nThe Canadian government announced that through increased prices and strict\nallocation, domestic demand for natural gas will be curtailed. Canada may also find\nit necessary to curtail exports to the United States. However, the Canadian govern-\nment has recognized the importance of natural gas supplies to certain regions of the\nU.S. It has assured the U.S. government of a chance to make its views known before\na curtailment program is put into effect. The proposed cutbacks in natural gas\nexports are not expected until the winter of 1976-77.\nNATURAL GAS PRICING\nRecent trends in natural gas pricing in Canada reflect the Canadian view\nthat higher prices are appropriate in both domestic and export markets. The export\nprices have risen considerably over the past three years, from an average price of\n32c per thousand cubic feet (mcf) in 1973 to $1.60 per mcf as of November 1, 1975.\nCanadian domestic prices have also risen; natural gas now sells at the \"city-gate\"\nof Toronto at $1.25 per mcf.\nCanadian natural gas export pricing is governed by three criteria set forth\nby the National Energy Board:\nThe export price should recover its appropriate share of the\ncosts incurred.\nThe price should not be less than the price to Canadians.\nThe export price should not result in prices in the United\nStates marketplace materially less than the cost of alternative\nsources of energy.\nCanadian authorities believe that natural gas prices have for too long\nbeen unrealistically low, creating an artificial demand which has led to prof-\nligate use of this fuel. This relative undervaluation has had two results: the\nuneconomic use of a premium fuel, and a more rapid growth in demand for natural\ngas in North America than for other fuels. Despite rapid growth in the supply of\nnatural gas, the undervaluation has resulted in unsatisfied demands for gas and the\nprospect of continuing shortages.\nWhile desiring to receive fair market value for natural gas, Canadian authorities\nplan to direct the increased revenues from higher prices to producers. It is hoped\nFORD & BERALD LIBRAR\n-6-\nthat by stimulating new exploration and development, this will increase future supplies.\nProspects for increasing output of natural gas in Canada are good, due to promising\nregions which are thought to have vast, yet unproved, reserves.\nOTHER ENERGY SOURCES\nAlthough U.S. - Canadian energy affairs revolve primarily around oil and\nnatural gas, other energy sources play a role in the relationship. Bilateral trade\nin coal, electricity and uranium has assumed more importance as the nations strive\nto free themselves from unreliable or unstable energy producers. These energy sources\nare significant. to both countries as alternative generators of energy.\nCOAL\nIn the matter of coal, as with both gas and oil, Canada has a geographical\nproblem. The major coal reserves in Canada are in the western part of the country,\nwhile consumption is concentrated mainly in central Canada. The problems of trans-\nporting energy sources from the western part of Canada to the central and eastern\nregions necessitate energy importation. Canada imports about 18 million tons of coal\nfrom the U.S. annually, while exporting more than half (12 million tons) of its\ndomestic production to Japan.\nCanadian authorities, greatly concerned about the deliverablity problem, have\nalso expressed concern about recent and prospective increases in the price of U.S. coal.\nThis, along with the increased American demand for coal, has made western Canadian\ncoal a more attractive alternative for the Ontario energy requirements\nWith 120 billion tons of proven coal reserves of various grades, Canada\ntheoretically has the ability to meet all its coal requirements for many years. It\nis interesting to note that the coal Canada imports from the U.S. is sometimes used\nto American advantage. Last year, for example, Ontario Hydro, the largest importer\nof American coal, exported 5.9 billion kilowatthours of electricity --- the equivalent\nof 2.1 million tons of coal or 31% of its coal imports -- to the United States.\nELECTRICITY\nCanada has exported electricity to the United States since before the turn of\nthe century. A series of strong interconnections have been developed between Cana-\ndian and American utilities for mutual support in emergencies and for the exchange\nand sale of surplus power and energy.\nIn the last few years, with decreasing surplus capacity existing among U.S.\nutilities, Canadian total exports of electrical energy have increased from 5.6\nbillion kilowatthours in 1970 to 15.4 billion kilowatthours in 1974. Over the same\nperiod, Canadian imports of U.S. energy have declined from 3.2 to 2.1 billion\nkilowatthours. Trade relations in electricity have been enhanced by the fact that\nCanada and the U.S. face peak electrical usage at different times of the year\nCanada in the winter, the U.S. in the summer.\n0807\n-7-\nURANIUM\nPrinciples underlying Canadian petroleum and natural gas export policies are\nalso reflected in the export provisions of the new uranium policies announced by the\nCanadian government. Canada has urged the provision of a supply protection policy,\nas well as a stable pricing mechanism, to ensure that exports would receive fair market\nvalues.\nIn 1964, the United States, which was then the main purchaser of Canadian uranium,\nplaced an embargo on all uranium coming into this country to protect and to provide\nincentives for domestic producers facing harsh foreign competition. The embargo, now\nscheduled to be phased out by 1977, was not well-received in Canada. However, due to\nrecent changes in the demand for uranium, Canada expects an increased market for their\nplentiful uranium resource. In fact, the Canadian government has placed export controls\non uranium to preserve its domestic supply. According to U.S. State Department\nofficials, there is no major point of contention between the two countries over uranium.\nALASKAN NATURAL GAS PIPELINE ROUTES\nThe North Slope of Alaska could be one of the primary sources of natural gas for\nthe United States after 1980. Already 26 trillion cubic feet of reserves have been\nconfirmed and more discoveries are expected. Two applications to construct gas trans-\nportation systems from the North Slope are currently pending before the Federal Power\nCommission.\nThe outcome in this matter may be greatly affected by U.S. - Canadian relations\nbecause one of the proposals under consideration includes a gas pipeline which\ntraverses Canada. Critics of this project say that recent anti-U.S. Canadian actions\nlike the nationalization of the potash industries indicate that Canada cannot be\nrelied upon to maintain their side of the bargain. However, others contend that U.S.\n- Canadian relations have not declined and cite numerous instances when both countries\nhave successfully joined in a cooperative effort --- like the construction of the St.\nLawrence seaway. Due to this controversy, the bilateral relations are expected to\nundergo close scrutiny before a pipeline decision is made.\nOne proposal is that the El Paso Natural Gas Company through its subsidiary,\nthe EL Paso Alaska Company. Their proposal is to build a pipeline to carry the natural\ngas from Prudhoe Bay south through Alaska to Point Gravina where it would be liquidified\nand carried by tanker to Point Conception in Southern California.\nThe competing proposal is that of the Alaskan Arctic Cas Pipeline Company and its\naffiliate, the Canadian Artic Gas Pipeline Company. In this system, Canadian and Alaskan gas\nwill be carried in a pipeline across Canada, with Canadian gas leaving the system in\nAlberta and American gas continuing through propsed pipelines to the upper-Midwest states.\nThe two proposals have been presented to the Federal Power Commission. The E1\nPaso Alaska Company claims that:\nFORD i LIBRARY GERALD\n-8-\nthe Trans-Alaska project is entirely within the jurisdiction of the U.S.;\nthe economic benefit of their project will be significant to the\nUnited States -- it will provide employment for many American workers;\nthe Trans-Canadian project requires the spending of billions of dollars\nin Canada, the employment of Canadian workers and the payment by U.S.\ncustomers of billions to Canadian taxing authorities;\nthe environmental ramifications of the Trans-Alaskan pipeline will\nbe far less than the Trans-Canadian project;\nthe construction of the El Paso project can be commenced more expeditiously\nthan the proposed Trans-Canadian delivery system.\nThe Alaskan Arctic Gas Pipeline Company states their case and rebuttal as follows:\nthe existence of Canadian lands does nothing to alter the Trans-Canadian\nsystem as the obvious choice of transportation method;\nthe total cost of the project will be several hundred million dollars less\nthan the El Paso project;\nthe Arctic Gas Project provides the most environmentally sound transportation\nfor Alaskan gas;\nthe U.S. government and Canada have signed a Transit Pipeline Treaty\nwhich provides for an open framework for pipeline discussions between the\ntwo countries;\nthe U.S. and Canada are the world's largest trading partners and have\ncooperated on pipeline projects in the past. All of the oil consumed in\neastern Canada, as well as over 50% of the natural gas traverses U.S.\nterritory;\nthe Arctic Gas Company can start tapping the Alaskan gas supply 19 months\nbefore E1 Paso.\nThe Department of Interior has conducted an economic and technical feasibility\nstudy of two alternative delivery systems for Alaskan gas, each roughly analogous\nto the proposed Trans-Canada pipeline and the Trans-Alaska tanker projects. The\nInterior study, summarized in a report to Congress in December 1975, indicated that\neither route appeared technically feasible and that there were considerable benefits\nfrom bringing the Alaskan gas to the lower 48 states. The report did not develop\ninformation which permitted a decision as to which route was preferable. The Federal\nPower Commission, having already issued a draft environmental impact statement, will\nshortly enter into phase two of its hearings into the competing applications for\napproval of the two proposals. An FPC decision is expected by the end of 1976.\nHowever, congressional action concerning the choice of pipeline routes will\nundoubtedly preempt the FPC decision. Legislation has been introduced in both the\nHouse and the Senate on behalf of both proposed pipeline routes for Alaskan natural\ngas. Siding with the El Paso project are Senators Mike Gravel (D.-Alaska) and Ted\nStevens (R-Alaska), while submitting legislation on behalf of the Trans-Canada\npipeline are Congressman Philip Ruppe (R.-Mich.) and Senator Walter Mondale (D.-Minn.).\nBoth sides have also introduced legislation to expedite juridical and liscensing\nprocedures once a route has been chosen.\nHearings in Canada before the National Energy Board began in October, 1975 for\nthe Trans-Canada Pipeline project and a competing all-Canadian proposal which would\ncarry only Canadian gas from the MacKenzie Delta to markets in Southern Canada.\nA final Canadian government decision is expected late in 1976 based on the findings\nand recommendations of the NEB. An independent inquiry into the social and economic\nimpact of a northern pipeline is now underway by British Columbia Supreme Court\nJustice Thomas Berger.\nTHE CANADIAN POSITION\nThe Canadian energy outlook resembles that of the United States; both are\nrelatively well-endowed with potential, although high-cost, sources of domestic\nenergy Canadian efforts to achieve energy independence are bolstered by the\n\"Canada first\" policy, elaborated from the \"Third Option\" decision made by the\nCanadian government. The \"Third Option\" is intended to reduce Canadian dependence\non and vulnerability to the United States by strengthening Canada's own economy\nand ties with other countries, rather than by reducing ties with the U.S. As a\nmeans of securing independence, the \"Canada first\" program places the fulfillment\nof Canadian energy needs before consideration of energy exports.\nHigh world oil prices have made it imperative for Canada to supply domestic\nneeds with indigenous sources where possible. Canada's declining oil reserves means\nthat the former rate of oil production, which was surplus to Canadian needs, has\nslowed. Although this has forced a curtailment of exports to the United States, the\nCanadian government has tried to accomodate U.S. needs by gradually phasing out oil\nexports instead of cutting them off abruptly. Further, the Canadian government has\nagreed to facilitate oil exchanges wherever consistent with other energy policy\nobjectives to mitigate the adverse effect of the export curtailment on Canadian\ndependent refineries.\nCanadians justify their crude oil export tax by arguing that they cannot export\noil to the U.S. at lower than the world-market price, which eastern Canada must pay\nfor its imported oil. Canadian policy is to increase domestic oil prices to world\nlevels and, as this is done, the export tax will decline.\nCanadians maintain that natural gas is a diminishing natural resource and a\nfuel of high value because it is relatively clean burning with a limited environ-\nmental impact. Moreover, nealy half Canada's natural gas is being exported at\na time when all potential Canadian users cannot be satisfied. The Canadian government\nalso feels that it must get fair market value for its exports of this fuel which\nsubstitutes, for higher priced altwenative fuels such as heating oil and residual fuel\noil. Canada feels that the current American interstate market price of above $2 is\nFORD is GENALD LIBRAR\n-10-\nindicative of the true resource value of natural gas in the United States and makes a\ncase for the rise in Canadian gas export prices.\nTHE AMERICAN POSITION\nThe curtailment of Canadian crude oil and natural gas exports to the United States\nwill have a major effect on certain regions -- particularly the Northwest, the North-\neast and the upper Midwest -- which have come to rely on Canada as a source of energy.\nU.S. officials understand Canada's objective of limiting dependence on imported oil\nto protect its own economy from potential disruptions due to price and supply un-\ncertainties. However, they believe that both nations' interests might. be better served\nby the continued export of current and future surplus capacity to the U.S.\nThe U.S. State Department concurs with a U.S. government analysis which indicates\nthat Canada's balance of payments could be improved substantially if Canada exported,\nmore oil now and imported more later. According to the analysis, Canada could maximize\nits export revenues during the time it had an exportable surplus; this continued export\nwould give the U.S. more time for its landlocked refineries to adjust to the loss of\nCanadian oil and the coming on-stream of Alaskan production.\nFurther, the United States has steadfastly argued that the Canadian price increases\nin both natural gas and crude oil are discriminatory, since the U.S. is Canada's sole\nexport customer. The United States argues that the two-tier system for the pricing\nof natural gas and crude oil may lead to the misallocation of resources and a\ndistortion of efficient trade patterns, since low domestic prices in Canada will\nencourage inefficient use of energy resources. The fact that the Canadian government\nabruptly altered long-term natural gas contracts by raising prices has also irritated\nAmerican companies.\nU.S. State Department spokespersons similarly contend that a continued export\ntax on Canadian crude oil could eventually distort efficient, market-determined trade\npatterns. They point out that U.S. consumers have been forced to subsidize Canadian\noil consumption by paying the export tax on crude oil.\nRepresentatives on the American side also argue that the imposition of the\ncrude oil export tax and the tax policies on natural gas have cut producer's profits\nin Canada and have lessened their incentive for further exploration and profit. By\ncutting these taxes, Americans posit, Canadian producers can not only produce more\nenergy, but can also afford to seek out new areas for exploration.\nRECOMMENDATIONS\nIn the United States there is widespread public misinterpretation of the basis\nof the Canadian actions affecting oil and natural gas exports to this country. The\ncomplexity of the issues involved provides fertile ground for mistrust of Canadian\nmotives. In Canada, discussions for bilateral options tend to become polarized along\nthe line of \"continentalism\" or complete independence. These misunderstandings have\nproduced an emotion-charged atmosphere in bilateral energy relations. If not overcome,\nthis could result in actions by both countries that would effectively foreclose options\nwhich might subsequently appear mutually attractive. Keeping this in mind, we make\nthe recommendations outlined below.\n-11-\n1.\nBilateral discussions of Canadian - U.S. energy relations should be\nconducted on an on-going basis, dealing with regional concerns before\nthey become national problems.\n2.\nThe U.S. and Canada should encourage the process of swapping crude oil\nto ease shortages in both countries.\n3.\nThe two nations should carefully examine the possibility of a swap of\nliquified natural gas, or a trade-off in which we import Canadian natural\ngas now in exchange for Alaskan natural gas exports in a few years.\n4.\nEvery effort should be made to expedite legislative and judicial proceedings\nnecessary for the eventual delivery of Alaskan natural gas to the lower\n48 states.\n5.\nBecause we recognize that high prices are an incentive for industries to\nseek new energy resource fields, we urge Canada to raise its domestic\nprice of energy. This could result in new resource discoveries which would\nlessen the pressures to curtail Canadian energy exports to the United States.\n6.\nThe U.S. should embark on a positive energy policy which aims for self-\nsufficiency in energy yet recognizes the new interdependencies of the world.\nFORD\n-12-\nU.S. - CANADIAN RELATIONS: COMMUNICATIONS INDUSTRIES\nThe Canadian government has made major efforts in recent years to vitalize\nCanada's communications industries. Reacting to what it sees as excessive American\ninvolvement in the production and marketing of Canada's broadcast and print media,\nOttawa has enacted or proposed several measures sharply restricting the activities\nof U.S. firms in Canadian communications markets. Through these protective steps,\nthe Canadian government hopes to stimulate a \"Canadian cultural product\" --- published\nor broadcast material relevant to Canada, produced with Canadian talent, advancing\nthe financial and cultural interests of Canadians.\nIn the United States, these developments have caused concern over their po-\ntentially damaging effect on U.S. trade with Canada. The U.S. State Department has\nexpressed American reservations over the new policy initiatives to the Canadian\ngovernment. Affected business interests in the United States are seeking additional\nrecourse in the Canadian courts, the U.S. Federal Communications (FCC), and the U.S.\nCongress. If an accomodation cannot be reached, retaliatory action by the United\nStates, in the form of new tariffs or other trade barriers, is possible.\nBACKGROUND\nIn the past year, the Canadian government has sponsored the following moves\nin furtherance of its national cultural goals:\naffirmation of a policy directive issued by the Canadian Radio-\nTelevision Commission (CRTC), requiring the deletion of adver-\ntisements from U.S. programs carried in Canada on cable television;\na proclamation by CRTC of noncompulsory guidelines to ensure that\n70 per cent (rising to 80 per cent in three years) of all television\ncommercials broadcast nationally in Canada are produced there;\na bill in Canada's Parliament eliminating the business expense\ntax deduction for Canadian advertising on U.S. broadcast stations;\nanother provision of the same bill, eliminating the tax deduction\nfor advertising in periodicals in Canada whose editorial content\nis not at least 80 per cent different from foreign editions and\nwhose ownership is not at least 75 per cent Canadian;\na warning by Canada's Secretary of State that government action\nto protect the indigenous publishing industry in Canada may be\nforthcoming.\nEach of these measures is plainly designed to cut off the flow of Canadian\nmoney to American media in Canada or near her borders, and thereby to make more\nfunds available for Canadian broadcasting and publishing enterprises.\nCommercial deletion\nA central issue in the current debate is a 1973 CRTC order requiring the\ndeletion of U.S. commercials aired in Canadian border cities by cable TV. This\norder has been implemented as a condition of license renewal for Canadian cable\ncompanies.\nFORD & QERALD LIBRARY\n--1.3-\nIn 1975, Canadian cable TV stations in Calgary and Toronto deleted advertise-\nments from their transmission of broadcasts from neighboring U.S. border television\nstations. When, for example, a Buffalo, New York station was showing \"All in the\nFamily\", a Canadian cable operator in nearby Toronto would re-transmit the Buffalo\nsignal to the home televisions of cable subscribers in Canada; but the cable\noperator would delete the advertisements sponsoring the Buffalo broadcast, and\nsubstitute Canadian commercials or public service announcements.\nThree Buffalo television stations whose broadcasts have been subjected to\ncommercial deletion by a Toronto cable TV company have protested the CRTC order.\nThe Buffalo stations have filed suit in Canadian courts to test the legality of\nthe commercial deletion and the CRTC policy authorizing the practice. The\nCanadian Federal Court of Appeals ruled in favor of CRTC and against the Buffalo\nstations in January 1975. The Buffalo stations have appealed the ruling to\nthe Supreme Court of Canada, where the matter is pending.\nBut, in apparent despair of receiving relief in Canada, the Buffalo stations\nsubmitted an application to the FCC in October 1975 requesting permission to\nerect an experimental \"jamming\" mechanism to prevent their broadcasts from being\nseen by viewers on the Canadian side of the border. The application for the\n\"jamming\" permit was made after a June 1975 conference between FCC Chairman\nRichard Wiley, U.S. State Department officials, and Pierre Juneau, then-chairman\nof CRTC, failed to bring about a softening of Canadian policy. The FCC has not\ntaken action on the application.\nIn both the suit against CRTC and in the \"jamming\" application, the Buffalo\nstations have argued that in the absence of any violations of law or treaty,\nU.S. television stations should be allowed \"the opportunity to earn the honest\nand lawful rewards\" of the service they provide. Canadian cable carriers do not\npay U.S. stations for the right to transmit U.S. broadcasts, but do pay Canadian\ncommercial stations for carriage rights. The Buffalo stations point out -- and\nCanadian authorities acknowledge -- that the free transmission of popular U.S.\nprograms is a major factor in the growth and increased profitability of the\nCanadian cable TV industry. (In 1973, during which operating revenues for Canadian\ncable operators totaled about $107 million, before-tax profits were $22.5 million\n--providing an after-tax return of 17% on equity investment. 1974 before-tax\nprofits were $29.5 million.)\nThe U.S. stations argue that if Canada's government is seriously interested\nin protecting and stimulating that nation's television industries, the government\nshould bar U.S. programming as well as commercials from Canadian airwaves.\nBut to allow the profitable use of U.S. programming without permitting the origi-\nnating stations to collect contracted revenues, they contend, is tantamount to piracy.\nOne Buffalo station's advance commitments from Canadians to buy advertising\nfor the first quarter of 1976 totaled only 40% of the commitments it had received\nfor the first quarter of 1975. The station claims that the commercial deletion\nhas been a major factor in the dropoff in commitments.\nThe position of the Canadian government up to now has been firm and un-\nmistakeable. In reviewing its commercial deletion and substitution orders,\nCRTC affirmed in September 1975 that this policy \"remains an appropriate and\n&\nFORD\nGERALD\nLISRARY\n-14-\nnecessary means to implement the policy objectives for the Canadian broadcasting\nsystem which are set out in the Broadcasting Act.\" The Broadcasting Act, passed in\n1968, makes it Canadian federal policy to promote a nationwide television system\nwhich reflects and contributes to Canada's emerging national identity.\nAt stake in the commercial deletion matter, the Canadian broadcast authorities\ncontend, is an annual $20 million in revenues paid by Canadian advertisers to U.S.\nborder stations. Canadian broadcasters concede that comparatively slender ad\nrevenues now make it difficult for Canadian producers to compete with the bigger-\nbudgeted television programs produced in Hollywood. Until the Canadian TV industry\nearns more liberal production allowances, it is clear that Canadian viewers will\ncontinue to watch U.S. programs, and Canadian advertisers will continue to sponsor\nU.S. programs to reach the greater viewing audiences. But, the Canadians say, if\nthe funds traditionally attracted by U.S. programming were invested in Canadian\nproduction, the Canadian industry might one day produce competitive programming\nand generate revenues without protective regulation.\nThe CRTC has argued that there is nothing wrong with deleting part of U.S.\ntelevision broadcasts, since U.S. television stations are not licensed to serve\nCanada. But, significantly, Canadian cable TV companies have shown no enthusiasm\nfor the deletion of commercials, and newspaper editorials in Toronto, Winnipeg\nand Vancouver have called the deletion policy a license for \"piracy\" and \"theft\".\nCommercial Guidelines\nIn January 1976 CRTC issued noncompulsory guidelines for the proportion of\nindigenous commercials Canadian networks will be expected to carry. The measure\nasks that 70 per cent of all television commercials (rising to 80 per cent in\nthree years) be produced in Canada. For monitoring purposes, Canadian broadcasters\nwill be required to register the national origin of every commercial aired.\nThe leading performers' union in the United States, the 30,00-member American\nFederation of Television and Radio Artists (AFTRA), has said the guidelines could\nresult in more unemployment for actors in the U.S. television and radio commercials.\nAFTRA believes the new rules might lead U.S. corporations to produce one commercial\nin Canada for use in both countries.\nBut Canadian officials expect the \"70 per cent\" guidelines to have only limited\neffect on the United States industry, since 60 to 70 per cent of all TV commercials\nshown in Canada now are produced there.\nThe Association of National Advertisers, and American group, echoes the\nCanadians' belief that the guidelines would not make United States advertisers move\nproduction operations out of the U.S. The Association says that the power of United\nStates unions to stop the broadcast of Canadian-made commercials here would be a\ndeterrent to such a change.\nThe Tax Bill\nThe tax bill, C-58 in Canada's House of Commons, would prohibit advertisers from\ntaking the business expense deduction from Canadian income tax presently allowed for\nadvertising in foreign media. Such a measure would effectively create a 100 per cent\ntariff on Canadian commercials aired or published outside Canada. The tax bill\nBERALD FORD LIBRARY\n-15-\ncomplements other Canadian government efforts to enhance the profits and production\ncapabilities of domestic media by discouraging the flow of Canadian capital to the\nUnited States.\nBill C-58 was passed in the House of Commons in March, 1976, and now awaits\npro forma ratification by the Canadian Senate. Once that approval is granted,\nthe bill will become law.\nFor U.S. border television stations, the tax bill, combined with continuing\ndeletion of commercials, would present a formidable obstacle to the stations' ability\nto attract Canadian advertising. The National Association of Broadcasters (NAB),\nrepresenting United States television and radio stations, has protested strongly\nagainst the bill. NAB has urged the U.S. State Department to communicate to the\nCanadian government the dissatisfaction American broadcasters feel over the dis-\ncriminatory nature of the tax proposal.\nBill C-58 would also eliminate the special tax treatment enjoyed in Canada by\nTime magazine and a handful of other periodicals since 1965. A 1965 Canadian statute\nallowed advertisers to take tax deductions for ads placed in periodicals whose owner-\nship was at least 75 per cent Canadian, and whose content was \"not substantially the\nsame\" as a foreign version's. Ordinarily, the Canadian editions of Time and\nReader's Digest would not have qualified under this law for tax deductible advertising.\nBut those two publications, with a few smaller magazines, were exempted from this\nmeasure, apparently because they had already established operations in Canada by 1965.\nThe tax bill would now require 75 per cent Canadian ownership for a periodical\nto offer tax-deductible advertising, as before; and, it would further define a\n\"Canadian\" periodical eligible for tax-deductible ads as having at least 80 per cent\ndifferent content than a foreign edition.\nIn a compromise move, the Canadian government announced in February 1976 that\nReader's Digest may continue to publish its Canadian edition if American material\nis condensed and edited in Canada.\nBut in response to House of Commons passage of the tax bill, Time Magazine\nceased publication of its Time-Canada edition in early March 1976. Time will\ncontinue to print a magazine for Canadian distribution, but Time's editorial\nstaff in Canada has been disbanded, the Canadian section of the magazine\n(normally 5 or 6 pages per issue) has been discontinued, and rates for Canadian\nadvertisers are being cut in half to deal with the end of tax-deductible status\nfor advertising. Time officials say these changes will cut the magazine's profits\nin Canada in half.\nTime --- like Reader's Digest -- had consistently signaled its willingness to\neffect 75 per cent Canadian ownership of its Canadian subsidiary in order to comply\nwith provisions of the tax bill. In addition, Time had hoped for a compromise on\nthe content requirements. The magazine's executives had said that a \"50 per cent\ndifferent\" content rule once suggested to them by Canadian Secretary of State Hugh\nFaulkner would have been acceptable, on the grounds that it would establish a\nFORD & LIBRAR GERALD\n-16-\n\"substantial\" difference between Canadian and foreign editions without forcing\npublishers to print a wholly separate magazine in Canada. But, said Time, the\n\"80 per cent different\" content figure amounted to censorship of the press, a con-\ndition Time could not accept.\nBook Publishing\nAnother sign of Canada's intentions came in an address by Secretary of State\nFaulkner to the Association of American Publishers in April 1975. Secretary Faulkner\ntold the book publishers that unless their subsidiaries north of the border grow more\nresponsive to the cultural needs of Canada (through increased attention to native\nfiction, poetry, criticism and letters, for example), regulation and legislation\nwould be put to use to allow Canadian publishers to fill those needs. At any rate,\nMr. Faulkner said, his government would soon subject foreign publishers to \"careful\nscrutiny\" and is now considering measures to fortify the health of the Canadian\nbook publishing industry.\nU.S. GOVERNMENT EFFORTS TO DATE\nWith the appearance of steadily more aggressive proposals from Ottawa, concern\nin the United States for the stability of U.S. - Canadian communications trade has\nintensified. An unceasing exchange of diplomatic letters and contacts between the\ntwo countries since 1974, all touching at least in part on communications matters,\ntestifies to the importance attached to these disputes in both governments ---- and,\nas well, to the absence of easy solutions.\nIn a July 1975 letter to United States Secretary of State Henry Kissinger,\nSenator James Buckley (C-N.Y.) and 14 other Senators asked for State Department\naction to renew diplomatic negotiations in the television controversy. They\nwrote, \"When combined with the commercial deletion policies of the CRTC, such\n[tax] legislation would appear to be aimed at the total elimination of U.S. tele-\nvision stations from Canadian advertising markets\nIf Canada were seeking to\nreject the services of U.S. stations in their entirety, actions aimed at preventing\nthe sale of advertising however regrettable -- would at least be understandable.\nThe fact is, however, that\nthe CRTC actively promotes\nthe reception of U.S.\nstations' program services\nin its licensing of Canadian cable television systems. \"\nIn September 1975, Senators Warren Magnuson and Henry Jackson, both of Washington\nstate, said in a separate letter to the Secretary of State that the tax bill and\ncommercial deletion \"must be viewed as calculated trade discrimination.\" Senator\nMagnuson is chairman of the Senate Commerce Committee, and is known to be considering\nretaliatory trade legislation.\nAt a news conference at the end of a 2-day visit to Ottawa in October 1975,\nSecretary Kissinger said that he had discussed the television and publishing matters\nwith Allan MacEachen, Canadian Secretary of State for External Affairs. Mr. Kissinger\nnoted then that feelings in the United States were \"rather intense\" on the television\nissue, but that any final disposition of the problem would have to await the decision\nof the Supreme Court of Canada in the suit brought by the Buffalo stations.\nFORD & GERALD LIBRARY\n-17-\nContinuing diplomatic contacts produced a new meeting between U.S. and Canadian\nofficials January 13, 1976 in Ottawa. At that meeting, for the first time, Canadian\nofficials formally agreed to consider alternatives to the commercial deletion approach\nto encouragement of the Canadian television industry. Additional talks to search for\nsoultions to the deletion controversy are planned for the near future.\nRECOURSE\nThe broad range of matters discussed here have caused concern in the United States.\nIt is our hope that the Canadian government will consider the legitimate trade interests\nof the United States in any new actions affecting communications industries in Canada.\nHowever, if we are led to conclude that U.S. trade interests are being unfairly re-\nstricted or compromised, several avenues of recourse would be open to us.\nTrade Act of 1974\nThe U.S. Trade Act of 1974, passed to promote free and nondiscriminatory world\ntrade, permits the President of the United States, upon a finding of unfair foreign\ntreatment of U.S. trade interests, to take remedial action. Subject to Congressional\napproval, the President may revoke trade agreement concessions or impose new duties\nor other restrictions on the products and services of the offending country.\nThe Trade Act also allows \"interested parties\" to file complaints with the\nSpecial Representative for Trade Negotiations, and Ambassador-level official who\ncoordinates U.S. trade policy and is the President's chief representative in inter-\nnational trade negotiations. The Special Representative is empowered to conduct\npublic hearings, investigate complaints, and report semiannually to the House of\nRepresentatives and the Senate. If Congress determines action is warranted, it could\ntake measures it deemed appropriate.\nThe Trade Act covers both \"goods\" and \"services\" in international trade, and\ntherefore advertising ----- generally considered a \"service\" ---- in U.S. broadcast and\nprint media are included in the activities protected by the Act.\nThe Trade Act has never before been used against a major trading partner,\nbut its provisions appear to offer ample recourse should we need to turn to it.\nJamming\nArguing for approval of a \"jamming\" permit for the Buffalo stations (and henceforward\nfor others that might need to seek one) would be a distasteful course, but it must be\nconsidered an option. \"Jamming\" would be costly for our stations and unpopular with\nCanadian viewers, but it would, at least, put a stop to the pirating of U.S. television\nprograms on Canadian cable TV. We note that the U.S. Federal Communications Commission,\nin a preliminary determination, has advised the Buffalo stations that \"jamming\" would\nnot be a violation of international law.\nRECOMMENDATIONS\nWe recognize the right of sovereign nations to make foreign and domestic policies\nconsistent with national goals. However, it is apparent to us that the Canadian government\nFORD & ERALD LIBRA\n-18-\nhas charted a course in communications policy which is discriminatory to trading interests\nin the United States. How far Canada follows that course will ultimately determine\nthe need for and the character of our response.\nOur television stations near the Canadian border have been faced with regulations\nthreatening, and in some cases injuring, their ability to fulfill contractual advertising\nobligations. Pending legislation, if enacted, could severely hamper the ability of\nU.S. television stations and magazines to earn advertising revenues in Canada. Stricter\nguidelines on the production of commercials in Canada may have a detrimental effect on\nemployment among American performers. In the absence of blatantly unlawful commercial\npractices by U.S. firms, or other mitigating circumstances, a positive United States\nresponse to these developments is in order.\nTo that end, we offer the following recommendations:\n1.\nIf progress continues in the talks on the commercial deletion matter,\nU.S. border stations should be encouraged to offer ameliorative proposals,\nsuch as the establishment of \"shell\" subsidiaries in Canada (for management\nof Canadian ad revenues) which would be liable for Canadian income tax levies,\nin return for an end of the deletion practice.\n2.\nIf no progress is made in the negotiations over commercial deletion,\nconsideration should be given to endorsing U.S. border stations' requests\nfor permission to \"jam\" their own signals beamed toward Canada.\n3.\nThe Special Representative for Trade should be asked to investigate whether\nCanada's policies in the several communications fields are discriminatory\nto U.S. trade with Canada.\n4.\nPresident Ford should be asked to undertake a similar investigation, with\na view toward possible swift action under the terms of the Trade Act of\n1974 if warranted.\nFORD & GERALD LIBRARY\n-19-\nU.S. - CANADIAN RELATIONS\nTRADE AND FOREIGN INVESTMENT\nSince World War II, Canada and the United States have maintained a\n\"special relationship\" based on economic and political ties. There has been\na tremendous integration of the two economies for both economic efficiency\nand development. Canada and the United States have the largest bilateral\ntrading patterns in the world, amounting to approximately $40 billion. The\nUnited States supplies 70% of Canada's imports and about 66% of its exports.\nIn recent years, however, the \"special relationship\" seems to be breaking\ndown.\nCanadians have become increasingly wary of their neighboring economic\ngiant to the south. Some Canadians claim that their country is one huge\nAmerican plant. Figures indicating the extent of U.S. domination of the\nCanadian economy support the Canadian claims. Americans own 80% of the\nlong-term foreign investment in Canada. They control 96% of the auto in-\ndustry, 90% of the electrical equipment industry, and 50% of all manu-\nfacturing. Moreover, the U.S. \"Trading With the Enemy Act\" has forbidden\nCanadian subsidiaries to trade with Cuba, North Vietnam, North Korea and,\nuntil a few years ago, China.\nCanadian economic nationalism is clearly observable in a recent Gallup\npoll. Fifty-eight per cent of the Canadians interviewed indicated that\nCanada should buy a majority control of U.S. companies operating in Canada,\neven if it meant a reduction in Canada's standard of living. Support for\nthis proposal has risen 12% in the past five years. In fact, nationalist\nsentiment has escalated on such a broad scale that the Canadian government\n-- a traditional ally of the U.S. - has taken heed.\nIn recent years, through legislative and executive action, Canada has\ncurtailed American imports of both capital and agriculture. Trade restrictions\nimposed by Canada, and by the U.S. in retaliation, have been the source of\nmuch hard feelings between the two countries. Consequently, the bilateral\ntrade affairs reflect problems faced by the more general relations between\nthe United States and Canada.\nPresently there are three specific areas of irritation in U.S. - Canadian\ntrade relations: foreign investment in Canada, agricultural trade, and the\nU.S. -Canadian Automotive Agreement.\nFOREIGN INVESTMENT IN CANADA\nCanadians are becoming increasingly concerned that so much of their in-\ndustry is owned and/or controled by foreigners. In 1970, for example, foreigners\ncontrolled 98% of the nation's petroleum industry, 78% of its chemical production,\nand 57% of the manufacturing sector. Of the more than $50 billion of foreign\ninvestment in Canada, more than 75% is U.S. - controlled.\n\"About $270,000 an hour is drained from Canada every day of the year and\nmost of it by American corporations,\" says a spokesperson for the Committee for\nAn Independent Canada, an organization trying to decrease foreign investment.\nThese figures have caused the Canadians to reconsider their economic relations\nFORD & GERALD LIBRARY\n-20-\nwith the United States and attempt to gain control of more of their own\nindustry.\nIn a position paper prepared by the Trudeau Government in 1972, three\noptions were proposed regarding Canada's economic relations with the U.S.:\nmaintenance of the status quo;\ncloser integration with the United States;\nstrengthening of the domestic economy to secure\nCanada's independence.\nNot suprisingly, the third option was endorsed by the Trudeau Government.\nThe policy was devised to reduce Canadian economic vulnerability to the U.S.\nIn a subsequent move to limit foreign economic control of Canada, the Canadian\ngovernment passed legislation to review new foreign investment.\nCANADIAN LEGISLATION\nThe Canadian Parliament passed the Foreign Investment Review Act on\nDecember 12, 1973, and according to the Canadian government, the purpose\nof the Act is to ensure that foreign investment will be of significant benefit\nto Canada. The Act gives the Canadian government the legal authority to review:\nForeign acquisitions or control of Canadian firms with assets\nvalued at more than $250,000 or with revenues exceeding $3\nmillion.\nEstablishment of new businesses by foreigners not already\ndoing business in Canada.\nOpening of a new business by an existing foreign-controlled\nfirm in an unrelated line of activity.\nThe Act does not provide for the review of expansions of existing\nforeign controlled businesses or for the review of the establishment of new\nbusinesses which are closely related to a foreign controlled business presently\noperating in Canada.\nThe Foreign Investment Review Agency, created to enact the new law, has\ndrafted a \"significant benefit test\" to guide its determinations. The Agency\nweighs such factors as:\nWhether the nation will benefit by increased employment or\ntechnology.\nWhat the effect on Canadian competitors will be.\nThe extent of Canadian ownership and management in the venture.\nFORD & GERALD LIBRARI\n-21-\nAssurances that highly trained employees as well as sophis-\nticated hardware will stay in Canada.\nObservers in the U.S. felt that passage of the Act would have long-range\neffects on American investment in Canada. Thus far, however, the effect on\nAmerican investment has been nominal: the Foreign Investment Review Agency\nhas recommended five takeover bids for every one rejected. In a recent deci-\nsion by the Foreign Investment Review Agency, the Citicorp Leasing International\nInc. of New York was allowed to take over North American Business Equipment Ltd.,\nDirect Leasing Ltd., and Medi-Dent Service Ltd. The three are Burlington,\nOntario-based equipment-leasing subsidiaries of Hamilton Group Ltd.\nIn 1975, Parliament passed two additional bills affecting foreign invest-\nment. One calls for a majority of Canadian directors on boards of foreign\ncontrolled corporations. American corporations, however, had foreseen passage\nof this Act, and once the law went into effect, very few changes had to be made\nfor American corporations in Canada to comply with the regulation.\nThe second bill, amending the \"Combines Investigation Act\", states that\nany person, or company, who obeys any foreign law, directive, or court order\nthat harms either domestic or foreign trade of Canada is subject to a two-\nyear term of imprisonment. This amendment is aimed at U.S. - owned subsi-\ndiaries which obey the U.S. \"Trading With the Enemy Act\".\nThis amendment may have little effect on the United States because American\nsubsidiaries in Canada, wishing to trade wih nations such as Cuba, have formerly\nbeen able to skirt the \"Trading With the Enemy Act\" when Canadian directors\nof a corporation outnumber their American counterparts. American observers\nmaintain that the passage of this legislation has more a taint of nationalism\nthan of real economic substance.\nAGRICULTURE\nAgricultural trade between the United States and Canada exceeded $2 billion\nin fiscal 1975, with an American surplus of over $800 million. This surplus\ncan be traced to two factors:\nThe U.S. does not import Canada's major global export --- wheat\nand grains.\nCanada imports from the U.S. fruits and vegetables which, because\nof the Canadian climate, cannot be produced there.\nWith a volume of trade this large, and an imbalance between the two\ncountries, it is understandable that difficulties or \"irritants\" should\noccasionally arise. Three such irritants are presently troubling U.S. -\nCanadian agricultural relations: the planned nationalization of the potash\nindustries; current Canadian legislation requiring bilingual labeling of all\nproducts sold in Canada and; quota restrictions imposed by both Canada and\nthe United States.\nFORD is GERALD LIBRARY\n-22-\nPOTASH\nLate in 1975, the Canadian provincial government of Saskatchewan announced\nplans to nationalize privately-owned potash industries located in the province.\nPotash is one of the three major ingredients in the production of fertilizer and\na major Canadian export. Though the potash nationalization question is basically\na Canadian federal-provincial issue, the proposed action has caused much\nanxiety in this country for a number of reasons:\nFully 60% of the assets to be taken over are U.S.-owned;\nMore than 70% of American potash comes from the province of\nSaskatchewan and American agricultural officials are concerned\nlest U.S. potash supplies be curtailed;\nThe price of potash exported to the U.S. could rise as a result\nof the Canadian takeover.\nThe Canadian federal government, in a recent \"note\" sent to the American\nEmbassy, maintained that the purpose of the Saskatchewan takeover legislation\nis to ensure orderly expansion of production of potash to meet growing world\ndemand. Further, according to the communique, the provincial government of\nSaskatchewan has assured the federal government that it does not intend to\ncurtail the production of potash with the object of inducing scarcity and\nartificially forcing up prices.\nRecently, concern over Saskatchewan's actions to nationalize potash\nindustries was embodied in U.S. Senate Resolution 403. The resolution, re-\nlating to the need to assure the availability of potash for American agricul-\nture, was reported to the floor March 15, 1976, by the Senate Committee on\nAgriculture and Forestry, chaired by Senator Herman E. Talmadge (D.-Ga.).\nCiting U.S. dependence on potash, Saskatchewan's proposed takeover,\nand the possible resultant fluctuations in the price and supply of potash\ndelivered to the United States, the resolution, passed unanimously by the\nSenate, made the following recommendations:\nThe Department of State should express our concern to the\nCanadian Government as well as the Government of the Province\nof Saskatchewan that the supplies of potash not be disrupted;\nThe Department of State should ascertain the precise objectives\nand anticipated conclusions of the proposed takeover by the\nGovernment of the Province of Saskatchewan;\nThe Department of Agriculture should immediately develop con-\ntingency plans to assure an adequate supply of potash for\nAmerican agriculture in the event that supplies from the Saskat-\nchewan deposits should be temporarily or permanently disrupted.\nBERALD FORD LIBRARY\n-23-\nThe Senate resolution implicitly compared Saskatchewan's actions on potash\nwith those of OPEC with respect to oil. However, the recent Canadian \"note\"\nto the U.S. Embassy cited the OPEC reference in S. Res. 403 as an example of\na general lack of understanding in the United States of the nature of the\nSaskatchewan action on potash. Immediately following the passage of the Senate\nresolution, Saskatchewan Premier Allan Blakeney publicly reassured the United\nStates that there would be no change in the availability of potash for\nAmerican agriculture.\nBILINGUAL LABELING\nRecent Canadian legislation requires bilingual labeling of imported and\ndomestic products. While U.S. industries recognize that this regulation is\npart of Canada's effort to enhance its identity as a bilingual nation, it\nnevertheless places a financial burden on U.S. exporters of agricultural products\nto Canada. In dealing with the new law, U.S. shippers feel that they have three\noptions:\nConvert all shipping cartons to bilingual labeling;\nPack goods especially for the Canadian market;\nIgnore the restrictions and run the risk of losing the market.\nHardest hit by the regulations --- scheduled to go into effect March 1,\n1976 ---- are the small farmers who transport their produce to the Canadian border\nwith little or no wrapping. What is yet to be determined is the extent to which\nthe regulations will be enforced. Stingent enforcement would, of course, dis-\ncourage trade between the two countries.\nQUOTAS\nImport quotas have greatly affected the trade relationship between the\nUnited States and Canada. Import quotas, which limit the amount of a commodity\nthat may be imported into a country, are used to stimulate domestic industry\nand to maximize producers' profits. Canada and the U.S. have imposed trade\nquotas in a number of areas: beef, veal, pork, cattle, and eggs.\nThe 1973 wage and price freeze in the United States gave rise to a price\ndifferential in beef between the U.S. and Canada. Consequently, American\nproducers began sending their cattle and beef into Canada to take advantage of\nthe higher prices. On April 9, 1974, Canada imposed regulations stating that\ncattle raised with the use of DES (a growth stimulant) could not be imported\ninto Canada -- the reason given being that DES was linked with the formation\nof cancer in women. The timing of the restriction, however, caused speculation\nas to what was truly the object of the quota, concern for Canadian women or the\ninflux of American beef. Regardless, this restriction effectively cut off all\ntrade between the two countries in cattle and beef.\nBERALD FORD LIBRARY\n-24-\nIn August, 1974, following bilateral negotiations, Canada and the U.S.\nresolved their differences over the DES beef restrictions. Within a week,\nhowever, Canada imposed further restrictive quotas on certified non-DES beef,\nveal, and live cattle. President Ford responded to the new Canadian quota\nwith an American quota, officially called a compensatory action, on imported\nCanadian beef, veal, pork, hogs, and cattle. The President, explaining his\naction, charged that Canada had erected \"unjustifiable import restrictions\"\nagainst U.S. products.\nOne year later, in August, 1975, all restrictions on U.S. - Canadian\ntrade in cattle, hogs, and pork were removed. This bilateral action was followed\non December 20, 1975 by the announcement of an agreement between Canada and\nthe U.S. removing quota restrictions on trade in beef and veal. Canada's\nAgricultural Minister, Eugene Whelan, expressed his belief that \"normal trade\nin beef and veal between the two countries could be resumed early this year\".\nQuotas in the egg market have been a further source of conflict between\nthe U.S. and Canada. Canada has implemented egg stabilization policies in\nan attempt to increase domestic prices and profits. In 1974, the Canadian Egg\nMarketing Agency, the government arm that controls egg production, destroyed\n28 million surplus eggs to keep producer returns up. Subsequently, thousands\nof surplus Canadian eggs poured onto the American market, selling for as low\nas 27¢ per dozen.\nIn July, 1975, the Canadian Egg Marketing Agency, implementing further\negg stabilization policies, imposed an import quota on eggs. U.S. Agriculture\nofficials maintain that the quota impeded free trade between the two countries.\nPresently, both American and Canadian officials have undertaken negotiations\nto reach an acceptable resolution of the problem.\nTHE CANADIAN AUTOMOTIVE AGREEMENT\nBACKGROUND\nIn the early 1960's, the Canadian automotive industry was unable to\ncompete effectively in international markets because of its traditional position\nas a smaller high-cost duplication of the United States' automotive industry.\nAs a result, the Canadian automotive industry suffered from inefficient pro-\nduction. The degree of inefficiency is reflected by the following facts:\nCanadian vehicle prices were at least 10% higher than U.S. prices.\nEmployees were paid about 30% less in Canada than in the U.S.\nThe return to capital was probably no higher, on the average,\nin Canada than in the United States.\nIn 1961 and 1962, Canada took unilateral steps to improve the competitive\nstance of the Canadian automotive industry. Canadian proposals, such as duty-\nrebates to Canadian manufacturers, irritated Canada's economic relationship with\nFORD\nGERALD\nLIBRARY\n-25-\nthe U.S. The two countries sought a mechanism which would allow Canada to develop\na more efficient automotive industry without adversely affecting U.S. industry. The\nresulting Automotive Agreement (The Automotive Products Trade Act), signed by Canada\nand the United States on January 16, 1965, created the basis for an integrated auto-\nmotive market by, in effect, removing duties on trade between the two countries in\nspecified motor vehicles and original equipment automotive parts.\nThe Agreement sets forth three objectives:\nThe creation of a broader market for automotive products within\nwhich the full benefits of specialization and large scale production\ncan be achieved.\nThe liberalization of U.S. and Canadian automotive trade with\nrespect to trade barriers and other factors tending to impede it.\nThe development of conditions in which market forces may operate\nefficiently to attain the most economic pattern of investment, pro-\nduction, and trade.\nEach government agreed to avoid actions that would frustrate the achievement\nof these objectives. Consequently, the U.S. removed its duties on specified new\nand used Canadian motor vehicles and original automotive parts. Canada fulfilled\nits obligations under the Agreement somewhat differently, by according duty-free\ntreatment to specified new motor vehicles and original equipment parts on a\nMost-Favored-Nation basis to all automotive manufacturers who had production\nfacilities in Canada at the time the Agreement was negotiated.\nIn recognition of a need for a transitional period for the smaller, higher-\ncost Canadian industry to adjust to the competitive pressures of the larger North\nAmerican market, certain restrictive measures were set forth in an annex to the\nAgreement:\nOnly bona fide Canadian vehicle manufacturers may import auto-\nmotive products duty-free and,\nin order to be considered bona fide, manufacturers must meet\ncertain minimum Canadian value-added and Canadian production-to\nsales ratio requirements.\nThe duty-free import privileges apply only to vehicle manufacturers however,\nas individuals are required to pay the Canadian import duty of 15%. This restriction\non duty-free import privileges has contributed to higher prices in Canada by elimi-\nnating the competition dealers would otherwise experience from duty-free imports\nby private citizens.\nSince the signing of the Agreement in 1965, automotive trade, which accounts\nfor one-third of total U.S. -- Canadian trade, has increased eightfold. As a result\nof the Agreement, American automotive companies made large investments in Canada\nFORD & 03RALD LIBRARY\n-26-\nwhich in turn led to an excess Canadian productive capacity. This expanded capacity,\ntogether with a lack of growth in the Canadian automotive market and significant\noverseas import penetration, led to an erosion of the pre-Agreement U.S. surplus, and\neventually to a deficit. In recent years however, the Canadian market has strength-\nened, the market share of overseas imports in Canada has decreased, and trade in\nsnowmobilies has been reduced. As a result, U.S. automotive exports to Canada have\ngrown faster than imports, generating an automotive trade surplus with Canada of\n$426 million in 1973, $1.23 billion in 1974, and an even higher expected surplus\nfor 1975.\nCURRENT DISCUSSION OF THE AGREEMENT\nSeveral major industrial groups have scrutinized the Automotive Agreement\nin the past few years and have voiced some opposition to provisions in the\nAgreement. This opposition stems partly from the dynamic pattern of U.S. -\nCanadian trade, and the change in relative strength of the industries of the\nrespective countries.\nThe current reevaluation of the Automotive Agreement has brought comment\nfrom industries which are intimately involved with the workings of the automotive\nindustry. Most of the groups support the spirit of the Agreement, but suggest\nthat changes could be made.\nThe major industrial groups were represented in a hearing before the Inter-\nnational Trade Commission on December 11, 1975, in Detroit. The ITC prepared\na study of the Automotive Agreement which was completed January 22, 1976. The study\nwas called for by Senator Russell B. Long, chairman of the Senate Committee on\nFinance.\nThe United Auto Workers of America opposes the Agreement as it now stands and\nwishes to see it revised. In testimony before the International Trade Commission,\nUAW President Leonard Woodcock maintained that:\nThe existing price differential of 6.6% between Canadian and\nAmerican auto prices must be abolished in order to increase\nproduction and employment in both countries.\nWhat is at stake is not only the jobs of Americans and\nCanadians employed directly in the auto industry, but also the\njobs of workers in supplier industries, such as steel, aluminum,\nglass, and rubber.\nThe North American content percentage of cars built in Canada\nshould be raised to provide more jobs for Canadian and American\nworkers.\nThe UAW President also urged that we draw the line against duty-free importa-\ntion where imports have been subsidized by the exporting country, or where the\nexporting country denies workers the right to organize themselves freely and to\nengage in collective bargaining. Mr. Woodcock cited the actions of Ford Motor\nCompany in laying off hundreds of workers at its Lima, Ohio, plant, while importing\nBERALD FORD CIBRARY\n-27-\nsubsidized Brazilian engines for cars assembled at its St. Thomas, Ontario plant,\nmost of which are sold in the United States.\nMr. Woodcock also called on the International Trade Commission to examine\ncarefully the methods used to measure the trade flows between the two countries.\nHe maintained that the auto companies may be motivated to manipulate their internal\ntransfer prices in order to shift accounting profits to the country where total\ntax payments are minimized by the combined effect of U.S. and Canadian tax laws.\nThe UAW President further argued that there is some evidence that the invoice prices\nwhich are maintained in the trade between business parties in the automotive industry\nare not likely to be the same as those which pertain in arms-length transactions\nbetween independent companies. If such deliberate price and profit distortions are\nindeed occurring, the revenue loss to either the U.S. or the Canadian governments\ncould be considerable.\nThe Automotive Parts Manufacturers' Association of Canada has also had second\nthoughts regarding the Automotive Agreement. The Association is quite upset because\nof the tremendous trade surplus the U.S. has in its automotive parts trade with\nCanada. According to their testimony, Canadian parts producers have seen their\nshare of the domestic market go from approximately 92% in 1964 to less than 6% in\n1973. The Association argues that there should be some degree of protection afforded\nthe Canadian automotive parts industry under the present economic conditions.\nOn the pro side of the Agreement, however, the Motor Vehicle Manufacturers\nAssociation warns that termination of the pact would have a crippling effect on the\nU.S. motor vehicle manufacturing industry and thus on the U.S. economy. A spokes-\nperson for the Association argued that the Agreement is essential to maintain the\nhigh level of automotive trade between the U.S. and Canada.\nThe Canadian Motor Vehicle Manufacturers Assoociation, which consists largely\nof American automotive subsidiaries, is in concordance with its American counterpart\nthat the effects on Canada of a termination of the Automotive Agreement would be\neconomically devastating.\nThe ITC study concluded that the Automotive Agreement is by no means a free trade\nagreement. Further, the ITC reported that Canada has not fully complied with the\nterms of the agreement. Moreover, the fact that Canada has not phased out the pro-\nvisional restrictions, according to the study, impedes the realization of the original\nobjectives of the Agreement.\nRECOMMENDATIONS\nHaving reviewed U.S. - Canadian relations in trade and foreign investment,\nwe feel the relationship is much too important to allow competing sentiments of\nnationalism to interfere. Taking into account differences in national perspective,\nwe make the following recommendations:\n1. A permanent bilateral panel should be established to monitor trade between\nthe two countries and particularly to help resolve problems as they arise.\nGERALD FORD LIBRARY\n-28-\n2.\nIn view of Saskatchewan's proposed nationalization of potash industries,\nwe concur with S. Res. 403, and further, we urge the province of Sas-\nkatchewan to give full and equitable remuneration to American potash\nindustries which are purchased or expropriated.\n3.\nThe provisions of the U.S. - Canadian Automotive Agreement should remain\nintact. We believe that the Automotive Agreement has greatly benefited\nboth Canada and the United States, not only in trade, but employment\nand production as well. Although the International Trade Commission\nrecommends that Canada phase out the transitional provisions of the\noriginal agreement, we believe that this is not the time to eliminate\nthe provisions because of Canadian trade imbalance due to cyclical\neconomic patterns.\nFurther, we maintain that any effort to increase the North American\n\"content required\" percentage would have only cosmetic effects and would\nexhibit protectionist tendencies not in line with our belief in inter-\nnational free trade.\nFORD is GERALD LIBRARY\n-29-\nU.S. - CANADIAN TRANSDOUNDARY ISSUES\nThe boundary between the United States and Canada, including the Alaskan\nborder, stretches over five thousand miles. Along the international boundary, and\nin the ocean waters off this continent's east and west coasts, are natural resources\nof sufficient abundance and variety to supply many of our two countries' needs.\nAs well, these boundary areas contain some of the most beautiful wilderness in North\nAmerica.\nConfronted simultaneously by rising demands on the earth's resources and a\nneed to protect fragile natural environments, the United States and Canada each\nface many difficult choices in coming years. Energy and materials shortages have\nled both countries to give high priority to fossil fuel production and resource\nmanagement. In recognition of a balancing need for conservation, standing bilateral\nagreements commit the United States and Canada to avoid pollution of boundary waters\nand to a major cleanup effort in the Great Lakes. As pressures for resource utiliza-\ntion and preservation converge - especially when in a border area -- cooperation be-\ntween the United States and Canada will become more and more a necessity.\nBACKGROUND\nIn recent years, a variety of federally- and privately-sponsored projects on\nboth sides of the border have provoked concern for the environmental impacts on the\naffected region. The governments of the United States and Canada have consulted\nfrequently on these issues to avoid damaging each other's interests. At present,\nthe following matters dominate U.S.-Canadian border relations:\nthe Garrison Diversion Unit, a partially constructed multipurpose\nwater project in North Dakota, which Canada fears would degrade\nCanadian waters if completed according to plan;\na proposed oil refinery and tanker port at Eastport, Maine; Canada\nsays an \"unacceptable risk\" would be created by tankers carrying\ncrude oil to Eastport through treacherous Canadian waters in the Bay\nof Fundy;\nheavy tanker traffic from Alaska entering the narrow Rosario and\nJuan de Fuca Straits above Puget Sound (Washington State); with\nseveral refineries now active and tanker traffic due to intensify\nafter completion of the TransAlaska Pipeline, Canada is worried\nabout the risk of oil spill damage along her beautiful and well\npopulated West Coast;\na variety of issues in the Great Lakes, including (1) tardy U.S.\ncompliance with the 1972 Great Lakes Water Quality Agreement,\nwhich bound the U.S. and Canada to have secondary sewage treatment\nfor Great Lakes Basin municipalities by December 31, 1975; (2) regu-\nlation of Great Lakes water levels; and (3) commercial fishing dis-\nputes in Lake Erie;\na Canadian proposal to build flood control apparatus along the\nRichelieu River north of Lake Champlain (New York State); the United\nFORD i 938670 LIBRARY\n-30-\nStates fears that present construction plans, if implemented, might\nhave a harmful effect on Lake Champlain;\nplans by a Canadian metals firm to mine and refine coking coal at a\nsite in Canada eight miles north of Glacier National Park (Montana);\nthe United States is concerned that the proposed \"Cabin Creek\" project\ncould cause waste and runoffs posing a serious threat to the pristine\nbeauty of Glacier, the Flathead National Forest and the Flathead River\nbasin;\nan upcoming session of the Third United Nations Law of the Sea Conference,\nwhere articles on fisheries, deep seabed exploitation, jurisdictional\ndefinitions, navigation rights, and other issues of interest to both\nthe United States and Canada may be incorporated into an international\ntreaty.\nGarrison Diversion Unit\nGarrison is a plan to divert water from the Missouri River for irrigation,\nmunicipal and industrial water supply, and recreational areas, in central and\neastern North Dakota. The project, whose initial stage would affect 250,000\nacres, was first passed by Congress in 1944 and funded beginning in 1965. Appro-\npriations for Garrison totaled $13.3 million in FY 1976. The President requested\n$23 million for the project in his FY 1977 budget. With completion now planned\nfor 1990, the current estimate for the cost of the entire project is $496 million.\nThe Garrison Diversion Unit has long been controversial. Its advocates claim\nthat Garrison's irrigation features would greatly increase farm profitability in\nNorth Dakota by making possible a multi-crop economy. A Bureau of Reclamation\nenvironmental study purports to show a cost-benefit ratio of 2.9 to 1. North\nDakota's Congressional delegation supports the project, as do most supervisory\nagencies and farm organizations in the state.\nBut the Canadian government has concluded that saline return flows from the\nproject's sprinkler irrigation would have adverse effects on Canadian portions\nof the Souris, Assiniboine and Red Rivers and on Lake Winnipeg, causing injury\nto health and property in Canada in contravention of the Boundary Waters Treaty\nof 1909. (Article IV of that Treaty between the U.S. and Canada forbids either\ncountry from polluting boundary waters \"to the injury of health or property\" on\nthe other side of the border.) In a diplomatic note presented to the U.S. govern-\nment in October 1973, the Government of Canada requested the U.S. to \"establish\na moratorium on all further construction of the Garrison Diversion Unit until\nsuch time as the United States and Canadian governments can reach an understanding\nthat Canadian rights and interest have been fully protected in accordance with\nprovisions of the Boundary Waters Treaty.\"\nThe United States government has assured Canada that no construction poten-\ntially affecting waters flowing into Canada will be undertaken until it is clear\nthat our Boundary Waters Treaty obligations to Canada can be met. The International\nJoint Commission, a bilateral group chartered by the Boundary Waters pact to settle\n&\nFORD\nGERALD\nLIBRARY\n-31-\nboundary waters issues, is studying the matter and has promised a report by October\n31, 1976.\nEastport\nAn application by the Pittston Company (New York) for a permit to build an\noil refinery and tanker port at Eastport, Maine, has brought particularly strong\nprotests from the Canadian government. Tankers serving the proposed refinery\nwould have to pass through Head Harbor Passage in the Bay of Fundy -- an especially\ndangerous channel due to near-constant fog, severe tidal fluctuations and a rocky\ncoastline.\nPro-refinery forces in Maine say construction of the project would bring\nneeded jobs and industry and might reduce the cost of oil products in ths econo-\nmically depressed region. However, opponents of the project in Maine and Canada\npoint out that the risk of oil spills is great, and the damage a spill would cause\nto fragile Maine and New Brunswick fishing industries would be extremely serious.\nOpponents also question the Pittston Company's dedication to environmental respon-\nsibility - in 1974, an earthen dam collapsed at a Pittston strip-mine site in\nWest Virginia, killing over 100 people and causing flood damage in 14 nearby\ncommunities.\nThe State of Maine Board of Environmental Protection granted building permits\nto Pittston in June 1975. The company is still in the process of obtaining necessary\nU.S. permits. At any rate, construction cannot begin until Canada grants passage\nrights for crude oil-bearing tankers. Canada has said the risk of spills is\n\"unacceptable\" and has implied that Parliament would deny passage rights through\nHead Harbor Passage.\nThe U.S. government has asked that Canada grant any Pittston application a full\nand fair hearing. The U.S. points out that vessels proceeding to or departing from\nU.S. ports through the waters of Head Harbor Passage enjoy the right of innocent\npassage under international law and that this right is not subject to unreasonable\nor arbitrary interference or suspension.\nStrait of Juan de Fuca\nCanada is concerned about the hazards of large-scale tanker traffic from\nAlaska passing through narrow Canadian straits en route to a refinery at Cherry\nPoint, Washington. In early 1974 the Canadian government proposed a West Coast\nEnvironmental Protection Agreement to lessen the hazards of oil spills. The U.S.\ngovernment reserved its position on the proposal, but agreed at that time to\ntechnical discussions in all areas of Canadian concern. These discussions have\nled to the enactment of several traffic control measures which are now in force in\nthe Straits of Rosario and Juan de Fuca and in Puget Sound. Washington State is\nnow studying the possibility of building a tanker port near Port Angeles on the\nwestern end of the Strait --- a more desirable location in terms of tanker traffic\nsafety.\nFORD & QERALD LIBRARY\n-32-\nThis situation will grow more critical with the completion in the late '70s\nof the TransAlaskan Pipeline. The volume of crude oil-bearing tanker traffic from\nAlaska to West Coast refineries in the United States is expected to increase drama-\ntically. Canada is hoping to avoid a concomitant rise in the risk of oil spillage.\nThe Great Lakes\nThe Great Lakes chain is a critical resource for both the United States and\nCanada. Major portions of both countries' population and industry are located in\nthe Great Lakes Basin. The United States and Canada face many issues involving\nshipping, hydropower, pollution and resource management in the Lakes; the matters\ndiscussed in the sub-paragraphs which follow are of especial current interest:\nThe Great Lakes Agreement. The 1972 Great Lakes Water Quality Agreement\nbetween the United States and Canada committed both countries to a massive effort\nto construct and upgrade municipal sewage treatment facilities in the Great Lakes\nBasin. Under the Agreement, both nations were required to have waste treatment\nfacilities in all basin municipalities with sewer systems either complete or in\n\"process of implementation\" by December 31, 1975. Canada has substantially ful-\nfilled its obligations under the Agreement.\nIn the United States, only an estimated 60 per cent of the basin population\nwere being served by \"adequate\" sewage treatment plants when the deadline passed.\nAnother 20-25% of the population lives in areas where plants are in an early\nplanning stage. Our program's tardiness is traceable to (1) difficulties ex-\nperienced by many municipalities in meeting U.S. Environmental Protection Agency\nadministrative requirements to qualify for grants and (2) the impoundment of $3.5\nmillion in targeted funds by the Nixon Administration in fiscal years 1973 and 1974.\nAdditionally, the U.S. General Accounting Office has suggested that Federal water\npollution control funding may not be adequate for timely completion of the U.S.\nGreat Lakes program. Canada has expressed its concern over the delays in the\nU.S. program directly to President Ford and Secretary of State Kissinger. During\nSecretary Kissinger's visit to Ottawa last October, the Secretary recognized\nour obligations under the Agreement and acknowledged that our program is behind\nschedule. At that time, he pledged that the Administration would make every\neffort to encourage total U.S. compliance.\nRegulation of the Great Lakes. The United States and Canada for many years\nhave cooperated, under the authority of the Boundary Waters Treaty of 1909, in\nregulating the water levels of Lakes Superior and Ontario. This regulation, through\ncontrol works at key inflow and outflow points, is intended to moderate extreme\nlong-term fluctuations in the levels of those two lakes for various purposes, in-\ncluding the protection of property, navigation and hydropower interests.\nIn recent years extremely high water levels, especially on Lakes Erie, Huron\nand St. Clair, have caused extensive erosion and flood damage to shore property.\nThough regulation of Lakes Superior and Ontario does marginally affect the water\nlevels in the other Great Lakes, no effective means actually exist to regulate the\nwater levels of Lakes Michigan, Huron, Erie and St. Clair. This damage has caused\ngreat public outcry from property owners, who hope for some governmental response\nis\nFORD\nGERALD\nLIBRARY\n-33-\nto the urgent need for regulation of the lakes, to modify the cyclical high and low\nwater levels that naturally occur in the lakes.\nThe International Joint Commission, created by the 1909 Treaty and charged with\noverseeing regulation of lake levels, has conducted an extensive study of the water\nlevels on all the lakes. The I.J.C. now is reviewing at least two specific plans,\nidentified by the Corps of Engineers as exhibiting favorable cost/benefit ratios,\nfor further regulation to benefit all of the Great Lakes as one system. It now is\nanticipated their report will be submitted to the two governments for their approval\nin early May, 1976.\nCommercial Fishing in Lake Erie\nCommercial fishermen from Ohio have complained of overfishing and poaching\nin Lake Erie by Canadian fishermen from Ontario. The Ohio fishermen charge that the\nU.S. - Canada Convention on Great Lakes Fisheries (1955) provides inadequate pro-\ntection against depletion of fish stocks, and that a new treaty is needed to safe-\nguard their livelihood.\nThe 1955 agreement created a bilateral Great Lakes Fisheries Commission to\nconduct research on management of fisheries stocks. However, the Commission does\nnot have regulatory powers. Regulation now exists only on the state and province\nlevel, and Ohio fishermen argue that regulation by the province of Ontario has been\nineffective in stopping overnetting by Ontario boats in Lake Erie.\nEarlier U.S. complaints about poaching (illegal fishing by Ontario boats in\nOhio waters) in Lake Erie brought promises of strengthened supervision from pro-\nvincial authorities. The Ohio fishermen argue that unless stringent seasonal\ngear and catch size standards are adopted and observed, the fishing industry in\nLake Erie for both the U.S. and Canada could suffer fatal damage.\nRichelieu River Lake Champlain\nBecause of high water levels on Lake Champlain and flooding of its outlet\nriver, the Richelieu, the United States and Canadian governments asked the In-\nternational Joint Commission (IJC) to study means of flood control and regulation.\nThe subsequent IJC report said that regulation of lake levels should not go forward\nbefore exhaustive environmental studies were conducted. U.S. interests continue to\noppose regulation unless it is clear that its environmental impacts are minimal.\nIn early 1975, the IJC proposed a careful compromise which would have allowed\nthe Canadian government to begin construction of control works, provided for\nfurther environmental studies, and postponed the adoption of a regulation plan until\nadequate environmental data was available.\nThe United States government endorsed the IJC compromise proposal. Canada\napproved further environmental studies and in late 1975 applied to the IJC for an\norder of approval for a new construction plan. The plan is for a fixed-crest\nweir, or submerged dam, in the Richeleieu River which would provide a reduction\nin flood levels while maintaining low water levels on Lake Champlain near natural\nconditions.\nFORD is GERALD LIBRARY\n-34-\nThe Canadian government regards the new construction proposal as a significant\ncompromise to U.S. interests. Canada argues that there is an urgent need for flood\ncontrol in the Richelieu Basin and that earlier environmental studies have shown\nthat the impact of the project on the environment will be minimal. The U.S.\nbelieves that the proposal has merit and should be studied by the IJC's Richelieu-\nChamplain Board, but that no decision should be taken on implementation until en-\nvironmental studies are completed.\nFlathead River/Cabin Creek Coal Project\nA Canadian mining company has drawn up plans to take an estimated 110 million\ntons of high grade coking coal from a site eight miles north of the international\nboundary on Cabin Creek, a tributary of the North Fork of the Flathead River which\nruns into Montana. The North Fork forms the western border of Glacier National\nPark and is presently under consideration for inclusion in the U.S. Wild and Scenic\nRivers System. Mining operations could result in transboundary air and water\npollution affecting Glacier National Park and end all hopes of preserving the river\nin a wild and scenic state. The project is strongly opposed by local residents, the\nMontana delegation, and U.S. and Canadian conservation groups. There appear to be no\neconomic advantages to the U.S. from the proposed development; coal from the site\nis expected to be exported to Japan.\nCanada has pledged to ensure that any development at Cabin Creek will be so\ndesigned and operated as to meet Canada's treaty obligations not to pollute\nwaters crossing the boundary to the injury of health or property. The Canadian\ngovernment welcomes consultations with the U.S. to reach a mutually acceptable solu-\ntion.\nThe U.S. government is concerned that the proposed Cabin Creek project would\nseriously undermine efforts to protect the unique environmental value of Glacier\nNational Park, the Flathead National Forest and the Flathead River Basin and could\ncause injury to both public and private property in these areas. The U.S. welcomes\nCanada's assurances that it will abide by its treaty obligations and appreciates\nCanada's willingness to hold consultations to ensure that American interests are\nprotected. The U.S. government believes that no approval for actual mining should\nbe granted by provincial or federal authorities until it is clear that U.S. interests\nwill be adequately safeguarded. To this end, the United States has asked the govern-\nment of Canada to explore with us the utility of a bilateral agreement or other\narrangements which would help assure that the unique beauty of the Glacier National\nPark area can be preserved.\nLaw of the Sea\nThe United States and Canada hold many common interests in the Third United\nNations Law of the Sea Conference, whose third session convened in March in New\nYork City. The two countries have proposed slightly different approaches to\nseveral issues. However, at the present meeting, or in a subsequent parley\n(if needed) in Geneva in August, both the United States and Canada hope to see\n&\nFORD\nGERALD\nLIBRARY\n-35-\narticles on the following subjects incorporated into a final treaty:\nfisheries management and conservation principles for coastal\nstates, including rules for primacy of jurisdiction, the right\nto establish quotas, and special protection for anadromous species\n(fish which spawn inland or upstream and then migrate to distant\nocean waters, e.g., salmon and tuna);\na regime for international straits, defining rights of international\nnavigation and overflight, and balancing rights of coastal states\nto prevent environmental damage;\na deep seabed authority, to govern international exploitation of\nminerals and living resources on the ocean floor beyond the conti-\nnental margins;\nthe establishment of territorial and economic zones or boundaries in\nthe sea;\npeaceful settlement of disputes.\nU.S. and Canadian coastal fisheries have been seriously depleted by foreign\ndistant-water fishing fleets. At the Law of the Sea Conference, the Canadian\nposition on fisheries is similar to that of the United States. The U.S. favors\n(1) coastal state management and sovereign rights over coastal species out to\n200 miles; (2) exclusive host state control of salmon and other anadromous species\nto the full extent of their migratory range; and (3) regional or international\nmanagement of highly migratory species such as tuna.\nThe Trudeau and Ford Administrations have opposed drives within their own\ncountries to enact unilateral 200-mile fishing zone legislation. The U.S. and\nCanadian governments have, instead, urged that similar 200-mile coastal state\nprimacy standards be ratified through a Third International Law of the Sea treaty.\nThe Canadian government has been successful in resisting internal pressures up to\nnow. Congress recently passed a bill, H.R. 200, to extend the U.S. fishing juris-\ndiction to 200 miles. However, the measure may never be effected unilaterally,\nsince the House-Senate Conference report, adopted by both houses and awaiting the\nPresident's signature, postpones until March 1, 1977, the in-force date of the bill.\nIt is hoped that by that time a new international agreement will have eliminated\nthe need for unilateral action by the United States.\nOn pollution issues, Canada's determination to preserve her fragile Arctic\nenvironment led to the enactment of the 1970 Canadian Arctic Waters Pollution\nControl Act. The Act proclaimed for Canada pollution jurisdiction over foreign\nvessels in a 100-mile pollution control zone off Canadian shores above the 60th\nparallel. At the Law of the Sea Conference, Canada proposes to vest broad powers\nin the port state and coastal state to enforce both national and international\npollution control standards for vessels in ports and coastal waters.\nThe United States shares Canada's determination to prevent pollution of the\nseas, but favors an approach which is different in several respects. Specifically,\n&\nFORD\nGERALD\nLIBRARY\n-36-\nthe United States rejects Canada's assertion of a right to unilateral extension\nof pollution jurisdiction such as is claimed in the 1970 Canadian Arctic Waters\nlegislation. In the Law of the Sea forum, the United States has maintained that\nonly international construction and discharge standards apply to vessels beyond\nthe territorial sea (12 miles offshore), except such additional standards as a\nflag state may impose upon its own vessels. The United States supports an enforce-\nment system in which the flag state would (1) be obligated to enforce violations\nof international law against its own vessels; (2) be able to enforce against vio-\nlations of international as well as national law for all vessels which are volun-\ntarily present in its ports; and (3) have a right to enforce international and\nnational standards applicable to vessels within its territorial sea, provided that\nsuch rules did not hamper innocent passage.\nExploitation of the international deep seabed area beyond the economic zones\nof individual coastal states is a matter of profound interest to all countries\nparticipating in the Law of the Sea Conference. The United States favors access\nto international seabed resources for individual nations and private commercial\ninterests, coupled with revenue sharing for the benefit of the world community.\nMany of the highly industrialized countries, including the U.S.S.R. and the\nE.E.C. states (minus Ireland), also support this concept.\nCanada, siding with a large number of developing countries, wants to endow\nthe future International Seabed Authority with exclusive rights to carry out all\nactivities in the international seabed area. This would permit production-sharing\nas well as revenue-sharing. Under this scheme, the Authority could grant service\ncontracts to nations or corporations but would maintain its full and effective\ncontrol at all times.\nRECOMMENDATIONS\nIn general, we urge that the United States renew its long-standing commitment\nto amicable transboundary relations with Canada. We recommend that steps be taken\nwhich will affirm our adherence to agreements protecting the environments and\nresources along the U.S. - Canadian border, without unduly restricting needed\ndevelopment projects. We make the recommendations outlined below in the belief\nthat our shared land and water boundary areas can be hardy, perennial sources of\nfood, fuel and recreational pleasure in the future, if we commit ourselves to the\npreservation of the time-tested natural balance of the elements.\n1.\nCongress should give careful consideration to the forthcoming report\nof the International Joint Commission on probable impacts of Garrison\nDiversion Unit return flows on Canadian waters. If the I.J.C. report\nshows that construction of the project would not cause U.S. violations\nof the Boundary Waters Treaty, we would support completion of the\nproject, with such modifications as might be necessary to eradicate\nsignificant Canadian concerns.\nIf the I.J.C. report demonstrates conclusively that construction of\nGarrison's Initial Stage would cause adverse impacts on Canadian\nwaters in contravention of the Boundary Waters Treaty, we would\nis\nFORD\nGERALD\nLIBRARY\n-37-\nsupport a moratorium on the appropriation of funds for construction\nof project features affecting Canada.\n2.\nThe Canadian government should give the Pittston Company a full and\nfair hearing consistent with the protection of innocent passage under\ninternational law, if and when the Company applies for transit and\nnavigation rights through Canadian waters to a proposed crude oil\nrefinery at Eastport, Maine.\n3.\nTo resolve the threat of oil spills from tanker traffic through the\nStrait of Juan de Fuca, Congress should explore the potential for\nfederal-state cooperation in testing the utility of a western site\nfor refineries and tanker port in Puget Sound.\n4.\nWe urge oversight committees in Congress to weigh the effectiveness of\npresent research, construction and quality control measures designed\nto bring about U.S. compliance with the 1972 Great Lakes Water Quality\nAgreement. We also believe that increased participation by the states\nwould lead to faster and better-supervised allocation of needed funds\nfor waste treatment facilities in the Great Lakes Basin. To help states\nfinance added water pollution control burdens, Congress should consider\nlegislation such as H.R. 2175 [Rep. James Cleveland (R.-N.H.) and Rep.\nJim Wright (D.-Tex.)]\n5.\nThe U.S. and Canadian governments should make further bilateral efforts\nto moderate extreme fluctuations in water levels on the Great Lakes.\nThe two governments should weigh carefully the forthcoming report of\nthe International Joint Commission on regulation of lake levels to\nprevent damage to shore property.\n6.\nTo prevent depletion of fish stocks, and to protect legitimate U.S.\nfishing interests, the U.S. should explore with Canada the need for\na new regime governing management of fisheries in Lake Erie.\n7.\nIn the interests of insuring against premature construction of flood\ncontrol apparatus at Lake Champlain, the U.S. should support continued\nfunding of International Joint Commission studies of the environmental\nimpacts of regulation of water levels at the lake.\n8.\nThe U.S. State Department should continue to impress upon the Canadian\ngovernment the importance of preventing pollution of the Flathead Basin\nand Glacier National Park (Montana) area from any future coal operations\non the Canadian side of the border.\n9.\nThe United States and Canda should seek every available opportunity for\ncooperative effort at the U.N. Law of the Sea Conference convening in\nMarch in New York. Agreement this year on a final negotiating text for\na 3rd International Law of the Sea Treaty would hasten the inauguration\nof needed ocean resource management controls.\nFORD is 038870 LIBRARY"
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