My dear Colleague,

As you know, there has in recent months been a great deal of attention directed to some important water and hydro electric power problems that are of joint concern to Canada and the United States. These involve the Columbia and Fraser Rivers, the Yukon River, the Saint John River, and also several smaller rivers that have not received the same amount of public attention. I have been considering what action the federal government ought to take, if any, at this time toward a solution of several of the problems and I should like in this letter to put my personal views forward for your consideration. I am sending a letter the same as this to our colleague, the Minister of Trade and Commerce, so that I can get his comments as well.

I think that we have arrived at a critical point in arrangements for the use of water resources in rivers which are not boundary waters but which flow across the international boundary in one direction or the other. The situation in relation to the Columbia River is quite well known. There have been a number of proposals from the United States for measures to develop power from its waters through the provision of storage in Canada. The most notable recently have been the proposal for a dam at Libby, Montana, which would back water into Canada, and the Kaiser proposal to develop storage on the Arrow Lakes. In the Libby case, the Canadian Government took the position, on July 7th, 1954, that the International Joint Commission's approval of the Libby project should be subject to a condition that all results from the over-all study of the Columbia Basin should be taken into account.¹⁷⁷ That study is not yet complete and will not be for another two years or so. The government's decision was accordingly one that imposed a substantial delay on any action. We and the government of British Columbia both brought up the question of downstream benefits. The Kaiser proposal was a most undesirable one. It led to the passage of the International River Improvements Act and to a good deal of controversy with the British Columbia Government, and the development was prevented. In both of these cases we can be cast in the role, both domestically and internationally, of an obstacle to power development, without being able to disclose thus far in our defence any action on our part to bring about alternative developments or to solve the problems that stand in the way of such developments.

The federal government did take action more than a year ago to initiate a study of the economic feasibility of diverting water from the Columbia River to the Fraser River.¹⁷⁸ This study is not yet complete but it has already been made apparent that, however the economics turn out, there is going to be a major problem with regard to the Fraser River salmon fishery which may prevent any diversion for power purposes. It might well be that the plan will not lead to any positive results. Accordingly, the diversion study may, in the end, not appear as a positive contribution by the federal government.

In the case of the Yukon River there was about 1950 a proposal for a diversion from Canada that would permit the development of a very large block of power by the Aluminum Company of America on the Taiya Inlet near Skagway in Alaska.¹⁷⁹ The federal government at that time took the position (as in the Kaiser case) that Canadian resources should, if at all possible, be developed in Canada and not devoted to use in another country. Following this, Ventures Limited worked out their plan for a diversion of Yukon river water which would develop power on the Taku River in northern British Columbia. This project has been under active consideration for several years and seems to be economically feasible. However, in presenting a brief to the Gordon Commission¹⁸⁰ in Victoria, Ventures Limited said that the fear of international complications in their project had kept industrialists from committing themselves to participate and were holding it up.

In all of these cases where large power projects are involved, international complications, or the fear of them, play a major part in the preventing or delaying development. In all of these cases, too, the federal government can be made to appear as the agency which, so far as Canada is concerned, has prohibited the developments that have been proposed. It can also be said, with truth, that if the international complications are holding up developments it is the duty of the federal government to try to have them removed.

In the above cases the problems that arise are of two kinds - in some instances both are present, in others only one. One problem is the way in which benefits should be shared which flow from developments upstream on a river that crosses the international boundary lower down. This is the downstream benefit question and since it arose with such importance on the Columbia River it is showing itself up on a good many other river problems that come before the International Joint Commission. Both the United States and Canadian sections have felt the need to be extremely careful in dealing with all benefit cases so that any points yielded on, say, the small Souris River, would not arise as questions of principle to imperil a national interest on a larger river. The second problem has been that of the right of the upstream state to divert water and also the extent and character of the right of the downstream state to be heard or to receive compensation.

The problem of downstream benefits is entirely unsettled but it clearly has to be worked out in some fashion before a good many projects can proceed. As to the diversion question, it is covered by Article II of the Boundary Waters Treaty - an article which was forced on Canada in its present terms. Under it each country has the unlimited right to deal with water that crosses the boundary while it is on its own side of the boundary. Principles of compensation are set forth but there is some doubt whether the form of compensation is effective and there is complete doubt as to just what constitutes a downstream appropriation for which a citizen or other interest there is entitled to compensation. Canada has a strong position in the complete right that is given to divert, since in most important cases we are the upstream state, but we have to recognize that there are a good many unsolved problems in the situation which can and are likely to lead to serious difficulties with the United States if we put our rights into effect too baldly.

There have been a number of suggestions from various sources that negotiations should be undertaken with the United States to solve these water problems. The Premier of British Columbia has suggested this twice in press interviews in the last few months. The Leader of the Liberal Party in British Columbia has recently placed a motion on the Order Paper in the Provincial House advocating discussions. Newspaper and other agencies have made similar proposals. The Member of Parliament for Vancouver - Quadra suggested in the House of Commons on January 23 (Hansard, p. 396) that a treaty must be negotiated with the United States concerning payment for downstream benefits. He asked what the federal government had done about the problem.

At the same time that complications have arisen in this field developments are going forward to try to provide alternative energy sources at costs comparable with those of cheap hydro-electric power. It was recently announced that the Kaiser Company has entered into a long-term contract to secure thermal power on the Ohio river for the production of aluminum and for an aluminum rolling mill. The power will be produced from coal and the contract calls, apparently, for 450,000 k.w. at a price of about 4 mills. If thermal power can be produced at such a price on a large scale in the United States it will seriously diminish the relative advantage of large scale hydro electric power. Atomic power may not be in the same cost bracket for quite some time, but it is a prospect on the horizon. In these circumstances it is difficult to feel that time is on our side. The government would be particularly vulnerable to criticism if it had not acted to remove obstacles in the way of hydro electric power development and then found that the potential industrial users of such power had turned to other sources. All in all it appears to me that the federal government must initiate action to solve some of the problems I have referred to.

There have in recent months been some discussions of these matters in the International Joint Commission. On April 5th, 1955, the Chairman of the Canadian Section made a statement on the problem of downstream benefits and the Fraser diversion study and suggested a general discussion in the Commission which might lead to the formulation of principles for application in the Columbia valley.¹⁸¹ General McNaughton outlined the Canadian position and made some specific suggestions as to subjects for discussion. At the next meeting of the Commission on October 4th, 1955, the Chairman of the United States Section made it clear that the proposed Fraser River diversion would result in great harm to the United States and indicated that there was no satisfactory basis for the joint discussion of the specific subjects that had been mentioned by General McNaughton. Both General McNaughton and Governor Jordan have, as a result of these exchanges, been forced to take positions publicly which will make it difficult for them to negotiate, particularly if such negotiations have to be in the public forum of the International Joint Commission.

The United States also suggested informally nearly a year ago that a reference should be made to the International Joint Commission to study all waters crossing the boundary between Canada and Alaska. We have managed to put the proposal off so far but there have been clear indications that the U.S. plans to return to the question. A reference could hold up any development of the Yukon for years unless great care were taken. I think it would be quite undesirable to get involved in a reference but it may be difficult to avoid unless discussions are entered into to set forth the developments we propose in Canada and to settle the difficult issues that are bound to arise at some stage. With the position Governor Jordan has taken on the Columbia I do not see much hope of working this matter out in the International Joint Commission.

Apart from the difficulties that are presented by the publicity that has attached to exchanges in the Commission it seems to me that the question of downstream benefits and the problems relating to diversions are fundamental questions of policy on which discussions to arrive at solutions of principle have to occur first on a direct government-to-government basis. The International Joint Commission has been able to deal effectively with problems relating to boundary waters because the principles were worked out in advance and incorporated with clarity in the Boundary Waters Treaty. The reason, I think, that it has been impossible to deal successfully in the Commission with recent questions of benefit-sharing in the case of rivers that cross the boundary is because the problem of downstream benefits has not been settled at all as between the governments and the position under Article II with regard to diversion leaves a great many unanswered questions. I think that only the two governments can negotiate as to acceptable arrangements from the respective national points of view on the problem of downstream benefits, and only the Government of Canada can consider how far, if at all, it should modify its position with regard to rights to divert and the character of compensation. Only the two governments also can settle the points unanswered in the Treaty, as to what constitutes a downstream appropriation which gives a right to compensation when a diversion takes place. All of these questions involve, basically, the problem of determining how far to go in establishing principles about the sharing or division of national resources in a case where the Treaty is silent (downstream benefits) or in a case where we have a clear right to use a resource and have to consider how far this country ought to go to meet the undoubtedly violent objections that could arise from the U.S. (the Article II problem). They are questions of high policy of the kind that should, I think, be settled directly between the governments.

In other words, both because of the tactical difficulties that have developed in the Commission, but more fundamentally because of the policy character of the questions involved, it seems to me that what is needed is to initiate discussions between Canada and the United States on a governmental basis. It also seems to me, for the reasons I have outlined above, that there are strong arguments in favour of the Government of Canada taking the initiative and doing so at an early date.

There are two considerations in relation to the position in the United States. One is that Senator Neuberger, a Democrat, has advocated with much publicity that discussions must be between the governments and not in the International Joint Commission. In doing so, he has strongly attacked Governor Jordan in a highly political way. Because of this it may be difficult for the U.S. government to agree to have special discussions without appearing to repudiate Governor Jordan. However, what is quite certain is that they cannot take the initiative in suggesting them. The initiative must come from us, and it must be so handled that it can be accepted by the U.S. government without appearing to be a reflection on Governor Jordan.

The second consideration is that there will be a presidential election in November and water questions can be expected to be politically sensitive. We cannot expect, in such circumstances, to make any significant progress before the election. However, the discussions are bound to be long drawn out in any case and I do not think we could expect to clear more than the preliminaries by November. The prospect of the election does not, to my mind, constitute a reason why we should not make an approach on the matter.

If discussions were to be initiated the most careful consideration would have to be given to the basis on which they should be launched. Clearly we must not abandon the position that we have a complete right to make any diversion we see fit under Article II. This is most important in itself and it can be an important bargaining factor in working out a satisfactory solution on the problem of downstream benefits. It also is a reason why the Columbia River should not be considered in isolation since the possibility of diversion there is, at best, doubtful. The Yukon River is a case where a diversion is clearly practical and for that reason, apart from its intrinsic importance, it seems to me that it should be in the forefront of any discussions. If the government were to decide in principle that discussions should be initiated I think I should instruct the Advisory Committee on Water Use Policy to work out recommendations as to the basis for opening discussions and as to the tactics that should be followed.

I should very much appreciate it if I could have your comments on these proposals. You might wish to discuss the matter with Mr. Howe and me. If the consensus of the three of us is along the lines I have outlined, I think I should then discuss the question with General McNaughton so as to outline the reasons why it is felt that discussions should be undertaken between the governments in the first instance rather than in the International Joint Commission. I would certainly want to get his views and it would, I think, be most important to have his advice in the course of any discussions that developed. He and his staff have experience and background in these matters that could, I hope, be drawn on by the government. As a third step I would propose to submit a memorandum to the Cabinet asking for approval for negotiations to be undertaken.

Please let me have your views. Yours sincerely,

JEAN LESAGE