Reference: Your despatch No. EX-1317 of the 2 November.⁹⁹

In yesterday's bag we forwarded to you ten copies of the recommendations of the Cabinet Committee on Energy Supplies and Resources Policy which were made public on Saturday morning, the 26th of February, in a release from the White House.¹⁰⁰ With the exception of the recommendations concerning imports of crude oil, the recommendations do not bear directly on Canadian interests, in our opinion. In the section on natural gas, for example, nothing is said about imports or exports. Nor are recommendations made about hydro-electric energy. The recommendations on coal will be read with interest by those in Ottawa who are examining the problems of the Canadian coal industry, but principally because they show how similar problems are being approached in this country.

2. On the other hand, we are seriously concerned over the recommendations on imported crude oil. The Committee states that, in its opinion, if the imports of crude and residual oils should exceed significantly the respective proportions that these imports of oil bore to the production of domestic crude oil in 1954, the domestic fuel situation would be so impaired as to endanger the ordinary industrial growth "which assures the military and civilian supplies and reserves that are necessary to the national defence." The Committee therefore recommends that, in the interest of national defence, imports should be kept in the balance that obtained last year and that this should be done by the voluntary restraint of individual importers. If, however, such restraint is not exercised, and if, in the future, the imports of crude oil and residual fuel oil exceed significantly the respective proportions that such imported oils bore to domestic production of crude oil in 1954, the Committee further recommends that "appropriate action" should be taken.

3. It seems plain that these recommendations are likely to jeopardize the plans to export greatly increased quantities of Canadian crude oil to the United States, particularly through the trans-mountain pipeline. It is true that the recommendations do not appear to have yet been formally endorsed by the President. But they have been made by a Committee which was chaired by the Director of the Office of Defence Mobilization and which comprised the Heads of the Department of State, Treasury, Defence, Justice, the Interior, Commerce, and Labour. When we called this morning on Willis Armstrong, Deputy Director of the Office of International Trade and Resources in the State Department, we asked him whether the recommendation on crude oil were to be regarded as administration policy. In reply he said, "they were contained in a White House press release; perhaps that is answer enough to your question."

4. We also enquired whether it should be inferred from the recommendations that the Administration would be speaking to United States importers of crude oil to let them know that if imports were not held to the proportion of domestic production that they represented in 1954, "appropriate action" would be taken. Armstrong said that he doubted whether this would be done, since the Administration would be wary of taking any steps that might seem to invite infractions of the anti-trust laws. In this connection he drew our attention to the fact that it has been recommended that the limitation proposed should be carried out by "voluntary, individual action" on the part of United States importers. However, the Administration assumed that importers could read. The threat contained in the recommendation was nonetheless real and should be nonetheless persuasive even though, in all probability, it would not be communicated officially and directly to the importers. It went without saying that it would hang over the heads of those importing Canadian crude oil as well as over those importing from other foreign sources. When we suggested that, if that were the case, the recommendations would be bound to affect adversely the prospects for increasing Canadian exports to the Pacific Northwest of the United States, Armstrong said that he could not disagree.

5. That would be bad enough. But there is the further danger that these recommendation may be embodied in legislation. You will be aware that many bills have been introduced into Congress to restrict imports of oil into the United States. The obvious tack for spokesmen for the coal industry and the "independent" oil producers now to follow is to adopt as their own the recommendations of the Cabinet Committee on Crude Oil and Residual Fuel Oil and urge that they be given statutory authority. This could be done either when the new trade agreements bill is being considered in the Senate (where there is much wider freedom of debate than in the House of Representatives) or by submitting a separate bill on crude oil and residual fuel oil. Over the week-end Senator Daniel (dem.-Tex.) indicated that that was his intention. Indeed, he went further. In 1954 imports of crude oil and residual fuel oil had amounted to approximately one-eighth of domestic production. In his statement to the press he said that he would ask Congress to limit imports to one-tenth of domestic production.

6. We gathered from Armstrong this morning that it had been argued by some within the Administration that a recommendation of the kind that has now been made for voluntary restraint on the part of United States importers might serve to head off Congressional pressure for statutory restrictions. We doubt it. Moreover, it seems to us that, in the light of these recommendations by eight of the President's Cabinet officers, the Administration would be in a very poor position to resist an effort in Congress to give the degree of restriction that has been recommended the force of law.

7. We should be grateful to know whether you agree with our assessment of the seriousness of these recommendations. If you do, I think the proper course would be to instruct me to see Herbert Hoover, Jr., the Under-Secretary of State, and make our views known to him. As you know, he is in his own right a very considerable expert on petroleum problems and we gather that he represented the State Department at most of the meetings of the Cabinet Committee. My oral representations should be supported, it seems to me, by a document to be prepared in Ottawa, for the purpose of making representations we could, I think, assume that the recommendations of the Cabinet Committee have not yet been adopted as Administration policy, although we should not allow ourselves to be deluded about their real status. After mentioning the very large imports of United States crude oil that enter Canada through Montreal and the Atlantic provinces, and after describing the projects for increasing Canadian exports to the Pacific northwest through the trans-mountain pipeline, we might refer to the fact that when the pipeline was being built the United States Navy, on strategic grounds, gave support for its construction and for the construction of additional refining capacity in the State of Washington. We might also argue that, although the defence interest of the United States might conceivably be held to require that imports of crude oil from countries overseas should be limited to the proportion they bore in 1954 to domestic production, this thesis would not seem to be valid when applied to imports from Canada. In other words, here is a case in which we might perhaps with advantage be eclectic enough to advocate a continental approach to the problem in hand.