Dear Sir,

The United States Government has at length made a proposal for the dis­position of the Canol Project and I enclose two copies of a proposed note which was given to the Department today by Mr. Lewis Clark of the United States Embassy.

For convenient reference, I am quoting the sections of the previous Agreements which are referred to. Paragraph 3 (b) of the note of June 7th, 19441 (referred to in A) reads as follows:

That after the United States disposes of (the Canol Project) the owners and, or, lessees thereof will be granted adequate enjoyment of the sites, rights of way, and riparian rights required for satisfactory utilization and that the Canadian Government or its assigns will permit the aforesaid works, installations, and facilities to be used, on equitable terms, for the transportation and refining of crude petroleum purchased by the United States in the Northwest Territories for the distribution of such petroleum and the products thereof both within and without the boundaries of Canada.

Paragraphs 4 (b) and (d) of the note of June 27th, 19422 (referred to in B) read as follows:

4. For its part, my Government asks the Canadian Government to agree:

(b) To waive, during the war, import duties, sales taxes, territorial taxes, license fees or other similar charges on all equipment and supplies to be used in the execution or maintenance of the Project by the United States and all personal effects of the construction personnel.

(d) To take the necessary steps to facilitate the admission into Canada of such United States citizens as may be employed on the construction or maintenance of the Project during the war, it being understood that the United States will undertake to repatriate at its own expense any such persons if the contractors fail to do so.

The paragraphs dealing with the Permanent Joint Board on Defence are regarded as satisfactory. Since the military authorities of both countries re­gard the Canol Project as having no further defence value, it is agreeable to us to cancel the provisions for seeking the approval of the Board.

It was explained to us that the final paragraph, which appears to contem­plate the possibility of amendment to the agreement after signature but before the effective date, is required by the terms of the Surplus Property Act of 1944.

We should be glad to have your views as to the acceptability, or otherwise, of this proposal.

Yours sincerely,
R. M. MACDONNELL
for the Associate Under-Secretary of State for External Affairs

[PIECE JOINTE/ENCLOSURE]

Projet de note de l'ambassadeur des États-Unis
au secrétaire d'État aux Affaires extérieures
Draft Note from Ambassador of United States
to Secretary of State for External Affairs

CONFIDENTIAL

I have the honor to refer to your note no. 83, dated August 31, 1945, and to my note no. 366, dated September 6, 1945, in regard to the crude oil pipeline from Norman Wells, Northwest Territories, to Whitehorse, Yukon Territory, and the refinery at Whitehorse, which, together with equipment pertaining thereto, have been referred to as the crude oil facilities of the Canol Project. My reply of September 6 confirmed the understanding that the United States would at a later date submit to the Canadian Government plans for the disposition of these facilities.

In accordance with the understanding referred to, there are set forth in this note proposed plans for disposal which, it is hoped, will prove acceptable to your Government. These proposals have been drawn up to give effect to the underlying principle, that, as military considerations are no longer paramount, disposal should be accomplished in a manner designed to recover the fair monetary value of facilities.

It will be recalled that in the exchange of notes of June 27-29, 1942, the two Governments agreed that if neither the Canadian Government nor any private company desired to purchase the crude oil pipeline and refinery, the disposition of both facilities should be referred to the Permanent Joint Board on Defense for consideration and recommendation. It was further agreed in the same exchange of notes that the two Governments would not themselves order or allow the dismantling of either the pipeline or the refinery unless and until approval for dismantlement should be recommended by the Permanent Joint Board on Defense.

In the foregoing connection I understand that it is the view of the compe­tent military authorities of our two countries that the crude oil facilities of the Canol Project no longer have defense value. Accordingly, it seems apparent that the above referred to provisions relating to the Permanent Joint Board are now unnecessary and should be annulled in order that the disposal au­thorities may have maximum freedom of action. My Government hopes that the Canadian Government will concur in this view and will agree to the annulment of those provisions, thereby permitting dismantlement of the facilities if that course should be desirable by the United States authorities or its successors in interest. In the event that the Canadian Government concurs in the foregoing, my Government further desires to propose the following plans to cover the disposition of the crude oil facilities of the Canol Project:

1. It is proposed to advertise the sale of the crude oil facilities in the press of both Canada and the United States. The following general principles will be observed in selling and disposing of the facilities.

The United States Government may, if it so desires, transfer title to the facilities or any part theref to private ownership subject to the laws of the Dominion of Canada but exempt from import duties and excise taxes and with the further provision that the new owner or owners shall enjoy the rights set forth in paragraph 3 (b) of my note of June 7, 1944. No owner, however, would be obligated to operate the facilities.

If the United States Government does not dispose of any or all of the facilities under the terms of paragraph A above, the Government, its agents, or its successors in interest may remove from Canada such of the facilities as they may elect to remove for use in the United States or elsewhere. It is understood that if the United States, its agents, or its successors in interest do elect to remove any or all of the facilities, the Canadian Goverment will facilitate such operations by providing for continuance of the rights referred to under paragraphs 4 (b) and 4 (d) of the United States note of June 27, 1942. It is not intended to give either A or B above precedence or priority over the other since the governing factor will be the amount bid.

The Government of Canada may purchase from the United States through the appropriate governmental agencies such of the facilities not disposed of under A or B as that Government may desire to obtain for its own use or disposition.

Any of the facilities not disposed of under paragraphs A, B, and C above shall be transferred to a designated agency of the Canadian Government and shall be sold or disposed of by such agency, the proceeds to be paid to the Government of the United States, provided that the United States Government shall be represented in such sale or disposal by an officer designated by it for the purpose, who shall have an equal voice in the setting of prices, the allocation of priorities, the assessment of legitimate sales costs and other details of the sale or other disposal of the items concerned; and provided further that any such items remaining unsold at the end of two years from the time they are transferred to the Canadian agency concerned shall either be declared of no value and the account closed or, at the option of the United States, shall be removed from Canada by the United States authorities.

2. In view of certain provisions of the Surplus Property Act of 1944, it is proposed that the provisions of this note and your reply agreeing thereto constitute an arrangement between our two Governments effective at a date mutually to be agreed upon, such date to be not less than thirty days from the date of your reply. It is further proposed that the arrangement shall be effective only if neither Government has, before the date referred to in the preceding sentence, expressed a desire for any change in the lettered paragraphs A through D above.