Cablegate: Scenesetter: Your Visit to Alberta, Canada

This record is a partial extract of the original cable. The full text of the original cable is not available.

211216Z Jun 05



STATE FOR WHA, WHA/CAN (Holst); H(John Carter)



E.O. 12958: N/A
SUBJECT: SCENESETTER: Your Visit to Alberta, Canada

1. I would like to take this opportunity to welcome you and
House Agriculture Committee members and staff to Canada. I
am sure that your visit will be productive and will help us
advance the agenda on two of our biggest bilateral bilateral
economic issues.

The Canadian Political Scene

2. Canada's core national problem - accommodating a
significant French-speaking minority within British-style
political institutions - dates back to the 1600's, and
national unity issues in one form or another still provide
the backdrop for much of what happens in Canadian politics.
Federal-provincial relations can be fractious. Although
provinces have tax authority, provincial leaders complain
that the federal government's taxation powers exceed its
responsibilities, and have sought to renegotiate fiscal and
jurisdictional arrangements, either individually (e.g. on
offshore oil and gas revenues) or by presenting a unified
front against Ottawa (e.g. on health care and education

3. Paul Martin was elected leader of the Liberal Party and
became Prime Minister upon the retirement of Jean Chrtien
in 2003. An election in June 2004 left the Liberals
precariously leading the first minority government since
1980 with the uncertain support of the left-of-center New
Democratic Party (NDP). They barely escaped an election in
May after a tiebreaking vote by the normally nonvoting
Speaker. Prime Minister Martin has pledged to call an
election within 30 days after the report next fall of an

inquiry into a scandal over misuse of hundreds of millions
of dollars in federal "sponsorship" funds in Quebec. All
parties seem reluctant to go to the polls in winter when
weather makes turnout uncertain, so a spring election
appears more likely. At this point, it seems likely that
such an election would yield another, smaller Liberal
minority, and increase the number of seats held by the
separatist Bloc Quebecois. The Official Opposition party,
the Conservatives, are strongest in western Canada and in
rural southern Ontario, but have made few inroads in urban
Ontario or Quebec. The New Democratic Party of Canada is a
tiny minority at this point but could be a dark horse in the
next election.

Canada-US Relations: An Overview

4. Relations with the United States are always front and
center for Canada. While our two countries have the world's
longest undefended border and largest trading relationship,
Canadians remain protective of their sovereignty and
national identity and ambivalent about their overwhelming
dependence on the U.S. economy. This sensitivity played
into former PM Chretien's decision not to participate
directly in the invasion of Iraq, and PM Martin's decision
not to join the ballistic missile defense program. (The
opposition Conservative Party disagreed with both of these
decisions). Nevertheless, Canada has troops in Afghanistan
and is working closely with the U.S. on peacekeeping in
Haiti, and Canada leads the Iraq donor group.

5. Bilateral economic relations were strengthened by the
free trade agreements in 1989 (FTA) and 1994 (NAFTA). Our
two countries exchange over $1 billion in goods and services
each day, most of it without significant friction, and
Canada currently enjoys a bilateral trade surplus with the
U.S. of nearly $70 billion USD. Canada is also the United
States' largest foreign oil supplier, ahead of Saudi Arabia,
and has the world's second largest petroleum reserves. In
2004, Canada exported over 1.6 million barrels of crude oil
per day to the United States, or about eight percent of
total U.S. consumption. Canadian gas and electricity
exports also play a key role in ensuring the U.S. energy

6. Despite our huge and largely trouble-free economic
relationship, ongoing irritants contribute to a perception
here that the free trade agreements have failed to achieve
what Canadian leaders promised: secure access to the U.S.
market. Key Canadian trade concerns include:

--The inability of governments on both sides to restore pre-
existing trade in beef and live cattle after BSE ("mad cow
disease") was discovered in a few North American animals
since 2002.

--"Border risk" - the perception that getting goods across
the border is getting harder and more unpredictable (in a
relationship where most goods still cross via land borders).
While border bottlenecks are due primarily to the doubling
of bilateral trade since 1989, security measures after
September 11, 2001 and disruptions related to the SARS
outbreak in 2003 have contributed to a fear that trade gains
may be at risk.

-- The failure of a string of negotiations and litigation
to put an end to a long-running trade dispute over softwood
lumber, and accompanying irritations over the U.S. "Byrd

7. On the U.S. side, we have expressed concern about a
number of continuing or potential trade issues, including:

-- Canadian failure to ratify and enforce key treaties
protecting intellectual property rights, and weaknesses in
enforcement of existing Canadian IPR protections;

--supply management policies and other restrictions on
agricultural trade;

-- continuing regulatory divergence, especially in the food
area, that force U.S. producers to set up separate
production runs to sell in Canada.

In addition, longstanding Canadian cultural restrictions on
television and radio broadcasting, largely excluded from
NAFTA coverage, continue to restrict the market for U.S.
audiovisual exports.

The Security and Prosperity Partnership (SPP)

8. In his December 2004 visit to Ottawa, President Bush and
Prime Minister Martin announced their intent to strengthen
security and economic ties and improve North American
competitiveness. Under the Security and Prosperity
Partnership (SPP) announced in Waco last March, the three
NAFTA partners are working to further strengthen the working
of the North American economy in a range of incremental ways
that do not require legislative action. The SPP
incorporates our highly successful bilateral "Smart Border
Action Plan" to improve security at the border while
expediting low-risk traffic, and seeks to improve
cooperation in key areas like food safety, motor vehicle
regulation, and energy integration. However, the SPP will
not directly address the lumber or beef disputes.


9. The ban on live cattle imports into the U.S. from Canada
has been in effect for over two years. Following a full
regulatory review process, USDA announced its revised rule
allowing importation of ruminants and ruminant products and
by-products from regions that pose a minimal risk of
introducing BSE into the United States, to take effect on
March 7, 2005. The rule would allow imports of Canadian
cattle less than 30 months of age for immediate slaughter,
and feeder cattle to be slaughtered before they reach 30
months of age. In addition, beef, including bone-in beef,
from cattle less than 30 months could be imported from

10. However, legal action by the Ranchers Cattlemen Action
Legal Fund-United Stockgrowers of America (R-CALF) halted
implementation of the rule. On March 2, 2005, the United
States District Court granted a preliminary injunction in
the case of R-CALF versus the USDA. Hearings in the case
are expected to start July 27. Canadian stakeholders are
dismayed by the further delay in reopening the border, and
some consider it to be yet one more example of supposed USG
disregard for Canadian concerns.

11. Canadian government officials understand that the U.S.
must follow the legal process, and have rejected industry
calls for a WTO or NAFTA challenge to the continuing ban on
live cattle imports in favor of an amicus brief in the R-
CALF legal challenge. However, the Canadian response has
become an issue in the struggle between the Liberals and
Conservatives. Claiming that the GOC was not adequately
defending cattlemen's interests, the Conservative Party
sought independent status as an intervenor in the Montana
court case. In the meantime, announcement of a "weak
positive" test for BSE in a Texas cow has received broad
press coverage in Canada.

Progress on Canadian Restrictions on U.S. Cattle

12. Longstanding Canadian limits on U.S. exports of live
cattle have contributed to dissatisfaction among parts of
the U.S. industry with Canadian import policy and may play a
role in some U.S. ranchers' opposition to lifting of the
U.S. import ban. These issues are on the way to resolution
following changes in Canadian policy sought by the U.S..

13. On October 22, 1997, the United States and Canada
announced a prototype program called the North West Cattle
Project, later known as the Restricted Feeder Cattle
Project, to expedite shipments of live cattle from
participating U.S. states to Canada. Under the agreement,
U.S. live cattle exports were limited to a six-month
shipping season from October 1 to March 31, which has been
designated a low-risk vector season for bluetongue and
anaplasmosis. In March 2004, Canada's Food and Inspection
Agency (CFIA) announced the removal of testing requirements
for anaplasmosis and bluetongue from all imported feeder
cattle from the United States. Under this rule, U.S. feeder
cattle from 39 states considered to have a low incidence of
bluetongue are able to enter Canada directly without
testing. Feeder cattle from the remaining 11 states, which
are considered to have a high incidence of bluetongue, do
not have to be tested provided they reside for at least 60
days in a low incidence state prior to export to Canada.
Testing however, is still an option and should the feeder
cattle be found free of bluetongue, the 60-day period will
be waived. Historically, these high incidence states have
not exported significant numbers of feeder cattle to Canada.
In addition, the rule removed the six-month shipping
restriction to allow exports throughout the year.

14. Canada's announcement on the restricted cattle program
was long awaited, but it did not translate into immediate
feeder cattle trade due to restrictions related to BSE. On
March 29, 2005 Canada began allowing feeder cattle trade to
resume under the March 10, 2004 rule. The rule lifts
restrictions on imports of U.S. feeder cattle less than 30
months of age. When the proposed rule was published, CFIA
also announced that efforts to expand access to U.S. breeder
cattle would begin following the publication of a recently
completed study.

15. U.S. exports of feeder cattle reached nearly 350,000
head in 2000, but declined to 132,484 head in 2002 due to
the drought in western Canada. In 2003, U.S. exports of
live cattle to Canada fell to 68,000 head and decreased to
28,000 head in 2004 due to the large number of cattle in

Softwood Lumber

16. Bilateral tensions over softwood lumber exports are now
entering their third decade (or, some would argue, their
third century) as a trade irritant. In the most recent
round, WTO and NAFTA panels have affirmed our central
argument that Canadian provincial timber practices,
including stumpage fees and other measures, constitute
countervailable subsidies. Nevertheless, a string of panel
decisions critical of U.S. methodology and injury findings
have strengthened the Canadian industry's (and the Canadian
public's) perception that they are victims of unfair and
illegal U.S. measures.

17. While litigation has yielded victories for both sides,
it offers little hope of a long-term solution that
adequately addresses both subsidy and market access issues
for producers on both sides. The U.S. has consistently
called for a long-term negotiated settlement that can
address the underlying issues. While negotiations continue,
U.S. and Canadian industries seemingly remain far apart in
their view of what constitutes an adequate settlement.
These differences are compounded by strong and sometimes
bitter divisions in outlook and interest among Canadian
provinces that Canadian federal negotiators have sometimes
found it difficult to bridge. British Columbia, with the
biggest share of exports, (and over $2 billion in duty
deposits to recover through a settlement) has generally been
most disposed toward compromise. Ontario, Alberta, and
Quebec have taken a harder line and pushed for aggressive
litigation in NAFTA and WTO, while the Maritime provinces,
currently logging primarily from private land and not
subject to countervailing duties, have fought to remain
outside any deal that involves numerical limitations.

Your Visit to Alberta: Overview

18. In a period of marked ups and downs in US-Canada
relations, Alberta remains a bastion of relatively pro-
American, free market sentiment. Alberta has a history of
strong U.S. influence and is considered by many to be the
most "Americanized" province in Canada, due in part to the
oil and gas boom that drew U.S. firms to the province in the
early 1900's. Pro-U.S. sentiment has been sorely tested,
however, by the suffering generated by the discovery of mad
cow disease in Canada in 2003 and the continuing closure of
the U.S. border to live cattle exports, as well as the
dispute over U.S. duties on softwood lumber exports.

Alberta's Politics

19. Alberta is the only province in Western Canada governed
by the right-leaning Progressive Conservatives (PC), the
provincial affiliate of the national Conservative Party,
with Canada's longest serving premier, Ralph Klein, at its
head. In each of the provincial elections since 1992, and
despite dramatic cuts to health and education, Klein and his
Tory party have captured sizeable majorities, but in
November 2004, amid growing accusations that Klein and his
party had become complacent, the party lost 13 seats,
several in their Calgary stronghold. Premier Klein
maintains publicly that he will complete his term, but
observers predict that he will step down later this year.
Relations between Alberta and Ottawa are historically
strained; Klein has, over the years, challenged Ottawa on a
variety of issues, most notably provincial jurisdiction over
resource ownership and health care. Alberta recently
established its own liaison office at the Canadian Embassy
in Washington, D.C. (led by former Alberta Energy Minister
Murray Smith, who will attend Friday's roundtable meetings)
to promote Alberta's interests directly to Congress and
executive branch officials.

Alberta's economy

20. Alberta is a growing economic force in Canada, although
its small population will continue to limit its political
clout in comparison with Ontario and Quebec, Canada's
population and industrial centers. Some 80% of Alberta's
exports, valued at more than $50 billion, head to U.S.
markets. As Canada's energy capital, Alberta produces more
than 80% of the country's oil and gas needs, providing the
provincial government with multi-billion dollar budget
surpluses. Alberta also supplies more than a million
barrels per day of crude oil to the U.S., supplying 11% of
our crude oil imports, or five percent of U.S. oil demand.
The province also exports more than 2.6 trillion cubic feet
of natural gas to the U.S., accounting for 62% of U.S.
natural gas imports, and meeting about 12% of U.S. demand.

21. After energy and finance, agriculture is the third most
important sector. Agri-food and forest product exports
account for approximately $2 billion each. Alberta is the
largest cattle producer in the country and the ban on trade
in live cattle, as well as a temporary ban on boneless beef
exports to the U.S., due to BSE have cost Canada's cattle
producers billions of dollars. All three prairie provinces
have compensated cattle producers with millions (with some
funds coming from the federal government), and Alberta has
since introduced diversification plans to increase slaughter
capacity in the province.

Softwood Lumber

22. While softwood lumber remains an important part of the
provincial economy, Alberta is considered a small player
with about 1.1 billion board feet in exports, well behind
BC, Quebec, and Ontario. The forestry products sector,
including pulp and paper and manufactured items as well as
lumber, accounts for about 54,000 jobs. Alberta's softwood
exports to the United States have declined substantially
since the imposition of antidumping and countervailing
duties following the end of the Softwood Lumber Agreement.

British Columbia: political overview

23. Premier Gordon Campbell's conservative Liberal Party
(which is not affiliated with the federal Liberals) achieved
a historic May 17 win in provincial elections as Campbell
became the first B.C. premier in 22 years to win a second
term. However, his government prevailed with a
substantially reduced majority, and a decline in share of
the popular vote from 58% in 2001 to 46%. Analysts
attribute the decline in popularity to the party's cutting
of social services; however, they were buoyed by a strong
economic performance, driven by low interest rates, high
commodity prices, aggressive deregulation, and tax cuts. BC
Liberals have traditionally emphasized sound trade and
economic ties with the US.

B.C.'s softwood industry

24. Your meetings with British Columbia officials will
focus on the softwood lumber dispute. Lumber is the biggest
industry in British Columbia, accounting for 17% of
provincial output and 14% of jobs. B.C. accounts for over
half of Canadian softwood exports to the U.S. in the past
three years and producers there are the biggest and,
according to industry analysts, the most efficient of
Canadian softwood producers. In 2003, B.C. forestry
officials instituted reforms in timber pricing and
contracting in coastal regions, leading to closure of a
number of small mills and restructuring in the industry.
B.C.'s forest reform plan envisions the eventual opening of
45% of provincial forests to market-based contracting and
elimination of clauses obligating timber to be delivered to
designated sawmills.

25. U.S. antidumping and countervailing duties have also
spurred B.C. producers to streamline, through capital
investment in more efficient and larger mills, and through
mergers and acquisitions worth more than $5 billion. Record
lumber prices generated by housing booms in the U.S. and
Canada have by and large allowed BC producers to increase
export levels despite duty deposits of up to 27% and the
2004 rise in the Canadian dollar; B.C. shipped a record-
breaking 11.4 billion board feet in 2004, outpacing
exporters in other provinces. A provincial pine beetle
infestation may further spur production as provincial
forestry officials order emergency cuts in infested areas,
temporarily increasing supply to sawmills.

26. Nevertheless, B.C. producers and provincial officials
have been among the most eager proponents of a negotiated
settlement of the AD and CVD cases that would offer them a
more predictable commercial environment and a clear
blueprint for acceptable reform that would eliminate the
risk of future U.S. subsidy findings. They strongly
supported the U.S. proposal made in December 2003
(eventually rejected by Canada) that would have imposed
province-specific export quotas, in part because the
proposed quota criteria would have locked in their increased
market share relative to other provinces. At one point,
B.C. officials also floated the idea of a province-specific
agreement with the U.S. You can expect BC officials and
industry representatives to argue that they have made
substantial reforms and that we should negotiate a deal that
would allow a return to full free trade on completion of
their reform process.

© Scoop Media

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