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Alaska Natural Gas Transportation Act
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The original documents are located in Box 1, folder "Alaska Natural Gas Transportation
Act" of the Loen and Leppert Files at the Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
VL
THE WHITE HOUSE
WASHINGTON
XL
March 10, 1976
TO:
VERN LOEN
FROM:
GLENN SCHLEEDE
Attached is a copy of the
Administration's Alaskan Natural
Gas bill which is being sent
to the Hill today by Frank Zarb.
Also attached is a copy of the
cover letter and fact sheet.
Attachments
FORD & LIBRARY GERALD
DEDERAL
ENERGY
FEDERAL ENERGY ADMINISTRATION
WASHINGTON, D.C. 20461
OFFICE OF THE ADMINISTRATOR
Honorable Nelson A. Rockefeller
President of the Senate
Washington, D.C. 20510
Dear Mr. President:
I am transmitting herewith a bill entitled the "Alaskan
Natural Gas Transportation Act of 1976." This bill is
designed to expedite the selection and construction of a
system for the transportation of natural gas from the
North Slope of Alaska to the lower 48 states.
The bill recognizes the importance to the Nation of prompt
selection of such a transportation system, and will pro-
vide a means to obtain a decision on this vital issue as
soon as feasible, but no later than October 1, 1977. At
the same time, it will provide adequately for the detailed
technical, financial and environmental studies that must
be completed to assure a decision in the public interest,
with participation by both the Congress and the Executive.
Production of natural gas in the United States continues to
decline. This trend weakens the efforts the Nation must
make to promote domestic production of energy resources,
to reduce our dependence upon foreign energy sources and
our vulnerability to another embargo. Although natural
gas from Alaska is not the only answer to our energy needs,
we must act now to assure that we can use this significant
domestic energy resource as soon as possible. The long
lead times required by the scale and sophistication of the
engineering and construction effort to transport Alaskan
gas argue strongly for an efficient decision-making process.
Unnecessary procedural delay would be unconscionable.
Two applications for a system to transport North Slope natural
gas to the lower 48 states are now pending before the Federal
Power Commission. The Commission is well along in the diffi-
cult and complex task of reviewing and analyzing these
applications as well as alternative systems. I believe that
FORD
- 2 -
it would be a mistake, as some have suggested, to truncate
this carefully conducted deliberative process by the agency
most familiar with the natural gas industry. While we need
a prompt decision, we also need the right decision.
Nonetheless, selection of a system, because of the size of
the project and the complexity of the decision, will transcend
the responsibilities of any single Federal agency. Final
selection of a route will involve national security, energy,
environmental and diplomatic considerations which it is
neither fair nor appropriate to ask the Federal Power
Commission alone to resolve. Accordingly, the proposed
legislation provides for the Federal Power Commission to com-
plete its review and make a recommendation to the President
by January 1, 1977. The proposed legislation provides for the
final decision to be made by the President, with such informa-
tion and recommendations from other Federal agencies as the
President deems appropriate. The bill would require the
President to make a decision as soon as possible after receipt
of agency recommendations, but in no event later than August 1,
1977. The Congress would then have 60 days in which it might
review and act upon this decision. If the Congress takes no
negative action on the President's decision, the Federal Power
Commission and other relevant Federal agencies are mandated to
promptly issue, consistent with normal procedures and criteria,
the needed certificates, permits, leases, rights of way and
other necessary authorizations, which would occur after com-
pletion of a final environmental impact statement. In addition,
the bill limits the scope and timing of judicial review, con-
sistent with constitutional safeguards, so that lawsuits by
private parties will not hamstring expeditious construction of
a system that the President and the Congress have agreed is in
the national interest.
These provisions of the bill are similar to those adopted by
the Congress in the Trans-Alaska Pipeline Authorization Act of
1973. This legislation is no less urgent, and commends use of
the same means promptly to assure a decision which carries out
the public interest.
The Office of Management and Budget has advised that enactment
of this legislation would be in accord with the energy program
of the President. I urge early action by the Congress on this
important legislation.
Sincerely,
Frank G. Zarb
Administrator
A BILL
To expedite the delivery of Alaskan Natural Gas to
United States' markets, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SHORT TITLE
Section 1. This Act may be cited as the "Alaskan
Natural Gas Transportation Act of 1976. "
CONGRESSIONAL FINDINGS
Sec. 2. The Congress finds and declares that:
(a) A natural gas supply shortage exists in the United.
States.
(b) Large reserves of natural gas in the State of
Alaska can help significantly to alleviate this supply
shortage.
(c) The construction of a natural gas pipeline system
to transport natural gas from Alaska to the contiguous 48
states at the earliest practicable time, is essential to the
national interest.
(d) Alternative delivery systems for transporting
Alaskan natural gas to the contiguous 48 states are avail-
able, and the decision as to the selection of a system is
one which involves critical questions of national energy
policy, international relations, national defense, and
economic and environmental considerations, and which there-
fore should appropriately be addressed by the Congress of
the United States and the Executive Branch, in addition to
the Federal Power Commission.
STATEMENT OF PURPOSE
Sec. 3. The purpose of this Act is to expedite the
selection and construction of a natural gas transportation
system for delivery of Alaskan natural gas to the contiguous
48 states through establishment of new administrative and
judicial procedures. To accomplish this purpose it is the
intent of the Congress to exercise its constitutional powers
to the fullest extent in the authorizations and directions
herein made and in limiting judicial review of the actions
taken pursuant thereto.
DEFINITIONS
Sec. 4. As used in this Act;
(a) The term "Alaskan natural gas" means natural gas
derived from the area of the State of Alaska generally known
as the North Slope of Alaska, including the continental
shelf thereof.
(b) The term "Commission" means the Federal Power
Commission.
(c) The term "Secretary" means the Secretary of the
Interior.
3
FEDERAL POWER COMMISSION REVIEW
Sec. 5. (a) Notwithstanding the provisions of the
Natural Gas Act (15 U.S.C., $717-717w), the procedures es-
tablished by this Act shall govern actions by the Commission
with respect to review and approvals of applications for a
certificate of public convenience and necessity filed by any
person with respect to proposals to transport Alaskan natural
gas from the State of Alaska for use within other states in
the continental United States. The provisions of the Natural
Gas Act shall apply to the extent they are not inconsistent
with this Act. Any certificate of public convenience and
necessity related to the transportation of Alaskan natural
gas from the State of Alaska shall be issued by the Commission
in accordance with section 9 of this Act.
(b) The Commission is hereby directed to complete its pro-
ceedings with respect to proposals for the transportation of
Alaskan natural gas from the State of Alaska, which pro-
ceedings are pending on the date of enactment of this Act,
and to transmit a determination thereon to the President by
January 1, 1977.
(c) The determination required by subsection (b) of this
section may be in the form of a proposed certificate of
public convenience and necessity, or such other form as the
Commission deems appropriate, and should include such in-
formation as the Commission deems appropriate, including:
4
(i) estimated capital and operating costs, including
analysis of any likely cost overruns;
(ii) analysis of construction schedules and possi-
bilities for delay;
(iii) extent of reserves, both proven and probable,
and their deliverability into a transportation
system;
(iv) analysis of environmental considerations,
including pipeline design criteria, and main-
tenance and construction procedures;
(v) financing capabilities;
(vi) safety in design and operation;
(vii) anticipated demand in, and deliverability to
particular markets, including analysis of dis-
placement questions and substitute fuels;
(viii) anticipated transportation tariffs, both short-
term and long term.
OTHER AGENCY REPORTS
Sec. 6. By February 1, 1977, the President shall
require from such agencies as he deems appropriate the sub-
mission of reports to him with respect to the alternative
methods for delivering Alaskan natural gas to the other
states in the continental United States. Such reports
should include information with respect to:
(a) issues related to national energy policy;
5
(b) environmental considerations, including
a detailed study' of the air and water quality and
noise impacts;
(c) issues related to pipeline safety and Liquified
Natural Gas transportation;
(d) foreign policy aspects, including evaluation of
the status of Canadian approvals and plans;
(e) national defense, particularly questions of
security of supply;
(f) issues relating to natural resources, use of
Federal lands, and fish and wildlife resources;
and
(g) issues relating to financing.
PRESIDENTIAL DECISION
Sec. 7. (a) As soon as possible after receipt of the
reports required by section 6, but not later than August 1,
1977, the President shall issue a decision as to which
system for transportation of Alaskan natural gas, if any,
shall be issued the necessary approvals in accordance with
sections 9 and 10 of this Act. The Presidential selection
of the natural gas transportation system shall be based on
the determination as to which system best serves the national
interest in bringing Alaskan natural gas to the contiguous
48 states and shall include such terms and conditions as the
President deems appropriate.
6
(b) The decision of the President made pursuant to sub-
section (a) of this section, along with a statement of the
reasons therefor, shall be transmitted immediately to the
Senate and the House of Representatives.
(c) The decision of the President shall become final as
provided in section 8.
CONGRESSIONAL REVIEW
Sec. 8. (a) A Presidential decision issued pursuant
to section 7 shall become final after the close of the 60-
day period beginning on the day on which such decision is
transmitted to the Senate and to the House of Representatives.
(b) If, because of Congressional action, the Presidential
decision does not become final, the President may submit the
same or a new decision to the Senate and the House of Repre-
sentatives. Any such new submission may only become final
in accordance with the procedures specified in subsection
(a) in the same manner as a decision issued pursuant to
section 7.
7
CERTIFICATION
Sec. 9. (a) The Congress hereby authorizes and di-
rects the Commission, within thirty days after a Presidential
decision has become final in accordance with section 8 of
this Act, to issue all certificates, permits, and other
authorizations necessary for or related to the construction,
operation, and maintenance of the transportation system
selected in accordance with sections 7 and 8 of this Act.
The Commission, in issuing such certificates, permits or
authorizations, shall include the terms and conditions set
out by the President in his decision pursuant to section 7
of this Act.
(b) No action may be taken by any agency pursuant to this
Act until any environmental impact statements considering a
system for transportation of natural gas from Alaska to the
contiguous 48 states, which statements are in draft form on
the effective date of this Act, are completed in final form
and filed with the Council on Environmental Quality.
Section 102 (2) (C) of the National Environmental Policy Act
of 1969 shall not be applicable to the Alaskan Natural Gas
transportation system selected in accordance with this Act,
except as provided in this subsection.
OTHER ADMINISTRATIVE AUTHORIZATIONS
Sec. 10. (a) The Congress hereby authorizes and
directs the Secretary of the Interior, the Secretary of
8
Transportation, and other appropriate Federal officers and
agencies to issue and take all necessary action to adminis-
ter and enforce rights-of-way, permits, leases, and other
authorizations that are necessary for or related to the con-
struction, operation, and maintenance of the Alaskan natural
gas transportation system; provided that, nothing in this
subsection shall be construed to require the granting of any
authorization relating to federal financial assistance.
(b) Rights-of-way, permits, leases, and other authoriza-
tions issued pursuant to this Act by the Secretary shall be
subject to the provisions of section 28 of the Mineral
Leasing Act of 1920 (30 U.S.C., $185) (except the provisions
of subsections (h) (1), (j),,- (k), (q), and (w) (2) ) ; all
authorizations issued by the Secretary and other Federal
officers and agencies shall include the terms and conditions
required, and may include the terms and conditions per-
mitted, by the provisions of law that would otherwise be
applicable if this Act had not been enacted, and they may
waive any procedural requirements of law or regulations
which they deem desirable to waive in order to accomplish
the purposes of this Act. The direction contained in sub-
section (a) of this section shall supersede the provisions
of any law or regulations relating to an administrative
determination as to whether the authorizations for construc-
tion of the Alaskan natural gas transportation system shall
be issued.
FORD
9
(c) The Secretary of the Interior and the other Federal
officers and agencies are authorized at any time when neces-
sary to protect the public interest, pursuant to the authority
of this section and in accordance with its provisions, to
amend or modify any right-of-way, permit, lease, or other
authorization issued under this Act.
JUDICIAL REVIEW
Sec. 11. The actions of the Federal officers concerning
the issuance of the necessary rights-of-way, permits, leases,
and other authorizations for construction, and initial
operation at full capacity of the Alaskan natural gas trans-
portation system, including the issuance of a certificate of
public convenience and necessity by the Commission, shall
not be subject to judicial review under any law, except that
claims alleging the invalidity of this section may be brought
within sixty days following the date of enactment, and
claims alleging that an action will deny rights under the
Constitution of the United States, or that the action is
beyond the scope of authority conferred by this Act, may be
brought within 60 days following the date of such action. A
claim shall be barred unless a complaint is filed in the
United States district court for the District of Columbia
within such time limits, and such court shall have exclusive
jurisdiction to determine such proceeding in accordance with
the procedures hereinafter provided, and no other court of
FORD
10
the United States, of any State, territory, or possession of
the United States, or of the District of Columbia, shall
have jurisdiction of any such claim whether in a proceeding
instituted prior to or on or after the date of enactment of
this Act. Any such proceeding shall be assigned for hearing
at the earliest possible date, shall take precedence over
all other matters pending on the docket of the district
court at that time, and shall be expedited in every way by
such court. Such court shall not have jurisdiction to grant
any injunctive relief against the issuance of any right-of-
way, permit, lease, or other authorization pursuant to this
section except in conjunction with a final judgment entered
in a case involving a claim filed pursuant to this section.
There shall be no review of an interlocutory or final
judgment, decree, or order of such district court except
that any party may appeal directly to the Supreme Court of
the United States.
SEPARABILITY
Sec. 12. If any provision of this Act, or the appli-
cation thereof, is held invalid, the remainder of this Act
shall not be affected thereby.
FACT SHEET
PROPOSED LEGISLATION RELATIVE TO CONSTRUCTION OF A
NATURAL GAS PIPELINE FROM ALASKA
Background
Natural gas is a vital source of domestic energy. It
accounts for 30 percent of total energy consumption and
over 40 percent of non-transportation needs. Yet,
domestic production of gas peaked in 1973 at 22.5
trillion cubic feet and has declined in each of the
past two years. Domestic proved reserves have been
declining since 1965, with the exception of 1969 when
the North Slope Reserves were added to the national
resource base. As a consequence of declining supply,
curtailments have been increasing steadily since they
were first experienced in 1970.
While the President has declared that deregulation of
new natural gas is the most important action that can
be taken to improve our future situation, it is also
imperative to assure that all possible proven sources
of additional gas supply are developed. Such a source
is the vast reserves on the North Slope of Alaska,
estimated at 26 trillion cubic feet.
Proposed alternative delivery systems for transporting
Alaskan natural gas to the "Lower 48" States are now
under consideration. Current federal studies indicate
that proposals to deliver the gas are economically
viable. Unless the federal selection and implementation
processes are expedited, the delivery of this critical
fuel will be delayed, and the costs of the proposed
transportation systems will rise markedly. Delay will
also increase the propsects of future curtailments and
costs to the consumer.
Statutory Delays
Current Alaskan gas transportation proposals involve
critical questions of national energy policy, international
relations, national defense, and economic and environ-
mental considerations. These concerns are not, however,
insurmountable and indeed, must be resolved quickly if
delays in construction are not to inflate the ultimate
costs of the system.
Some of the areas of potential delay are:
-
Federal Power Commission
- 2 -
1.
Issue a certificate of public convenience and
necessity for the construction and operation
of the transportation system (including the
allowable tariff)
2.
Authorize gas sale by Prudhoe Bay gas producers.
3.
Approve agreements, including quantities and
price, between parties affected by any
proposed displacement of natural gas supplies.
-
Interior Department
1.
Permits for rights-of-ways over federal land,
both in Alaska and the "Lower 48" States.
2.
Assure that the interests of the Alaskan
natives are fully protected.
-
Environmental Protection Agency (and the affected
States)
1.
Permits for discharge of liquid waste into
waters of the State, if relevant.
-
Corps of Engineers
1.
Permits for river crossings and for dredging
of river bottoms.
-
Coast Guard
1.
Various approvals regarding construction and
operation of liquid natural gas tankers, if
relevant.
-
Other Federal Agencies
1.
Federal Maritime Commission, Public Health
Service, Maritime Administration, Federal
Communications Commission.
-
Individual State Approvals
1.
Alaska authorization on the natural gas
Maximum Efficient Rates (MER) of production.
Any other State authorization or permits
regarding roads, sewage, coastal zone impacts,
etc. Some States may institute additional
- 3 -
certification requirements to minimize
adverse effects or to influence the selection
process.
How Legislation Deals with These Factors
The proposed "Alaskan Natural Gas Transportation Act of
1976" would expedite the selection and construction of
a natural gas transportation system for delivery of
Alaskan natural gas to the "Lower 48" States through
the establishment of new administrative and judicial
procedures.
The Federal Power Commission is already engaged in
comprehensive hearings on Alaskan Gas transportation
proposals which they expect to complete by the end of
the year. The Bill would require the FPC to complete
its current proceedings and transmit a determination to
the President by January 1, 1977. Such determination
may be in the form of a proposed certificate of public
convenience and necessity or such other form as the
Commission deems appropriate.
The President is required to obtain such other reports
and recommendations with respect to the alternative
delivery systems from other Federal agencies by
February 1, 1977, as he deems to be appropriate.
After reviewing the FPC's recommendations and other
information, the President will select a route for the
delivery of Alaskan natural gas and will transmit this
decision, along with a statement to the Congress of his
reasons, as promptly as feasible, but not later than
August 1, 1977.
The Congress will then have 60 days to review the
President's decision before it becomes final. If
Congress takes action to disapprove this decision, the
President may submit the same or a new decision which
would be subject to the same review process.
If Congress takes no negative action on the President's
decision, the Federal Power Commission shall issue all
necessary authorizations within 30 days after the
President's decision is final.
To ensure adequate environmental safeguards, no authori-
zations may be issued unless a final Environmental
Impact Statement has been completed.
- 4 -
All Executive Agencies would be directed to expedite
the issuance of all permits and authorizations necessary
to implement the Presidential decision. The Act would
also limit judicial review of all actions taken under the
Act, including those relating to environmental questions.
FOR IMMEDIATE RELEASE
April 20, 1976
Contact: Roger Greenbaum
Neil Newhouse
(202) 225-0580
From the offices of:
John B. Anderson, (R.-Ill.)
Paul McCloskey, (R.-Calif.)
Mark Andrews, (R.-N.D.)
Charles Mosher, (R.-Ohio)
Pierre duPont, (R.-Del.)
Joel Pritchard, (R.-Wash.)
Hamilton Fish, (R.-N.Y.)
Ralph Regula, (R.-Ohio)
Willis Gradison, (R.-Ohio)
Philip L. Ruppe, (R.-Mich.)
H. John Heinz, III, (R.-Pa.)
Garner Shriver, (R.-Kans.)
Elwood Hillis, (R-Ind.)
J. William Stanton, (R.-Ohio)
Charles Whalen, (R.-Ohio)
Fifteen Pepublican Pepresentatives today released the results
of their study on U.S. - Canadian Relations and made 28 recommen-
dations regarding U.S. policy with Canada. The study focuses on
four aspects of U.S. - Canadian relations: energy, communications,
trade and foreign investment, and transboundary issues.
Stating that "it has been a rude surprise to find our govern-
ments engaged in an exchange of verbal and economic brickbats,' the
Republican Representatives conclude that "the deteriorating rela-
tions between the United States and Canada force us to re-evaluate
the friendship that we have long taken for granted."
The Congressmen note that "both the U.S. and Canada are
caught up in a period of intense self-examination," but draw the
distinction that "Canadians are caught up in a period of rising
nationalism."
Highlights of the 28 recommendations made by the represen-
tatives include:
In view of Saskatchewan's proposed nationalization of potash
industries, the Pepresentatives urge the province of Saskatche-
wan to give full and equitable remuneration to American
potash industries which are purchased or expropriated.
The Special Representative for Trade should be asked to in-
vestigate whether Canada's policies in the several cormuni-
cations fields are discriminatory to U.S. trade with Canada.
If no progress is made in the negotiations over the deletion
of U.S. television commercials seen on Canadian cable tele-
vision, consideration should be given to endorsing U.S. border
stations' requests for permission to "jam" their own signals
beamed toward Canada.
Every effort should be made to expedite legislative and ju-
dicial proceedings necessary for the eventual delivery of
Alaskan natural gas to the lower 40 states.
The provisions of the U.S. - Canadian Automotive Agreement
should remain intact.
TO prevent dopletion of fish stocks, and to protect legiti
mate U.S. fishing interests, the U.S. should explore with
Canada the need for a new regime governing management of
fisheries in Lake Lrie.
Oversight committees in Congress should weich the effective-
ness of present research, construction and quality control
measures designed to bring about U.S. compliance with the
1972 Great Lakes Water Quality Agreement with Canada, Congress
should also consider legislation to oncourage Great Lakes
Basin States to participate in the supervision of waste
treatment programs.
GERALD FORD LIBRARY
U.S. - CANADIAN RELATIONS
Hon. John Anderson, Ill.
Hon. Paul McCloskey, Calif.
Hon. Mark Andrews, N.D.
Hon. Charles Mosher, Ohio
Hon. Pierre S. duPont, Del.
Hon. Joel Pritchard, Wash.
Hon. Hamilton Fish, N.Y.
Hon. Ralph Regula, Ohio
Hon. Willis Gradison, Ohio
Hon. Philip Ruppe, Mich.
Hon. H. John Heinz, Pa.
Hon. Garner Shriver, Kans.
Hon. Elwood Hillis, Ind.
Hon. J. William Stanton, Ohio
Hon. Charles Whalen, Ohio
CONTACTS: Neil Newhouse
Roger Greenbaum
304 HOB Annex
Washington, D. C. 20515
(202) 225-0580
April 29, 1976
FORD & 9E8ALD LIBRARY
U.S. - CANADIAN RELATIONS
TABLE OF CONTENTS
PAGE
INTRODUCTION
i
ENERGY RELATIONS
1
Recommendations
10
COMMUNICATIONS INDUSTRIES
12
Recommendations
17
TRADE AND FOREIGN INVESTMENT
19
Recommendations
27
TRANSBOUNDARY ISSUES
29
Recommendations
36
LIBRARY GERALD R. FORD
INTRODUCTION
The United States has long felt secure in an aura of continental good-will
based on harmonious relations with our national neighbor to the North --- Canada.
Therefore, it has been a rude surprise to find our governments engaged in an
exchange of verbal and economic brickbats. The deteriorating relations between
the United States and Canada force us to re-evaluate the friendship that we
have long taken for granted.
So accustomed are we to the friendship and interdependence of Canada and
the United States that we forget that relationship is less than a hundred years
old. For almost two hundred years, relations between Canada and America ranged
from hostility to outright warfare. Since World War II, however, the U.S. and
Canada have bound themselves together through formal mutual security arrangements
between the governments and special trade relationships established by independent
economic interests.
The current strain in relations is a product of many factors. Subtle changes
in each nation's perception of its role in the world order have contributed to the
altered climate. Both the U.S. and Canada are caught up in a period of intense
self-examination. There is a similarity in that both countries show a shifting
emphasis to domestic, rather than foreign concern. Canadians are caught up in
a period of rising nationalism --- a factor not dominant in the U.S. self-evalua-
tion. There is a strong desire in Canada to break away from dependence on the
United States.
Rising out of this spirit of nationalism is a concern with economic relations.
Specific economic issues that are causing tension between the countries are:
Pending Canadian legislation which would require 80% different
content in Canadian editions of U.S. magazines.
Plans to nationalize American-owned potash companies in Canada.
Pirating of U.S. television programs by Canadian cable stations
which pick up U.S. programs but black out. the commercials to
replace them with Canadian sponsors.
The termination of special tax breaks for advertisers in Cana-
dian editions of U.S. publications.
The sale of Canadian gas and petroleum to the U.S. at higher
prices than charged Canadians.
With the Canadian government reacting to, and stimulating, a strong sense of
nationalism it is appropriate for us to review areas of mutual concern.
FORD is GERALD LIBRARY
U.S. - CANADIAN ENERGY RELATIONS
BACKGROUND
For many years, Canada was considered the most reliable and secure source of
imported energy for the United States. In 1973, for example, U.S. - destined
Canadian oil exports reached a high of 1.3 million barrels per day. This repre-
sented about half of Canada's crude oil production and a little over 7% of American
crude oil consumption.
Recently, however, bilateral energy relations have been strained by the Canadian
decision to curtail energy exports to the U.S. Canada announced plans to phase out
crude oil exports completely by 1981, and to drastically reduce natural gas exports
to ensure Canada's ability to meet domestic requirements. Further, Canada raised
its energy export prices to reflect high world market prices for oil and natural
gas.
The new Canadian energy policies are an integral part of the official government
"Canada first" program, which maintains that only energy sources found to be surplus
to domestic demand will be exported. Additional reasons for the reversal of Canada's
traditional oil and natural gas export policies are:
the dramatic change in the power of OPEC and the increased price
of oil for Eastern Canada which is totally dependent on imported
oil;
the recognition of diminishing oil and natural gas reserves in
Canada;
growing sensitivity to foreign economic control of key sectors of
the economy (over 90% in petroleum).
The consequences of the Canadian policies of raising energy prices and
curtailing energy exports are numerous:
a previously accessible and reliable foreign energy source will
no longer be available;
more energy must now be imported from "unreliable" foreign sources;
Northern states, which depend heavily on Canadian sources of energy,
will be hardpressed to find substitutes for Canadian fuels;
the U. S. will have to pay an artificial Canadian oil price which
subsidizes Canadian consumption of oil in the eastern provinces;
U.S. energy independence efforts may be delayed.
The bilateral energy relations include not only oil and natural gas, but also
other energy sources such as electricity, coal, and uranium. As well, the proposed
construction of a natural gas pipeline to carry Alaskan Prudhoe Bay hydrocarbons to
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the lower 48 states has focused much attention on U.S. - Canadian relations. To
understand the formulation of Canadian energy policy, however, one must first under-
stand the unique relationship between the provincial and federal governments.
THE PROVINCIAL - FEDERAL RELATIONSHIP
There are two distinct levels of government in Canada - the provincial and the
federal. As in the United States, policy decisions on both levels are made in
response to separate sets of interests. In Canada, according to the British North
America Act of 1867, the federal government has jurisdiction over all subjects of
general or national concern while the provincial government presides over all matters
of local interest.
The British North America Act, like the American constitution, outlines the
distribution of power between the federal and provincial governments. Under the
Canadian system, provincial governments own the natural resources within their
borders and are empowered to make decisions concerning development and sale of those
resources. The federal government is responsible for regulating inter-provincial
trade and for protecting the interests of all Canadians: federal law does not, however,
always override provincial law. For example, the Canadian Parliament cannot legis-
late to implement an international treaty if the subject matter falls within the
exclusive competence of the provinces. Thus, policy initiatives are generated in
accordance with both local interests and national concerns.
One result of this dual jurisdiction over oil resources is what the Canadian
Chamber of Commerce calls "the tug of war for revenues" - both the federal and pro-
vincial governments are competing for large shares of oil revenues resulting from
taxes.
In 1974, the producing provinces in Western Canada (Alberta, British Columbia,
and Saskatchewan) instituted steep royalty. charges. on producing companies. These
measures, by limiting company profits from oil and natural gas production, in
effect also limited federal government revenue from taxation of those profits.
The federal - provincial taxes have caused quite a controversy in Canada; many
Canadians feel that the separate tax policies should be coordinated and rationalized.
Critics argue that the long-term interests of the energy industry and the economy
will be damaged by increasing government regulation of the industry and inter-
government squabbles about taxation of their revenues.
It is also argued that the taxes are frightening away companies which might
invest in energy research. Speculation that the provinces will take over energy
production for their respective areas makes capital investment even more risky.
CANADIAN. OIL POLICY
Since the discovery of extensive oil fields in the Canadian province of
Alberta in 1947, the Canadian oil industry, which is largely U.S. - owned, has
grown rapidly. Consequently, Canada has faced basic policy questions concerning
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resource allocation and the regulation of exports. In 1959, the National Energy
Board Act authorized the creation of the National Energy Board (NER) to perform
essentially two functions: to regulate specific areas of the oil, gas and electric
industries in the national interest; and to advise the federal government on all
matters relating to the development and use of energy resources.
In 1961, the National Oil Policy (NOP) was formulated. The NOP was designed to
give oil from western Canadian provinces (which produce all of the country's domestic
supply) full market access west of the "Ottawa Valley Line" (located approximately
midway between Toronto and Montreal) and to encourage exports to the adjacent United
States. The provinces in eastern Canada continued to be supplied by international
oil sources. By 1970, Canada was technically self-sufficient in oil --- meaning
that the country produced as much oil as Canadians consumed. However, due to
Canadian west-to-east transportation difficulties, the eastern provinces are still
dependent on imported oil. Presently about 50% of Canadian petroleum requirements
continue to be met from foreign sources (compared with 79% in 1950).
Under the NOP, Canadian oil exports to the U.S. increased steadily during the
1960's and into the 1970's. In 1960 the U.S. received about 250,000 barrels of
Canadian oil per day; in 1972 the figure was approximately 1,108,000 barrels per
day, supplying over 20% of our total oil imports. This increase occurred despite the
presence of U.S. import restrictions which were subsequently removed in early
1973. U.S. requests for Canadian oil then increased dramatically and the Canadian
government responded almost immediately by imposing export controls on oil, since
U.S. demand was attracting oil away from Canadian refineries and threatening to
create shortages in that country.
By 1973 Canada was the U.S.'s largest foreign source of crude oil - imports
from Canada exceeded the total received from all of the Arab countries in OPEC.
Presently, due to Canadian export controls, the Canadian share in the total American
oil market is down from 7% in 1972 to 4%, ranking third behind Saudi Arabia and Nigeria.
In many regional cases the Canadian share is much higher. In Minnesota, for instance, 20%
of the total energy used is supplied from Canadian crude oil, and in other areas the
Canadian supply approximated. 100% for some refiners and markets.
Following the oil embargo and the subsequent energy shortage in both Canada
and the U.S., Canada announced its intention to limit oil exports --- which will
result in the complete elimination of oil exports to the U.S. by the early 1980's.
Further, in 1973 Prime Minister Trudeau announced that the Ottawa Valley Line
would no longer determine the division of Canadian oil supply between imported and
domestic sources. Instead, he announced, Canada would embark on its version of
Project Independence with plans to construct a $200 million pipeline from Sarnia,
Ontario, to Montreal, Quebec. The pipeline will carry 300-900 million barrels per
day of west Canadian crude oil eastward. Work on the pipeline has begun with projected
completion by winter 1976.
CRUDE-OIL PRICING
Canada's imposition of export controls brought Canadian oil pricing policies
under scrutiny. Until 1973, Canadian oil prices were determined by demand and supply
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in the protected U.S. market and the segregated Canadian market west of the Ottawa
Valley, while the slightly lower prices in eastern Canada were determined by forces
in the international market. As shortages of crude oil in the U.S. became evident
even before the Arab oil embargo, and as U.S. market prices began to rise, Canada
was forced to re-evaluate its energy policies. Canada could either allow domestic
oil prices to parallel open-market prices in the U.S., or it could protect domestic
prices and insulate Canadian consumers from U.S. oil-price developments.
Canada chose the latter course. The government's decision was influenced chiefly.
by the feeling that U.S. oil-price increases were due to factors unique to the U.S.
and should not be imposed on Canadian consumers, as well as the feeling that the U.S.
price increases were likely to be relatively temporary.
The Ottawa government implemented their new policy by levying an export charge
on all oil shipments to the U.S. and using the proceeds from the charge to subsidize
imports of oil in the eastern provinces. In October, 1973, the charge amounted to
49c per barrel of light crude oil, but subsequently rose sharply to a high of $6.40
and is now set at $4.50 per barrel. Basically, the export charge of $4.50 reflects
the difference between the delivered price of imported oil into Montreal and the
controlled wellhead price of oil in Alberta - which is currently $8.00 per barrel.
NATURAL GAS
The situation in the Canadian natural gas market is very similar to that of the
oil market outlined above. Canada feels that it does not have sufficient natural gas
production capacity to meet domestic energy demands and to fulfill existing export
contracts during the balance of the decade. Thus, under the guidance of the NEB,
the Ottawa government has decided to cut back Canadian natural gas exports to the
United States. In addition, the export price of Canadian natural gas has more than
quadrupled in the past three years. Canadian officials explain that higher gas prices
are intended to bring the price of natural gas in line with the market values of
competitive fuels, both to conserve a non-renewable resource and to stimulate develop-
ment.
EXPORT CUT-BACKS
Until a few years ago Canada was virtually the only foreign supplier of natural
gas to the U.S. About 40% of Canadian gas production is exported to the U.S.
(one trillion cubic feet), accounting for roughly 4% of the total U.S. natural gas
consumption. As in the case of oil, Canadian natural gas is far more important
in many regional U.S. markets than the 4% figure would indicate.
For example, Canadian natural gas exports account for:
71% of the gas consumed in New Hampshire, Vermont and Maine;
60% of the gas in Montana;
30% of total natural gas consumption in California, Washington
and Oregon.
15.3% of the natural gas in Minnesota, Wisconsin and Michigan.
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While oil is exported on monthly contracts, natural gas is sold for export in
long-term contracts generally running for 25 years. There are presently a number
of contracts permitting annual deliveries of up to one trillion cubic feet per year.
However, since the early 1960's, U.S. importers of Canadian natural gas have known
that no new exports would be approved by the NEB after 1970. The NEB took this action
when Canadian gas reserves were judged inadequate to meet Canadian needs.
The NEB recently conducted extensive hearings into the supply, demand and
deliverability of natural gas in Canada. The findings, released in July, 1975, show
that the gas supply in Canada will be tight in future years. It was concluded that
due to declining discovery rates, natural gas production in Canada would be insufficient
for domestic demand and export commitments.
The Canadian government announced that through increased prices and strict
allocation, domestic demand for natural gas will be curtailed. Canada may also find
it necessary to curtail exports to the United States. However, the Canadian govern-
ment has recognized the importance of natural gas supplies to certain regions of the
U.S. It has assured the U.S. government of a chance to make its views known before
a curtailment program is put into effect. The proposed cutbacks in natural gas
exports are not expected until the winter of 1976-77.
NATURAL GAS PRICING
Recent trends in natural gas pricing in Canada reflect the Canadian view
that higher prices are appropriate in both domestic and export markets. The export
prices have risen considerably over the past three years, from an average price of
32c per thousand cubic feet (mcf) in 1973 to $1.60 per mcf as of November 1, 1975.
Canadian domestic prices have also risen; natural gas now sells at the "city-gate"
of Toronto at $1.25 per mcf.
Canadian natural gas export pricing is governed by three criteria set forth
by the National Energy Board:
The export price should recover its appropriate share of the
costs incurred.
The price should not be less than the price to Canadians.
The export price should not result in prices in the United
States marketplace materially less than the cost of alternative
sources of energy.
Canadian authorities believe that natural gas prices have for too long
been unrealistically low, creating an artificial demand which has led to prof-
ligate use of this fuel. This relative undervaluation has had two results: the
uneconomic use of a premium fuel, and a more rapid growth in demand for natural
gas in North America than for other fuels. Despite rapid growth in the supply of
natural gas, the undervaluation has resulted in unsatisfied demands for gas and the
prospect of continuing shortages.
While desiring to receive fair market value for natural gas, Canadian authorities
plan to direct the increased revenues from higher prices to producers. It is hoped
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that by stimulating new exploration and development, this will increase future supplies.
Prospects for increasing output of natural gas in Canada are good, due to promising
regions which are thought to have vast, yet unproved, reserves.
OTHER ENERGY SOURCES
Although U.S. - Canadian energy affairs revolve primarily around oil and
natural gas, other energy sources play a role in the relationship. Bilateral trade
in coal, electricity and uranium has assumed more importance as the nations strive
to free themselves from unreliable or unstable energy producers. These energy sources
are significant. to both countries as alternative generators of energy.
COAL
In the matter of coal, as with both gas and oil, Canada has a geographical
problem. The major coal reserves in Canada are in the western part of the country,
while consumption is concentrated mainly in central Canada. The problems of trans-
porting energy sources from the western part of Canada to the central and eastern
regions necessitate energy importation. Canada imports about 18 million tons of coal
from the U.S. annually, while exporting more than half (12 million tons) of its
domestic production to Japan.
Canadian authorities, greatly concerned about the deliverablity problem, have
also expressed concern about recent and prospective increases in the price of U.S. coal.
This, along with the increased American demand for coal, has made western Canadian
coal a more attractive alternative for the Ontario energy requirements
With 120 billion tons of proven coal reserves of various grades, Canada
theoretically has the ability to meet all its coal requirements for many years. It
is interesting to note that the coal Canada imports from the U.S. is sometimes used
to American advantage. Last year, for example, Ontario Hydro, the largest importer
of American coal, exported 5.9 billion kilowatthours of electricity --- the equivalent
of 2.1 million tons of coal or 31% of its coal imports -- to the United States.
ELECTRICITY
Canada has exported electricity to the United States since before the turn of
the century. A series of strong interconnections have been developed between Cana-
dian and American utilities for mutual support in emergencies and for the exchange
and sale of surplus power and energy.
In the last few years, with decreasing surplus capacity existing among U.S.
utilities, Canadian total exports of electrical energy have increased from 5.6
billion kilowatthours in 1970 to 15.4 billion kilowatthours in 1974. Over the same
period, Canadian imports of U.S. energy have declined from 3.2 to 2.1 billion
kilowatthours. Trade relations in electricity have been enhanced by the fact that
Canada and the U.S. face peak electrical usage at different times of the year
Canada in the winter, the U.S. in the summer.
0807
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URANIUM
Principles underlying Canadian petroleum and natural gas export policies are
also reflected in the export provisions of the new uranium policies announced by the
Canadian government. Canada has urged the provision of a supply protection policy,
as well as a stable pricing mechanism, to ensure that exports would receive fair market
values.
In 1964, the United States, which was then the main purchaser of Canadian uranium,
placed an embargo on all uranium coming into this country to protect and to provide
incentives for domestic producers facing harsh foreign competition. The embargo, now
scheduled to be phased out by 1977, was not well-received in Canada. However, due to
recent changes in the demand for uranium, Canada expects an increased market for their
plentiful uranium resource. In fact, the Canadian government has placed export controls
on uranium to preserve its domestic supply. According to U.S. State Department
officials, there is no major point of contention between the two countries over uranium.
ALASKAN NATURAL GAS PIPELINE ROUTES
The North Slope of Alaska could be one of the primary sources of natural gas for
the United States after 1980. Already 26 trillion cubic feet of reserves have been
confirmed and more discoveries are expected. Two applications to construct gas trans-
portation systems from the North Slope are currently pending before the Federal Power
Commission.
The outcome in this matter may be greatly affected by U.S. - Canadian relations
because one of the proposals under consideration includes a gas pipeline which
traverses Canada. Critics of this project say that recent anti-U.S. Canadian actions
like the nationalization of the potash industries indicate that Canada cannot be
relied upon to maintain their side of the bargain. However, others contend that U.S.
- Canadian relations have not declined and cite numerous instances when both countries
have successfully joined in a cooperative effort --- like the construction of the St.
Lawrence seaway. Due to this controversy, the bilateral relations are expected to
undergo close scrutiny before a pipeline decision is made.
One proposal is that the El Paso Natural Gas Company through its subsidiary,
the EL Paso Alaska Company. Their proposal is to build a pipeline to carry the natural
gas from Prudhoe Bay south through Alaska to Point Gravina where it would be liquidified
and carried by tanker to Point Conception in Southern California.
The competing proposal is that of the Alaskan Arctic Cas Pipeline Company and its
affiliate, the Canadian Artic Gas Pipeline Company. In this system, Canadian and Alaskan gas
will be carried in a pipeline across Canada, with Canadian gas leaving the system in
Alberta and American gas continuing through propsed pipelines to the upper-Midwest states.
The two proposals have been presented to the Federal Power Commission. The E1
Paso Alaska Company claims that:
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the Trans-Alaska project is entirely within the jurisdiction of the U.S.;
the economic benefit of their project will be significant to the
United States -- it will provide employment for many American workers;
the Trans-Canadian project requires the spending of billions of dollars
in Canada, the employment of Canadian workers and the payment by U.S.
customers of billions to Canadian taxing authorities;
the environmental ramifications of the Trans-Alaskan pipeline will
be far less than the Trans-Canadian project;
the construction of the El Paso project can be commenced more expeditiously
than the proposed Trans-Canadian delivery system.
The Alaskan Arctic Gas Pipeline Company states their case and rebuttal as follows:
the existence of Canadian lands does nothing to alter the Trans-Canadian
system as the obvious choice of transportation method;
the total cost of the project will be several hundred million dollars less
than the El Paso project;
the Arctic Gas Project provides the most environmentally sound transportation
for Alaskan gas;
the U.S. government and Canada have signed a Transit Pipeline Treaty
which provides for an open framework for pipeline discussions between the
two countries;
the U.S. and Canada are the world's largest trading partners and have
cooperated on pipeline projects in the past. All of the oil consumed in
eastern Canada, as well as over 50% of the natural gas traverses U.S.
territory;
the Arctic Gas Company can start tapping the Alaskan gas supply 19 months
before E1 Paso.
The Department of Interior has conducted an economic and technical feasibility
study of two alternative delivery systems for Alaskan gas, each roughly analogous
to the proposed Trans-Canada pipeline and the Trans-Alaska tanker projects. The
Interior study, summarized in a report to Congress in December 1975, indicated that
either route appeared technically feasible and that there were considerable benefits
from bringing the Alaskan gas to the lower 48 states. The report did not develop
information which permitted a decision as to which route was preferable. The Federal
Power Commission, having already issued a draft environmental impact statement, will
shortly enter into phase two of its hearings into the competing applications for
approval of the two proposals. An FPC decision is expected by the end of 1976.
However, congressional action concerning the choice of pipeline routes will
undoubtedly preempt the FPC decision. Legislation has been introduced in both the
House and the Senate on behalf of both proposed pipeline routes for Alaskan natural
gas. Siding with the El Paso project are Senators Mike Gravel (D.-Alaska) and Ted
Stevens (R-Alaska), while submitting legislation on behalf of the Trans-Canada
pipeline are Congressman Philip Ruppe (R.-Mich.) and Senator Walter Mondale (D.-Minn.).
Both sides have also introduced legislation to expedite juridical and liscensing
procedures once a route has been chosen.
Hearings in Canada before the National Energy Board began in October, 1975 for
the Trans-Canada Pipeline project and a competing all-Canadian proposal which would
carry only Canadian gas from the MacKenzie Delta to markets in Southern Canada.
A final Canadian government decision is expected late in 1976 based on the findings
and recommendations of the NEB. An independent inquiry into the social and economic
impact of a northern pipeline is now underway by British Columbia Supreme Court
Justice Thomas Berger.
THE CANADIAN POSITION
The Canadian energy outlook resembles that of the United States; both are
relatively well-endowed with potential, although high-cost, sources of domestic
energy Canadian efforts to achieve energy independence are bolstered by the
"Canada first" policy, elaborated from the "Third Option" decision made by the
Canadian government. The "Third Option" is intended to reduce Canadian dependence
on and vulnerability to the United States by strengthening Canada's own economy
and ties with other countries, rather than by reducing ties with the U.S. As a
means of securing independence, the "Canada first" program places the fulfillment
of Canadian energy needs before consideration of energy exports.
High world oil prices have made it imperative for Canada to supply domestic
needs with indigenous sources where possible. Canada's declining oil reserves means
that the former rate of oil production, which was surplus to Canadian needs, has
slowed. Although this has forced a curtailment of exports to the United States, the
Canadian government has tried to accomodate U.S. needs by gradually phasing out oil
exports instead of cutting them off abruptly. Further, the Canadian government has
agreed to facilitate oil exchanges wherever consistent with other energy policy
objectives to mitigate the adverse effect of the export curtailment on Canadian
dependent refineries.
Canadians justify their crude oil export tax by arguing that they cannot export
oil to the U.S. at lower than the world-market price, which eastern Canada must pay
for its imported oil. Canadian policy is to increase domestic oil prices to world
levels and, as this is done, the export tax will decline.
Canadians maintain that natural gas is a diminishing natural resource and a
fuel of high value because it is relatively clean burning with a limited environ-
mental impact. Moreover, nealy half Canada's natural gas is being exported at
a time when all potential Canadian users cannot be satisfied. The Canadian government
also feels that it must get fair market value for its exports of this fuel which
substitutes, for higher priced altwenative fuels such as heating oil and residual fuel
oil. Canada feels that the current American interstate market price of above $2 is
FORD is GENALD LIBRAR
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indicative of the true resource value of natural gas in the United States and makes a
case for the rise in Canadian gas export prices.
THE AMERICAN POSITION
The curtailment of Canadian crude oil and natural gas exports to the United States
will have a major effect on certain regions -- particularly the Northwest, the North-
east and the upper Midwest -- which have come to rely on Canada as a source of energy.
U.S. officials understand Canada's objective of limiting dependence on imported oil
to protect its own economy from potential disruptions due to price and supply un-
certainties. However, they believe that both nations' interests might. be better served
by the continued export of current and future surplus capacity to the U.S.
The U.S. State Department concurs with a U.S. government analysis which indicates
that Canada's balance of payments could be improved substantially if Canada exported,
more oil now and imported more later. According to the analysis, Canada could maximize
its export revenues during the time it had an exportable surplus; this continued export
would give the U.S. more time for its landlocked refineries to adjust to the loss of
Canadian oil and the coming on-stream of Alaskan production.
Further, the United States has steadfastly argued that the Canadian price increases
in both natural gas and crude oil are discriminatory, since the U.S. is Canada's sole
export customer. The United States argues that the two-tier system for the pricing
of natural gas and crude oil may lead to the misallocation of resources and a
distortion of efficient trade patterns, since low domestic prices in Canada will
encourage inefficient use of energy resources. The fact that the Canadian government
abruptly altered long-term natural gas contracts by raising prices has also irritated
American companies.
U.S. State Department spokespersons similarly contend that a continued export
tax on Canadian crude oil could eventually distort efficient, market-determined trade
patterns. They point out that U.S. consumers have been forced to subsidize Canadian
oil consumption by paying the export tax on crude oil.
Representatives on the American side also argue that the imposition of the
crude oil export tax and the tax policies on natural gas have cut producer's profits
in Canada and have lessened their incentive for further exploration and profit. By
cutting these taxes, Americans posit, Canadian producers can not only produce more
energy, but can also afford to seek out new areas for exploration.
RECOMMENDATIONS
In the United States there is widespread public misinterpretation of the basis
of the Canadian actions affecting oil and natural gas exports to this country. The
complexity of the issues involved provides fertile ground for mistrust of Canadian
motives. In Canada, discussions for bilateral options tend to become polarized along
the line of "continentalism" or complete independence. These misunderstandings have
produced an emotion-charged atmosphere in bilateral energy relations. If not overcome,
this could result in actions by both countries that would effectively foreclose options
which might subsequently appear mutually attractive. Keeping this in mind, we make
the recommendations outlined below.
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1.
Bilateral discussions of Canadian - U.S. energy relations should be
conducted on an on-going basis, dealing with regional concerns before
they become national problems.
2.
The U.S. and Canada should encourage the process of swapping crude oil
to ease shortages in both countries.
3.
The two nations should carefully examine the possibility of a swap of
liquified natural gas, or a trade-off in which we import Canadian natural
gas now in exchange for Alaskan natural gas exports in a few years.
4.
Every effort should be made to expedite legislative and judicial proceedings
necessary for the eventual delivery of Alaskan natural gas to the lower
48 states.
5.
Because we recognize that high prices are an incentive for industries to
seek new energy resource fields, we urge Canada to raise its domestic
price of energy. This could result in new resource discoveries which would
lessen the pressures to curtail Canadian energy exports to the United States.
6.
The U.S. should embark on a positive energy policy which aims for self-
sufficiency in energy yet recognizes the new interdependencies of the world.
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U.S. - CANADIAN RELATIONS: COMMUNICATIONS INDUSTRIES
The Canadian government has made major efforts in recent years to vitalize
Canada's communications industries. Reacting to what it sees as excessive American
involvement in the production and marketing of Canada's broadcast and print media,
Ottawa has enacted or proposed several measures sharply restricting the activities
of U.S. firms in Canadian communications markets. Through these protective steps,
the Canadian government hopes to stimulate a "Canadian cultural product" --- published
or broadcast material relevant to Canada, produced with Canadian talent, advancing
the financial and cultural interests of Canadians.
In the United States, these developments have caused concern over their po-
tentially damaging effect on U.S. trade with Canada. The U.S. State Department has
expressed American reservations over the new policy initiatives to the Canadian
government. Affected business interests in the United States are seeking additional
recourse in the Canadian courts, the U.S. Federal Communications (FCC), and the U.S.
Congress. If an accomodation cannot be reached, retaliatory action by the United
States, in the form of new tariffs or other trade barriers, is possible.
BACKGROUND
In the past year, the Canadian government has sponsored the following moves
in furtherance of its national cultural goals:
affirmation of a policy directive issued by the Canadian Radio-
Television Commission (CRTC), requiring the deletion of adver-
tisements from U.S. programs carried in Canada on cable television;
a proclamation by CRTC of noncompulsory guidelines to ensure that
70 per cent (rising to 80 per cent in three years) of all television
commercials broadcast nationally in Canada are produced there;
a bill in Canada's Parliament eliminating the business expense
tax deduction for Canadian advertising on U.S. broadcast stations;
another provision of the same bill, eliminating the tax deduction
for advertising in periodicals in Canada whose editorial content
is not at least 80 per cent different from foreign editions and
whose ownership is not at least 75 per cent Canadian;
a warning by Canada's Secretary of State that government action
to protect the indigenous publishing industry in Canada may be
forthcoming.
Each of these measures is plainly designed to cut off the flow of Canadian
money to American media in Canada or near her borders, and thereby to make more
funds available for Canadian broadcasting and publishing enterprises.
Commercial deletion
A central issue in the current debate is a 1973 CRTC order requiring the
deletion of U.S. commercials aired in Canadian border cities by cable TV. This
order has been implemented as a condition of license renewal for Canadian cable
companies.
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In 1975, Canadian cable TV stations in Calgary and Toronto deleted advertise-
ments from their transmission of broadcasts from neighboring U.S. border television
stations. When, for example, a Buffalo, New York station was showing "All in the
Family", a Canadian cable operator in nearby Toronto would re-transmit the Buffalo
signal to the home televisions of cable subscribers in Canada; but the cable
operator would delete the advertisements sponsoring the Buffalo broadcast, and
substitute Canadian commercials or public service announcements.
Three Buffalo television stations whose broadcasts have been subjected to
commercial deletion by a Toronto cable TV company have protested the CRTC order.
The Buffalo stations have filed suit in Canadian courts to test the legality of
the commercial deletion and the CRTC policy authorizing the practice. The
Canadian Federal Court of Appeals ruled in favor of CRTC and against the Buffalo
stations in January 1975. The Buffalo stations have appealed the ruling to
the Supreme Court of Canada, where the matter is pending.
But, in apparent despair of receiving relief in Canada, the Buffalo stations
submitted an application to the FCC in October 1975 requesting permission to
erect an experimental "jamming" mechanism to prevent their broadcasts from being
seen by viewers on the Canadian side of the border. The application for the
"jamming" permit was made after a June 1975 conference between FCC Chairman
Richard Wiley, U.S. State Department officials, and Pierre Juneau, then-chairman
of CRTC, failed to bring about a softening of Canadian policy. The FCC has not
taken action on the application.
In both the suit against CRTC and in the "jamming" application, the Buffalo
stations have argued that in the absence of any violations of law or treaty,
U.S. television stations should be allowed "the opportunity to earn the honest
and lawful rewards" of the service they provide. Canadian cable carriers do not
pay U.S. stations for the right to transmit U.S. broadcasts, but do pay Canadian
commercial stations for carriage rights. The Buffalo stations point out -- and
Canadian authorities acknowledge -- that the free transmission of popular U.S.
programs is a major factor in the growth and increased profitability of the
Canadian cable TV industry. (In 1973, during which operating revenues for Canadian
cable operators totaled about $107 million, before-tax profits were $22.5 million
--providing an after-tax return of 17% on equity investment. 1974 before-tax
profits were $29.5 million.)
The U.S. stations argue that if Canada's government is seriously interested
in protecting and stimulating that nation's television industries, the government
should bar U.S. programming as well as commercials from Canadian airwaves.
But to allow the profitable use of U.S. programming without permitting the origi-
nating stations to collect contracted revenues, they contend, is tantamount to piracy.
One Buffalo station's advance commitments from Canadians to buy advertising
for the first quarter of 1976 totaled only 40% of the commitments it had received
for the first quarter of 1975. The station claims that the commercial deletion
has been a major factor in the dropoff in commitments.
The position of the Canadian government up to now has been firm and un-
mistakeable. In reviewing its commercial deletion and substitution orders,
CRTC affirmed in September 1975 that this policy "remains an appropriate and
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necessary means to implement the policy objectives for the Canadian broadcasting
system which are set out in the Broadcasting Act." The Broadcasting Act, passed in
1968, makes it Canadian federal policy to promote a nationwide television system
which reflects and contributes to Canada's emerging national identity.
At stake in the commercial deletion matter, the Canadian broadcast authorities
contend, is an annual $20 million in revenues paid by Canadian advertisers to U.S.
border stations. Canadian broadcasters concede that comparatively slender ad
revenues now make it difficult for Canadian producers to compete with the bigger-
budgeted television programs produced in Hollywood. Until the Canadian TV industry
earns more liberal production allowances, it is clear that Canadian viewers will
continue to watch U.S. programs, and Canadian advertisers will continue to sponsor
U.S. programs to reach the greater viewing audiences. But, the Canadians say, if
the funds traditionally attracted by U.S. programming were invested in Canadian
production, the Canadian industry might one day produce competitive programming
and generate revenues without protective regulation.
The CRTC has argued that there is nothing wrong with deleting part of U.S.
television broadcasts, since U.S. television stations are not licensed to serve
Canada. But, significantly, Canadian cable TV companies have shown no enthusiasm
for the deletion of commercials, and newspaper editorials in Toronto, Winnipeg
and Vancouver have called the deletion policy a license for "piracy" and "theft".
Commercial Guidelines
In January 1976 CRTC issued noncompulsory guidelines for the proportion of
indigenous commercials Canadian networks will be expected to carry. The measure
asks that 70 per cent of all television commercials (rising to 80 per cent in
three years) be produced in Canada. For monitoring purposes, Canadian broadcasters
will be required to register the national origin of every commercial aired.
The leading performers' union in the United States, the 30,00-member American
Federation of Television and Radio Artists (AFTRA), has said the guidelines could
result in more unemployment for actors in the U.S. television and radio commercials.
AFTRA believes the new rules might lead U.S. corporations to produce one commercial
in Canada for use in both countries.
But Canadian officials expect the "70 per cent" guidelines to have only limited
effect on the United States industry, since 60 to 70 per cent of all TV commercials
shown in Canada now are produced there.
The Association of National Advertisers, and American group, echoes the
Canadians' belief that the guidelines would not make United States advertisers move
production operations out of the U.S. The Association says that the power of United
States unions to stop the broadcast of Canadian-made commercials here would be a
deterrent to such a change.
The Tax Bill
The tax bill, C-58 in Canada's House of Commons, would prohibit advertisers from
taking the business expense deduction from Canadian income tax presently allowed for
advertising in foreign media. Such a measure would effectively create a 100 per cent
tariff on Canadian commercials aired or published outside Canada. The tax bill
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complements other Canadian government efforts to enhance the profits and production
capabilities of domestic media by discouraging the flow of Canadian capital to the
United States.
Bill C-58 was passed in the House of Commons in March, 1976, and now awaits
pro forma ratification by the Canadian Senate. Once that approval is granted,
the bill will become law.
For U.S. border television stations, the tax bill, combined with continuing
deletion of commercials, would present a formidable obstacle to the stations' ability
to attract Canadian advertising. The National Association of Broadcasters (NAB),
representing United States television and radio stations, has protested strongly
against the bill. NAB has urged the U.S. State Department to communicate to the
Canadian government the dissatisfaction American broadcasters feel over the dis-
criminatory nature of the tax proposal.
Bill C-58 would also eliminate the special tax treatment enjoyed in Canada by
Time magazine and a handful of other periodicals since 1965. A 1965 Canadian statute
allowed advertisers to take tax deductions for ads placed in periodicals whose owner-
ship was at least 75 per cent Canadian, and whose content was "not substantially the
same" as a foreign version's. Ordinarily, the Canadian editions of Time and
Reader's Digest would not have qualified under this law for tax deductible advertising.
But those two publications, with a few smaller magazines, were exempted from this
measure, apparently because they had already established operations in Canada by 1965.
The tax bill would now require 75 per cent Canadian ownership for a periodical
to offer tax-deductible advertising, as before; and, it would further define a
"Canadian" periodical eligible for tax-deductible ads as having at least 80 per cent
different content than a foreign edition.
In a compromise move, the Canadian government announced in February 1976 that
Reader's Digest may continue to publish its Canadian edition if American material
is condensed and edited in Canada.
But in response to House of Commons passage of the tax bill, Time Magazine
ceased publication of its Time-Canada edition in early March 1976. Time will
continue to print a magazine for Canadian distribution, but Time's editorial
staff in Canada has been disbanded, the Canadian section of the magazine
(normally 5 or 6 pages per issue) has been discontinued, and rates for Canadian
advertisers are being cut in half to deal with the end of tax-deductible status
for advertising. Time officials say these changes will cut the magazine's profits
in Canada in half.
Time --- like Reader's Digest -- had consistently signaled its willingness to
effect 75 per cent Canadian ownership of its Canadian subsidiary in order to comply
with provisions of the tax bill. In addition, Time had hoped for a compromise on
the content requirements. The magazine's executives had said that a "50 per cent
different" content rule once suggested to them by Canadian Secretary of State Hugh
Faulkner would have been acceptable, on the grounds that it would establish a
FORD & LIBRAR GERALD
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"substantial" difference between Canadian and foreign editions without forcing
publishers to print a wholly separate magazine in Canada. But, said Time, the
"80 per cent different" content figure amounted to censorship of the press, a con-
dition Time could not accept.
Book Publishing
Another sign of Canada's intentions came in an address by Secretary of State
Faulkner to the Association of American Publishers in April 1975. Secretary Faulkner
told the book publishers that unless their subsidiaries north of the border grow more
responsive to the cultural needs of Canada (through increased attention to native
fiction, poetry, criticism and letters, for example), regulation and legislation
would be put to use to allow Canadian publishers to fill those needs. At any rate,
Mr. Faulkner said, his government would soon subject foreign publishers to "careful
scrutiny" and is now considering measures to fortify the health of the Canadian
book publishing industry.
U.S. GOVERNMENT EFFORTS TO DATE
With the appearance of steadily more aggressive proposals from Ottawa, concern
in the United States for the stability of U.S. - Canadian communications trade has
intensified. An unceasing exchange of diplomatic letters and contacts between the
two countries since 1974, all touching at least in part on communications matters,
testifies to the importance attached to these disputes in both governments ---- and,
as well, to the absence of easy solutions.
In a July 1975 letter to United States Secretary of State Henry Kissinger,
Senator James Buckley (C-N.Y.) and 14 other Senators asked for State Department
action to renew diplomatic negotiations in the television controversy. They
wrote, "When combined with the commercial deletion policies of the CRTC, such
[tax] legislation would appear to be aimed at the total elimination of U.S. tele-
vision stations from Canadian advertising markets
If Canada were seeking to
reject the services of U.S. stations in their entirety, actions aimed at preventing
the sale of advertising however regrettable -- would at least be understandable.
The fact is, however, that
the CRTC actively promotes
the reception of U.S.
stations' program services
in its licensing of Canadian cable television systems. "
In September 1975, Senators Warren Magnuson and Henry Jackson, both of Washington
state, said in a separate letter to the Secretary of State that the tax bill and
commercial deletion "must be viewed as calculated trade discrimination." Senator
Magnuson is chairman of the Senate Commerce Committee, and is known to be considering
retaliatory trade legislation.
At a news conference at the end of a 2-day visit to Ottawa in October 1975,
Secretary Kissinger said that he had discussed the television and publishing matters
with Allan MacEachen, Canadian Secretary of State for External Affairs. Mr. Kissinger
noted then that feelings in the United States were "rather intense" on the television
issue, but that any final disposition of the problem would have to await the decision
of the Supreme Court of Canada in the suit brought by the Buffalo stations.
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Continuing diplomatic contacts produced a new meeting between U.S. and Canadian
officials January 13, 1976 in Ottawa. At that meeting, for the first time, Canadian
officials formally agreed to consider alternatives to the commercial deletion approach
to encouragement of the Canadian television industry. Additional talks to search for
soultions to the deletion controversy are planned for the near future.
RECOURSE
The broad range of matters discussed here have caused concern in the United States.
It is our hope that the Canadian government will consider the legitimate trade interests
of the United States in any new actions affecting communications industries in Canada.
However, if we are led to conclude that U.S. trade interests are being unfairly re-
stricted or compromised, several avenues of recourse would be open to us.
Trade Act of 1974
The U.S. Trade Act of 1974, passed to promote free and nondiscriminatory world
trade, permits the President of the United States, upon a finding of unfair foreign
treatment of U.S. trade interests, to take remedial action. Subject to Congressional
approval, the President may revoke trade agreement concessions or impose new duties
or other restrictions on the products and services of the offending country.
The Trade Act also allows "interested parties" to file complaints with the
Special Representative for Trade Negotiations, and Ambassador-level official who
coordinates U.S. trade policy and is the President's chief representative in inter-
national trade negotiations. The Special Representative is empowered to conduct
public hearings, investigate complaints, and report semiannually to the House of
Representatives and the Senate. If Congress determines action is warranted, it could
take measures it deemed appropriate.
The Trade Act covers both "goods" and "services" in international trade, and
therefore advertising ----- generally considered a "service" ---- in U.S. broadcast and
print media are included in the activities protected by the Act.
The Trade Act has never before been used against a major trading partner,
but its provisions appear to offer ample recourse should we need to turn to it.
Jamming
Arguing for approval of a "jamming" permit for the Buffalo stations (and henceforward
for others that might need to seek one) would be a distasteful course, but it must be
considered an option. "Jamming" would be costly for our stations and unpopular with
Canadian viewers, but it would, at least, put a stop to the pirating of U.S. television
programs on Canadian cable TV. We note that the U.S. Federal Communications Commission,
in a preliminary determination, has advised the Buffalo stations that "jamming" would
not be a violation of international law.
RECOMMENDATIONS
We recognize the right of sovereign nations to make foreign and domestic policies
consistent with national goals. However, it is apparent to us that the Canadian government
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has charted a course in communications policy which is discriminatory to trading interests
in the United States. How far Canada follows that course will ultimately determine
the need for and the character of our response.
Our television stations near the Canadian border have been faced with regulations
threatening, and in some cases injuring, their ability to fulfill contractual advertising
obligations. Pending legislation, if enacted, could severely hamper the ability of
U.S. television stations and magazines to earn advertising revenues in Canada. Stricter
guidelines on the production of commercials in Canada may have a detrimental effect on
employment among American performers. In the absence of blatantly unlawful commercial
practices by U.S. firms, or other mitigating circumstances, a positive United States
response to these developments is in order.
To that end, we offer the following recommendations:
1.
If progress continues in the talks on the commercial deletion matter,
U.S. border stations should be encouraged to offer ameliorative proposals,
such as the establishment of "shell" subsidiaries in Canada (for management
of Canadian ad revenues) which would be liable for Canadian income tax levies,
in return for an end of the deletion practice.
2.
If no progress is made in the negotiations over commercial deletion,
consideration should be given to endorsing U.S. border stations' requests
for permission to "jam" their own signals beamed toward Canada.
3.
The Special Representative for Trade should be asked to investigate whether
Canada's policies in the several communications fields are discriminatory
to U.S. trade with Canada.
4.
President Ford should be asked to undertake a similar investigation, with
a view toward possible swift action under the terms of the Trade Act of
1974 if warranted.
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U.S. - CANADIAN RELATIONS
TRADE AND FOREIGN INVESTMENT
Since World War II, Canada and the United States have maintained a
"special relationship" based on economic and political ties. There has been
a tremendous integration of the two economies for both economic efficiency
and development. Canada and the United States have the largest bilateral
trading patterns in the world, amounting to approximately $40 billion. The
United States supplies 70% of Canada's imports and about 66% of its exports.
In recent years, however, the "special relationship" seems to be breaking
down.
Canadians have become increasingly wary of their neighboring economic
giant to the south. Some Canadians claim that their country is one huge
American plant. Figures indicating the extent of U.S. domination of the
Canadian economy support the Canadian claims. Americans own 80% of the
long-term foreign investment in Canada. They control 96% of the auto in-
dustry, 90% of the electrical equipment industry, and 50% of all manu-
facturing. Moreover, the U.S. "Trading With the Enemy Act" has forbidden
Canadian subsidiaries to trade with Cuba, North Vietnam, North Korea and,
until a few years ago, China.
Canadian economic nationalism is clearly observable in a recent Gallup
poll. Fifty-eight per cent of the Canadians interviewed indicated that
Canada should buy a majority control of U.S. companies operating in Canada,
even if it meant a reduction in Canada's standard of living. Support for
this proposal has risen 12% in the past five years. In fact, nationalist
sentiment has escalated on such a broad scale that the Canadian government
-- a traditional ally of the U.S. - has taken heed.
In recent years, through legislative and executive action, Canada has
curtailed American imports of both capital and agriculture. Trade restrictions
imposed by Canada, and by the U.S. in retaliation, have been the source of
much hard feelings between the two countries. Consequently, the bilateral
trade affairs reflect problems faced by the more general relations between
the United States and Canada.
Presently there are three specific areas of irritation in U.S. - Canadian
trade relations: foreign investment in Canada, agricultural trade, and the
U.S. -Canadian Automotive Agreement.
FOREIGN INVESTMENT IN CANADA
Canadians are becoming increasingly concerned that so much of their in-
dustry is owned and/or controled by foreigners. In 1970, for example, foreigners
controlled 98% of the nation's petroleum industry, 78% of its chemical production,
and 57% of the manufacturing sector. Of the more than $50 billion of foreign
investment in Canada, more than 75% is U.S. - controlled.
"About $270,000 an hour is drained from Canada every day of the year and
most of it by American corporations," says a spokesperson for the Committee for
An Independent Canada, an organization trying to decrease foreign investment.
These figures have caused the Canadians to reconsider their economic relations
FORD & GERALD LIBRARY
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with the United States and attempt to gain control of more of their own
industry.
In a position paper prepared by the Trudeau Government in 1972, three
options were proposed regarding Canada's economic relations with the U.S.:
maintenance of the status quo;
closer integration with the United States;
strengthening of the domestic economy to secure
Canada's independence.
Not suprisingly, the third option was endorsed by the Trudeau Government.
The policy was devised to reduce Canadian economic vulnerability to the U.S.
In a subsequent move to limit foreign economic control of Canada, the Canadian
government passed legislation to review new foreign investment.
CANADIAN LEGISLATION
The Canadian Parliament passed the Foreign Investment Review Act on
December 12, 1973, and according to the Canadian government, the purpose
of the Act is to ensure that foreign investment will be of significant benefit
to Canada. The Act gives the Canadian government the legal authority to review:
Foreign acquisitions or control of Canadian firms with assets
valued at more than $250,000 or with revenues exceeding $3
million.
Establishment of new businesses by foreigners not already
doing business in Canada.
Opening of a new business by an existing foreign-controlled
firm in an unrelated line of activity.
The Act does not provide for the review of expansions of existing
foreign controlled businesses or for the review of the establishment of new
businesses which are closely related to a foreign controlled business presently
operating in Canada.
The Foreign Investment Review Agency, created to enact the new law, has
drafted a "significant benefit test" to guide its determinations. The Agency
weighs such factors as:
Whether the nation will benefit by increased employment or
technology.
What the effect on Canadian competitors will be.
The extent of Canadian ownership and management in the venture.
FORD & GERALD LIBRARI
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Assurances that highly trained employees as well as sophis-
ticated hardware will stay in Canada.
Observers in the U.S. felt that passage of the Act would have long-range
effects on American investment in Canada. Thus far, however, the effect on
American investment has been nominal: the Foreign Investment Review Agency
has recommended five takeover bids for every one rejected. In a recent deci-
sion by the Foreign Investment Review Agency, the Citicorp Leasing International
Inc. of New York was allowed to take over North American Business Equipment Ltd.,
Direct Leasing Ltd., and Medi-Dent Service Ltd. The three are Burlington,
Ontario-based equipment-leasing subsidiaries of Hamilton Group Ltd.
In 1975, Parliament passed two additional bills affecting foreign invest-
ment. One calls for a majority of Canadian directors on boards of foreign
controlled corporations. American corporations, however, had foreseen passage
of this Act, and once the law went into effect, very few changes had to be made
for American corporations in Canada to comply with the regulation.
The second bill, amending the "Combines Investigation Act", states that
any person, or company, who obeys any foreign law, directive, or court order
that harms either domestic or foreign trade of Canada is subject to a two-
year term of imprisonment. This amendment is aimed at U.S. - owned subsi-
diaries which obey the U.S. "Trading With the Enemy Act".
This amendment may have little effect on the United States because American
subsidiaries in Canada, wishing to trade wih nations such as Cuba, have formerly
been able to skirt the "Trading With the Enemy Act" when Canadian directors
of a corporation outnumber their American counterparts. American observers
maintain that the passage of this legislation has more a taint of nationalism
than of real economic substance.
AGRICULTURE
Agricultural trade between the United States and Canada exceeded $2 billion
in fiscal 1975, with an American surplus of over $800 million. This surplus
can be traced to two factors:
The U.S. does not import Canada's major global export --- wheat
and grains.
Canada imports from the U.S. fruits and vegetables which, because
of the Canadian climate, cannot be produced there.
With a volume of trade this large, and an imbalance between the two
countries, it is understandable that difficulties or "irritants" should
occasionally arise. Three such irritants are presently troubling U.S. -
Canadian agricultural relations: the planned nationalization of the potash
industries; current Canadian legislation requiring bilingual labeling of all
products sold in Canada and; quota restrictions imposed by both Canada and
the United States.
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POTASH
Late in 1975, the Canadian provincial government of Saskatchewan announced
plans to nationalize privately-owned potash industries located in the province.
Potash is one of the three major ingredients in the production of fertilizer and
a major Canadian export. Though the potash nationalization question is basically
a Canadian federal-provincial issue, the proposed action has caused much
anxiety in this country for a number of reasons:
Fully 60% of the assets to be taken over are U.S.-owned;
More than 70% of American potash comes from the province of
Saskatchewan and American agricultural officials are concerned
lest U.S. potash supplies be curtailed;
The price of potash exported to the U.S. could rise as a result
of the Canadian takeover.
The Canadian federal government, in a recent "note" sent to the American
Embassy, maintained that the purpose of the Saskatchewan takeover legislation
is to ensure orderly expansion of production of potash to meet growing world
demand. Further, according to the communique, the provincial government of
Saskatchewan has assured the federal government that it does not intend to
curtail the production of potash with the object of inducing scarcity and
artificially forcing up prices.
Recently, concern over Saskatchewan's actions to nationalize potash
industries was embodied in U.S. Senate Resolution 403. The resolution, re-
lating to the need to assure the availability of potash for American agricul-
ture, was reported to the floor March 15, 1976, by the Senate Committee on
Agriculture and Forestry, chaired by Senator Herman E. Talmadge (D.-Ga.).
Citing U.S. dependence on potash, Saskatchewan's proposed takeover,
and the possible resultant fluctuations in the price and supply of potash
delivered to the United States, the resolution, passed unanimously by the
Senate, made the following recommendations:
The Department of State should express our concern to the
Canadian Government as well as the Government of the Province
of Saskatchewan that the supplies of potash not be disrupted;
The Department of State should ascertain the precise objectives
and anticipated conclusions of the proposed takeover by the
Government of the Province of Saskatchewan;
The Department of Agriculture should immediately develop con-
tingency plans to assure an adequate supply of potash for
American agriculture in the event that supplies from the Saskat-
chewan deposits should be temporarily or permanently disrupted.
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The Senate resolution implicitly compared Saskatchewan's actions on potash
with those of OPEC with respect to oil. However, the recent Canadian "note"
to the U.S. Embassy cited the OPEC reference in S. Res. 403 as an example of
a general lack of understanding in the United States of the nature of the
Saskatchewan action on potash. Immediately following the passage of the Senate
resolution, Saskatchewan Premier Allan Blakeney publicly reassured the United
States that there would be no change in the availability of potash for
American agriculture.
BILINGUAL LABELING
Recent Canadian legislation requires bilingual labeling of imported and
domestic products. While U.S. industries recognize that this regulation is
part of Canada's effort to enhance its identity as a bilingual nation, it
nevertheless places a financial burden on U.S. exporters of agricultural products
to Canada. In dealing with the new law, U.S. shippers feel that they have three
options:
Convert all shipping cartons to bilingual labeling;
Pack goods especially for the Canadian market;
Ignore the restrictions and run the risk of losing the market.
Hardest hit by the regulations --- scheduled to go into effect March 1,
1976 ---- are the small farmers who transport their produce to the Canadian border
with little or no wrapping. What is yet to be determined is the extent to which
the regulations will be enforced. Stingent enforcement would, of course, dis-
courage trade between the two countries.
QUOTAS
Import quotas have greatly affected the trade relationship between the
United States and Canada. Import quotas, which limit the amount of a commodity
that may be imported into a country, are used to stimulate domestic industry
and to maximize producers' profits. Canada and the U.S. have imposed trade
quotas in a number of areas: beef, veal, pork, cattle, and eggs.
The 1973 wage and price freeze in the United States gave rise to a price
differential in beef between the U.S. and Canada. Consequently, American
producers began sending their cattle and beef into Canada to take advantage of
the higher prices. On April 9, 1974, Canada imposed regulations stating that
cattle raised with the use of DES (a growth stimulant) could not be imported
into Canada -- the reason given being that DES was linked with the formation
of cancer in women. The timing of the restriction, however, caused speculation
as to what was truly the object of the quota, concern for Canadian women or the
influx of American beef. Regardless, this restriction effectively cut off all
trade between the two countries in cattle and beef.
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In August, 1974, following bilateral negotiations, Canada and the U.S.
resolved their differences over the DES beef restrictions. Within a week,
however, Canada imposed further restrictive quotas on certified non-DES beef,
veal, and live cattle. President Ford responded to the new Canadian quota
with an American quota, officially called a compensatory action, on imported
Canadian beef, veal, pork, hogs, and cattle. The President, explaining his
action, charged that Canada had erected "unjustifiable import restrictions"
against U.S. products.
One year later, in August, 1975, all restrictions on U.S. - Canadian
trade in cattle, hogs, and pork were removed. This bilateral action was followed
on December 20, 1975 by the announcement of an agreement between Canada and
the U.S. removing quota restrictions on trade in beef and veal. Canada's
Agricultural Minister, Eugene Whelan, expressed his belief that "normal trade
in beef and veal between the two countries could be resumed early this year".
Quotas in the egg market have been a further source of conflict between
the U.S. and Canada. Canada has implemented egg stabilization policies in
an attempt to increase domestic prices and profits. In 1974, the Canadian Egg
Marketing Agency, the government arm that controls egg production, destroyed
28 million surplus eggs to keep producer returns up. Subsequently, thousands
of surplus Canadian eggs poured onto the American market, selling for as low
as 27¢ per dozen.
In July, 1975, the Canadian Egg Marketing Agency, implementing further
egg stabilization policies, imposed an import quota on eggs. U.S. Agriculture
officials maintain that the quota impeded free trade between the two countries.
Presently, both American and Canadian officials have undertaken negotiations
to reach an acceptable resolution of the problem.
THE CANADIAN AUTOMOTIVE AGREEMENT
BACKGROUND
In the early 1960's, the Canadian automotive industry was unable to
compete effectively in international markets because of its traditional position
as a smaller high-cost duplication of the United States' automotive industry.
As a result, the Canadian automotive industry suffered from inefficient pro-
duction. The degree of inefficiency is reflected by the following facts:
Canadian vehicle prices were at least 10% higher than U.S. prices.
Employees were paid about 30% less in Canada than in the U.S.
The return to capital was probably no higher, on the average,
in Canada than in the United States.
In 1961 and 1962, Canada took unilateral steps to improve the competitive
stance of the Canadian automotive industry. Canadian proposals, such as duty-
rebates to Canadian manufacturers, irritated Canada's economic relationship with
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the U.S. The two countries sought a mechanism which would allow Canada to develop
a more efficient automotive industry without adversely affecting U.S. industry. The
resulting Automotive Agreement (The Automotive Products Trade Act), signed by Canada
and the United States on January 16, 1965, created the basis for an integrated auto-
motive market by, in effect, removing duties on trade between the two countries in
specified motor vehicles and original equipment automotive parts.
The Agreement sets forth three objectives:
The creation of a broader market for automotive products within
which the full benefits of specialization and large scale production
can be achieved.
The liberalization of U.S. and Canadian automotive trade with
respect to trade barriers and other factors tending to impede it.
The development of conditions in which market forces may operate
efficiently to attain the most economic pattern of investment, pro-
duction, and trade.
Each government agreed to avoid actions that would frustrate the achievement
of these objectives. Consequently, the U.S. removed its duties on specified new
and used Canadian motor vehicles and original automotive parts. Canada fulfilled
its obligations under the Agreement somewhat differently, by according duty-free
treatment to specified new motor vehicles and original equipment parts on a
Most-Favored-Nation basis to all automotive manufacturers who had production
facilities in Canada at the time the Agreement was negotiated.
In recognition of a need for a transitional period for the smaller, higher-
cost Canadian industry to adjust to the competitive pressures of the larger North
American market, certain restrictive measures were set forth in an annex to the
Agreement:
Only bona fide Canadian vehicle manufacturers may import auto-
motive products duty-free and,
in order to be considered bona fide, manufacturers must meet
certain minimum Canadian value-added and Canadian production-to
sales ratio requirements.
The duty-free import privileges apply only to vehicle manufacturers however,
as individuals are required to pay the Canadian import duty of 15%. This restriction
on duty-free import privileges has contributed to higher prices in Canada by elimi-
nating the competition dealers would otherwise experience from duty-free imports
by private citizens.
Since the signing of the Agreement in 1965, automotive trade, which accounts
for one-third of total U.S. -- Canadian trade, has increased eightfold. As a result
of the Agreement, American automotive companies made large investments in Canada
FORD & 03RALD LIBRARY
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which in turn led to an excess Canadian productive capacity. This expanded capacity,
together with a lack of growth in the Canadian automotive market and significant
overseas import penetration, led to an erosion of the pre-Agreement U.S. surplus, and
eventually to a deficit. In recent years however, the Canadian market has strength-
ened, the market share of overseas imports in Canada has decreased, and trade in
snowmobilies has been reduced. As a result, U.S. automotive exports to Canada have
grown faster than imports, generating an automotive trade surplus with Canada of
$426 million in 1973, $1.23 billion in 1974, and an even higher expected surplus
for 1975.
CURRENT DISCUSSION OF THE AGREEMENT
Several major industrial groups have scrutinized the Automotive Agreement
in the past few years and have voiced some opposition to provisions in the
Agreement. This opposition stems partly from the dynamic pattern of U.S. -
Canadian trade, and the change in relative strength of the industries of the
respective countries.
The current reevaluation of the Automotive Agreement has brought comment
from industries which are intimately involved with the workings of the automotive
industry. Most of the groups support the spirit of the Agreement, but suggest
that changes could be made.
The major industrial groups were represented in a hearing before the Inter-
national Trade Commission on December 11, 1975, in Detroit. The ITC prepared
a study of the Automotive Agreement which was completed January 22, 1976. The study
was called for by Senator Russell B. Long, chairman of the Senate Committee on
Finance.
The United Auto Workers of America opposes the Agreement as it now stands and
wishes to see it revised. In testimony before the International Trade Commission,
UAW President Leonard Woodcock maintained that:
The existing price differential of 6.6% between Canadian and
American auto prices must be abolished in order to increase
production and employment in both countries.
What is at stake is not only the jobs of Americans and
Canadians employed directly in the auto industry, but also the
jobs of workers in supplier industries, such as steel, aluminum,
glass, and rubber.
The North American content percentage of cars built in Canada
should be raised to provide more jobs for Canadian and American
workers.
The UAW President also urged that we draw the line against duty-free importa-
tion where imports have been subsidized by the exporting country, or where the
exporting country denies workers the right to organize themselves freely and to
engage in collective bargaining. Mr. Woodcock cited the actions of Ford Motor
Company in laying off hundreds of workers at its Lima, Ohio, plant, while importing
BERALD FORD CIBRARY
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subsidized Brazilian engines for cars assembled at its St. Thomas, Ontario plant,
most of which are sold in the United States.
Mr. Woodcock also called on the International Trade Commission to examine
carefully the methods used to measure the trade flows between the two countries.
He maintained that the auto companies may be motivated to manipulate their internal
transfer prices in order to shift accounting profits to the country where total
tax payments are minimized by the combined effect of U.S. and Canadian tax laws.
The UAW President further argued that there is some evidence that the invoice prices
which are maintained in the trade between business parties in the automotive industry
are not likely to be the same as those which pertain in arms-length transactions
between independent companies. If such deliberate price and profit distortions are
indeed occurring, the revenue loss to either the U.S. or the Canadian governments
could be considerable.
The Automotive Parts Manufacturers' Association of Canada has also had second
thoughts regarding the Automotive Agreement. The Association is quite upset because
of the tremendous trade surplus the U.S. has in its automotive parts trade with
Canada. According to their testimony, Canadian parts producers have seen their
share of the domestic market go from approximately 92% in 1964 to less than 6% in
1973. The Association argues that there should be some degree of protection afforded
the Canadian automotive parts industry under the present economic conditions.
On the pro side of the Agreement, however, the Motor Vehicle Manufacturers
Association warns that termination of the pact would have a crippling effect on the
U.S. motor vehicle manufacturing industry and thus on the U.S. economy. A spokes-
person for the Association argued that the Agreement is essential to maintain the
high level of automotive trade between the U.S. and Canada.
The Canadian Motor Vehicle Manufacturers Assoociation, which consists largely
of American automotive subsidiaries, is in concordance with its American counterpart
that the effects on Canada of a termination of the Automotive Agreement would be
economically devastating.
The ITC study concluded that the Automotive Agreement is by no means a free trade
agreement. Further, the ITC reported that Canada has not fully complied with the
terms of the agreement. Moreover, the fact that Canada has not phased out the pro-
visional restrictions, according to the study, impedes the realization of the original
objectives of the Agreement.
RECOMMENDATIONS
Having reviewed U.S. - Canadian relations in trade and foreign investment,
we feel the relationship is much too important to allow competing sentiments of
nationalism to interfere. Taking into account differences in national perspective,
we make the following recommendations:
1. A permanent bilateral panel should be established to monitor trade between
the two countries and particularly to help resolve problems as they arise.
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2.
In view of Saskatchewan's proposed nationalization of potash industries,
we concur with S. Res. 403, and further, we urge the province of Sas-
katchewan to give full and equitable remuneration to American potash
industries which are purchased or expropriated.
3.
The provisions of the U.S. - Canadian Automotive Agreement should remain
intact. We believe that the Automotive Agreement has greatly benefited
both Canada and the United States, not only in trade, but employment
and production as well. Although the International Trade Commission
recommends that Canada phase out the transitional provisions of the
original agreement, we believe that this is not the time to eliminate
the provisions because of Canadian trade imbalance due to cyclical
economic patterns.
Further, we maintain that any effort to increase the North American
"content required" percentage would have only cosmetic effects and would
exhibit protectionist tendencies not in line with our belief in inter-
national free trade.
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U.S. - CANADIAN TRANSDOUNDARY ISSUES
The boundary between the United States and Canada, including the Alaskan
border, stretches over five thousand miles. Along the international boundary, and
in the ocean waters off this continent's east and west coasts, are natural resources
of sufficient abundance and variety to supply many of our two countries' needs.
As well, these boundary areas contain some of the most beautiful wilderness in North
America.
Confronted simultaneously by rising demands on the earth's resources and a
need to protect fragile natural environments, the United States and Canada each
face many difficult choices in coming years. Energy and materials shortages have
led both countries to give high priority to fossil fuel production and resource
management. In recognition of a balancing need for conservation, standing bilateral
agreements commit the United States and Canada to avoid pollution of boundary waters
and to a major cleanup effort in the Great Lakes. As pressures for resource utiliza-
tion and preservation converge - especially when in a border area -- cooperation be-
tween the United States and Canada will become more and more a necessity.
BACKGROUND
In recent years, a variety of federally- and privately-sponsored projects on
both sides of the border have provoked concern for the environmental impacts on the
affected region. The governments of the United States and Canada have consulted
frequently on these issues to avoid damaging each other's interests. At present,
the following matters dominate U.S.-Canadian border relations:
the Garrison Diversion Unit, a partially constructed multipurpose
water project in North Dakota, which Canada fears would degrade
Canadian waters if completed according to plan;
a proposed oil refinery and tanker port at Eastport, Maine; Canada
says an "unacceptable risk" would be created by tankers carrying
crude oil to Eastport through treacherous Canadian waters in the Bay
of Fundy;
heavy tanker traffic from Alaska entering the narrow Rosario and
Juan de Fuca Straits above Puget Sound (Washington State); with
several refineries now active and tanker traffic due to intensify
after completion of the TransAlaska Pipeline, Canada is worried
about the risk of oil spill damage along her beautiful and well
populated West Coast;
a variety of issues in the Great Lakes, including (1) tardy U.S.
compliance with the 1972 Great Lakes Water Quality Agreement,
which bound the U.S. and Canada to have secondary sewage treatment
for Great Lakes Basin municipalities by December 31, 1975; (2) regu-
lation of Great Lakes water levels; and (3) commercial fishing dis-
putes in Lake Erie;
a Canadian proposal to build flood control apparatus along the
Richelieu River north of Lake Champlain (New York State); the United
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States fears that present construction plans, if implemented, might
have a harmful effect on Lake Champlain;
plans by a Canadian metals firm to mine and refine coking coal at a
site in Canada eight miles north of Glacier National Park (Montana);
the United States is concerned that the proposed "Cabin Creek" project
could cause waste and runoffs posing a serious threat to the pristine
beauty of Glacier, the Flathead National Forest and the Flathead River
basin;
an upcoming session of the Third United Nations Law of the Sea Conference,
where articles on fisheries, deep seabed exploitation, jurisdictional
definitions, navigation rights, and other issues of interest to both
the United States and Canada may be incorporated into an international
treaty.
Garrison Diversion Unit
Garrison is a plan to divert water from the Missouri River for irrigation,
municipal and industrial water supply, and recreational areas, in central and
eastern North Dakota. The project, whose initial stage would affect 250,000
acres, was first passed by Congress in 1944 and funded beginning in 1965. Appro-
priations for Garrison totaled $13.3 million in FY 1976. The President requested
$23 million for the project in his FY 1977 budget. With completion now planned
for 1990, the current estimate for the cost of the entire project is $496 million.
The Garrison Diversion Unit has long been controversial. Its advocates claim
that Garrison's irrigation features would greatly increase farm profitability in
North Dakota by making possible a multi-crop economy. A Bureau of Reclamation
environmental study purports to show a cost-benefit ratio of 2.9 to 1. North
Dakota's Congressional delegation supports the project, as do most supervisory
agencies and farm organizations in the state.
But the Canadian government has concluded that saline return flows from the
project's sprinkler irrigation would have adverse effects on Canadian portions
of the Souris, Assiniboine and Red Rivers and on Lake Winnipeg, causing injury
to health and property in Canada in contravention of the Boundary Waters Treaty
of 1909. (Article IV of that Treaty between the U.S. and Canada forbids either
country from polluting boundary waters "to the injury of health or property" on
the other side of the border.) In a diplomatic note presented to the U.S. govern-
ment in October 1973, the Government of Canada requested the U.S. to "establish
a moratorium on all further construction of the Garrison Diversion Unit until
such time as the United States and Canadian governments can reach an understanding
that Canadian rights and interest have been fully protected in accordance with
provisions of the Boundary Waters Treaty."
The United States government has assured Canada that no construction poten-
tially affecting waters flowing into Canada will be undertaken until it is clear
that our Boundary Waters Treaty obligations to Canada can be met. The International
Joint Commission, a bilateral group chartered by the Boundary Waters pact to settle
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boundary waters issues, is studying the matter and has promised a report by October
31, 1976.
Eastport
An application by the Pittston Company (New York) for a permit to build an
oil refinery and tanker port at Eastport, Maine, has brought particularly strong
protests from the Canadian government. Tankers serving the proposed refinery
would have to pass through Head Harbor Passage in the Bay of Fundy -- an especially
dangerous channel due to near-constant fog, severe tidal fluctuations and a rocky
coastline.
Pro-refinery forces in Maine say construction of the project would bring
needed jobs and industry and might reduce the cost of oil products in ths econo-
mically depressed region. However, opponents of the project in Maine and Canada
point out that the risk of oil spills is great, and the damage a spill would cause
to fragile Maine and New Brunswick fishing industries would be extremely serious.
Opponents also question the Pittston Company's dedication to environmental respon-
sibility - in 1974, an earthen dam collapsed at a Pittston strip-mine site in
West Virginia, killing over 100 people and causing flood damage in 14 nearby
communities.
The State of Maine Board of Environmental Protection granted building permits
to Pittston in June 1975. The company is still in the process of obtaining necessary
U.S. permits. At any rate, construction cannot begin until Canada grants passage
rights for crude oil-bearing tankers. Canada has said the risk of spills is
"unacceptable" and has implied that Parliament would deny passage rights through
Head Harbor Passage.
The U.S. government has asked that Canada grant any Pittston application a full
and fair hearing. The U.S. points out that vessels proceeding to or departing from
U.S. ports through the waters of Head Harbor Passage enjoy the right of innocent
passage under international law and that this right is not subject to unreasonable
or arbitrary interference or suspension.
Strait of Juan de Fuca
Canada is concerned about the hazards of large-scale tanker traffic from
Alaska passing through narrow Canadian straits en route to a refinery at Cherry
Point, Washington. In early 1974 the Canadian government proposed a West Coast
Environmental Protection Agreement to lessen the hazards of oil spills. The U.S.
government reserved its position on the proposal, but agreed at that time to
technical discussions in all areas of Canadian concern. These discussions have
led to the enactment of several traffic control measures which are now in force in
the Straits of Rosario and Juan de Fuca and in Puget Sound. Washington State is
now studying the possibility of building a tanker port near Port Angeles on the
western end of the Strait --- a more desirable location in terms of tanker traffic
safety.
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This situation will grow more critical with the completion in the late '70s
of the TransAlaskan Pipeline. The volume of crude oil-bearing tanker traffic from
Alaska to West Coast refineries in the United States is expected to increase drama-
tically. Canada is hoping to avoid a concomitant rise in the risk of oil spillage.
The Great Lakes
The Great Lakes chain is a critical resource for both the United States and
Canada. Major portions of both countries' population and industry are located in
the Great Lakes Basin. The United States and Canada face many issues involving
shipping, hydropower, pollution and resource management in the Lakes; the matters
discussed in the sub-paragraphs which follow are of especial current interest:
The Great Lakes Agreement. The 1972 Great Lakes Water Quality Agreement
between the United States and Canada committed both countries to a massive effort
to construct and upgrade municipal sewage treatment facilities in the Great Lakes
Basin. Under the Agreement, both nations were required to have waste treatment
facilities in all basin municipalities with sewer systems either complete or in
"process of implementation" by December 31, 1975. Canada has substantially ful-
filled its obligations under the Agreement.
In the United States, only an estimated 60 per cent of the basin population
were being served by "adequate" sewage treatment plants when the deadline passed.
Another 20-25% of the population lives in areas where plants are in an early
planning stage. Our program's tardiness is traceable to (1) difficulties ex-
perienced by many municipalities in meeting U.S. Environmental Protection Agency
administrative requirements to qualify for grants and (2) the impoundment of $3.5
million in targeted funds by the Nixon Administration in fiscal years 1973 and 1974.
Additionally, the U.S. General Accounting Office has suggested that Federal water
pollution control funding may not be adequate for timely completion of the U.S.
Great Lakes program. Canada has expressed its concern over the delays in the
U.S. program directly to President Ford and Secretary of State Kissinger. During
Secretary Kissinger's visit to Ottawa last October, the Secretary recognized
our obligations under the Agreement and acknowledged that our program is behind
schedule. At that time, he pledged that the Administration would make every
effort to encourage total U.S. compliance.
Regulation of the Great Lakes. The United States and Canada for many years
have cooperated, under the authority of the Boundary Waters Treaty of 1909, in
regulating the water levels of Lakes Superior and Ontario. This regulation, through
control works at key inflow and outflow points, is intended to moderate extreme
long-term fluctuations in the levels of those two lakes for various purposes, in-
cluding the protection of property, navigation and hydropower interests.
In recent years extremely high water levels, especially on Lakes Erie, Huron
and St. Clair, have caused extensive erosion and flood damage to shore property.
Though regulation of Lakes Superior and Ontario does marginally affect the water
levels in the other Great Lakes, no effective means actually exist to regulate the
water levels of Lakes Michigan, Huron, Erie and St. Clair. This damage has caused
great public outcry from property owners, who hope for some governmental response
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to the urgent need for regulation of the lakes, to modify the cyclical high and low
water levels that naturally occur in the lakes.
The International Joint Commission, created by the 1909 Treaty and charged with
overseeing regulation of lake levels, has conducted an extensive study of the water
levels on all the lakes. The I.J.C. now is reviewing at least two specific plans,
identified by the Corps of Engineers as exhibiting favorable cost/benefit ratios,
for further regulation to benefit all of the Great Lakes as one system. It now is
anticipated their report will be submitted to the two governments for their approval
in early May, 1976.
Commercial Fishing in Lake Erie
Commercial fishermen from Ohio have complained of overfishing and poaching
in Lake Erie by Canadian fishermen from Ontario. The Ohio fishermen charge that the
U.S. - Canada Convention on Great Lakes Fisheries (1955) provides inadequate pro-
tection against depletion of fish stocks, and that a new treaty is needed to safe-
guard their livelihood.
The 1955 agreement created a bilateral Great Lakes Fisheries Commission to
conduct research on management of fisheries stocks. However, the Commission does
not have regulatory powers. Regulation now exists only on the state and province
level, and Ohio fishermen argue that regulation by the province of Ontario has been
ineffective in stopping overnetting by Ontario boats in Lake Erie.
Earlier U.S. complaints about poaching (illegal fishing by Ontario boats in
Ohio waters) in Lake Erie brought promises of strengthened supervision from pro-
vincial authorities. The Ohio fishermen argue that unless stringent seasonal
gear and catch size standards are adopted and observed, the fishing industry in
Lake Erie for both the U.S. and Canada could suffer fatal damage.
Richelieu River Lake Champlain
Because of high water levels on Lake Champlain and flooding of its outlet
river, the Richelieu, the United States and Canadian governments asked the In-
ternational Joint Commission (IJC) to study means of flood control and regulation.
The subsequent IJC report said that regulation of lake levels should not go forward
before exhaustive environmental studies were conducted. U.S. interests continue to
oppose regulation unless it is clear that its environmental impacts are minimal.
In early 1975, the IJC proposed a careful compromise which would have allowed
the Canadian government to begin construction of control works, provided for
further environmental studies, and postponed the adoption of a regulation plan until
adequate environmental data was available.
The United States government endorsed the IJC compromise proposal. Canada
approved further environmental studies and in late 1975 applied to the IJC for an
order of approval for a new construction plan. The plan is for a fixed-crest
weir, or submerged dam, in the Richeleieu River which would provide a reduction
in flood levels while maintaining low water levels on Lake Champlain near natural
conditions.
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The Canadian government regards the new construction proposal as a significant
compromise to U.S. interests. Canada argues that there is an urgent need for flood
control in the Richelieu Basin and that earlier environmental studies have shown
that the impact of the project on the environment will be minimal. The U.S.
believes that the proposal has merit and should be studied by the IJC's Richelieu-
Champlain Board, but that no decision should be taken on implementation until en-
vironmental studies are completed.
Flathead River/Cabin Creek Coal Project
A Canadian mining company has drawn up plans to take an estimated 110 million
tons of high grade coking coal from a site eight miles north of the international
boundary on Cabin Creek, a tributary of the North Fork of the Flathead River which
runs into Montana. The North Fork forms the western border of Glacier National
Park and is presently under consideration for inclusion in the U.S. Wild and Scenic
Rivers System. Mining operations could result in transboundary air and water
pollution affecting Glacier National Park and end all hopes of preserving the river
in a wild and scenic state. The project is strongly opposed by local residents, the
Montana delegation, and U.S. and Canadian conservation groups. There appear to be no
economic advantages to the U.S. from the proposed development; coal from the site
is expected to be exported to Japan.
Canada has pledged to ensure that any development at Cabin Creek will be so
designed and operated as to meet Canada's treaty obligations not to pollute
waters crossing the boundary to the injury of health or property. The Canadian
government welcomes consultations with the U.S. to reach a mutually acceptable solu-
tion.
The U.S. government is concerned that the proposed Cabin Creek project would
seriously undermine efforts to protect the unique environmental value of Glacier
National Park, the Flathead National Forest and the Flathead River Basin and could
cause injury to both public and private property in these areas. The U.S. welcomes
Canada's assurances that it will abide by its treaty obligations and appreciates
Canada's willingness to hold consultations to ensure that American interests are
protected. The U.S. government believes that no approval for actual mining should
be granted by provincial or federal authorities until it is clear that U.S. interests
will be adequately safeguarded. To this end, the United States has asked the govern-
ment of Canada to explore with us the utility of a bilateral agreement or other
arrangements which would help assure that the unique beauty of the Glacier National
Park area can be preserved.
Law of the Sea
The United States and Canada hold many common interests in the Third United
Nations Law of the Sea Conference, whose third session convened in March in New
York City. The two countries have proposed slightly different approaches to
several issues. However, at the present meeting, or in a subsequent parley
(if needed) in Geneva in August, both the United States and Canada hope to see
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articles on the following subjects incorporated into a final treaty:
fisheries management and conservation principles for coastal
states, including rules for primacy of jurisdiction, the right
to establish quotas, and special protection for anadromous species
(fish which spawn inland or upstream and then migrate to distant
ocean waters, e.g., salmon and tuna);
a regime for international straits, defining rights of international
navigation and overflight, and balancing rights of coastal states
to prevent environmental damage;
a deep seabed authority, to govern international exploitation of
minerals and living resources on the ocean floor beyond the conti-
nental margins;
the establishment of territorial and economic zones or boundaries in
the sea;
peaceful settlement of disputes.
U.S. and Canadian coastal fisheries have been seriously depleted by foreign
distant-water fishing fleets. At the Law of the Sea Conference, the Canadian
position on fisheries is similar to that of the United States. The U.S. favors
(1) coastal state management and sovereign rights over coastal species out to
200 miles; (2) exclusive host state control of salmon and other anadromous species
to the full extent of their migratory range; and (3) regional or international
management of highly migratory species such as tuna.
The Trudeau and Ford Administrations have opposed drives within their own
countries to enact unilateral 200-mile fishing zone legislation. The U.S. and
Canadian governments have, instead, urged that similar 200-mile coastal state
primacy standards be ratified through a Third International Law of the Sea treaty.
The Canadian government has been successful in resisting internal pressures up to
now. Congress recently passed a bill, H.R. 200, to extend the U.S. fishing juris-
diction to 200 miles. However, the measure may never be effected unilaterally,
since the House-Senate Conference report, adopted by both houses and awaiting the
President's signature, postpones until March 1, 1977, the in-force date of the bill.
It is hoped that by that time a new international agreement will have eliminated
the need for unilateral action by the United States.
On pollution issues, Canada's determination to preserve her fragile Arctic
environment led to the enactment of the 1970 Canadian Arctic Waters Pollution
Control Act. The Act proclaimed for Canada pollution jurisdiction over foreign
vessels in a 100-mile pollution control zone off Canadian shores above the 60th
parallel. At the Law of the Sea Conference, Canada proposes to vest broad powers
in the port state and coastal state to enforce both national and international
pollution control standards for vessels in ports and coastal waters.
The United States shares Canada's determination to prevent pollution of the
seas, but favors an approach which is different in several respects. Specifically,
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the United States rejects Canada's assertion of a right to unilateral extension
of pollution jurisdiction such as is claimed in the 1970 Canadian Arctic Waters
legislation. In the Law of the Sea forum, the United States has maintained that
only international construction and discharge standards apply to vessels beyond
the territorial sea (12 miles offshore), except such additional standards as a
flag state may impose upon its own vessels. The United States supports an enforce-
ment system in which the flag state would (1) be obligated to enforce violations
of international law against its own vessels; (2) be able to enforce against vio-
lations of international as well as national law for all vessels which are volun-
tarily present in its ports; and (3) have a right to enforce international and
national standards applicable to vessels within its territorial sea, provided that
such rules did not hamper innocent passage.
Exploitation of the international deep seabed area beyond the economic zones
of individual coastal states is a matter of profound interest to all countries
participating in the Law of the Sea Conference. The United States favors access
to international seabed resources for individual nations and private commercial
interests, coupled with revenue sharing for the benefit of the world community.
Many of the highly industrialized countries, including the U.S.S.R. and the
E.E.C. states (minus Ireland), also support this concept.
Canada, siding with a large number of developing countries, wants to endow
the future International Seabed Authority with exclusive rights to carry out all
activities in the international seabed area. This would permit production-sharing
as well as revenue-sharing. Under this scheme, the Authority could grant service
contracts to nations or corporations but would maintain its full and effective
control at all times.
RECOMMENDATIONS
In general, we urge that the United States renew its long-standing commitment
to amicable transboundary relations with Canada. We recommend that steps be taken
which will affirm our adherence to agreements protecting the environments and
resources along the U.S. - Canadian border, without unduly restricting needed
development projects. We make the recommendations outlined below in the belief
that our shared land and water boundary areas can be hardy, perennial sources of
food, fuel and recreational pleasure in the future, if we commit ourselves to the
preservation of the time-tested natural balance of the elements.
1.
Congress should give careful consideration to the forthcoming report
of the International Joint Commission on probable impacts of Garrison
Diversion Unit return flows on Canadian waters. If the I.J.C. report
shows that construction of the project would not cause U.S. violations
of the Boundary Waters Treaty, we would support completion of the
project, with such modifications as might be necessary to eradicate
significant Canadian concerns.
If the I.J.C. report demonstrates conclusively that construction of
Garrison's Initial Stage would cause adverse impacts on Canadian
waters in contravention of the Boundary Waters Treaty, we would
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support a moratorium on the appropriation of funds for construction
of project features affecting Canada.
2.
The Canadian government should give the Pittston Company a full and
fair hearing consistent with the protection of innocent passage under
international law, if and when the Company applies for transit and
navigation rights through Canadian waters to a proposed crude oil
refinery at Eastport, Maine.
3.
To resolve the threat of oil spills from tanker traffic through the
Strait of Juan de Fuca, Congress should explore the potential for
federal-state cooperation in testing the utility of a western site
for refineries and tanker port in Puget Sound.
4.
We urge oversight committees in Congress to weigh the effectiveness of
present research, construction and quality control measures designed
to bring about U.S. compliance with the 1972 Great Lakes Water Quality
Agreement. We also believe that increased participation by the states
would lead to faster and better-supervised allocation of needed funds
for waste treatment facilities in the Great Lakes Basin. To help states
finance added water pollution control burdens, Congress should consider
legislation such as H.R. 2175 [Rep. James Cleveland (R.-N.H.) and Rep.
Jim Wright (D.-Tex.)]
5.
The U.S. and Canadian governments should make further bilateral efforts
to moderate extreme fluctuations in water levels on the Great Lakes.
The two governments should weigh carefully the forthcoming report of
the International Joint Commission on regulation of lake levels to
prevent damage to shore property.
6.
To prevent depletion of fish stocks, and to protect legitimate U.S.
fishing interests, the U.S. should explore with Canada the need for
a new regime governing management of fisheries in Lake Erie.
7.
In the interests of insuring against premature construction of flood
control apparatus at Lake Champlain, the U.S. should support continued
funding of International Joint Commission studies of the environmental
impacts of regulation of water levels at the lake.
8.
The U.S. State Department should continue to impress upon the Canadian
government the importance of preventing pollution of the Flathead Basin
and Glacier National Park (Montana) area from any future coal operations
on the Canadian side of the border.
9.
The United States and Canda should seek every available opportunity for
cooperative effort at the U.N. Law of the Sea Conference convening in
March in New York. Agreement this year on a final negotiating text for
a 3rd International Law of the Sea Treaty would hasten the inauguration
of needed ocean resource management controls.
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