On May 27, 1954 the United States Government submitted to the International Joint Commission a new Application for an order of approval for the construction of a dam on the Kootenay River near Libby, Montana. Under the Commission's Rules of Procedure interested parties have until July 8 in which to file Statements in Response.

2. The proposed dam on the Kootenay River would be primarily a storage reservoir but on-site power would also be available and there would be some beneficial effects in both Canada and the United States in flood control. The proposed dam would create a reservoir about 100 miles in length, the upper 42 miles of which would be in Canada. The project, therefore, requires the approval of the International Joint Commission under Article IV of the Boundary Waters Treaty of 1909. This Article states that the construction of any dam or other obstruction in waters flowing across the boundary, the effect of which is to raise the natural level of the waters on the other side of the boundary, must be approved by the International Joint Commission.

3. An earlier Application for approval of the Libby Dam was filed by the United States Government on January 12, 1951. After consultation with the Government of British Columbia, the Canadian Government filed a Statement in Response dated March 8, 1951 (attached as Appendix A). At public hearings in both countries in 1951, various Canadian and United States interests were heard. It became apparent that wide divergence of opinion existed as to the extent to which Canadian interests should be indemnified by the United States Government for the proposed flooding of Canadian territory and for the proposed use in the United States of this Canadian water resource. The opposing views as presented at these public hearings and in the closed Executive Session of the International Joint Commission may be summarized as follows.

The United States Position:

(1) The United States Government should be required to pay

(a) the value of real property in Canada damaged by the construction and operation of the dam; and

(b) the cost of providing alternative facilities for transportation and other services made necessary by the construction and operation of the dam.

(2) These payments should be made in cash and no other indemnity or recompense should be required.

The Canadian Position

(1) Canada and the Province of British Columbia should preserve all rights under Article II of the Treaty of 1909. (This Article provides that any diversion or interference with waters which flow across the boundary resulting in any injury on the other side of the boundary shall give rise to the same rights and entitle the injured parties to the same legal remedies as if such injury took place in the country where the diversion or interference occurs.)

(2) Any rights which may be granted should be for a period not exceeding the legal life of the project.

(3) Indemnity for loss and property damage and the cost of rehabilitation of facilities should be paid for either in power free of charge or in cash.

(4) Indemnity for loss of resources which could otherwise be used should be in terms of power delivered at cost to the Government of British Columbia. The amount of power would include

(a) a share of on-site power proportional to the increase made available by encroachment on Canada and in head contributed by the increase in water; and

(b) a share of down-stream benefits proportional to the land and storage made available in Canada.

4. Before either side had an opportunity to present these divergent views in full to the International Joint Commission, the United States Government, on April 10, 1953, withdrew the Application. The reason given for this action was to permit further study of some of the features of the proposals which adversely affected some United States interests in Montana. No doubt the United States Government was also interested in gaining additional time to study the problems raised by the Canadian demand for recompense for downstream benefits from up-stream storage.

5. On June 8, 1954, shortly after the new Application had been received from the United States Government, the Canadian Government's Interdepartmental Committee on Water Power Problems met to discuss what action should be recommended. (This Committee is composed of senior officials from the Departments of Northern Affairs and National Resources, Mines and Technical Surveys, Trade and Commerce, Finance, National Defence and External Affairs, as well as General McNaughton.) It was agreed at this meeting that in view of the short time limit allowed for the filing of the Statement in Response, it would be advisable for the Committee to prepare a draft Statement in Response which should then be forwarded to the Government of British Columbia for comment before seeking the approval of the Canadian Government. An important new factor considered by the Committee in drafting this Statement was an interim report made available to the Commission by the Department of Northern Affairs and National Resources concerning the possible diversion of the Kootenay River northward into the Columbia at Canal Flats. Such a diversion might be advantageous as it would appear to result in a net gain in power potential on the Columbia River in Canada, although it would result in a decrease in power potential on the Kootenay River in both Canada and the United States. Full details of this project are not yet available but it appears likely that its advantages to Canada would be offset, in part at least, if a share of the power from Libby were made available to Canada at cost. (The United States Section of the Commission has indicated that the Libby project would be economically unsound if Canada should divert the Kootenay River northward and has suggested that the Canadian Government should therefore make its decision clear in the near future on this possibility.)

6. Attached as Appendix B is the draft Statement in Response as drafted by the Interdepartmental Committee and which was forwarded for comment to the Premier of British Columbia by the Secretary of State for External Affairs under cover of a letter dated June 15.? In a reply dated June 21, 1954,? Premier Bennett agreed to the general terms of the Canadian Government draft Statement. (The British Columbia Government will, of course, be putting in its own Statement in Response, which is separate from the Canadian Government Statement. However, the Canadian Government Statement is consistent, in all important matters, with the proposed British Columbia Government Statement.)

7. The Interdepartmental Committee also considered the question of designating Counsel for Canada to appear before the Commission at the hearings on this Application which are expected to begin in August of this year. At the suggestion of the Department of External Affairs, the Department of Justice is willing to make one of its officers, Mr. D.H.W. Henry, available to act as Counsel for the Canadian Government before the International Joint Commission on this Application.

Recommendations

8. The Secretary of State for External Affairs recommends:

(1) that the text of the draft Statement in Response to the Libby Dam Application as it appears in Appendix B should be approved;

(2) that, with the concurrence of the Department of Justice, Mr. D.H.W. Henry of that Department should be designated as Counsel for Canada on this Application. ¹⁶¹

L.B. Pearson

Ottawa, March 8, 1951

(Attached only for purposes of comparison with proposed new Statement in Response to Libby Dam Application dated May 22, 1954.)

The Government of Canada in response to the above-mentioned Application states that it does not oppose the order of approval which is sought, but submits that the approval should be on conditions to ensure:

(1) the protection and indemnity against injury of all interests in Canada which may be affected by the construction and operation of the said dam and reservoir, as provided by Article VIII of the Boundary Waters Treaty, 1909;

(2) a fair recompense to Canada for the utilization in the project of Canadian natural resources.

L.B. Pearson

Restricted Ottawa, ________, 1954

In response to the above-mentioned Application, the Government of Canada states that it is not prepared at present either to consent to an Order of Approval or to oppose the granting of such an Order. Sufficient data has not yet been assembled by the International Columbia River Engineering Board to make it possible to determine the most advantageous use of the waters concerned from the points of view of both countries.

If in the light of such a study it is found that more advantageous use of the waters concerned could achieved by other methods, such as a diversion of the waters of [part of] the Kootenay River into the Columbia River in Canada, ¹⁶² the Canadian Government reserves the right to oppose the issuance of an Order of Approval in the present Application.

If, however, it should be found that the issuance of an Order of Approval for the Libby Dam project would be in the best interests of both countries, the Canadian Government submits that any Order of Approval should be on such conditions as to ensure:

(a) the protection and indemnity against injury of all interests in Canada which may be affected by the construction and operation of the said dam and reservoir, as provided by Article VIII of the Boundary Waters Treaty of 1909;

(b) an equitable recompense to Canada for the use in the project of Canadian natural resources, which will include an amount of power based on the Canadian power potential ^{163 D} at the International Boundary and a share in down-stream benefits of storage in power on a basis to be negotiated;

(c) any rights to the use of storage in Canada which might be approved will be for the life of the present project as expressed in a term of years to be settled in accordance with sound engineering and financing practice;

(d) all considerations which may be deemed relevant as a result of the Commission's study of all engineering and economic factors in the Columbia River Basin in general, and the Kootenay River in particular, should be taken into account.

[L.B. PEARSON]