Chapter III - United States

Chapter III - United States

Part 1

Conversation Between the Prime Minister and Ambassador of United States, Ottawa, December 17, 1962

209. DEA/12447-40

Memorandum from Special Assistant to Prime Minister to Under-Secretary of State for External Affairs

Confidential

[Ottawa], December 18, 1962

Call by Ambassador Butterworth on the Prime Minister

The new American Ambassador, Mr. W.W. Butterworth, paid his first call on the Prime Minister at 9.00 a.m. on December 17. The conversation lasted about 20 minutes and the atmosphere of the meeting could be described as correct and proper. None of the current Canadian-U.S. bilateral problems was raised by either the Ambassador or the Prime Minister and the conversation centred almost exclusively on the question of British accession to the Common Market.

In his introductory remarks welcoming Mr. Butterworth to Ottawa, the Prime Minister commented that the Ambassador would be in the company of a number of other Rhodes scholars in Ottawa, both in the House of Commons and in the Civil Service. Mr. Butterworth noted that in the past in the United States, particularly when the Chicago Sun was carrying on a campaign against Rhodes scholars, this was not always an advantage. This reminded the Prime Minister of Col. McCormick of the Tribune and of the antics of the former Mayor Thompson of that city.^{Footnote 1}
The Prime Minister opened serious discussion by asking if the Ambassador could give any information concerning the forthcoming Bahamas talks between President Kennedy and Prime Minister Macmillan. Mr. Butterworth countered by stating that he had left Washington before this meeting had been arranged and therefore knew nothing about the agenda or the briefs being prepared for President Kennedy. In reply to a further question from Mr. Diefenbaker concerning the recent speech by Dean Acheson^{Footnote 2} and its possible effect on this meeting, Mr. Butterworth said he hoped Mr. Diefenbaker had read the entire statement. He believed that Mr. Acheson’s remarks in full context could not possibly create serious difficulties at the Nassau meetings.
Again in reply to a question from the Prime Minister, Mr. Butterworth said he had no information concerning the recent Macmillan-de Gaulle conversations^{Footnote 3} but from his personal knowledge of the French leader he could not anticipate a change in the French position, especially after de Gaulle’s recent election triumphs.^{Footnote 4}
The Prime Minister then asked the Ambassador for his own personal view as to whether or not Britain would join the Common Market. Mr. Butterworth replied that while he realized negotiations would be difficult to the very end he believed the final result would be that Britain would join the Six.
On the question of agriculture and temperate foodstuffs, Mr. Butterworth commented that the United States and Canada appear to find themselves in the same position insofar as British entry is concerned. He mentioned wheat specifically and said that if the Six set a high internal price, this could inevitably [sic] result in over-production leading to subsidized exports which would create serious difficulties for other exporting nations. The Ambassador said that in fact one of the key questions which will determine the basic economic philosophy of the Common Market countries is the price to be fixed for the producer of agricultural products. If this is low it will mean the community has adopted an outward-looking constructive attitude; if the price is too high it will indicate that these countries have settled for an inward-looking protective entity which will eventually create economic difficulties for themselves and for the United States and Canada, as well as other countries. At this point he mentioned that the German attitude rather than the French is the key to this particular difficulty, although in his view the way the community is developing if five of the six take a strong stand on such a basic issue, the pattern is that the sixth country will eventually prove accommodating.
Mr. Butterworth said that he does not believe the French are any more strongly opposed to British entry than some of the other countries; however, the French have consistently taken the view that Britain must pay the full entrance fee and annual membership dues to the club. At this point the Prime Minister questioned the Ambassador’s previous assessment that Britain eventually would join. He asked how the proper safeguards promised at the Commonwealth Prime Ministers’ Conference could be reconciled to the present attitude of the Six as exemplified by the French. Mr. Butterworth said that Britain was well aware of the basic terms for entry when application for membership was made and while Britain would certainly work out the best possible arrangement for her Commonwealth and EFTA partners, nevertheless Britain would perforce be required to go a long way toward meeting the terms of the Six. At this point the Prime Minister said there was certainly no such understanding during the September conference of the Prime Ministers in London. He added that while countries outside the Commonwealth have over the years been unhappy with the system of Commonwealth preferences, nevertheless this system had built up a community of interests, the value of which was perhaps under-estimated by other countries. Mr. Butterworth quickly professed that he was not speaking as an advocate for the Six and added he himself had a good understanding of the Commonwealth because of his long service in London and in Ottawa where he had seen the Ottawa Agreements signed in the early thirties.^{Footnote 5}
The Prime Minister then asked Mr. Butterworth’s views on the transitional arrangements for Commonwealth countries as proposed by the Six. The Ambassador in reply did not go into detail but emphasized that in his assessment the concept of the CET constituted at present the one basic unifying force within the Six. He said each country recognized that it is essential to adhere without deviation to the Common Tariff, at least until other institutions such as the common monetary policy can be developed. He added that there may be differences in emphasis among the Six concerning this principle, but there is no reason to believe that any significant modification can be anticipated for any newcomer wishing to join the Club.
The conversation ended at this point with an exchange on deep-sea fishing – the relative merits of tarpon as compared to blue marlin. Mr. Diefenbaker thanked the Ambassador for calling on him and once again wished him well at his new post. Mr. Butterworth in turn expressed his appreciation for the talk and reiterated that he would be at the disposal of the Prime Minister at all times.

O.W. D[ier]

Part 2

Defence and Security Issues

Section A - Nuclear Weapons Negotioations

210. DEA/50210-F-40

Memorandum from Special Assistant, Office of Secretary of State for External Affairs, to Assistant Under-Secretary of State for External Affairs

Secret

[Ottawa], December 27, 1961

In Mr. Harkness’ attached letter dated December 19, 1961 he has proposed that a separate arrangement for the provision of nuclear air-to-air weapons for the CF-101 be added to the other components of the proposed agreement with the United States Government for the provision of nuclear warheads for Canadian forces. The Minister has given the following instructions in connection with that proposal:

The agreement between the Canadian and U.S.A. Governments governing the provision of the CF-101s be carefully examined to ascertain whether the proposal now made by Mr. Harkness is within the letter and spirit of that agreement.^{Footnote 6}
The draft schedule attached to Mr. Harkness’ letter of December 19 be checked against similar draft schedules for its acceptability both in form and content.

The Minister did not say whether a reply should be sent to Mr. Harkness’ letter. If you feel that an interim acknowledgement is desirable, would you please prepare one for his signature.

R. C[ampbell]

[Enclosure]

Minister of National Defence to Secretary of State for External Affairs

Secret

Ottawa, December 19, 1961

My dear Colleague:

I refer to your letter of 30 March, 1961,^{Footnote 7} relative to the proposed agreement with the United States Government governing the provision of stockpiles of nuclear warheads for Canadian forces. In your letter you proposed that appropriate officials of our two departments undertake “to prepare a revision of the draft agreement in such a way that it would deal with this problem as a whole by providing that the detailed procedures governing storage, release from storage, and authorization of use of the various weapons systems should be set out in a series of Schedules, one for each type of warhead to be made available, which would form an integral part of a comprehensive agreement.”

Subsequent to receipt of your letter interdepartmental discussions and exchanges of proposed drafts occurred, and it is my understanding that you have given your approval to the latest draft and forwarded it to the Prime Minister for his concurrence. A copy of this latest draft has been made available to my department.

Since the time when the original drafts were prepared, agreement has been reached with the United States whereby Canada acquired F101 aircraft to replace the CF-100 in the Air Defence force. The F101 is equipped to carry bomber-destroying missiles using atomic warheads.

Since nuclear weapons began to be made available for air defence a few years ago, there has been a steady reduction in the numbers of interceptors of various types programmed for the air defence forces of the United States and Canada. You will recall, for example, the very large cut-back effected last year by the United States in the Bomarc B programme. In our case, in addition to accepting a reduction of 75 percent in the missile strength originally contemplated for the two Canadian Bomarc bases, we are now in the process of replacing 162 CF-100 air defence interceptors with only 66 CF-101 interceptors – which number resulted purely from availability and is short of operational requirements. These reductions are to only a small extent justified by a decrease in the estimated bomber threat. The real justification stems from the equipping of these various weapons with nuclear armament. Without such armament, the combined strength of the United States and Canadian air defence forces would be woefully inadequate, resulting in an obvious and serious gap in our deterrent posture.

In addition to significantly increasing the kill potential of any given air defence force, nuclear air defence weapons generally are designed to destroy not only the bomber but also the bombs it is carrying, with only minor release of radioactive fall-out materials. Considering the fact that any bombers brought down by our CF-101 interceptors would most likely be over Canadian territory and in the general vicinity of our most populated areas, and that any bombs these aircraft carried which were not destroyed by the air defence weapons would most likely produce a full-scale ground level nuclear detonation, the desirability of employing nuclear weapons on our interceptors is, it seems to me, most obvious.

One additional point that should be considered is that these F-101 interceptors were made available to Canada by the United States for use in our mutual defence, out of and with a resultant reduction in their own operational air defence inventory. Before their transfer, these aircraft were equipped with nuclear weapons and made a significant contribution to our mutual defence posture. If we should now limit the armament of these aircraft to non-nuclear weapons, the result would be a significant reduction in NORAD’s defence capability.

For the foregoing reasons I would ask that the proposed agreement with the United States be expanded to include arrangements for the provision of nuclear air-to-air weapons for Canadian CF-101 interceptors. To that end I enclose herewith a draft Schedule for inclusion in the agreement,† which has been composed to correspond to the form and content of the other Schedule as last drafted by your department.

Yours sincerely,

Douglas S. Harkness

211. DEA/50219-AL-2-40

Memorandum from Special Assistant to Prime Minister to Under-Secretary of State for External Affairs

Confidential

[Ottawa], January 10, 1962

Prime Minister’s Request for Information on Defence Matters

I attach an outline which I discussed yesterday with Mr. Ignatieff and D.L.(1) Division and on which I had not then had an opportunity to consult the Prime Minister. Mr. Diefenbaker gave me certain comments this morning.

With a view to Parliamentary requirements, the Prime Minister is preparing himself to meet opposition criticism on this matter. The purpose of the present enquiry is to assist him in answering the question: “Why can’t we be more decisive?” He wishes to show that, no matter how effectively governments may plan the various aspects of their defence programmes, changing circumstances and requirements often necessitate cancellations and adjustments which could not have been foreseen in the planning stage. Exact future needs cannot always be predicted, and major expenditures on defence weaponry may turn out to be wasted in the light of changes in the threat and in the response required. The Prime Minister is thinking of arms programmes in general and particularly nuclear weapons.
To illustrate the dilemma, the Prime Minister would like to have available factual information which would enable him to show that other governments have in the past several years found themselves obliged to abandon major weapons programmes, to embark on fresh allocations of their resources, and to tolerate the financial implications of such decisions. The examples which the Prime Minister gave are the Blue Streak programme in the United Kingdom and, on a smaller scale, the recent British decision not to proceed with the offer of bombs for Canberra aircraft in the Congo. In discussing this, however, the Prime Minister said that he had seen reports of equally relevant and more substantial cancellations and adjustments affecting the United States. He thought he recalled an article (which we should try to trace) in the Christian Science Monitor, analyzing the weapons programmes which had had to be abandoned or cut back at enormous cost to the United States Treasury.^{Footnote 8} The foregoing information should, I think, be prepared in a memorandum, double spaced, in a form which the Prime Minister could readily adapt for use in the House.^{Footnote 9}

H.B. R[obinson]

[Enclosure]

Summary of Changes That Have Taken Place
– For Public Use –

NATO
Nations of NATO in General
United Kingdom

Changes Since 1957

Arms in General
Nuclear Arms

Other Questions

Changes that have taken place in policy on arms and costs of discarded arms
Full summary of Blue Streak in United Kingdom
United Kingdom decision recently on furnishing bombs to Congo and withdrawal of offer.^{Footnote 10}

212. DEA/50210-F-40

Memorandum from Director, Defence Liaison (1) Division, to Under-Secretary of State for External Affairs

Secret

[Ottawa], January 19, 1962

BOMARCs – Possible Alternatives

The arrangement at present contemplated is that the question of nuclear warheads for the BOMARCs will be one part of a package deal covering various nuclear warheads for the use of the Canadian Armed Forces; that the two BOMARC squadrons will be manned and operated by the RCAF with a small U.S. custodial detachment at each site, the United States retaining ownership of the warheads until such time as they are released from storage for use by the RCAF.

Possible alternatives to the foregoing are as follows:
1. To separate the BOMARCs from the package and to conclude with the United States a separate agreement covering them. This would have the advantage of paving the way to settling the most glaring instance of the dilemma over nuclear weapons. It would also provide evidence of good faith to honour our commitments to strengthen the continental air defence system, and also get us out of an increasingly embarrassing situation in our defence relations with the United States which is contributing $77 million to the project as against Canada’s $13 million. On the other hand, the conclusion of a separate agreement would compromise the Canadian Government’s position insofar as it rests on the case against the proliferation of nuclear weapons beyond the existing nuclear powers and while disarmament negotiations are going on. There would be immediate pressure from the RCAF presumably to proceed with air-to-air rockets for the Voodoos and the 104s, from the Army for the Honest Johns, and so forth, once the position of principle were breached. A further disadvantage would be the difficulty of explaining convincingly to the public why it is necessary to proceed with the BOMARCs and not with the others, and would leave the Government vulnerable to criticisms of attacking the problem on an ad hoc basis.
  However, a very good case – and one capable of effective and convincing public presentation – can be made for considering that the implications of giving the BOMARC a nuclear head would relate exclusively to the armament of the Voodoos. It is quite arguable that the air defence of North America requires, for the protection of Canadian and American cities and of the Strategic Air Command, the use of the more effective protection of nuclear warheads. This same factor does not govern the employment of strike aircraft or tactical ground-to-ground weapons in Europe or anti-submarine weapons; these are separate problems which must be examined separately and to which a different set of governing considerations seem to apply.
2. To equip the BOMARCs with conventional warheads. This would have the advantage of avoiding the political complications attendant upon the acquisition of nuclear warheads, but would be unacceptable to the RCAF on technical grounds. Moreover, although it appears that a conventional warhead for the BOMARC B was designed, no prototype was ever developed and tested, let alone produced in quantity. To embark upon a programme of conventional warheads would not only take time but would cost a good deal of money. Since according to our information the USAF BOMARC B squadrons are not being equipped with conventional warheads and the USAF is not interested in such warheads, it would be difficult, if not impossible, to work out a cost-sharing formula with the United States.
3. To turn over the two Canadian squadrons to the USAF. This would enable Canada to maintain a position of principle against the acquisition of nuclear warheads and at the same time would strengthen the continental air defence system in the manner intended. It is conceivable that the USAF, which attach much importance to this matter, would be willing to undertake this commitment. On the other hand, it is open to a number of objections: for example, it would involve stationing more U.S. Forces in Canada, would substantially reduce the degree of control Canada could exercise over the storage arrangements, release and use of the weapons, and might be as difficult to justify publicly as the present proposed arrangement.
4. To work out an arrangement with the United States whereby the warheads would remain in the United States on the undertaking that in the event the international situation should deteriorate seriously, the two governments would consult immediately with a view to determining whether the risk of an attack were sufficiently great to warrant placing the forces under NORAD in a state of alert, which state would involve as one of its predetermined measures the arming of the BOMARCs with the warheads which would be flown by air from the U.S.A. One advantage of such an arrangement would be that it could be tied to the agreement which already exists with the United States on the question of increasing the state of alert of NORAD forces. Also since the period of warning for a bomber attack is expected to be in terms of hours rather than minutes (as in the case of ICBMs) it might be less objectionable from a military point of view. This idea is based on the kind of arrangement which Norway has with the U.S.A. and might be objectionable to the USAF and RCAF on technical grounds, i.e., the length of time it might take to transport the warheads to the BOMARC sites and have the weapons made ready for firing. It would also be objectionable on more general grounds since it does not take into account the possibility of a surprise attack, in which event the BOMARCs would be caught unarmed.
5. Leave matters as they are. Such a course can be justified on the grounds that it is wise to acquire the necessary hardware and to be in a position to acquire nuclear warheads if and when circumstances dictate the advisability of such a course. The principle objections to doing nothing are primarily political in nature as the Government is left open to the charge of having acquired an expensive weapon system which could not be used should North America be attacked by manned bombers before the necessary agreements are concluded, and that as a consequence until such time as the BOMARCs are given a nuclear capability the Canadian people are not being provided with any additional defence for the investment the BOMARCs represent.
The foregoing comments are of course based on the assumption that it is too late to reverse the decision to acquire BOMARCs, and that as a consequence they must be considered to be an integral part of the continental air defence system.^{Footnote 11}

L.A.D. Stephens

213. H.C.G./Vol. 10

Memorandum from Under-Secretary of State for External Affairs to Secretary of State for External Affairs

Secret

[Ottawa], January 25, 1962

Nuclear Weapons for the CF-101s

You asked that we examine the draft schedule covering nuclear weapons for the CF-101s, forwarded to you by the Minister of National Defence under cover of his letter to you of December 19, with a view to ascertaining whether it is within the letter and spirit of the “Swap Deal” Agreement and whether it is similar in form and content to the other schedules as they stand.

The Exchange of Notes of June 12, 1961 (the “Swap Deal”)^{Footnote 12} refers to the question of armament only in paragraph 1A(3) of the Memorandum of Understanding which reads as follows:

“(3) furnish for the 66 F-101B aircraft spares and other related equipment including flight simulators and a mobile training unit, to a total cost of U.S. $32.7 million, and armament as mutually agreed. The cost of all items transferred to Canada under this paragraph (I.(A)(3)) will be shared on the basis of the United States paying one third. Title to all items transferred to Canada under the provisions of this paragraph (I.(A)(3)) shall be vested in Canada.”

The significance of this paragraph derives from the particular circumstances in which the Swap Deal was concluded. You will recall that the final negotiations were only able to proceed once the State Department had been able to convince the United States Department of Defence that nuclear armament for the F-101Bs should not be a pre-condition to the conclusion of the Exchange of Notes. In these final negotiations it was agreed that the interests of each Government would not be served by attempting to draft language which would commit either government to the nature of the armament one way or another, and that this matter should be left for negotiation at a later date.

In a memorandum which you sent to the Prime Minister on the final negotiations of this agreement the above paragraph is commented on as follows:

“Armament of the F-101B
“The question of the armament of the F-101B aircraft is referred to only in Article I(A)(3), wherein provision is made that the cost of the armament will be shared on a two-thirds – one-third basis and that title to the armament furnished will be vested in Canada. By implication the transfer of title means that the armament is conventional, since by U.S. law title to nuclear armaments cannot be transferred. In any case this point could be made explicit in any statement made in the House of Commons on this agreement. Consideration was given to the possibility of designating explicitly the armament to be provided, but this was found not to be feasible since the weapons to be obtained from time to time cannot all be specified in advance.”

You will recall that when the Prime Minister announced the Swap Deal in the House he said that “These aircraft … will be armed with conventional weapons.”^{Footnote 13}

As to the question of whether the draft schedule is similar to the other schedules, the RCAF have followed closely the format and substance of the others. Most paragraphs are the same. In others certain changes have been introduced, and paragraphs have been borrowed from different schedules to suit the particular weapon system. Attached is a copy of the draft schedule† with the particular changes noted. Passages underlined are additions made by the Department of National Defence. Passages in parenthesis are either words or phrases which have been altered or deleted from the corresponding paragraphs of the other schedules.

The following detailed comments are offered:

Introductory Paragraph

“Canadian” in front of “CF-101 air defence interceptor squadrons” might either be deleted or replaced by “RCAF” for editorial uniformity with the same phrase in paragraph 1.
The second sentence of this paragraph does not have a counterpart in the other schedules. The term, “nuclear weapon,” is not defined in the Annex but it is there stated that, “The term ‘warhead’ includes ‘weapons’ where the two cannot practically be considered as physical separate components.” The RCAF attach importance to the addition of a definition of “nuclear weapons” in this schedule as air-to-air rockets, such as the MB-1, and the warheads for them are readily separable.

Paragraph 1

The words, “the required type of,” have been deleted after “shall provide.” These should perhaps be restored for the sake of editorial uniformity with the other Schedules.
The word, “the,” should be inserted before “RCAF CF-101 interceptor squadrons” for the sake of editorial uniformity with the same phrase in the introductory paragraph.

Paragraph 2

This paragraph as drafted is identical to the corresponding paragraphs in the other Schedules. However, because a “nuclear weapon” has been defined in the Introductory Paragraph, paragraph 2 will require amendment in order not to conflict with paragraph (I(A)(3)) of the Swap Deal Agreement which provides for title to the armament for the F-101s passing to Canada. The first line of the paragraph might be amended to read as follows: “Ownership of all stocks of the nuclear warheads for these weapons made available …”.

Paragraph 3

The words, “warheads for these,” have been inserted between “nuclear” and “weapons” to make it clear that maintaining and assembling the non-nuclear parts of the missiles would be a Canadian responsibility. This is an improvement.
The last word of the paragraph, “base,” has been used rather than “site” as the warheads would be stored at more than one site at each RCAF station. There would be at least one storage site proper and under the terms of paragraph 4(b) quick reaction alert areas, i.e., areas where aircraft are armed and ready to take off on a moment’s notice, are also deemed to be storage sites. Thus, the U.S. detachment at each station would service both types of sites.

Paragraph 4

This paragraph corresponds to paragraph 4 of Schedule D. Provision has been made for the mating of the warhead and the rocket to be accomplished inside the inner compound. This would appear to be a useful addition because of the close connection between the warhead and the rocket.

Paragraph 10

Inasmuch as the Canadian and United States release officers are to be at the sites (see paragraphs 7 and 8) and not at “the appropriate Combat Operations Centre,” sub-paragraphs (b) and (d) require amendment accordingly. The relevant phrases could be altered to read, “… its respective national release officers at each site and its senior officer at the appropriate Combat Operation Centre through appropriate channels.”

Paragraph 17

The above comment applies to this paragraph as well.

Paragraph 21

The last sentence has been added, but you will recall that you asked that a similar sentence be deleted from an earlier draft of the other Schedules.

A number of self-evident editorial changes are required to be made. These can be indicated.

As we were not certain as to the reasons for which certain phrases or words have been used in this draft and to ensure that you have the most accurate information on the passages in question, we obtained clarification directly from the RCAF. We have learned informally that, under instructions from the Chief of the Air Staff, the RCAF is re-examining not only this draft but also the other Schedules of concern to the RCAF with a view to recommending, if necessary, amendments to reflect more accurately the physical arrangements being proposed, particularly as regards the storage sites, communications and security. We do not know whether the Army is similarly examining in detail the Schedule covering the Honest Johns, but you will recall that some time ago at your request we had asked the Department of National Defence to review all the Schedules as we had drafted them precisely in order to see whether they were satisfactory from the technical point of view. This they did not do at the time, mainly, we assume, because they were not prepared to accept the concept of separate Schedules for each type of warhead.

It is possible therefore that before long we may receive a complete new set of drafts of the Schedules from the Department of National Defence. If so, it would of course be necessary to examine all of them closely before the Schedules as they now stand are considered by the Cabinet. Otherwise the Cabinet might be placed in a position of having to consider two different sets of drafts.

N.A. R[obertson]

214. DEA/50210-H-40

W.H. Stuart to Secretary of State for External Affairs

Confidential

Victoria, March 7, 1962

Dear Mr. Green:

You will recall the conversation which I had with you at the Rotary Club luncheon last Thursday at Victoria. It was then that I promised to present to you several of my economic graphs, copies of certain of my political editorials and a printing of my report produced at New York on June 1, 1960, covering the cancellation by Washington of the ten American SAGE-SCC (deep-underground) projects which were to be identical in every degree to the Super-Combat-Center now nearing completion at North Bay. The original “chain” was to consist of eleven links.

I forwarded to you on the 2nd economic graphs, etc. which I am sure you will find to be of interest, and I shall enclose herewith for your personal information an additional classified copy of my SAGE-SCC report. I might mention that several copies of my report have been in Ottawa since 1960. Illuminating reports of this nature are not always released because conflicting ideas can often militate against officially accepted programs, thereby failing to separate the wheat from the chaff.

My report on SAGE-SCC, dated June 1, 1960, was the culmination of a series of warnings I had sent to Canada from New York for over a year in which I emphasized my conviction that there would occur the cancellation of ten proposed American SAGE deep-underground projects. The prompt and fearless action of cancellation by Washington should have been the policy of Canada with reference to North Bay. Canada, instead, continued the work which was then in preliminary stage, with the result that there has prevailed confusion and contradictory ambiguities surrounding the whole perplexing issue of BOMARC and nuclear warheads in general.

The turmoil now confronting nuclear weapons can be traced back to imperfect political reasoning and immature defence action which the present Ottawa government inherited to some degree from the previous federal administrators. The Diefenbaker cabinet had the courage to cancel the Avro Arrow and they should have been equally courageous in blotting out the whole North Bay project, and especially when the Department of Transport at Ottawa refused to become involved in that deep-underground operation. The “cease-work” order covering the North Bay SAGE unit could have been attributed to revised technical programs and to the changed concepts in electronics.

Had Canada abandoned the North Bay project no reason would have arisen for consideration of the contentious Bomarc principles and other related hypotheses. Whatever contribution Canada may be in a position to render, in the sphere of nuclear warfare, would be so infinitesimal as to have no practical bearing upon the nuclear offensive and defensive power of the United States in the protection of this continent. Canada should not have joined the nuclear thinking in so far as is concerned the erection of the ineffectual and perilous conception such as Canada unwisely proceeded with at North Bay. If conscience had the power, as it has the right, it would rule the world and, certainly, a combination of pro bono publico and political heroism should have removed the North Bay development from exploitation in 1959 when the United States Atomic Defence Engineering set forth in unequivocal terms that “deep tunnel protective construction appears unwarranted.”

When Canada’s financial outlay at North Bay was considered at Washington it was the consensus that the United States Government would reimburse Ottawa to take care of all expenditures incurred. Technological revisions in electronic and nuclear patterns and programs are understood because of occurring constantly.

It was within my hearing that certain American defence authorities made clear that the SAGE-SCC chain should have been confined to American territory. They emphasized that there was no physical or scientific requirement for the North Bay installation in view of the developing capability to span right across the Canadian area by the full utilization of facilities at Sawyer in Michigan, and units of instrumentality on American soil which would “bridge” Canadian territory.

I am pleased to respond in accordance with your request that this report be sent to you under confidential cover. I have great respect for you as a man, and unbounded regard for your mental and personality faculties, political acumen and penetrating perception in analyzing the conclusions of thinking people. You are a tremendous credit to Canada in the House of Commons, in the hustings and at the United Nations. I can well imagine that you and Charles S.A. Ritchie will be an invincible “team” in dealing with the never-ending problems which are, and which must be, discussed in amicable understanding in the great triangle consisting of Ottawa, Washington and the United Nations.

It was Socrates who said: “Beware of Greeks bearing gifts.” I am retired but not retiring, for gardening does not hold appeal for my efforts and energies. I do not seek favours or concessions in any sense from any political level, despite my always being interested in economic and political matters pertaining to the development of Canada. It did appear a short while ago that I would assume on pro tem. basis responsibilities in economic research but, as things stand, it is likely that I shall finish the course of my career and existence in the United States.

I would ask your confidence in maintaining the secrecy of my presentations to you on SAGE-SCC and along such other lines as I have seen fit to deal with in this writing.

With kind regards and every good wish. You and I have in common the friendship of A.C. Ashforth with whom you appeared in [a] photograph a short while ago. While in New York I had correspondence with your former very able Deputy Minister, General Young, whom I regard as being one of the most competent administrators in Canada.

Yours sincerely,

W.H. Stuart

[Enclosure]

Confidential

New York, June 1, 1960

Report

Review of SAGE-SCC Operations
U.S.-Canada Joint Defence W.H. Stuart, M.E.I.C.
Covering Period: May 14, 1959 to May 31, 1960

My assignment as Manager of the New York office terminated yesterday as a result of Washington having cancelled the ten SAGE-SCC (DUG) projects in the United States.
The eleventh link in the SAGE-SCC chain is in Canada and this is the only location at which deep-underground work was commenced prior to the Americans’ final decision to cease all operations.
Canada, as was said recently by Prime Minister Diefenbaker, is in the foothills and not at the summit. This indicates that the United States is the senior partner, and rightly so, in shaping policies in relation to U.S.-Canada Joint Defence. I desire to record a full and frank assessment for my personal files of the year just completed covering my stewardship of the New York office and the administration directed by my efforts.
The pattern of SAGE-SCC appeared to be relatively clear and sound in May 1959. All the conferences which I attended in New York and Washington during the summer and autumn convinced me that there was no unanimity, and little agreement, among the various authorities associated with the innumerable segments of this enlarging circle of electronic developments.
It was ascertained that much theory relating to SAGE-SCC could not be reduced to solid and economical practice. The wide divergence of opinion and all the fundamental uncertainties compelled further searching studies of the deep-underground principles. This agonizing period of indecision was understandable amid the perplexities which surrounded this whole question.
The United States felt the clear and compelling need to make [a] positive approach to all the problems so as to protect against any disillusionment later on. Further research assessments were sponsored under the direction of the Atomic Energy and Applied Science Branch of the Atomic Defence Engineering and, in September 1959, a summary of conclusions established the condition that a general policy of deep tunnel protective construction appears unwarranted.
The United States planned to start with two SAGE-SCC projects, one at Whitehorse Mountain at West Point, and the other at Albuquerque. Tenders were called and the official openings were set for 10 November. On 9 November the U.S. Corps of Engineers received instructions from the Pentagon not to open the tenders. It is significant that the tenders were not opened but were finally returned to the contractors who bid.
The entire SAGE-SCC strategy was vague at Washington despite the fact that it remained under continuing review. As early as last October, I expressed my conviction without hesitation that there was lack of coordination of minds which prevented the firming up of IBM and other related components in connection with structural and electronic developments.
It became obvious in November that the United States would not proceed with the SCC (deep-underground) features of SAGE, and that the “soft” concepts rather than the “hardened” concepts (deep-underground) would be approved by the Department of Defence at Washington. The cancellation, as was certain from last October, by Washington of SAGE-SCC was officially received by all agencies in the United States on March 18.
The pattern of SAGE-SCC continued to be woven but never reached the accepted and finished stage. In carefully and calmly assessing this whole issue, I would point out that no criticism should be aimed at either Washington or Ottawa over what now is the acknowledged “demise” of SAGE-SCC. The speed of technological progress has changed some verdicts of a year ago.
New discoveries and changes in technological realms justified revisions of concepts, and other factors have swept certain programs from the scene. The impact of wavering circumstances have drawn fire rather than understanding from uninformed critics who invariably become prone to express their half-baked ideas from a tremendous fund of ignorance.
I was neither a Cassandra nor a Pollyanna when I entered upon my duties at New York in early May of last year. But I did become a realist opposed to super-combat-centers underground after studying the viewpoints of USAF, U.S. Corps of Engineers, USN, IBM, MITRE, WECO, Standard Research Foundation, Colorado School of Mines, et al.
I recently heard a senior RCAF officer assert that only fools would be opposed to SAGE-SCC … the greatest lesson in life is, as Churchill once said, to know that fools are right sometimes. The same RCAF officer asked an American of high rank how far advanced were the American underground rock operations at the time of Washington’s cancellation of SAGE-SCC. The Americans had not started on any deep-underground SCC and now, of course, they will not start at all.
There was disregard of some important conclusions at the time Canada acted in haste in proceeding with the deep-underground operations at North Bay. Procrastination is rarely said to be a virtue but, in this case, procrastination would have been distinctly advantageous. I think the North Bay operation is following a cul-de-sac and, regardless of the volume of work performed in this hard-rock mining project, I would recommend the immediate cessation of all underground construction and, further, I would suggest that the facility as a whole be proceeded with on the surface for which the steel has been ordered. Should this change-over from “hardened” to “soft” concept be adopted, the completed operation at North Bay will then be a standard link in every way with twenty-seven other links presently in operation in the United States.
In the United States, defence is not Republican nor Democratic. It is National, and non-partisanship pretty well prevails when policies are laid down or changed. The mechanics of politics should not pose difficulties when problems of this nature arise. In Canada the Avro Arrow was wisely cancelled, Bomarc “B” has been downgraded, and there should be no political claptraps over the revision of SAGE from “hardened” to “soft” concept. I am speculating over whether or not full measure of thought has been given to all the expense and inconvenience that would be involved in transporting maintenance staffs, equipment and materials in and out of the 6500 ft. tunnel to and from the underground operation at North Bay.
Under study by IBM is the “technical feasibility of installing an FSQ-7 in the SCC underground facility at North Bay.” The increased cost, because of differing from “unhardened” facility, will be several million dollars to take care of re-engineering of cabling and all the other costs attributable to this special contract. Delivery of this new Q-7 installation will require from twelve to eighteen months and IBM expresses the opinion that the RCAF will require five additional months for redesign of drawings. IBM sets the tentative operational date at July 1963.
I join the increasing number of technical people in the United States who are frankly sceptical over the present deep-underground project at North Bay. It is later than it should be, but it is not too late to lick wounds and remedy this grotesque error. Political and professional pride may well ride for a fall if this ugly situation is not rectified. I am sure that unsound advice is being fed to that very fine, able and honourable Minister of Defence, General Pearkes, who would be justified in defending himself and the Canadian Cabinet for following the course laid down by Washington in cancelling SAGE-SCC as a result of the frustrating uncertainties which surround the issues. The SAGE-SCC (deep-underground) at North Bay is both uneconomical and unnecessary.
If more sane judgment does not prevail, and if this monstrous SAGE-SCC is carried through to completion, it will become Canada’s greatest “White Elephant” and will be no credit to all and sundry who have been connected in any way with the prosecution of the project. I am personally relieved over the decision to suspend the now unrequired New York office, of which I have acted as Manager since its inception a year ago, in mustering electronic and other criteria for design purposes in Canada. There should now follow the suspension of deep-underground operations at North Bay and there should be undertaken the immediate commencement of construction covering a Direction Center on the surface, such as exists at Sawyer and other points in the United States.
Political ferment is the by-product of unfortunate situations involving the cancellation of almost anything undertaken by government. In this case there would be no just cause to criticise Ottawa, for the whole matter could be attributed to the onward-march of science and to the constantly broadening dimensions of defence. We are living in a rapidly changing world. Only a bitter political partisan could hold Ottawa responsible for having started work on the SAGE-SCC project at North Bay.
I cannot suspend my responsibilities in New York without paying tribute to the exceptionally fine cooperation which I have received during the past year from personnel on all levels of Western Electric, USAF, U.S. Corps of Engineers, USN, IBM, MITRE, Stanford Research Foundation, Doctor Nathan Newmark, et al.

W.H. Stuart

215. DEA/50210-H-40

Memorandum from Under-Secretary of State for External Affairs to Secretary of State for External Affairs

Secret

[Ottawa], May 8, 1962

SAGE Site Vulnerability

You asked for us to look into the substance of a report given you by Mr. W.H. Stuart of Victoria to the effect that Canada should have taken action similar to the United States by way of cancelling the “hardening” of the SAGE centre at North Bay.

According to the information on our files, the basic situation outlined by Mr. Stuart is correct in that, when completed, the SAGE centre at North Bay will be the only “hardened” SAGE centre in the NORAD complex. All the U.S. centres will be “soft,” i.e., above ground.

When the system was in the initial planning stages in the early 1950s a “hardening” of all sites had been actively considered. In the event, however, and based on intelligence estimates at that time, on “hardening” cost factors and on a planned dispersal of thirty-two Direction Centres and eight Combat Centres, a decision was made in the mid 1950s to proceed with the construction of “soft” centres capable of withstanding approximately five PSI over-pressures. As the state of the computer art developed, it became apparent in 1958 that the “soft” SAGE system as originally conceived could be significantly improved by conversion of the whole programme to a system of nine Super Combat Centres equipped with transistorized computers. Such a computer would have four times the capacity of the type planned and a higher reliability factor. This caused the question of “hardening” to be examined once more and eventually a decision was taken to put them underground. Since there were to be only nine of them it could be done at less cost. Moreover, the accomplishments of the Soviet Union in the ICBM field indicated the advisability of “hardening.”

By early 1960, however, the combination of higher priority military requirements and the drastic cuts made by the U.S. Congress in appropriations for the SAGE-BOMARC programme made it necessary for the USAF to look at the matter again. The conclusion was reached that the cost of “hardening” for the U.S. sites was considered to be excessive in comparison to the operational gain that could be expected. As a consequence the programme was drastically revised once more and the decision taken to construct in the United States a total of twenty-two “soft” Direction Centres and three “soft” Combat Centres. In the meantime, however, construction of the “hardened” facility at North Bay was well underway and it was agreed between the two Air Forces to proceed with it; instead of installing a computer appropriate to a Super Combat Centre it was decided to install a single computer for both control and direction functions.

Because of the vulnerability of its “soft” sites, the USAF is now proceeding with a programme expected to cost over $100 million to provide a manual back-up system at a number of centres, to be completed this year, and a semi-automatic back-up system at 34 stations, to be completed by 1965. These will be tied in with NORAD Alternate Control Centres.

The situation outlined above provides a good example of the difficulties constantly faced today in the military field when at some stage firm decisions have to be made in the face of continuing technological developments, new intelligence assessments, etc., and the altered concepts these dictate. The fact that Canada will have the only “hardened” safe site, however, is not expected to commit the RCAF to any additional significant expenditures over those originally estimated. Under the terms of the agreement to extend the SAGE-BOMARC programme to Canada, the United States is obligated to pay two thirds of the cost. This formula was accomplished in practice by Canada assuming all construction costs, and the U.S. the cost of all equipment (computers, BOMARCs, etc.). A “soft” SAGE Centre would of course have cost much less to construct, but then Canada might well have been faced with a request to re-negotiate the cost-sharing formula or to assume some share of the cost of the equipment required by the programme.^{Footnote 14}

N.A. R[obertson]

216. DEA/50210-F-40

Memorandum from Chairman, Canadian Section, Permanent Joint Board on Defence, to Secretary to Cabinet

Secret

[Ottawa], May 11, 1962

May Meeting of Permanent Joint Board on Defence

Over the last two years the question of acquisition of nuclear weapons by Canadian forces and the related question of storage of air-to-air defensive weapons in Canada for U.S. use have been on the agenda of the Board. Any statements I have made as Chairman of the Canadian Section have been cleared beforehand with either the Secretary of State for External Affairs and/or the Minister of National Defence.

Prior to the Board’s regular quarterly meeting earlier this month, the U.S. Section was informed that, as the Canadian Section would have no statement to make or have nothing to add to those made at previous meetings, it would prefer not to have the item on the agenda. The U.S. Section, however, asked that the item be retained.

It transpired at the meeting that the U.S. Section wished to make a statement for the record on the purely military aspects of the question in relation to North American defence. In introducing his statement Dr. Hannah, the U.S. Chairman, emphasized this.

After pointing out that the forward deployment of the BOMARCs and CF-101 interceptors without nuclear armament lessens defence capabilities below the level which would have been achieved had they been deployed just below the border, the statement went on to say that important industrial centres in both countries are therefore more vulnerable to successful attack and maximum available protection is not provided to the deterrent forces. The point is also made that a nuclear warhead increases the probability of destroying not only a carrier but its weapons as well. From the military point of view weapons should be stored in place if confusion in any emergency is to be avoided and timely engagement of an attacking force is to be ensured. USAF interceptors stationed at Goose Bay are estimated to be doubly effective if equipped with nuclear weapons.^{Footnote 15}

I have been unable to find out at what level of the U.S. Government the statement was approved.

L.D. Wilgress

217. DEA/50219-AL-2-40

Memorandum from Under-Secretary of State for External Affairs to Secretary of State for External Affairs

Confidential

[Ottawa], June 15, 1962

Soviet “Statement” on Canadian Nuclear Weapons Policy

The following paragraphs review the events of yesterday in connection with the above subject, and give a preliminary assessment of the possible significance of the Soviet move. A copy of the text of the Soviet “statement” is attached for reference.†

On the evening of June 13 the Soviet Ambassador requested an appointment with you for June 14. On being informed by Mr. Campbell that you would not be available, he arranged to see me but gave no reason as to why he wished to call. He arrived at about 11.30 on the morning of the 14th, and proceeded to hand me what he insisted on describing as a “statement” and not a note, which he said he had been instructed by his Government to transmit to you. Having read it through, I said I thought it an odd and ill-timed communication, and an attempt at interference in Canadian affairs which would be resented by all Canadians. Nevertheless, I would bring it at once to your attention. I told him you were in Vancouver, and that you would be back on Wednesday and would undoubtedly have some observations to make on the “statement.” He said nothing whatever about making its contents public.
After Mr. Campbell had communicated the contents of the “statement” to you, and we had received your instructions that it should be rejected as unacceptable, I asked the Ambassador to come to the East Block and returned it to him about 2.15 p.m. Also on your instructions, a press release about the incident was issued shortly afterwards.
By this time the text of the “statement” had already been released to the press at Soviet initiative.^{Footnote 16} (Subsequently, the Soviet Embassy also published it in their “News Bulletin” which is given wide circulation.) When I drew this fact to the attention of the Soviet Ambassador, he replied that the text had been released by TASS, both in Moscow and here in Ottawa.
The motives lying behind the Soviet action are far from clear, but the following reasons may have been at least partly responsible:
1. It might be tied in with a Soviet calculation that the Canadian Government intended to acquire nuclear weapons from the United States after the election, and that they could encourage public opposition to such a move. In view of recent statements by the Prime Minister and yourself, it is difficult to imagine on what grounds the Soviet authorities might have reached such a conclusion, but it is possible that reports from their Embassy or allegations in the Canadian Communist press had convinced them of the need for action. They might, in other words, have been deluded into believing their own propaganda.
2. It could be related to the tough line which the Soviet Union has taken recently against the USA and the West generally, alleging that their “warlike actions” (high altitude nuclear tests, President Kennedy’s alleged threat that the United States might launch a pre-emptive nuclear war against the Soviet Union, etc.) have sabotaged the disarmament conference and efforts to reduce international tension. The purpose of the Soviet “statement” could then be to tar Canada with the same brush as the United States as pursuing a policy “hostile to peace” while publicly espousing the cause of disarmament. (Compare, for example, the similar Soviet action concerning the United States-Japanese security treaty during a previous Japanese election.) In their eyes, this would also weaken the Canadian position at the Disarmament Conference and blacken our reputation with the neutrals.
3. It could be designed as retaliation against Canadian statements about Soviet colonialism, which the Soviet leaders may regard as interference in their internal affairs. Recent telegrams from our Ambassador in Moscow have suggested that Mr. Khrushchev and others have been irritated by comments made by the Prime Minister on this subject, and they may have felt that they could suggest by their latest action that they could retaliate in kind if the Government pursued this policy or developed it at the United Nations in the autumn.
4. It may represent simply a heavy-handed attempt to intervene in the election campaign, possibly to provide ammunition for the Canadian Communist Party. There had been some suggestion earlier that a Communist Party rally was scheduled to be held in Toronto yesterday, and in that event the Soviet “statement” could have provided a starting point for an attack on the Government. However, on further checking, we have learned that no major Communist meeting was held in Toronto yesterday, and that the R.C.M.P. are not aware of plans to hold one. Nevertheless, the Soviet action could still be linked to a desire to provide support for Canadian Communists in the election campaign, or to offer them an excuse for attempting to interfere with or interrupt campaign meetings being held by members of the Government.
It is difficult to judge which of the above reasons may have been dominant in Soviet thinking. If the Soviet Union had seriously considered it possible to alter Canadian policy (as they may see it) on the acquisition of nuclear weapons, they would surely have concluded that the poorly drafted “statement” which they in fact delivered was not the way to go about it. Instead, they might have followed their usual procedure of submitting a formal note containing lengthy and at least superficially persuasive arguments. The fact that the Soviet Ambassador did not seem to be very happy with the affair also suggests that this was not a carefully thought out démarche designed to alter Canadian policy.
Nor does it seem likely that the Soviet action was intended as simple retaliation on their part for Canadian comments about Soviet colonialism. If this were the case, one would think that the “statement” would have chosen somewhat different language which would have made some effort to link their accusations against Canada with this question, at least indirectly. Nonetheless, it may have been designed as a “shot across the bow” to warn us of the consequences of seeking a quarrel with the Soviet Union.
On balance it seems most likely that the main motives behind their action were twofold: first, to weaken the Canadian position on disarmament by alleging that our support for this goal was hypocritical; and second, to increase opposition in Canada to “bellicose” American policy in general, and to possible arrangements with the United States for the acquisition of nuclear weapons in particular. Both these elements may of course have been combined in their thinking with a desire to weaken the Government (and perhaps the major opposition parties as well) at a key moment in the election, when they may have thought it would assist their own supporters in Canada. Certainly the timing of their action could not have been lost on those who decided to transmit the “statement,” and equally certainly it must have been at least a few days in preparation. Nevertheless, I do not believe it is possible to say with certainty whether it was primarily a deliberate attempt to intervene in the election, or an attack on the Government for other reasons whose affect it was believed would be reinforced or enhanced by the timing of the action.
If you agree, I would propose to send a telegram based on the above assessment to our NATO Delegation and other interested missions.^{Footnote 17}

N.A. R[obertson]

218. DEA/50219-AL-2-40

Ambassador in Soviet Union to Secretary of State for External Affairs

Telegram 450

Moscow, July 2, 1962

Confidential

Reference: Your Tel S-277 Jun 22.†
Repeat for Information: London (Priority), Washington, Permis New York, Paris, NATO Paris, Bonn, Brussels, Hague, Rome, DisarmDel Geneva from London.

Soviet Statement June 14

Dated July 2. Just what Soviet Government hoped to achieve in handing Canadian Government their patronizing and somewhat threatening statement and at once releasing it to press can only be conjectured. Soviet Government clearly wished to influence Canadian thinking on question of nuclear weapons and apparently thought election campaign particularly promising time for this. This illustrates typically ursine heavy-handedness and clumsiness of so much of Russian policy. Another motive was I suspect domestic and related to current propaganda line about Western preparations for initiating nuclear attack and therefore necessity of Soviet public accepting higher food prices.

But whether Russians wished to influence Canadian elections in favour of one party rather than another is not repeat not clear and may be doubtful. Soviet Government obviously resents Prime Minister Diefenbaker’s charges about Soviet colonialism, and Soviet press recently has suggested that drop in Conservative support in recent Canadian election is due in part to his anti-Soviet policies. On other hand there seems no repeat no reason to think Soviet leaders would prefer Liberal government in Canada. (Their malevolent calculation would I think be based on assessing which of two major Canadian parties would be least likely to cooperate amicably and effectively with USA and Britain in defence and economic and other fields, and least likely to strengthen Western influence in UN etc. They would probably consider that on balance there was little to choose on these criteria between Conservative and Liberal leadership.)
Soviet Government might have calculated that their statement could help NDP. Normally Soviet leaders dislike Western Social Democrats, but I understand Canadian Communists supported NDP except where Communist Party itself ran candidates. Despite majority vote in NDP convention, Soviets may well consider an NDP Government might at least weaken and perhaps end Canadian participation in NATO.
I am inclined to think, however, that more important than any Soviet calculation about relative merits for them of individual Canadian parties was their desire to encourage anti-nuclear and Minifie-type neutralist sentiments^{Footnote 18} which I suspect they considered as not repeat not unimportant among general public and within sections of all parties except perhaps Social Credit.
At my Canada Day reception I mentioned to Malik (Deputy Foreign Minister) the resentment that Soviet statement had caused in Canada and said I was puzzled to understand just what Soviet motive could have been to deliver such “statement” and particularly to release it to press in midst of Canadian election campaign. Malik took line Soviet purpose was to discourage diffusion of nuclear weapons, which he said Soviet Government rightly considered most serious problem of our time. I said Canadians did too and therefore wished Soviet Government would agree to nuclear test ban and disarmament with suitable verification provisions. But what really puzzled me was to guess Soviet purpose in issuing public statements about Canadian leaders and public issues in midst of election campaign. Was Soviet Government trying to assist one party rather than another and if so, which? I suggested that Malik with his long personal experience living in London and New York must realize that Soviet attacks on any policy or person where often counter-productive in West and apt to have directly opposite effect of strengthening public support for whatever Moscow attacked. Malik looked shocked at this, but finally grinned and acquiesced albeit somewhat uncomfortably. But he insisted that Soviet statement had not repeat not been intended to favour any particular party and even asserted that Canadian election campaign was coincidental.
I myself think election was very relevant, at least in timing, but I am inclined to credit Malik’s disclaimer about any clear party preference. Incidentally Minin, official of Second European Division MFA, recently returned from Ottawa posting, said to Seaborn [that the] fact that position of Liberals and Conservatives on nuclear arms was almost identical proved that Soviet statement could not repeat not properly be construed as interference in election campaign.
Timing of Soviet statement in electoral context probably reflected Soviet desire to create maximum impression on Canadian public opinion and perhaps even create fear of Soviet displeasure which would follow on any decision to stockpile nuclear weapons. Russian tactics here as so often were brutish and stupid but I am inclined to take their international purpose mainly at face value.
Russians would undoubtedly regret decision to locate nuclear weapons on Canadian territory for obvious reasons of strategy. To extent that such advance storage in Canada would improve North American continental defences and thus increase defence capability of USA, Russian strategists would consider it contrary to their interests, which I think they regard without much sophistication as enhanced by any relative weakness of Western world in general and of North America in particular. I do not repeat not think Russians are yet mature enough to recognize that increased security of other side’s second-strike capacity may decrease danger all round, and vice versa. Similarly Russians are always naively trying to discourage any form of cooperation among Western countries and are thus opposed to Western cooperation whether in NATO, NORAD or European Common Market. It is I think basic Soviet doctrinal tenet that the more the rest of world is divided among itself and the weaker it is, the better for Russia. Whether this crude doctrine is ultimately defensive or offensive its underlying motive is a big psychological question, though in a sense probably academic in last analysis.
Soviet concern over possibility of decision to store nuclear weapons on Canadian territory is not repeat not new. It has long been favourite subject of conversation for Soviet Foreign Ministry Officials and has also been expressed in Soviet Press (see our letters 338 April 11/61, 569 June 12/61, 665 July 4/61 and 1221 December 8/61). Gist of argument used by Foreign Ministry Officials is that location of nuclear arms in Canada would impede good Soviet-Canadian relations, bring Canada under greater USA dominance and increase danger of massive destruction in Canada should war break out.
Frequently Russian tactics have been counter-productive precisely because they make obvious naïve and ugly Russian goal of seeking maximum distrust and minimum cohesion within non-communist world. But quite apart from this factor, Russian methods, in June 14 statement, as so often, were singularly crude. Russians find it difficult to recognize even now that threats to NATO countries usually have had boomerang effect, e.g. galvanizing British public opinion last summer by suggesting Britons were Khrushchev’s hostages over Berlin question or Khrushchev’s contribution to re-election of Greek Prime Minister through his threat to bomb Acropolis. Khrushchev sometimes humorously admits in conversation that his accolade is apt to prove kiss of death in West. But despite this occasional realism at top level, the bear’s age-old heavy-handedness continues.
Another factor in frequent counter-productivity of Soviet tactics is hypocrisy. This too is illustrated in June 14 statement. But I think here, as often, one-way street aspect underlying so much of Soviet policy is unconscious. Russian communists genuinely lack self-critical ability to see themselves as others see them. Thus I doubt if Russian leaders would necessarily see humorous and hypocritical one-sidedness in their statement that Soviet Government cannot repeat not help being concerned if Canada should stockpile nuclear arms on Canadian territory, since we are neighbours. I doubt if they genuinely realize how vulnerable this argument is to “tu quoque” riposte from Canadians, since it would not repeat not occur to many Russians to equate their territory or policy with ours.
Another relevant point may be propensity of Soviet officials to act “for record.” When they think consideration is being given to possibility of stockpiling nuclear weapons in Canada, Soviet Foreign Ministry might feel it only proper that they should publicly and formally express their viewpoint. Russians suffer even more than de Gaulle from view that world is divided into two categories of nations (a) great powers and (b) rest of us. Russian leaders tend to think it only right that they should express their viewpoint on affairs of lesser countries without expecting any resentment, still less any impertinent desire of these small powers to demand similar behaviour from USSR as USSR suggests from them. This almost subconscious Russian great power complex is shown not repeat not only in international relations but also in Soviet domestic affairs in relations between Russians and their minority nationalities.
For all these reasons I do not repeat not personally think Soviet motives in presenting statement just before Canadian election were particularly subtle in terms of international policy toward Canadian political affairs.
Nevertheless I would certainly consider one Machiavellian and cynical aspect of Soviet domestic policy very relevant. As you know I have been emphasizing during past few months importance of recent Soviet propaganda campaign that USA is contemplating possibility of preemptive nuclear war. This irresponsible and dangerous line is I think at present motivated primarily by desire to help sell austerity, including recent thirty percent increase in meat and butter prices, to Soviet public. Unfortunately I think it is having some success in this regard. Given present basic Soviet domestic propaganda line, further news reports and occasionally diplomatic actions designed to dramatize for Soviet public possibility of nuclear encirclement must probably be expected.

Arnold Smith

219. DEA/50210-F-40

Memorandum by Assistant Under-Secretary of State for External Affairs

Secret

[Ottawa], July 17, 1962

U.S.-Canada Defence Relations

When Mr. Willis Armstrong, the Chargé of the U.S. Embassy, paid his farewell call on the Minister this morning he referred to the fact that some problems existed in our defence relations, particularly in respect of Bomarcs, interceptors, etc.

Mr. Armstrong expressed the hope that the Minister and the Prime Minister might have an opportunity to read the paper which the U.S. military authorities had supplied to the recent meeting of the Permanent Joint Board on Defence. This paper expressed the military views of the United States on the problem of atomic warheads for some of these weapons.
Mr. Green indicated that the question of the acquisition of nuclear warheads by Canada was even more difficult now than it had been before the election. He remarked that if a Liberal government were to be formed it would take at least as hard a line on these matters.
Mr. Green stated that the Government had not discussed these issues since the election but he personally wondered whether it might be possible to work out something which would enable Canada to secure warheads “in a hurry” if that became necessary. While the NDP would no doubt object to even this kind of an arrangement, it seemed possible that the Liberals might be able to go along with it. Mr. Green did not know whether it would be acceptable to the Canadian Government but he thought the possibility worth looking into.
Mr. Armstrong considered that the question of atomic weapons was one of the most troublesome issues between the two countries. If some progress could be made on it the atmosphere would be substantially improved.
Mr. Green observed that Canada was not alone in having difficulties over the acquisition of nuclear weapons. In fact, much the same kinds of problems had arisen in virtually every case where there had been a suggestion of locating weapons in foreign countries where the governments of those countries were expected to take some responsibility for the control of such weapons. The difficulties had been avoided in only those cases where the United States had been allowed to install weapons which remained under their own control. Mr. Armstrong agreed that the problems relating to the acquisition of nuclear weapons were not peculiar to Canada but they took on a different appearance when they occurred in a country so close as Canada.
The Minister enquired again towards the end of the conversation about the possibility of the United States’ authorities studying the feasibility of an arrangement for the quick delivery of warheads for use in Canada in an emergency. Mr. Armstrong thought the paper submitted to the PJBD set out quite clearly the military difficulties in such an arrangement. The comments presented to the PJBD were based of course on purely military considerations.^{Footnote 19} If the United States Government were to be asked for its view as a government, those comments might be modified by important political considerations. The political as well as military possibilities might be well worth looking into if the Canadian Government so desired. Mr. Armstrong did not consider, however, that the United States Government could volunteer an appraisal of the case. In his view the initiative now rested with the Canadian Government.^{Footnote 20}

A.E. R[itchie]

220. D.H./Vol. 57

Memorandum from Chairman, Chiefs of Staff, to Minister of National Defence

Secret

Ottawa, August 17, 1962

The Minister.

The Chiefs of Staff have noted with some concern statements that have been made about the possibility of Canada adopting a policy of readying the nuclear carriers in our air defence forces but not providing for the storage of the warheads on the site in Canada. The suggestion has been made that nuclear warheads need not be stored in Canada but could be moved from storage sites in the United States to the weapons bases in Canada in an emergency. This is not regarded as an acceptable military solution.
The air defence system has been designed to take advantage of the greatest possible warning. In normal conditions this would be the two hours afforded by warning of aircraft crossing the DEW Line. There are always chances that they will not be detected in certain areas and that the warning time will be considerably less than this.
Under the best of conditions it is estimated that approximately fifteen hours would be required to transport warheads from the United States bases to bases in Canada and fit them to carriers. This time assumes transport aircraft and crews standing by at the bases in the United States twenty-four hours a day every day, it assumes flying weather that would enable aircraft to take off and land at the weapons base, and it assumes fully trained crews at the weapons base that can handle the complex weapons for the first time with the safety that is imperative.
You can see from the above why the Canadian Chiefs of Staff cannot support the proposal as a sound military one. I have prepared the attached letter to the Prime Minister for your signature drawing these facts to his attention. I think it is necessary for him to be aware of them so that he is in no doubt as to our views on the merits of this proposal.

F.R. Miller

[Enclosure]

Minister of National Defence to Prime Minister

Secret

[Ottawa], August 17, 1962

My dear Prime Minister:

I do not know whether the minutes of the May meeting of the Canada-United States Permanent Joint Board on Defence have been brought to your attention. At this meeting the United States Chairman made a careful statement on the United States views on the use of nuclear warheads in relation to North American defence. In that statement he established that the United States did not view the stockpiling of nuclear warheads in the United States for use in Canada in an emergency as a satisfactory arrangement. He gives reasons associated with the various weapons for taking this view. Canadian military authorities support this view.

The North American Air defence system has been planned to have the fastest possible reaction capability. The DEW Line and its subsidiary warning systems will provide approximately two hours’ warning against bomber aircraft. Under many conditions it is possible that the warning time available will be less than this. Therefore, any part of the system that cannot be ready within two hours cannot be considered as an effective part of the air defences. There is no method of which we are aware that would enable warheads to be transferred from the United States to a site in Canada, attached to weapons, and be ready for firing within this time. Under ideal conditions of transport aircraft availability, weather and training of crews, it has been estimated that at least fifteen hours would be required for this operation.

The arguments that the military authorities have advanced seem to me to be sound and I would counsel that we do not consider adopting a policy requiring the storage of air defence weapons in the United States and their transportation to Canada in an emergency.^{Footnote 21}

Yours sincerely,

Douglas S. Harkness

221. DEA/1415-40

Memorandum

Secret

[Ottawa], August 23, 1962

Visit of Mr. Rusk
Nuclear Weapons Questions

We are aware that Mr. Rusk is carrying a brief which takes as its point of departure the statement on Nuclear Weapons Policy made by Dr. Hannah, Chairman of the United States Section, at the May meeting of the Permanent Joint Board on Defence. This statement presented the military case against non-acquisition and no stand-by arrangements for nuclear warheads. It was made explicitly “without reference to the political considerations involved.”

The statement read as follows:

“This agenda item has a complicated political aspect which is properly in the hands of our political authorities in Ottawa and Washington. It is not my intention to comment on that feature of the problem here. On the other hand, it is a function of this Board to provide a continuing exchange of military information on matters of joint defence interest. In this way we help assure that when military information is relevant to political decisions by our Governments, it is available and current.

“This is the basis on which I would like to outline some of the adverse military consequences of our present nuclear posture. The inadequacy of our continental air defence has been of serious concern for a considerable time. It has only become more dramatically apparent with the deployment to North Bay of a BOMARC squadron lacking armament, and the deployment in Canada of 66 F-101B aircraft not armed for maximum effectiveness. Forward deployment of these weapons without nuclear armament not only foregoes planned improvements in North American air defence; it actually degrades our air defence capability below the levels we would have achieved by deployment just below the Canadian border. Because we are not capable of employing our full military capabilities, we cannot be confident of preventing heavy damage, in the event of attack, to important industrial and administrative centres in both our countries. Further, we are not providing the maximum available protection to the Strategic Air Command and to the retaliatory forces of the Navy. These deterrent forces are important to the entire free world and the basic free world strategy is based upon them. It must be assumed that the potential assailant understands the nature and location of this weakness in our air defences, consequently, the credibility of the deterrent is thereby degraded.

“In regard to the BOMARC squadrons, you will recall that these units were originally intended for deployment in the northeastern United States. Militarily, the relocation to North Bay and La Macaza has decided advantages. (1) It brings such Canadian cities as Ottawa, Montreal, and Toronto within the effective defence perimeter. (2) The forward deployment permits an earlier response to high speed attack, using a weapon of 400 mile range, 2.7 mach speed, and effective within 1,000 yards of its target. The nuclear warhead also creates a strong probability that we can destroy not only the carrier, but its nuclear weapons as well. Combined with interceptors based in Canada and the U.S., these BOMARC sites give us a capability for repeated engagement of incoming bombers before important Canadian and U.S. population centres can be reached.

“The F-101B, a high capability aircraft, can carry two MB-1 nuclear and two GAR-2A conventional missiles. The 66 aircraft in question are deployed only with the latter armament. The GAR-2A must strike the carrier to disable it, and its employment is adversely affected by bad weather. The MB-1 is effective up to 500 yards from its target, functions in any weather conditions, and is capable of destroying not only the carrier but its nuclear bomb load. These are critical advantages against high-speed targets. Until they are realized, we must consider that these F-101Bs will be performing at a small fraction of their combat capability.

“A similar analysis could be made of the USAF F-102A aircraft at Goose Bay. In this case, the present armament and capability of the aircraft, which differs from that of the F-101B, are such that conversion to nuclear air defence weapons would more than double its combat capability.

“From the military standpoint, planning emergency transportation of nuclear weapons to forward locations in Canada is not an effective answer to the problem. Nuclear weapons must be in place with trained crews before an emergency arises or they will be employed only after a great deal of confusion and after disruption of priority tasks already assigned to other units.

“Present air defence capabilities in the U.S. were developed taking into consideration the joint planning for nuclear air defence in Canada. Further, reliance on capabilities in the U.S. will not assure timely engagement of an attacker with our best available weapons at the maximum possible range from his objectives. We have reached the conclusion that without arrangements for the employment of our full nuclear air defence capability, major targets in Quebec, Ontario and the western provinces, and major targets in the northeastern, north central, and northwestern United States and particularly our deterrent capability cannot be adequately defended. The survival of our two nations and the general security of the free world is linked to the military security of targets like these.”

222. DEA/50210-F-40

Memorandum by Defence Liaison (1) Division

Top Secret

[Ottawa], August 29, 1962

Nuclear Weapons for Canadian Forces

A meeting was held in Mr. Campbell’s office at 3:00 pm on August 28 attended by Messrs. Menzies, McCardle, and Black, to discuss the question of the armament of the CF-104 aircraft and Canadian Government policy on nuclear weapons for Canadian forces.

Mr. McCardle said that Mr. Ignatieff took the view that no agreement with the U.S. on nuclear weapons was possible before another Canadian general election and since the CF-104 aircraft (with a nuclear capability) was due to arrive in Europe in December/62-January/63, the Government would soon be faced with a full scale defence crisis. Mr. Ignatieff suggested, on the assumption that the Canadian Government will not formulate a policy on nuclear weapons now, that a way be found to postpone arrival of the CF-104s in Europe and instead retain the F-86 aircraft due to be phased out of operational use at the end of 1962. Mr. McCardle pointed out that if this was done there would also have to be a modification to the Canadian reply to the Annual Review which commits Canada to the delivery of the CF-104s.^{Footnote 22}
Mr. Campbell said that he believed that the logical consequence of the statements made by the Prime Minister in the House of Commons and during the election campaign was that the Prime Minister would agree to the opening of negotiations now for a stand-by agreement with the U.S.^{Footnote 23} Such an agreement would have to ensure that nuclear weapons would not be physically located on Canadian soil in peacetime, but would provide for detailed arrangements whereby Canadian forces either in Canada or Europe could rapidly acquire nuclear weapons in wartime. Mr. Campbell was sure that Mr. Green would agree to a stand-by agreement.
It was agreed that stand-by arrangements for Canadian forces in Europe should not prove too difficult to arrange as the nuclear weapons could be stored near Canadian planes and as the weapons themselves were not on Canadian soil. Canadian Voodoo interceptors attached to NORAD could acquire their nuclear weapons in a short period of time from depots in the U.S. The main problem related to the Bomarc missiles as these weapons would have little operational use if they had to await the delivery of nuclear warheads from the U.S. before being used.
It was pointed out that the U.S. has already taken a position in the PJBD that stand-by arrangements are impractical in relation to the defence of North America. It was suggested that the U.S. Government might be persuaded that a second best arrangement whereby Canadian forces could use nuclear weapons subject to certain conditions would be better than none at all.
Difficulties arising from CF-104 aircraft being used on “alerts” duty in Europe were not considered insuperable, as, under a stand-by arrangement, while the nuclear bomb would be on the aircraft the nuclear device required to make the bomb operational would still be under U.S. custody. The problem posed by the refusal of France to have nuclear weapons on her territory could probably be overcome by some form of pick-up arrangement between the Canadian Air Force in France and Germany [sic].
A stand-by arrangement might involve a detailed agreement signed with SACEUR relating to the physical arrangements for the storage of nuclear weapons and the exercise arrangements necessary to ensure speedy pick-up together with a more general agreement with the U.S. outlining the principles of the stand-by agreement.
Mr. Campbell was strongly of the opinion that if a defence crisis was to be avoided the Department of External Affairs should take the initiative now to approach the Government to obtain approval for negotiating a stand-by arrangement with the U.S. It was agreed that the co-operation of the Department of National Defence was essential in approaching the Government. No decision was taken at this meeting as to what would be the next move.

223. H.C.G./Vol. 11

Chairman, Canadian Section, Permanent Joint Board on Defence, to Secretary of State for External Affairs

Secret

Ottawa, September 17, 1962

Dear Mr. Green,

I attach for your information a copy of the Journal of the recent meeting of the Permanent Joint Board on Defence.†

On nuclear weapons (Item 1, page 4) you will notice that the United States Chairman, Dr. Hannah, re-emphasized the importance which the U.S. Government attaches to this matter, while I read into the record the statement which had been approved by yourself and Mr. Harkness.

You will also be interested to know that there was a long discussion on Canadian concern at the possible effects of the U.S. Secretary of Defense’s recent directives on the defence production sharing programme.^{Footnote 24} I think it fair to say that the U.S. Section fully appreciated the Canadian position, and the impression I gained was that account would be taken of the joint defence production sharing programme in implementing the directives of the Department of Defense. In any event in a private conversation the Chairman of the U.S. Section told me that it was his intention personally to bring our concern to the attention of President Kennedy.^{Footnote 25}

Yours sincerely,

L.D. Wilgress

224. DEA/50219-AL-2-40

Memorandum from Assistant Under-Secretary of State for External Affairs to Director, Defence Liaison (1) Division

Secret

[Ottawa], October 1, 1962

Nuclear Weapons Policy

The Minister has informed me that the Minister of National Defence has again stated in Cabinet that the lack of an appropriate agreement with the United States is preventing Canadian forces from receiving training and information about the operation and maintenance of the nuclear delivery systems already acquired by the Canadian armed forces from the United States.

My recollection is that we have checked this matter before and found that Canada has already signed the same agreement as other NATO members have signed with the United States which permits training and exchange of information on nuclear weapons to proceed on a bilateral basis. According to my records, the agreement in question is the Canada-U.S.A. Agreement for Cooperation on the Use of Atomic Energy for Mutual Defence Purposes, signed on the 22nd of May 1959 and tabled in the House of Commons by the Prime Minister on the 25th of May 1959. While it may well be true that the United States armed forces are withholding certain training facilities and information from the Canadian armed forces as a form of pressure to bring about the acquisition of warheads by Canada, our earlier research into this matter seemed to confirm that, if this were so, it was not for lack of the proper enabling agreement between our two countries.
I should be grateful if you would confirm the above facts and prepare an appropriate memorandum for the Minister.

R. C[ampbell]

225. DEA/50219-AL-2-40

Memorandum

Secret

[Ottawa], October 2, 1962

Nuclear Weapons Policy Status of Draft Agreement

In August 1961 Cabinet gave preliminary consideration to a draft of a proposed agreement with the United States for the stockpiling of nuclear warheads for Canadian forces.^{Footnote 26} The draft comprised:

A Note proposing “that this agreement will be brought into effect when both Governments have confirmed, by a further Exchange of Notes, their intention to do so”;
An annex outlining the general principles to govern stockpiling for Canadian forces;
Schedule (A) containing the detailed arrangements for stockpiling in Canada for Bomarcs. (Other schedules were contemplated but were not submitted to Cabinet, viz., Schedule (B) covering nuclear anti-submarine weapons for the RCN and RCAF Maritime Command; Schedule (C) covering nuclear warheads for the 762 MM Rocket (Honest John) for the Canadian Army in Europe; Schedule (D) covering air-to-ground weapons for the First Air Division of the RCAF.)

The attached draft Note, annex and schedules incorporate amendments to the Annex and Schedule (A), which we understand had been discussed in Cabinet. No written Cabinet conclusion was ever received in this Department.

On September 1, 1961, the additional Schedules (B, C and D) were submitted by the Minister to the Prime Minister asking whether he desired that they be submitted to the Cabinet. A minute on a memorandum to the Minister dated September 12, 1961, states that the Prime Minister had informed the Minister that he had decided to take the schedules to the Cabinet. There is no record in this Department of any further consideration by the Cabinet.

On March 30, 1961, prior to Cabinet consideration of the draft agreement, the Minister had written to Mr. Harkness to suggest that appropriate officials of the two Departments undertake “to prepare a revision of the draft agreement in such a way that it would deal with this problem as a whole by providing that the detailed procedures governing storage, release from storage, and authorization of use of the various weapons systems should be set out in a series of schedules, one for each type of warhead to be made available, which would form an integral part of a comprehensive agreement.”^{Footnote 27} At that time the Department of National Defence did not accept the concept of a comprehensive agreement. However, in a letter to the Minister dated December 19, 1961, Mr. Harkness explained the importance of providing nuclear weapons for the CF-101 interceptor and proposed that the draft agreement be expanded to include arrangements for the provision of nuclear air-to-air weapons for the CF-101s.^{Footnote 28} To that end, he transmitted a draft schedule, following the format of the existing draft schedules, for inclusion in the agreement.

This seemed to imply that the Department of National Defence had accepted the concept of a comprehensive agreement and there was reason to believe that a new set of draft schedules might be forthcoming. That being so, it was thought that it would be necessary to examine them closely before the schedules as they stood, and as they had been submitted to the Prime Minister, were submitted to Cabinet; otherwise, Cabinet might have two different sets of drafts.

On August 14, 1962, Mr. Harkness again wrote to the Minister proposing:

that draft Schedule (b) be revised to provide for nuclear weapons for Canadian maritime forces in the Pacific area and as well release to Atlantic forces prior to their formal assignment to SACLANT;
revision of the CF-101 schedule which he had submitted to you with his letter of December 19, 1961, “to reflect accurately the understanding shared by the USAF and the RCAF” as to the format of the schedules;
that the other schedules be similarly amended.

This letter seemed to imply that the Department of National Defence had no further suggestions on the schedules.

There were no further developments until October 2 when Mr. Harkness submitted a memorandum to the Cabinet.

226. H.C.G./Vol. 11

Memorandum from Under-Secretary of State for External Affairs to Secretary of State for External Affairs

Secret

[Ottawa], October 2, 1962

Nuclear Weapons Policy

Yesterday afternoon Brigadier R.L. Purves, the new Co-ordinator of the Joint Staff, called at the Department to discuss nuclear weapons policy. Brigadier Purves understood from the Chairman, Chiefs of Staff, that Mr. Harkness had in mind submitting to the Cabinet the Draft General Agreement on acquisition of nuclear weapons along with the Schedules (amended as might be agreed between our two Departments). The Schedules, however, would be submitted only for information purposes. The arrangements provided for in the Schedules would constitute agreements to be entered into at the Service level. The General Agreement, as the present draft provides, would only come into force with the signing of a subsequent exchange of Notes. Brigadier Purves understood that Mr. Harkness had in mind thereby that Canada would be entering into a “stand-by” arrangement with the U.S. The Brigadier intimated that a “stand-by,” which would provide for weapons to be transported into Canada only in an emergency or in the event of hostilities, was “impractical” from a military point of view.

It was pointed out to Brigadier Purves that, according to our understanding, the Schedules were to form a package with the General Agreement. As far as the Schedules themselves were concerned, there seemed to be some helpful suggestions in the proposals which Mr. Harkness had made to Mr. Green in December and again in August. However, it seemed that, before amending the Schedules and contemplating an Agreement in the form previously considered, clarification would be required of the intention of recent statements by the Prime Minister which had suggested that nuclear weapons would not be acquired for forces in Canada in peacetime. The kind of “stand-by” arrangement which might be envisaged in such a statement might not be the same kind of agreement as had previously been considered. The present draft contemplated its coming into force in peacetime and was a “stand-by” only to the extent that it would come into force following a further Exchange of Notes. Another consideration was that, in the light of the passage of time and also in view of the recent statements by the Prime Minister, the United States would be suspicious of an agreement which was to come into force only at some unspecified time when the Canadian Government should so decide. There was also the consideration that the Government would want to consider very carefully any initiative on nuclear policy in view of the parliamentary situation.

Brigadier Purves agreed that it was important to clarify what was intended, on his own Minister’s part, by a “stand-by” arrangement and said that he would endeavour to find out what Mr. Harkness had in mind. Meanwhile, he asked to be provided with a copy of the latest version of the draft agreement, which was supplied.

N.A. R[obertson]

227. DEA/50219-AL-2-40

Memorandum from Under-Secretary of State for External Affairs to Secretary of State for External Affairs

Secret

Ottawa, October 3, 1962

Acquisition of Nuclear Weapons

We have obtained from the Cabinet Secretariat the attached copy of a memorandum dated October 2, 1962, which has been submitted by the Minister of National Defence, but has not yet been cleared with the Prime Minister as a Cabinet agenda item. It proposes that negotiations with the United States be opened immediately on the basis of the existing draft general agreement and that you and the Minister of National Defence go to Washington to open the discussions.

The draft general agreement and its annex and schedules, to which reference is made in Mr. Harkness’s submission, are those which are attached to this memorandum, to which we believe consideration was last given by Cabinet in August, 1961.^{Footnote 29}
Mr. Harkness’s memorandum draws attention to two points of key significance:
1. it stresses “that the general agreement does not provide for warheads”; and,
2. it asserts that such a general agreement is “a necessary preliminary step which must be concluded before negotiations of subsequent agreements for the various warheads can be entered into.”
Point (1) is accurate in the sense that the existing draft agreement did require a further exchange of Notes to bring it into force and permit the actual acquisition of warheads. On the other hand, the agreement as drawn at present contemplated the acquisition of nuclear warheads for Canadian forces in peace time. If it is the Government’s intention to proceed with peace time acquisition in mind, the existing draft would form a reasonable basis on which to open negotiations. If however it were the intention to follow the line of policy indicated by the Prime Minister in public statements during the summer to negotiate only a standby agreement making provision for the acquisition of warheads only in time of actual or threatened emergency, the existing draft agreement would not form a suitable point of departure for discussions with the United States. Indeed to use this draft with only war time acquisition in mind would give the United States Government renewed cause to question Canadian good faith in opening negotiations.
Before contemplating the opening of negotiations it is essential to have a clear understanding of the kind of arrangement to which the negotiations are intended to lead – to acquisition in peace time as soon as a satisfactory agreement has been negotiated; or a standby agreement making provision for acquisition in time of emergency. In the latter event, something akin to the present schedules would still be required, but the covering general agreement would be of an entirely different character.
If it is an emergency standby agreement which the Government intends to negotiate, our present thinking is that it would involve two stages. The first stage, to come into force immediately following signature, would:
1. define the emergency circumstances in which the Canadian Government would request the transportation into Canada of nuclear warheads. This decision would be related to the Canadian Government’s recognition of a general state of emergency under existing NORAD and NATO states of alert;
2. provide for: technical readiness of the weapons systems, construction of storage facilities in Canada and related financial terms;
3. training in the use of the system;
4. detailed practice arrangements for the rapid pick-up and siting in Canada of the warheads for each of the weapons systems.
The second stagewould include provisions:
1. for custody during the time the weapons were on Canadian territory;
2. for control over their operational use; and,
3. for related provisions similar to those in the present schedules.
It would, of course, be necessary to negotiate the details of the second-stage agreement in conjunction with the negotiation of the first-stage agreement.
The second point made in Mr. Harkness’s memorandum concerning the need for the negotiations of “subsequent agreements” is not consistent with what we understood to have been agreed at an earlier stage, viz., that the general agreement and the detailed schedules governing individual weapons systems should be an integral whole and negotiated together on an inter-governmental basis. Mr. Harkness’s wording would revive the suggestion that only the covering agreement should be on an intergovernmental basis and the details concerning individual weapons systems left to negotiation on a service-to-service basis.
The provision of warheads, either now or on a standby basis for Canadian forces in Europe, presents an entirely different set of problems to those affecting storage on Canadian soil. Adequate arrangements for Europe could be readily incorporated into a two-stage agreement covering acquisition of warheads for all Canadian weapons systems, or could be made the subject of a separate agreement. No copies of agreements which other members of NATO have concluded with the United States are available in Ottawa and it is unlikely that anything but a “pro forma” agreement would be made available. In any event, a Canadian agreement for Europe would not be analogous to those concluded by European countries with the United States inasmuch as we would have a “third country” storage problem probably requiring a three-way agreement.
In summary, there are three choices open to the Government on which a decision would have to be taken before contemplating the opening of negotiations with the United States:
1. to have an agreement along existing lines providing for peacetime acquisition of warheads for Canadian forces;
2. to draft a new two-stage emergency standby agreement; and/or,
3. to draft a separate agreement to make provision for the arming of Canadian weapons systems in Europe with warheads. (Having particularly in mind the imminent delivery of the F-104Gs.)
Depending on the Government’s decision on the foregoing, you might find it useful to suggest:
1. that an interdepartmental working group be established to either review the existing agreement or to draft a new standby agreement; to make proposals concerning our forces in Europe; and to make recommendations concerning the best method of initiating negotiations with the United States;
2. that consideration be given to the position to be taken in Parliament and in public regarding the present stage of the Canadian Government’s policy on nuclear weapons.

N.A. R[obertson]

[Enclosure]

Minister of National Defence to Cabinet

Secret

[Ottawa], October 2, 1962

General Agreement on Atomic Weapons

On 6 December 1960 the Cabinet decided that:
“discussions (or negotiations) with the U.S. Government concerning arrangements for the essential acquisition of nuclear weapons or warheads for use by the Canadian forces, in the manner already decided, may proceed as soon as they can usefully be undertaken but the acceptance of joint controls to be a basic principle.”
Since that time it has not been possible to undertake discussions with the United States Government on this matter. In the meantime, in accordance with Government policy, preparations have gone forward to acquire and deploy the weapons for which atomic warheads are necessary. In many instances these programmes are well advanced and negotiation for the atomic warheads should be instituted as soon as possible.
An essential pre-requisite to obtaining nuclear warheads for the weapons systems which Canada has agreed to provide is the negotiation of a general agreement with the United States Government. Cabinet has seen proposed drafts of this agreement. It is possible that, because of the nature of this Canadian draft, considerable time may be required for the negotiation with the United States Government. It is stressed that the general agreement does not provide warheads. It is a necessary preliminary step which must be concluded before negotiations of subsequent agreements for the various warheads can be entered into.
It is recommended that we open negotiations immediately with the United States on this general agreement. To ensure that the start of the negotiations is made with the proper understanding by both parties, it is suggested that the Secretary of State for External Affairs and I go to Washington for discussions with the appropriate United States governmental representatives to ensure that the Canadian position is made clear to them.

[Douglas S. Harkness]

228. DEA/50210-F-40

Memorandum by Defence Liaison (1) Division

Secret

[Ottawa], October 16, 1962

Nuclear Weapons Policy

Messrs. Campbell, Menzies, Nutt and Bow met with the Minister this morning to discuss the Memorandum to the Minister of October 3 on Mr. Harkness’ proposal that negotiations be resumed with the United States on an agreement to govern the stockpiling of nuclear warheads for Canadian forces.

The Minister said that at a recent Cabinet discussion it was apparent that there were no objections to proceeding to an agreement for the stockpiling of warheads for Canadian forces in Europe, i.e., Honest Johns of the Army and CF104s of the RCAF. As far as acquisition for forces in Canada was concerned, agreement would have to be on the basis of our receiving the warheads as quickly as possible when they were needed and not on the basis of stockpiling them in Canada in peacetime. The Minister believed that we were therefore faced with drawing a new agreement. It was suggested to the Minister that two agreements might be preferable – one covering stockpiling for our NATO forces in Europe which would presumably be of first priority and the other a stand-by agreement for forces in Canada. The latter would be a two stage agreement, the first [stage] to cover the period before the weapons were brought into Canada and [it] would, among other things, define the conditions under which they might be brought in, and the second stage to cover the period after they had been introduced into Canada and, among other things, would deal with matters such as operational use. In re-drafting these agreements it might be desirable to bear in mind the possibility that the Government would wish to table the basic agreements in Parliament.
It was also suggested to the Minister that it would be helpful if Cabinet could give a written directive since there had been no directive on weapons policy since 1960. More particularly,
1. it would be helpful if Canada could indicate readiness to negotiate stockpiling arrangements in respect of Canadian forces in Europe. The United States would then undoubtedly provide the basic pro forma draft agreement for the purpose of negotiations;
2. it would be necessary to work with National Defence in drafting agreements and an interdepartmental working group would be necessary to draw satisfactory draft agreements;
3. it would be necessary to reconcile the understandings of the Departments of External Affairs and National Defence as to the type of stand-by agreement which the Government had in mind for forces in Canada. (It was pointed out that the Department of National Defence considered the present draft agreement, which would come into force at a time to be subsequently agreed but which contemplates storage on Canadian territory during peacetime, to be a stand-by agreement, whereas this Department’s concept of a stand-by agreement was one which would contemplate storage on U.S. territory and transportation to Canada in an emergency. In this context it was also mentioned that both the Department of National Defence and the U.S. authorities considered such a stand-by arrangement to be impractical and that it might therefore be proposed that a feasibility study be undertaken which would conclude that such arrangements were not militarily feasible.)

The Minister agreed that it would be desirable to work with National Defence in drafting agreements for discussion with the United States. Meanwhile, he desired that the Department undertake to prepare [the] first draft of an agreement covering stockpiling for Canadian forces attached to NATO and subsequently a first draft of a stand-by agreement for forces in Canada. The Minister was reminded that there was also outstanding a request by the U.S. to stockpile nuclear weapons forces at Harmon Air Force Base and Goose Bay for use by USA forces. The Minister agreed that this aspect should be left to be raised by the U.S. should they see fit.

J.S. Nutt

229. H.C.G./Vol. 11

Memorandum from Under-Secretary of State for External Affairs to Secretary of State for External Affairs

Secret

Ottawa, October 19, 1962

Provision of Nuclear Warheads

As you requested, a memorandum to the Cabinet on this subject has been drafted for your consideration. This draft questions the suitability of the proposal contained in Mr. Harkness’ Memorandum to the Cabinet of October 2. In particular it points out the inadequacies of the present draft agreement [and] the requirements of a new draft agreement, and makes some suggestions on the procedure which might be followed in drafting the new agreement and opening negotiations with the United States.

N.A. R[obertson]

[Enclosure]

Draft Memorandum from Secretary of State for External Affairs to Cabinet

Secret

[Ottawa], October 19, 1962

Provision of Nuclear Warheads

The memorandum of October 2 submitted by the Minister of National Defence recommends that negotiations with the United States be opened immediately on the basis of the draft general agreement given preliminary consideration by Cabinet in August 1961, as a preliminary step before negotiation of subsequent agreements for various warheads.

Inadequacies of the Present Draft

The present draft agreement provides that it will come into force only when both governments have confirmed their intention to bring it into force by a further Exchange of Notes. Such an arrangement would be a suitable basis for negotiation if it were intended to bring into force arrangements for the stockpiling of nuclear weapons for forces in Canada immediately and without reference to the international situation. As an agreement providing for bringing warheads into Canada in an emergency only it has certain shortcomings:

To use this draft agreement, having in mind that warheads would be provided for use of Canadian forces in Canada only in an emergency, would give the United States Government cause to question Canadian good faith, since it would leave unanswered the question as to when warheads would be brought into Canada.
Since the existing draft agreement would not come into force until there had been a further Exchange of Notes at a later date, it would not provide any authority for preliminary arrangements such as training, over and above that which exists at present. The 1959 agreement between Canada and the United States for Cooperation on the Uses of Atomic Information for Mutual Defence Purposes, provides in Article II:
“Each Party will communicate to or exchange with the other Party such classified information as is jointly determined to be necessary to:
1. the development of defense plans;
2. the training of personnel in the employment of and defense against atomic weapons and other military applications of atomic energy;
3. the evaluation of the capabilities of potential enemies in the employment of atomic weapons and other military applications of atomic energy;
4. the development of delivery systems compatible with the atomic weapons which they carry; and
5. research, development and design of military reactors to the extent and by such means as may be agreed.”
The existing agreement does not make provision for speedy supply of warheads for Canadian forces: for instance it does not provide for the allocation, in advance, of warheads for eventual use in Canada nor does it provide for their storage at convenient sites in the United States.

It is submitted that in the present circumstances it would be desirable to have an agreement which would provide a clear statement of the framework under which nuclear warheads would be made available for use by Canadian forces. So that Cabinet will see the full implications of such an agreement it is essential that the agreement encompass its practical application in respect of each weapons system. Such a comprehensive agreement would provide the necessary information to enable the Cabinet to take a decision regarding the provision of warheads for various weapons systems; it would avoid misunderstandings between the United States and Canada; and it would provide a surer basis for cooperation in training and other preliminary arrangements. To achieve these purposes the present draft agreement would require to be redrawn.

Requirements of a New Draft Agreement

The premise of such a redraft would be that nuclear warheads would be brought into Canada only on a finding by Cabinet that an emergency exists and a concomitant request to the United States Government to provide the warheads. In brief the agreement would make certain provisions for the period when the warheads earmarked for Canadian forces would be stored on United States territory, e.g. it would:

outline the circumstances in which the Canadian Government would be prepared to consider requesting transport of the nuclear warheads to Canada;
provide for the allocation of warheads in advance and their siting at convenient storage depots in the United States;
provide for the technical readiness of the weapons systems already in Canada, construction of storage sites in Canada and related financial terms;
provide for the training and readiness of personnel who would be involved in handling and storage of the warheads;
provide for training in the use of the weapons;
provide for transport and practice arrangements for rapid pick-up and/or delivery to sites in Canada.

In addition the agreement would have a section which would only be brought into operation after the Canadian Government had requested the supply of warheads. This section would make provision for the period when the warheads would be in Canada, e.g. it would provide for:

custody of the warheads in Canada;
control over their operational use;
miscellaneous arrangements relating to security, safety, publicity, claims, command and communications, etc.

The agreement would consist of a statement of principles enunciated in the preceding paragraph and to which would be attached schedules containing detailed provisions relating to the various weapons systems: Bomarc, anti-submarine weapons, the F101 interceptor for Canada; and, if so desired, the Honest John rockets and CF104 aircraft for Europe. The statement of principles could be drafted with a view to their being unclassified and so available for tabling in Parliament.

Canadian Forces Assigned to NATO in Europe

Arrangements for the provision of warheads for Canadian forces in Europe could be incorporated in a general agreement of the sort outlined above either on a standby or immediate basis depending on the Government’s decision in this matter. Alternatively, the requirements in Europe could be met by a separate agreement.

Procedure

For the purpose of drafting the requisite agreement or agreements for consideration by the Cabinet it would be desirable to establish an inter-departmental group comprising officials of the Department of External Affairs and National Defence and of other departments as necessary. After Cabinet consideration of the draft Agreement prepared by the interdepartmental group, negotiations could be initiated by presenting to the United States Embassy in Ottawa a Memorandum of the conditions under which the Canadian Government would be prepared to negotiate for the provision of nuclear warheads for Canadian forces. A copy of the draft Agreement would be attached to the Memorandum. To facilitate closer supervision by the Government of negotiations at the official level, it could be proposed that negotiations take place in Ottawa.

Recommendations

The undersigned therefore recommends:

that a comprehensive agreement be drafted envisaging the provision of nuclear warheads for use by Canadian forces in Canada in an emergency, to serve as a basis for negotiations with the United States;
that a decision be taken as to (i) whether nuclear warheads should be made available to Canadian forces in Europe on a standby or on an immediate basis and (ii) whether a comprehensive agreement should cover the requirements of forces in Canada only; or Canadian forces in Canada and Europe; or whether a separate agreement should be negotiated for Canadian forces in Europe;
that an inter-departmental group be established comprising officials of the Departments of External Affairs and National Defence and officers of other departments and agencies as required, and that the group be charged with preparing the required draft agreements for consideration by Cabinet;
that following development of an agreement acceptable to the Cabinet the United States Government be informed by means of a Memorandum delivered to the United States Embassy in Ottawa of the Canadian Government’s willingness to negotiate in Ottawa agreements for acquisition of nuclear weapons on the basis outlined in this memorandum.

230. H.C.G./Vol. 11

Secretary of State for External Affairs to Prime Minister

Secret

Ottawa, October 26, 1962

Provision of Nuclear Warheads

The Minister of National Defence’s Memorandum to the Cabinet of October 2 recommends that negotiations with the United States be opened immediately on the basis of a draft general agreement as a preliminary step before negotiation of subsequent agreements for various warheads, which presumably would be concluded on a service-to-service basis.

If you will remember, the draft document under consideration earlier was all-inclusive with schedules concerning the various weapons systems and was designed to be negotiated on a government-to-government basis.
Furthermore it was intended to provide for the introduction of nuclear warheads rather than for making them available on a stand-by basis for emergency use only.
In my view what is required is a comprehensive agreement which would provide a clear statement of the framework under which nuclear warheads would be made available for use by Canadian forces, with all the necessary information to enable the Cabinet to take a decision regarding the provision of warheads for various weapons systems; it would also avoid misunderstandings between the United States and Canada; and it would provide a surer basis for cooperation in training and other preliminary arrangements.
The premise of such a comprehensive agreement would be that nuclear warheads would be brought into Canada only on a finding by Cabinet that an emergency exists and a concomitant request to the United States Government to provide the warheads. Thus the agreement would make certain provisions for the period when the warheads earmarked for Canadian forces would be stored on United States territory, e.g.,
1. outline the circumstances in which the Canadian Government would be prepared to consider requesting transport of the nuclear warheads to Canada;
2. provide for the allocation of warheads in advance and their siting at convenient storage depots in the United States;
3. provide for the technical readiness of the weapons systems already in Canada, construction of storage sites in Canada and related financial terms;
4. provide for the training and readiness of personnel who would be involved in handling and storage of the warheads;
5. provide for training in the use of the weapons;
6. provide for transport and practice arrangements for rapid pick-up and/or delivery to sites in Canada.

custody of the warheads in Canada;
control over their operational use;
miscellaneous arrangements relating to security, safety, publicity, claims, command and communications, etc.

The agreement would consist of a statement of principles as enunciated in the preceding paragraph and to which would be attached schedules containing detailed provisions relating to the F101 interceptor and the Bomarcs.

Arrangements for the provision of warheads for Canadian forces in Europe (the Honest Johns and CF104 aircraft) should be the subject of a separate agreement. This will entail a negotiation, not only with the United States governing the provision of warheads, but also with the NATO Supreme Commander, Europe and/or the host country in respect of storage arrangements.

Procedure

For the purpose of drafting the requisite agreements for consideration by the Cabinet it would be desirable to establish an inter-departmental group comprising officials of the Departments of External Affairs, National Defence, and Finance and others as necessary.
Mr. Harkness has suggested that he and I go to Washington to start the negotiations to ensure proper understanding by both sides. I think this would attract undue attention. In my view it would be more appropriate to initiate the negotiating process by my calling in the head of the United States Embassy in Ottawa and presenting to him a Memorandum setting out the conditions under which the Canadian Government would be prepared to negotiate for the provision on a stand-by basis of nuclear warheads for Canadian forces in North America and in Europe. A copy of the draft agreements, which by then would have been approved by the Cabinet, would be attached to the Memorandum. To facilitate closer supervision of the negotiations, which I would envisage being conducted by a mixed group of officials and service representatives from both countries, I would recommend that negotiations take place in Ottawa. In respect of forces in Europe it may be necessary to conduct some aspects of the negotiations there.

Recommendations

I would therefore recommend for your consideration:
1. that a standby agreement, with accompanying schedules covering each kind of warhead, be drafted envisaging the provision of nuclear warheads for use by Canadian forces in Canada in an emergency and their storage in the United States in the meantime;
2. that a separate agreement be drafted which would make available warheads for Canadian forces in Europe on the same standby basis;
3. that an inter-departmental group be established comprising officials of the Departments of External Affairs, National Defence, Finance and others as required, and that the group be charged with preparing the required draft agreements for consideration by Cabinet;
4. that following development of draft agreements acceptable to the Cabinet the United States Government be informed, by means of a Memorandum delivered to the head of the United States Embassy in Ottawa, of the Canadian Government’s willingness to negotiate in Ottawa agreements concerning nuclear weapons on the basis I have outlined.

[Howard C. Green]

231. PCO

Extract from Cabinet Conclusions

Secret

[Ottawa], October 30, 1962

Present

The Prime Minister (Mr. Diefenbaker) in the Chair,
The Secretary of State for External Affairs (Mr. Green),
The Minister of Justice (Mr. Fleming),
The Minister of Trade and Commerce (Mr. Hees),
The Minister of Transport (Mr. Balcer),
The Minister of Veterans Affairs (Mr. Churchill),
The Minister of Public Works (Mr. Fulton),
The Minister of Finance (Mr. Nowlan),
The Minister of National Defence (Mr. Harkness),
The Postmaster General (Mrs. Fairclough),
The Minister of Fisheries (Mr. MacLean),
The Minister of Labour (Mr. Starr),
The Minister of Health and Welfare (Mr. Monteith),
The Minister of Agriculture (Mr. Hamilton),
The Minister of Defence Production (Mr. O’Hurley),
The Associate Minister of National Defence (Mr. Sévigny),
The Minister of Forestry and Minister of National Revenue (Mr. Flemming),
The Minister of Northern Affairs and National Resources (Mr. Dinsdale),
The Secretary of State (Mr. Halpenny)
The Minister of Mines and Technical Surveys (Mr. Martineau),
The Minister of Citizenship and Immigration (Mr. Bell),
The Minister without Portfolio (Senator McCutcheon).
The Secretary to the Cabinet (Mr. Bryce),
The Assistant Secretaries to the Cabinet (Dr. Hodgson), (Mr. Labarge).

…

General Agreement with the United States on Nuclear Weapons

The Minister of National Defence stated that some time before the Cabinet had decided that arrangements might be made by which the nuclear warheads for the Bomarcs and the Voodoo aircraft might be held in the United States, to be brought into Canada at the time of a war, to be used by the Canadian forces in the carriers they have ready here, and also that arrangements might be made to have nuclear weapons available for the F-104s in Europe and the warheads for the Honest John rockets. It would be necessary to undertake negotiations to make these arrangements and until these negotiations were carried on, it would not be possible to tell what Canada could get out of them. The Government was in a vulnerable position because it was being asked what arrangements it is making to arm the weapons which it has acquired.
The Prime Minister said that he thought it would be necessary to proceed with these negotiations but on the understanding that if there was any leak concerning the negotiations, they would stop forthwith. He had done this with President Eisenhower at one time and it had worked effectively. As a result of the negotiations, a general agreement might well be reached to carry out the decision of December 1960. He referred to some recent press reports concerning divisions of opinion in the Cabinet on this subject.
During the course of a lengthy discussionon this subject, the following points were made:
1. Consideration should be given to the possibility of Canadian forces going to the United States for their warheads if NORAD is alerted. If it is proven that cannot be done, then one should go to the next alternative.
2. One needs a comprehensive agreement even to hold the weapons in the United States to be brought into Canada if an emergency occurs.
3. Various suggestions were available for the procedure to be followed in the negotiations but it hardly seemed necessary to discuss them in detail until some agreement had been reached on principles.
4. The negotiations should take place in Ottawa as quickly as possible.
5. There would need to be a separate agreement to cover the forces in Europe.
6. Papers on this subject for the Cabinet at present should not be prepared by officials but by Ministers.
7. Some questioned the wisdom of starting any negotiations on this subject in view of what had just happened in Cuba and the U.N. efforts to keep the peace.
8. An account was given of various aspects of the U.N. and NATO considerations of the Cuban crisis and the reaction of various members of the Alliance to it.
9. The Secretary of State for External Affairs, the Minister of National Defence and Mr. Churchill should represent the Cabinet in approaching the U.S. Ambassador or others on these negotiations.
10. The negotiations should be based on the storage of the warheads for the Bomarcs and the 101s in the United States and the storage of weapons for the Canadian forces in Europe on bases in Europe.
The Cabinetagreed:
1. that negotiations be undertaken with the U.S. Government to work out an agreement or agreements between the two Governments under which:
  1. nuclear warheads would be held in storage for and made available to the Canadian forces in Europe under NATO command for use in CF-104 aircraft and the Honest John rockets; and
  2. nuclear warheads would be held in bases in the United States to be moved to Canada to be available to the R.C.A.F. for use in Bomarc missiles and interceptor aircraft, on request by the Canadian Government when war appears imminent; and
2. that such negotiations be commenced forthwith by Mr. Green, Mr. Harkness and Mr. Churchill, jointly, with the Chargé d’affaires of the United States in Ottawa.

…

232. DEA/50210-H-40

Draft Note

Secret

Excellency:

I have the honour to refer to Articles 20 and 21 of the Communiqué issued by the North Atlantic Council on December 19, 1957^{Footnote 30} and to conversations which have taken place between the Supreme Allied Commander Europe (SACEUR) and the Governments of Canada and of the United States regarding the stockpiling of atomic weapons in Europe for Canadian forces.

It is the understanding of my Government that in the course of these conversations agreement in principle was reached to the establishment of elements of a stockpile of atomic weapons to be provided by the United States in support of Canadian forces in Europe. In order to implement this agreement in principle my Government suggests the following arrangements:

The location of the stocks for the support of Canadian forces assigned to NATO in Europe will be determined by SACEUR in accordance with approved NATO military plans and in agreement with Canadian and United States military authorities and, if necessary, the appropriate authorities of the country in which stocks are to be located.
Except as otherwise agreed, the costs of construction, development and maintenance of the storage sites and associated facilities, including those required for the support of the U.S. special weapons custodial and support personnel, shall be borne by Canada. Arrangements for providing the land involved, without cost to the United States, will be the responsibility of the Canadian Government. To the extent that the North Atlantic Council agrees to the NATO infrastructure funding of NATO atomic stockpile site construction costs, the apportionment of costs will be subject to NATO infrastructure procedures. Installations and facilities for atomic weapons storage and maintenance will be built and maintained at least in accordance with NATO standards and criteria. Installations and facilities for normal logistic support (housing, messing, offices, etc.), which may not be specified under NATO criteria, will be built and maintained as mutually agreed.
It is recognized that the custody of any stocks of atomic weapons provided by the United States will be the responsibility of the United States and that United States personnel will be assigned to the stockpile sites for this purpose.
When the weapons are released by appropriate authority, they will be employed in accordance with procedures established by SACEUR.^{Footnote 31}
United States forces will be responsible for the maintenance, surveillance and assembly of the atomic weapons, including the provision of personnel and technical equipment for the performance of these functions.
Except as otherwise agreed, external security of all atomic weapons in storage or during movement within the country concerned will be the responsibility of the Canadian forces. The details of external security arrangements will be determined by the appropriate United States and Canadian military authorities in accordance with directives of SACEUR.
United States forces will be responsible for the movement of the atomic weapons to points of entry in the country concerned and from points of exit. Canadian forces, except as otherwise agreed, will be responsible for the transportation of the weapons within the country concerned, subject to paragraph 3 above.
A reliable means of signal communications will, except as otherwise agreed by the appropriate authorities of the two governments, be provided by the Government of Canada to meet the purposes of this Agreement.
Canada will, in general, provide at no expense to the United States Government reasonable administrative and logistical support for United States forces and dependents in support of Canadian units. This support will include common items of supply, organic transportation, and such other support as may be mutually agreed.
Supplementary Service-to-Service arrangements, within the scope of this agreement pertaining to the various delivery systems and associated installations, will be negotiated separately, as may be appropriate, between the appropriate military authorities of the United States and Canada.

I propose that if the foregoing is acceptable to your Government, this note and your reply indicating such acceptance will constitute an agreement between the two Governments on this subject, the agreement to enter into force on the date of your note in reply.^{Footnote 32}

233. DEA/50210-H-40

Draft Memorandum from Secretary of State for External Affairs, Minister of Veterans Affairs, and Minister of National Defence to Cabinet

Top Secret

[Ottawa], December 5, 1962

In accordance with Cabinet decision of 30 October 1962, the United States Chargé d’Affaires was invited to prepare a proposal which would meet the requirements set out in the Cabinet decision. In response to this request an American team arrived in Ottawa with copies of a possible agreement on European and Canadian storage arrangements, together with two possible proposals to meet the North American emergency arrangements. In respect of Europe, the form of agreement was the standard one under which warheads, under USA custody, are held available for use by other NATO allies in an emergency.
The American officials outlined two possible ways whereby warheads for Canadian weapons could be stored in the USA and transported to Canada in an emergency. This first method, applicable both to the BOMARC and the CF101, involved the cargo airlift of complete warheads. This would entail keeping 26 large transport aircraft on immediate alert at US bases twenty-four hours a day, with warheads and weapons loaded aboard. On specific alert conditions and weather permitting they would take off and fly to Canadian operational sites. On arrival at these sites the Canadian interceptors could be fully armed with the weapons flown in in a period of six to eight hours and the BOMARC within a twenty-four hour period.^{Footnote 33}
The second method, applicable to the CF101 aircraft only, involved the tactical ferrying of Canadian fighter aircraft to American weapons storage sites, where they would be armed with nuclear weapons (MB1) and would remain there until a state of emergency was declared (DEFCON 1) which would permit the President to release the weapons to Canadian forces. No time can be estimated for this because aircraft would only return to Canada when released for operational sorties or stood down.
As the time interval involved by both these proposed methods failed to come within the stringent warning requirements of the defence system as a whole (maximum three hours for bomber attack), it was decided alternative possibilities should be canvassed and the Americans were asked to examine the possibility of providing nuclear weapons for storage in Canada but less some essential part, that part to be flown in in the event of an emergency. They were also asked to re-examine the possibilities of reducing the time lag by increasing the numbers of handling crews on sites, or by activating the cargo airlift at an earlier stage of an alert, or a combination of both.^{Footnote 34}
The Americans reported that in the instance of the removal of an essential part, in the case of the BOMARC one small part which could be replaced without any difficulty in about ten minutes was a possibility, and that the piece was small enough that the requirements of a whole BOMARC station could be carried by one CF100 type aircraft, which could be maintained at instant readiness at an American base. It is estimated that the total time to ferry the part to Canada and to incorporate it into the weapon would be approximately two hours. In the case of the MB1, two possibilities were presented. One involved the removal of a part of the warhead essential to its operation but the reinstallation of which involved a rather lengthy check-out period (one hour and ten minutes); and the other the removal of a part of the aircraft essential to the arming of the weapon which could be replaced in five minutes. Both these parts were small enough that the requirements for a single squadron could be carried by a CF100 type aircraft. The total elapsed time for arming a squadron by flying in these essential parts was, in the case of the weapon, five hours and thirty minutes and in the case of the part of the aircraft in the order of one hour and ten minutes.^{Footnote 35}
It was considered that the time interval associated with the replacement of the part of the weapon was longer than desirable in relation to warning time and it was doubtful that the replacement of the part of the aircraft, which did meet the time element, met the terms of reference of the Cabinet decision.^{Footnote 36}
It was decided in respect of the MB1 to request the Americans to explore further two alternatives: revised arrangements for tactical ferrying; and the possibility of selecting some part of the MB1 weapon itself, of a size and nature which would improve on the reinstallation time associated with the part they had already selected.
There are no obvious obstacles to the conclusion of an agreement for the stockpiling of warheads for Canadian forces in Europe. We consider that the suggested method for dealing with the BOMARC missiles is satisfactory, but possible arrangements for the MB1 still require further investigation and will be reported on as soon as possible.^{Footnote 37}

[H.C. Green]

[G.M. Churchill]

[D. Harkness]

234. H.C.G./Vol. 11

Memorandum from Secretary of State for External Affairs, Minister of Veterans Affairs, and Minister of National Defence to Cabinet

Top Secret

[Ottawa], December 8, 1962

In accordance with the Cabinet decision of October 30, 1962, the United States Chargé d’Affaires was invited to have the United States authorities prepare a proposal that would meet the requirements set out in the Cabinet decision. In response to this request, an American Defence Department team arrived in Ottawa with the following documentation:

a possible agreement on European storage arrangements. This was the standard agreement under which warheads under U.S.A. custody are held available for use by other NATO allies in an emergency;
a possible agreement on Canadian storage arrangements. This draft agreement did not take account of the requirement that nuclear warheads would be held in bases in the U.S.A. for use by Canada in an emergency;
the results of an American study showing the time lapse, personnel and equipment requirements involved in an arrangement whereby warheads for Canadian weapons could be stored in the U.S.A. and transported to Canada in an emergency.

Under (c) above, two possible methods had been considered: cargo airlift of complete warheads; and tactical ferrying of Canadian fighter aircraft to American weapons storage sites.

Cargo Airlift of Complete Warheads

This method, applicable to both the Bomarc and CF-101, would involve the pre-positioning of ground equipment in Canada, the assignment of the necessary USAF and RCAF loading and technical crews on site and the stationing of RCAF transport aircraft at U.S.A. bases at constant alert, ready to load the warheads.

For the purposes of working out estimated times, personnel, etc., support bases in the U.S.A. were chosen on the basis of proximity to RCAF bases and the availability of adequate U.S.A. storage facilities, as follows:

Table 1: (need table title)
Air Defence Unit	Supporting Base	Distance (miles)	# of Warheads
Chatham	Loring	100	60 MB-1
Bagotville	Loring	150	60 MB-1
Uplands	Kincheloe	370	60 MB-1
North Bay	K.I. Sawyer	350	60 MB-1
Comox	McChord	190	60 MB-1
North Bay	McGuire	420	28 BOMARC
La Macaza	Westover	260	28 BOMARC

The details of the application of cargo airlift to complete warheads were as follows:

For BOMARC
Using 4 loading teams, each consisting of 2 RCAF and 2 USAF, at each BOMARC site, each loading crew could install one warhead in 3 hours for a total of 21 hours for loading all BOMARCs. Taking into account 2 to 3 hours air transport time (see chart above) and 1 hour ground transport time at North Bay, the BOMARC unit (28 missiles) at La Macaza could be completely operational in 24 hours; and at North Bay in 25 hours.
For CF-101
Using 4 loading teams, consisting of 8 USAF and 16 RCAF maintenance and loading technicians at each base, one squadron (12 aircraft) could be brought to operational readiness (2 MB-1s per aircraft) in 5 hours. Taking into account transport time from the U.S.A. support base, all CF-101s could be brought to operational readiness at their home base in 6 to 8 hours.

Note:

The above estimates for cargo airlift of both BOMARC warheads and MB-1 missiles would require the stationing of a total of 26 RCAF transport aircraft on 15-minute alert at USAF bases 24 hours a day with warheads and weapons loaded aboard, but still under U.S.A. custody. The latter requirement would necessitate the stationing of USAF air policemen at 5 U.S.A. bases on an around the clock basis who would accompany the weapons on the transport aircraft.
The times involved in bringing the weapons to operational readiness could be reduced by:
1. increasing the number of loading personnel and technicians at each base;
2. having the cargo airlift inaugurated at an early stage of alert. (In this connection, BOMARCs at 8 sites in the United States are kept at 2-minute alert; USAF fighters are kept 1/3 at 15-minute alert, 2/3 at 3-hour alert.)

Tactical Ferry of MB-1 Missiles

This method, applicable only to the CF-101 aircraft, would involve the flying of the Canadian fighters to weapons storage sites in the U.S.A. at any stage of alert which the Canadian Government might decide. There they would be armed with their nuclear weapons (MB-1s) and remain until released to the Canadian forces under Presidential authority. Without a U.S.A. custodian, such authority could not be granted by the President at a stage of alert earlier than DEFCON-1 (Re-enforced Alert). All of the above propositions would involve the airlifting of complete warheads.

…

In an effort to improve upon the time factors involved in the above propositions (for BOMARC, 24-25 hours for CF-101, 6-8 hours), the American experts were asked to examine:

the effect of increasing the numbers of handling and maintenance crews on sites;
activating the cargo airlift at an earlier stage of alert;
the possibility of reducing the cargo burden (and therefore transport and handling time) by confining the emergency airlift to some essential part of the warhead without which the part of the warhead pre-positioned in Canada would be inoperable.

Increased Personnel
As transport time would remain constant, increasing the personnel would affect only the loading time at the Canadian site. The basic time data is as follows:
BOMARC: one loading crew (2 RCAF and 2 USAF) can install one warhead in 3 hours. There are 28 BOMARCs to be loaded at each site.
MB-1: one loading crew (2 USAF and 4 RCAF) can load 2 MB-1s in 1 hour 40 minutes. At each of 5 Canadian bases there are 12 CF-101s each carrying 2 MB-1s.
By adding to the loading crews, the time for bringing a complete BOMARC site or CF-101 squadron to a state of operational readiness can be proportionately reduced.
Note: These basic figures do not take account of shift requirements for 24-hour manning, sickness, leave, etc.
Activating the Cargo Airlift at an Earlier Stage of Alert
Providing that U.S.A. custodial personnel were available at all times and accompanied the warheads to their sites in Canada, it would be within the discretion of the Canadian Government to order the cargo airlift at any time. Problems would arise in connection with the CF-101 which is not suitable for the carrying of custodial personnel.
The “Missing Part” Formula
Several alternatives were presented under this heading. The two warheads under consideration are both sealed units. To render them non-operational would require the removal of one essential part. The American experts suggested that this part might be, in the case of the BOMARC, the “warhead arming plug”; and in the case of the MB-1, either the “umbilical power cable” (a part of the warhead) or the “ejector rack cartridge” (a part of the weapon system in the aircraft).
All three parts are small enough that the requirements of a whole BOMARC station or an entire CF-101 squadron could be carried in one CF-100 or T-33 type aircraft. By keeping these aircraft on 15-minute alert at USAF bases 24 hours a day, the missing part could be brought to the BOMARC and interceptor bases in Canada in times ranging from 35 minutes to one hour, depending upon the distance from the support base in the U.S.A. Once the necessary parts were on site, each BOMARC could be rendered operational in 10 minutes and each CF-101 in one hour 35 minutes. As none of the “missing parts” considered is a nuclear component, the problem of U.S.A. custodial personnel during the airlift phase does not arise.
The requirements under this alternative are as follows:
1. Weapons including warheads minus critical “power plug” on site.
2. MB-1 storage areas for each RCAF base complete.
3. USAF and RCAF custody, security, maintenance, load personnel on site (MB-1 site, 40 U.S.) (BOMARC, 26 U.S.).
4. Six (6) CF-100 standing 15-minute alert at U.S. support base (North Bay dual site) (1 Back-up aircraft at each base) Total 12.
5. One (1) T-33 standing 15-minute alert at U.S. support base (1 Back-up) Total 2.
6. Delivery aircraft will average 400 K ground speed.
7. One (1) helicopter standing alert North Bay.
8. Each CF-101 base will have four load crews always available.
9. Each BOMARC site will have four crews always available to install warhead arming plugs.
10. Each CF-101 base will have 12 aircraft always available, as follows:
  1. Four (4) aircraft and eight (8) MB-1s on MF-9 trailers near aircraft (QRA).
  2. Eight (8) aircraft – not on alert with their MB-1s on MF-9 trailers in storage sites.

For BOMARC:

10 minutes would be needed to install the missing part in each BOMARC missile using a loading crew of one USAF and one RCAF personnel. With a normal complement of 4 loading crews, the 28 BOMARC missiles at each site could be armed in 1 hour and 10 minutes. This could be reduced to a total loading time of 10 minutes if 28 loading crews were available. To each of these times would have to be added transport time, ranging from approximately 45 minutes to one hour, depending upon the distance from the U.S.A. supporting base.

Thus the total time factors are as follows:

with 4 loading crews all the BOMARCs could be made operational within 1 hour 55 minutes to 2 hours 10 minutes;
with 28 loading crews all the BOMARCs could be made operational within 55 minutes to 1 hour and 10 minutes.

For CF-101:

Using Umbilical Power Cable (part of the missile itself).
This part is small and easily transportable but cannot be installed while the weapon is loaded aboard the aircraft, and after it is installed a series of checks must be carried out to test the missile’s safety and operational readiness.
- Using one loading crew (2 USAF and 4 RCAF personnel) these procedures could be accomplished in one hour 10 minutes for the two MB-1 missiles carried by one CF-101.
- With a normal complement of 4 loading crews (8 USAF and 16 RCAF personnel) 12 aircraft could be loaded in 4 hours 40 minutes.
- Using 12 loading crews (24 USAF and 48 RCAF personnel) this time could be reduced to 1 hour 35 minutes for 12 aircraft.
To each of these times there must be added the time it would take to fly the missing part from the U.S.A. This will range from 35 to 45 minutes depending on the distances involved.
Thus the period in which all the CF-101s could be given an operational capability would be approximately 5 hours 15-20 minutes with 4 crews; 2 hours 20 minutes with 12 crews.
Using the Ejector Rack Cartridge (a part of the aircraft).
This is an integral part of the MB-1 weapon system and essential to the missile’s operational capability. Without it, the MB-1 missile cannot be lowered into firing position and would thus be rendered inoperable. It can be installed in each aircraft in 5 minutes. To this loading time would have to be added the time it would take to fly the missing part from the U.S.A. Thus, the period in which all the CF-101s could be given an operational capability using this missing part would range from 40 to 50 minutes. The ejector rack cartridge is not however a part of the warhead and its selection as the “missing part” might not be reconcilable with the Cabinet directive.

…

In respect of the MB-1 missile, the American experts have been asked to explore further:

revised arrangements for tactical ferrying, combined with the possibility of instituting the tactical ferry at an early stage of alert; and,
the possibility of selecting some part of the MB-1 missile itself of a size and nature which would permit a faster installation time.^{Footnote 38}

[H.C. Green]

[G.M. Churchill]

[D. Harkness]

235. DEA/50210-H-40

Memorandum by Defence Liaison (1) Division

Confidential

[Ottawa], December 18, 1962

Closing of U.S. Sage Sites

A/V/M Annis told me that they had just received today a message from Air Commodore Newsome of the Canadian Joint Staff, Washington, indicating that Secretary McNamara had issued a directive requiring the closing down of six SAGE sites and 17 Prime Radars in the northern United States. These are quite close to the Canadian border and apparently are regarded by the RCAF as part of the ground environment system for air defence.^{Footnote 39}

A/V/M Annis did not know whether a notice of this U.S. intention would be transmitted through diplomatic channels.
He proposed that this subject should also be discussed at an early date.

A.R. M[enzies]

236. DEA/50210-H-40

Memorandum from Defence Liaison (1) Division to Head, Defence Liaison (1) Division

Secret. Canadian Eyes Only.

[Ottawa], December 20, 1962

Phasing Out of U.S. SAGE Sites

SAGE, etc., in Canada

By an exchange of notes, dated September 27, 1961, entitled in the U.S. Treaty Series “Defense: Improvements in the Continental Air Defense System,”^{Footnote 40} Canada and the USA agreed to construct and install in Canada

seven new heavy radar sites (in the Pinetree system)
forty-five gap filler radar sites (also in the Pinetree system)
one SAGE Combat Centre/Direction Centre (at North Bay)
certain modifications to existing radars
two Bomarc missile squadrons (approximately 30 missiles to each squadron at North Bay and La Macaza)

The facilities are expected to be fully operational in 1963.

The notes recognize that the “facilities in Canada (were) required to strengthen and extend the continental air defence system” and stemmed from “recommendations of the Commander-in-Chief, North American Air Defence Command” and discussions in the Canada-United States Ministerial Committee on Joint Defence. The notes specify that where the two governments do not agree on the continued requirement of the facilities, the PJBD, in considering the question of need, “will take account of the relationship of the facilities to any similar installation established in the mutual defence interest of the two countries.”

SAGE in the USA

In 1960 a reappraisal of the air defence programme was presented to Congress by the USAF Chief of Staff and supported by the Department of Defense. This reappraisal had been considered by NORAD, including the RCAF, and it was the subject of discussion and correspondence between the Minister of National Defence and the U.S. Secretary of Defense. The correspondence and circumstances suggest that consultation on what was admitted to be “major changes to the air defence structure of North America” was virtually coincidental with the event and perhaps, from the point of view of the opportunity afforded Canada to comment effectively, no more than pro forma. For Canada’s part, the main concern was to safeguard the CADIN Agreement. Thus, when at one stage during Congressional consideration funds for the whole programme were deleted, the Canadian Government made representations to the Administration.
In the result, the counterpart programme as planned in the USA was drastically curtailed, e.g., Bomarc sites were reduced from 18 to 10. The SAGE units, instead of being underground, were to be built above ground and were to be far less sophisticated.
In September of this year, according to information provided us informally yesterday, December 19, by the RCAF (see attached RCAF memoranda†), the RCAF received informally information concerning the revision of air defence planning by NORAD. This report centered on the introduction of the improved manned interceptor (a long range aircraft carrying its own radar devices for detecting aircraft) into the air defence system and the incidental cutting back of existing ground environment systems in the USA. The USAF was cautioned by the RCAF on the need to consult with appropriate Canadian officials.
Later (October 2) it was learned that USAF comments on the NORAD report had indicated that the revised plans would require revision of the CADIN and DEW Line Agreements. It was also pointed out that the proposed reduction (as a USA unilateral decision in the NORAD system) could have a serious impact “on Canada’s internal affairs and on Canada/United States relations.” (See paragraphs (d) and (e) of RCAF memorandum of October 2, 1962.) According to information early in December, the NORAD proposals had been submitted to the Secretary of Defense and an analysis of the proposals for the improved manned interceptor concept and a consequent reconfigured ground environment system was being undertaken. It was also inferred that a much broader study of the future air defence of North America was being contemplated. While a decision on the overall system was not anticipated in the near future, the RCAF had concluded that cuts in the existing SAGE environment could come in either USA Fiscal Year ‘64 or ‘65. It was also reported that U.S. Department of Defense was aware of the need to consult prior to taking action which would lead to changes in the NORAD system. (RCAF memorandum of December 3, 1962.)
On December 19 the Air Member of CJS(W) reported to CAS that the “Secretary of Defense had returned the USAF budget in the form in which it will go to Congress in early January.” The budget showed a deletion of $35 million based on the proposed phasing out of 6 Direction Centres (out of a total of 23) and 17 radar sites (out of a total of 130) of the United States SAGE system. The main SAGE centres (8) are apparently unaffected at this time. Recommendations as to which sites are to be affected have to be available to USAF HQ by January 15. The USAF will seek RCAF participation “in an observer capacity” to ensure that any system cutbacks are thoroughly aired on a bilateral basis.” (See attached telegrams from CANAIRWASH to CANAIRHED.†)
On December 18 the Vice Chief of the Air Staff informed Mr. Menzies of the information received from Washington and proposed that the matter be discussed with us at an early date. Yesterday, December 19, G/C Sheffield left with me a copy of the telegram from Washington and related RCAF memorandum,† for our informal background information pending the proposed meeting.
Comments: It would appear that the RCAF’s watching brief has been overtaken by Secretary McNamara’s decision. Apart from the question of inter-governmental consultation, raised below, and the moot point whether we should not have been alerted sooner, the question is raised of the adequacy and efficacy of the inter-service (RCAF-USAF) consultative process and, more serious, the functioning of NORAD as an integrated command, assuming, as seems to be the case, that the Secretary’s decision stems from NORAD proposals. (Is the answer that NORAD is integrated only for operational purposes and not for planning? The purpose of the Agreement is to establish an integrated headquarters to exercise “operational control” over forces of the two countries made available to it. This surely implies consultation on planning and, in any event, the agreement specifies that the integrated arrangements “increase the importance of fullest possible consultation between the two governments on all matters affecting the joint defence of North America.”) In any event, as far as the RCAF is concerned (and perhaps the Canadian Government also), it is confronted with a fait accompli, being granted only “observer” status in the consequent discussions as to which USA sites should be phased out now.

Questions Posed by the Secretary of Defense Proposals

1. What is the extent of the USA decision and what will be the immediate effect of the phase-out as planned for Fiscal Year ‘64 on the Canadian element of the Continental Air Defence System (CADIN), i.e., is its completion and subsequent sustained operation supportable militarily?
2. What are the longer run defence implications for progressive phasing out of the USA SAGE system and development of the IMI concept for CADIN (e.g., Will BOMARC and Voodoo continue to be supportable defensive weapons?) and for Canada’s role in air defence of North America?
3. Notwithstanding the actual military implications, what are the likely domestic political implications, assuming the USA decision becomes public, as is likely? It would seem, for one, that the Government could be open to criticism that it is supporting an obsolete system in SAGE and BOMARC (and Voodoo?). The argument against nuclear weapons could be fortified.
4. Does this situation permit a valid charge to be levied that the RCAF’s participation in NORAD has been rendered ineffective on the planning side as opposed to command, etc.? This depends on whether NORAD is integrated for planning as well as operations. The references to a NORAD report may have strictly meant CONAD (Continental Air Defence). On the other hand, if it were a NORAD report, should it not be submitted to the Minister of National Defence?^{Footnote 41}
5. In any event, the report is a NORAD one in effect and the spirit, if not the letter, of the CADIN and NORAD Agreements and of joint defence generally would appear to have been violated by absence of consultation (assuming there has been no formal consultation with Ministers). This is exacerbated by the fact that such consultation was conceded in the NORAD report to be desirable, if not required.
6. What are the implications of the USA action in this case on joint defence? Have they decided to go it alone on North American Defence?

Suggested Course of Action

1. An immediate meeting with RCAF (and presumably the Deputy Minister of National Defence’s office) to obtain any possible elaboration of the above and to discuss implications and the course to be recommended to Ministers.
  Subject to the foregoing:
2. Inform the Minister and the Prime Minister.
3. Ask the Embassy to enquire formally of the USA Government’s intentions and plans regarding publicity.
4. In the light of the Embassy’s information, reconsider with all departments which might be concerned, e.g., DND, DOT, DDP.
5. Consider whether further action – e.g., representations, if any, should be recommended, and on what – e.g., substance of the USA decision, timing of it, lack of consultation.^{Footnote 42}

J.S. Nutt

237. DEA/50210-H-40

Aide-mémoire by Embassy of United States

Top Secret

Ottawa, January 11, 1963

The Embassy has been authorized to give to the representatives of the Government of Canada the following statement of views in response to questions raised by the Canadian representatives at the last meeting:

After a most careful review of the proposal for fly-down, the conclusion has been reached that such an arrangement is not attainable. Aside from tactical disadvantages and serious practicable difficulties, such as the RCAF going at the wrong time in the wrong direction, legal advisers within the United States Government have confirmed the previous view of the impossibility of the United States Government releasing control of the weapons for free flight, including return to Canadian bases, until the military emergency was far advanced. At such stage of emergency the usefulness of RCAF aircraft would be greatly degraded at a critical time for effective defense purposes since they would not be in a normally prescribed defense location.
The Department of Defense after a most careful technical study has concluded that there is no practicable alternative to the umbilical cable or the ejector rack for the CF-101 problem if the “missing part” concept has to be adhered to.
The official level in Washington believes that very considerable reluctance exists at a high policy level to entering into any contrived agreement on the nuclear question which would not meet urgent and effective defense requirements. In this connection it should be recalled that talks to this date have been exploratory and that no United States Government position has yet been taken on this vital question. In view of this and because the U.S. negotiating team could only report the findings outlined in paragraphs 1 and 2 above, the proposed meeting to discuss the foregoing at this time would not appear useful.

238. DEA/50210-H-40

Aide-mémoire by Embassy of United States

Top Secret

Ottawa, January 15, 1963

It will be recalled that at the informal discussion on January 11, 1963 the representatives of the Canadian Government raised several questions regarding the meaning of numbered paragraph three of the Embassy’s Aide-Mémoire of January 11, copy attached. The Canadian representatives requested these clarifications in order that they might inform their principals of current thinking by the United States Government on the question of a nuclear stockpile agreement. In pursuance of this desire on the part of the Canadian representatives, the Embassy has transmitted their questions to the Department of State and has now received a reply as follows:

We believe there may not have been full clarity on the Canadian side at Paris as to the basic thrust of United States views. We understand that in the Paris conversation the United States side indicated its preparedness to try to meet the Canadian problem but pointed out that any arrangements reached must provide for an effective defensive posture.^{Footnote 43}
The importance of this latter essential continues to prevail in United States thinking. Consequently, while the cartridge approach for the CF-101 and the idea of moving “missing parts” to Canadian bases at a DEFCON level as low as four would represent a considerable improvement in the operation of the missing piece concept, such improvement would be insufficient to meet an urgent and effective defense requirement which really calls for the ability to respond within likely time of any warning without running the risks of possible last minute difficulties in moving missing parts to Canada in time of emergency.
While the most practical solution would be the normal stockpile agreement of the type which the United States has with most other allies, the United States Government is prepared to negotiate with Canada an arrangement involving the missing piece concept, provided the missing piece is stored in Canada and is one which can be installed with minimum delay. The missing piece could possibly be under either United States or Canadian custody.
With reference to the views expressed in the Aide-Mémoire of January 11 the United States Government had no thought of discontinuing the talks or of changing the channel of talks, but simply saw no need for a team to go to Ottawa at this particular time since the Embassy could convey the substance on the two outstanding factual questions set forth in numbered paragraphs one and two of the Aide-Mémoire under reference.

239. DEA/50210-H-40

Memorandum by Assistant Under-Secretary of State for External Affairs

Top Secret

Ottawa, January 19, 1963

As a follow-up to the two Aide-Mémoires presented on January 11 and [15], Ivan White called on January 18 to show me the text of a telegram Mr. Rusk had sent to the U.S. Embassy in Ottawa under date of December 20 concerning the Ministerial talks in Paris. The telegram was to the following effect:

Rusk and McNamara met alone with Green and Harkness on December 19 to discuss Canada’s nuclear problem. We said we were ready to help the Canadians meet their difficulties so long as the method did not impair the objective of regional defence. In this connection we made clear that there was no point in having a solution so contrived that it would not achieve this objective.

In short, there was no meeting of minds regarding a satisfactory solution. It was agreed that talks at the official level were to continue.

R. C[ampbell]

240. J.G.D./MG01/XII/F/100

Memorandum from Under-Secretary of State for External Affairs to Prime Minister

Secret

[Ottawa], January 30, 1963

Attached is a copy of the statement released to the press simultaneously, in Washington by the State in Washington and in Ottawa by the United States Embassy at 6.15 p.m. today concerning United States-Canadian negotiations regarding nuclear weapons.^{Footnote 44} Half an hour before release time, officers of our Embassy in Washington and of the Department of External Affairs in Ottawa were given advance notice that the release was being made and were given the text.

In Ottawa, the text was made available by the United States Embassy without comment. In Washington, presentation of the text (to Mr. H.B. Robinson) was accompanied by the following oral comments, after an apology for the shortness of the notice:
1. There had been four years of discussions between the two governments on the question of nuclear weapons for the Canadian forces. All had proved abortive and not for technical reasons.
2. With respect to the negotiations relating to nuclear weapons systems in Canada, the U.S. authorities had thoroughly examined the idea of storing some component parts in the U.S.A. but had arrived at the considered view that such an arrangement would be a contrived solution which might not only fail to strengthen continental air defence, but might create added confusion at a time of emergency and might mislead people as to the state of continental defence.
3. The U.S. authorities do not see the relevance of the references to the Nassau Agreement, in your statement in the House on January 25, in relation to the question of nuclear warheads for Canadian forces in Europe.^{Footnote 45} They do not see that Nassau would justify delays in providing the warheads since the weapons available to Canadian forces in Europe only become effective with nuclear warheads.
4. Regarding your references to the problem of obsolescence in modern armaments, there is in the United States view a difference between scrapping weapons which are becoming obsolete and immobilizing modern weapons which are not effective without nuclear warheads.
In addition to the foregoing points, some of which are touched upon in the public release, Robinson was informed that the following additional factors entered into the United States decision to issue the release:
1. The United States had felt obliged to set out in factual terms the status of the problem as seen by the United States in the light of your statement of January 25.
2. There had been considerable public speculation, mainly in Canada but some in the United States, which had made it necessary for the United States to state its side of the case.
3. The fact that the disclosure about the secret negotiations had been made in Ottawa without prior notice to Washington had caused much concern in Washington, even though no reference was made to this aspect in the public release.
Robinson was also informed that the public release had been so drafted as not to preclude further negotiations. United States authorities realized that publication would cause controversy in Canada but they had found it impossible to withhold it after careful consideration of all the circumstances.
The Embassy in Washington will be reporting the above oral comments more fully by telegram.

N.A. R[obertson]

241. J.G.D./MG01/XII/C/206

Memorandum from Minister of Agriculture to Prime Minister

[Ottawa], February [1], 1963

When I heard the news about the USA Statement last night, I phoned Kohaly about the Legion reaction.

He outlined the Legion thinking on the nuclear warheads and gave me the resolution finally accepted. (It backed your stand.) On the Sovereignty issue he thought it would bring strong reaction from the Legion in favour of Canada making its own decision.

Mervyn Woods came down to see [me]. After a long discussion, he thought if the issue was put the right way (the right of Canadians to make own decisions and control own military action) then the soldiers’ attitude in 2 wars would rally behind the Government in its efforts to preserve Canadian identification. (In 2 wars we struggled to free ourselves from British control of our military actions.) In his judgment it would be easier to raise this issue against the USA. In other words, the Canadian serviceman would resent British domination less than American domination.

In general I detected a feeling that Pearson made a mistake in changing his policy. Most people are not opposed to nuclear warheads. That is not the issue. The issue now is “Are the Americans pushing us around?”

I thought these observations might be worthwhile. The general political climate in the West is good.

Alvin Hamilton

242. DEA/50210-H-40

Memorandum from Under-Secretary of State for External Affairs to Secretary of State for External Affairs

Top Secret

Ottawa, February 4, 1963

Defence Negotiations with U.S.A.

The Aide Mémoire of January 11 contained in its third paragraph language which implied that the views of the Ministers of the USA Government had not been ascertained on the various proposals which had been the subject of the negotiations to that date. Because we were aware that Ministerial conversations had taken place in Paris, in which you participated, we asked that this aspect be clarified before any attempt be made to present views in writing. As a result, the second Aide Mémoire dated January 15 was presented. For all practical purposes it is only that memorandum to which consideration need be given. Its main elements are:

an assertion that the proposal to airlift missing parts to Canada while a “considerable improvement,” would still be insufficient to meet operational requirements;
a counter-proposal that the missing part in respect of each system be stored in Canada;
a re-affirmation of the intention to continue the negotiations through existing channels.

Points (1) and (2) of the USA communication of January 15 raise considerations which ought to be explored further with the USA. These are discussed in detail below.
1. The idea of moving missing parts from locations in the United States to Canadian bases, even if the airlift were to take place at as low an alert level as DEFCON-4, is not acceptable because it would be insufficient to meet defence requirements, which are defined as “the ability to respond within likely time of any warning without running the risks of possible last minute difficulties in moving missing parts to Canada in time of emergency.”
  Comment:
  This position can be questioned on several grounds:
  1. The judgment about the military effectiveness of “the missing part” concept was being applied to the “warhead arming plug” in respect of the Bomarc; and to the “ejector rack cartridge” in the case of the MB-1. In so far as the latter is concerned it had already been indicated to the American team that this piece of equipment, because it is not part of the warhead, might not be reconcilable with the Cabinet directive and that their attention should be directed to the search for missing parts of the warhead itself. Thus the USA appear to have included in their rejection a missing part which on our side might not have been acceptable.
  2. The judgment is made that the time in which these two weapons systems could be brought to operational readiness using the above-mentioned two missing parts (with 4 loading crews, for Bomarc 1 hr. 55 min. to 2 hr. 10 min.; for CF-101, 40-50 min.) does not meet operational requirements even if activated at DEFCON-4. This statement can be questioned on two grounds:
    1. A review of NORAD alerts shows that 3 times in the last six years NORAD has been placed on DEFCON-4 alert. (July 15 to August 2, 1958 – Lebanese crisis; May, 1960 – U-2 incident; October, 1962 – Cuban crisis.) On any of these occasions, which were not followed by immediate transition to higher states of alert, the airlift of the missing parts could in fact have been accomplished without encountering “last minute difficulties … in time of emergency” as claimed by the Americans. The record demonstrates that NORAD goes on to DEFCON-4 in periods of sharply rising international tension.
    2. The only contingency in which the missing part concept would not meet operational requirements would be that of surprise, all-out nuclear attack on North America. Quite apart from the unlikelihood of such a contingency arising without any warning through intelligence channels, there has never been an intention on the Canadian side to try to meet that contingency. To do so would require the acquisition and stationing of nuclear warheads in Canada in peacetime, and that alternative was specifically excluded from the terms of reference governing the negotiations to date. Had there been any intention to allow for that contingency, no negotiations would have been needed. Our purpose throughout has been to find a means of satisfying to the greatest degree possible the requirements of effective defence by reducing to the absolute minimum the time lapse in which the warheads could be made available from sources in the USA for Canadian delivery systems. Specifically, the object has been to find a means of arming all the Canadian delivery systems in under 3 hours, the warning time for impending bomber attack – the only kind of attack against which the Canadian nuclear defence weapons would be effective. The whole missing part concept was devoted to this end.
2. The USA has made a counter-proposal, still purporting to be within “the missing part” concept, that the missing part be stored in Canada separately from the warhead under either USA or Canadian custody.
  Comment:
  This counter-proposal fails to meet the clearly stated Canadian objective: to find an arrangement which still would not amount to having on Canadian soil in peacetime operational warheads. If both parts were located in Canada, regardless of who held custody of “the missing part,” it would be difficult, if not impossible, to maintain this policy objective.
  The only possible attraction of the proposal to locate the missing part in Canada is the offer of Canadian custody of it. If agreed to, such custody might be claimed to give Canada more complete control over the weapons than would the standard “two key” arrangement in use in other NATO countries.
To re-start the negotiations, it is recommended:
1. that if the American counter-proposal to have both parts located in Canada is unacceptable, the USA be so informed with the explanation that it fails to take account of a fundamental Canadian policy objective as outlined above;
2. that the American assertion that “the missing part” concept, when reduced to an operational readiness time factor of less than two and a half hours for all delivery systems, fails to meet the requirements of effective defence, even when coupled with activation at DEFCON-4, be questioned on the record of this state of alert in the past. It probably should be reiterated to the Americans that we are not seeking through these negotiations to meet the situation of total surprise attack; the objective is the most effective arrangement to meet any emergency short of that single contingency.
Before putting those views either orally or in writing to the Americans, it would be necessary for Ministers to consider again whether they were prepared, in relation to the MB-1, to accept the feasibility of using “the ejector rack cartridge” as the missing part or whether they would wish to revert to the earlier position, viz., that the USA experts should continue their search for a suitable part which is a part of the warhead itself.

N.A. R[obertson]

243. DEA/50210-H-40

Excerpt from Journal of the 105^th Meeting of Permanent Joint Board on Defence

Secret

San Diego, February 4-8, 1963

…

8. Reduction of Air Defense Facilities (Secret)

The U.S. Chairman requested that the USAF Member make a presentation on this subject.

The USAF Member reported that the U.S. Secretary of Defense, in submitting his budget recommendations for FY 1964 to the President, had indicated the desirability of phasing out soft SAGE Direction Centers, which were particularly vulnerable because of their location at SAC bases, and of prime radar locations which would be redundant to the needs of a modified system. This change in the Air Defense program was motivated by the concept that any enemy bomber attack would follow an initial strike performed by missiles. Given their location at some SAC bases, that is, at prime targets, the ability of the Direction Centers to survive was placed in serious doubt. This, in turn, would mean that they could not be counted on to perform their function in defense against any enemy bomber strike. For these reasons, engineering studies were being undertaken to identify which of the facilities would have to be inactivated. All of the Direction Centers in question were located in the United States.

The USAF Member went on to say the USAF and RCAF were working closely together on this problem. The action contemplated was not to be considered as reducing the importance of the overall U.S.-Canadian air defense system, but rather involved a change in the configuration of the system to meet a changing pattern of potential missile and bomber strike threats. The entire air defense system was under scrutiny and the study would embrace weapons as well as ground environment. The USAF Member believed it important that the Board know of this program, not only because it could have an effect on NORAD but also because of its bearing on other aspects of the joint defense effort. He hoped that it would be possible to provide more specific details at the Board’s next meeting, since a deadline of May 15, 1963 had been placed on the study. At present, all he was able to report was that six Direction Centers and 17 prime radar sites in the United States would be affected, although their locations had not yet been determined. No budgetary request had been submitted to the U.S. Congress for FY 1964 for these facilities.

The External Affairs Member stated that, naturally, such an important change as was forecast by the proposed overall study would be of concern to Canada, and hence a question for inter-governmental consideration. The External Affairs Member also stressed the sensitivity which might arise from any premature publicity on either side regarding these matters which were, by agreement, for joint consultation.

The RCAF Member said that any substantial change or withdrawal of Air Defence facilities in the U.S.A. would have an effect on Air Defence installations in Canada since the network was so closely tied together. For this reason, when any change was contemplated unilaterally, the impact on the North American Air Defence system as a whole should be considered before any final decisions were made.

The USAF Member acknowledged the importance of Canadian-U.S. coordination on plans and programs and publicity concerning NORAD and believed adequate consultation between the USAF and RCAF was taking place in these matters.

The Board agreed that this was an important question and that it should remain on the Agenda.

244. J.G.D./XIV/D/17

Memorandum from Under-Secretary of State for External Affairs to Secretary of State for External Affairs

Secret

[Ottawa], February 7, 1963

Mr. Ritchie has just telephoned from Washington to inform us that a few minutes ago he had a telephone call from McGeorge Bundy, Special Assistant to the President, conveying the information that a clear and sharp instruction had gone out from the President that there was to be no comment on the Canada-U.S.A. controversy at any level of the U.S. Government, and that this silence was to be maintained throughout the Canadian election campaign. (Presumably this directive means that the President will decline comment on this subject at his press conference scheduled for 4 p.m. this afternoon.)

McGeorge Bundy also told Ritchie that the President knew nothing in advance about the State Department release of January 30 which triggered the current controversy. Bundy said “it was a case of stupidity and the stupidity was mine.”^{Footnote 46}

N.A. R[obertson]

245. PCO

Extract from Cabinet Conclusions

Secret

[Ottawa], February 8, 1963

Present

The Prime Minister (Mr. Diefenbaker) in the Chair,
The Secretary of State for External Affairs (Mr. Green),
The Minister of Justice (Mr. Fleming),
The Minister of Trade and Commerce (Mr. Hees),
The Minister of Transport (Mr. Balcer),
The Minister of Veterans Affairs (Mr. Churchill),
The Minister of Public Works (Mr. Fulton),
The Minister of Finance (Mr. Nowlan),
The Postmaster General (Mrs. Fairclough),
The Minister of Labour (Mr. Starr),
The Minister of National Health and Welfare (Mr. Monteith),
The Minister of Agriculture (Mr. Hamilton),
The Minister of Defence Production (Mr. O’Hurley),
The Associate Minister of National Defence (Mr. Sévigny),
The Minister of Forestry and Minister of National Revenue (Mr. Flemming),
The Minister of Northern Affairs and National Resources (Mr. Dinsdale),
The Secretary of State (Mr. Halpenny)
The Minister of Mines and Technical Surveys (Mr. Martineau),
The Minister of Citizenship and Immigration (Mr. Bell),
The Minister without Portfolio (Senator McCutcheon).
The Secretary to the Cabinet (Mr. Bryce),
The Assistant Secretaries to the Cabinet (Dr. Hodgson), (Mr. Watters).

…

Nuclear Weapons Policy

The Minister without Portfolio said it would be useful if the Secretary of State for External Affairs would report on the status of negotiations with the United States on the subject of nuclear weapons.
The Secretary of State for External Affairs said that the situation had not changed since his last report to the Cabinet on the subject. While he and the former Minister of National Defence were in Paris recently they had discussed it with the U.S. Secretaries of State and Defence who had indicated that the proposed arrangement would be acceptable to the United States if the details could be worked out satisfactorily. Later, the U.S. Minister in Ottawa had handed an Aide Mémoire to officials of the Department of External Affairs but had been persuaded to withdraw it. Subsequently, the Aide Mémoire had been accepted by the Canadian Government. It indicated that the U.S. government would not be prepared to enter into an arrangement including the storage in the U.S. of the nuclear warheads for possible use by Canada. Notwithstanding this, one paragraph in the Aide Mémoire had indicated that the U.S. was prepared to continue negotiations.
During the discussionthe following points were raised:
1. The Prime Minister, in his recent policy statement in the House of Commons,^{Footnote 47} had expressed the hope that the negotiations would continue and would achieve success. The government should negotiate actively, because the public would be watching with particular interest for signs of progress.
2. The Associate Minister of National Defence said that the government should inform the public that announcements would be made in due course on the progress of negotiations. The crux of the matter was to state that the agreement would make clear that title to the nuclear weapons would never pass to Canada although such weapons might be used by Canada under conditions of emergency or actual battle. This would make it clear that Canada would not become a nuclear power and would not acquire these weapons in peacetime. This would be so even though the warheads are brought on to Canadian soil. The “little key” idea – keeping a vital component of the warhead in the U.S.A. – cannot be worked. The public would recognize that circumstances are different during actual hostilities.
3. Other Ministers said that such a proposal would involve a major change of policy and would in practice mean the storage of these weapons on Canadian soil.
4. Some said that the Chiefs of Staff were inclined to the view that an arrangement to withhold a key component of a nuclear weapon for purposes of control would not be feasible, because in an emergency the weapons would have to be activated in perhaps an hour. Others said that such an arrangement would be entirely realistic and that the Chairman of the Chiefs of Staff had so described it.
5. The whole matter of nuclear arms might have been kept out of party politics some time ago if a referendum had been held on it. This might have been desirable because the issue was one on which emotions ran high. Now, however, it was too late to treat the issue non-politically.
6. The Prime Minister said that his recent statement in the House of Commons had been made on the basis of prior agreement of the whole Cabinet. The government had stated that negotiations would continue. Others noted that it had also been said that it was expected they would be completed satisfactorily, and that under the agreement these weapons would be readily available in case of need. A change of policy at this time would be extremely unwise, and would be regarded as a capitulation to the U.S. The government should make no further statement at this time, but must continue the negotiations.
7. A group of Ministers had studied the agreements with the U.S. on F101 aircraft and Bomarc weapons, and had tentatively concluded that the government was under some degree of obligation to accept nuclear warheads for them. The question needed further and more careful examination. Some said that the agreement on the F101 aircraft clearly contemplated the possible use of conventional weapons.
8. Some said the Chiefs of Staff were applying pressure upon the government on this subject. Others said the Chiefs of Staff had merely offered their advice on the military aspect of the question.
9. Some said that the Canadian electorate should be told that the U.S. government wanted the nuclear weapons to be stored on Canadian soil. Others said that the policy of the U.S. government on this point was still classified as Top Secret and that it should not be disclosed by the Canadian government. Others said that in any case the question was one of basic principle and should not be made a political issue.
10. This important subject required further consideration by the Cabinet at an early date. To facilitate this discussion a paper should be prepared, outlining the whole course of the negotiations with the U.S.
The Cabinet agreed that the Secretary of State for External Affairs would produce a memorandum as soon as possible for consideration by the Cabinet, reporting upon the whole course of the negotiations with the United States on nuclear weapons for Canadian forces in Canada and elsewhere and for U.S. forces in Canada.

R.B. Bryce

Secretary to the Cabinet

246. DEA/50210-H-40

Secretary of State for External Affairs to Ambassador in United States

Top Secret

Ottawa, February 13, 1963

Dear Charles [Ritchie],

As you know, negotiations took place in November and December last with a team of American experts who came twice to Ottawa for the purpose of developing a mutually satisfactory arrangement under which nuclear warheads for the Bomarcs and CF-101s would be held on bases in the United States available for use by the RCAF on request of the Canadian Government when war appears imminent. So that you may be fully familiar with the stage at which these negotiations had arrived on December 4, 1962, when the negotiating teams last met in Ottawa, I am attaching a copy of a memorandum dated December 8. You will note that by using the “missing part” approach and a normal complement of loading crews at sites in Canada, it had proved possible to devise arrangements which would enable both the Bomarcs and the CF-101s to be armed with their nuclear warheads in well under three hours, the likely warning time of any bomber attack on this continent.

At a meeting in Paris last December with Mr. Rusk and Mr. McNamara, in which I participated along with the former Minister of National Defence, the American Ministers indicated that they were prepared to work out with the Canadian Government a stand-by arrangement for the nuclear arming of the Bomarcs and CF-101s in case of need. There was no suggestion at the time that the “missing part” proposal was incapable of meeting the requirements of effective defence. Nevertheless, in mid-January the United States Embassy in Ottawa left with the Department two aide mémoires (January 11 and January 15, copies attached) indicating that the proposal to airlift missing parts to Canada would be insufficient to meet operational needs, and counter-proposed that the missing parts in respect of both systems be stored in Canada under either United States or Canadian custody. At the same time, the aide mémoires confirmed the readiness of the United States authorities to continue the negotiations. Subsequently Mr. Rusk at his press conference on February 1 said in reply to questions, “These are matters which have been discussed with the Canadian Government in private talks and I would suppose that these private talks would be resumed.”^{Footnote 48}

The Canadian Government is ready to resume the talks. Although the previous channel of communications has been through the United States Embassy in Ottawa, I would prefer to have you take the next step in Washington in order that the Canadian Government’s views will be presented direct to the Secretary of State. For this purpose I am attaching the text of an aide mémoire given approval by Cabinet on February 12,† which you are to leave with Mr. Rusk and use in part as a guide in your oral remarks.

There may be a disposition on the part of the United States Government to postpone further negotiations until the Canadian elections are over on the ground that to proceed might have some bearing on the outcome, since nuclear policy has become an election issue. I think you might put it to Rusk that both sides are committed to a continuation of these talks and that any reluctance to resume them now might lead to further misunderstanding. In addition, of course, moving ahead as quickly as possible with these arrangements would demonstrate the concern of both Governments to meet continental defence requirements.

If Mr. Rusk should raise further outstanding questions relating to nuclear armament for Canadian forces in Europe or for United States forces in Canada, you should say that your instructions cover the subject matter of the aide mémoire only.

Yours sincerely,

[Howard C. Green]

247. DEA/50210-F-40

Chairman, Canadian Joint Staff in United States, to Chairman, Chiefs of Staff

Telegram JSW49

Washington, February 14, 1963

Secret

Canada–US Co-operation

Further to telephone conversation CCJS(W)/CCOS Wednesday 13 February, CCJS(W) made a 45 minute call today on Honourable Paul Nitze, Assistant Secretary of Defense (International Security Affairs). All current aspects of Canada-US cooperation were fully and frankly discussed and some interesting new information was revealed.
Mr. Nitze stated that on taking up his present position in Kennedy Administration matter of good Canada-US co-operation was number one priority in his estimation. He cited his own active participation in F104 programme in compensation for failure of CL44 programme.
It was Mr. Nitze’s belief that present Canada-US difficulties had become acute in US eyes following Paris meeting on 14 December 1962 of Messrs McNamara and Rusk with Messrs Harkness and Green at which point US authorities felt there would be no further satisfactory progress toward Canadian acceptance of nuclear weapons. Further he was of the opinion that US State Department statement of 30 January resulted directly from that part of Mr. Diefenbaker’s speech in House of Commons on 25 January referring to necessity of undertaking clarification of Canada’s role in NATO defence plans as result of Nassau communiqué. Mr. Nitze was firmly of impression that Prime Minister’s statement referred to paragraph 8 of Nassau communiqué rather than paragraph 6 wherein tactical nuclear forces are mentioned. It was surprise to him to realize that role of Canada F104Gs in Europe might possibly be altered by assignment to any NATO multilateral nuclear force.
Mr. Nitze had no personal knowledge of any request to Canada for large numbers of over-flights of SAC aircraft with nuclear weapons during Cuban crisis, as mentioned by columnist Marcus Childs in Washington Post on 13 February.^{Footnote 49} Mr. Nitze said he would find out about this situation and let me know in due course. On a visit to JCS immediately following my conversation with Mr. Nitze, JCS staff confirmed that they had no knowledge of request for additional over-flights.
On other unrelated matters Mr. Nitze confirmed speculation that Italy did not wish to commit herself for or against providing base facilities for three Polaris submarines until after Italian elections at end of April. With regard to Spain, he considered that it was very desirable militarily for Spain to join NATO but that there would probably be overriding political reasons against such steps at this time.
Generally Mr. Nitze appeared to be deeply concerned over the Canada-US rift and was most genial in offering to seek and report further facts. He stated that good relations between us were still of top priority in his estimation.

248. DEA/50210-H-40

Aide-mémoire by Embassy in United States

Top Secret

Washington, February 21, 1963

On January 11, the United States Embassy in Ottawa left with the Department of External Affairs an Aide-Mémoire setting out the replies of the United States Government to a number of questions which had been posed at the last meeting of officials on December 4, 1962. Clarification of certain points made in the U.S. Aide-Mémoire of January 11 was requested by the Canadian side. This was supplied in the further Aide-Mémoire of January 15, 1963. The following Canadian comments are offered in connection with both documents.

Reference has been made to the meetings between Canadian and United States Ministers in Paris on December 14, 1962, in terms which suggest that there may have been a Canadian misunderstanding as to the main U.S. preoccupation. The Canadian understanding of these talks was that the United States was prepared to work out with the Canadian Government a stand-by arrangement for the arming of the Bomarcs and CF-101s in case of need. There was no suggestion that the “missing part” proposal was incapable of meeting the requirements of effective defence.
The Aide-Mémoire of January 11 noted that if the “missing part” concept were to be applied, there was no practicable alternative to the umbilical cable or the ejector rack cartridge for the CF-101. The Canadian side is prepared to explore further the best means of reducing to a minimum the time required to make the CF-101 operational with the MB-1 missile. In respect of the Bomarc, the Canadian side understands that the use of the warhead arming plug would provide a practicable solution.
The Aide-Mémoire of January 15 asserted that the movement of missing parts to Canadian bases at a DEFCON level as low as four, while representing a considerable improvement in the operation of the “missing part” concept, would still be insufficient to meet an urgent and effective defence requirement. The latter was defined as “the ability to respond within likely time of any warning without running the risks of possible last-minute difficulties in moving missing parts to Canada in time of emergency.” The Canadian side has the following comments to offer in this connection.
1. A review of NORAD alerts shows that three times in the last six years NORAD has been placed on DEFCON-four alert in periods of sharply rising international tension (July 15 to August 2, 1958 – Lebanese crisis; May 1960 – U2 incident; October 1962 – Cuba crisis). On any of these occasions, which were not followed by immediate transition to higher states of alerts, the airlift of missing parts could in fact have been accomplished without encountering “last-minute difficulties in time of emergency.”
2. Both of the Canadian delivery systems are effective only against bomber attack and the object of the negotiations to date has been to find the most effective arrangement for arming the Canadian delivery systems in under three hours, the likely warning time for impending bomber attack. The proposals under consideration as of the December 4, 1962 meeting of the negotiating teams demonstrated that it is possible to be well within this warning time.
The U.S.A., in its Aide-Mémoire of January 15, has made a counter-proposal that essential missing parts be stored in Canada separately from the warhead, under either U.S.A. or Canadian custody. This counter-proposal fails to meet the Canadian objective of negotiating a stand-by arrangement which would not involve the storage on Canadian soil in peace-time of fully operational warheads.

It is noted from the Aide-Mémoire of January 15, that the United States Government had not thought of discontinuing the talks. On its side, the Canadian Government is ready to continue the negotiations.

249. DEA/50210-H-40

Ambassador in United States to Secretary of State for External Affairs

Top Secret

Washington, February 21, 1963

I saw Rusk by arrangement this afternoon and gave him the Aide Mémoire on nuclear weapons negotiations. I emphasized that on the Canadian side we felt that the talks so far had been making real progress toward agreement on the basis of the “missing parts” concept. As I understood it, the time element had been sufficiently narrowed to make the concept feasible and we had come close to agreement on what the particular missing parts might be. In putting forward the Aide Mémoire, the Government was in effect confirming its belief that the degree of progress already made warranted continuation of the talks.

After reading the memorandum and listening to my comments, Rusk said with some emphasis that it had not been the United States view that the Ottawa talks had been discontinued. Later he came back twice more to the same theme and said it was important that no impression be left that my interview with him represented some new development. I was able to assure him that there was no difference between the United States and Canadian positions on this score since one of the purposes of the Aide Mémoire was to state the Canadian Government’s readiness to continue the negotiations.

On the Aide Mémoire itself, Rusk said that they would study it very carefully and give us a reaction. He went on to say that, without anticipating their reply, he would like to make some comments to explain the United States position as it had developed up to the last United States Aide Mémoire on January 15. He explained that their preoccupation had been to reconcile the Canadian desire for a missing part solution with what they considered to be the requirements of operational efficiency in the probable circumstances of an emergency. He said that the time factor was a matter of very great importance as well as the “simplicity” of the arrangements. It was with these considerations in mind that he had sought, in talking to you in Paris, to suggest some arrangement whereby all the necessary equipment to make the weapons operational would be present in Canada, but the “conditions of non-operability” would be worked out “in Canada, by Canada.” He said that they had difficulty in seeing the difference between holding the missing part separately in Canada and having it on a stand-by basis somewhere in the United States. Their preference for having it in Canada was that there could be a significant time differential.

I pointed out that for the Canadian Government there was a considerable difference involved. If the missing part was on Canadian soil it would be virtually impossible for the Canadian Government to say that integrated nuclear weapons were not present in Canada. I said that you had been proceeding on the assumption that there was a basis for further discussion directed toward finding a mutually satisfactory arrangement under which the missing part would not be on Canadian soil. This had been your understanding of the basis of the Paris discussions.

Rusk stressed once again the importance attached by the United States side to an operationally efficient solution. Their technical experts had objected to the use of the umbilical cable for the Voodoo partly because of the time that would be taken in assembling it with the warhead and partly because there was increased danger of explosion if the umbilical cable were attached in other than normal conditions. I then pointed out that we did not exclude the ejector rack cartridge as an alternative to the umbilical cable. I went on to emphasize again that in the talks so far the arming time had been narrowed down to less than three hours and that in the Canadian view there was really not very far to go in reaching an agreement on the basis of the missing part concept which would be applicable to the warning time to be expected in all contingencies except a sudden all-out nuclear attack.

Rusk picked up a reference I made to the series of DEFCON stages and said that the trouble was that the movement through those stages could be extremely rapid since, as he put it, someone else was writing the scenario. He repeated that it was because of their concern over the timing aspect that he had tentatively suggested various ideas in Paris. Here he mentioned the leasing of a site in Canada to the United States and the possibility of putting a chain with two keys on the weapons. In putting forward these ideas he had been groping for an arrangement whereby (a) Canada could accurately contend that it did not have operational warheads on its soil in peacetime but (b) the weapons could be quickly transformed into full operational readiness in an emergency.

After undertaking again to study the whole matter, Rusk said that he wished to raise one related problem which he hoped would not arise but which he thought it desirable to mention. He said that in the next two months or so both the Canadian and United States Governments would be going through a sensitive period, in Canada because of the elections and in the United States because of the deep public interest in the problems confronting the Administration in the broad fields of foreign and strategic policy. He was sure that the Canadian Government would share the hope of the United States that nothing would arise to confuse issues within the Alliance or otherwise cause undesirable repercussions. He thought it only right to say that in view of the importance of avoiding misunderstandings, they would wish to feel free to clarify their own position in the unlikely event that any major confusion as to that position might develop. Rusk emphasized that he did not wish to anticipate difficulties, but explained that the necessity for public explanation of United States attitudes, in Congress and elsewhere, was so demanding that they would not wish to be precluded from clarifying where they stood if the need arose.

As I left there was a brief exchange on what might be said to the press. I explained that I was under instructions to make no comment, and Rusk agreed that nothing would be said from the State Department until there had been an opportunity for me to determine whether some brief statement could be authorized. Subsequently, as you know, it was possible to arrive at an agreed press line.

I am reporting separately on the part of the conversation which was devoted to Laos.^{Footnote 50}

[C.S.A. Ritchie]

250. J.G.D./MG01/XII/C/392

Memorandum by High Commissioner in United Kingdom

Confidential. Private.

[London], February 25, 1963

Nuclear Weapons

The Canadian agreements for the use of Nuclear Warheads were based upon military assumptions which were apparently sound in 1958 before the development of long range missiles had reached either the power or the range they have today. This applies equally to the Americans and the Russians.

The Bomarc was intended as a weapon only to be used from fixed bases for the destruction of long-range aircraft carrying nuclear bombs.

The reason for the use of nuclear warheads, instead of conventional warheads is that the nuclear warhead cooks the aircraft and the nuclear bomb and renders it harmless.

These bombs were not intended to be fired over enemy territory but with[in] Canada itself. When this plan was made there were to have been Bomarc bases right across Canada from coast to coast. The fact is that only two of these bases have been completed.

On the estimate of General Guy Simonds (generally recognized as the best soldier produced in the last war) these would not be effective more than one thousandth of one percent of the weapons for use for attack.^{Footnote 51}

This means that the present Bomarc bases are for all practical purposes – useless.

This development is the result of American and Russian skill in the improvement of nuclear weapons. This is the reality which always must be faced in the constant change of weapons year by year.

The Bomarc bases have become useless and millions of dollars of the taxpayers’ money would be thrown away for no purpose whatever if nuclear warheads were permitted for these two isolated bases.

It must be recognized that the limitation on the number of these bases is just as much the responsibility of the United States as it is of Canada.

No question of moral or contractual obligation arises. When weapons become obsolete any Government that has a sense of responsibility must take steps to stop acquiring those weapons. The honouring of a contract which would throw away Canadian money in the suggested fulfillment of an obligation which everyone knows would be nothing more than the purchase of obsolete hardware would not be moral responsibility.

Without elaborating, the same argument applies to the nuclear warheads for the Voodoo (101). If it is a correct assumption that the Russians would not be likely to use long-range bombers, then the meaning of the Voodoo is senseless, and a costly form of insanity.

Then we come to the situation in Europe. When Plan 70 was approved, the long-range missile had not reached its present power. It was thought that what has been described as a tactical nuclear force could be employed, first of all to destroy Russian intermediate missile bases, and also if necessary, to stem the tide of superior line forces.

In discussion on this subject with senior officials including Lord Mountbatten, I have recently found no officer of the opinion that there is such a thing as a [laissé blanc/left blank] nuclear war. They all agree that the moment anyone starts using nuclear weapons of any size then the balloon goes up.

If that is so, then whatever money we may have spent on aircraft in compliance with undertakings made during a period when the whole military concept was different, no longer applies today.

In my opinion, costly through the 104-Gs may have been, nothing can justify the manning of these aircraft with nuclear weapons unless one is prepared to accept the proposition that we are prepared to take our share in the possible beginning of a nuclear war.

I know that the situation now is that there are nuclear weapons which could be used.

We have fulfilled our part of the contract to the letter by providing the carrying aircraft which could use the nuclear warheads now in storage.

I think it goes beyond this. I think that we must recognize the change in the whole military picture and recognize that there is no longer any such thing as a tactical operation – from the ultimate strategic employment of the nuclear weapons.

This all leads to the urgent and compelling necessity for a re-examination of what the real concept of nuclear war really is, or shall we say the possibility of avoiding a nuclear war by deterrents.

President Kennedy talks about having only one finger on the button, and Lord Home has supported him in that statement.

The fact remains, however, that if the new American proposal for nuclear submarines with Polaris missiles, and surface ships, with Polaris missiles, as well as tactical forces in Europe, should be carried out, then it is obvious that if this force is to be effective at all there are many fingers on the trigger, and it is nonsense to talk about only one finger being on the button, because this applies to the long-range strategic weapons as compared to the conventional weapons.

Under these circumstances my contention would be that there should be no attempt to expand or justify our position under the contracts. It should be pointed out that just as in the past these contracts have become obsolete; the weapons have become obsolete; and we should not buy obsolete weapons to put into the junk pile.

G.A. D[rew]

251. DEA/50219-AL-2-40

High Commissioner in United Kingdom to Prime Minister

Personal and Confidential

[Ottawa], February 26, 1963

My dear John [Diefenbaker],

You will just be arriving in Ottawa about now,^{Footnote 52} and I hasten to send clippings of last night’s and today’s papers. I do think that the coverage was excellent. I am sure you realize that speeches are never reported in detail here the way they are in Canada, but it does seem to me that you got your main points over very clearly and that the photographs are excellent.

If there are any of these photographs you would like in their original form, do let me know. Because of the time that it takes to get them printed and their bulk in forwarding them, I would suggest that if there are some you wish for dispatch, you simply get the single copies which I can forward under hard cover and have them reproduced in Ottawa. I particularly like the photographs of Olive and yourself taken in the carriage because this is the first occasion when any Prime Minister of Canada has proceeded to Guildhall with our own RCMP escort in one of The Queen’s landaus.

As you know, after I had the opportunity to chat with Gordon Churchill last night following dinner, I dictated a memorandum to Marion setting out some views in regard to nuclear weapons. I went over them in detail with Gordon and he said that he was in entire agreement with my assessment of the situation:

The Bomarcs are only a very small fraction of the screen which was intended to be erected across Canada, and as Guy Simonds pointed out in his statement last week, would be almost 100% ineffective even if the Russians should engage in the supreme folly of sending a heavy bomber force over Canada to the United States;
The 101 (Voodoo) was designed to carry an anti-bomber nuclear weapon only intended to be used within Canada. Precisely the same argument applies to this as applies to the Bomarc. As Simonds pointed out, and after all he has been declared by Eisenhower and Alexander to be the best soldier we produced in the last war, it is unthinkable that with the development in the last two or three years of long-range intercontinental missiles of a power and accuracy not contemplated in 1958, at the time the tentative agreements were signed for the use of what are now obsolete weapons, the Russians would launch an attack with heavy bombers;
When the original decision was made under Plan 70 to equip what is described as a Tactical Force with nuclear warheads, the uncertainty of the long-range intercontinental missile still left some possibility of considering localized nuclear war. It was with this in mind that the 104-Gs were ordered with the idea of being ready to attack Russian missile sites near the frontier if they began an offensive, and on the other hand, having regard to their superior manpower, effectively disorganizing massed army formations. Both of these concepts have been rendered obsolete by events.

No senior officer to whom I have spoken in recent months has suggested for a moment that there is such a thing as a two-stage nuclear war. The explosion of a nuclear bomb discloses itself immediately by the formation of the cloud, and the moment this happens nobody is going to start asking themselves what kind of nuclear bomb it was. Obviously the balloon would then go up. Under these circumstances the agreements of 1958 have no sensible application.

The point I would like to make and to re-emphasize is that no question or morality or the fulfilment of contractual obligations is involved. The whole history of warfare, from the time that the Assyrians first started to use hardened iron spears several thousand years ago, has been one of constant improvement in destructive power of new weapons which have rendered obsolete those already employed. After all, we have had experience of this ourselves. The excellent 25-pounders of the last war which cost in excess of $100,000 apiece with their equipment, were sold for scrap for less than $200. The same applies to other weapons disposed of more recently. The same applies equally to nuclear weapons which it happens are the most expensive and most deadly yet devised.

Only today we have reports of the wide difference of opinion between Britain and the United States in regard to the surface ships to be manned by international crews.^{Footnote 53} Indicative of the unbending attitude of the President of the United States, I heard over the radio this morning that he had said last night in Washington that the Americans were not prepared to consider any other arrangement.^{Footnote 54}

Under all these circumstances I can only repeat my own belief that while in the first instance, if we had been in a position to carry out immediately the terms of Plan 70, we might have been under some obligation to take our share in a programme which is now obsolete, the scientific advances in the United States itself have rendered obsolete the whole concept covered by the 1958 agreement and we would only be buying at very large cost obsolete hardware now ready for the junk pile.

I can’t begin to tell you how much Fiorenza and I enjoyed the opportunity, in between all the other events, to chat with Olive and yourself privately, and to learn more of what actually has been happening in the strange sequence of events at home.

All of the best.

Yours ever,

George Drew

252. DEA/50210-H-40

Minister, Embassy in United States to Head, Defence Liaison (1) Division

Secret

Washington, March 15, 1963

Dear Arthur [Menzies]:

Reduction of North American Air Defence Facilities

You will recall that at the last PJBD meeting the USAF Member referred to the intention of the United States defence authorities to phase out soft SAGE detection centres and prime radar locations which would be redundant to the needs of a modified system. According to the Journal prepared after the meeting, the USAF Member reported that six direction centres and seventeen prime radar sites in the United States would be affected although their locations had not yet been determined. It was agreed that consultations between the USAF and RCAF on this problem would continue.

You will be interested to know that late last week the Air Member at the Canadian Joint Staff, Air Commodore Newsome, was informed by the USAF that a decision had been taken by the Defence authorities to close out some time around August or September 1963 SAGE detection centres at the following locations:

Spokane
Grand Forks
Minot
Sault Ste Marie (Michigan)
Syracuse
San Francisco

In addition to the fact that one of these stations is located right on the Canadian border, five of them are manned by both Canadian and United States personnel. The Air Member also learned that it was the intention of the United States defence authorities to issue a press release on Friday, March 8, concerning the closing down of these stations. In addition it was planned to send letters to Congressmen representing the constituencies where these sites are located.

On receipt of this information, the Air Member had discussions with USAF authorities the result of which was that they decided to modify their proposed press release so that mention would be made only of [the] two stations at Grand Forks and Minot. The USAF also indicated their intention to play the press release in a “minor key.” At the same time, they made it clear that it would be necessary to follow the usual procedure of sending letters to Congressmen concerned.

Attached for your information is a copy of the telegram sent by the Air Member to Air Defence Headquarters in Ottawa which contains text of the press release which was issued on March 8.† A copy of the letter sent to Congressmen in the areas affected is also attached.†

As far as we can determine the press release has not been picked up by any of the local papers nor have any enquiries been made of the Joint Staff or the Pentagon by the Canadian press here.

The State Department were unaware until the eleventh hour of what was afoot. When Carlson learned from us what was going on, he was able to persuade the USAF to delete the word “rapid” from the last paragraph of the press release.

Since Air Commodore Newsome passed us this information on a personal basis, I would be grateful if you could restrict the distribution to Ross Campbell and others directly concerned with this problem.

All good wishes.

Yours sincerely,

H.B. Robinson

Section B - Defence Production Sharing

253. DEA/50210-G-1-40

Memorandum by Counsellor, Embassy in United States

Confidential

[Washington], January 17, 1962

Meeting of Canada-United States Senior Policy Committee on Defence Production Sharing
Key West, Florida, January 12, 1962

On Friday, January 12, as had been previously agreed with the Department, I attended the meeting of the Senior Policy Committee on Production Sharing at Key West. A copy of the Agenda of the meeting is attached. It is assumed that the Department has copies of other background documents for this meeting.

The Canadian group was led by Mr. D.A. Golden, Deputy Minister, Department of Defence Production. He was assisted by officials of his own Department, including his Assistant Deputy Minister, Mr. W.H. Huck, and his representative in Washington, Mr. J.A. Teeter. Representatives of other departments concerned in Ottawa were also present. The American group was led by the Honourable Thomas D. Morris, Assistant Secretary of Defence (Installations and Logistics). He was supported by the Assistant Secretary of the Navy (I and L), the Honourable Mr. K.E. BeLieu, and other officials of OSD and the Departments of the Army, Navy and Air Force.
As in the past, a detailed report of the meeting will be prepared and made available to the Department. Meanwhile, the following is a résumé of the highlights of the meeting.
The meeting ran very smoothly and it was quite evident that there is excellent rapport between the two sides. Both sides considered the meeting to have been a “good one.” From my own personal experience there was a marked contrast between this meeting and an earlier one I attended in 1960. At that time, of course, the groundwork was still being laid and difficulties had to be ironed out. This process is now largely complete, or in hand, and it appears that the stage has been reached wherein the main problem is to keep up the momentum. There would seem to be no doubt about the sincerity and concern of the United States officials involved to accomplish this.
In their report, the United States side drew attention to the fact that the amount of United States defence business placed in Canada since the inception of the scheme in 1959 has risen from 96.2 million dollars in that year to a total of 140.8 million in 1961. Other statistics indicating an upsurge of United States defence business in Canada were alluded to including the following: In 1961, 830 prime contracts were awarded in Canada as against 283 in 1959 and 1110 sub-contracts in 1961 as against 365 in 1959. This upward trend of United States business was emphasized in the United States Progress Report and was an obvious source of satisfaction to United States representatives as indeed it was to Canadian representatives. At the same time, the United States representative called attention to the fact that statistics on Canadian defence business placed in the United States were more in the nature of a plane than an incline or a decline. Thus, in 1959, Canadian defence business placed in the United States amounted to 108.2 million dollars and in 1961 it was 95.6 million dollars. (Incidentally the F104 component of the “swap deal” is considered as part of the production sharing programme but it is not included in the 1961 figures.) In 1960, however, the amount was 196.5 million dollars and as Mr. Golden pointed out, this represented roughly 30% of total Canadian defence procurement. The large increase was occasioned by “one shot” purchases of transport aircraft and helicopters. In reply to United States comparison of the trends of United States and Canadian procurement, Mr. Golden contended that it was difficult to draw conclusions from a three-year period as to the probable level of Canadian procurement. Five or six years would, he thought, give a better indication of likely levels.
The impression conveyed was that the United States was highly satisfied with the results of the programme to date, with just a hint that a comparison of trends of United States business in Canada and of Canadian defence business in the United States placed the former in more favourable light. However, Mr. Golden’s point that a longer period should be allowed to pass by before drawing conclusions was not denied. At the same time, Mr. Golden also drew attention to the fact that the production sharing programme was one element in the Canadian Government’s decision to allow TCA’s procurement of DC8Fs in the United States over CL44s in Canada. This was not Canadian defence procurement in the United States, as such, though, in a sense, it was on the periphery, in that it was influenced by the defence production programme. Mr. Golden also took the opportunity to comment on the view which seemed to be held by some members of the United States Congress that Canada only bought in the United States what it could not make itself. This was a complete misconception; Canada could make virtually everything it needed in defence though, admittedly, it would take longer and cost more in many cases for Canada to do so. The defence production programme was premised rather, as United States representatives were aware, on a desire not merely to share defence production but to channel it to sources where it could be best handled.
Mr. Golden also mentioned that it was the Canadian feeling that United States contracts to Canadian companies came from two main areas. (a) Where the Canadian company was the best or only source e.g., Caribou aircraft and Pratt and Whitney spares. (b) From companies over which Canada had some influence in view of the fact that they had subsidiaries in Canada or that they held large Canadian defence orders e.g. Boeing and Lockheed. Mr. Golden hoped, in order to be completely successful, that the programme might come to apply to companies not falling in the above categories and that there might also be progress in development sharing and, in particular, jointly financed development by the United States and Canada. Mr. Bannerman, Mr. Morris’ Deputy, commented that Canadian companies had been doing a good job of selling in the United States and that he believed for the most part contracts arose from competitive bidding. In connection with this problem, Mr. Morris proposed that an analysis be made of the 1961 programme in order to ascertain what defence business was really attributable to the defence production sharing programme and what business would in any event have found its way to Canadian companies. Mr. Golden welcomed this proposal.
A Canadian representative emphasized that the success of the programme depended on a capability in Canada which, in turn, depended upon sharing in the development field. Looking to the future, this was one distinct weakness in the progress which had been made, from a Canadian point of view. Mr. BeLieu said that the United States supported in principle the idea of research and development sharing. The representatives of the three United States services emphasized their willingness to move forward on this aspect of the programme and there was a good deal of detailed discussion of ways and means of facilitating this. It was agreed that it would be useful for Canada to outline areas of interest and capability in the field of research and development as a guide to the United States.
There was a brief report on the DDP/USAF Aeronautical Systems Division and Electronics Systems Division Working Groups indicating satisfactory progress in both areas.
In a new departure, a substantial portion of the meeting was devoted to a detailed exchange of views on specific aspects of defence procurement. It was agreed that this portion of the discussion had been helpful for both sides and that it should be continued at the next meeting.
Mr. Golden suggested that the next meeting be held at a place and date in Canada to be decided.

J.S. Nutt

[Enclosure]

Agenda

Introductory remarks - (Secretary Morris, Minister Golden)
Progress reports on
1. Production Sharing - (Mr. Bannerman, Canadian response)
2. Development Sharing - (Mr. Huck and Mr. Orr, U.S. response)
ASD and ESD Working Group progress - (USAF)
Mutual procurement problem areas
1. Use of contract types as incentive to cost reduction - (Admiral Beardsley)
  1. R&D contracting - (Admiral Beardsley)
  2. Value analysis engineering - (Capt. Barker)
2. Allowability of R&D cost and overhead - (Mr. Racusin)
3. Principles governing provision of GFE - (Canada).
Briefing on Key West Base Mission.
Other business.

254. DEA/50210-G-1-40

Memorandum from Assistant Under-Secretary of State for External Affairs to Under-Secretary of State for External Affairs

Confidential

[Ottawa], August 28, 1962

McNamara Directives

As you know, Cabinet has authorized Mr. O’Hurley to go to Washington to take up with Mr. McNamara the question of exempting Canada-U.S. defence production sharing contracts from the effects of the McNamara directives.^{Footnote 55} Through DDP channels, the Embassy in Washington has been asked to make the necessary appointments with Gilpatric and McNamara for Messrs. O’Hurley and Hunter for the week of September 17.

After discussing the matter with Mr. Ritchie, Mr. Robinson telephoned this morning to ask that we bring informally to the attention of Mr. Hunter the following considerations which might influence Mr. O’Hurley’s decision to go to Washington:
1. Even by September 17, it is unlikely that Mr. McNamara will be able to give any firm assurance concerning U.S. defence procurement in Canada, as the application of the directives generally and to Canada in particular is being most thoroughly studied and no conclusion will have been reached within the next two weeks.
2. So far, the discussions have been strictly on a technical level. To raise them to the ministerial level might give McNamara an opportunity to broaden the discussions, e.g. to weapons policy.
3. It might be better to have a preliminary round of discussions at the deputy minister level, rather than play our biggest card at ministerial level too soon.
4. The visit, if it takes place in the week of September 17, will come hard on the heels of UK-US talks. Mr. Thorneycroft, accompanied by a large staff, is paying his first visit to Washington from September 11 to 16 inclusive, during which the whole field of defence and defence production cooperation between the two countries will be covered. The atmosphere is likely to be highly cooperative and might not form the most suitable background for the kind of representations we wish to make.
5. The O’Hurley visit will coincide with a visit by Mr. Fleming, September 16 to 22.
6. Whatever the decision on the ministerial visit, Mr. Ritchie thinks that the State Department should be kept informally in the picture, even though no Note is to be delivered. Mr. Ritchie believes that it would be in our interests to have the State Department able to defend Canadian interests in interdepartmental discussions in Washington by being able to invoke wider considerations such as Canadian balance of payments problems, Canada-U.S. relations, etc.
I have spoken along the foregoing lines to Mr. Hunter, who is going to have a word with Mr. O’Hurley. Hunter did not, however, think that it would change Mr. O’Hurley’s decision to take this matter up as soon as possible direct with Mr. McNamara.

R[oss] C[ampbell]

255. DEA/50210-G-1-40

Secretary of State for External Affairs to Ambassador in United States

Telegram DL-1348

[Ottawa], September 14, 1962

Confidential. OpImmediate.

Repeat for Information: DM/DND, T&C Ottawa.

Instructions of USA Secretary of Defense Relative to Balance of Payments Problems

We are setting out below the text of an extract from the journal of the recent PJBD meeting^{Footnote 56} recording a discussion on this subject. Canadian officials at present attending Bank and Fund meetings in Washington will be particularly interested in the comments of the State Department member on Canadian surcharges on imports.

Text Begins:

Progress Reports (Secret)
The Service Members submitted progress reports which were read with interest by the Board. The following comments were also offered with regard to the Defense Production Sharing Program and the F104G Program:
1. Instructions of the Secretary of Defense Relative to the Balance of Payments Problem
  (Confidential)
  The Canadian Chairman referred to the Joint Production Sharing Program Report, and indicated that he had a statement to make on this general question.
  The Canadian Chairman recalled that the Defense Production Sharing Program, which would soon have been in effect for almost four years, was agreed upon and implemented by both the U.S. and Canadian Governments in recognition of changing defense conditions and the increasing cooperation of the Canadian and U.S. military forces for North American defense. The Board, he noted, had endorsed the principles of the program and had followed its progress with interest. Continuing satisfactory progress was reflected in the current report to the Board on defense production sharing and it was the belief of the Canadian Section that the program held out even more promise for the future. The Canadian Chairman went on to say that, since one of the achievements of the program had been to orient Canadian defense and industrial development and production toward U.S. requirements, the Canadian government was now concerned over the possible effects of including Canada in the directives issued by the U.S. Secretary of Defense, with regard to the matter of balance of payments, on July 17, 1962 and as amended on August 11, 1962. The Canadian Chairman believed it was difficult to predict the full implication that the instructions of the U.S. Secretary of Defense, concerning procurement outside the U.S., would have for the delicately poised Defense Production Sharing Program. However, it was clear that any indication of U.S. intention not to continue fully to support the program would have a serious effect on the attitude of U.S. production and procurement officials and on the joint objective of a Canada-U.S. climate conducive to long term cooperation for defense. Therefore, the Canadian Section was concerned that much of the effort in Canada and in the U.S. to establish long range cooperation and acceptance of the defense production sharing philosophy might be undone unless there was a firm confirmation to U.S. officials of U.S. Government support.
  The Canadian Department of Defence Production, the Canadian Chairman stated, through its normal production sharing channels, was seeking further information from, and making representations to, the U.S. Department of Defense with a view to having high level discussions to insure that the mutual Defense Production Sharing Program were not adversely affected.
  The Department of Defence Production representative noted that there would be a meeting in Canada of the Senior Policy Committee of the program on October 4-5, 1962 and that the Department of Defence Production had proposed that the implications of the directives of the Secretary of Defense on the Defense Production Sharing Program be placed on the agenda. Canadian officials, he said, believed this would be a useful occasion upon which to examine this matter thoroughly.
  The U.S. Chairman replied that he had listened to the Canadian Chairman’s presentation with very great interest and indicated that the U.S. Section was very well aware of Canada’s concern on this important program. The U.S. Chairman went on to say, however, that since it appeared that the Minister of Defence Production, Mr. O’Hurley, would be meeting with the Secretary of Defense or the Deputy Secretary of Defense within the next two or three weeks, it would appear inappropriate for the Board to go into this matter in great detail. Nevertheless, the U.S. Chairman recognized that a great deal of effort had been put into the Production Sharing Program and that he thought it certain that it would not be considered lightly when examined within the context of the U.S. balance of payments problem. He restated the thought that one of the purposes of the Board was to examine what could be done to maximize joint U.S.-Canada defense and pointed out that the Board had previously discussed the possibility of maintaining the Canadian industrial base toward this purpose and for the most efficient utilization of the resources of the two countries toward defense purposes.
  The U.S. Chairman believed it appropriate, nevertheless, to point out that the U.S. was faced with a real problem in the matter of balance of payments and of the share of the economic burden being carried by the U.S. for the security of the alliance. Gold and other reserves continued to be in negative account, U.S. military costs were increasing all around the world, and a tendency had been noted that the notion was spreading that the U.S. could always in the last analysis bear these burdens. The fact of the matter was, he said, that the U.S. could not carry the entire economic burden by itself, and it was therefore investigating which items of expenditures were of a higher priority than others. The people, as well as the officials, of the U.S. knew very well that their interests were inextricably entwined with those of our closest allies – Canada, United Kingdom, etc. The U.S. Government understood the unique position of Canada in these matters and there was an obvious sincere interest in having Canada maintain a prosperous economy. In other words, the U.S. Chairman stated, the basic situation with regard to our joint efforts had not changed despite the examination of these various priorities, and, with certain caveats, application of any new regulations would probably not be uniform. He thereupon asked the U.S. Air Force Member for any comment on behalf of the Department of Defense.
  The USAF member reported that he was not empowered to engage in specifics; however, he did not anticipate that there would be any change in the F104G program. He felt he should emphasize nevertheless, that a very serious effort was being made to staunch the flow of U.S. gold and U.S. reserves. So far, he continued, the Secretary of Defense directives had not affected Canada. However, the USAF member stated that he was not in a position to comment further on any Canadian “letters of intent” on the F104G program. It was his hope that the proposed visit of Defence Production Minister O’Hurley to Washington would clarify the general question of Defence Production Sharing.
  The Canadian Chairman thanked the USAF member for his remarks and took advantage of the occasion to say that he could not help but indicate once again the great interest of the Canadian Government in the future of the Defense Production Sharing Program. It was an essential element in the defense relations between the two countries and had resulted in a more or less equal procurement expenditure on both sides of the border. It would be very difficult for Canada to contribute to North American defense if heavy procurement in the U.S. could not be maintained, or if the industrial base in Canada were not to continue to operate at the present level. The Canadian Chairman emphasized that the whole spirit of defense cooperation between the two countries was being brought into question. The Defense Production Sharing Program, it was a view of the Canadian Section, had always been recognized as being desirable to the U.S. and Canada and this was one of the reasons why it had been so closely followed at all recent meetings of the Board. This was the reason for the immediate Canadian concern when word was received of the Secretary of Defense recent directives regarding U.S. expenditures abroad. The Canadian Section was also worried as to the effect the issuance of these directives might have on the officials of U.S. procurement agencies. However, the Canadian Chairman agreed that at this time other officials should probably weigh these matters and said that the Canadian Section merely wished to register its concern on this general question and to express the hope that proper consideration would be given to it.
  The Department of Defence Production Representative said he thought it would be a mistake if the Defense Production Sharing Program were to be overshadowed by other problems confronting the U.S. Department of Defense and he expressed the hope that no unilateral action be taken by the U.S. Department of Defense and that the Canadian authorities have the opportunity to examine the program thoroughly with the appropriate U.S. officials. He added that, for Canada, its part of the Defense Production Sharing Program had to be systematized and could not be subjected to rapid, interim alteration without serious economic repercussions for Canada. To date, existing channels of communications had offered the possibility of adjusting problems, in this regard, as they arose between the two countries. He expressed the hope that the Board would continue to support the program.
  The U.S. Chairman indicated that naturally what was of concern to Canada was of concern to the U.S., and vice versa, and in this connection asked the Department of State member if he would review the general balance of payments situation as it had developed for the U.S. in recent years.
  The Department of State member recalled that the U.S. had seriously approached the question in the period of the first ten years after World War II of how a creditor nation could best assist debtor nations. This had led to concessions having been made by the U.S. in the trade field and in military expenditures abroad. The U.S. had also encouraged the export of private capital to foreign countries. However, a new economic world had appeared more recently and the U.S. had developed a substantial adverse balance of payments. The U.S. had been losing gold and other reserves at a very serious rate. Certain alternatives had presented themselves as how best to cope with this situation and included in these were an export expansion program. This program had been pushed vigorously. At the same time the U.S. had decided not to attempt to reduce imports by restrictive action, since to do so might very well damage the U.S. economy as well as those of allied and friendly countries. The U.S. had therefore resisted protectionism on a general basis. In expanding further on this topic, the Department of State member noted that U.S. exports and imports were reasonably balanced but that the balance of payments problem presented itself in two particular areas – the U.S. foreign economic aid program and U.S. military expenditures abroad. Both these areas involved important policy questions. Policies were designed to assist economically under-developed regions and to provide political benefit and military security for the free world. The U.S. Government had concluded that it would be best not to cut its foreign aid program, but it had concentrated on persuading other nations to increase their own economic aid programs to less developed nations. Generally, these countries had responded to U.S. urgings in this regard, but it was impossible sharply to reduce U.S. foreign aid appropriations. U.S. military expenditures abroad were so large that it was inevitable that the U.S. Government would eventually have to scrutinize them in the hope that they could be reduced or eliminated without causing damage to the objectives of the security programs in support of which the expenditures were made.
  The Department of State Member went on to say that he thought he would be less than candid if he did not touch on another element which was troubling officials in Washington with regard to the general question of balance of payments. This was the Canadian surcharges on imports which had been imposed by the Canadian Government in an effort to solve its own balance of payments problem.^{Footnote 57} These surcharges had occasioned very definite reactions within the U.S. business community. U.S. Government officials were being asked when these surcharges were expected to be removed, what was their justification under GATT, and whether the U.S. Government had been consulted with regard to their imposition. The Department of State Member said that he was unaware of any connection between surcharges and the Defense Production Sharing Program, but nevertheless noted that the Canadian surcharges could possibly be considered as unilateral action taken by one country affecting the other. The surcharge problem would come up in October at the GATT meeting, because no government would want to have its economic policies impaired by unilateral action on the part of the other country except in accordance with the provisions of GATT.
  The Canadian Chairman thanked the Department of State Member for his review of the overall situation and agreed that balance of payments problems tended to give rise to unfortunate dislocations. He believed he should note, however, that the U.S. was facing a threatened problem but that Canada was faced with the most urgent one. Canada had been forced to act quickly to meet an immediate need. The point the Canadian Section wished to make was that the U.S. balance of payments problem should not affect the Defense Production Sharing Program. It was important that the Canadian industrial base be maintained if the defense efforts of both countries were best to be served. The Defense Production Sharing Program had kept a substantial portion of the Canadian Defense industrial establishment alive. In addition, the program had helped lessen the strain on Canada’s balance of payments, but it seemed to him that the principal interest in this program was from the defense viewpoint. The Canadian authorities would certainly be prepared to discuss with the Secretary of Defense and the Senior Policy Committee the proposition that it would be much more difficult for Canada to contribute significantly to joint defense if its defense industry could not be maintained on an effective scale.
  The U.S. Chairman reiterated his appreciation of the Canadian Government’s position and of the inevitable inter-dependence of the two countries in the field of defense as well as in other matters. The U.S. was faced with a serious problem, but it was certainly hoped that important decisions affecting mutual defense relationships would not be taken without the most serious consideration of them.
  Text Ends.

256. DEA/50210-G-1-40

Memorandum from Deputy Minister of National Defence to Minister of National Defence

Confidential

[Ottawa], October 6, 1962

You might find it helpful to have on paper the substance of the information I gave you yesterday concerning the Defence Production Sharing Meeting.
During the last few weeks Mr. Hunter and Mr. Huck of the Department of Defence Production had some consultations with senior officers in Washington, up to the level of Mr. Gilpatric, who saw them for about fifteen minutes, on the question of the application to Canada of the Secretary of Defence Directives on balance of payments. Canadian officials felt on the basis of these discussions that there would not be too much difficulty in getting agreement that these Directives would not apply to Canada. It was intended to pursue this matter further during the Production Sharing Meeting and one of the items included on the agenda was the “Secretary’s Directives.” Mr. Morris, Assistant Secretary of Defense (Installations & Logistics), who is senior U.S. representative for production sharing, asked that a small group meet on Thursday evening before the main Production Sharing Meeting to discuss the question of this item being on the agenda.
This was agreed and the Honourable Mr. Morris, the Honourable Paul Ignatius, Assistant Secretary of the Army (Installations & Logistics) and Mr. Graeme Bannerman, Deputy Assistant Secretary of Defense (Procurement) met with Mr. Hunter, Mr. Huck and Mr. Teeter of DDP, Mr. Steele and myself on Thursday evening. In the course of the meeting the Honourable Mr. Morris said that he had been authorized by his seniors to read on an informal basis to the Canadian representatives an aide mémoire which he had with him. This was preceded by an explanation that they had made studies of some fifteen countries in relation to their defence balance of payments problem. Mr. Morris was not in a position to leave a copy of the memorandum with us but the following covers the substance of it, including some explanations that came out in the course of the discussion:
The U.S. balance of payments deficit with Canada on defence account currently was $240,000,000 a year which was the largest of all the countries examined. Canada had recently reduced its defence expenditures by approximately 5% and would not meet 1963 force goals by reason of the early withdrawal of the four CF-100 all-weather squadrons from the Air Division. In terms of the percentage of defence expenditures to Gross National Product, Canada’s ratio was 4.8% against 7% for the U.K. and France. While Germany’s ratio was 4.2%, the expectations were that Germany’s would go up whereas Canada’s appeared to be going down. Canada had a lower ratio of numbers in the forces to the population than almost any other NATO country. Canada also did not compare favourably, to the U.K. for example, on the basis of defence expenditures to per capita GNP. The size of defence effort as measured by this method suggested Canada would have to increase $400,000,000 to $500,000,000 to be comparable to the UK. In 1964 it appeared that Canada would not meet its NATO force goals by two submarines, four destroyers and eight maritime aircraft. With respect to NORAD, Canada was providing five interceptor squadrons against a NORAD plan that called for nine. Inadequate weaponry was provided for both the Bomarc and the interceptor squadrons in Canada.
Mr. Norris said that these considerations were outside the area of the responsibilities of the American officials present. It was agreed that there would be no point in pursuing this question on the agenda of the Defence Production Sharing Meeting.
The Canadian officials took the opportunity, in the course of the stay in Halifax, to explain to the American officials who attended the informal meeting some of the facts relating to Canada’s own balance of payments problem and the recent reductions in defence estimates, as well as the force goals accepted by Canada. Mr. Teeter, who is the Department of Defence Production’s representative in Washington, hopes to obtain a more precise record of the memorandum that Mr. Morris had and pass it on to Mr. Hunter at the beginning of the week. I have arranged that he is to give you a copy. The officials of other departments who are aware of the above and will be briefing their Ministers are Mr. Hunter of the Department of Defence Production, Mr. Steele of the Department of Finance and Mr. Menzies of External. I have briefed Mr. MacNeill to put him in a position to deal with any interdepartmental discussions that might arise in my absence. It was difficult to get any real feel for what all this might mean with respect to the impact of the McNamara Directives on the Defence Production Sharing Program but it seemed to me the Americans did not expect any at the moment. My impression was that the American officials used this method to explain why it had not been possible to get an early decision, which might have been expected from the tone of the earlier discussions with Mr. Hunter and Mr. Huck, and to inform us of the nature of the considerations that would be in the Secretary’s mind when discussions took place with him. The American officials obviously did not expect or want any immediate response from the Canadian officials who attended these discussions. They were laying the groundwork for any subsequent discussions at Secretary McNamara’s level.

E.B. Armstrong

257. DEA/50210-G-1-40

Memorandum from Secretary of State for External Affairs to Prime Minister

Secret

[Ottawa], October 12, 1962

Canada-U.S. Production Sharing Programme: Attitude of U.S. Secretary of Defense

You will recall that at its meeting of August 22, Cabinet considered the possible effects of Secretary McNamara’s foreign exchange conserving directives on the Canada-U.S. programme for production sharing and concluded that:

the Deputy Minister of Defence Production should write to his American opposite number;
I should make oral representations to Mr. Rusk during his visit to Ottawa but that a draft Note which had been prepared should not be sent;
the Minister of Defence Production should make further oral representations to the U.S. Secretary of Defense.

Officials in the Department of Defence Production, who have had a number of informal discussions with U.S. Department of Defence officials, thought that it would be well to determine the attitude to be taken by the U.S. delegation at the Senior Production Sharing Meeting in Halifax, October 4-5, before Mr. O’Hurley went to Washington. The subject of the McNamara Directives was, therefore, included on the agenda of this meeting.

When Mr. Tom Morris, Assistant Secretary of Defense (Installations and Logistics), went to clear the exclusion of the Canada-U.S. Research and Development Programme from the application of the McNamara Directives with the Secretary of Defense on September 29, Mr. McNamara said that he would not grant a blanket waiver to Canada except where mutual financing arrangements had been made. The Americans, therefore, asked that the subject of the McNamara Directives be dropped from the agenda of the Halifax meeting and requested a small informal meeting in advance at which they might discuss Mr. McNamara’s views.

The small informal meeting was held in Halifax on the night of October 4 and attended on the Canadian side by Mr. Gordon Hunter, Deputy Minister of Defence Production; Mr. Elgin Armstrong, Deputy Minister of National Defence; Mr. E. Steele, Secretary of the Treasury Board; Mr. W. Huck, Assistant Deputy Minister of Defence Production and Mr. John Teeter, DDP Attaché in Washington. On the American side the meeting was attended by Mr. Morris, Mr. Paul Ignatius, Assistant Secretary of the Army (Installations and Logistics) and Mr. Graeme Bannerman, Deputy Assistant Secretary of Defense (Procurement).

At this meeting Mr. Morris read from a memorandum which had the approval of Secretary McNamara. The memorandum stated that the United States balance of payments problem had been exacerbated by defence expenditures overseas. Studies were being made in the office of the Secretary of Defense of U.S. defence expenditures in about fifteen countries and Canada had to be considered along with them. In deciding the application of the foreign exchange conserving directives to Canada, the following considerations would be taken into account:

Canada has a favourable defence balance of $240 million annually with the United States;
Certain countries, including Canada, have not made their fullest contribution to NATO, e.g., Canada had withdrawn four CF-100 squadrons a year earlier than programmed. The U.S. assessment was that Canada would be short its force goal in 1964 by two submarines, four destroyers and eight maritime aircraft;
The Canadian contribution to NORAD was short four squadrons of the nine promised. Furthermore, nuclear warheads had not been placed on the BOMARC missiles and nuclear bombs are not being brought into Canada for the CF-101 squadrons as expected;
Canadian defence expenditures had been reduced recently by a further five per cent. Canada was spending only 4.8% (1.75 billion out of 36 billion GNP) while Britain and France were spending about seven per cent of their GNP. While Germany was only spending 4.2% on defence, these expenditures were increasing annually while Canadian expenditures were decreasing. The ratio of per capita defence expenditure in Canada to per capita GNP was one of the lowest in the NATO Alliance. The Americans considered that we were under-spending on defence between $400 million and $500 million per annum.

Canadian officials at the small informal meeting indicated that this was neither the time nor the place for a discussion of these subjects. During the balance of the Halifax meetings there were a number of opportunities for Canadian officials to speak privately to senior American officials, particularly to Mr. Morris, to explain the Canadian position on these matters.

Conclusions

The U.S. Secretary of Defense, on instructions from the President, has set himself substantial foreign exchange conservation objectives over the next two year period. In considering how these cuts will be made in the fifteen major countries of expenditure, Secretary McNamara has apparently requested his staff to draw up a short list of considerations relating to the various countries’ military efforts. We imagine that this is where the U.S. catalogue of criticisms of the Canadian defence effort originated. The Production Sharing Programme has not yet been obviously adversely affected but may well come in for critical attention after the review of the defence efforts of the fifteen countries has been completed and the U.S. Secretary of Defense sits down to determine where the foreign exchange savings are to be apportioned.

It seems to me inappropriate that the U.S. should have removed the McNamara Directives from the agenda of the Halifax meeting, thereby preventing discussion of this important subject, and then raised these criticisms of Canadian defence policy in a small informal meeting which did not provide an appropriate forum for discussion. The reasons for use of these tactics are unclear. Was this done to exert pressure on us to increase the quantity and quality of our defence effort? Or might it be an attempt to find a justification for curtailing U.S. defence expenditures in Canada?

If consideration of the Production Sharing Programme is not to be confined to its own particular objectives, then there would seem to be no reason why the extraneous considerations introduced should be confined to defence only. We should feel free to introduce our concern over our substantial current account deficit with the United States.

As representations at the official level do not appear to have been successful in having the Production Sharing Programme considered on its own merits, I suggest that:

the draft official Note dealing with the McNamara Directives in a broader framework, which we considered on August 22,† be now sent forward;
the Minister of Defence Production not now go to see the U.S. Secretary of Defense, since the latter would be likely to raise again the criticisms of Canadian defence policy conveyed to officials in Halifax;
the Panel on the Economic Aspects of Defence be instructed to review this matter and make any further proposals thought appropriate to rebut the U.S. criticisms.

Howard C. Green

258. DEA/50210-G-1-40

Under-Secretary of State for External Affairs to Secretary to Cabinet

Secret

[Ottawa], October 26, 1962

Dear Mr. Bryce:

Canada-United States Production Sharing Programme

I understand that the Prime Minister has agreed that:

the draft official Note dealing with the McNamara Directives in a broader framework, which was considered on August 22, be now sent forward;
the Minister of Defence Production not now go to see the United States Secretary of Defence, since the latter would be likely to raise again the criticisms of Canadian defence policy conveyed to officials in Halifax;
the Panel on the Economic Aspects of Defence be instructed to review this matter and make any further proposals thought appropriate to rebut the United States criticisms.

I believe that the Panel on the Economic Aspects of Defence is scheduled to meet on Tuesday, October 30. If you agree, this will provide an opportunity to inform other Departments concerned of the Prime Minister’s decision. At the same time the Panel could consider the question of rebutting the criticism of Canadian defence contributions made by United States officials during a private meeting held in connection with the recent meeting of the Senior Committee on Production Sharing at Halifax.

The Panel might also consider at the same time whether any consequential changes should be made to the Note which was drafted in August for submission to the State Department through the Embassy in Washington.

In the event that you might wish to circulate background material prior to the Panel meeting, I am attaching a copy of the draft Note† and also a copy of a memorandum, prepared by the Department of Defence Production, recording the statement of United States officials at the private meeting in Halifax.†

Yours sincerely,

N.A. Robertson

259. DEA/50210-G-1-40

Memorandum from Under-Secretary of State for External Affairs to Secretary of State for External Affairs

Secret

[Ottawa], November 1, 1962

Canada-United States Production Sharing Programme

Mr. Bow has reported that Mr. Harkness has informed you that he proposes to question in Cabinet this morning the desirability of now sending the general note on Canada-United [States] Production Sharing.^{Footnote 58}

You will recall that you sent a memorandum on this subject on October 12 to the Prime Minister (copy attached). On October 22 Mr. Dier informed us that the Prime Minister had approved the recommendations set forth in the final paragraph of your memorandum of October 12.
This subject was discussed in a very preliminary way by senior officials in the Panel on the Economic Aspects of Defence on October 30. It was agreed that the general subject would be reconsidered on November 2.

N.A. R[obertson]

260. DEA/50210-G-1-40

Memorandum from Under-Secretary of State for External Affairs to Secretary of State for External Affairs

Secret

[Ottawa], November 2, 1962

Canada-United States Production Sharing Programme Attitude of United States Secretary of Defence

In accordance with the Prime Minister’s request, the Panel on the Economic Aspects of Defence Questions has considered what further action might be taken in the light of developments at the Halifax Production Sharing meeting. In particular the Panel considered the relative merits of written representations and oral explanations by Ministers. It was the judgment of the Panel that:

United States preoccupation with its own balance of payments problems would not dispose it to be receptive to arguments involving Canada’s balance of payments difficulties, particularly when the Canadian deficit was somewhat improved whereas the United States deficit was still deteriorating.
To press anew the intrinsic merit of the defence production sharing programme might prompt the United States Government to express officially dissatisfaction with particular aspects of the Canadian defence effort, which has so far been put forward only informally (at Halifax).
In making either written or oral representations we should be running the risk of provoking a reply which might be more unsatisfactory than the present situation. So far, it appears that any harmful effect the Secretary’s directives might have on the production sharing programme is more apprehended than real.
The United States preoccupation with the Cuban crisis might detract from otherwise broad and sympathetic consideration of further Canadian representation at this time.

It was the general consensus of the Panel that until such time as the application of the Secretary’s directive could be shown to be in fact harming the Production Sharing Programme or until the Government was in a position to discuss outstanding defence questions with the United States Government, the balance of advantage lay neither in presenting a note nor in having a Minister go to Washington for discussions with Secretary McNamara.

N.A. R[obertson]

261. DEA/50210-G-1-40

Excerpt from Minutes of the 85^th Meeting of Panel on Economic Aspects of Defence Questions

Top Secret

[Ottawa], November 7, 1962

Defence Production-sharing

…

II. Defence Production-sharing

Mr. Armstrong said the Minister of National Defence had indicated his preference for personal discussions in Washington on this matter rather than the despatch of a Note. A Note was likely to elicit an unfavourable response that might reiterate United States criticisms of the Canadian defence effort. Such a reply would be embarrassing especially if it became public at some stage.
Mr. Ritchie said a Note might be sent that stated the Canadian case but was of such a kind that it did not call for a reply. It seemed important to take some action that would broaden the scope of the discussion from the defence area to the area of balance of payments and other matters of general United States and Canadian national interests and that would bring into the discussion on the United States side not just Secretary McNamara but the United States Government as a whole.
Mr. Reisman said a United States official who had explained to him the circumstances in which Secretary McNamara had decided that United States officials should raise with Canadian officials the matters of concern to the United States about the Canadian defence effort, had advised that if Canada valued the Defence Production-sharing programme, a Canadian Minister might usefully see Mr. McNamara, but such a meeting would probably not be productive until Canada was in a position to answer effectively some of the criticisms that had been made.
Mr. Huck said officials of Defence Production had over the past few months urged upon United States officials up to the Assistant Secretary of Defense level that the Defence Production-sharing programme should stand on its own merits, irrespective of balance of payments problems and other defence issues. It was now clear that no further progress could be made by reiterating this argument. A new approach at a higher level was necessary, and it should be taken soon before Canada was injured by the rejection of a Canadian project contract by the Secretary of Defense.
In the course of further discussion, the following main points were made:
1. It would be useless to argue with the United States in favour of the Defence Production-sharing arrangements on general balance of payments grounds because the United States, taking into consideration reserves positions only, now judged that the Canadian balance of payments position was better than theirs.
2. The argument had consistently been put to United States officials that the Defence Production-sharing programme had been devised and accepted on the basis of mutual self-interest, and was of benefit not only to Canada.
3. The Minister of National Defence and the Minister of Defence Production should probably see the United States Secretary of Defense as soon as there were prospects for a productive meeting, because the matter was of some urgency. It was doubtful, however, if a meeting immediately would be useful.
The Panel noted the points made in the discussion.

262. DEA/50210-G-1-40

Draft Statement from Chairman, Canadian Section, Permanent Joint Board on Defence

[Ottawa], January 29, 1963

Canada-U.S. Defence Production Sharing

During 1962 the Canada-U.S. Defence Production Sharing Program reached a major turning point in that by the end of September, after three and three-quarter years of joint effort, the accumulated 1959-62 statistics showed a balance of some $45 millions in Canada’s favour. This compares with the balance at the end of 1961 of about $47 millions in U.S. favour.

This turning point was achieved in 1962 largely due to the greatly increased United States production sharing business placed in Canada. This U.S. defence procurement in Canada for the twelve months of 1962 (the figures for which are only now available) amounted to $254 millions compared to 1961’s total of $143 millions. A large part of this 1962 increase was brought about by the U.S. procurement in 1962 of Caribou aircraft valued at $62 millions, compared to the 1961 Caribou procurement of $7.8 millions, and by the U.S. contribution of $59 millions to the joint F104G mutual assistance program.

These statistics effectively highlight the production sharing achievements resulting from the program momentum generated by the co-operative efforts of both governments. Canada is still very much concerned over the probable future detrimental effects on the program of the U.S. Defence Secretary’s Balance of Payment Instructions issued in 1962. Although the statistics do not yet reflect any adverse affects, we have since last Fall been receiving a steady flow of comment from industry and from our representatives in the U.S. as to the difficulties arising due perhaps to misunderstanding of the U.S. government’s intent, and misinterpretation of the directives. These have tended to create in some cases an adverse climate for participation in U.S. programs by Canadian defence industry as an integral part of the North American defence production base. The important need now is for the intent of these directives to be clarified with respect to defence production sharing in order that long term planning by both governments and by industry may continue on a confident and orderly basis. Since January 1959, the Canadian government and industry commitment of funds for development projects to meet future U.S. defence requirements has totalled about $45 millions. Continued planning is necessary to ensure that an appropriate level of Canadian industrial development activity is achieved and sustained. Such planning however, can come to fruit only in a long range climate which encourages Canadian participation in both U.S. defence research and development programs and in ultimate hardware production.

The Canadian government is convinced that continued support of these defence production sharing principles, will result not only in better utilization of our procurement and production resources, but also in a fair balance of production sharing business. This program should sensibly expand rather than decline.

In line with the program’s objectives and achievements the Canadian government has decided that it will be to the benefit of Canada, as well as the U.S., to make certain major defence procurements in the U.S. in the near future. These include the Tartar Missile System for RCN frigates which will involve our expenditure in the U.S. in excess of $100 millions. In addition we will shortly be placing a contract for RCAF CF104D Trainers amounting to about $18 millions. We are also negotiating for the purchase of Vertol Helicopters for the Canadian Army at an initial cost in U.S. dollars of some $10 millions. These programs, which will be in addition to the normal Canadian reliance on U.S. industrial sources, are estimated eventually to amount to over $130 millions of Canadian defence production sharing business in the U.S. This action is being taken in expectation that the U.S. government will similarly support the program, and that future clarification of the U.S. government’s intent will exempt defence production sharing from the U.S. balance of payments restrictions in order that long term planning can be justifiably continued.^{Footnote 59}

263. DEA/50210-G-1-40

Excerpt from Journal of the 105th Meeting of Permanent Joint Board on Defence

Secret

San Diego, February 4-8, 1963

…

Canada-United States Defense Production Sharing Programme (Confidential)
The Canadian Chairman recalled that at the September 1962 meeting of the Board, the United States Members, in connection with the discussion on production sharing, explained the views of the United States Government concerning the defense aspects of the United States balance of payments problem. While this Board was probably not the right body in which to pursue these issues at any length, the Canadian Chairman believed that the United States Section would not object if he were to explain the Canadian outlook on these questions. He did so in the following statement which the Board agreed should be incorporated into the record:
“Let me emphasize at the outset that we in Canada fully recognize that the United States is confronted with serious balance of payments difficulties and that it is essential for the United States and her allies that effective solutions be found to this problem. At the same time we know the United States authorities are aware of the fact that Canada also has a serious balance of payments problem. We consider it also in the general interest of the alliance that Canada should find effective and constructive solutions to its problem.
The Canadian balance of payments problem is of a different character from the United States problem. In some respects it is more deep-rooted and more serious. The United States enjoys a surplus in her overall international trade in goods and services, but has been losing gold because of her large investments abroad and external Government expenditure. The United States has been acquiring large assets abroad and although gold is lost her fundamental long-term position is being strengthened. Canada, on the other hand, is not losing gold and reserves at present, but is suffering a very large persistent deficit in her overall trade in goods and services. We have been covering this deficit on current account by importing capital. This adds to our international indebtedness and we are incurring obligations which we will have to service for the indefinite future. While much of the capital we import adds to our productive capacity, a substantial part does not. To the extent that the capital inflow does not add to our productive capacity our long-term economic position is being weakened.
Canada has had a current account deficit ranging from $1 billion to $1½ billion for many years. The Canadian deficit on current account has exceeded $10 billion over the past ten years. In terms of the United States economy this would amount to $150 billion. The Canadian authorities have no doubt that the United States, if confronted with a similar situation, could not and would not allow it to continue. Nor can Canada. The United States has a vital stake in the stability of the Canadian dollar. The extensive help which the United States made available to Canada in our recent exchange emergency is clear evidence of this. It is inconceivable that the United States should adopt policies in the defence procurement field designed to deal with the problem which had the effect of intensifying the Canadian problems.
It has sometimes been argued that the imbalance in defence expenditures between Canada and the United States is heavily in favour of Canada. What really matters, however, is the overall payments balance between Canada and the United States, rather than the trade balance in one relatively small sector such as defence. While Canada has been running a current deficit in her total trade of goods and services with all [other] countries of between $1 billion and $1.5 billion per annum, the current deficit with the United States has usually been much larger. We usually have a large surplus with all other countries taken together, and these earnings of foreign exchange help to pay in part for the huge current account [surplus] with the United States. In 1961, for example, when we experienced a current account deficit with the [rest of the] world of just under $1 billion, our deficit with the United States alone was about $1.4 billion. Taking the past ten years together (1953-1962) Canada’s deficit on current account with the United States, goods and services included, was about $12.5 billion. Since in that same period our overall [surplus] with the [rest of the] world was some $10.25 billion, we actually spent in the United States about $2.25 billion more, which we earned in our trade with other countries.
Although it is entirely valid and reasonable to discuss our balance of payments position in terms of the current account which is the true measure of how far short we are of “paying our way” from year to year, it can be argued that this way of looking at the problem fails to take into consideration the flow of capital from the United States to Canada which help us to pay for our trading deficit with that country. Nonetheless, even if one takes into account capital obtained from the United States, i.e., the total balance of payments, current as well as capital, it will be seen that Canada has contributed large amounts of foreign exchange and gold to the United States. Taking the past ten years, and lumping the capital account together with the current account, Canada has contributed net to the United States over $4 billion in gold and convertible currencies. These figures make it clear that in no sense can it be said that Canada has in any way contributed to the balance of payments difficulties of the United States. On the contrary, we have helped the United States balance of payments massively and are continuing to do so today. I wish to emphasize this fact, because it does not always seem to be recognized in Washington. It should be quite clear that any change in the production sharing arrangement to Canada’s detriment would be damaging not only to Canada but by impairing our payments position, would also damage United States interests over the whole range of our economic and financial relationship including defence.
Although in our view the overall balance of payments position is what really matters, the United States authorities have from time to time focussed attention on their “direct defence expenditure deficit” with Canada. The estimates of this deficit put forward by the United States authorities, while adhering to their annual submission to NATO, do not take into account such important elements as the United States import content of Canadian domestic defence procurement, which is of the order of around 18% of our total domestic procurement. Moreover, the United States estimates include large sums for uranium which is more a raw material than an item of defence procurement, and much of which is presumably used in the United States civil atomic energy programme.
At the last Board meeting the Department of State member went on to discuss one element in the emergency programme adopted by the Canadian Government in the exchange crisis last June, namely the temporary import surcharges. These measures were not directly relevant to the work of this Board, as I think he said himself. Since the matter was raised, however, I would like to make one or two brief comments. First, it was clearly recognized by the competent international organization, the International Monetary Fund, that in Canada’s situation at the time emergency measures were essential, and that the action taken by way of import surcharges did not go beyond the extent necessary to stop serious decline in our monetary reserves. Second, there is no doubt whatever that under the provisions of the General Agreement on Tariffs and Trade, Canada would have been entitled to impose quantitative import restrictions to deal with the exchange emergency. Instead the Government decided to impose the temporary tariff surcharges which it believed would be less disruptive of trade. In the discussions of this matter in the GATT there has been no indication that any country would have preferred to see quantitative restrictions applied. The Canadian temporary surcharges were reviewed in full at the last GATT session and a decision adopted. Clearly, it would be inappropriate to pursue this matter in this Board. The Canadian Government has already begun to remove the surcharges and Ministers have made it clear that the remainder will be removed as quickly as our balance of payments and reserves positions permit.”
The State Department Member said that the United States appreciated that its economic relations with Canada produced a plus factor in the net balance of the U.S. payments position. Canada’s positive contribution to the U.S.A. balance of payments picture, particularly in the trade and investments field, was fully recognized. Nevertheless, if the United States position were looked at outside the area of goods and services, there was a grave problem in the areas of external aid and military expenditures. In these fields there was continuing apprehension about the net U.S. balance of payments picture and the United States wished to have its Western European Allies, in particular, share the defence and external aid burden.

Part 3

Economic Issues

Section A - Meeting of Canada-United States Joint Ministerial Committee on Trade and Economic Issues, January 12, 1962

264. DEA/50316-7-40

Minutes of Meeting of Joint Canada-United States Committee on Trade and Economic Affairs

Secret

[Ottawa], January 12, 1962

Joint Canada-United States Committee on Trade and Economic Affairs January 12, 1962

The Committee convened at 10:45 a.m. in Room Sixteen in the Centre Block. Mr. Fleming was in the chair.

Committee members in attendance were:

Canada
- Honourable Howard Green, Secretary of State for External Affairs
- Honourable Donald M. Fleming, Minister of Finance
- Honourable George Hees, Minister of Trade & Commerce
- Honourable Alvin Hamilton, Minister of Agriculture
- Mr. Arnold Heeney, Canadian Ambassador to Washington
United States
- Honorable C. Douglas Dillon, Secretary of the Treasury
- Honorable Stewart Udall, Secretary of the Interior
- Honorable Orville L. Freeman, Secretary of Agriculture
- Honorable George W. Ball, Under-Secretary of State
- H.E. Livingston T. Merchant, Ambassador of the United States

Officials in attendance were:

Canada
- Department of Finance
  - Mr. K.W. Taylor, Deputy Minister
  - Mr. A.F.W. Plumptre, Assistant Deputy Minister
  - Mr. S.S. Reisman, Assistant Deputy Minister
  - Mr. J.F. Grandy
  - Mr. C.A. Annis
  - Mr. M. Sakellaropoulo
  - Mr. Grey Hamilton
  - Mr. W.A. Kennett
- Department of External Affairs
  - Mr. N.A. Robertson, Under-Secretary
  - Mr. A.E. Ritchie, Assistant Under-Secretary
  - Mr. O.G. Stoner
  - Mr. W.F. Stone
  - Mr. M. Dupuy
- Canadian Embassy – Washington
  - Mr. M. Schwartzmann
  - Mr. J. Langley
- Privy Council Office
  - Mr. R.B. Bryce
  - Mr. R. Labarge
- Department of Trade and Commerce
  - Mr. J.A. Roberts, Deputy Minister
  - Mr. J.H. Warren, Assistant Deputy Minister
  - Mr. V.L. Chapin
  - Mr. R. Latimer
  - Mr. J. Downs
  - Mr. B. Marshall
- Department of Agriculture
  - Mr. S.C. Barry, Deputy Minister
  - Mr. A. Turner
- Bank of Canada
  - Mr. L. Rasminsky, Governor
  - Mr. S.J. Handfield-Jones
United States
- Department of State
  - Mr. Edwin M. Martin, Assistant Secretary of Economic Affairs
  - Mr. William R. Tyler, Acting Assistant Secretary for European Affairs
  - Mr. J. Robert Schaetzel, Special Assistant to the Under-Secretary
- Treasury Department
  - Mr. John C. Bullitt, Deputy Assistant Secretary for International Finance
  - Mr. Dixon Donnelly, Assistant to the Secretary – Public Affairs
  - Mr. Ralph Hirschtritt, Office of International Finance
  - Commander Robert Johnson, United States Coast Guard
- Department of the Interior
  - Mr. Morton Pomeranz, International Affairs Assistant
- Department of Agriculture
  - Mr. Robert C. Tetro, Administrator, Foreign Agricultural Service
- Department of Commerce
  - Mr. Jack H. Behrman, Assistant Secretary of Commerce
- United States Embassy
  - Mr. F.A. Linville, Counsellor (Economic Affairs)

Mr. Fleming welcomed United States members to the seventh meeting of the Joint Committee. He recalled that since the Committee had been established in 1954 it had met regularly in Washington and Ottawa and its meeting had always been characterized by a constructive approach to the issues under discussion. He was confident that the present meeting would once again be carried on in this traditional friendly spirit. He paid tribute to the important initiatives which the Chairman of the United States delegation, Mr. Dillon, had taken over the past few years to promote greater co-operation and better understanding in the Atlantic area.
Mr. Dillon thanked the Minister of Finance for his welcome. He recalled that the creation of the Joint Committee was the first time that the United States had set up special consultative machinery to deal with trade and economic matters with another country. It was natural that this country should have been Canada in view of the large reciprocal trade between the two countries and their common interests. The United States attached great importance to these bilateral consultations. The Committee provided a forum where Ministers could discuss not only problems between the two countries, but also broader problems such as those arising from regional developments in Europe.
The seventh meeting of the Joint Committee was the first to be held in Ottawa under the new United States Administration. It would strengthen the close cooperation between Canada and the United States which had recently led to the establishment of the OECD and the creation of special resources for the International Monetary Fund.

(After press representatives had left the room, the Committee resumed its meeting in closed session.)

Mr. Fleming pointed out that the agenda did not include bilateral items. There were, however, some outstanding bilateral issues between Canada and the United States which could be left to private discussions between Ministers outside the sessions of the Committee. Mr. Fleming also expressed the hope that some time could be found during the Joint Committee’s meeting to review economic developments in the United States and Canada.
Mr. Dillon agreed that some bilateral items could usefully be discussed informally. He was also prepared to give an assessment of current United States economic developments and future prospects at the afternoon session.

Agenda Item 1

European Trade Developments and Their Significance for World Trade

Mr. Ball recalled that the United States had given full and enthusiastic support to movements towards integration in Europe. The United States regarded these European developments as constructive, at a time when great forces of destruction were at work in the world. These developments raised both opportunities and difficulties which should be faced by Canada and the United States together.
Britain’s move into Europe, if successful, would raise new common problems for Canada and the United States. Both were large trading nations and would not be members of the enlarged European arrangement. The United States recognized that there would be particular problems for Canada in view of its historic relations with Britain and the Commonwealth.
Mr. Ball reviewed the main features of United States policy on European integration. Their interest had essentially been political. They had welcomed the rapprochement between France and Germany and attached importance to the contribution European integration was making in tying Western Germany to the West. Integration would also increase stability in Europe at a time when France, Germany and other European nations were experiencing political difficulties. Although the integration of Europe had so far been of an economic nature, it had encouraged political cohesion.
The United States recognized that integration could result either in the creation of trade or its diversion from third countries to the members of the Community. Serious problems might be raised if European integration resulted in any substantial trade diversion but the present assessment of the United States Administration was that the political benefits more than compensated for the commercial risks.
Mr. Ball said that in the United States view the Europe of the Six, because it was incomplete, created elements of instability. As long as Britain was not a member it acted as a magnet pulling on some sectors of the Community, and the division of Europe would remain. Britain’s move was regarded as a step towards greater and wider cohesion in the free world. Its application for membership had therefore been welcomed by the United States, although it was appreciated that difficulties would be raised for the United States mainly because of the further extension of preferential arrangements in Europe against them. Mr. Ball emphasized that they considered this decision to be one which only Britain could make. The United States also recognized the problems which British membership in the Community would raise for the Commonwealth. The Commonwealth was highly valued by the United States Government for its contribution to the cohesion and stability of the free world.
Mr. Ball said that prospective moves towards greater European integration could lead to wider developments in Atlantic cooperation. There was already a wide area of cooperation among Canada, the United States and Europe in defence through NATO and in economic policy through the OECD. Also, a common responsibility towards the under-developed world had been recognized in the Development Assistance Committee. There were further areas, however, where trans-Atlantic cooperation could be developed. The United States Administration felt a deep desire to strengthen the Atlantic relationship. In the United States view, Canada had always been considered as having an important role to play in these Atlantic relationships.
There was nothing contradictory between greater European and Atlantic cohesion. In the past, the disparity of size between individual European countries and the United States had created difficulties in the Atlantic area. Greater cohesion in Europe would facilitate greater Atlantic cooperation.
Mr. Ball referred to commercial policy as a major area for improved cooperation. For instance, in GATT the United States had recently undertaken tariff negotiations with a number of countries in Europe. While these negotiations would have significant results, more effective bargaining could take place in the future, employing new techniques, with an enlarged European Economic Community. Further opportunities and incentives for the United States to negotiate with Europe on a wider basis were already emerging, and these considerations underlay the new and more extensive tariff negotiating authority which the President would be asking from Congress. The United States Government felt that if this authority could be secured, their subsequent negotiations with the European Economic Community could help solve trade problems arising for other countries in the world. If Britain joined the Six, the enlarged European Economic Community and the United States would account for about 85% to 90% of the industrial exports of the free world. This percentage would be even higher if Canadian exports were added.
Mr. Ball repeated that the United States recognized that current European developments raised special problems for Canada. He hoped that the Canadian Ministers would speak frankly about their concerns. United States members, for their part, would be prepared to comment and indicate ways the United States might be able to help.
Mr. Fleming said that Canadian Ministers shared Mr. Ball’s view of the importance of current developments in Europe, and recalled his discussions of these matters with Mr. Dillon at recent meetings in Paris.^{Footnote 60} Canada, with a population of 18 million people, was the fourth largest trading country and the first per capita trading country in the world. The Canadian Government had played an active role in the General Agreement on Tariffs and Trade and the International Monetary Fund and would continue to support measures aimed at expanding trade on a multilateral and non-discriminatory basis. Mr. Fleming also recalled Canada’s support for the United States initiative for establishing the OECD which would lead to an increase in cooperation among Atlantic countries. It was important, however, not to give the impression that countries of the Atlantic area were developing a ‘rich men’s club.’
Mr. Fleming stated that the Canadian Government had always recognized the importance of the political factors related to the creation of the European Economic Community. But Canada also had very large economic and trade interests in Europe. Our sales to the Six were growing and we hoped to expand them still further. The press at times had been mischievous in their interpretation of the Canadian Government’s position with respect to the Common Market. They had professed to see some antagonism against the Community which did not exist. However, Canada attached great importance, as the United States did, to the development by the Six of outward-looking trade policies. Referring to the attitude of the Six on agriculture in the GATT tariff negotiations, Mr. Fleming noted that there seemed to be a good deal of room for improvement.
Turning to Britain’s application for membership in the Community, Mr. Fleming said that, here again, press descriptions of the Canadian Government’s position had not always been correct. Canada recognized that the decision whether or not to join the Six was one for Britain alone to make. The views of the Canadian Government had been given when, and only when, the British Government had sought them. This had been done at the meeting of the Commonwealth Economic Consultative Council in London in September, 1960, during Mr. Sandys’ visit to Ottawa in July, 1961, at the Commonwealth Ministerial meeting in Accra in September, 1961, during discussions in London in November after the OECD Ministerial meeting, and a few days ago with Mr. Heath in Ottawa.^{Footnote 61}
The Canadian Government had on these occasions expressed its views frankly, as had other Commonwealth governments. The trade interest of Commonwealth countries in the British Market was enormous, and Mr. Fleming emphasized the large proportion of this trade which moved under Commonwealth preferences. He noted that Canada’s exports to Britain had grown significantly following the removal of their quantitative restrictions a few years ago. Also, the benefits enjoyed by Canada in Britain under the preferential system had been paid for in terms of Britain’s access to the Canadian market. However, developments were in prospect which could jeopardize these arrangements.
Mr. Fleming recalled that the British Government had given assurances that in negotiating with the Six every effort would be made to safeguard Commonwealth interests. The Canadian Government had accepted these assurances. Recently steps had been taken to improve channels of communications with British negotiators so as to keep them informed of Canada’s interests as the negotiations proceeded. The outcome of the negotiations was not yet clear but it was evident that Britain was anxious to bring the negotiations to a successful conclusion. It should not be assumed, however, that Britain would join at any price. While he was confident that if it came to a choice between the Six and the Commonwealth Britain would choose the Commonwealth, there was considerable room for negotiation at the present time. Canada attached the greatest importance to British efforts in the negotiations to safeguard its basic interests, and those of other Commonwealth countries.
Mr. Fleming described the Commonwealth as a great constructive and cohesive force in the free world, and emphasized the importance attached by the Canadian Government to its preservation. The Commonwealth was in a process of change, with increasing Asian and African membership. There was a great diversity of interests and views among Commonwealth nations, but their historic ties made the Commonwealth as a whole an important, constructive and stabilizing force in world affairs. The new countries of the Commonwealth were for the most part primary producers, and many were also attempting to industrialize. They were concerned about export markets and viewed the British market as the only dependable export market for their primary products and for their developing manufacturing industries. The meeting at Accra had clearly revealed the importance they attached to the British market. Historic and sentimental ties did not attach these new countries to the Commonwealth as strongly as in the case of Canada and other older members, and some delegations at Accra had questioned the usefulness of Commonwealth membership if traditional economic links were to be broken. Moreover, it was widely felt at Accra that Britain could not join the Six without damaging important trade interests of other Commonwealth countries. Contrary to a number of statements which had recently been made, Commonwealth trade was growing. If Britain’s entry into the Community broke up the preferential system the effects would be damaging psychologically as well as economically, and he hoped that this point was fully recognized by the United States. Many of the new Commonwealth countries looked to Canada for leadership within the Commonwealth, and expected Canada to interpret Commonwealth interests to the United States.
Mr. Fleming said that the views and policies of the United States exerted tremendous influence in the free world. European decisions were affected, not only by its policies, but by European impressions of United States views. The widespread feeling that the United States Government wished to see Britain in the Common Market undoubtedly was influencing the British negotiations with the Community. The negotiations in Brussels had now entered the stage of hard bargaining, and the Canadian Government hoped that the United States would refrain from actions or statements which would be interpreted as pushing Britain into Europe and which would weaken the British negotiating position with respect to the safeguarding of Commonwealth interests. He referred in this connection to Secretary Freeman’s statement in September in which Mr. Freeman had indicated that the United States would not wish to see the Commonwealth system of preferences perpetuated. This statement had caused much concern at the Accra meeting. Canada understood the historic attitude of the United States toward Commonwealth preferences. Nevertheless, it was the considered opinion of Canadian Ministers that great damage would be done to the Commonwealth association, and that the world would be the loser, if Britain were unable to safeguard the interests of Commonwealth countries in its market. He suggested that the United States Government may not have adequately taken into account the role played by tariff preferences in the Commonwealth relationship.
Mr. Ball replied that tariff preferences in the United Kingdom market did not seem to be equally important to all members of the Commonwealth. Underdeveloped Commonwealth members were primarily concerned with tropical products and in some cases with exports of low cost manufactures. In these areas Canada was not directly concerned. The chief interest of the more developed Commonwealth members was in temperate agricultural products and, in the case of Canada and Australia, in industrial products. Mr. Ball asked for a more specific description of Canadian interests in the United Kingdom market and of the ways in which they could be harmed.
Mr. Hees circulated two statistical tables and asked United States members to examine them. The first indicated the value of Canada’s exports to Britain, according to their terms of entry into the British market (subject to duty, free of duty, under preference, not under preference). The second described the effects on Canada’s access to the British market of the adoption of the proposed common external tariff by Britain.
Mr. Freeman asked whether any assessment had been made of the extent to which markets would be lost in Britain by Canada as the result of Britain’s adoption of the common tariff.
Mr. Hodges suggested there would be compensating advantages to Canada by reason of the fact that the Common Market tariff for manufactured goods was low. These tariffs were being lowered still further in current GATT negotiations in Geneva. Britain would be adopting the Common Market tariff which was generally lower on manufactured products.
Mr. Hees said that Canada’s trade with Europe had been growing and would continue to grow. However, preferences played an important role in Canada’s trade in these items with Britain. Many firms across the country were exporting to the British market and would suffer seriously if their preferential advantages were impaired. Manufactured goods were playing an increasingly important role in Canadian exports and these exports had important employment effects.
Mr. Freeman asked whether Canada expected that Commonwealth preferential access to the British market would be maintained in perpetuity.
Mr. Hees replied that the British Government had given assurances that it would safeguard essential Commonwealth interests. Canada was observing the negotiations carefully, and supplying information which would assist the British in their negotiations.
Mr. Freeman said it was unrealistic to expect the perpetuation of preferences in their entirety.
Mr. Ball said that with respect to industrial materials, the statistical material which had just been circulated indicated there might be problems for aluminum alloys and perhaps also for steel ingots and asbestos. Mr. Ball added that Canada and the United States had a common interest in reducing the Common Market tariff on aluminum alloys.
Mr. Hodges remarked that Britain, in its negotiations with the Six, might be able to bring down the level of the common external tariff.
Mr. Ball said that judging by the value of Canadian manufactured exports to the United Kingdom, the problem should be of manageable proportion.
Mr. Hees stressed the importance which Canada attached to exports of manufactured products to the British market. This was a growing sector of trade with large potential, and one to which the Canadian Government attached great importance in terms of Canadian industrial development and employment.
Mr. Hamilton pointed out that Canada did not sell a wide variety of agricultural products to Europe and for most of these had a qualitative advantage. However, this was a most important trade for Canada, accounting for about 33% of our exports to Britain and 40% of our exports to the E.E.C. In this sector of trade, rates of duty were not as great a source of concern as non-tariff restrictions. Also, the Six were planning to use a system of variable levies to control the level of their imports of a range of agricultural products.
Mr. Freeman said the U.S. was also very concerned about its exports of agricultural products to Europe. The basic problem was the level of the internal price structure for agriculture within the Common Market. On this would depend the level of the variable levies imposed to protect domestic production. If prices were established at a high level, this would result in an increase in production and decreased imports.
Mr. Ball said that the most difficult problem was indeed that of temperate agriculture. The United States would be far more sympathetic to our difficulties in this field than in the field of manufactures. In the latter, the United States was, of course, in direct competition with Canada, and it seemed to him that adjustment to the loss of what was only a potential market would be easier for Canada.
Mr. Dillon expressed the view that there was a complete identity of interests in the agricultural field. He added that although the United States did not favour the preservation of the Commonwealth system of preferences, this did not mean that they would not be prepared to help with respect to special commodity problems. It seemed to him that Canada would not be so concerned about preferences if it obtained free entry for its main exports to the Common Market. Turning to the problem of low cost manufactures, Mr. Dillon said that the United States was aware of the special difficulties of the less developed members of the Commonwealth, and was also willing to help.
Mr. Fleming said that United States and Canadian views on European developments seemed close, except on the important question of preferences. It was clear that the United States did not attach importance to the maintenance of Commonwealth preferences. He agreed that the impact of Britain’s entry into the Common Market would not be equal for all Commonwealth countries. Some would be hurt more than others, and this could have the effect of dividing the Commonwealth.
Mr. Ball said that different problems would probably have to be dealt with through different arrangements. With respect to textiles, for instance, it was doubtful that the Six would be prepared to give Hong Kong exports the same degree of access as they enjoyed in the British market. This difficulty might be solved in the context of wider arrangements of the kind recently negotiated for cotton textiles among interested countries under the auspices of the GATT.
With respect to tropical products, the United States had last February started discussions with the French and the British of proposals for substituting market stabilization arrangements and financial aid in place of preferences. Thus, new techniques were being explored which could compensate new members of the Commonwealth for the loss of preferences.
Mr. Green referred to statements by United States members regarding the strengthening of Europe. In his view, a distinction had to be made between the integration of Europe and the strengthening of Europe. The United States seemed to consider that Britain’s entry into the Common Market would make an important contribution to strengthening Europe and to strengthening the free world generally. However, Britain, as the leading member of the Commonwealth, from which Britain largely derived its present position in the world, played an important role in the world, and there was a danger that Britain would lose some of its freedom of action by joining the European Community. There already was evidence that British policy was being unduly influenced by a desire not to antagonize the French. Mr. Green referred to the French attitude towards the United Nations and suggested that the common policies of the Six might not always be of the kind the United States would favour. Once the United Kingdom joined the Community it would have but one voice among other European countries in the formulation of a European policy and this voice might not be predominant. There was the additional danger that Britain’s entry into the Community would weaken or even lead to the breakup of the Commonwealth. It was in the interest of both Canada and the United States to recognize the vital importance of the role Britain played as head of the Commonwealth.
Mr. Ball emphasized the importance of ensuring that the resources of the Six, and particularly France, were fully committed to the common interests of the West. He expressed confidence that Britain’s political genius could help to bring an integrated Europe more nearly into line with the interests of the free world, and could also be relied on to reconcile her role in an integrated Europe with her position as the leading country in the Commonwealth. If Britain had been a member of the EEC it would have been able to control better the internal development of the Community, and perhaps to prevent the disarray that had been experienced at recent NATO meetings. The Western world must combine all its resources to meet the Communist challenge. If there was no possibility of a strong and united Europe, the prospects of the free world would be dark indeed.
Mr. Freeman commented that his press statement, which Mr. Fleming mentioned as having caused grave concern at the Commonwealth meeting in Accra, was not meant to be an attack on the Commonwealth preferential system, but had been mainly concerned with the problem of access to the Common Market for agricultural products.
The meeting adjourned at 12.50 p.m.
The Committee reconvened at 3.00 p.m., with Mr. Fleming in the Chair.
Mr. Fleming invited Mr. Dillon to review current developments in the American economy.
Mr. Dillon observed that the Committee had met the last time at the turning point of the recession. The United States Government’s policy had since then been to reduce unemployment, maintain price stability and contain inflation. Care had, however, been exercised to prevent short term interest rates in the United States from falling too low in order to forestall a serious outflow of short term capital. There had been a large number of new bond issues, and shares valued at about 20 billion dollars had been sold during 1961.
Mr. Dillon said that the recession was now over. Unemployment stood at 6.1% as compared with 7% the year before. This was still too high. New records had, however, been achieved in virtually all business indexes. The GNP was running in the last quarter at a rate of $530 billion or 8% over the first quarter rate. For the whole year it would stand at $521 billion, a 3½% increase over 1960. Prices had remained stable, the consumer price index increasing by only ¾ of 1%. Early in 1961 there had been a noticeable increase in exports and a reduction of imports. The 1961 overall deficit in the balance of payments was accordingly expected to be somewhat under $2½ billion, of which $500 million could be regarded as the basic deficit. The short term capital outflow had been substantial but the gold loss of $850 million in 1961 was about half of the 1960 loss and accounted for a smaller percentage of the deficit.
Mr. Dillon proceeded with a review of the outlook for the United States economy. With respect to production the pattern was one of a regular upturn with an increase in consumer buying (automobiles), and this pattern was likely to continue. Private economists’ estimates of the GNP for 1962 were in the neighbourhood of $565 billion or $5 billion better than had been expected three or four months ago. The Government’s own estimate of the 1962 GNP was $570 billion. There was broad agreement between Government and private forecasters that the first half of 1962 would be very good. Their differences related to the speed of recovery over the second half of the year. There was, however, a general feeling that the economy would continue to move ahead. Improved profits and anticipated increases in orders by business for new plant and equipment supported this view. Business investment might also be encouraged by new tax measures affecting depreciation allowances. Mr. Dillon noted that business had a tendency to underestimate the volume of profits they could expect, although he recognized that there had been a squeeze on profits. The additional $5 billion in the Government’s GNP forecast would increase Government revenues by about $1¼ billion. No real pressure was expected on prices over the next 5 to 6 months. Unemployment was still substantial and excess capacity existed in most sectors. Pressure on prices could arise, however, if new labour contracts in the steel industry called for substantial wage increases. The present contracts would expire in July. The Government’s GNP estimates were based on the assumption that there would not be a steel strike, and the Government would do what it could to prevent a strike. Unemployment was expected to decline to 5% by the end of 1962. If the recovery continued at its current rate it would fall to 4% by the middle of 1963, thus reaching a “full employment” level. Thirty months was roughly the duration of the average boom in the United States since the end of the war. If it followed the same pattern, the present recovery would carry the economy to the middle of 1963.
Mr. Dillon said that the fiscal policy of the Government in 1961 had been designed to provide a stimulus to the economy. This policy had led to a deficit of $7 billion for the year ending June 30, 1962, which was much smaller than the $12.5 billion deficit reached during the last recession. Government revenues for the fiscal year 1961-62 were expected to be about the same as revenues over the 1961 calendar year since revenues generally lagged behind recovery by six months or so. If the Government’s forecasts proved to be correct and revenues increased by $10 to $11 billion, receipts and expenditures would be balanced in the fiscal year 1962-63. This would be in keeping with the Government’s policy of balancing the budget in times of prosperity. The President, in his budget message to Congress, would request Congress to hold down appropriations to recommended levels. The increase in the rate of expenditures was expected to level off during the next fiscal year, which would help in balancing the budget. The situation was quite different from that of a few years ago when the previous Administration had achieved a small surplus by substantial reductions in expenditures.
Mr. Dillon said that the Government intended to continue a policy of monetary ease until such time as pressures on prices or wages developed. He noted that short term interest rates had increased by half of one percent to 2¾%, while long term rates had remained stable at 4 to 4½%. This had been helped by changes in regulations allowing banks to pay higher interest on time deposits. If pressure developed on demands for loans, some tightening might be required, but the Government did not wish to pursue a restrictive monetary policy, particularly since it was at the same time carrying out a relatively conservative fiscal policy.

Mr. Dillon said that the outflow of short term capital in 1961 had been in the neighbourhood of $1.8 billion. This was the second year that a large outflow had taken place. He indicated that their figures for the fourth quarter of 1961 would reveal a substantial short term outflow. This was explained by a sharp increase in trade with Japan financed by short term borrowing, and also a short term flow to Canada of the order of $300 million. United States officials were unable to account fully for the latter. They thought, however, that some United States funds were probably attracted by higher short term interest rates in Canada. The outflow might also be the result of changes in taxation introduced in Canada in December, 1960. The gross take of Canadian taxes on the profits of United States subsidiaries in Canada was 57%, which was higher than the 52% deductible for United States taxation purposes. Some United States corporations had perhaps found some advantage in investing part of their profits in Canadian short term securities, the interest of which was taxable at a rate of 15% only. The outflow of short term capital to Canada might also partly be explained by shifts in deposits from United States to Canadian banks in New York, which would appear on United States balance of payments figures because of the United States accounting system. United States short term interest rates were still not competitive with London rates, but the short term outflow might well cease if there was no crisis of confidence.
With respect to the basic balance in international accounts, Mr. Dillon said that both imports and exports had risen considerably over the past six months, the latter to a figure of $20 billion for 1961. He expected exports to continue rising and remarked that the Administration was trying to improve depreciation provisions for industries. The United States was moving closer to a trade balance with Europe. Improvement in the payment situation with Germany was expected to continue with increased German Government procurement in the United States. The Government had made arrangements with Germany whereby United States military expenditures in Germany would be offset by German military procurement in the United States. Similar offset arrangements would be negotiated with France. While the basic balance might not be quite as good in 1962 as it had been in 1961, because of increased imports, the outflow of short term capital was expected to decrease in 1962 and a substantially lower overall deficit should be experienced in 1963. Indeed, a balance might be achieved in 1964. In brief, the policy of the United States Government was to maintain growth without inflation, improve the state of the balance of payment, increase exports and negotiate military offset agreements. Natural forces were working for expansion and a GNP increase of 8% was expected during 1962. The United States Government would, nonetheless, request several anti-recession measures from the Congress, the most important of which were:
1. (1) A permanent long term unemployment compensation Act;
2. (2) Standby authority for the President to initiate public works, if unemployment increased substantially; and
3. (3) Presidential authority to reduce taxes by 5 percentage points, subject to Congressional veto, for a six-month period.
Mr. Dillon remarked that this latter authority was generally recognized as providing more effective means of combating a recession than increased spending programmes which took some time to implement. It might, however, run into considerable opposition in the Congress because of its novel character and the traditional fiscal powers of the Congress under the United States Constitution.

Mr. Fleming thanked Mr. Dillon for his comprehensive survey of the United States economic situation and prospects. Regarding the Canadian economic situation, Mr. Fleming said that in 1961 the Gross National Product reached $37 billion, the low first quarter having been at an annual rate of $35.7 billion and the last quarter having reached a high of $38.1 billion. The Gross National Product at the end of 1961 was therefore 7 per cent above the rate at the beginning of the year. The Gross National Product in 1962 was expected to be from 6 to 7 per cent above 1961. Canada had had the same general experience in employment as the United States. Employment had not expanded as rapidly as had the economy generally but the unemployment picture was materially better than it had been a year ago. On the fiscal side, in view of the slack in the Canadian economy the Government had budgeted for a deficit of $650 million. Canada had had for some time a serious balance of payments problem and for this reason action was taken in the last two budgets affecting the exchange rate. As a result, the Canadian dollar had moved to a discount of about 4½ per cent. This action affecting the rate in no sense constituted currency manipulation but was an attempt to deal with the serious balance of payments problem. Canada had for several years been running a current account imbalance of over a billion dollars. The Canadian Government had never objected to capital inflows of a productive nature. It had recognized their importance to the economy and had tried to maintain a climate hospitable to foreign investment capital. The government had been following a policy of monetary ease. The money supply had been increased over the past year by about $1 billion, or by 8 to 9 per cent. The commodity trade balance had improved considerably over the past year and there would be a surplus on commodity trade in 1961, the first such surplus since 1952. Medium and long-term interest rates had declined moderately over the past several months and the spread between Canadian and United States interest rates had been reduced. Mr. Fleming commented that Mr. Dillon’s reference to large short-term capital outflows from the United States to Canada was puzzling. They had not shown up in the Canadian balance of payments.
Mr. Dillon explained that much of the movement of short-term capital was in the nature of a shift of savings from United States to Canadian banks in New York where they could earn a higher interest. It was shown on the United States accounts as a capital outflow because of their very conservative system of bookkeeping. It would not show up in Canadian statistics. Mr. Dillon said that he was not suggesting that anything needed to be done about this capital movement.
Mr. Hodges read a series of statistics demonstrating the important increase in activity in a number of sectors of the United States economy over the past year. He went on to say that while exports were about $20 billion annually they represented less than 4 per cent of the Gross National Product. United States exports were only about $111 per caput compared with exports of about $220 per caput for Canada.

Agenda Item 2

United States Trade Program

Mr. Ball outlined briefly the history of the existing Trade Agreements Legislation. He then went on to observe that if the British were to join the European Economic Community, 85 to 90 per cent of the free world’s industrial production and trade would be concentrated in the Community and the United States. Europe would be speaking with one voice in trade and economic affairs and would have an economy of about the size of the United States. A new sort of trading world would exist. Consequently the Administration had set about to redesign their trade legislation. The new bill would be radically different in style, terminology and approach, as well as in substance, from its predecessor, although it would still be based on a mutual exchange of benefits in tariff negotiations with other countries. A general authority would be requested to reduce tariffs by 50 per cent for large categories of items, because this seemed like a sensible way to make further reductions in tariffs and because the European Community was better able to negotiate on broad categories than on particular items. In addition several special authorities would be requested. First, the Administration would seek authority to negotiate tariffs to zero for categories of products where 80 per cent of the export value of these categories in relation to exports of the whole of the free world constituted trade between the United States and the Community. All the negotiations would take place on a most favoured nation basis. Countries receiving substantial indirect benefits from such negotiations would, of course, be expected to contribute to the exchange of benefits. Second, on agricultural items where the United States was in a strong competitive position and where tariff reductions by other countries could be effectively utilized to expand United States trade, authority would be sought to move to free. Third, the proposed legislation would provide for granting free access to United States markets for tropical agricultural and forest products, if Britain and the Community would do the same. Fourth, authority would be sought to move to free where the level of the existing tariff did not exceed 5 per cent.
The “safeguards” in the present legislation would also be altered. As was the case in existing legislation, the President would be required to request the advice of the Tariff Commission on proposed tariff reductions, but there would be no fixing of precise peril points. The national security clause would be retained in its present form. The escape clause would be substantially amended to provide for adjustment assistance for industries and labour as an alternative to increasing tariffs to previous levels. It was not intended that this assistance would provide large federal subsidies. Estimates suggested that expenditures would run between $50 and $100 million annually. The new legislation would have a life of five years. Regarding the problem of low cost imports, Mr. Ball said that Presidential power to reduce or eliminate tariffs would be limited to those commodities that could be produced most efficiently in the United States, Britain, the European Community and Canada. Congress could not be expected to hand over powers to reduce tariffs on goods produced by low cost countries.
The powers being sought would obviously be limited in their effect if the British negotiations with the Community failed. The new trade programme was constructed on the assumption of a European Community including the United Kingdom. Although it was not the intention to exert pressure on Britain, the legislation should not be regarded as providing an alternative to Britain’s entry into the Community. While the legislation was being developed in such a way that it would not directly influence the negotiations in Europe, it was designed to ease future problems of adjustment for other countries, including the Commonwealth, should Britain join the Common Market.
There was some feeling in Washington that because of the state of the negotiations in Europe it might be better to wait for another year before introducing the new legislation. However, the view prevailed that it was necessary for the United States to exercise leadership at the present time in the move for greater trade liberalization, and that the existing momentum for liberalization should not be lost.
The envisaged reductions in world tariff barriers would be helpful in resolving not only some United States problems but also some Canadian problems. These initiatives would be strengthened if Canada participated in a similar programme of tariff reductions. Success depended on the creation of an environment of general commitment by the world trading community to further trade liberalization. The resulting expansion of world trade would lead to greater cooperation among the Western countries in the utilization of resources for the cold war, and to higher living standards everywhere.
Mr. Hodges pointed out the similarity of the interests of Canada and the United States in further progress toward trade liberalization, while recognizing that Canada had the problem of smaller industrial units. He expressed the view that protectionist sentiment in Canada was no stronger than it was in the United States. The Administration had had some recent indications that protectionist pressures in the United States were weakening somewhat. He had seen the vitality of Europe and was most impressed by it. He wanted the United States to share in this vitality by increasing their trade with Europe. The Administration would emphasize that the new programme was a “trade expansion programme” and was designed to increase economic activity and employment in the United States. They would try to demonstrate that only a very small proportion of potential imports were competitive with products of domestic industries. Although wages in the United States were relatively higher than in Europe, output per man was still higher. Now was the time to take an initiative in liberalizing trade. This trade liberalization should also include the dismantlement of restrictions on trade in agricultural products. Under the new programme the Canadian adjustment would be somewhat greater than would be the case in most countries, since Canada would be giving up preferences not enjoyed by others.
Mr. Freeman emphasized that the Administration would be seeking maximum access to the markets of the Community for agricultural products. They were very concerned about the problem of access at the present time. It was expected that the Six would work out a common price system this weekend. For many products internal prices would be safeguarded by the use of variable import fees enabling a rigid control on imports. If prices in the Community were established at a level that would bring forth uneconomic production, this would be very damaging to Canadian and United States export markets. The United States would press very strongly for assurances that their historic access for agricultural products should be guaranteed.
Mr. Ball said that the Administration hoped that the new trade bill would help to obtain improved access to European markets for agricultural products.
Mr. Green asked about the effect of the United States trade programme on the Commonwealth.
Mr. Ball said that industrial raw materials, which constitute the major sector of Canada’s trade with Europe, for the most part already entered the Common Market free of duty. Aluminum constituted an outstanding exception, and it was the United States’ intention to try to persuade the Six to move aluminum to the free list. If they were successful Canada would benefit considerably. The Administration had not yet received any very definite reaction from the Six to its proposed trade programme but in general discussions of this type of programme their response had been favourable. Recent discussions with Mr. Heath and Doctor Erhardt in Washington indicated they welcomed the Administration’s new plans. In reply to a question by Mr. Hees, Mr. Ball said that hearings on the proposed legislation would start early in March, but it would be July or August before Congressional action could be expected.
Mr. Fleming thanked Mr. Ball for his outline of the programme. He welcomed the opportunity presented by the meeting of the Joint Committee to discuss the Administration’s plans, to the extent that they envisaged an international initiative by the United States in the trade field having important bilateral aspects. A United States trade programme of this kind was recognized in Canada as of the highest importance for the world generally and for Canada. It was also apparent that the present was the most appropriate time for launching such an initiative. He personally felt that the GATT had not lost momentum and was playing an important role in developing initiatives for trade expansion on a multilateral basis. He noted that Mr. Heath had expressed the view, on his recent visit to Canada, that Congressional action on Administration’s initiative and the resulting negotiations would come too late to affect the current negotiations in Europe.
Mr. Ball commented the Administration did not intend or wish that their programme would delay British negotiations with the European Community. However, their initiative might lead to the settlement of some problems in the negotiations on a provisional basis. It would be unfortunate if at the conclusion of the European negotiations the trade and economic pattern in Europe were fixed indefinitely.
Mr. Fleming said that Canadians still remembered the Hawley-Smoot tariff of the early 1930’s and that they would want some assurance that the proposed trade programme would be a firm and lasting part of United States policy. Mr. Fleming then read a section from a speech he had given in Windsor, Ontario, on November 9, 1961, in which he had stressed that the United States as the leading world power could not be indifferent to the ramifications which the negotiations in Europe would have in so many parts of the world.^{Footnote 62} For example could the United States afford to overlook the effects of a weakening of the Commonwealth trading system or the political solidarity of the Commonwealth in Asia and Africa or their important trading interests in Japan? “Constructive and imaginative leadership was required if the system of world trade and payments which the United States had done so much to develop was to continue to provide an effective framework. Under any circumstances the course of action of the United States in commercial policy would have been of the utmost importance to world trade. In the present situation the scope and character of the tariff negotiating authority which the Administration would obtain from Congress might well influence the course of history, both economic and political, for years to come.” Mr. Fleming assured the United States members that Canada was with them in looking for opportunities for freer trade. Canadian trade policy was based on its position as a world trader and on the GATT principles of multilateralism and non-discrimination. Canada has supported these principles in giving support to the establishment of the OECD and in contributing to the new resources of the IMF which would help to buttress the world payments system. Canada would not be found wanting in its contribution to a stronger and freer trading world.
Mr. Hamilton noted that Canada and the United States had been following the same lines in their search for solutions to agricultural trade problems. Agricultural problems were world-wide and could not be solved within the Six. Most of the industrialized nations could soon be in a net surplus position in agriculture, and the number of countries in this position would increase as the mechanization of agriculture spread. The International Wheat Agreement and the Wheat Utilization Committee proved how effectively countries could work together to help resolve surplus commodity problems. At the OECD Agricultural Ministers’ meeting in Paris a few months ago he had pointed out that European countries except Greece and Turkey had or would eventually have a surplus of agricultural products. As a result they would be faced with three courses of action. First they could subsidize exports of agricultural products, which experience has proved to be both a costly and inefficient solution. Canada and the United States should give the lead in the OECD to the introduction of the rule of law for trade in agricultural products. There was precedence for this in the International Wheat Agreement in which producers were guaranteed a minimum price and consumers were protected by a maximum price. An additional solution was to increase the purchasing power of the underdeveloped countries by arranging commodity agreements which would ensure them a fair price for their output. Second, surpluses could be used as a basis for developing a new programme to assist the underdeveloped countries. In such a world food programme cash payments would demonstrate that the programme was based on humanitarian rather than selfish goals. Finally, governments could encourage alternative land use programmes. Canada and the United States were following constructive policies in this area and should continue to work together to persuade other countries to do the same.
Mr. Freeman agreed that the two countries should continue to work closely together to achieve the goals mentioned by Mr. Hamilton. Two steps were being taken by the Administration in this regard. First, United States food aid programmes would be integrated with the recipient countries’ development programmes. Second, the farm programme to be sent to Congress would be the toughest in history. Among other things it would propose both acreage and production controls. There would be a real problem getting this programme through Congress.
Mr. Udall said that President Kennedy with his sense of history saw the new United States trade programme as a turning point in international trading relationships. The United States delegation was optimistic about the chance of success for the new programme. It was their belief that the risks of trying to initiate a new trading system were far less than the risks of retaining the old one.
The meeting adjourned at 5.40 p.m.

Joint Canada-United States Committee on Trade and Economic Affairs January 13, 1962

The Meeting resumed at 9.30 a.m. in Room Sixteen in the Centre Block. Mr. Fleming was in the chair.

Committee members in attendance were:

Canada
- Honourable Howard Green, Secretary of State for External Affairs
- Honourable Donald M. Fleming, Minister of Finance
- Honourable George Hees, Minister of Trade & Commerce
- Honourable Alvin Hamilton, Minister of Agriculture
- Mr. Arnold Heeney, Canadian Ambassador to Washington
United States
- Honorable C. Douglas Dillon, Secretary of the Treasury
- Honorable Stewart Udall, Secretary of the Interior
- Honorable Orville L. Freeman, Secretary of Agriculture
- Honorable Luther H. Hodges, Secretary of Commerce
- Honorable George W. Ball, Under-Secretary of State

Officials in attendance were:

Canada
- Department of Finance
  - Mr. K.W. Taylor, Deputy Minister
  - Mr. A.F.W. Plumptre, Assistant Deputy Minister
  - Mr. S.S. Reisman, Assistant Deputy Minister
  - Mr. J.F. Grandy
  - Mr. C.A. Annis
  - Mr. M. Sakellaropoulo
  - Mr. Grey Hamilton
  - Mr. W.A. Kennett
- Department of External Affairs
  - Mr. N.A. Robertson, Under-Secretary
  - Mr. A.E. Ritchie, Assistant Under-Secretary
  - Mr. O.G. Stoner
  - Mr. W.F. Stone
  - Mr. M. Dupuy
  - Mr. R. Roy
- Canadian Embassy – Washington
  - Mr. M. Schwartzmann
  - Mr. J. Langley
  - Privy Council Office
  - Mr. R.B. Bryce
- Department of Trade and Commerce
  - Mr. J.A. Roberts, Deputy Minister
  - Mr. J.H. Warren, Assistant Deputy Minister
  - Mr. V.L. Chapin
  - Mr. J. Downs
  - Mr. B. Marshall
- Department of Agriculture
  - Mr. S.C. Barry, Deputy Minister
  - Mr. A. Turner
  - Mr. R. Faibish
- Bank of Canada
  - Mr. L. Rasminsky, Governor
  - Mr. S.J. Handfield-Jones
United States
- Department of State
  - Mr. Edwin M. Martin, Assistant Secretary of Economic Affairs
  - Mr. William R. Tyler, Acting Assistant Secretary for European Affairs
  - Mr. J. Robert Schaetzel, Special Assistant to the Under-Secretary
- Treasury Department
  - Mr. John C. Bullitt, Deputy Assistant Secretary for International Finance
  - Mr. Dixon Donnelly, Assistant to the Secretary – Public Affairs
  - Mr. Ralph Hirschtritt, Office of International Finance
  - Commander Robert Johnson, United States Coast Guard
- Department of the Interior
  - Mr. Morton Pomeranz, International Affairs Assistant
- Department of Agriculture
  - Mr. Robert C. Tetro, Administrator, Foreign Agricultural Service
- Department of Commerce
  - Mr. Jack H. Behrman, Assistant Secretary of Commerce
- United States Embassy
  - Mr. F.A. Linville, Counsellor (Economic Affairs)

January 13, 1962.

Mr. Fleming noted with regret the absence of Mr. Merchant as a result of the sickness of his son.

Agenda Item 2 (Cont’d.)

Mr. Fleming asked Mr. Ball whether he had any further comments on United States trade programme as it would relate to trade with low cost countries, and also with respect to “safeguards” – the peril points, the escape clause, and the national security amendment.
Mr. Ball said that all negotiated tariff reductions under the proposed legislation would be extended to third countries on a most favoured nation basis. Consequently to the extent that tariffs were lowered under the 50 per cent reduction authority on products which they exported, low cost producers would benefit. The authority to eliminate tariffs under the 80 per cent of world trade provisions would mainly affect manufactured goods produced in the industrialized countries of the West and would probably not have much relevance to exports of the less developed countries at the present time. As their production turned to more capital intensive manufactures, however, they would benefit by the zero tariff that would exist on these products in Europe and the United States. The movement to free of tariffs of 5 per cent or less would also benefit low cost countries, and the solution to the problem of trade in tropical agricultural and forest products along the lines envisaged in the new programme would definitely be of benefit to them. Study of the problem of low cost imports was taking place within the GATT framework. While the trade programme did not deal directly with this problem, the Administration would continue to feel its way in this area in the hope that the industrialized countries would find it possible to relax restrictions on these products, the export of which was so essential to the economic strength of the less developed countries. If these countries were going to have strong economies they would have to develop labour intensive industries and find market for their output.
On the question of safeguards, Mr. Ball referred to the President’s State of the Union Message of January 11 in which he said that the existing safeguards would not be neglected in the new legislation.^{Footnote 63} Mr. Ball explained that the peril point provisions of the present legislation required the President to ask for and receive the views of the Tariff Commission on tariff reductions being planned. This was a method of giving assurances to Congress that the Executive would act only after having received the advice of an impartial body. The Administration, in its review of the peril point and escape clauses, was trying to move away from the concept of “injury.” Every producer in a dynamic economy was faced with the need to adapt his production to changes in consumer taste, shifts in population, technological changes, substitution of materials, etc. In adjusting to such changes, only on very rare occasions did producers get assistance from the government. Similarly, while changes in the level of tariffs would require adjustments by industry, it was expected that most of those adjustments would be made without governmental assistance. Where adaptation involved the idling of plant and labour, relief could be provided either by a temporary adjustment of the tariff or by direct government assistance to industries to help them diversify or shift their output from one product to another. Tariff adjustments would only take place when other lines of defence were ineffective. The national security clause would remain unchanged in the new legislation. It had only been used once and that was in the case of oil.
Mr. Hodges said, with respect to the 80 per cent of world trade criterion for moving tariffs to free, that if Japan, for example, became a major exporter of products in one of the categories which originally met this criterion, it might develop that the United States and the European Community would cease to export between them 80 per cent of world trade. The course to be followed in such circumstances was one of the problems being considered in Washington.
Mr. Ball said that the base period for the 80 per cent of world trade calculation was not finally settled, although the year 1957 was currently being considered. Similarly, the categories for which tariffs would be reduced or eliminated were not yet determined. However, in the industrial sector the current plan included about 100 categories. In the legislation the President might be given the power to determine what these categories would be.
Mr. Ball said, in reply to a question by Mr. Fleming, that the Trade Agreement Legislation specified that tariff agreements entered into must be for mutual benefit and that this in effect ruled out unilateral tariff reductions by the United States.

Trade in Agricultural Products

Mr. Hamilton said that the Canadian Government supported the United States programmes for providing foodstuffs to less developed countries on the basis of the requirements of their development programmes. The Canadians in turn wanted United States support for the food bank programme which Canada had proposed and which had now been accepted in principle by FAO and the U.N. General Assembly.^{Footnote 64} It was important that there should be a wide participation, particularly by European countries, in the new United Nations food programme. It was the Canadian intention to emphasize the aid nature of this programme by including in it provision for cash donations. It was essential that the programme be organized on the basis of the needs of the less developed countries, and that it should not be regarded as a programme for dumping surplus agricultural production.
Mr. Freeman agreed that the philosophy and psychology of the Food for Peace programme and the proposed World Food Programme must be that of aid to the underdeveloped countries. These should not be regarded as programmes to resolve domestic problems of surplus producers. The Administration would seek legislation that would permit a cash contribution to the proposed World Food Programme. The contributors to the programme should include all countries that exported agricultural commodities, even although their participation was only on a token basis.

Communiqué

The Committee then turned to the subject of a communiqué and, after some discussion, the text of a communiqué was approved.^{Footnote 65}

Closing Remarks

Mr. Fleming said that it had been a great pleasure to receive the United States delegation in Ottawa. The meeting had been most useful and could not have been held at a more opportune time. The Canadians were particularly grateful for the opportunity to have a first hand description of the new United States trade programme which was so well thought out and would be so important to world developments. Mr. Fleming commented on the importance of personal relations in international affairs and on the high value which Canadian Ministers placed on the close and friendly relations with their United States colleagues.
Mr. Dillon shared Mr. Fleming’s sentiments about the importance of working closely together. The meeting had been most useful and the United States members welcomed this opportunity to understand more deeply and fully Canadian problems arising out of the British negotiations with the Six. They recognized that Canada was in a special category. Mr. Dillon looked forward to continued close relationships. In conclusion he conveyed a personal message from the President to the Prime Minister extending the President’s best wishes to the people of Canada.
The meeting was adjourned at 11.30 a.m., following which the communiqué was released to the press.

Section B - Magazines

265. D.M.F./Vol. 102

Note by Embassy of United States

Note No. 183

Ottawa, February 21, 1962

Confidential

The Embassy of the United States of America presents its compliments to the Department of External Affairs and has the honor to make known the continuing deep concern with which the United States Government views the plans of the Canadian Government to introduce legislation affecting foreign periodicals and to express the strong apprehensions of the United States Government with regard to the potentially adverse effects of the proposed legislation upon United States publications produced in or exported to Canada.

The United States Government observes that its carefully considered views on those recommendations of the Royal Commission on Publications affecting foreign periodicals were first expressed on August 4, 1961 in the United States Embassy’s Note No. 27.^{Footnote 66} The Canadian Government’s response (Department of External Affairs Note No. 12) was delivered on January 22, 1962,† following the announcement in the Canadian Parliament on that date of the Canadian Government’s plans to introduce legislation to implement the Royal Commission’s recommendations.^{Footnote 67}

The Canadian Government announced that it would introduce legislation to ban the entry into Canada of foreign periodicals containing advertising directed primarily to the Canadian market. In view of the long history of the support by the Canadian Government for the removal of barriers to international trade and particularly its opposition to quantitative import restrictions, the United States Government is surprised that the Canadian Government now plans to introduce a complete ban on the entry of certain foreign periodicals, particularly since the ban is to be imposed in an area involving the free flow of information and ideas.

The United States Government considers that the proposed import prohibitions would be clearly contrary to Canada’s international obligations under Article XI of the General Agreement on Tariffs and Trade. As the Canadian Government is aware, Article XI states that no contracting party to the General Agreement shall institute prohibitions on the importation of any product of the territory of any other contracting party. Such action by the Canadian Government might well be used as a precedent by other governments to ban the inflow of periodicals in areas where it is particularly important that the aims, ideals and activities of Canada, the United States and their Free World allies should be better known. The United States believes, therefore, that the proposed import ban would be both a violation of Canada’s international obligations and a harmful precedent.

The United States Government believes that the proposed import ban will have the effect of depriving the United States publishing industry of the privilege generally enjoyed by exporting industries of adapting their product to the taste of potential consumers. The recognition of this privilege is the basis of international agreements to which the United States and Canada subscribe.

The United States Government is pleased to note that the Canadian Government is prepared to enter into conversations with the United States concerning compensation to the United States for any impairment of existing tariff concessions that the proposed import ban would create. However, even the provision of such satisfactory compensation would not make the proposed import ban any less inconsistent with Canada’s obligations under Article XI of the General Agreement.

The Canadian Government also announced that it would introduce legislation to disallow as deductible business expenditures under the Canadian income tax 50 percent of the costs of domestic advertising in non-Canadian magazines now published in Canada, as well as all of the costs of advertising in magazines published outside of Canada. The United States Government notes that according to the figures given in the report of the Royal Commission on Publications the result of the proposed tax measure would be to increase by approximately 50 percent the costs to Canadian advertisers of domestic advertising in non-Canadian magazines published in Canada. It is obvious that the measure would seriously reduce the advertising revenues of those United States firms now publishing Canadian editions of their periodicals. The proposed tax measure is so discriminatory and its injury may well be so great that these United States firms may have to cease publication of their special editions for the Canadian reading public.

The United States Government believes that if the proposed tax measure is enacted Canadian advertisers are more likely to turn to other advertising media which reach a massive audience than to the Canadian periodicals which the measure is designed to help. It is axiomatic in the magazine industry that advertising is dependent upon circulation, and not the other way around. Advertisers buy circulation and they have a choice of many competitive media, both print and broadcast; if the choice of periodicals circulating in Canada is limited, the advertisers are likely to spend their money in newspapers, on direct mail, or for broadcast or telecast time. The United States Government believes, therefore, that the measure would not only be injurious to United States publishing interests now providing a special service to the Canadian reading public, but that it would not effectively assist Canadian periodicals.

Furthermore, the proposed tax measure would appear under some circumstances to contravene a commitment made by Canada to the United States in the double taxation convention between the two countries.^{Footnote 68} This commitment is to allow as deductions, in determining for the purposes of Canadian income tax on the net industrial and commercial profits of a United States enterprise permanently established in Canada, all “reasonably allocable” expenses of such enterprises, wherever the expenses may be incurred and including executive and general administrative expenses. The commitment is contained in paragraph 1 of Article III of the 1942 convention, as modified by the sentence added to that paragraph by Article I(a) of the 1950 convention. The proposed tax measure would appear to mean that an enterprise of United States origin, permanently established in Canada, would be allowed to deduct as a business expense only fifty percent of the expenses of that enterprise for advertising in a foreign periodical published in Canada. It would seem normal for such a United States enterprise to advertise its products to Canadian consumers in those periodicals published in Canada that the enterprise prefers to use, and consequently, the full expenses of such advertising would appear to be deductible under the double taxation convention.

It is the hope of the United States Government that the Canadian Government will, upon further consideration of the highly restrictive character of the proposed tax measure, decide to refrain from imposing the substantial, indirect disadvantage that the measure would create for the continued operation of the United States firms now engaged in producing periodicals for the Canadian reading public, and that the Canadian Government will continue the existing equality of tax treatment already operating in Canada. The United States Government hopes that consideration will be given to finding an alternative method, consonant with Canada’s international obligations, of attaining the Canadian Government’s objective in the cultural field.

266. J.G.D./MG01/XII/C/320

Memorandum from Secretary to Cabinet to Prime Minister

Secret

[Ottawa], March 2, 1962

Royal Commission on Publications

Officials of the departments involved in drafting the law and regulations to implement the recommendations of the O’Leary Report in accordance with your announcement in the House have produced the attached alternative draft resolutions for amendment to the prohibitory section of the Customs Tariff.

An important question of substance has arisen in these efforts to give effect to the decision to prohibit entry to Canada of foreign periodicals containing Canadian domestic advertising. The question at issue is the extent to which it is intended the prohibition apply. The O’Leary recommendation itself is not specific enough to provide the answer. The draft resolutions provide two different lines of demarcation.

The first of the two alternatives (“A” attached) would prohibit entry of special editions of foreign periodicals, including split-runs of regional editions, which carry advertising directed to the Canadian market which does not appear in or which differs from advertising in any edition of the same periodical which circulates in its country of origin. It is clear that these must be excluded if the basic objective of the policy is to be achieved. There are some questions of detail in drafting and in the regulations that will be needed but these can be settled subsequently when the main issue is decided.

The second of the alternative drafts (“B” attached) would also prohibit the entry of foreign periodicals which, although they circulate in their home country and abroad in the same form and with the same content, contain advertising which indicates a specific source of availability in Canada or terms and conditions relating specifically to sales in Canada.

This latter provision is intended to prevent Canadian suppliers securing benefits from “overflow advertising” in Canada to a degree which would either remove or reduce the need for them to advertise in Canadian periodicals. It would not prohibit entry if the advertisement included only a general reference to an office or supply in Canada. It would prevent entry however if, for example, the name and address of a Canadian supplier were spelled out in an advertisement, whether the Canadian supplier were listed by himself or among a number of other suppliers in other countries.

Inclusion of this provision would mean that foreign general or consumer magazines which are distributed in Canada with the same content, including advertising, as is distributed in the home country would have to make changes in some of their advertisements. The instances might not be numerous and the changes in most cases would be minor. From the point of view of Canadian business and trade publications this provision is important since the specific identification of Canadian sources of supply is one of the main services they render. It is the considered opinion of those officials most closely in touch with this question that if Canadian advertisers could identify their role in business and trade publications coming into Canada from abroad, it would seriously impede the ability of Canadian trade and business periodicals to secure the advertising revenue they require.

The question at issue here is whether the government wishes to restrict the prohibition to special editions which differ from those circulated at home or whether it wishes to go farther and encompass any foreign periodical containing advertising of specific sources of availability in Canada. The officials who have prepared these drafts believe that the more comprehensive alternative comes closer to the real intent of the O’Leary Report and the general objective of the government.

I would suggest that an early decision be made to resolve this question and that you should consider placing it before Cabinet. We could circulate copies of this note for the purpose.

R.B. Bryce

[Enclosure 1]

Draft “A”

Secret

Resolved,

that it is expedient to introduce a measure to amend Schedule C to the Customs Tariff to prohibit the entry into Canada of periodicals which, under regulations prescribed by the Governor in Council, have been found to be special editions, including split-runs or regional editions, which circulate entirely or substantially in Canada, and contain advertising directed to the Canadian market that does not appear in, or differs from, advertising appearing in any edition of the same periodical which circulates in the country of origin.
that any enactment founded on this resolution shall come into force on the first day of October, 1962.

[Enclosure 2]

Draft “B”

Secret

Resolved,

that it is expedient to introduce a measure to amend Schedule C to the Customs Tariff to prohibit the entry into Canada of periodicals which, under regulations prescribed by the Governor in Council, have been found to be:
1. special editions, including split-runs or regional editions, which circulate entirely or substantially in Canada, and contain advertising directed to the Canadian market that does not appear in, or differs from, advertising appearing in any edition of the same periodical which circulates in the country of origin; or
2. periodicals containing advertising which indicates a specific source of availability in Canada or terms or conditions relating specifically to sale in Canada, except where the reference to availability, terms or conditions in Canada is primarily directed to consumers outside Canada;
that any enactment founded on this resolution shall come into force on the first day of October, 1962.

267. PCO

Extract from Cabinet Conclusions

Secret

[Ottawa], August 9, 1962

Present

The Prime Minister (Mr. Diefenbaker) in the Chair,
The Minister of Justice (Mr. Fleming),
The Minister of Trade and Commerce (Mr. Hees),
The Minister of Transport (Mr. Balcer),
The Minister of Veterans Affairs (Mr. Churchill),
The Minister of Public Works (Mr. Fulton),
The Minister of Finance (Mr. Nowlan),
The Postmaster General (Mrs. Fairclough),
The Minister of Fisheries (Mr. MacLean),
The Minister of National Health and Welfare (Mr. Monteith),
The Minister of Defence Production (Mr. O’Hurley),
The Associate Minister of National Defence (Mr. Sévigny),
The Minister of Forestry and Minister of National Revenue (Mr. Flemming),
The Minister of Northern Affairs and National Resources (Mr. Dinsdale),
The Secretary of State (Mr. Halpenny)
The Minister of Mines and Technical Surveys (Mr. Martineau),
The Minister of Citizenship and Immigration (Mr. Bell),
The Minister without Portfolio (Senator McCutcheon).
The Secretary to the Cabinet (Mr. Bryce),
The Assistant Secretary to the Cabinet (Dr. Hodgson).

…

Legislation: Royal Commission on Publications

(Previous reference March 8†)

The Prime Minister said that two resolutions to implement recommendations of the O’Leary Commission had been placed on the order paper last session. Ministers should consider whether or not the government should proceed this session with this legislation affecting periodicals.
One of these measures would disallow, as income tax deductions by a taxpayer, 50 per cent of expenditures incurred for advertising directed at the Canadian market in the Canadian editions of Time magazine and Reader’s Digest. Some Canadian advertisers had criticized the proposed measures as attempts by the government to restrict their freedom of choice in the placing of their advertising. The Canadian Periodical Press had now reconsidered its position and would be prepared to support the treatment of these two periodicals as Canadian periodicals. Ministers should also consider whether the proposed legislation would gain the government any friends among Canadian periodicals.
Mr. D. Fleming said that the President of the Reader’s Digest and the Vice-President of Time had informed him recently that their companies’ earnings had deteriorated seriously in recent months and that the suggested 50 per cent disallowance would be disastrous to their Canadian operations. Both periodicals now printed their Canadian editions in Canada, and in both cases the editorial material relating to Canada was prepared in this country. The essential facts had therefore changed since the Royal Commission had made its inquiry. This proposed 50 per cent disallowance should now be dropped. The government should, however, proceed with the other items, including the resolution on the prevention of the importation of Canadian editions of foreign periodicals, and the proposed amendments to the Post Office Act. The U.S. would probably protest against the ban on the entry of Canadian editions as a violation of the G.A.T.T., but the government should be prepared to face this criticism. Whatever course was adopted, the government should make an early statement that would end the long period of uncertainty in this field.
The Minister of Finance (Mr. Nowlan) said that Time and Reader’s Digest should be treated as Canadian periodicals, but that the other legislative items should be proceeded with this session. Unless action on this subject were taken soon, there might be no surviving Canadian periodicals to express Canadian viewpoints. The present balance of payments problem was an illustration of the kind of subject on which it was important to develop a national viewpoint.
He went on to say that a basic change should now be made in the government’s attitude to financial and general policy. During the past five years the government had given financial help to many different groups in the country, partly to win their support. The recent election had shown that this course had not been effective in winning votes for the government. In its present financial position the government could not afford to offer “handouts.” It should therefore take whatever action it thought was right in each case, even if this should mean no more “handouts” or “goodies.” This course would be more likely than the other to gain general support from the electorate.
During the discussionvarious opinions were expressed on the desirability or otherwise of proceeding with part or all of this legislation, and in addition the following points were raised:
1. The Periodical Press believed that periodicals in Canada were now receiving a smaller share of the sums spent on advertising than in earlier years. Radio and television advertising had been increasing.
2. The government would be severely criticized if it took action that led to the discontinuation of the Canadian editions of Time and Reader’s Digest.
3. If the government postponed all action on the proposals in the O’Leary Report, more foreign periodicals would probably establish Canadian editions.
4. The proposed legislation might prove troublesome to the government if proceeded with this session. The subject was complex and the debate would probably be confused. It would constitute a poor electoral issue if the House of Commons should reject it. Some thought the proposals would be evidence of an attitude of narrow chauvinism on the part of the government.
The Cabinet noted the discussion on proposed legislation to give effect to recommendations of the Royal Commission on Publications.

…

268. PCO

Extract from Cabinet Conclusions

Secret

[Ottawa], January 24, 1963

Present

The Prime Minister (Mr. Diefenbaker) in the Chair,
The Minister of Justice (Mr. Fleming),
The Minister of Veterans Affairs (Mr. Churchill),
The Minister of Finance (Mr. Nowlan),
The Minister of National Defence (Mr. Harkness),
The Postmaster General (Mrs. Fairclough),
The Minister of Fisheries (Mr. MacLean),
The Minister of Labour (Mr. Starr),
The Minister of National Health and Welfare (Mr. Monteith),
The Minister of Agriculture (Mr. Hamilton),
The Minister of Defence Production (Mr. O’Hurley),
The Associate Minister of National Defence (Mr. Sévigny),
The Minister of Forestry and Minister of National Revenue (Mr. Flemming),
The Minister of Northern Affairs and National Resources (Mr. Dinsdale),
The Secretary of State (Mr. Halpenny)
The Minister of Mines and Technical Surveys (Mr. Martineau),
The Minister of Citizenship and Immigration (Mr. Bell),
The Minister without Portfolio (Senator McCutcheon).
The Secretary to the Cabinet (Mr. Bryce),
The Assistant Secretary to the Cabinet (Mr. Watters).

…

Resolution for Parliament on Magazines

The Minister of Finance said that on April 12th, 1962, as Minister of National Revenue, he had tabled two resolutions in the House of Commons recommending amendments to the Customs Tariff and the Income Tax Act designed to offer reasonable safeguards to Canadian magazines against undue competition from publications. The suggested amendment to the Customs Tariff would have had the effect of prohibiting the entry into Canada of special editions, including split-run or regional editions, containing advertising specifically directed to the Canadian market. The amendment to the Income Tax Act would have provided that the deductions from income of expenditures incurred by a taxpayer in issues of a non-Canadian periodical be disallowed. In cases of non-Canadian periodicals already established in Canada such deductions from income would have been disallowed in part only.
These resolutions had not been acted upon when Parliament was dissolved. On September 27th, 1962, the Speech from the Throne again forecast the enactment of measures to give effect, with modifications, to certain of the recommendations of the Royal Commission on Publications.
It should be noted that any ban on imports of any type contravenes Canada’s obligations under the G.A.T.T. Written representations on this matter had been received from the U.S. Government.
The government had recently received new representations from the Maclean-Hunter Publishing Company urging that early action be taken to give Canadian publications the relief they had been expecting. Moreover they wanted more severe restrictions on the entry of trade papers.
He was proposing to introduce in the House a resolution, attached to his memorandum (Cab. Doc. 33/63 of Dec. 17, 1962†), which included the suggestions made by the Maclean-Hunter Publishing Company to restrict severely the entry of trade papers. The resolution embraced both the income tax and tariff aspects of the problem and the same effective date, July 1st, 1963, was provided in each case. This date was chosen because it was the earliest date which would allow the Department of National Revenue to make the necessary administrative arrangements and to give the advertisers and the publications time to adapt to the new situation.
An explanatory memorandum had been circulated. (Minister’s memorandum – Cab. Doc. 33/63, Dec. 17, 1962.)
The Cabinet approved for introduction in the House of Commons a resolution substantially in the form attached to the Minister’s memorandum (Cab. Doc. 33/63).

…

Section C - Freer World Trade

269. J.G.D./MG01/XII/D/204

Prime Minister to President of United States

Telegram

Ottawa, October 11, 1962

Emergency

Reference: Canadian Embassy Washington

Please transmit message to President.

Dear Mr. President,

With the enactment of the Trade Expansion Act^{Footnote 69} I wish to let you know that the Canadian Government welcomes this important development in U.S. trade policy which holds out promise for significant progress in the expansion of world trade on a multilateral basis. This is indeed an historic accomplishment.

At the Commonwealth Prime Ministers’ conference in London last month I proposed that all like-minded nations should meet at an early date to consider how the great problems of trade facing us today can be dealt with to the mutual advantage of all. I would like to follow up this general proposal with a specific suggestion for an early meeting on these matters. It is vitally important that we find effective ways as soon as possible for dealing with these complex and urgent trade problems. It appears that the most convenient way of arranging such a meeting would be to discuss these broad trade questions at a meeting of ministers.

The Canadian Government looks forward to participating fully in these efforts and to working with the U.S. and other nations to achieve the objectives which we hold in common. It is our conviction that the opportunities now opened up for wider cooperation in trade and economic relations will make a major contribution to the further strengthening of the free world.

Trade relations between Canada and the United States are characterized by mutual understanding and a constructive approach to our common objective of freer non-discriminatory trade. These new efforts to expand world trade will provide continuing opportunities for our two countries to work closely together each in a full understanding of the other’s interests and aspirations.

John G. Diefenbaker

Message ends.

270. J.G.D./MG01/XII/A/268

President of United States to Prime Minister

Washington, October 18, 1962

Dear Mr. Prime Minister:

Thank you for your letter on the occasion of my signature of the Trade Expansion Act. I am pleased to know that the Canadian Government welcomes this most significant development in the trade policy of the United States.

Ever since World War II, Canada and the United States have been partners in a determined search for a non-discriminatory trading world which affords to all countries of the Free World the best opportunities for economic growth and expansion. Your letter makes clear that we continue to share these common objectives, and I am gratified to have your pledge of close cooperation in moving toward a wider acceptance of our convictions.

I would like to take full advantage of the authority which the Trade Expansion Act confers upon me and I am eager to explore with other like-minded nations as soon as possible the problems and prospects for a new approach to the reduction of obstacles to world trade. In this connection the recent discussions in Ottawa between officials of our two Governments have been most useful. I have been thinking that, after some of the preliminary work has been done and a consensus reached among the principal participants, a ministerial meeting early in 1963 of the Contracting Parties of the General Agreement on Tariffs and Trade might well be the most suitable way to enlist the participation and support of like-minded nations.

On the basis of your proposal for an international meeting, perhaps we might join forces in recommending a special meeting of the Contracting Parties at the ministerial level, to be held possibly as early as February or March of 1963. I should be interested in your reactions to this suggestion.

I am encouraged by the improvement in Canada’s reserve position and welcome the first step you have just taken in the process of removing the special surcharges on imports in response to this improvement. I look forward to your being able to remove the remaining surcharges.^{Footnote 70} This would help us all move forward in our attack on trade barriers.

Sincerely,

John F. Kennedy

Part 4

Columbia River Treaty

271. DEA/5724-2-40

Consul General in Seattle to Assistant Under-Secretary of State for External Affairs

Confidential

Seattle, January 19, 1962

Dear Ed [Ritchie],

According to press reports and other information available to us, there does not yet seem to be any sign of an agreement between Ottawa and Victoria on the Columbia Treaty, which might pave the way to ratification at the present session of Parliament. I realize, of course, there are important political factors involved which will have to be taken into account when considering any move to clear the impasse. However, I thought some informal views on the problem, as it looks from here, and some suggestions might be useful at this time.

As you know, some responsible Canadian observers consider that Canada did not get as good a deal as we might have under the Treaty and that it might be in our best long-term interest to re-open it for revision (probably along the McNaughton Plan^{Footnote 71}) or even let it lapse. From our observations this is the last thing the Americans would want to happen. They, and particularly those in the power field here, know that they have a good bargain, as evidenced by their ratification in record time. Despite some of Udall’s statements late last year, I am convinced that Americans are anxious to suppress any suggestion that U.S. pressure for Canadian ratification or U.S. interference in our domestic dispute, are being exercised. I am also pretty sure that they would be willing to accept Canadian ratification as late as the end of this year or even next year, even though they might announce, in the interim, alternative plans for hydro development on this side of the border.
The method of financing the Columbian project seems to be at the core of our domestic controversy. Premier Bennett wants to finance Canadian construction from the sale in the United States of all or most of Canadian down-stream benefits and to supply the B.C. lower mainland with power developed from the Peace River. On the other hand, Ottawa, in line with the terms of the Treaty, is insisting on preserving all or most of our share of down-stream benefit power for use within Canada, but at the same time is willing to consider the sale of some surplus power as provided for in the Treaty. Leaving out the political factors involved, it seems to me that the two positions are not irreconcilable providing there is some “give and take” on the part of both Federal and Provincial Governments. In this connection I would like to mention three points.
The first is the Peace River Project, the development of which has long been one of Bennett’s ambitions and main objectives. Notwithstanding the fact that the Province has already allocated a considerable sum for preliminary engineering and construction, and has, in fact, made an initial start on the project, it could still be an important element in the Premier’s political tactics to keep Ottawa guessing, and to strike the best possible financial bargain with Ottawa on the Columbia project. I do not think Bennett feels that he, or his Government, is committed to a rigid schedule for the Peace River project, at least not to the point of no return. In other words, if he saw some encouraging or concrete signs of an agreement with Ottawa on the Columbia it seems to me that he could, without losing face, find ways and means to slow down the present preliminary work, and to delay further construction contracts, if some new development made this necessary or desirable. Being the politician he is, I have no doubt he is quite capable of doing this.
The second point is that the Federal policy banning the export of Canadian power has not always been strictly adhered to. Section I of Article VIII in the Treaty and the recent decision of the National Energy Board, approving limited exports of Canadian power^{Footnote 72} would seem to indicate that our historic ban on power exports is subject to modification in the light of circumstances that might prevail from time to time. As you know, some responsible experts in the power field consider that it might be wise for the Canadian Government to consider a revision of our 40-year-old policy on power exports in the light of present-day conditions and the rapid advances being made in the development of nuclear power. All seem to agree that if Canadian power is exported it should be sold at a profitable price; that Canadians must still have the cheapest power available to them; and that there must be iron-clad clauses in any export contracts which would guarantee its return to Canada.
The third point is that local power interests here, including the Federally-controlled Bonneville Power Administration, have indicated their willingness to purchase some of the Canadian share of down-stream benefit power under certain conditions, if this would facilitate Canadian ratification of the Treaty. What the American power interest will pay, and what type of contract they would accept, is not yet known in any detail. What we do know is that they are prepared in principle to purchase some of this power.
Taking the above three points together, it seems to me a solution to the present impasse might be based on a) the amount of down-stream benefit power Canada might be willing to sell to the U.S., and, b) the terms under which that power would be sold for specified limited periods. Bennett wants to sell all or the great bulk of down-stream benefits on a long-term (20-year) basis. Ottawa will apparently agree to the sale of some power on a short-term (5-year renewable contract) basis. I think it is possible to work out a compromise formula. Contracts with rather complex formulas to cover somewhat similar problems have been successfully negotiated here in the Pacific Northwest between public and private power groups, notwithstanding the fact that many conflicts had to be resolved such as up-stream and down-stream rights, interstate rivalries and politics as well as other difficult matters. Some of these contracts provide, among other things, for the short- and long-term sale of power. If you would like to have a copy of one, I think it is possible for us to get one for you.
If a fixed load growth for B.C., say for the next ten or fifteen years, could be agreed upon, it would be possible to determine a specific amount of Canada’s share of down-stream benefits which would be considered surplus for Canadian requirements, and therefore available for sale in the United States. This surplus block of energy could be classified into different categories under the terms of any export contract, which would provide adequate flexibility both as to quantities of power and times of delivery. For example, a fixed amount of firm energy could be sold under a 5-year renewable clause – another portion could be sold under a 10-year clause, etc. Provision could also be included for the sale of dump power and for interchanges of power. The price in each case could also vary, depending on the load factor and availability. In other words, I think an export contract could be written in such a way that it would satisfy all parties concerned and, at the same time, safeguard their basic interests. If some arrangement along this line could be agreed upon, there could be a concurrent understanding with the Province that the Peace River development could be phased in such a way that it would fit in with the requirements of the Canadian export contract.
Because of Provincial jurisdiction over the physical resources of the Columbia and other factors, some observers and commentators consider that Bennett holds the strongest cards in his present dispute with Ottawa. They feel that if the deadlock is to be broken the initial move must come from Ottawa. It might be to the Federal Government’s advantage to take the initiative in offering some compromise solution. If Ottawa agrees to the sale of some of our share of down-stream benefits, provided, of course, that we have iron-clad clauses guaranteeing its recovery at the stipulated periods, it could be argued that this was not going contrary to the traditional Federal policy banning power exports because our share of down-stream benefit power is not power produced in Canada and exported across the line. It is, rather, power produced in the United States and made available to us.
As I mentioned earlier, I am quite certain that the Americans would be willing to wait until next year for our ratification. However, if Ottawa has any intention of selling some of our share, I think it is in our interest to conclude an export contract as soon as possible. The longer we wait, the less attractive this power will be, considering the rapid advances being made in developing nuclear energy and for other reasons. The Bonneville Power Administration’s latest forecast points to a possible power deficit in this region by 1970. Consequently the greater the amount of power we might make available around that date, the higher will be the price we should get.
. If you consider some of these thoughts and suggestions have merit, you might wish to discuss them with Norman Robertson and the Minister.^{Footnote 73}

Kindest regards.

Yours sincerely,

K.J. Burbridge

272. DEA/5724-2-40

Ambassador in United States to Secretary of State for External Affairs

Telegram 717

Washington, March 7, 1962

Confidential. OpImmediate.

Columbia River Treaty

The State Department (Carlson, Canadian Desk) have just phoned me to report that Premier Bennett this afternoon phoned to Luce, the Bonneville Power Administrator, and asked for a letter from him (Luce) requesting commitments to deliver future power in respect of which he (Bennett) said that he was in a position to make commitments at a price of five mills, subject to agreement upon details. According to Luce, Mr. Bennett was speaking of power from Duncan. Carlson mentioned no repeat no amount as having been offered by the Premier.

Because USA authorities, Carlson went on, are most anxious to avoid interference in a matter involving federal and provincial authorities in Canada, Luce had replied to Bennett that he was not repeat not in a position to accede to the Premier’s request; all that he could do was to refer him to the statement of requirements dated October 17, 1961 (which is apparently in the British Columbia Government’s possession and of which, Carlson said, Canadian Government had been given a copy.)^{Footnote 74}
According to Carlson, Premier Bennett’s reaction to Luce’s response was “grim.” He said that, if that were the attitude of USA authorities, he (Bennett) was “through with the Treaty.” He had “given USA their chance” and, as they were not repeat not taking it, they could “accept the consequences.”
Carlson said that Luce’s conversation with Bennett had only just taken place. USA authorities wanted the Canadian Government to know at once what had transpired. State Department have also phoned their account to Merchant and he also may be in touch with you. In conclusion, Carlson repeated the determination of USA Government to keep out of any dispute between federal and provincial authorities in Canada.

[A.D.P.] Heeney

273. PCO

Extract from Cabinet Conclusions

Secret

[Ottawa], March 9, 1962

Present

The Prime Minister (Mr. Diefenbaker) in the Chair,
The Secretary of State for External Affairs (Mr. Green),
The Minister of Finance (Mr. Fleming),
The Minister of Trade and Commerce (Mr. Hees),
The Minister of Transport (Mr. Balcer),
The Minister of Veterans Affairs (Mr. Churchill),
The Minister of Justice (Mr. Fulton), (for morning meeting only)
The Minister of National Revenue (Mr. Nowlan),
The Minister of National Defence (Mr. Harkness),
The Minister of Citizenship and Immigration (Mrs. Fairclough), (for morning meeting only)
The Minister of Fisheries (Mr. MacLean),
The Postmaster General (Mr. William Hamilton),
The Solicitor General (Mr. Browne),
The Minister of National Health and Welfare (Mr. Monteith),
The Minister of Defence Production (Mr. O’Hurley),
The Minister of Public Works (Mr. Walker),
The Associate Minister of National Defence (Mr. Sévigny),
The Minister of Forestry (Mr. Flemming),
The Secretary of State and President of the Privy Council (Mr. Dorion), (for morning meeting only)
The Minister of Northern Affairs and National Resources (Mr. Dinsdale),
The Minister without Portfolio (Mr. Halpenny),
The Minister of Mines and Technical Surveys (Mr. Flynn).
The Secretary to the Cabinet (Mr. Bryce),
The Assistant Secretaries to the Cabinet (Mr. Labarge), (Mr. Watters).

…

Columbia River; Terms of Reference for Minister of Finance in Meeting with Premier of British Columbia ^{Footnote 75}

The Secretary of State for External Affairs said that the basis for the Columbia River Treaty with the United States had been that water would be released by Canada for production of power in the United States. In return, Canada would get back half the power generated. The agreement had been a difficult one to negotiate. The Deputy Minister of Lands, British Columbia, had participated, and all had agreed that half of the residual power would be transmitted back to the British Columbia border free. The only attraction in this transaction was the return of power to Canada. Weeks after the terms had been agreed to, the Premier of British Columbia wanted all the power generated to be sold in the U.S. with Canada taking cash instead of free power. His scheme was to get capital to develop the Peace River power. For some time the Provincial Premier had been endeavouring to have the Federal government provide increased financial assistance. The government should offer to pay one-half of the cost of the transmission lines.
The Minister of Finance said that a request from the Premier of British Columbia to meet with him had gone unanswered. A reply should be sent before the Dominion-Provincial meeting on March 19th, and perhaps he should be seen before that time.
During the discussionthe following points were raised:
1. Some said that a better offer should be made to British Columbia. Others said that it would do no good to increase the offer. It would not be accepted. In any further negotiations, it should be made clear that the interests of the people of British Columbia had to be put first. B.C. consumers should get the benefit of the cheaper power. As long as their needs were met first there should be no objection to any surplus being sold in the U.S. The surplus could be determined by the National Energy Board.
2. The Columbia River project was sound economically. No subsidy was required and there was no case for an outright grant. To subsidize in these circumstances would be a dangerous precedent. In comparable cases in the Maritimes, loans had been made. Others felt that a grant would be in order but they would be prepared to offer an increased advance subject to repayment. However, a loan would not likely be accepted as British Columbia would not want to create more debts. Their biggest cost at present was interest on borrowed money.
3. Some said that the Premier should be seen before he reached Ottawa but that no mention should be made of any offer before the meeting. Others felt that arrangements should be made to discuss the matter with him while he was in Ottawa but to take the initiative by writing to him beforehand. No mention of terms should be made until the meeting between him and the Minister of Finance.
The Cabinetagreed,–
1. that the Minister of Finance write to the Premier of British Columbia saying that he wished to discuss the Columbia River project on the occasion of Mr. Bennett’s visit to Ottawa on March 19th and,
2. to consider later possible terms which the Minister might propose or accept at that time.

…

274. PCO

Extract from Cabinet Conclusions

Secret

[Ottawa], March 15, 1962

Present

The Prime Minister (Mr. Diefenbaker) in the Chair,
The Minister of Finance (Mr. Fleming),
The Minister of Transport (Mr. Balcer),
The Minister of Veterans Affairs (Mr. Churchill),
The Minister of Citizenship and Immigration (Mrs. Fairclough),
The Minister of Fisheries (Mr. MacLean),
The Postmaster General (Mr. William Hamilton),
The Minister of National Health and Welfare (Mr. Monteith),
The Minister of Defence Production (Mr. O’Hurley),
The Minister of Public Works (Mr. Walker),
The Associate Minister of National Defence (Mr. Sévigny),
The Minister of Forestry (Mr. Flemming),
The Secretary of State and President of the Privy Council (Mr. Dorion),
The Minister of Northern Affairs and National Resources (Mr. Dinsdale),
The Minister without Portfolio (Mr. Halpenny),
The Minister of Mines and Technical Surveys (Mr. Flynn).
The Secretary to the Cabinet (Mr. Bryce),
The Assistant Secretary to the Cabinet (Mr. Watters).

…

Columbia River Development; Plans for Discussion with the Premier of British Columbia

(Previous reference March 13†)

The Minister of Finance said he hoped the Cabinet would give him clear instructions for his meeting with the Premier of British Columbia on Sunday, March 18th. It had been rumoured in Victoria on Friday, March 9th that the Federal government was going to increase substantially its offer of financial assistance to the province for Columbia River development. There was no foundation to the rumour, but it coincided with what government members of Parliament from British Columbia were hoping would happen. Premier Bennett had called a press conference and was manifestly upset. He had said that such offers were plain bribery and that the province did not need federal aid but could proceed with the development of both the Columbia and Peace Rivers on its own. It was reported that the Premier had said he would resign if it were necessary for Canada to buy back downstream power developed on the Columbia River. He had proof that this would not be necessary and that it was nonsense to say that downstream Columbia power could be sold more cheaply than power developed in Canada.
Mr. Fleming said he wondered what the government’s position should be on the sale in the United States of downstream benefits rather than bringing them back into Canada.
During the brief discussion it was said that, so long as the bulk of the power, 50.1 per cent, was available to Canada, the balance could be sold if the needs of the lower mainland of B.C. were met, and provided the National Energy Board determined the quantities available for sale and the period over which it would be available.
The Cabinetagreed that the Minister of Finance should,
1. confirm with the Premier of British Columbia when he meets him on Sunday, March 18th, the provincial policy he had announced at a press conference on Friday, March 9th, i.e., that the province did not require any money from the Federal government and could finance the Columbia River and Peace River developments without federal aid; and,
2. inform Premier Bennett that the Federal government would agree to sell up to 49.9 per cent of available power, subject to certification by the National Energy Board that the power was surplus to Canadian requirements for the period of the contracts.

…

275. DEA/5724-2-40

Note by Embassy of United States

Note No. 206

Ottawa, March 17, 1962

The Chargé d’Affaires ad interim of the United States of America presents his compliments to the Acting Secretary of State for External Affairs and has the honor to refer to the common interest of the United States and Canada in the development of the resources of the Columbia River. It will be recalled that the Columbia River Treaty was signed on January 17, 1961 and that the United States Senate gave its advice and consent to ratification on March 16, 1961. The United States Government understands that Canada’s ratification of the Treaty is now still pending because of differences within Canada over the manner of carrying out certain of Canada’s undertakings under the terms of the Treaty.

The United States Government had assumed that the Treaty would be ratified by both countries at a reasonably early date, as seemed to be the prospect at the time the Treaty was signed by the Heads of Government of the two countries. It has been on this expectation that the United States has been basing its planning for additional power resources with which to meet the strong rise in predicted future power needs in the Pacific Northwest region of the United States. The possibility of resolving these future power needs through the most efficient utilization of the Columbia River Basin’s water resources by cooperative development with Canada was, naturally, a prime consideration during the negotiation of the Columbia River Treaty. Even with the share of the power to which the United States would be entitled under the Columbia River Treaty, it appears that the power situation on the West Coast of the United States will be tight during the 1965-66 period.

Another primary consideration in the position taken by the United States Government during the negotiations was the fact that the development of the Canadian storage dams as contemplated in the Treaty, together with the development of the Libby Dam project, would permit the attainment of a long-time objective for flood control in the Columbia River Basin. The importance of the need for flood control may be judged by the fact that in 1948, during the largest recent flood in the region, thirty-four persons lost their lives, seven persons were reported missing, and property damage was estimated to have been over $100 million. It will be recalled that the Treaty provides for payment by the United States Government to Canada of lump sums aggregating $64,400,000 for the flood control benefits which the dams in Canada would provide. Additionally, the Libby Dam project would virtually eliminate the serious flooding that takes place at intervals on the Kootenai River from the vicinity of Bonner’s Ferry, Idaho to Kootenay Lake in British Columbia. These devastating floods have caused great damage to highly productive farm land and have repeatedly threatened the town of Bonner’s Ferry.

The possibility of attaining these flood control objectives at an early date by means of the Columbia River Treaty, as well as the possibility of meeting future power needs in the most efficient manner, was an important consideration in the United States’ decision to agree to the kind of division of benefits with Canada which the Treaty contains. The pressing need to meet the power and flood control deficiencies was also a major factor in the relatively early approval of the Treaty by the United States Senate.

The United States Government trusts that the Canadian Government will understand the need on the part of the United States for firm assurances that the Columbia River Treaty will enter into force at an early date. The United States, therefore, hopes that full consideration will be given to the possibility of proceeding with ratification, leaving, if necessary, national problems to be resolved while construction is under way. On the other hand, if it would be helpful and should Canada so desire, the United States would be willing to engage now in discussions as to price and terms of disposition in the United States of any Canadian power, as a preliminary step leading to the exchange of notes mentioned in Article VIII of the Treaty, provided Canada is prepared to discuss quantity, period of disposition, kind of power and similar matters which are solely Canada’s to determine.

In any event, its own pressing needs force the United States to note, regretfully, that in the absence of any substantial indication of ratification and implementation of the Treaty at an early date it necessarily will have to give serious consideration to possible alternative solutions. The United States Government would, therefore, be most appreciative if it could receive a current appraisal from the Canadian Government regarding the prospects for early ratification.

[Rufus Smith]

276. DEA/5724-2-40

Secretary of State for External Affairs to Delegation to Disarmament Committee

Telegram G-48

[Ottawa], March 17, 1962

Secret. OpImmediate.

Columbia River

Following for Minister only.

In subsequent message† we are reporting the text of a note which was delivered to the Department on Saturday morning by the Chargé of the USA Embassy. This note has been drawn to the attention of the Prime Minister and has been discussed in a preliminary way with Mr. Fleming and Mr. Fulton. We have been assured by the USA Embassy that there is no intention to publish the note and that we would of course be consulted if publication seems desirable at a later stage. Since, however, there were already rumours last week in Washington that some communication might be coming from the USA Government on this subject, it is thought best that an early reply should be made to the note in order that our position may be on record against the possibility of a leak. Accordingly, it is expected that ministers will be considering on Monday morning a draft reply along the lines indicated below. If you have views on this procedure or on this particular draft you may wish to let us have them before the Cabinet meeting on Monday morning. You will of course appreciate the specially sensitive nature of this USA note in relation to talks which Mr. Fleming will be having with Premier Bennett on Sunday and which will also be taking place at the Federal Provincial Power Conference on Monday.

The following is a draft of the proposed reply to the USA note: Text Begins:
The Acting Secretary of State for External Affairs presents his compliments to the Chargé d’Affaires ad interim of the United States of America and has the honour to refer to the Embassy’s Note No. 206 of March 17 concerning the Columbia River Treaty.
The Canadian Government observes that the note from the Embassy is concerned primarily with the urgent need to complete ratification of the Treaty. The Canadian Government shares this view and has repeatedly indicated its desire to proceed with ratification as soon as possible. It has urged the Provincial Government of British Columbia, where the Columbia River is located, to do its part to enable early ratification to take place.
The Canadian Government would not be showing a proper sense of responsibility if it were to carry through the formalities of ratification without having ensured that the necessary arrangements had been made within Canada to bring about its effective implementation.
The Canadian Government notes the offer of the USA Government to engage in discussions regarding the disposition in the USA of any Canadian power “if it would be helpful and should Canada so desire.” The Canadian Government considers that it would be improvident and would place the Canadian negotiators in a most unfavourable position if they were to enter into discussions with the USA authorities on this subject before the internal matters had been settled within Canada. In the absence of a firm and dependable arrangement with the Provincial Government of British Columbia, the Canadian Government would not be in a position in such discussions with the USA to protect the interests of Canada and to preserve for the people of British Columbia the benefits provided by the terms of the Treaty. The Canadian Government therefore continues to consider, as the USA authorities themselves have indicated on several recent occasions, that it would be premature to initiate discussions on this subject at this time.
The Canadian Government fully understand the anxieties of the USA Government regarding future flood control and power supplies on the West Coast of the USA. The USA Government can be assured that it is the hope of the Canadian Government that ratification of the Treaty on the mutually advantageous basis originally contemplated will become possible at an early date.

277. DEA/5724-2-40

Delegation to Disarmament Committee, to Secretary of State for External Affairs

Telegram 438

Geneva, March 18, 1962

Secret. OpImmediate.

Reference: Your Tels G-48 and G-49† Mar 17.

Columbia River

Following for Under-Secretary only.

USA note delivered on March 17 contains one serious misrepresentation of the facts which makes me wonder whether the note is not repeat not in fact a squeeze play. I refer to the phrase in the first paragraph of the note to the effect that Canadian ratification of the Treaty is still pending because of differences within Canada “over manner of carrying out certain of Canada’s undertakings” under the terms of the Treaty.

I believe that our reply should explain that the differences within Canada are over the disposal of Canada’s share of downstream benefits which, under the Treaty, must be transmitted by USA to Canadian border free of cost to Canada.
In other respects the draft reply contained in your G48 is satisfactory, but I would like you to draw to the attention of the Prime Minister and the other ministers concerned the point I have raised above.

[H.C.] Green

278. DEA/5724-2-40

Draft Reply by Acting Secretary of State for External Affairs

[Ottawa, n.d.]

Draft Reply to the Note of the United States Embassy

The Acting Secretary of State for External Affairs presents his compliments to the Chargé d’Affaires ad interim of the United States of America and has the honour to refer to the Embassy’s Note No. 206 of March 17 concerning the Columbia River Treaty.

The Canadian Government observes that the Note from the Embassy is concerned primarily with the urgent need to complete ratification of the treaty. The Canadian Government shares this view and has repeatedly indicated its desire to proceed with ratification as soon as possible. It has urged the Provincial Government of British Columbia, where the Columbia River is located, to do its part to enable early ratification to take place.

In this connection the Canadian Government would stress that the difficulties impeding the completion of arrangements within Canada have not related to any “differences … over the manner of carrying out certain of Canada’s undertakings under the terms of the Treaty,” as the Embassy’s Note suggests. Canada’s undertakings have not in fact been questioned. The difficulties have arisen over differences regarding the disposal of Canadian down-stream power benefits arising in the United States which under Article V of the Treaty the United States undertakes to deliver free of charge to the Canadian border except insofar as other arrangements may be made under Article VIII. The Canadian Government would not be showing a proper sense of responsibility if it were to carry through the formalities of ratification without having ensured that these difficulties had been overcome and that the necessary arrangements were being made within Canada to bring about its effective implementation.

The Canadian Government notes the offer of the United States Government to engage in discussions regarding the disposition in the United States of any Canadian power “if it would be helpful and should Canada so desire.” The Canadian Government considers that it would be improvident and would place the Canadian negotiators in a most unfavourable position if they were to enter into discussions with the United States authorities on this subject before the internal matters had been settled within Canada. In the absence of a firm and dependable arrangement with the Provincial Government of British Columbia, the Canadian Government would not be in a position in such discussions with the United States to protect the interests of Canada and to preserve for the people of British Columbia the benefits provided by the terms of the treaty. The Canadian Government therefore continues to consider, as the United States authorities themselves have indicated on several recent occasions, that it would be premature to initiate discussions on this subject at this time.

The Canadian Government fully understands the anxieties of the United States Government regarding future flood control and power supplies on the West Coast of the United States. The United States Government can be assured that it is the hope of the Canadian Government that ratification of the treaty on the mutually advantageous basis originally contemplated will become possible at an early date.

279. DEA/5724-2-40

Assistant Under-Secretary of State for External Affairs to Ambassador in United States

Secret. To be Opened by Addressee Only.

Ottawa, March 20, 1962

Dear Arnold [Heeney],

I am enclosing a copy of a Note regarding the Columbia River Treaty which was delivered to me last Saturday by Rufus Smith, in his capacity as Chargé of the United States Embassy.

I have delayed sending you this copy in the hope that I might also be able to send you our proposed reply at the same time. Unfortunately, the reply has not yet been completely cleared although it is under discussion at ministerial level.

My reason for giving this document special security treatment may or may not be evident to you on first reading of the text. If, however, you re-read pages 3 and 4 (together with the pointed reference to “Heads of Government” on the first page) you may be able to get some picture of how this communication has been taken here. I can assure you that the initial reactions were very strong indeed, especially since the paragraph at the bottom of page 3 was saying just the opposite of what Udall had indicated when he and Fulton were discussing the possibility of an exchange of letters which would have recorded the view of the United States Government that it would be “premature” to initiate the kind of discussions which the B.C. government had proposed regarding disposals of down-stream benefits in the United States.^{Footnote 76} The possibility of carrying through the proposed exchange of letters between Fulton and Udall was still being discussed as recently as last Thursday when Rufus Smith had given me orally the rather negative view which had developed in Washington over the proposed correspondence. As you can imagine, it was surprising – to say the least – when we received this Note on a Saturday morning – and particularly on the Saturday morning preceding Sunday’s discussions between Premier Bennett and Mr. Fleming and Monday’s federal-provincial meeting on the power grid where it was known that Premier Bennett would be raising questions about the Columbia.

We are trying to play this in a fairly low key here; we may not be successful, however, since this Note and the circumstances surrounding it really invite a pretty sharp response.

I do not think that you should say anything at this stage to the State Department about this Note. Naturally we also consider it essential that no word should leak out about the fact that such a communication has been received. The press stories last week and the related question asked by Mr. Herridge in the House of Commons concerning the possibility of some kind of communication on this subject^{Footnote 77} may indicate that there is little chance of keeping this story out of the press. We intend, however, to do our best.

Warm regards.

Yours sincerely,

A.E. Ritchie

280. PCO

Extract from Cabinet Conclusions

Secret

[Ottawa], March 20, 1962

Present

The Minister of Finance and Acting Prime Minister (Mr. Fleming) in the Chair,
The Minister of Trade and Commerce (Mr. Hees),
The Minister of Transport (Mr. Balcer),
The Minister of Veterans Affairs (Mr. Churchill),
The Minister of Justice (Mr. Fulton),
The Minister of National Revenue (Mr. Nowlan),
The Minister of National Defence (Mr. Harkness),
The Minister of Citizenship and Immigration (Mrs. Fairclough),
The Minister of Fisheries (Mr. MacLean),
The Minister of Labour (Mr. Starr),
The Postmaster General (Mr. William Hamilton),
The Solicitor General (Mr. Browne),
The Minister of National Health and Welfare (Mr. Monteith),
The Minister of Defence Production (Mr. O’Hurley),
The Minister of Public Works (Mr. Walker),
The Associate Minister of National Defence (Mr. Sévigny)
The Secretary of State and President of the Privy Council (Mr. Dorion),
The Minister of Northern Affairs and National Resources (Mr. Dinsdale),
The Minister without Portfolio (Mr. Halpenny),
The Minister of Mines and Technical Surveys (Mr. Flynn).
The Assistant Secretaries to the Cabinet (Dr. Hodgson), (Mr. Labarge), (Mr. Watters).

…

Columbia River Development; Report by the Minister of Finance

(Previous reference March 19†)

The Minister of Finance said he had had a further meeting with the Premier of British Columbia on the afternoon of March 19th. It had been fruitful and, at the conclusion of it, the press had been called in. They had been told that both the Federal government and the provincial government were trying to arrive at an understanding, and that a further meeting was planned but that no time or place had been set.
Mr. Fleming said that the crux of the difference between the two parties was the economics of bringing downstream benefits back to Canada. Premier Bennett contended that this would be most expensive power. It was agreed that experts of both sides should get together to review the provincial and federal assessments of the cost of these benefits. Mr. Bennett had wanted only one expert from each side but had agreed that there would be more than one. Mr. Fleming was to let him know within 48 hours the number of experts who would represent the federal side. The meeting of experts should be arranged quickly. No mention of this meeting was to be made in the press. The Prime Minister had been told of these developments and had approved. Mr. Bennett had said he would not buy power developed downstream on the Columbia, and the province would not develop power on the Columbia if the Federal government insisted on bringing it back to Canada.
In the discussionit was said:
1. It would not be advisable to engage Montreal Engineering Company experts for the federal side of the discussions, but they might provide technical assistance to the civil service experts who were chosen.
2. Would such a meeting get anywhere if each team of experts was biased in favour of its own government?
3. The experts likely to be chosen had worked closely together for months and were quite unbiased in their views on Columbia power.
The Cabinet noted with approval the report of the Minister of Finance on his meetings with Premier Bennett of British Columbia about the Columbia River development and agreed that Messrs. D.M. Fleming, Fulton and Dinsdale should meet to determine the number and identity of the federal technical and economic experts who would meet with provincial experts to examine the differences between the federal and provincial assessments of the costs of downstream power benefits on the Columbia River.

…

281. D.M.F./Vol. 20

Memorandum for Minister of Finance

Confidential

Ottawa, April 7, 1962

Columbia River Power Discussions

In accordance with instructions from you and your colleagues, the undersigned met on April 5 and 6 with representatives of British Columbia: Messrs. Shrum, Keenleyside, Kidd and Purcell.

A. Terms of Reference for the Meeting

We opened by indicating our understanding that the purpose of the meeting was to examine the costs of power that would be derived from downstream benefits, at-site development on the Columbia, and the Peace River respectively, in order to ensure that any differences were clearly understood. We referred to the fact that Mr. Bennett had indicated to you his belief that downstream benefits were not the cheapest source of power.

The British Columbia group immediately said that they had been given quite different instructions about the purpose of the meeting. They said their government was of the view that the “long-distance” debate over the development of the Columbia had gone on far too long. They had come, on the instructions of the Premier, prepared to make specific suggestions for arrangements that they hoped could be recommended to both governments in order that the Columbia development could begin at the earliest possible date. Dr. Shrum said that there was no purpose in discussing costs of Peace River power. It was going ahead and there was no room for doubt on this point. The real need was to arrive at arrangements for the Columbia. He said that there was no difference between British Columbia and the federal government on cost calculations and there seemed nothing to discuss there.

Expanding on the province’s attitude on the Columbia, Dr. Shrum said that they proposed to outline proposals for the sale of Canada’s downstream benefits in the United States. The province had no intention that that sale should subsidize the Peace or any other provincial development. It wanted to work out the basis for a sale before ratification of the Treaty took place because the bargaining position would be very much stronger if the United States recognized that they would not get ratification (and therefore would not secure their own share of downstream benefits) unless acceptable terms of purchase were worked out with Canada. The Treaty would not need any modification; it was entirely acceptable to British Columbia as it was.

We advised the British Columbia representatives that their terms of reference differed markedly from ours. We had no authority to discuss arrangements for sale of downstream benefits to be recommended to governments. We indicated that we felt we could hear what they had to suggest and ask questions for clarification, in order that Ministers here could know what the province proposed, but it had to be understood that we could not agree to or recommend anything. Mr. Parkinson and I reported this to you at noon on Thursday and you agreed that we should follow this course and carry on the meetings so there could be no suggestion that the federal government was not prepared to receive the B.C. suggestions.

B. Cost of Downstream Benefits

Although the British Columbia people had said there were no cost differences between them and us, we asked where Mr. Bennett’s impression had been derived that the downstream benefits were not the cheapest power – particularly, where he had secured a figure of some 6 mills?

Dr. Shrum said they had not supplied any such figure to Mr. Bennett but they thought they knew the basis on which it had been worked out. Mr. Purcell explained that a figure of 6 mills could be derived by taking the cost of the treaty projects on the Columbia and charging them entirely against downstream benefits at a point of time before any at-site power was being produced to carry a share of the costs. On questioning it turned out that this calculation also involved the omission of the $64 million of flood control benefits; the omission of all West Kootenay benefits (but the inclusion of Libby flowage costs); and also the inclusion of $2 million for the stand-by per year.

It was clear that the British Columbia group did not attach any importance to this calculation and they repeated that they had no difference, except on minor points, with the figures produced here or by the Montreal Engineering Company.

To get as much certainty on this matter as possible, we gave them copies of a paper that listed the assumptions used by us and Montreal Engineering, together with the cost figures for projects, downstream power and total project power. (See Appendix A.) This is the paper under reference in paragraph 2 of the final paper they left (Appendix D) where they refer to “no significant difference of view on the costs of the various projects.” They also indicated no difference of view on the power costs listed.

C. Proposed Arrangement for the Sale of Downstream Benefits

Dr. Keenleyside outlined four principal points involved in the plan B.C. wished to propose:

Interim purchase from B.P.A. of power to meet provincial requirements until the first stage of the Peace came into production in 1968. He said they had an understanding with B.P.A. to get such power at a very low figure (probably the B.P.A. base rate) or alternatively to pay for it in kind after Columbia power is available.
Sale of all downstream benefits in the United States at a price to be negotiated before ratification of the Treaty.
The Peace River to go ahead and the province to undertake that a national power grid in Canada would have a first call on Peace River power at a price less than the price that British Columbia could secure for Peace or Columbia power in the United States. Also Peace River power “would not bump Columbia power out of the natural Columbia service area.”
All the income from the sale of downstream benefits would be used exclusively for the development of the Columbia.

The British Columbia representatives then presented a paper (Appendix B) setting forth the argument and the economics relating to Point No. 2 (sale of downstream benefits).

In brief, the argument is as follows:

The average cost of power from the full Columbia development “has been estimated by various agencies as approximately 4 mills.” (Our figure has been 4.3 mills.)
If part of the power can be sold outside the province at a price greater than the average cost of power, there is a profit. (The only qualification on this proposition is that if there was not a surplus of power in B.C., and if the power sold had to be replaced with very expensive power, the profit would be reduced to that degree or, theoretically, could be wiped out.)
If there is a net profit, and it is ploughed into the operation it “would result in a reduction of the 4 mills costs applied to the remaining power sold in British Columbia.” (There is no question about the validity of this proposition as a straight “dollars-and-cents” matter. It is the same argument as was outlined in the Cabinet Committee at the meeting of October 31, 1961, to show the economic advantage of selling half the downstream benefits at various prices.)

The British Columbia representatives argued that there would be other financial advantages in addition to the direct profit on each unit of power sold:

Our downstream benefits could be sold in the U.S. immediately they are available, whereas if sold in Canada there would be surpluses at various times, with losses of revenue.
The cost of transmission lines to carry the power from the U.S. border is saved, and also the stand-by charge in the U.S.
The loss of power in transmission (variously estimated at 4%, 6% and 12% in different studies) is avoided and all power is saleable at the generators.

Additional arguments are set forth in section 4 of Appendix B.

The B.C. paper presents the results of a sale at 5 mills in the following terms:

The net profit could pay the total costs of the 3 treaty projects in 23 years (assuming borrowing at 4½%, sinking fund earnings of 5% and amortization over 50 years). Alternatively:
The average cost of Columbia power in Canada could be reduced by 1.4 mills. (For their study they took an average cost of 4.6 mills without sale, and ended up with 3.2 mills with a sale.)

The economics of the argument, with comments, are set forth more fully in Appendix C.

In discussion and under questioning by us, the following further points emerged:

Term of sale to be 20 years or more (10 years plus 10 years notice). They said there is no interest in anything less and no good price could be secured for a shorter term. The longer the term, the better the price.
They maintained that their government is confident that a price of 5 mills per kilowatt hour can be secured. An essential part of the calculation is that the United States will pay more than the cost of alternative thermal power to get their own share of downstream benefits. (They referred to the U.S. share costing 1.5 mills. A price of 5 mills for our share would mean an average price of 3.25 mills for all the downstream benefit power – cheaper than any other U.S. power.)
If there is a contract for sale in the United States, British Columbia is confident that it can get financing in the United States for the Treaty projects at 4½% or 5% at most. They could not say whether the province might still want partial financing by the federal government as offered.
While the B.C. representatives did not have authority to commit the province definitely to use the $64 million flood control benefits for the Columbia project in such a way as to reduce its costs or the price of power, they made it clear that they thought Mr. Bennett would concede this if necessary.
B.C. Hydro had spent $6 million on March 31 on Columbia engineering, and has authority to go to $7,750,000 by June 30. They could start physical construction at Duncan by July 1, 1962, and at High Arrow by September 1, 1962. Mica studies are not complete, but it could be started by the autumn of 1963.
The prospect of selling at 5 mills did not emerge until December, 1961. Prior to that time it had been considered that B.P.A. could not buy, and that any sale would have to be to private utilities, which would have no incentive to pay more than thermal costs. In December it had been ruled that Canadian downstream benefits would be power produced by a “public agency,” and therefore B.P.A. could buy. That was when sale of all benefits at a high price became a possibility. A sale of all downstream benefits at 5 mills would amount to about $35 million per year in the Canadian balance of payments.
A further element that changed the situation was the expropriation of B.C. Electric and the taking over of Peace River Power. Peace River could not be financed as a private scheme and its power was too expensive. Now it was definitely going ahead, no matter what happened to the Columbia. The B.C. representatives argued that it made no sense to bring back downstream benefit power when it would be surplus in British Columbia.
British Columbia is convinced that there is no point in investigating price in the United States further until British Columbia and Canada can go with a firm offer. They say B.P.A. will not negotiate with British Columbia without the commitment of the Canadian government, and will not disclose its best terms except in a real negotiation to buy and sell.
If a sale for less than 20 years would be more palatable to the federal government, British Columbia would accept 19 or 18, but there is no point in a short term as the price would be much lower.

In discussion of Dr. Keenleyside’s Point 3 (see page 2) on the morning of April 5 we pointed out that it meant nothing to say Peace River power “would not bump Columbia power” out of its natural service area if the Peace had in the meantime gone ahead and there was a large surplus. When in fact would Mica be machined? Dr. Shrum indicated it would depend on load growth; the outside date to absorb all the power involved would be 1983. We pointed out that to say Peace River would not “bump Columbia power” out was meaningless if it was qualified by a load growth question.

In the afternoon Dr. Shrum advised that he had talked on the telephone to Mr. Williston who, after clearing with Mr. Bennett, had authorized him to say definitely that Mica would be started on schedule and would be machined as soon as it was built and the reservoir filled – which would be 1973. On questioning he made it clear that if this involved deferring later stages of the Peace, that would be done. Dr. Shrum said he did not think this was a wise commitment; he would prefer that the province did not give it, but Mr. Bennett was prepared to do it as a concession in order to get agreement and get the Columbia under way.

In the course of the two days, the B.C. representatives apparently had several telephone discussions with Mr. Williston and Mr. Bennett. They indicated, when the meetings concluded at one o’clock on April 6, that they had authority to put certain of the commitments in writing. This was done in a hand-written document, a copy of which is attached as Appendix D.

At the end of the meetings, the B.C. representatives stressed the urgency that B.C. attached to arriving at an agreement. They said this was not because it would affect the Peace in any way: that was going ahead on schedule and there was no intention or need for Columbia revenues to help it. The urgency was because the U.S. would turn to other sources of power; the value of our storage to them would steadily diminish; and our downstream benefits would be less in total and in value the longer we waited. The other urgency was in the employment and investment that would stimulate the B.C. economy. They pressed for a decisive meeting in the week of April 9.

We explained the pressures on federal ministers at this time; that the B.C. suggestions were new and would have to be examined with care; that the matter was of very great importance and they should not be surprised if a little time would be required to go into them fully. No time commitment whatever was given, but it is clear that the province will press for a very early reaction.

R.G. Robertson

J.F. Parkinson

T.M. Patterson

G.M. MacNabb

[Enclosure 1]

Appendix A

Ottawa, April 5, 1962

Statement of Federal Government Assumptions Used in Estimating the Cost of Columbia River Downstream Benefits

Estimates of the cost of Columbia River downstream benefits delivered to Southern British Columbia load centres have been prepared for the federal government by engineers of the Water Resources Branch of the Department of Northern Affairs and National Resources, and by the Montreal Engineering Company. The assumptions employed by these two agencies in arriving at their estimates of unit power costs are as follows:

Table 2: (need table title)
Assumption with Regard to:	Water Resources Branch	Montreal Engineering Company
(a) Interest rate	5½%	5½%
(b) Load growth in B.C.	8%	8%
(c) Load forecast assumed for the United States Pacific Northwest	Maximum	Maximum
(d) Standby transmission charge continued for the life of the Treaty	Yes	Yes
(e) Load factor in B.C.	70%	65%
(f) Energy-capacity trade in downstream benefits	Yes	No
(g) Limit of thermal development in B.C.	I.O.C.O. #4	I.O.C.O. #4
(h) Surplus energy used as thermal replacement energy in B.C.	No	Yes
(i) Transmission losses of downstream benefits from the United States	6%	12%
(j) Mica dam machined by	1973	1973
(k) Mica storage costs assessed against at-site power after machining	Yes	Yes
(l) Loads of the West Kootenay area considered	Yes	Yes
(m) West Kootenay benefits from Duncan and Libby storage considered as downstream benefits	Yes	Yes
(n) Treaty flood control payments used to offset Treaty project costs	Yes	Yes

The cost estimates contained in the May 1961 report of the Montreal Engineering Company on “Factors Affecting the Cost of Columbia River Power in Canada” have been adopted by the Water Resources Branch in its recent studies. These estimated costs for projects and associated transmission are listed below:

Summary of Estimated Capital Costs

Table 3: (need table title)
Projects	Project Cost	Transmission Cost
Arrow Lakes Storage	$ 81,200,000	$ 82,000,000
Duncan Lake Storage	28,700,000	1,300,000
Mica Storage	288,100,000	46,000,000
Canal Project & Brilliant #4 & #5	36,628,000	4,000,000
Murphy Creek and Waneta #3	104,596,000	8,000,000
Mica Generation	78,800,000	154,000,000
Revelstoke Canyon	125,300,000	28,000,000
Downie Creek	148,600,000	87,000,000
Seven Mile & Waneta #4	58,996,000	27,000,000
Calamity Curve	35,400,000	10,000,000
Canal Flats Diversion	5,000,000	-
Libby Flowage	10,000,000	-
Totals	$1,001,320,000	$447,300,000

These cost estimates and assumptions result in the following unit costs for downstream energy benefits delivered to Southern British Columbia loads:

Water Resources Branch estimate – 3.29 mills per kilowatt hour
Montreal Engineering estimate – 3.60 mills per kilowatt hour

While these estimates fluctuate with varying assumptions, the federal government is satisfied that they offer substantial proof that the Treaty can provide large quantities of downstream energy benefits to British Columbia loads at a cost of less than 4 mills per kilowatt hour. We therefore feel that the Treaty not only develops an energy resource which would not otherwise be available to the province, but that it enables this energy to be delivered to British Columbia loads at a cost which is less than the cost of developing any other major energy resource existing in British Columbia today. By so doing it permits a full development of the Columbia River in Canada which, including downstream benefits, is capable of delivering over 27 billion kilowatt hours of energy annually to British Columbia loads at an average cost of 4.3 mills per kilowatt hour.

[Enclosure 2]

Appendix B

[Victoria], April 3, 1962

Outline of a Proposal for the Sale of Downstream Benefits as Submitted by British Columbia Representatives April 5, 1962

Assessment of Selling Downstream Benefits in the United States

1. Introduction

The unit cost of power produced by the Columbia River development has been estimated by various agencies as approximately 4.0 mills/kwh delivered at the load centres in British Columbia. This estimate assumes that all the energy developed, including downstream benefits originating at United States generators, would be sold at the British Columbia load centres.

If we assume that the selling price to the consumer would consist of the 4.0 mills, plus distribution costs, it follows that the sale of any of this Columbia power outside the Province at a price high enough to yield a profit would result in a reduction of the 4.0 mills costs applied to the remaining power sold in British Columbia.

It can be shown that the sale in the United States of the entire amount of downstream benefit power and energy can be carried out without detriment to the continuing development of the Columbia River power resources in the Province and will accelerate the development of other provincial resources. Moreover, it can also be shown that the margin of profit available from the sale of downstream benefits in the United States is very significant.

2. Capital Costs of Treaty Projects

The Columbia River development has been assessed by various agencies and as a result a variety of cost estimates have been prepared. Examination of the estimates show that they vary in detail with respect to the individual projects but in total are in about the same order. This is best illustrated by comparing the various cost estimates prepared for the three Treaty projects as follows:

I.C.R.E.B. Report $ 346 million
Prime Minister’s Treaty Announcement 345 million
Montreal Engineering 398 million
B.C. Energy Board 362 million
B.C. Hydro 338 million

The differences in cost estimates are not so great that the use of one or the other of them would have a significant effect on the unit cost of power or change the validity of the assessments that follow.

3. Advantages of Immediate Complete Sale of Downstream Benefits

It is obvious that if all the downstream power benefits can be sold immediately they become available, the resulting unit cost will be less than if the benefits are gradually used to meet a load growth.

(i) Initial Development – Treaty Projects

Examples of the advantage of being able to sell downstream power benefits immediately they are available are given in the B.C. Energy Board Consultants’ Report. On Page 114 of the report the average unit power costs for the full development of the Columbia River are reduced by being able to sell the surplus downstream benefits. The results are summarized as follows:

Table 4: Average Unit Cost of Power – Full Columbia Development With and Without Sale of Surplus Downstream Benefits
Selling price of surplus downstream benefits mills/kwh	0	2	4
With Cominco and new industries	3.61	3.54	3.47
Without Cominco and without new industries	4.40	4.29	4.18

Further reductions would be achieved if the surplus downstream power benefits could be sold at the generators for 5 mills/kwh.

Although the reductions do not seem large it must be realized they apply to the output of the full Columbia development totalling more than 20 billion kwh. A reduction in cost of 0.1 mills/kwh on this quantity of power amounts to $2,000,000 per year.

The advantage of sale of downstream benefits at the generators can be further illustrated by the following tabulation. Costs and loads are taken from Tables 13 and 15 of the B.C. Energy Board Consultants’ Report.

Table 5: Costs and Revenues – Downstream Power Benefits Without Cominco & New Industries
At-Site
	1967	1968	1969	1970	1971
B.C. Energy load at-site – mw	291	386	487	545	708
Annual Costs – $million	8.88	8.98	10.05	10.09	26.50
Annual Costs – mills/kwh	3.48	2.65	2.35	1.99	4.27
At Load
Annual Costs – $million	18.00	18.11	19.24	20.05	36.94
Annual Costs – mills/kwh	7.25	5.52	4.63	3.94	6.08
Gross Revenue @ 4.4 mills/kwh at load in B.C. – $ millions	10.60	14.1	17.8	19.9	25.9
New Revenue @ 4.4 mills/kwh at load in B.C. – $ millions	-7.4	-4.0	-1.4	-0.15	-10.0
Gross Revenue if available Energy sold at 5.0 mills/kwh At generator – $ millions	24.5	24.5	24.5	24.5	33.4
New Revenue @ 5 mills/kwh $ millions	15.6	15.5	14.5	14.4	6.9

In the five years illustrated above, if all available downstream benefits are sold at-site for 5.0 mills/kwh the net surplus of revenue over costs amounts to a total of $66.9 million.

If sold as required to meet the estimated load in British Columbia at a cost of 4.4 mills (average cost given in B.C. Energy Board Report for Columbia Development without Cominco and without special industry) the net result would be a substantial deficit amounting to $22.9 million without including re-financing.

This is illustrated by the attached Plate No. 1.†

If all the downstream benefits were sold at 5.0 mills on a continuous basis, rather than only the amounts surplus to B.C. requirements, our studies have shown that the total costs of the three Treaty Storage projects could be paid off in about 23 years, assuming borrowing at 4½% and sinking fund earning at 5% with amortization over 50 years. If only the annual costs are paid on the projects a profit of $310 million would result at the end of 20 years and $440 million at the end of 30 years. These are the financing terms that B.C. can get if the downstream benefits can be sold in the United States at 5.0 mills/kwh.

Even if money is borrowed at 5% and sinking fund earning at the same rate over a 40-year amortization period a profit of $220 million would result after 20 years and would become very large after 40 years.

These results are illustrated on the attached Plate 2.†

(ii) Full Columbia Development with Sale of All Downstream Benefits at Generation

Downstream power benefits on the Columbia River in the United States are only one product of the capital invested in the three Treaty projects. They are benefits clearly separable from the other products of the Columbia developments, such as the power and energy to be generated at Mica and other projects in Canada or the flood control benefits to be produced in the United States. However, the cost of the downstream power benefits cannot be separated from the total costs of the Columbia development except in the most arbitrary manner. For example, at a stage of development where only the three Treaty projects have been constructed and the only power being produced for Canada is the Treaty entitlement, the downstream benefit power would cost British Columbia about 4 mills/kwh at the generators in the United States, and about 6 mills/kwh at the British Columbia load centres.

After this stage has passed it would become impossible to establish a “unit cost of downstream benefit power.” The only unit cost figure with any real meaning would be the average unit cost of power sold in British Columbia after taking account of the revenue from the sale of downstream benefits.

In the light of the above it would appear that one method of assessing the merit or otherwise of selling the downstream power benefits in the United States is to carry out two studies: one with all of the downstream power benefits which can be used in British Columbia returned to the Province and the other with all of the downstream power benefits sold in the United States. A comparison of the respective unit costs of power derived from these two studies will indicate a measure of the relative merits.

Plate 3 following,† which is based on preliminary studies, indicates the following:

With all downstream benefits used in British Columbia the average costs of power from the Columbia would be about 4.5 mills.
The average cost of power in British Columbia would be about 3 mills with all downstream benefits sold in the United States at 5 mills/kwh.
The net annual reduction in cost between the schemes if all downstream benefits were sold in the United States at 5 mills would be about $250 million over a period of 15 years without allowing for any earnings on these savings.

4. Other Advantages from Sale of Downstream Benefits in the United States

By selling all the downstream benefits in the United States the domestic markets will be met by Columbia at-site power assuming speedy development of the Columbia in Canada. Thus the large costs that are “sunk” into Mica storage projects in preparation for at-site power are paying dividends as rapidly as possible.
By selling all the downstream benefits in the United States the downstream benefits will decrease at a slower rate. Thus the income from the downstream benefits will not decrease as rapidly as estimated and the costs of power in British Columbia will be further decreased.

The drop in Canada’s adjusted downstream power benefits assumed in all analyses so far is about 30% in between 1970 and 1985 with all the power and energy used in Canada. If all the power and energy were used in the United States it is estimated that the drop in adjusted benefits would be 20% over the same period. This would increase the estimated revenue for 1985 by about $3.5 million.

Sale of all the downstream benefits in the United States at 5.0 mills/kwh will assure revenues for the Treaty projects and make it possible to obtain attractive financing terms. The resulting large net revenues, when re-invested in the British Columbia power development, makes it possible to obtain very cheap power at every stage of development.
Sale of the downstream benefits in the U.S. allows a logical and economic build-up of Provincial transmission without incurring the risk of having to build costly lines from Oliver to load centres which may have little use in the future.
The sale of the Canadian entitlement to United States agencies at a relatively high price would probably cause an increase in the average selling price of the whole Columbia downstream power benefits in the United States, thus removing to some extent the criticism that implementation of the Treaty would give power consumptive industry in the United States a significant economic advantage over Canadian competition.
The development of power resources in the Province would be simplified by the removal of the variable source of power represented by the entitlement to downstream benefits and the annual assessments of the downstream benefits would not be a factor in planning to meet provincial power requirements.

[Enclosure 3]

Appendix C

Comments on the British Columbia Technical Presentation in Support of the Sale to the United States of Canada’s Downstream Power Benefits

A thorough review of the British Columbia presentation would require more detailed information concerning load growth, project costs, etc. However, a preliminary study of their calculations has indicated three areas of objection:

They suggest a 20-year sale period (10 + 10) but only study the initial 15 years.
They omit the cost of replacing downstream benefits on the British Columbia load in the years 1979 to 1986.
They omit the thermal replacement market which downstream benefits could meet in British Columbia.

Points (1) and (2) have been corrected for in this review. Point (3) would decrease to some extent the attractiveness of selling the downstream benefits in the United States, but would by no means alter the conclusion reached by the study.

Table 1 sets forth the British Columbia presentation adjusted to take account of points (1) and (2) noted above.

Table 6: "Table 1" Based on past table numbering in the HTML, this is table 6. Should this be labelled "Table 1" (as per the Word document or "Table 6"?
Study by	Period of Sale to the U.S.	Average Cost of Columbia River* Power in British Columbia		Average Reduction In Cost
Study by	Period of Sale to the U.S.	Without Sale to the U.S.	With Sale to the U.S.	Mills Per KWH	Per Cent
British Columbia	20 yrs.	4.59 mills/kwh	3.43 mills/kwh	1.16	25%

* Flood control benefits excluded.

The British Columbia authorities state that if downstream benefits are sold in the United States they can finance the Treaty projects at 4½% interest rather than the 5½% used in deriving the answers in Table 1. They also feel that in the early years of development energy can be obtained at Blaine from the Bonneville Power Administration at 2.5 mills per kwh rather than the 5 mills used in their calculations. Allowing for these two factors results in a 32% saving in power costs rather than the 25% shown on Table 1.

While there has not been sufficient time or information to permit a detailed check of the British Columbia presentation, the Water Resources Branch, on the basis of its own studies carried out over the past few months, subscribes to the general conclusion that a sale of downstream benefits at 5 mills per kilowatt hour can reduce the cost of the remaining Columbia River potential by at least 25%. This conclusion depends upon the assumption that the United States will pay 5 mills per kilowatt hour at the generators for our downstream benefits. We have no way of knowing the validity of this claim and therefore our agreement with the mathematics of the British Columbia presentation is conditional on this very important item.

Plates 1 and 2 show in graphical form the savings indicated by the British Columbia presentation. These benefits are given in tabular form in Table 2.

Table 7: "Table 2" [Same comment as last table]
Year	Savings in Annual Costs $ million	Savings Accumulated at 5½% Interest $ million	Savings Expressed As A Reduction in the Cost of Columbia River Energy Delivered in B.C. mills per kwh
1966-67	20.4	20.4	22.4
1967-68	16.1	37.6	8.45
1968-69	17	56.7	5.85
1969-70	12.5	72.3	3.1
1970-71	18.6	94.9	3.58
1971-72	15.1	115.2	2.36
1972-73	13.5	135	1.75
1973-74	16.3	158.7	1.77
1974-75	16	183.4	1.49
1975-76	13.4	206.9	1.08
1976-77	14.7	233	1.04
1977-78	14.8	260.6	0.92
1978-79	11.6	286.5	0.64
1979-80	7.6	309.9	0.38
1980-81	1.3	328.2	0.05
1981-82	1.2	347.5	0.05
1982-83	1.2	367.8	0.05
1983-84	1.2	389.2	0.05
1984-85	1	411.6	0.05
1985-86	1	435.2	0.05

[Enclosure 4]

Appendix D

Confidential

[Ottawa], April 6, 1962

A meeting on the Columbia Treaty Projects was held in Ottawa on the 5th and 6th April, 1962, between officials representing the Federal Government (Messrs. Robertson, Parkinson, Patterson and MacNabb) and officials representing the Government of British Columbia (Messrs. Shrum, Kidd, Purcell and Keenleyside).

Following an exchange of papers and subsequent discussion, it was agreed that there was no significant difference of view on the costs of the various projects.

The Provincial representatives emphasized the great urgency of immediate action on the Columbia project.

They then presented the following points as a basis of agreement and compromise between the two governments which will permit the immediate ratification of the Treaty and the early commencement of construction.

All downstream benefits will be sold in the United States at a price of approximately 5 mills KWH. The term of such sale to be sought by the Government of British Columbia will be 10 years firm with a 10-year period of notice of termination at any time thereafter.
The Peace River development, already under way, will continue.
For the interim period, prior to the availability of Peace power, the British Columbia Hydro and Power Authority will meet its current needs by purchase from the Bonneville Power Association at Blaine or other points where it may be needed on the British Columbia border. Consideration will be given to proposals already discussed with and agreed by the Bonneville Power Association for the payment for this power in kind.
All income from the sale of downstream benefits will be used exclusively for the development of the Columbia River project in Canada.
Mica will be machined as soon as possible to meet incremental needs in British Columbia. It is expected that this will be not later than 1973. This will be effected by postponing the later stages of the Peace River development, if necessary.
Subject to provincial requirements, energy from the Peace River, the Columbia and other sources in British Columbia will be made available on a first call basis to the proposed national grid at prices not higher than those obtainable from the United States for British Columbia power exported to the United States.
British Columbia will endeavour to obtain the agreement of the U.S. entity to the inclusion of an escalator clause in the agreement covering the sale of the downstream benefits.
Subject to agreement between the governments and to immediate ratification of the Treaty the Provincial Government will be prepared to start physical construction on Duncan by July 1962, on Arrow by September 1962, and Mica as soon as possible in 1963. The later start in the case of Mica is due entirely to investigations and engineering studies which are actively under way but are not yet complete.
British Columbia will undertake to use the funds received from the United States in payment for flood control for the rehabilitation and economic development of areas adversely affected by the projects included in the Columbia River Treaty.

This is submitted as a confidential document with the understanding that its contents will not be made public.

G.M. Shrum

H.L. Keenleyside

G.J.A. Kidd

P.R. Purcell

282. DEA/5724-2-40

Ambassador in United States to Assistant Under-Secretary of State for External Affairs

Personal and Confidential.

Washington, April 16, 1962

Dear Ed [Ritchie],

Rumours were circulating here last week to the effect that a “blueprint” would shortly be released by the Administration which would set out the plans for development within the United States of a number of projects on the Columbia and its tributaries. The projects were supposed to be of a character which would allow them to be integrated with developments called for by the Treaty when these were undertaken after ratification. The timing of the release was supposed, in some quarters, to have some significance vis-à-vis delays of ratification in Canada and the recent submission of the United States Embassy note to the Department.

We were able to determine that the so-called blueprint was, in fact, a series of recommendations, based on a memorandum of agreement between the Corps of Engineers and the Bureau of Reclamation, under which responsibility for planning, construction and operation of a number of projects in Alaska, the Columbia River basin and the Missouri River basin was divided between the two agencies. Attached are eight copies of a White House press release of April 10 announcing the terms of this agreement.† An apparently accurate account of the agreement appeared in The New York Times of April 5, 1962, to which we drew the attention of U.S.A. Division.^{Footnote 78} We are trying to obtain a copy of the agreement itself for forwarding to the Department.

I don’t believe we should read too much into the timing of this release since the terms of the memorandum of agreement between the Corps and the Bureau have apparently been under discussion for some time. In addition, the projects themselves were selected as a result of a comprehensive review of the plan for the Columbia River basin authorized by Congress in 1955. I think you will agree that what is important is that the Corps is recommending construction of eight water resources projects in the basin based on its study, and if early starts are made on these, it may mean a lessening in the interest in ratification of the Treaty. (An article in the Globe and Mail of April 11, makes this same point.)^{Footnote 79}

In addition, Norm Chappell has heard from his sources that both public and private power interests in the Pacific Northwest are planning on the assumption that the Treaty will not be implemented – or that it will be implemented too late to provide the power required to meet anticipated demands in the next few years. The public power groups in the area are considering arrangements for harnessing Hanford reactor energy at the 800,000 kw. level, and it seems they would not be considering this at this time if they were satisfied that Treaty power would be available in the near future.

It is possible to conceive of a situation developing where projects were sufficiently far advanced as to ensure firm power requirements apart from Treaty benefits. In that case the United States might feel that the basis on which the Treaty was negotiated had altered sufficiently to warrant a review of its terms. While the flood control provisions would still be important to them the power aspects would presumably take a somewhat lower priority.

This is, of course, all rather speculative and it would be difficult for us to get an expression of opinion from officials here. We would, however, be prepared to see what we could find out in the way of Administration thinking on these projects and their significance in relation to the Treaty if you thought this would be desirable.

Yours sincerely,

A.D.P. Heeney

283. E.D.F./Vol. 38

Deputy Minister of Northern Affairs and National Resources to Minister of Justice

Confidential

Ottawa, May 1, 1962

Dear Mr. Fulton,

Some two weeks ago when we were discussing the possible basis of an arrangement on the Columbia River that would involve a sale of downstream benefits in the United States, you mentioned that you felt it would be essential to have some provision that the power from Mica at-site generation would be used in British Columbia. Shortly after that discussion Mr. Alvin Hamilton spoke to me about a proposal he had made that, if we agree to the sale of downstream benefits, it should be part of an arrangement that would include an option for Canada to buy back from the United States an equivalent amount of power (i.e. equivalent to the downstream benefits we had sold) – the option to be exercisable at some time after our sale of power had been completed. Mr. Hamilton’s point was twofold: that such an option could be valuable in itself, and that it would permit the sale of downstream benefits to be regarded as a part of an exchange of power rather than an outright alienation.

On the basis of the two conversations referred to above, I asked the Water Resources Branch to undertake a study to see how the power involved could fit into a load growth projection and also to work out what the consequences in revenues and power costs would be. I have just received a copy of a memorandum dated April 30th from Mr. MacNabb on this matter and am enclosing one herewith, together with the attached plates.† I am also sending a copy to Mr. Hamilton.

I think you will find the results of this study – while subject to the qualifications that Mr. MacNabb has indicated in paragraph 4 – most interesting. It suggests that the points made by both you and Mr. Hamilton could be accommodated and that the over-all result would be an extremely attractive one.

I am also sending copies of this material to Mr. Parkinson for the information of Mr. Fleming since he may be involved in further discussions with Mr. Bennett. If you think there is any other action that should be taken on this perhaps you could let me know.

Yours sincerely,

R.G. Robertson

284. PCO

Memorandum from Minister of Northern Affairs and National Resources to Cabinet

Cabinet Document No. 219-62

Ottawa, July 16, 1962

Confidential

The Columbia River Treaty

Consideration has been given in recent weeks to the outstanding policy decisions on the Columbia River Treaty in relation to the current economic situation. It seems apparent that, under certain arrangements that could be entered into, early action on the Treaty could do a good deal to stimulate a substantial inflow of U.S. funds. Decisions on the Treaty must be taken in the very near future and it seems desirable to have the possible economic contributions toward solution of the present problems in mind in taking them.

Situation in Relation to British Columbia

Since the signing of the Treaty on January 17, 1961, it is differences with British Columbia that have held up progress on the treaty. While the position of the British Columbia Government in relation to financing, sale of power in the United States and the relationship between the Columbia and the Peace River development was quite obscure for many months, it was greatly clarified in meetings held on April 5th and 6th between officials of the two governments. The main points that had involved difficulty or that were obscure up to that time were the following:

Acceptability of the Treaty as it Stands
There had been some indications that British Columbia doubted whether Columbia power was the lowest cost power available and whether the Treaty was acceptable to it. It was made clear in April that B.C. does not challenge the cost figures for downstream benefits or for Columbia power as a whole. It was also made clear that the Treaty is acceptable to British Columbia as it stands.
Peace River Development
It had been feared that British Columbia intended to push ahead with the Peace River and to pre-empt B.C. markets for Peace power. This would have left the Columbia River development with no market for power other than the United States. It was also feared that British Columbia would refrain from the machining of Mica Dam and from the development of the power potential of the Columbia River in Canada in order to make room for the Peace. At the meetings in April the British Columbia Government representatives made it clear that, while British Columbia intended to proceed with the Peace River, it would commit itself (1) to start construction of the treaty projects in Canada at the earliest possible date; (2) to machine Mica as soon as the growth of demand for power made it possible (probably by 1973); and (3) to postpone the later stages of the Peace River development if necessary to make room for Mica.
Financing
The federal government had offered to provide the financing for 50% of the cost of the storage projects. Initially British Columbia had taken the position that this was not a sufficiently generous offer and that a substantial federal grant should be made. At the meetings in April, the British Columbia representatives did not press for any improvement in the federal financial provisions. They said that, if agreement could be reached on the sale of downstream benefit power in the United States, British Columbia would be able to finance the entire scheme without any federal assistance and would prefer to do so by borrowing money in the United States at lower interest rates than are available in Canada. While recent financial problems in British Columbia might affect this position somewhat, the Columbia is an economic self-financing operation and under appropriate conditions financing in the United States at reasonable rates should be quite feasible.
Sale of Power in the United States
It was for some time not clear whether British Columbia was pressing for the sale in the United States only of the downstream benefits to which Canada is entitled there or also of power that would be produced at site in Canada in the Columbia system. It appeared that they might be pressing for a total sale of Columbia power in order to facilitate development of the Peace River. At the meeting in April it was made clear (as indicated above) that the latter is no longer the British Columbia position: it is pressing now only for the sale of downstream benefits. Originally it had been feared that a satisfactory price could not be secured in the United States since it was thought that only the private utilities and not Bonneville Power Administration would be legally able to purchase. It now appears that Bonneville Power Administration will have the legal capacity to buy and may be prepared to pay a good price (possibly as much as 5 mills) if this is the only way in which it can secure implementation of the Treaty and thus get its own share of downstream benefit power.
Application of the Proceeds of Power Sales
It has originally been feared that the B.C. intention was to use the revenues from any sales of power in the United States to help finance the Peace River development. At the meeting in April the British Columbia representatives made the commitment in writing that “all income from the sale of downstream benefits will be used exclusively for the development of the Columbia River project in Canada.”
Flood Control Payment
Canada is entitled to a payment of $64 million (U.S.) for flood control benefits. British Columbia had originally indicated that the payment would be appropriated by the province as compensation to it for other resources taken out of production by the creation of the Columbia reservoirs (even though full compensation to all owners is provided for). At the meeting in April it was indicated that British Columbia would undertake to use the funds “for the rehabilitation and economic development of areas adversely affected by the projects included in the Columbia River Treaty.” It was also made apparent that British Columbia would probably be prepared, if pressed, to allocate the payment against construction costs for the treaty projects themselves.

As the above points indicate, British Columbia has clarified its position substantially in the direction of meeting federal objections. It seems apparent that agreement can be reached under which the project can go ahead at once if the federal government is prepared to agree to the sale of downstream benefits.

The Question of Selling Downstream Benefits

The objection of the federal government to the sale of downstream benefits in the United States has been related essentially to two considerations: (a) the traditional Canadian fears about the long-term export of electric power and (b) the desirability of securing the lowest cost power for the benefit of Canadian industries and consumers. It would appear possible to meet both these points if a price of 5 mills and other suitable terms can be secured.

Fears about power exports have largely stemmed from unfortunate experiences in World War I. The problems then arose out of contracts for unduly long terms (usually 50 years) for sales at fixed prices (with no escalation to protect against increases in price levels) and at extremely low figures (well below alternative power costs in the United States). All of these can be protected against. A 20-year term has been proposed and a 5-mill price is not below but probably equal to or even slightly above alternative power costs. An escalation clause might be possible, if it is considered important, in return for some concession on the basic price. The fact that 5 mills is not below alternative power costs would rule out any chance of objection at terminating the sale when a contract provided for it.

There is a further point of difference between a sale to B.P.A. and early export contracts. One of the difficulties in connection with them was that the Canadian exporter was selling power to specific industries which were built up around and relied upon that one single source of power supply. Under present-day circumstances in the Columbia River basin the exported power would be fitted into the Bonneville Power Grid which receives supplies from dozens of sources and distributes these supplies through many outlets. No one customer knows the original source of the power which he is utilizing at any particular moment. So far as B.P.A. is concerned, any power sold by us would be a small part of this total system.

With regard to the cost of power in Canada, it is correct that downstream benefit power is the lowest-cost power that we can produce. (The Water Resources Branch of this department estimated the delivered cost of such power in British Columbia at 3.29 mills per kwh.; the Montreal Engineering Col. set the figure at 3.6 mills.) There was, thus, justification for the argument that it should be used in Canada for Canadian benefit. However, if a good enough price can be got for it, and if the profits are ploughed into the Columbia development so as to reduce the cost of at-site power in Canada, just as low a cost can result for an even larger amount of power for Canadian use. The downstream benefits are relatively small part of the total power output of the Columbia development and it is the average cost of the power used in Canada from the entire project that is of major significance. The average cost, with no sale of downstream benefits, has been calculated at 4.3 mills. If the proceeds of a sale are used to defray project costs, the following figures result:

Table 8: [Need table title]
	U.S. funds at an 8% premium
20-year sale of one-half of our downstream benefits at 5 mills per kwh	3.9 mills per kwh
20-year sale of all of our downstream benefits at 5 mills per kwh	3.2 mills per kwh

(The above figures assume borrowing in the United States at 5% for the projects.)

It is apparent from the above that a 20-year sale of all our downstream benefits at 5 mills could reduce the average cost of the Columbia power that would be used in Canada to the cost of our downstream benefit power if we do not sell it. The argument about keeping our lowest cost power is thus met.

There is a further technical consideration of importance. The sale of our downstream benefits to the United States limits the new generating installations required by that country. Through the methods of calculation applicable under the Treaty this has the effect of increasing our entitlement to downstream benefits. While this effect has not been included in the preceding data, it is quite substantial and could increase our annual revenues from the United States by more than $5 million (U.S.) in 1985.

The above arguments turn essentially on price. If 5 mills can be secured, there is no doubt about the economic advantage of a sale of downstream benefits.

Financial Considerations

As has been indicated at the outset the desirability of an early decision on policy has become more urgent as a result of the current financial difficulties. Quick action on the Treaty could be one of the most impressive and effective of the “longer-term measures of a positive and constructive nature” envisaged in the Government’s statement of June 24.^{Footnote 80} The mere announcement of the Government’s decision to proceed with early ratification would in itself be taken as foreshadowing expansive and work-creating policies to follow the present inevitable restrictions. The prospect of Canada and the United States working together on this cooperative project would greatly strengthen the international confidence which the emergency program is designed to develop.

The financing in the United States of the construction program in the Treaty would attract substantial amounts of capital from outside Canada. Not only would this capital inflow be large in amount but it would also be of the right kind for a country in Canada’s position. It would be of a kind which would not involve any transfer of ownership to the United States. If part or all of the downstream benefits can be sold in the United States, the capital would readily pay for itself in foreign exchange earnings. The year-by-year results with U.S. financing and sales of (a) one half and (b) all our downstream benefits in the United States are set out in the Appendix. In brief, these indicate that if the Treaty projects were financed by means of funds raised in the United States, it could involve an inflow of over $11 million (U.S.) in the first year and over $200 million (U.S.) in the first 5 years after ratification. If Canada’s share of downstream benefits were sold in the U.S. at 5 mills per kwh. for 20 years, the revenues in U.S. dollars could amount to over $558 million (U.S.) over the period – an average of $27,900,000 (U.S.) per year in added export earnings – and could more than cover the operational cost of the projects plus the re-payment of the borrowed U.S. funds. The total net inflow of U.S. funds in the first 5 years would exceed $290 million (U.S.)

Recommendation

In the light of the above considerations, the undersigned recommends that:

steps be taken at the earliest possible date to reach agreement with British Columbia on a basis for action on the Columbia River Treaty that would involve
1. the initiation of construction immediately upon ratification of the Treaty;
2. machining of Mica Dam for production of power in Canada at the earliest possible date and with priority over the development of Peace River power if load growth in British Columbia will not absorb both; and
3. the sale of Canadian downstream benefits in the United States for a term not exceeding 20 years provided a satisfactory price can be negotiated and the proceeds of the sale are allocated solely to the Columbia River development; and
the Cabinet Committee on the Columbia River be directed to submit for Cabinet approval detailed proposals as to possible terms for an arrangement with British Columbia on the basis of which negotiations should be undertaken through the British Columbia-Canada Policy Liaison Committee.

Walter Dinsdale

[Enclosure]

Appendix

Table 9: Year by Year Balance of Payments with the United States
Year	20 Year Sale of One-Half of Canada’s Downstream Benefits							20 Year Sale of All of Canada’s Downstream Benefits
	U.S. Investment in Projects		Revenues from Power Sales and Flood Control		Payments to the U.S.		Annual Balanceof Payment	U.S. Investment in Projects	Revenues from Power Sales and Flood Control	Payments to the U.S.			Annual Balance of Payment
	Millions of U.S. Dollars							Millions of U.S. Dollars
1962	11.040	0		0		+11.040		11.040	0		0	+11.040
1963	36.800	0		0		+36.800		36.800	0		0	+36.800
1964	67.027	0		0		+67.027		67.027	0		0	+67.027
1965	59.800	0		0		+59.800		59.800	0		0	+59.800
1966	43.380	71.846		2.983		+112.243		43.380	75.442		2.983	+115.839
1967	36.800	17.294		7.340		+46.754		36.800	24.485		5.966	+55.319
1968	36.800	17.294		7.340		+46.754		36.800	24.485		5.966	+55.319
1969	26.947	17.294		7.340		+36.901		26.947	24.485		5.966	+45.466
1970	4.600	20.256		15.427		+ 9.429		4.600	30.090		13.756	+20.934
1971	4.600	20.388		23.499		+ 1.489		4.600	32.220		21.545	+15.275
1972	0	19.960		29.999		-10.039		0	31.150		28.059	+ 3.091
1973	0	17.994		29.985		-11.991		0	30.080		28.059	+ 2.021
1974	0	14.578		29.971		-15.393		0	29.010		28.059	+ 0.951
1975	0	12.500		29.957		-17.457		0	27.940		28.059	- 0.119
1976	0	12.500		29.943		-17.443		0	26.870		28.059	- 1.189
1977	0	12.500		29.929		-17.429		0	25.800		28.059	- 2.259
1978	0	12.500		29.915		-17.415		0	24.730		28.059	- 3.329
1979	0	12.500		29.901		-17.401		0	23.660		28.059	- 4.399
1980	0	12.500		29.887		-17.387		0	22.590		28.059	- 5.469
1981	0	12.500		29.873		-17.373		0	21.520		28.059	- 6.539
1982	0	12.500		29.859		-17.359		0	20.450		28.059	- 7.609
1983	0	12.500		29.845		-17.345		0	19.380		28.059	- 8.679
1984	0	12.500		29.831		-17.331		0	18.310		28.059	- 9.749
1985	0	12.500		29.817		-17.317		0	17.240		28.059	-10.819
Mid 1986	0	6.250		14.902		- 8.652		0	8.555		14.030	- 5.475
Accumulated Totals	327.794	360.654		497.543		190.905		327.794	558.492		463.038	423.248

285. DEA/5724-2-40

Memorandum by Assistant Under-Secretary of State for External Affairs

Confidential

[Ottawa], July 17, 1962

Columbia River Treaty – Conversation with Mr. Willis Armstrong

When Mr. Armstrong, the Chargé of the United States Embassy, paid his farewell call on the Minister this morning, he mentioned that the main bilateral problem between the two countries (apart from defence questions) is the matter of the Columbia River Treaty. He noted certain statements by Secretary Udall and others that if the treaty was going to be of much value to the United States, it was pretty well necessary that it be ratified in time for the next construction season (presumably by the spring of 1963). Mr. Armstrong enquired whether the Minister could say anything about the prospects for the treaty.

Mr. Green remarked that two of the political parties had indicated during the recent election campaign that they would expect the treaty to be renegotiated (i.e. the Liberal and New Democratic parties). Mr. Green asked Mr. Armstrong what his view was of the possibility of such a renegotiation.
Mr. Armstrong suggested that minor changes in the treaty might be open for renegotiation (and presumably the results could be passed through the Senate within a reasonable period of time). On the other hand he considered that any major renegotiation (for example any change in the Libby Project) was virtually out of the question since the United States would have to do something about its power supplies in the Pacific Northwest within the near future. The United States would still have the problem of flood controls at Bonners Ferry but this would have to be dealt with in some other way if the treaty were to be long delayed.
Mr. Green said that the Government had not really examined this matter since the election but his own thought was that the treaty might be thrown into the External Affairs Committee and all the opponents and supporters of the treaty should be given a chance to express themselves there. The Government would be required to defend the treaty against its critics.
Mr. Green recalled that the Federal Government had been on the verge of concluding a treaty which would have avoided the Libby Project, but the Provincial Government had reversed itself and opposed such an arrangement. In fact, generally, the main difficulties had been with the Provincial Government and not with the United States, in Mr. Green’s view. Mr. Green noted that the main remaining problem also related to the Provincial Government’s position, since the British Columbia Government wished to sell all the power benefits in the United States whereas the Federal Government wanted them brought back to British Columbia. Mr. Green remarked that if the benefits were to be sold in the United States, the United States Government would presumably be relieved of the expense of the line for transmitting these benefits to Canada.
Mr. Armstrong asked whether there was anything which the United States Administration could helpfully say. Mr. Green suggested that “in fourteen different languages” the best thing would be for the United States to be as quiet as possible about the treaty and not to get involved.

A.E. R[itchie]

286. J.G.D./MG01/XII/D/35

Memorandum by Prime Minister

Confidential

[Ottawa], August 20, 1962

Columbia

Yesterday, Sunday August 19th, I had a long interview with the Honourable Howard Green. I don’t think I made any particular headway. He can’t understand Mr. Fulton’s change of attitude^{Footnote 81} and in that I agreed with him. I pointed out that if Mr. Fulton could swallow the dish of crow that he had provided for himself then Mr. Green’s position should be less difficult. However he pointed out that one thing above everything else that he valued was his reputation and that he could not do other than withdraw from the Cabinet.

I argued that if 5 Mill rate could be secured on the downstream benefits it would be of tremendous value to Canada, that the essence of the Treaty was that the United States should construct the transmission line to the Canadian boundary. He insisted that this should be gone ahead with now. I asked him when the power would be produced and he said five years hence. The order of construction would be

Upper Arrow, and would end with No. 3 – Mica Dam.

I asked him what purpose there would be in constructing it now and he said he had argued so frequently in the Cabinet and been turned down that the Canadian Government should promise to pay one-half of the transmission costs from the boundary to Vancouver.

While he was here I discussed the question on the phone with Senator McCutcheon who called me and I so advised Mr. Green. I made no impression on him in support of a compromise.

J.G. D[iefenbaker]

287. PCO

Extract from Cabinet Conclusions

Secret

[Ottawa], August 22, 1962

Present

The Prime Minister (Mr. Diefenbaker) in the Chair,
The Secretary of State for External Affairs (Mr. Green),
The Minister of Justice (Mr. Fleming),
The Minister of Trade and Commerce (Mr. Hees),
The Minister of Transport (Mr. Balcer),
The Minister of Public Works (Mr. Fulton),
The Minister of Finance (Mr. Nowlan),
The Minister of National Defence (Mr. Harkness),
The Postmaster General (Mrs. Fairclough),
The Minister of Fisheries (Mr. MacLean),
The Minister of Labour (Mr. Starr),
The Minister of National Health and Welfare (Mr. Monteith),
The Minister of Agriculture (Mr. Hamilton),
The Minister of Defence Production (Mr. O’Hurley),
The Associate Minister of National Defence (Mr. Sévigny)
The Minister of Northern Affairs and National Resources (Mr. Dinsdale),
The Minister of Mines and Technical Surveys (Mr. Martineau),
The Minister of Citizenship and Immigration (Mr. Bell),
The Minister without Portfolio (Senator McCutcheon).
The Secretary to the Cabinet (Mr. Bryce),
The Assistant Secretaries to the Cabinet (Dr. Hodgson), (Mr. Watters).

…

Columbia River Development Policy

(Previous reference May 12†)

The Prime Minister said immediate consideration must be given to the government’s policy with respect to the development of the Columbia River.
The Secretary of State for External Affairs read from Hansard of January 26th, 1962, a letter from Mr. Fleming to the Premier of British Columbia on the Columbia development.^{Footnote 82} It was pointed out in the letter that Premier Bennett had said that all of Canada’s share of the downstream benefits should be disposed of in the United States. This was contrary to the fundamental purpose of the Treaty which was to secure for the people of British Columbia directly and immediately the cheapest and most abundant electrical power available. All through the negotiations on the Treaty, discussions between Canada and British Columbia were based on the intention that the bulk of Canada’s share of the low cost downstream benefits should be delivered to Canada for the use and benefit of consumers in British Columbia. The Treaty itself reflected this principle, and the letter quoted sections from the Treaty in support of this view. The Treaty set out specifically that a portion of the downstream benefits to which Canada was entitled might be disposed of within the United States. The letter from which Mr. Green read, had been approved by the Cabinet before it was sent.
Mr. Green went on to say that Canada had negotiated for the return to Canada of half the downstream benefits and that only temporary surpluses would be sold in the United States. To agree at the meeting on Monday, with Premier Bennett, that all of Canada’s share of the downstream benefits should be sold in the United States would be contrary to everything he had said before and during the election campaign. He then read extracts from newspaper reports of speeches by himself and other Ministers which supported the view that the purpose of the Treaty was to bring back low-cost downstream benefits to the people of British Columbia. In one case it was reported that Premier Bennett had said in the Legislature that he would resign before he would bring downstream benefits all the way back to Vancouver and Mr. Green had said there was no chance of Ottawa changing its position.
During the discussionthe following points were made,
1. In view of what had been said, how could Canada change its position? There would have to be a compromise between Canada and British Columbia if the Treaty was to be implemented.
2. The proposals put forward by the B.C. officials in April should be examined on their face value. They appeared to be a reasonable compromise on the part of the province. The province needed the Columbia development and, although the speeches quoted would be brought up in the press to embarrass the government, it was better to try to move ahead with the project.
3. The U.S. had also changed its position. It did not appear in the beginning that Canada’s share of downstream benefits could be sold in the U.S. at 5 mills per KWH. Now this seemed possible but would have to be checked.
4. The sale of half the Canadian downstream benefits would not be an effective compromise. It would not be economically sound. The entire transmission facilities would have to be built to carry only half the available power. The U.S. might not pay 5 mills per KWH for only half the available power since they would have to create facilities to carry the other half back to Canada.
5. There was an obligation on the U.S. to deliver Canada’s share of the downstream benefits to the border but they had not agreed to deliver it free, as the International Joint Commission had suggested. A formula had been worked out whereby no direct charge for transmission was made but the U.S. was to be paid a fee for stand-by transmission facilities on an alternative route to Vancouver.
6. It would be to Canada’s advantage economically to sell all of its downstream benefits rather than half. Premier Bennett had said income from the sale of downstream benefits would go into the Columbia development rather than to the Peace development. He would have to give assurance, however, that, notwithstanding the present state of the province’s credit, he could still finance the work on the Peace River in the manner he had previously expected.
7. Premier Bennett had said he would defer the later stages of the Peace development to machine the Mica section of the Columbia.
8. The sale of Canada’s downstream benefits would bring in large amounts of foreign exchange. The arrangement could be terminated after 10 years on 10 years’ notice if the situation changed to warrant this action. Canada’s failure to ratify the Treaty was becoming embarrassing in the United States. The U.S. Senate was now talking about the U.S. developing the Columbia basin alone.
9. Some felt that the present proposals were not the best for Canada. General McNaughton’s were considered to be better. Other Ministers did not agree with this view. General McNaughton’s proposals were not acceptable to the people of British Columbia affected by them.
10. If Canadian downstream benefits were sold in the U.S., the U.S. would not build transmission facilities to the border and, if Canada later decided to bring them back, there was a question whether the U.S. would then be obliged to build the necessary transportation facilities.
11. It was suggested that Mr. Fleming and Mr. Green verify with Mr. Ivan White of the U.S. Columbia River Negotiations delegation what the U.S. would pay,
  1. for half of Canada’s share of the downstream benefits; and,
  2. for all of them;
  and that Mr. Fleming at his meeting with Premier Bennett on Monday should put forward first of all the idea of selling half Canada’s downstream benefits together with the other proposals of the B.C. officials at the meeting of April 5th and 6th.
Mr. Fulton drew to the attention of the Ministers an article which was to be published soon in an engineering magazine written by General McNaughton setting forth his position on the Columbia River development.^{Footnote 83} It was suggested that no reply should be prepared to this article for the time being.
The Cabinetdecided,
1. that the Minister of Justice and the Secretary of State for External Affairs should meet immediately with Mr. Ivan B. White, Deputy Assistant Secretary of State, and Member of the United States Delegation, Canada-United States Columbia River Negotiations, and get from him the best estimate of the price the U.S. government would pay,
  1. for one-half of the Canadian downstream benefits developed on the Columbia; and,
  2. for all of the Canadian downstream benefits developed on the Columbia;
2. that Mr. D. Fleming, when discussing the Columbia River Development with the Premier of British Columbia on Monday next, should not agree to selling in the United States more than one-half of the Canadian share of the downstream benefits but should base his discussions otherwise on the other terms of the British Columbia plan put forward at the meeting of federal and provincial officials in Ottawa on April 5th and 6th last, i.e.,
  1. All downstream benefits will be sold in the United States at a price of approximately 5 mills per KWH. The term of such sale to be sought by the Government of British Columbia will be 10 years firm with a 10-year period of notice of termination at any time thereafter.
  2. The Peace River development, already under way, will continue.
  3. For the interim period, prior to the availability of Peace power, the British Columbia Hydro and Power Authority will meet its current needs by purchase from the Bonneville Power Association at Blaine or other points where it may be needed on the British Columbia border. Consideration will be given to proposals already discussed with and agreed by the Bonneville Power Association for the payment for this power in kind.
  4. All income from the sale of downstream benefits will be used exclusively for the development of the Columbia River project in Canada.
  5. Mica will be machined as soon as possible to meet incremental needs in British Columbia. It is expected that this will be not later than 1973. This will be effected by postponing the later stages of the Peace River development, if necessary.
  6. Subject to provincial requirements, energy from the Peace River, the Columbia and other sources in British Columbia will be made available on a first call basis to the proposed national grid at prices not higher than those obtainable from the United States for British Columbia power exported to the United States.
  7. British Columbia will endeavour to obtain the agreement of the U.S. entity to the inclusion of an escalator clause in the agreement covering the sale of the downstream benefits.
  8. Subject to agreement between the governments and to immediate ratification of the Treaty the Provincial Government will be prepared to start physical construction on Duncan by July 1962, on Arrow by September, 1962, and Mica as soon as possible in 1963. The later start in the case of Mica is due entirely to investigations and engineering studies which are actively under way but are not yet complete.
  9. British Columbia will undertake to use the funds received from the United States in payment for flood control for the rehabilitation and economic development of areas adversely affected by the projects included in the Columbia River Treaty; and,
3. Mr. Fleming should report back to Cabinet the result of his discussions with the Premier on the basis described above.

…

288. DEA/5724-2-40

Memorandum by Deputy Minister of Northern Affairs and National Resources

Confidential

Ottawa, August 28, 1962

Columbia River Treaty: Discussions with British Columbia

Along with Mr. Parkinson and Mr. MacNabb, I was asked yesterday morning by Mr. Fleming, the Minister of Justice, to come to a meeting in his office with Premier Bennett of British Columbia. Mr. Budd, the Premier’s Executive Assistant, was also present. The meeting was to carry further the discussions that Mr. Fleming had had with Mr. Bennett about the Columbia River treaty.

In opening the meeting at 10:30, Mr. Fleming said that he felt that a good deal had been accomplished in the meeting of officials on April 5th and 6th. He felt that the governments of Canada and the province were a good deal closer to agreement on a possible basis of approach to get the treaty implemented. Mr. Bennett promptly took the initiative. He fully agreed that the April meeting had been productive and hoped that further liaison between British Columbia and Canada could be carried on by the same committee: he much preferred it to the old policy liaison committee or technical liaison committee. He hoped that with one further meeting of advisers, which he hoped could take place in the immediate future, it would be possible to enter into discussions with the United States to arrive at an exchange of notes for sale of downstream benefits in the United States. With such a sale at 5 mills it should be possible to proceed to ratification and implementation of the treaty in the near future.

Mr. Bennett expanded on his proposals with regard to sale. It should be of the entire Canadian entitlement to downstream benefits, including both the energy entitlement and the capacity entitlement. When a five-mill price had been talked about with B.P.A., it had been on the basis of a 60% load factor. British Columbia would like to have a higher load factor – possibly 85%, but would be prepared to settle for 70%. The price of five mills had been calculated in relation to financing of the projects at 4½% interest rate. What British Columbia wanted to secure was an agreement under which the payments for power sold would be enough to completely service and discharge the financing for three storage dams in Canada, plus the machining of Mica to produce 2 million horsepower. He said that he understood that the policy of the Canadian government was that the export of electric power could be authorized on the same basis as the export of oil and gas – namely, in any case where it was shown to be in excess of the Canadian requirements. Mr. Fleming agreed that that was the position of the Canadian government. There had been misunderstanding at certain stages but it was clear that the same principles would apply to electric power as to oil and gas.

With regard to the exchange of notes and agreement with the United States, Mr. Bennett said that the sale of power should be on a basis that would commit the United States for the full life of the treaty: it should not have any option of prior cancellation. Canada, on the other hand, should be entitled to give ten years’ notice of termination of the sale arrangement at any time after ten years of life of the sale agreement. In other words, the sale would commit Canada for twenty years minimum, but would allow us to be sure of a commitment by the United States to purchase beyond that period if we so desired. In response to a question as to whether he thought the United States would be prepared to enter into any such one-sided agreement, Mr. Bennett said that he thought they would if it was the only basis on which they would be able to secure the increased power deriving from the Columbia treaty. Moreover, a firm commitment by them for the life of the treaty was not altogether unfair since Canada had to make investments in the storage projects that could only be amortized over the life of the treaty. The United States did not have to undertake any comparable financial commitments.

The agreement for sale should be with B.P.A. and not with any private companies. It would be quite unsatisfactory to have an agreement that did not involve the clear commitment of the United States government. To arrive at an agreement it would be desirable to have a meeting with the United States representatives before the session of Parliament opening on September 27th and before the Congressional elections in November.

With regard to payment for the power sold, it might be desirable to try to have this made on the basis of equal annual payments spread over the life of the treaty. This would remove the necessity of checking in detail on the exact quantity of Canadian downstream benefits year by year. Such an arrangement would also be particularly satisfactory in order to ensure the servicing of the financial obligation for the storage and machining of Mica.

In commenting on Mr. Bennett’s proposals, Mr. Fleming reiterated the federal government’s position on the export of electric power. As far as the treaty was concerned, the federal government still stood behind it and would like to see it implemented. Any arrangement to achieve that effect would have to be on the understanding that it represented genuine concessions by both the province and the federal government to achieve a sensible action in the interests of the country as a whole. It would not be possible to achieve progress if it were to be presented as a triumph by either side. Mr. Bennett expressed full agreement.

Mr. Fleming said that he had understood from the meetings in April that there was no difference in view between Canada and the province concerning the costs of downstream benefits and Columbia power generally. Mr. Bennett confirmed that that was so.

With regard to finances, Mr. Fleming asked Mr. Bennett whether he had explored seriously the possibilities of floating the necessary issues in the United States. He said that the federal government would have no objection to borrowing in the United States for the purposes contemplated. At this point Mr. Bennett said that he had reason to believe that B.P.A. would be in a position to advance the funds for the Canadian storages and Mica machining. They would be able to do this at a lower interest rate than could be secured through financing on the market and that was what British Columbia wanted. The interest rate on the financing would be a very large part of the costs of power and the price at which downstream benefits could be attractively sold was clearly related to the interest rate payable on financing. Mr. Fleming expressed great surprise at the idea that a United States government agency might be in a position to do any of the financing of the Canadian costs and said that this was a completely new suggestion as far as the federal government was concerned.

Mr. Fleming said that one suggestion that had been made since the discussions last April was that it might be desirable for Canada, if it sold its downstream benefits, to secure an option from the United States under which it would be entitled (but not committed) to secure an amount of power from the United States equal to the amount of power it had sold. The option would be exercisable only if it were desirable as far as Canada was concerned and if a price could be agreed on. Mr. Bennett did not like this proposal. He thought that any such option would involve the likelihood of some commitment to take power at a price comparable to what we hoped to get for our downstream benefits: this would be quite disadvantageous. It was, moreover, unrealistic for a country with a surplus of power to be securing an option to buy it from a country with a power deficiency.

Mr. Fleming referred to difficulties that would still have to be faced with the treaty by the federal government. The Secretary of State for External Affairs had made a commitment that the treaty would go before the External Affairs Committee. General McNaughton and others would certainly level strenuous criticisms. Would British Columbia be prepared to have someone be present to deal with such points as its unwillingness to flood the East Kootenay? Mr. Bennett said that he assumed that the federal government would be supporting its own treaty. Assuming that it was, he was quite prepared to have British Columbia representatives, such as Dr. Shrum and Dr. Keenleyside, attend the Committee sessions to deal with matters of particular interest to British Columbia.

Following the above exchange Mr. Fleming said that he would like to clarify some points relating to the ones that had been laid down by the British Columbia representatives following the meeting of April 5th and 6th. (These appear as Appendix “D” to the memorandum to the Minister of Finance dated April 7th.) The points that were dealt with in relation to the enumeration in that document were as follows:

This point referred to the term of sale “to be sought by the government of British Columbia.” It also referred to “all” the downstream benefits. Mr. Bennett said that he clearly understood that the federal government would have to handle the negotiations with the United States but he assumed that British Columbia would be party to the negotiations and would be the actual party to the sale agreement to B.P.A. With regard to “all” downstream benefits, he pointed out that there would be no real advantage in a sale of less than “all” as there would have to be transmission lines to transmit any unsold portion of the power to Canada: this would involve Canada in the obligation to pay the stand-by charge. Mr. Fleming agreed that this would be so but he also pointed out that there would be no real saving if the United States would have to install transmission lines to transmit the power to Canada after, say, twenty years. Mr. Bennett said that to him it was entirely a question of price: if the downstream benefits could be sold at five mills and British Columbia could produce the power it needed at less than five mills, why bring any of it back? Apart from the straight price advantage, there was also the fact that the larger our sale to the United States was and the longer it lasted, the less they would turn to other sources of power and the less our entitlement to downstream benefits would diminish.

Mr. Fleming asked what the position of British Columbia would be if it were finally decided that only a part of downstream benefits should be sold to the United States – or if the United States should indicate a willingness to buy on a basis that would cover only part of the financing. Mr. Bennett said that British Columbia would not go ahead on any such basis. If the federal government did not want all the power sold, British Columbia would expect a grant (not a loan) to make up the deficiency in the revenue that would be forthcoming to service the financial obligations. He reiterated that British Columbia wanted annual payments to cover the total annual costs of the three storages plus Mica financing.

(The meeting broke off at the above point and resumed at 4:00 p.m.)

Mr. Fleming said as he understood it British Columbia would go ahead with the Peace River development but would carry on only the first stage and would postpone later stages if necessary (see point No. V). What did “first stage” mean? Mr. Bennett confirmed that the above was British Columbia’s position and said that “first stage” meant the Portage Mountain dam. Nothing further would be done on the Peace River development until Mica machining was completed. Mr. Fleming referred to a statement by Dr. Keenleyside on April 5th to the effect that Peace River power “would not bump Columbia power out of the natural Columbia service area.” Did that mean that British Columbia would not take Peace River power into Vancouver? Mr. Bennett said that that was not the meaning: they could not exclude Peace River power from Vancouver. Their intention was to “dovetail” Peace and Columbia output and to take care of the surplus by exporting. As surpluses developed they would make application to the National Energy Board for export permits.
Mr. Bennett’s only comment here was to object to the words “in kind.” British Columbia expected to be able to buy interim power from B.P.A. at a very favourable price that would make it better to pay for it in cash than to provide power in exchange.
Mr. Fleming stressed that this was of very great importance to the federal government. Mr. Bennett confirmed the statement in the enumeration and said that British Columbia included transmission lines as well as storages and generators in “development” of the Columbia.
Mr. Fleming asked if Mr. Bennett would be prepared to make the date for the machining of Mica firm. Mr. Bennett said that as far as he was concerned it was a purely technical point: if the experts could advise on a specific date, he would be quite prepared to specify it.
Mr. Bennett confirmed this.
There was some discussion on what any escalation might be related to. Mr. Bennett said that if the United States would agree on an arrangement that would provide fixed annual payments plus fixed finance charges over the lifetime of the treaty, an escalation clause would not be necessary.
It was agreed that the treaty clauses provided their own timetable for the structures.
There was a good deal of discussion over Mr. Bennett’s concept that the land taken out of other use to provide the reservoirs required “compensation” over and above the compensation paid to private owners. He took the position that in addition to the effect on private owners there was a loss to the community in perpetuity. He said that he wanted to hold the $64.4 million as a capital sum to provide interest revenues that could be used for economic development in the Kootenays: this would considerably reduce objection there to the whole Columbia development. He said he particularly did not want to have the $64.4 million credited to the storage structures at the time of negotiation with the United States since it would reduce the claim that Canada might make for financial payment. At the end of the discussion Mr. Bennett said that if the payment by the United States for our power were not sufficient to cover the financing of the three storages plus Mica machining, he would not object to having the $64.4 million used to bring Mica into generation.

Following the above clarifications there was some discussion about the handling of negotiations with the United States. Mr. Bennett said that they should be undertaken by Mr. Fleming and himself, together with federal and provincial officials as needed and that they should be in Washington at the earliest possible date.

Mr. Fleming raised a question as to what assurance the federal government would have about the implementation of treaty obligations by the provincial government in future and what sanctions there might be against non-implementation. Mr. Bennett said that he would be quite prepared to have the committee of officials made permanent as an advisory group to check on all aspects of implementation. He also said that there should be provincial legislation to tie in with the federal legislation. If the Minister of Justice and the Attorney General of the Province could produce any other suggestions he would be glad to comply with them.

In reply to an enquiry about a joint entity, Mr. Bennett indicated his complete opposition. British Columbia Power and Hydro would be the entity to implement the project. All contracts would be open to competitive bidding and the joint committee could look at both tenders and contracts. He would be prepared to have a preference given to Canadian workmen and materials, but he thought a 10% preference would be too great.

At the conclusion of the discussions Mr. Bennett indicated his desire to have something said to the press that would indicate that the provincial and federal governments had arrived at a basis of understanding – say, a “meeting of minds” and that meetings of experts and meetings with the United States were contemplated. Mr. Fleming made it clear that he could not go that far and would have to report to his colleagues in the Cabinet on the positions that Premier Bennett had taken. He would get in touch with Premier Bennett thereafter. The situation was left on that basis with Premier Bennett reiterating his desire to see action at the earliest possible date.

R.G. R[obertson]

289. PCO

Extract from Cabinet Conclusions

Secret

[Ottawa], September 5, 1962

Present

The Prime Minister (Mr. Diefenbaker) in the Chair,
The Secretary of State for External Affairs (Mr. Green),
The Minister of Justice (Mr. Fleming),
The Minister of Trade and Commerce (Mr. Hees),
The Minister of Veterans Affairs (Mr. Churchill),
The Minister of Public Works (Mr. Fulton),
The Minister of Finance (Mr. Nowlan),
The Minister of National Defence (Mr. Harkness),
The Postmaster General (Mrs. Fairclough),
The Minister of Labour (Mr. Starr),
The Minister of National Health and Welfare (Mr. Monteith),
The Minister of Defence Production (Mr. O’Hurley),
The Associate Minister of National Defence (Mr. Sévigny),
The Minister of Northern Affairs and National Resources (Mr. Dinsdale),
The Secretary of State (Mr. Halpenny),
The Minister of Mines and Technical Surveys (Mr. Martineau),
The Minister of Citizenship and Immigration (Mr. Bell),
The Minister without Portfolio (Senator McCutcheon).
The Secretary to the Cabinet (Mr. Bryce),
The Assistant Secretaries to the Cabinet (Mr. Labarge), (Mr. Watters).

…

Columbia River Development Policy

(Previous reference Aug. 29†)

The Secretary of State for External Affairs said the proper way to get the Columbia Treaty before a committee of the House of Commons was simply to state in the Speech from the Throne that it would be made available to the Standing Committee of the House on External Affairs for examination. The Committee could not be directed as to what to do about the Treaty but would have its own time to examine it in its own way. There would be no debate on a resolution to refer the matter to the Committee. When evidence was given before the Committee, the whole story would come out and the pressure would be off the government. The estimates of the Department of External Affairs would be referred to the Committee and when the departmental items had been dealt with, the International Joint Commission item could be examined. During the hearings there would be an opportunity to impress the Premier of British Columbia with the necessity of coming around to the view of the Federal government.
During the discussionit was said:
1. The government would have to decide on the position it would take before the Committee.
2. What would the government’s position be if the Committee concluded that the Treaty was unsatisfactory to Canada?
3. The government could not ratify the Treaty until it had come to an agreement with Premier Bennett.
4. Premier Bennett would not sign an agreement on the whole Treaty until there had been an agreement with him on the terms he laid before Mr. Fleming and until he knew the U.S. was prepared to agree also.
5. If Canada were to ratify the Treaty before an agreement had been reached, the Federal government would then be in the Premier’s hands.
6. The Treaty should be ratified, taken into the House and then supported there by the government. There would be two steps – (i) it would be ratified by resolution of the House; (ii) a bill would be introduced to approve the agreement with British Columbia.
7. The Treaty could not be given to a Committee until there had been a tentative agreement with British Columbia and it could not be ratified until there had been agreements with both British Columbia and the United States.
8. All other considerations were premature until it had been decided:
  1. to what extent Premier Bennett’s terms were acceptable to the government; and,
  2. what the government’s position would be if it was impossible to get agreement with the Premier on the terms set out by him or on a modification of them.
  It would be better to tell the Premier that the government could not agree with his terms, rather than to continue floundering around. If he did not hear from the government soon he would go to the press and tell them that Canada had let the Treaty go by default. He would say that Ottawa had prevented Canada from getting three dams built for nothing as well as free Mica power because it insisted on bringing back Canada’s downstream power.
9. There could be no objection to officials exploring with U.S. officials the question of the sale of Canada’s downstream benefits in whole or in part, as well as financing, but the government should not be committed until it had seen what the U.S. could do on these two points. Premier Bennett, however, was asking that Canada agree now to his terms, whereas it was not known for certain what price Canada would receive for all or part of its downstream power.
10. Premier Bennett should be told that the Federal government would explore the sale of downstream benefits in Washington but would not agree to financing by the Bonneville Power Administration.
11. It was suggested that Canadian officials go to Washington with B.C. officials to assess the situation with respect to sale of downstream benefits and financing, without making any commitments, and that Ministers might go to Washington after they had seen the report of the officials on their discussions. Others said that Canada would not get a satisfactory answer if officials went to Washington alone.
The Cabinetagreed to give further consideration to a decision along the following lines:
1. that officials representing the Federal government and the government of British Columbia should go to Washington immediately to endeavour to ascertain from U.S. officials the terms on which Canada’s downstream benefits under the Columbia River treaty could be sold in the United States;
2. that the officials should make no commitment on behalf of the government of Canada; and,
3. that Ministers of Canada and British Columbia should go to Washington to discuss the sale of downstream benefits after the report of the officials on their discussions had been considered.

…

290. PCO

Extract from Cabinet Conclusions

Secret

[Ottawa], September 6, 1962

Present

The Prime Minister (Mr. Diefenbaker) in the Chair,
The Secretary of State for External Affairs (Mr. Green),
The Minister of Justice (Mr. Fleming),
The Minister of Veterans Affairs (Mr. Churchill),
The Minister of Public Works (Mr. Fulton),
The Minister of Finance (Mr. Nowlan),
The Minister of National Defence (Mr. Harkness),
The Minister of Labour (Mr. Starr),
The Minister of National Health and Welfare (Mr. Monteith),
The Minister of Agriculture (Mr. Hamilton),
The Minister of Defence Production (Mr. O’Hurley),
The Associate Minister of National Defence (Mr. Sévigny),
The Minister of Northern Affairs and National Resources (Mr. Dinsdale),
The Secretary of State (Mr. Halpenny),
The Minister of Mines and Technical Surveys (Mr. Martineau),
The Minister of Citizenship and Immigration (Mr. Bell),
The Minister without Portfolio (Senator McCutcheon).
The Secretary to the Cabinet (Mr. Bryce),
The Assistant Secretaries to the Cabinet (Dr. Hodgson), (Mr. Labarge).

…

Columbia River Development Policy

(Previous reference Aug. 29)

The Prime Minister said that the tentative decision reached on the previous day on the Columbia River development should be further reviewed. His own absence and that of Mr. Green should not delay the efforts to reach firm agreements on this subject. The Ministers concerned could keep in touch with him by telephone.
During the discussionthe following points were raised:
1. Some said it should be made clear that the proposed sale of Canadian downstream benefits to the United States should be discussed on the basis of a term of years and not of a sale in perpetuity.
2. Others said the decision whether Ministers of the Federal government and the British Columbia government should go to Washington ought to be postponed until after the report of officials had been reviewed by the Cabinet.
3. Premier Bennett was unlikely to permit his officials to proceed to Washington on the basis suggested. U.S. officials would not give answers to Canadian officials on such a matter of high policy. This exploration would in reality become an active negotiation, and the Premier wished to participate directly in the negotiations and to drive a hard bargain.
4. Some said that if two successive journeys were to be made to Washington as proposed, no firm decision could be taken in time for insertion in the Speech from the Throne. Others said that there was no need to complete negotiations this month, and that the government should not permit Premier Bennett to “put a gun to our heads.”
The Cabinetagreed,
1. that officials representing the Federal government and the government of British Columbia should go to Washington immediately to endeavour to ascertain from U.S. officials the terms on which Canada’s downstream benefits under the Columbia River treaty could be sold for a term of years in the United States;
2. that the officials should make no commitment on behalf of the government of Canada; and,
3. that, if deemed advisable, Ministers of Canada and British Columbia should go to Washington to discuss the sale of downstream benefits after the report of the officials on their discussions had been considered.

…

291. PCO

Memorandum from Minister of Justice to Cabinet

Cabinet Document No. 297-62

Ottawa, September 14, 1962

Confidential

Columbia River Treaty

Pursuant to the decision of the Cabinet on September 6th meetings were held this week in Washington to discuss the Columbia River treaty. The following is the text of a report that I have received from the officials who represented the Canadian Government:

Ottawa, 13 September, 1962

Memorandum for the Minister of Justice

Discussions on the Columbia River Treaty

According to the official record of Cabinet decisions, the Cabinet at the meeting of September 6th discussed Columbia River development policy and agreed as follows:

that officials representing the Federal government and the government of British Columbia should go to Washington immediately to endeavour to ascertain from U.S. officials the terms on which Canada’s downstream benefits under the Columbia River treaty could be sold for a term of years in the United States;
that the officials should make no commitment on behalf of the government of Canada.

Pursuant to the above decision which followed upon your report of your discussions with the Premier of British Columbia on August 27th, there was a meeting in your office on September 7th at which Messrs. Robertson, Parkinson and MacNabb were present. You directed that we carry out the above decision of the Cabinet at a meeting which was thereafter arranged to take place in Washington beginning September 11th at 9:00 a.m. You indicated to us the understanding that the Cabinet decision had reference to the possibility of United States acceptance of the British Columbia proposal as outlined to you by Premier Bennett on August 27th, including the possibility of financing of the storage projects by funds advanced by a United States federal agency.

The meetings in Washington took place on the morning and afternoon of September 11th and the morning of September 12th. In order to make clear the Canadian government’s position, Mr. Robertson, who acted as chairman of the Canadian group, said at the outset of discussions that, in order to ascertain the possibility of arriving at an arrangement that would be acceptable to all governments under which the Columbia Treaty could be implemented, Canada had requested the meeting so that certain proposals by the Province of British Columbia could be put forward for consideration by the United States. If it emerged that the proposals were acceptable to the United States, the Government of Canada would give the matter further and careful consideration. It was made perfectly clear that the federal government was not committed to accepting the proposal and that no other commitment could be made by the officials representing the Canadian government.

Following upon the above statement, Dr. Keenleyside set forth the British Columbia proposal in five points:

There should be a contract between Bonneville Power Administration and the Canadian entity (the British Columbia Hydro and Power Authority) under which B.P.A. would undertake to buy the Canadian share of downstream benefits.
the contract should be for the life of the treaty but with a clause that would enable Canada at any time after ten years to give ten years’ notice that it would reduce the amount of power to be sold under the agreement.
the sale would comprise the entire Canadian entitlement both of energy and capacity. There should be a formula for conversion of capacity to energy (as provided in the treaty) such that the entirety of the Canadian entitlement would be sold at the equivalent of five mills per kilowatt hour. (Dr. Keenleyside added that this figure was completely essential and that there was “no leeway for bargaining at all”).
the contract should be a straight commercial arrangement between the two entities themselves under the authority of or comprising a part of an exchange of notes as provided for in the treaty.
for the financing of construction of the storages, British Columbia would like to obtain funds from the United States, preferably from a federal agency such as B.P.A., at a rate of interest that was normal for the financing of similar developments in the United States.

Following some clarification of the British Columbia proposition the United States group withdrew to consider the matter. At the next stage of the meetings they indicated various difficulties that they thought stood in the way of achieving anything like the price that British Columbia had proposed and the problem of absorbing the total Canadian entitlement in the United States. B.P.A. is required to give priority to the requirements of public agencies and hence might have difficulties in handling the resale of Canadian downstream benefit power to the private companies on the best terms. It would also be difficult to get the best price when the amount of Canadian power to be sold was not constant (our downstream benefits diminish over time) and there was at least the theoretical contingency of a Canadian decision to reduce amounts sold at the end of twenty years. On the latter points the British Columbia representatives said they felt that reduction in Canadian entitlement could be made up by exports of Canadian power and also that the reduction in sales at the end of twenty years was most improbable – both being because British Columbia would have “a great surplus of power twenty years from now.” On the price question, the B.P.A. representatives indicated that California was the highest market and that both for price and also for absorption of additional quantities of power the possibility of constructing a tie line to California (which could be completed in a few years) was important.

With regard to financing of construction by B.P.A., the United States side said there had been no opportunity to discuss the matter with the Bureau of the Budget. If funds could be provided at an interest rate determined in the same way as the rate used to arrive at the flood control payment under present market conditions, it would be 4% per annum. They pointed out that if money could be provided at this rate the reduction in cost from the 5½% rate used in Canadian calculations would amount to $5 million per year on the cost of the three storages. If the Bureau of the Budget agreed that such financing could be provided it would require legislation to authorize the action, plus one or more appropriations Acts to advance the funds. No legislation could be completed before the spring of 1963 at the earliest.

Technical sessions were held to discuss possible formulae for conversion of energy to capacity and to work out the equivalents of various capacity prices in energy terms. It appeared at the end of September 11th that the best B.P.A. were prepared to consider at that time amounted to about four mills per kilowatt hour on the Canadian entitlement.

On the morning of September 12th Mr. White for the United States indicated their position as follows:

With regard to the possibility of financing of construction by B.P.A. they would need to talk to the Bureau of the Budget and the Secretary of the Interior. He also mentioned the difficulties which now existed with respect to the balance of payments and the need to create new employment in the United States.
With regard to the best terms of purchase of power, B.P.A. would have to undertake immediate discussions with private utilities in the Pacific northwest. They had deliberately refrained from doing so thus far. They would undertake such discussion in the course of the next week and would also look into the California situation. They would be prepared to indicate the best terms they could provide if a further meeting could be held in Portland, Oregon, on September 21st.

The British Columbia representatives indicated that they would be prepared to attend a meeting as proposed. The federal representatives said that they would report the situation to the Canadian government and indicate as soon as possible whether they could attend the meeting on September 21st.

Up to the above point there had been no exploration of the possibility of selling something less than the full Canadian entitlement in the United States. Although the British Columbia representatives indicated clearly that anything less than the total entitlement would not meet the British Columbia position, the Canadian group, with the concurrence of the B.C. representatives, raised the matter in order that all possibilities might be explored.

The United States group indicated that it would definitely ease their marketing position if something less than the full Canadian entitlement were being sold to them and it might make possible some improvement in the unit price. The British Columbia representatives indicated that there might be room in the B.C. market for some of Canadian entitlement during the initial few years but not thereafter: after the Peace River project came in about 1968 or 1969, they would have a surplus of power.

The United States representatives said that they would, before September 21st, investigate what the situation would be if they were to purchase less than the total Canadian entitlement at least in initial years with a gradual increase to possibly the full Canadian entitlement after surplus power existed in Canada and a market for added power was available in the United States.

The discussions adjourned on the above basis.

R.G. Robertson

A.E. Ritchie

J.F. Parkinson

G.M. MacNabb

Since the above report was submitted yesterday, the United States Embassy have advised that it now appears that the necessary information for the proposed meeting in Portland cannot be available before October 4th at the earliest, or possibly the week beginning October 8th. Whatever the date, it is apparent that there would be no advantage in having a meeting at the ministerial level before the further meeting of officials takes place.

Recommendation:

In order that the discussions that were authorized by the Cabinet on September 6th at the official level can be carried to completion, I recommend that the officials who represented the Canadian government at the meetings on September 11th and 12th should be authorized to attend the proposed meeting in Portland on whatever date can be arranged with the United States and British Columbia representatives.

Donald Fleming

292. DEA/5724-2-40

Memorandum from Assistant Under-Secretary of State for External Affairs to Secretary of State for External Affairs

Confidential

[Ottawa], October 5, 1962

Columbia River Treaty

The attached papers contain the report of the Canadian federal officials on the tripartite talks which took place this week in Portland Oregon.†

The following would seem to be the main points of particular interest to you:
1. The talks were not finished on this recent occasion but are expected to go on for at least another session.
2. Insofar as any conclusion has been reached it would seem to be that Premier Bennett’s original proposal is viewed pretty unsympathetically by the United States in many respects (price, U.S. Government financing, etc.).
3. While the U.S. proposals would involve the sale in the United States of all of Canada’s share of the downstream power benefits, the second alternative put forward by the U.S. in appendix E would permit the retention in Canada of about one-half of Canada’s total power benefits (including power generated immediately in Canada at locations such as Mica).
Although it may be premature and presumptuous to attempt to sketch a settlement which would be beneficial to Canada as a whole and at the same time politically tolerable to both the Federal and British Columbia Governments, I wonder whether it might be possible to get consideration of a compromise along the lines of the second alternative in appendix E. Such a compromise would of course require major concessions from Premier Bennett. For example, he would have to admit that the terms stated publicly by him are unattainable. He would also have to accept a substantial delay on the Peace River Project. At the same time, he would have to be prepared to get ahead rapidly with the “construction and machining” of the Mica Project with which the Federal Government is identified. Against these concessions on his part, Premier Bennett would naturally get some credit for enabling the Columbia development to get under way.
This compromise might appear to entail some concessions from the Federal Government as well. In particular the Federal Government would have to be willing to allow the sale in the United States of most or all of the downstream benefits, and perhaps to allow some export of power from Canadian sites. This concession might not, however, seem to be so substantial since it might not appear to go significantly beyond the point apparently reached in the Speech from the Throne. Moreover, as noted in paragraph (c) above, it can be quite reasonably represented that under this compromise half or more of Canada’s total power benefits would be available for use in Canada in addition to the very substantial financial payments which Canada would receive for downstream benefits sold in the United States. The Federal Government could also take a good deal of satisfaction from the fact that the development of Mica would proceed at an even faster pace than originally contemplated. Finally, under this proposal, it would become economic to install generating equipment in the High Arrow Dam to produce power for export or for local use and thus remove any impression that this dam was simply devised for holding back water to be released for use by the Americans. (See paragraph (a) on page 5 of the report of the federal officials.)
It should perhaps be mentioned that Dr. Shrum was not able to be present at the meeting in Portland. If he had been present, he might have reacted more strongly than Dr. Keenleyside to the suggestion that the Peace River Project might be deferred.

A.E. R[itchie]

293. D.M.F./Vol. 20

Memorandum from Deputy Minister of Northern Affairs and National Resources to Minister of Northern Affairs and National Resources

Confidential

Ottawa, October 12, 1962

Columbia River Discussions

I had a telephone call just before noon today from Dr. Keenleyside. He had just returned to Vancouver from New York where he had been reporting to Mr. Bennett on the Columbia River discussions.

Apparently Mr. Bennett is not prepared to accept the negative results of the Portland discussions as being final. He appears to feel that when the Congressional elections that are now under way in the United States are over it will be possible to get the most senior officers in the United States to direct their attention to the Columbia problem and perhaps to extend more liberal possibilities than the officials who have been dealing with the matter are in a position to do. Dr. Keenleyside said there had also been some indication by “political leaders most concerned” of reluctance to have anything done at this stage. I assume by this he means Senator Magnuson and some others in the Pacific Northwest who are anxious to see the Columbia treaty ratified. In any event, in the light of the above considerations Mr. Bennett feels that some time about the end of November would be the earliest at which it would be profitable to have a further meeting with the United States.

I asked Dr. Keenleyside whether Mr. Bennett had given any reaction to the four alternatives that had been put forward by the United States delegation for consideration in lieu of Mr. Bennett’s proposal. Dr. Keenleyside said that it was his impression that Mr. Bennett was not prepared to look at any other possibility until he was sure that there was no chance of securing the kind of arrangement he has been working toward.

According to Dr. Keenleyside, Mr. Godhammer (who is the right-hand man to Mr. Luce – the head of B.P.A.) and Mr. Kidd (on the engineering side of B.C. Hydro) have been working on the possibility of establishing a corporation in the United States which would have some relationship to B.P.A. but would be separate enough from it that it would not be subject to some of the difficulties that stand in the way of B.P.A. buying power at as high a price as Mr. Bennett has been hoping for. Such a corporation would buy our downstream benefits and resell them to the utilities in the United States. The idea behind this is essentially one I think that has been applied in handling the power from the new Hanford plant that is being constructed to use waste head from the production of plutonium. Whether it would in fact permit any better price to be paid for Canadian power I do not know but in any event it is apparently being considered.

Apparently Mr. Bennett has also not entirely given up his hope that some special means of securing United States financing might be possible.

All in all, Mr. Bennett feels that Canada has nothing to lose by waiting to see what kind of climate there may be after the United States elections.

I reported the above to Mr. Fleming immediately after hearing it from Dr. Keenleyside and he felt that it would be best if the United States were to receive the above reaction from the British Columbia representatives rather than from us. I so advised Dr. Keenleyside and he said that he would get in touch with Mr. White of the United States Embassy this afternoon.

My report to Mr. Fleming was after the Cabinet considered the memorandum that was sent forward on Wednesday. Mr. Fleming advised me that the Cabinet had come to the conclusion that the Canadian official group should be authorized to attend the further meeting on the Columbia that we thought might take place in the coming week. In view of the substantial delay that there will now be there will, of course, be a further opportunity to review the situation when we see what new suggestion Mr. Bennett comes forward with at the end of November. Mr. Fleming was of the view that since the delay was at the suggestion of British Columbia the proper course would be not only for them to intimate that fact to the United States but also for us to wait for British Columbia to take some new initiative.

R.G. Robertson

294. E.D.F./Vol. 38

Minister of Northern Affairs and National Resources to Minister of Justice

Confidential

Ottawa, November 7, 1962

My dear Colleague,

I am enclosing herewith a copy of an item that appeared in the Vancouver Province on October 22nd concerning the Columbia River development.^{Footnote 84} I do not know whether it will have come to your attention but if not, I think it should.

There are two things that appear to be significant in Mr. Bennett’s statement. One is his emphatic declaration that the Peace River is “for sure” and that “the contract is going right ahead.” This seems to suggest that he is not going to permit any flexibility on this point so as to reach an agreement with the United States along one of the lines that was held out as a possibility in the meetings in Portland.

The more important statement is the one saying that “unless arrangements can be made to sell our share of the Columbia River power to the United States for enough money to give us 2 million h.p. free from Mica Creek, somebody else will build the Columbia, but not us.” Since the Portland discussions made it pretty clear that Mr. Bennett cannot get the amount of money referred to in the above statement, he may be preparing to take a position that would put the Columbia completely in the lap of the federal government. He would, as I see it, be able to say that he very much wanted to go ahead with the Columbia and would be glad to do so if suitable terms could be arranged. Since they cannot be arranged, he is not going to stand in the way of the federal government: if it regards the matter as being of national interest it can build the Columbia projects and sell the power either in British Columbia or in the United States as it thinks best. This would enable him to say that it was not he who had rejected the treaty development: it would be the federal government if it did not choose to go ahead at its own expense.

A move along the above lines could put us in quite a dilemma. It would obviously be awkward if it appeared that it was the federal government that was deciding not to proceed with the treaty development. On the other hand, if we went ahead we would be doing it in very unfavourable circumstances: Mr. Bennett would be a monopoly buyer for the power in Canada and the only alternative would be the export of all or nearly all the power to the United States.

I doubt if there is anything that can or should be done with regard to this before the further meeting of officials that is now contemplated for the latter part of November or early December. It might however be something to which some thought should be given and I am sending copies of this letter to our colleagues, Mr. Green and Mr. Fulton for their attention.

Yours sincerely,

Walter Dinsdale

295. J.G.D./MG01/XII/C/106.6

Minister of Justice to Prime Minister

Personal and Confidential

Ottawa, November 13, 1962

My dear Prime Minister:

I met with Mr. Ivan White, United States Chargé d’Affaires, yesterday at lunch at his invitation. It did not surprise me that he opened discussion on the Columbia River project.

You will recall that Premier Bennett was quoted in the British Columbia press on October 22nd stating in effect that unless Canada’s share of the downstream benefits could be sold for sufficient to pay the cost of construction of the storage dams and power development projects in Canada there would be no development of the Columbia unless the Federal Government chose to undertake it. Premier Bennett also intimated that he was proceeding with the first stage of the development of the Peace River power project and was making headway with his plans for financing this stage.

Mr. White expressed himself as being pleased with Premier Bennett’s statement and as hoping that the Federal Government would proceed with the Columbia River development as a federal project. I at once made it clear that it was very doubtful if the Federal Government would or could undertake such a development on its own. I pointed out that as Mr. Bennett controls the sale of power for consumption in British Columbia there would be no market in B.C. for power developed on the Columbia under federal auspices.

Mr. White countered by suggesting that the Federal Government might export the power to the United States or link it with the proposed Canadian grid. I stated that I doubted that the Federal Government would propose to undertake the development of a resource, which normally is strictly within provincial jurisdiction, for the purpose merely of export, and that it would be very difficult to tie power generated on the Columbia River to a national grid because of the topographical problems.

Mr. White argued that Peace River power is bound to be more expensive than Columbia River power, and that both may be needed by British Columbia by 1972. My answer was that this was essentially a question for the Province and its government, and I could foresee no likelihood of Mr. Bennett abandoning his plans for development of the Peace River.

Mr. White referred to the fact that there had been press reports that Premier Bennett anticipates an expenditure of $400 million on the development of the first stage of the Peace River project. He expressed the opinion that the cost would really amount to $600 million. He is under the impression that Premier Bennett has succeeded only in raising some very short-term credit in the United States to finance the Peace River project. He intends to make enquiries with a view to ascertaining, if possible, what credit arrangements Premier Bennett has succeeded in making.

I pointed out the difficulties created by the position taken by the American technical representatives at the meeting in Portland a month ago. If Bonneville Power Corporation, which is the United States Government agency, will not itself purchase the Canadian share of the downstream benefits, and if there is no hope of obtaining a price of five mills per k.w.h., and if financing is not available at 4½% interest, I now see little likelihood of Mr. Bennett agreeing to terms. I asked if the terms put forward by the Americans at the Portland meeting were final. Mr. White intimated that they were virtually so, and that there was very little room for modification of them. I expressed to Mr. White the opinion that the position taken by the United States representatives appeared in the light of the position taken by Premier Bennett, to doom the entire Columbia project.

In the meantime there have been some technical exchanges between the United States and British Columbia experts. The next meeting of the technical experts of the three governments will probably be held about December 10th.

I shall be prepared to bring this report to Cabinet should you so decide.

Yours sincerely,

Donald M. Fleming

296. D.M.F./Vol. 20

Prime Minister to Minister of Justice

Personal and Confidential

Ottawa, November 19, 1962

My dear Colleague,

On the 13th of November you wrote me regarding your discussion with Mr. Ivan White, United States Chargé d’Affaires on the Columbia River project.

I think the matter should be brought before Cabinet at once.

Yours sincerely,

John G. Diefenbaker

297. D.M.F./Vol. 20

Deputy Minister of Northern Affairs and National Resources to Minister of Justice

Confidential

Ottawa, November 28, 1962

Dear Mr. Fleming,

I am enclosing herewith a copy of a letter that I am sending today to Mr. Ritchie in the Department of External Affairs, together with a copy of its enclosure. I think they are self-explanatory.

It seems to me, as the letter states, that the proposed discussions in Vancouver on December 19th and 20th could be critical for the prospects of the Columbia Treaty. In the circumstances, you may agree that some assessment of the situation in the terms suggested would be desirable. If you have any comments or views on the matter it would be most helpful if you could let me know.^{Footnote 85}

Yours sincerely,

R.G. Robertson

[Enclosure]

Deputy Minister of Northern Affairs and National Resources to Assistant Under-Secretary of State for External Affairs

Confidential

Ottawa, November 28, 1962

Dear Mr. Ritchie,

I refer to our telephone conversation of Monday last, in the course of which you advised me of Mr. Green’s view that it would be desirable to have a paper prepared for possible submission to the Cabinet on the Columbia River Treaty. You told me that Mr. Green particularly had in mind examination of the possibility of trying to provide a solution to the present impasse through an offer by the federal government to provide 50% of the cost of transmission of power from the Columbia sites to the lower mainland of British Columbia.

I mentioned to you that Mr. MacNabb had just returned from the Coast and was preparing a report covering the information and conclusions he derived there. I have now received it and I am enclosing a copy herewith.† I think you will agree that it is an extremely capable and valuable document.

It is apparent that from the general position we are approaching in our unofficial discussions, from public comments in the press, and from the conclusions in Mr. MacNabb’s report, that we are at a decisive point as far as the Columbia Treaty is concerned. It seems to me that the meeting now planned for December 19th - 20th could well be conclusive as to the likelihood of the Treaty coming into effect or being definitely dropped. In these circumstances I have asked the Water Resources Branch to develop the paper that would include Mr. Green’s suggestion into a comprehensive document that will set forth the picture as it now appears in order that Ministers can give it their careful consideration and take such decisions as they think desirable.

With regard to the essential nature of the position I am asking that the paper include in very brief form the substance of the conclusions in Mr. MacNabb’s report, with which I fully agree. The first line that must be explored – in effect it is the one we are exploring in our discussions – is the one referred to in recommendation (b) on page 3. I am asking that the paper set forth the most realistic assessment we can make at this stage of the best possible agreement from our point of view for the sale of power in the United States. The closest approach to Premier Bennett’s requirements will, I think, involve the assumption of a sale of all downstream benefits for a thirty year period at a price of approximately 4 mills and with payment by a lump sum in advance in order to facilitate financing of the Treaty structures. The paper will try to set forth not only the results of such a sale in direct financial terms for the Treaty and power production in British Columbia, but also the consequences for our balance of payments in the immediate and more distant future.

The Branch will prepare the paper just as quickly as it is possible to do it but it obviously will take a little time. It seems to me that it might be desirable to have a meeting of the Cabinet Committee on the Columbia just as soon as it is ready so that the Ministers on the Committee can have a chance to discuss it with officials present before the matter goes to the Cabinet itself. It might, I hope, be possible to have such a meeting if Ministers so wish by the end of next week. This would give the following week for Cabinet consideration in advance of our departure for Vancouver.

I am sending copies of this letter together with its enclosure to my own Minister and Mr. Fulton. I assume that you will discuss it with Mr. Green. I am also sending copies to Mr. Bryce and Mr. Parkinson. While Mr. Fleming has not been on the Cabinet Committee on the Columbia it is clear that he too will want to consider this matter in view of the critical state at which we are now arriving. I am accordingly sending a copy to him.

If there are any comments or suggestions that you have in relation to the above proposals or to the paper that is under contemplation, I should appreciate it if you would let me know just as soon as possible.

Yours sincerely,

R.G. Robertson

298. D.M.F./Vol. 20

Minister of Public Works to Prime Minister

Urgent. Personal and Confidential

Ottawa, December 14, 1962

My dear Prime Minister,

I have just received a copy of the letter to you of December 14th from our Colleague Walter Dinsdale,† in which he recommends that there be a meeting of the Cabinet Committee on Columbia River prior to the departure of our officials for the meeting with British Columbia and United States officials on December 19th and 20th.

I fully concur in the desirability, indeed the necessity of having a meeting of the Cabinet Committee for this purpose. However, I am very much concerned at the implication that appears to be contained in paragraph (a) of Mr. Dinsdale’s letter. While it is of course necessary that our officials should listen to any proposal put forward by the United States for the purchase of the Canadian downstream entitlement, I am strongly of the view that we should make no reference, even in our own instructions to them, to any possibility of a price of less than five mills; and we should certainly not, even by implication, in such an instruction, suggest that we could be interested in a price of four mills.

I understand that the Americans feel that the best price they can offer is 3 and 3/4 mills U.S. which would work out at four mills Canadian. If the whole Canadian entitlement to downstream power is to be sold to the United States at such a price, this means that it is being sold for not more than it would cost to deliver it to Vancouver. I do not see how we could agree to what would be in effect flooding Canadian territory in order to sell power to the United States at a price no better than what would be the cost of the same power delivered to our own load centre.

There are other features of what I understand to be the developing American proposal which would require that our officials exercise the greatest caution at this meeting. My main concern at the moment however is that we should not, inadvertently or by implication, commit ourselves to the price of four mills. My own view is that the form of instructions to our officials envisaged in para. (a) should stop at the word “entitlement” in the second last line, thus deleting all reference to a possible price. This is the view I shall put forward on this point in the Cabinet Committee.

Yours sincerely,

[E. Davie Fulton]

299. D.M.F./Vol. 21

Memorandum to Minister of Justice

Confidential

Ottawa, December 27, 1962

Columbia Treaty Discussions in Vancouver, December 19 and 20, 1962

The main item at the meeting in Vancouver on December 19 and 20, was the formal presentation by the United States of an offer along the lines of the one that had been forecast at the meeting in your office on December 14 with the U.S. Ambassador and Messrs. Johnston and White. The paper submitted by the United States side is attached as an appendix to this memorandum. The essential features of the proposal appear beginning at page 6. A few matters were clarified in discussion as follows (the numbers refer to the points as enumerated on pages 6 and 7 of the United States paper):

Purchase by the United States of the Canadian entitlement at 3.75 mills (U.S.) per kilowatt hour (4 mills, Canadian Funds)
In reply to questions, the United States representatives confirmed that their offer is in terms of the purchase of the entire Canadian downstream entitlement plus enough export power in the later stages to maintain the quantity of power at a constant figure. The arithmetic to which various other items in the paper refer is done on that basis. They said that if Canada wanted something less than the entire entitlement to be purchased, they had no fixed views and would be glad to look into it. (From the Canadian point of view the difficulty about any sale of less than our full downstream entitlement is that, with the Peace River project under development, we will have a surplus of power. Any return of a portion of our downstream benefits will add to it.)
Export of at-site power to maintain a constant quantity
Calculations done by the Water Resources Branch, and substantially confirmed by the British Columbia experts, indicate that it is very doubtful whether it would be advantageous for Canada to sell power at the border at a price of 4 mills in Canadian funds. We accordingly asked whether the United States regarded this as an essential feature of the proposal. They said they did not know whether they could offer the same price for a diminishing amount of power as for a firm amount: it would require further study. After discussion it appeared that the most likely possibility (if there were to be no export of at-site power) might be to arrange a sale in two “slices”: part of the power would be sold for twenty years and another part would be sold for thirty years. Adjustment of load factors and exchange of energy and capacity could facilitate such an arrangement. On such a basis there would be a reduction in our commitment at the end of twenty years and there would thus be no, or a much reduced amount, of at-site power to be exported to maintain the respective “slices” at constant levels. It seemed apparent that something along these lines could be worked out if it seemed desirable. At the same time, Dr. Shrum for British Columbia registered the objection that this would reduce the total amount of revenue that would derive from the Canadian sale and thus would reduce the adequacy of the arrangement to cover the costs of construction of the Canadian storages as Mr. Bennett desires.
Thirty year term
We enquired whether a twenty year term could be acceptable. The United States’ side gave the impression that it would be but that the price would not be quite as favourable – probably .25 of a mill (U.S.) less. It was not entirely clear whether this lower price (3.5 mills U.S.) would have to apply to the twenty year “slice” if a contract were arranged on the basis referred to above. The better price for a thirty year term is apparently not related particularly to the amortization of the tie line that would have to be built to California. It relates rather to the preference of utilities to have power committed at a firm price for as long a period as possible and their willingness to pay a premium for a longer term.

1. Purchase of the part of our entitlement produced at private plants (26%)
  The United States representatives appeared to be quite confident that this portion of the power could be paid for in advance with discounting at a 4 to 4½% interest rate. (At 4 mills and 4% this would amount to $84 million in Canadian funds.)
2. Loan to cover flood control benefits
The advance payment of the $63 million for flood control benefits from High Arrow and Duncan Dams apparently can be handled under a special arrangement by the Export-Import Bank. What might be done is to utilize a portion of the $150 million standby credit that was arranged with the Bank to strengthen our reserve position last June. While normally Export-Import loans are at 5½% interest, the rate under a possible arrangement might be as favourable as 4% and would not be worse than 4½%. The loan would have to involve the Government of Canada and could not be to the Provincial Government alone. (The payment, discounted at 4% would amount to $59 million. This, plus the payment under (a) would thus come to $143 million. The estimated cost of the High Arrow and Duncan storages is $148 million.)
Re-scheduling of Mica Dam
It is quite apparent that the load growth in British Columbia will not justify both the completion of the first stage of the Peace River Project on its present schedule and the immediate installation of the generators at the Mica project when it is completed on the schedule called for by the treaty. (The schedule for the Mica project assumed that it would be machined very shortly after construction in order to assist in covering the heavy costs of the dam. If there is no requirement for its machining, early construction of the storage alone is a heavy financial burden.) We enquired whether the “first-added” credit position of Mica would be preserved if it were postponed. The United States representatives said they would be prepared to preserve its priority over the Libby storage. They would not be prepared to protect its position in relation to other projects that might have to be constructed in the United States before Mica was built. It would have to take whatever credit position was factually justified at the time of its construction. If Mica were postponed and, as seems probable, both Knowles and Bruce’s Eddy storage projects in the United States were completed during the postponement period, Mica’s estimated energy credit would be reduced 12% and its capacity credit 23%.
Financing based on power sold to California (74% of our entitlement)
The United States side did not rule out the possibility that the potential customers in California for the 74% of our power not produced at private plants in the Pacific northwest (probably Los Angeles and Sacramento) would be prepared to arrange financing and make an advance payment for the power sold to them. As indicated, the United States would be prepared to explore this but it is not clear to what extent it can be relied on.
Mr. White, who presented the United States proposal, emphasized on several occasions that it was a final and maximum effort by the United States to make it possible for the treaty to come into effect. He did not rule out discussion of points of detail and possible adjustment on them but both he and Mr. Luce (head of Bonneville Power Administration) emphasized that the price and the general arrangements were the best they could offer. If it did not prove possible to work out an acceptable arrangement they would have to explain the situation to Congress and would table the offer they have made in order to make clear how far the United States had been prepared to go to provide a workable scheme.
Both Mr. White and Mr. Luce also emphasized that time was important to the United States. If the Columbia treaty is not to come into effect they must make alternative provision for power and, so far as is possible, for flood control, in the United States. They will be presenting proposals to Congress in February or March, including recommendations for authorization of certain storages and they must know the situation by that time.

General

Following the meetings with the United States there were discussions by the Federal and Provincial representatives. It appeared to be generally the view that:

It would be desirable if an arrangement were made on the lines of the United States proposal, to try to avoid a commitment that requires an export of power from Canada at 4 mills.
A plan adjusted for maximum economy would require that either the Peace River project or Mica at-site generation be postponed. From preliminary calculations it appeared that if the Peace goes ahead on its present schedule, Mica generation should be postponed about 6-8 years. Alternatively, if Mica goes ahead on schedule, and is machined immediately, the Peace should be postponed about 6 years.

It was agreed that Mr. MacNabb of the Water Resources Branch and the Provincial engineers should undertake work to provide at the earliest possible date figures on:

The economics of the United States’ proposal including possible modifications on points such as those referred to above;
The cost of energy under a development with early Mica machining and postponement of the first stage of the Peace River project;
The cost of energy under a development with the first stage of the Peace on schedule and postponement of Mica generation; and
The same as (c) but with the Mica storage as well as generation postponed (including possible loss on its downstream benefit entitlement).

It is not expected that the results of such calculations can be available before January 15.

Dr. Keenleyside was to report to Mr. Bennett at once on the result of the meetings. Either before or immediately after the above calculations are available, you and your colleagues may want to ascertain what position the provincial government takes with regard to this definite offer by the United States in response to their proposals that have now been under discussion since last September.

R.G. Robertson

A.E. Ritchie

J.F. Parkinson

G.M. MacNabb

[Enclosure]

Note Memorandum

Limited Official Use

December 18, 1962

Proposal of United States Representatives Relative to Implementation of the Columbia River Treaty

In considering at this time still further efforts to find a solution to the problem of Canadian ratification and implementation of the Columbia River Treaty, it would be useful to recall briefly the background and status of this Treaty in order that suggestions for implementation may be viewed in perspective.

In 1944 the United States and Canada requested the International Joint Commission to investigate whether cooperative development of the water resources of the Columbia River Basin would be practicable and in the public interest from the points of view of the two countries. In response to that request, the International Joint Commission carried out extensive technical studies with particular emphasis on possibilities of power generation and flood control. It was confirmed that cooperative development was both practicable and in the public interest. In January 1959, Canada and the United States requested the International Joint Commission to recommend principles to determine and apportion the benefits which would result from cooperative development of the Columbia River Basin. In January 1960, Canada and the United States appointed delegations to negotiate a Treaty covering cooperative development of the Columbia River Basin for the mutual benefit of both countries. A representative of the British Columbia Government was a member of the Canadian delegation.

By the end of 1960, a Treaty had been negotiated after a year of exhaustive mutual consideration and careful work. The result was generally acknowledged to be a balanced, equitable, and practical instrument. The Canadian and United States delegations reported that in arriving at terms which would be acceptable to both countries in a development of such far-reaching significance, it was not possible for either of them to adopt a position that took no account of the interests and aims of the other.

The Treaty offers mutual advantages to both countries in flood control and power production. It requires that Canada build three storage dams on the headwaters of the Columbia River (High Arrow, Duncan, and Mica Creek), and it authorizes the United States to build a fourth dam (Libby) which, though located in Montana, would back water into Canada. Upon commencement of operation of all Canadian storage, the United States agrees to pay Canada $64,400,000 for the flood control benefits, of which $63,200,000 is assigned to High Arrow and Duncan dams. It also agrees to deliver to the Canadian border 50% of the additional power which downstream dams in the United States can generate because of the three Canadian storage dams when next added to a United States “Base System” defined in the Treaty. Canada’s total initial power entitlement would be about 1,300,000 kilowatts of firm power at about a 60% load factor; from High Arrow and Duncan dams only, it would be about 900,000 kilowatts. The Treaty contemplates that each country will finance the projects it agrees to build and will make its own arrangements for use of its power benefits.

On January 17, 1961, the Prime Minister of Canada and the President of the United States signed the Treaty for cooperative development of the Columbia River Basin. The Treaty was generally regarded as an important step toward achieving optimum development of the water resources of the Columbia River Basin as a whole from which the United States and Canada would receive benefits materially larger than either could obtain independently. This Treaty was subsequently approved by the United States Senate, and ratification by Canada has been pending largely because of differences within Canada over disposition of the Canadian share of the benefits.

The United States Government would like to reiterate for purposes of the record that the United States is still prepared to see the Treaty ratified in its present form and in accordance with the original concept that the Canadian power entitlement would be used in the British Columbia market in meeting domestic requirements (with the possibility that initial surpluses in this situation might for temporary periods be sold in the United States). In fact, the United States would prefer that the Canadian power entitlement be used in Canada, and that the Canadian projects be financed by Canada, as contemplated by the Canadian and United States governments at the time the Treaty was negotiated.

It appears, however, that Canada and British Columbia cannot agree upon a program of using the Canadian power entitlement to meet load growth in Canada as contemplated during Treaty negotiations. British Columbia has proposed that, instead, the Canadian power entitlement be sold in the United States on long-term contracts, and that the Peace River be developed immediately to meet load growth in Canada. It has further proposed that the United States Government finance the construction of the Canadian projects. The British Columbia proposals would place upon the United States major obligations not contemplated in the Treaty.

Specifically, the British Columbia Government in September 1962 made a proposal, the most important points of which were that the entire Canadian downstream entitlement be sold in the United States on long-term contracts at an effective price of more than 5 mills per kilowatt-hour at the point of generation, 73% load factor, and that the United States make available funds (approximately $400 million) for construction of the Columbia River projects in Canada at the interest rate charged by the United States when supplying funds for hydroelectric projects in the United States. (The current interest rate is 2⅞%). After thorough exploration, it was concluded that the Canadian proposal would require the United States to pay more for the Canadian entitlement than the United States market would justify on the basis of the cost of alternative sources of power. These alternative sources of power in the United States are available at a cost substantially less than a 5-mill rate for the Canadian entitlement (at 60% load factor, which is average utility load factor, other than BPA, both in the Pacific Northwest and California). Additionally, United States officials observed that the purchase of the Canadian entitlement at a price unilaterally fixed above the fair market value would, in effect, amount to a derogation of the principle of the equal sharing of benefits upon which the Treaty was negotiated. Extensive discussions with potential customers in the United States have again confirmed that an over-all price of 5 mills at a 60% load factor exclusive of transmission costs is not possible.

Likewise, it will be recalled that United States officials reported that it would not appear possible for the United States Government to finance the construction in Canada of the storage projects under the Treaty. It could not be anticipated that the United States Congress would appropriate funds for public works investment in developed countries, particularly in light of the United States balance of payments problem.

It will be recalled that the United States representatives, in view of the new concept to sell the Canadian share of the power in the United States, offered to explore several alternative approaches in hope of a solution which might be advantageous to all the governmental entities concerned. None of these alternative approaches has apparently been considered acceptable by both British Columbia and Canadian government representatives. The United States representatives, therefore, have decided to make one more attempt to offer a solution.

This U.S. offer has been formulated as a maximum one because of the pressure of time. It has now been nearly 20 years since Canada and the United States decided that cooperative development of the Columbia River basin deserved attention. In January it will be two years since the Treaty was signed. For at least two reasons the need for a prompt decision as to whether this Treaty is going to be implemented has become increasingly urgent: (1) In the U.S. both governmental and nongovernmental agencies have reached the point where action will have to be taken in the immediate future to meet future power needs, either under the Treaty or from alternative sources; and (2) if alternative power and storage projects should proceed prior to Canadian ratification of the Treaty, the benefits from the Canadian storage would be substantially reduced and it would be necessary to modify the Treaty accordingly at such time in the future as Canada may desire to develop storage and share in the resulting downstream benefits in the United States.

In 1962, the Congress of the United States authorized the start of construction of a multipurpose storage project, Bruce’s Eddy, on the Clearwater River in Idaho, which has substantial downstream benefits. At the forthcoming session of Congress, within the next three to four months, it is expected that hearings will commence on the authorization of at least one more large storage project, Knowles-Paradise, near the confluence of the Flathead and Clark Fork Rivers, Montana. This project, like Bruce’s Eddy, has important downstream benefits. Pending before the Federal Power Commission are competing applications by two non-federal agencies to construct a third large storage project, either Nez Percé or High Mountain Sheep on the Snake River, Idaho-Oregon. Decision on this controversy may be made within 1963.

The Treaty assumes that the first two Canadian storage dams would be constructed before any of these three storage dams in the United States. If delays in ratification and implementation make this assumption incorrect, the downstream benefits from the Canadian projects would be materially reduced.

Under construction, or active consideration, are a number of other new power projects in the Pacific Northwest. Though not including storage reservoirs, they can supply large quantities of power. Such projects include Lower Monumental, Little Goose, Lower Granite, Asotin, and China Gardens dams on the Snake River; Wells dam on the Columbia; Boundary dam on the Pend Oreille; and the Hanford and Cle Elum steam-electric plants.

The estimated cost of power from these various projects, assuming the same financing as the federal Columbia River System, ranges from less than two mills per kilowatt-hour for the most efficient to 3¾ mills per kilowatt-hour for the higher cost projects, 60% load factor, at the generator. Altogether, they would represent an additional power supply of about 5,400,000 kilowatts.

It is in the light of all the circumstances outlined above that the U.S. offers the following proposal for consideration:

The United States, after a careful survey of the market, believes that the maximum obtainable price for the Canadian power entitlement in the United States is 3.75 mills per KWH at a 60% load factor at the point of generation in the United States. We will proceed to attempt to secure firm assurances from prospective purchasers of this power in the United States prior to exchanges of ratification.
As the Canadian part of the entitlement decreases in the future, Canada will deliver at the Canada-United States border at the same price that amount of power from other sources necessary to keep constant the quantity sold in the United States.
The term of the contract will be 30 years from initial delivery of power.
The Administration will request from Congress in the 1964 budget the necessary funds to build an extra-high voltage interconnection from the Columbia River to Southern California markets.
The United States will use its best efforts to secure firm assurances of:
1. Long-term non-federal financing from sources in the United States at about 4 to 4½% interest equal to approximately 25% of the present value of Canada’s Treaty entitlement. Since non-federal dams on the middle Columbia River will account for about one-fourth of the power generated from water stored in Canada, it appears possible that the public agency licensees of these dams might finance one-fourth of the cost of the Canadian storage projects by an advance payment for power.
2. A short-term loan from a United States lending institution in the amount of the flood control benefits assigned to High Arrow and Duncan Lakes (approximately $63 million).
The United States is prepared to work out a rescheduling of the Mica project if Canada decides that such rescheduling is necessary to meet more closely the marketing possibilities for power to be generated at Mica.
The United States also is prepared to explore the possibility of additional financing of the cost of construction of Canadian storage facilities by prospective purchasers of the Canadian power entitlement. It should be recognized, however, that the possibility of such additional financing in the United States cannot be considered as strong.

The proposal as outlined above is considered to be the maximum the United States can do in assisting Canada to dispose of its power entitlements under the Treaty and to finance, in part, the construction of the Canadian projects.

If the above appears satisfactory, we suggest that Canada ratify the Treaty but the exchange of ratifications be held until such time as the sale of the Canadian entitlement in the United States has been completed and the financing outlined above has been arranged. Ratification is desirable so that United States interests can proceed with water and power resource development, taking the Treaty potential into account. Also, ratification would be necessary in order that the United States proceed with the sales and financing arrangements described above.

Our proposal, in effect, offers a means by which the governments of Canada and British Columbia can obtain at low interest rates all or more of the capital necessary to construct the High Arrow and Duncan dams. It proposes a price for Canada’s power entitlement which is as high or higher than the cost of power from numerous alternative projects in the Columbia Basin in the United States. At this price, the proceeds from the sale of Canada’s power entitlement would completely pay for High Arrow and Duncan dams in less than nine years, even assuming the new, higher cost estimates for these dams made by the B.C. Hydro and Power Authority in the past several months. Over the 30-year life of the sales contracts, Canada could reasonably anticipate a profit of about $160,000,000 from the sale of its share of downstream benefits from High Arrow and Duncan. In addition, Canada would receive from Libby dam important flood control benefits and improved regulation of stream flows on the Kootenay which could produce about 200,000 kilowatts of additional power at about 2 mills per kilowatt-hour.

The proposal indicates a willingness on the part of the United States to agree to a rescheduling of the Mica project to coincide with the need for new power supplies in Canada. The problem of relating the construction schedule of Mica dam on the Columbia and the Portage Mountain dam on the Peace could be resolved between the governments of Canada and British Columbia. The United States would agree to any reasonable construction schedule that Canada and British Columbia propose.

For many reasons, familiar to all who have been concerned with the negotiations of the Treaty for cooperative development of the Columbia River, we hope this great international resource development program will go forward. We stand ready to take every reasonable measure to assure its success. We believe that the proposal herein set forth offers the best chance of resolving the difficulties in Canada which thus far have delayed its ratification.

300. PCO

Memorandum from Minister of Justice to Cabinet

Cabinet Document No. 38-63

Ottawa, January 28, 1963

Confidential

Columbia River Treaty: General Perspective

There has been so much attention in the months since the signing of the Columbia River treaty to points of detail and alternative power possibilities that there may be some danger of losing sight of the general values of the treaty and the development it contemplates. This memorandum has been prepared with a view to giving, in brief and summary form, an assessment of the broad importance of the treaty and the possible consequences to Canada if it does not proceed.

If an arrangement cannot be worked out with British Columbia within the limits of the United States offer, the following would appear to be the results:

There appears to be no serious likelihood that the United States will substantially improve the offer it has made.
It has been made clear that the offer of December 19th, 1962, is a “maximum one.” It is specifically stated that “the proposal … is considered to be the maximum the United States can do …”. There may be modifications of detail, perhaps some of substantial importance will be possible, but no change in general level appears to be a realistic possibility.
If an arrangement for the present treaty cannot be worked out there appears to be no likelihood that any other joint agreement with the United States can be reached.
It took a year of active negotiation to agree on the first treaty – and that was under very great pressure. The United States requirements for power are such that they almost certainly would not be prepared to wait for further negotiations to be completed before beginning alternative developments on their side. Recent engineering studies indicate that the two projects the United States is presently considering (one is already authorized by Congress) would cut our present downstream benefit entitlement by one-half if introduced before our Treaty dams. If that happened the present Treaty would become uneconomic and the chances of any successful negotiation of a new Treaty would be poor because of the increased costs and reduced benefits of cooperative development at that time. One has also to consider whether the United States would be disposed to try to work out another arrangement when the first, after approval at all stages up to and including signature, had failed. There are, of course, problems for the U.S. in providing equivalent flood control entirely on their own side and in the loss of the Libby dam. Flood control can be provided by them in most locations without the Treaty, although at greater cost. The interest in Libby appears to be less than it was. Altogether, neither problem appears to be insurmountable for them and the likelihood that they would be prepared to enter into a completely new series of negotiations seems very dubious.
If the above two points are correct and there is no arrangement with the United States, the Columbia River will probably never be developed for power at all.
It has frequently been assumed or implied that we need not proceed with the Columbia treaty and can in our own time and at our own volition proceed to develop the Columbia for Canadian purposes. The engineers of the Water Resources Branch and of the B.C. Hydro and Power Authority are generally of the view that this is unrealistic. If joint development does not occur, there appears to be a strong possibility that the Columbia as a purely Canadian project will never be economic. This view is supported by two separate reports of consulting engineers.
The 1957 report of the Montreal Engineering Company indicated that 65% load factor energy could be produced by thermal-electric plants at Vancouver for 7.3 mills per kwh using coal as fuel and 6.4 mills per kwh using gas. Their estimate of the cost of power from a fully developed independent program on the Columbia was 7.1 mills per kwh, with the initial portions of this development costing 12.9 mills per kwh. They concluded that:
“Hydro-electric development of the Canadian Columbia River for integrated operation with United States plants would provide the cheapest source of power for British Colombia for many years to come if a satisfactory agreement for sharing of benefits can be reached. Otherwise, steam would provide the cheapest power.”
The Government of British Columbia, as a completely separate matter, commissioned Crippen Wright Engineering Limited to do a report for them in 1959. That report states:
“The best initial project available to British Columbia on the Upper Columbia River on the basis of independent planning is the Low Mica Development which would cost $278,000,000 in one construction phase and deliver power to load centres at a cost of 7.06 mills per kilowatt hour. Development of power on the Columbia would not necessarily be competitive or at all attractive on this basis.”
Construction costs for hydro projects are trending upward. Thermal costs are trending downward. If the above conclusions were correct in 1957 and 1959 they will be reinforced by developments in the next few years.
Fraser River Diversion
A diversion of Columbia River water to the Fraser River will not improve the economics of an independent development of the Columbia River. A detailed study by the B.C. Engineering Company in 1956 indicated that the incremental energy provided by such a diversion would cost 7.1 mills per kwh. If this is correct, it would appear that, apart altogether from the unresolved fisheries problem associated with the diversion, the proposal is not economic.
The “McNaughton Plan”
The “McNaughton Plan” for Columbia development is not acceptable to British Columbia, the owner of the resource. It was not acceptable to the United States during Treaty negotiations without Canadian acceptance of subsidized power sales to the United States. Even without such sales to the United States, it is highly doubtful if the plan would be an economic development for Canada. Many details about it have never been made entirely clear by General McNaughton, including the financing [of] the very high costs at the outset and the method of disposing of the very large initial surpluses of power. The Plan would, however, by flooding the East Kootenay valley, inundate more land than the Treaty proposal. The extra 7% of energy it could produce in Canada could be developed at a lower cost by other resources. Altogether, the McNaughton Plan does not appear to be a practical proposition, particularly for cooperative development under a Treaty.
If the Columbia is not developed the loss of low cost power to Canada will be very great indeed.
The annual output of a full Columbia River development (including downstream benefits under the treaty) at 70% load factor is estimated at 27 billion k.w.h. This is approximately double the total present power production in British Columbia. Of this, over 75% (21 billion kwhs.) would be at-site production in Canada available in perpetuity and not subject to any diminution. British Columbia may not show too much concern over this potential loss of power, since it may feel that the resources of the Peace River are sufficient to meet the needs of the Province for the next ten or fifteen years. However, this would be a very short-sighted approach.
The downstream benefits have been seriously under-rated by some critics because of a long term diminution in magnitude. They will diminish at some time as the introduction of more thermal power plants in the Pacific Northwest makes the area less dependent on hydro plants – and therefore on our storages – to adjust their output of power to meet demands at any particular time. Present estimates are that in 1972 our downstream benefits could amount to as much as 1,375,000 kilowatts of capacity and that by 1985 they would still be in excess of 1,200,000 kilowatts. Load growth in the Pacific Northwest has not proceeded as rapidly as originally estimated. If this continues, they will not introduce thermal power as rapidly as had been estimated. They will then remain dependent on our storages and, as a result, the diminution of our downstream benefits will be much slower than had been thought.
If the Columbia does not go ahead, the power lost will be the lowest cost power available in British Columbia. The consulting engineers retained by British Columbia to compare the Peace and Columbia developments (Sir Alexander Gibb and Partners and Merz and McLellan) estimated the delivered cost of Peace power at 4.2 mills. Using their assumptions and in addition taking into account (i) the flood control payment, (ii) West Kootenay developments and (iii) sale of short term surplus downstream benefits to the United States at 4 mills, the power from the Columbia would be available to Canada at an average cost of 3.26 mills per k.w.h. This is 80% of the unit cost of Peace energy and applies to a quantity some 60% greater than the Peace River potential.
The loss in employment possibilities is substantial
Direct employment on the treaty projects alone would be very great and last over a period of years. In addition to such direct employment there would be a very large amount of indirect employment for manufacturers of equipment. The stimulus to the B.C. economy from the certainty of having available large amounts of low cost power would also have substantial results for employment and the prosperity of the province generally.
The loss to Canada of remunerative investment if the Columbia is not developed will be very great and the loss to our balance of payments will be substantial.
At the time the treaty was signed the investment for the storages called for by it was estimated at approximately $350 million. With transmission and extensions in the West Kootenay the total investment was estimated at $540 million. For full Columbia River development, plus transmission, the investment was estimated at $1,511,000,000. No other project designed to provide an alternative source of power for British Columbia would be as effective in drawing in United States financing quickly and in large volume. No other project would provide its own automatic means of repayment as the treaty projects would under the United States proposal.
Under the United States proposal there would be a cash payment to Canada immediately upon the commencement of construction of approximately $137 million in Canadian terms ($127 million U.S.). If the power sold to California could also be financed on the same basis it would result in a total outright cash payment of $340 million U.S. in 1963 or the equivalent of about $23 million U.S. per year for the 30-year sale period. These amounts are not subject to repayment and therefore to any reverse flow at a later date because they are a payment for power sold and for flood control and not an obligation incurred. Apart from the Columbia there are no other major hydro projects in British Columbia which appear to be capable of earning export income from the sale of power.
The above assessment is presented in an effort to complete the picture that has to be considered in the light of the exchanges over the last year or so.
Altogether it appears the Columbia project is so large in scale; so important in employment, industrial and general economic consequences; and potentially of such great value in meeting some of the most pressing problems of our balance of payments that it is essential for the government to consider the Treaty in the broadest perspective. It is apparent that if it is not implemented the loss to Canada will be of major importance.

Donald Fleming

301. PCO

Extract from Cabinet Conclusions

Secret

[Ottawa], January 29, 1963

Present

The Prime Minister (Mr. Diefenbaker) in the Chair,
The Secretary of State for External Affairs (Mr. Green),
The Minister of Justice (Mr. Fleming),
The Minister of Trade and Commerce (Mr. Hees),
The Minister of Transport (Mr. Balcer),
The Minister of Veterans Affairs (Mr. Churchill),
The Minister of Public Works (Mr. Fulton),
The Minister of Finance (Mr. Nowlan),
The Minister of National Defence (Mr. Harkness),
The Postmaster General (Mrs. Fairclough),
The Minister of Fisheries (Mr. MacLean),
The Minister of Labour (Mr. Starr),
The Minister of Defence Production (Mr. O’Hurley),
The Associate Minister of National Defence (Mr. Sévigny),
The Minister of Forestry and Minister of National Revenue (Mr. Flemming),
The Minister of Northern Affairs and National Resources (Mr. Dinsdale),
The Secretary of State (Mr. Halpenny),
The Minister of Mines and Technical Surveys (Mr. Martineau),
The Minister of Citizenship and Immigration (Mr. Bell),
The Minister without Portfolio (Senator McCutcheon).
The Secretary to the Cabinet (Mr. Bryce),
The Assistant Secretary to the Cabinet (Mr. Watters).

…

Columbia River Development Policy

(Previous reference January 24, 1963†)

The Minister of Justicesaid that a team of four experts had made an evaluation of the U.S. proposals of December 19th relative to implementation of the Columbia River Treaty. The findings of their report were summarized as follows:
1. The U.S. proposal is attractive, especially when allowance is made for the fringe benefits and intangible benefits listed in Chapter 6 of the report.
2. The proposal results in total revenues equal to a unit payment of 4.6 mills per kwh, for our Treaty energy if the need to provide firming energy to the United States is overcome.
3. The advance payment for the High Arrow and Duncan flood control credit and for 26% of the power sales will pay for the construction of the High Arrow and Duncan Lake projects; revenues from 74% of the power sales can therefore be applied against Mica storage and generation.
4. Mica generation in all of the alternatives studied in connection with this offer is believed to be the lowest cost energy available in British Columbia and should therefore not be needlessly postponed.
5. If construction of the Peace River project continues and Mica generation must be deferred, very careful study should be made of the advantages and disadvantages of postponing the Mica storage project as well.
6. If a decision is made to defer Mica storage as well as its generation, no commitment should be made at this time to sell its downstream benefits. Sales to the United States should be limited to the benefits provided by High Arrow and Duncan.
7. If the Treaty is ratified early enough in 1963 the United States proposal would mean an inflow of 130 million U.S. dollars in late 1963 and a total of approximately $350 million (U.S.) by 1970. There would be no corresponding outflow of dollars in later years as advance payments and loans would be met by downstream benefit sales.
8. The possibility of any development of the Columbia River in Canada may depend upon decisions made on the present U.S. offer, or some modification of it. There is no evidence available at this time that independent development of the Columbia River after 1978 would be economically feasible.
  The four Canadian officials who attended the Columbia discussions drew the following conclusions from this report:
  1. The present U.S. proposal is sufficiently attractive to warrant the most serious consideration of the federal government.
  2. The proposal, with its requirement to provide firming energy removed, presents a basis for an advantageous development of the Columbia River in Canada as envisaged by the Columbia River Treaty.
  3. A decision on the Columbia River Treaty is required at an early date to permit a profitable co-operative arrangement. The alternative may very well be no economic development of the River in Canada now or at any time.
  4. Federal ministers may wish to ascertain as a matter of urgency the views of the British Columbia government, as that government will have also received copies of the report of federal and provincial engineers.
    After reviewing the report and the conclusions of the federal officials, Mr. Fleming recommended:
    1. that the Cabinet approve the U.S. proposal in principle as the basis for further negotiations with British Columbia and the United States in order to secure such modifications in detail as will make the arrangement as advantageous as possible for Canada;
    2. that a Minister be authorized to get in touch with the Premier of British Columbia immediately in order to ascertain the position of the province with regard to the U.S. proposal;
    3. that if the Premier is prepared to have a meeting between the provincial and federal governments, such Minister be authorized to make the necessary arrangements in the hope of getting agreement at the earliest possible date.
An explanatory memorandum had been circulated. (Minister’s memorandum, Jan. 28 – Cab. Doc. 38/63).
Mr. Fleming then referred to a memorandum (Cab. Doc. 39/63, Jan. 28)^{Footnote 86}which placed the Columbia River Treaty and the development it contemplates in perspective. The main points to be borne in mind were as follows:
1. There appears to be no serious likelihood that the United States will substantially improve the offer it has made.
2. If an arrangement for the present treaty cannot be worked out there appears to be no likelihood that any other joint agreement with the United States can be reached.
3. If the above two judgements are correct and there is no arrangement with the United States, the Columbia River in Canada will probably never be developed for power at all.
4. A diversion of Columbia River water to the Fraser River will not improve the economics of an independent development of the Columbia River.
5. The “McNaughton Plan” for Columbia development is not acceptable to British Columbia, the owner of the resource. It was not acceptable to the United States during Treaty negotiations without Canadian agreement to subsidize power sales to the United States. Even without such sales to the United States, it is highly doubtful if the plan would be a development of economic value for Canada.
6. If the Columbia is not developed the loss of low cost power to Canada will be very great indeed.
7. The loss in employment opportunities would be substantial.
8. The loss to Canada of remunerative investment if the Columbia is not developed will be very great and the loss to our balance of payments will be substantial.
Mr. Fleming said that it was important that the United States be informed of Canada’s decision in February.
During the long discussion it was said that it was the view of the Canadian and B.C. experts that Premier Bennett would be prepared to reach a compromise agreement but it would be difficult to get him to agree to the sale of downstream benefits on these terms. B.C. was going ahead with the construction of the first dam on the Peace, but if the Columbia development was begun, the construction of the subsequent dams on the Peace would be held up.

Mr. Fulton said that he did not agree that we should accept the U.S. offer even as a basis for negotiation. Canada should not be taking the initiative in favour of proposals which Premier Bennett had already said were not good enough. He did not agree with the two main assumptions of the experts concerning the price at which the power would be sold and that the exchange rate would remain where it is for 30 years.
Under the present proposals, dams would be built in Canada to develop power of which Canada would be entitled to half. It was now proposed that this be sold to the U.S. on a thirty-year contract at less than the price of power in Canada. For this purpose, great areas of Canadian territory would be flooded. Added to this was the possibility that the Mica dam, which was designed to develop power for consumption in Canada, might be postponed for 15 years. Taken together, these factors would create a situation which would not sit well with the Canadian people.
It was far better to let Premier Bennett turn down the U.S. proposals. The responsibility then for the failure of the Treaty would be his. He had not yet secured financing of the Peace project. He was putting up a dam on a navigable river in defiance of the Navigable Waters Protection Act. Canada could impose a delay on the construction of this dam. A new Treaty could be negotiated with the U.S. later on when Premier Bennett was no longer in power. He would rather see the Treaty fail than proceed on this basis.
The present U.S. offer was in direct conflict with both the original concept of the Treaty and Canada’s economic interests. The Federal government’s intention had been to provide low-cost power from the Columbia to the lower mainland of British Columbia, but the current proposal would involve the use in the United States of Canada’s power entitlement on the Columbia, and the use of the more expensive power from the Peace River to meet the load growth requirement of B.C.
Others said the project was consistent with Canada’s economic interests, and that Canada would enjoy the use of the cheap on-site power that would be obtained by machining Mica. The suggestion that the province be prevented by injunction from developing the Peace River was unrealistic, and the taking of injunctions against the Crown in right of the Province would introduce new difficulties. The province had obtained enough financing to enable it to proceed with work on the Peace River development for perhaps a year. If the Federal government “declared war” on the province over the development of the Peace River, any agreement with the province on the Columbia would then be out of the question.
Premier Bennett had not rejected the U.S. offer, but had merely taken a negotiating position. The press quoted him as having said that the U.S. proposal was “a good offer as a starter,” but that it would have to be improved. There was no intention that the Federal government should urge the province to accept the offer, but only that the Federal government should approve the offer in principle and obtain the views of the province. The province had the primary responsibility for the Columbia, and would own the power if development proceeded. If the treaty should collapse, it should be made clear to the Canadian public that the province was responsible.
Time was running out, and it was therefore important to ascertain the province’s views. The negotiations with the U.S. must be completed during February, because the U.S. would have to develop other power sources if the Columbia development was not assured by that time. The subject bristled with difficulties for the Federal government, but unless the deal was completed very soon, the Columbia development would be dead for all time.
Some said that if the province refused to proceed with the development of the Columbia under the terms of the Treaty, the Federal government should give serious consideration to the desirability of declaring the project to be for the general advantage of Canada, and developing it as a national project under Federal government direction.
Others said that the selection of Mr. Fulton as Conservative leader in British Columbia had introduced an important new factor. Experience had demonstrated the impossibility of making binding agreements with the present provincial régime. During the Columbia negotiations the province had broken faith on many occasions and would doubtless do so in the future. Mr. Fulton could defeat Premier Bennett in a general election, and a new provincial premier was an essential prerequisite to a sound agreement on the Columbia. The public in B.C. were criticizing Premier Bennett at this time because he had failed to obtain a price of 5 mills in the U.S. for the Canadian share of downstream benefits and had failed to obtain financing from the U.S. for the whole development. If the Federal government now approved the U.S. offer, Premier Bennett’s hand would be immensely strengthened, and it would become impossible for Mr. Fulton to defeat him at the polls.
Some said that one possible course might be to abstain from approving the U.S. proposal at this time, but to authorize Mr. Fleming to discuss it with Premier Bennett in order to obtain the views of the province. Others said that if the Federal government should now reopen discussions with the province, Premier Bennett would issue misleading statements to the press in order to transfer his present difficulties to the Federal government.
The Cabinet agreed to give further consideration, at another meeting, to its policy on the development of the Columbia River.

…

Part 5

Project Nimbus (Weather Satellites)

302. DEA/12798-C-2-40

Deputy Minister of Transport to Under-Secretary of State for External Affairs

Ottawa, February 2, 1962

Dear Sir:

U.S. Meteorological Satellite Programme (Project Nimbus) – Canadian Participation

You will recall that some months ago, the Deputy Minister of Transport, accompanied by senior officials from the Telecommunications and Meteorological Branches of that Department as well as representatives of the National Research Board and the Defence Research Board, visited Washington for a briefing session with NASA, including discussions on the possible Canadian role in regard to civil use of satellites.

These discussions were followed up further by discussions, on several occasions, between representatives of the two branches of the Department and representatives of NASA and of the U.S. Weather Bureau with reference to both the field of communications and of meteorological satellites. Prospects for useful Canadian participation in regard to the operational meteorological satellite programme, known as Project Nimbus, developed actively. It became apparent that advantages could accrue if a ground station could be located in north-eastern Canada. Indeed, this might not only reduce the total of ground stations required to two, but also provide for better coverage from the Nimbus satellites. Informal indications were that the United States would welcome an offer of Canadian participation on some sort of joint basis in this connection.

The Department of Transport has now received authority to enter into arrangements with the appropriate U.S. agencies, based generally on the idea of Canada sharing in the cost of construction and operation of a ground station in Canada for this programme. The detailed arrangements, when worked out, would be confirmed by exchange of notes either directly between the entities concerned or through diplomatic channels, whichever might be appropriate.

As a next step, we now propose to make a direct approach to the U.S. Weather Bureau and to NASA, outlining our readiness to enter into discussions. For this purpose we would propose to have the Director of the Meteorological Branch send a letter to the U.S. Weather Bureau along the lines of the attached,† with a copy being provided by our Telecommunications Branch to Mr. Frutkin of NASA. We felt that you might wish to inform the Canadian Embassy in Washington of the foregoing situation so that they would be aware of what is proposed. We understand equally that the U.S. Weather Bureau and/or NASA have kept State Department informed in regard to the possible Canadian role and of our intent to approach the working agencies in this connection.

Because of the urgency of the situation, it is planned to have the letter to the U.S. Weather Bureau go forward on February 12th. If the Canadian Embassy has any comment that it wishes to offer in this connection, it would be appreciated if this could be received before that date. There is considerable urgency in regard to the development of the programme.

Yours sincerely,

J.R. Baldwin

303. DEA/12798-C-2-40

Secretary of State for External Affairs to Ambassador in United States

Telegram E-972

Ottawa, May 2, 1962

Confidential. OpImmediate.

Reference: Sharpe-Reynolds Telecon of May 1.

Project Nimbus

We have been informed by the Deputy Minister of Transport that while the discussions which took place in Washington on March 7-8, and in Montreal on March 20, were most satisfactory in the scientific cooperation and operating phases, NASA representatives did not feel disposed to agree to Canadian participation in engineering and equipment production to the degree that we had hoped would be commensurate with our proposed financial contribution. It will be remembered that participation in a real and important way as a method of entry into this new field by Canada was one of the prime considerations in deciding upon the desirability of financial contribution of some magnitude (up to $4 million capital and up to $800,000 per annum operating expenses. Approximately half the cost of the Canadian station.) It is Department of Transport’s understanding that a station in Eastern Canada would greatly enhance the results of the whole U.S. Nimbus Project.

It may be that the NASA representatives, while expressing the technical viewpoint of a project team, may not be aware of the general political and economic considerations of mobilization of Western resources, and that an approach to the State Department might assist in bringing these considerations to the fore. It is proposed that this might be done by having Mr. C.M. Brant, Deputy Director, Air Services, visit Washington as soon as this can be arranged. It is proposed that he might accompany one of your officers to the State Department where this question could be discussed and where an aide mémoire or a memorandum based on the following draft could be left:
“Representatives of Canada and the United States have met and have reached a very satisfactory agreement on the scientific cooperation and operational phases and the provision of personnel for operation of a ground read-out station for Project Nimbus in Canada. Difficulty has been encountered in selecting mutually acceptable areas for Canadian participation in the engineering and development of some important part of the station in Canada which would enhance Canada’s knowledge and experience. It was with this kind of participation in mind that Canada proposed to participate in capital expenditures.
It is unfortunate that this attempt to cooperate has occurred at such a late stage of the Nimbus Project, at a time when quite understandably NASA is already well launched on the engineering and design of other portions of the whole Nimbus Project. However, it was for this reason that the proposal for Canadian participation was limited both in area and magnitude so that Canada’s ability to meet both performance and timing requirements would be beyond any reasonable doubt. The Canadian participation as proposed by NASA falls considerably short of Canada’s legitimate national objectives insofar as engineering and production is concerned.
Canada, as a relatively small country and in common with many other medium-sized nations, cannot, at least within the immediate foreseeable future, expect to originate its own space programs. The practical difficulties of international cooperation have to date precluded the effective participation of all but the largest countries in such programs, in spite of the oft expressed objective of accomplishing this kind of cooperation. This situation might well result in a large percentage of the western world’s potential being left undeveloped.
Although there is no doubt concerning the value of the scientific and research phases of a station being established in Canada or of the understanding in these phases reached by our respective delegations, it is the Canadian view that effective cooperation only arises when both parties are contributing in all phases, including the engineering and the development and production of equipment.
Careful examination has been given to the various packages of engineering and production into which the read-out station can be resolved in relation to the timetable as well as the ability of Canadian industry. It is the Canadian view that the data acquisition sub-system, less the antennae, is a package which could be engineered, produced and installed by Canadian resources without any appreciable effect upon the timetable. The value of this package is approximately $3 million of which $2,300,000 would be Canadian content. If the USA position could be adjusted to permit this work to be done in Canada, in addition to that portion already agreed in the discussions, discounting for the moment the uncertainty concerning the radome which is not considered as meeting Canada’s desire to participate in the engineering, an equitable balance would have been reached.
At the same time Canada would be prepared to consider other suggestions which the USA might be able to put forward, aimed at effective cooperation in the development, engineering and production areas, either on this or other related programs. It is obvious that any such alternative task would have to be carefully selected if it were to provide adequate scope for encouraging the development of Canadian engineering and production potentialities.
The acceleration of any agreement which would forward the Nimbus program while at the same time providing a basis for continuing cooperation in the space field, would be appreciated by Canada. It is the Canadian view that a solution in keeping with Canada’s objectives as stated above is both desirable and possible and that early action is in our mutual interests. Canada would welcome informal discussion with USA officials which might serve to clarify any points outstanding and to lead to an early agreement which would be to the mutual benefit of the two countries.”
We will appreciate learning as soon as possible whether such a meeting could be set up for Friday or early next week. Timing of the Nimbus Project makes it imperative that the meeting take place as soon as possible.

[N.A.] Robertson

304. DEA/12798-C-2-40

Aide-Mémoire by Department of State of United States

Confidential

Washington, June 4, 1962

The Department of State refers (1) to the technical discussions which were held in Washington and Montreal in early 1962 between representatives of the Canadian Ministry of Transport, the Canadian Defence Production Board, the US National Aeronautics and Space Administration (NASA), and the US Weather Bureau regarding the joint establishment in Canada of a project NIMBUS command and data acquisition station as an essential element of the NIMBUS operational meteorological satellite system, and (2) to the recent conversations on this same matter which were held at the Department of State on May 4 and May 23, 1962 with representatives of the Canadian Embassy and the Canadian Ministry of Transport.

The Department notes that the earlier discussions had resulted in agreement among the technical representatives regarding the scientific and operational aspects of the proposal, but that, subsequent to those discussions, Canadian authorities had concluded that the specific proposals for Canadian participation in the construction of the station did not satisfy the requirement for mobilization of Canadian industrial resources which they had since indicated to be the basis for their offer to allocate up to $4 million for construction of the station and up to $800,000 annually for operating expenses. Canadian representatives stated in their proposal to the Department of State on May 4, 1962 that Canada be assigned the task of developing and constructing the data acquisition subsystem at the station, and requested that NASA be urged to reconsider the earlier proposals so as to permit Canadian participation in this specific task or, as a complete alternative, in some other project which would meet fully Canadian development and engineering objectives.

As stated during the conversation on May 23, 1962, this proposal has been given very careful consideration and with the understanding that the Canadian offer to make a capital investment in the construction of the station was made on the assumption that Canadian participation in the engineering and development phase of the project would be of the sort envisaged in this proposal. The US agencies have concluded that it is not practicable, in connection with the currently planned NIMBUS station in Canada, to proceed on the basis of this proposal.

After careful examination, NASA has concluded that initiation by Canadian firms at this time of both the development and engineering of a major subsystem for the proposed station would entail a delay of at least one year in achieving operational status. This estimate is based upon NASA’s extensive experience in the establishment of elaborate data acquisition facilities.

If, as an alternative, NASA were to undertake the assembly of drawings and specifications from US contractors to whom responsibility for the development of major equipments for this and related projects has already been given, in order that a Canadian firm could undertake the fabrication of similar equipments for the Canadian station, it is estimated that there would be a delay of at least six months which might well run into a delay of a full year because of the short work season. In any event, such an alternative arrangement would not afford the engineering and development experience which Canada desires.

In these circumstances the Department and the interested agencies recognize the justification for Canadian capital expenditures will not have been met. Accordingly, the US agencies are prepared to assume full responsibility for all capital expenditures in the establishment of the proposed station and will undertake the maximum procurement of services and components in Canada consistent with technical and schedule requirements. They continue to hope for full participation by Canadian personnel in the operation of the facility. Canadian sharing in the operating costs to the extent which Canada regards as appropriate and feasible would be welcome, but would not be essential.

In addition, NASA has indicated its readiness to examine other future programs with a view to identifying projects in which it might be possible to arrange participation by Canadian industry in development and engineering tasks of the sort desired by Canada in connection with project NIMBUS. NASA is prepared to explore such possibilities mutually with Canadian representatives.

In view of the fact that delay in initiating site development will require that an additional winter season be passed, losing a full year in the operating schedules of the station, and in view of the expressed desire of the UNGA that the operational utility of meteorological satellites be exploited without delay, the US now asks permission to proceed forthwith at its own expense with construction of a NIMBUS station in Canada. In the event of Canadian approval in principle, the US would earnestly hope that the interested agencies could be authorized to proceed with initiation of site development and construction now pending completion of a formal agreement.

It is envisaged, of course, that terms for the construction and operation of the station would be formally expressed in an exchange of notes between the two governments, as supplemented by implementing arrangements between the appropriate agencies.^{Footnote 87}

305. PCO

Extract from Cabinet Conclusions

Secret

[Ottawa], June 28, 1962

Present

The Prime Minister (Mr. Diefenbaker) in the Chair,
The Secretary of State for External Affairs (Mr. Green),
The Minister of Finance (Mr. Fleming),
The Minister of Transport (Mr. Balcer),
The Minister of Veterans Affairs (Mr. Churchill),
The Minister of National Revenue (Mr. Nowlan),
The Minister of National Defence (Mr. Harkness),
The Minister of Citizenship and Immigration (Mrs. Fairclough),
The Minister of Fisheries (Mr. MacLean),
The Postmaster General (Mr. William Hamilton),
The Minister of National Health and Welfare (Mr. Monteith),
The Minister of Agriculture (Mr. Alvin Hamilton),
The Minister of Defence Production (Mr. O’Hurley),
The Minister of Public Works (Mr. Walker),
The Associate Minister of National Defence (Mr. Sévigny),
The Minister of Northern Affairs and National Resources (Mr. Dinsdale).
The Secretary to the Cabinet (Mr. Bryce),
The Assistant Secretary to the Cabinet (Mr. Labarge).

…

Canadian Participation in Project Nimbus

The Secretary of State for External Affairs referred to a paper prepared by his department and the department of Transport concerning Canadian participation in a project called “Nimbus.” The United States had plans to launch artificial satellites designated “Nimbus” for the continuous observation of world-wide meteorological conditions. To realize the full potential of the system, one or two ground stations would be required in Canada. The U.S. had therefore sought Canadian participation in the project. The U.S. would assume full responsibility for capital expenditures and undertake maximum procurement of services and components in Canada consistent with technical and schedule requirements. They also hoped Canadian personnel would participate in the operation of the station, and would leave it to Canada to decide whether it wished to share in the costs of operation.
An explanatory memorandum had been circulated (Joint memorandum, Secretary of State for External Affairs and the Minister of Transport, June 8 – Cab. Doc. 196-62.†)
During the discussionthe following points were raised,
1. Some questioned whether it was a good principle to have Americans building and operating an American Nimbus satellite station on Canadian soil. Others said that in the present instance the Americans had offered to operate the station along with Canadians and that, in any case, the station would be subject to control by the Department of Transport.
2. Some said that the U.S. authorities would not allow Canadian participation or contracts, on the grounds that Canadians were not sufficiently competent for this kind of work. This kind of criticism often seemed to justify their establishing units in Canada for any kind of scientific research. It would be preferable to allow U.S. civilian rather than defence projects, but, in either case, Canada seemed to get only fringe benefits and to lose some of its sovereignty. If the reason for accepting the stations in Canada was for purposes of training Canadians, perhaps an exchange of personnel would be more suitable. Canadians could then be trained in the more advanced research centres in the U.S.
3. Others said that there was a severe shortage of suitably trained Canadians for such work as this. It would be better to train them here. The only alternative seemed to be to accept the American offer or do nothing. The cost of such research was prohibitive for Canada. It would be a good bargain. Canada had already made a start in space research, with some manufacturing being done in Canada.
The Cabinet agreed that the United States Government be informed of Canada’s willingness to conclude a formal agreement with the United States for the location, construction, equipping and operation of a read-out station for use in the artificial satellite project known as Nimbus, in accordance with the provisions recommended in the joint memorandum of the Secretary of State for External Affairs and the Minister of Transport of June 8th (Cab. Doc. 196-62).^{Footnote 88}

…

Part 6

Gut Dam

306. DEA/11597-40

Secretary of State for External Affairs to Ambassador in United States

Telegram X-53

Ottawa, April 19, 1962

Confidential. Priority.

Gut Dam Claims

At the request of the Minister, the Interdepartmental Group on Gut Dam Claims met recently to study developments in this matter since its memorandum of August 2 last to the Cabinet Committee on these claims. In its memorandum, the group recommended as a majority view that Canada had a commitment to provide a forum in which these claims could be heard and disposed of on a substantive basis and that, therefore, negotiations should be resumed with the USA for the purpose of establishing, by international agreement, an international tribunal to hear and dispose of the claims. However, the Minister decided not to submit this memorandum to his colleagues of the Cabinet Committee on Gut Dam Claims, although he did not object to it being circulated to departments of government concerned.

Since then the USA Embassy has on a number of occasions made inquiries concerning the status of this matter, the latest by Mr. Merchant in the course of a call on the Minister on April 3. The Minister, in reply, stated that the matter was still being examined interdepartmentally. At its meeting the Interdepartmental Group considered these various inquiries from the USA Embassy and examined also the possible implications of Bill S.2978^{Footnote 89} introduced by Senator Keating, representative of New York on March 13 and which has since been referred to the committee on the judiciary. You may recall that the intent of this bill is to authorize the Foreign Claims Settlement Commission of the US to investigate the Gut Dam claims and to submit a detailed report on each of them to the President for such action as he may deem appropriate. We understand that a bill along similar lines might be introduced in the House of representatives by Congressman Ostertag, also a Republican of the State of New York.
The Interdepartmental Group agreed that this development should be brought to the attention of the Cabinet Committee for the following reasons: (1) It might arouse anti-Canadian sentiment in Congress with damaging results for Canada since, if information available here is correct, the Foreign Claims Settlement Commission is generally concerned with claims of United States citizens and corporations resulting from arbitrary decisions of foreign governments. (2) A determination of the amount of the claims by the Foreign Claims Settlement Commission is likely to bind the Administration, thus leaving no freedom of manoeuvre to the State Department in their dealings with us. (3) The United States claimants would be in a position to put their own interpretation of the facts before the Commission without the Canadian Government being able to question that interpretation. However the view was also put forward at the meeting that a reference of these claims to the Foreign Claims Settlement Commission could possibly be to our advantage in that it would provide a forum in the United States where their validity could be assessed without any intervention or commitment on our part. It was readily recognized at the same time that any advantage so gained might prove detrimental in the possible event that the Commission made a decision which would be unfavourable to Canadian interests.
So that the recommendations of the Interdepartmental Group to the Cabinet Committee on Gut Dam Claims might be as authoritative as possible, it was agreed that we would submit to you for an assessment the following questions:
1. Is the discussion of this bill in the U.S. Congress liable to trigger any serious anti-Canadian bias which might impair relations between Canada and the U.S.A.?
2. If so can the effect be assessed and in that event what would be the nature of the injury that Canada might suffer?
3. What is the likelihood of Bill S.2978 (or any other similar bill that may have been introduced since in the House of Representatives) being passed by Congress at its present session and becoming law?
4. On the basis of its past record, composition and rules of procedure, is the Foreign Claims Settlement Commission an impartial quasi-judicial body from which we could expect a serious and objective examination of the Gut Dam claims?
The importance of this last question is paramount. Although we would not be bound by the Commission’s recommendations, the State Department would probably not be in a position to negotiate on any other terms than those set by the Commission in its report to the President. If the Commission has very strict standards, chances are that our contention (which apparently is shared by the U.S.A. Corps of Engineers) that these claims are frivolous would be confirmed by an independent United States agency without any intervention on our part. On the other hand, if the Commission cannot be relied upon to bring forward equitable findings, some means would need to be found to protect Canadian interests in this matter.
We realize that it might be difficult to provide a definite reply to these questions. However, your considered assessment would be of great help to us in formulating recommendations to the Minister and to the Cabinet Committee on Gut Dam Claims.

307. DEA/11597-40

Ambassador in United States to Secretary of State for External Affairs

Telegram 1401

Washington, May 8, 1962

Confidential. OpImmediate.

Reference: Your Tel X-53 Apr. 19.

Gut Dam Claims

Thank you for providing background information to the questions raised in your reference telegram on which you requested our assessment. We have given this matter a good deal of thought and have discussed the general question informally with USA officials in an attempt to provide you with helpful comments. We will be forwarding a fuller report later this week together with some material we have collected on the Foreign Claims Settlement Commission, but in the meantime, the following summary may be of some assistance.

It is the general view of officials here that Senator Keating’s bill (of which an identical companion bill has been introduced in the House by Congressman Ostertag) is a serious submission which if pressed would undoubtedly pass through Congress. The main uncertainty as to its passage is with regard to the pressure of business since private bills of this kind are normally passed in the dying days of the Congressional Session. Senator Keating is an influential and respected member of Congress and, although a Republican, is on close terms with the President. In any event, the bill is essentially non-controversial and should not repeat not give rise to any opposition in Congress.
At the same time, the Administration we understand has so far seen no repeat no grounds for opposing the bill and although the Bureau of the Budget has the final say in these matters, the Department of State and the Department of Justice have not repeat not opposed its passage.
Discussion of the bill either in Committee or in Congress would not repeat not in itself, we think, give rise to acrimonious debate since there would likely be little or no repeat no opposition to it, but congressmen in an election year might be expected to use the opportunity of a debate to further their campaigns in areas bordering the Great Lakes, particularly in the upper New York State. It is difficult to indicate the effect that any such discussion might have on Canada-USA relations but we would expect that some members of Congress would go a good deal further in their remarks than did Senator Keating in the short speech he made upon introducing the bill.
So far as the nature of the injury that Canada might suffer from any serious anti-Canadian bias in the course of congressional discussion, we would expect the main burden of congressional criticism would be directed towards the time that had elapsed since these questions were first raised with Canadian Government. Some of this criticism would also undoubtedly be directed toward the Department of State. At the same time we cannot repeat not rule out the possibility that with mid-term elections in prospect rather more might be made of “frustrations” of the damaged parties and the inability to reach a settlement with Canada. On the whole, however, we do not repeat not think that the effect on Canada-USA relations would be either serious or lasting. Although a congressional debate would raise this issue in a national forum, we doubt that it would create much interest outside [New York] State.
From all that we have been able to learn, it would seem that the Foreign Claims Settlement Commission enjoys a high reputation as an impartial quasi-judicial body. Certainly the present Chairman of the Commission is held in very high regard as a lawyer with national and international reputation and a considerable background in the field of international claims settlement. In the past, the Commission had apparently been used as a means of political patronage but the general consensus of opinion is that the present commissioners are qualified for their tasks.
We were able to sound out Spangler, Assistant Legal Adviser for International Claims, State Department, on this point and it was his judgement that it could be expected that the Commissioner would make a serious and objective examination of the Gut Dam claims.
Spangler, who has been concerned with the Gut Dam claims question for some years, gave it as his view that the Commission would adopt very strict standards although he intimated that they might be expected on the whole to err, if at all, on the generous side. At least in part they would be influenced by the length of time that had passed since the damages were sustained and the not repeat not inconsiderable expense that the parties had incurred over the years. He agreed that State Department’s area of manoeuvrability would to some extent be circumscribed by the Commission’s recommendations to the President.
It was Spangler’s personal view, which he implied was widely held in the Administration, that it might, in the circumstances, be to Canada’s advantage to seek means to reach a settlement of this question before the Commission became involved. He is recommending that the bill be amended so as to make it possible for the Commission to suspend its studies should agreement be reached between the two governments on a negotiated settlement. Spangler emphasized to us the seriousness with which the State Department viewed this question and intimated that perhaps this had not repeat not been sufficiently stressed in the past.

308. PCO

Memorandum from Secretary of State for External Affairs to Cabinet

Cabinet Document No. 414-62

Ottawa, December 5, 1962

Confidential

Report of Cabinet Committee on Gut Dam Claims

On March 29, 1960, the Cabinet directed that efforts be made to persuade the United States Government to drop its espousal of claims against Canada by certain U.S. residents arising from property damage on the south shore of Lake Ontario in 1951 and 1952. The owners had claimed that their properties had been damaged because of high water levels, which they attributed to the construction by the Canadian Government at the beginning of the century of a small navigation improvement known as the Gut Dam in the international section of the river. The claimants took their dispute before courts in the United States where Canada pleaded sovereign immunity, and the actions were rejected on procedural grounds. Since 1952 intergovernmental negotiations have been in progress. The claims originally exceeded $50 million, but the U.S. indicated informally in 1959 that the claimants would compromise for $875,000.

Officials have not been able to persuade the U.S. authorities to drop their espousal of the claims, and indeed the U.S. is pressing for an early settlement or for the establishment of an international Gut Dam tribunal to deal with the claims on their merits. The U.S. Government has made it clear that it is not asserting a view that Canada is under an obligation to pay the claims; it does assert, however, on the basis of the U.S.-Canadian agreement pursuant to which Gut Dam was constructed in 1903-4, that Canada is under an obligation, failing a settlement, to provide a suitable forum in which the claims can be disposed of on their merits.

Meanwhile this summer an Act of Congress was passed authorizing the U.S. Foreign Claims Settlement Commission to examine the claims and report on each of them to the President. The U.S. State Department has stated to the Canadian Embassy that it would be to Canada’s advantage to settle the problem before the Commission goes far with its work. The U.S. statute provides for suspension of the Commission’s studies if agreement should be reached between the two governments on a settlement.

The Cabinet Committee has reviewed the report of officials on this subject, and is submitting the alternatives to the Cabinet without recommendation. The choice appears to lie between the following courses:

Settlement on a Lump Sum Basis. This would be a speedy solution, and would cost little, but it would virtually admit liability without proof of damage, and it would constitute a very dangerous precedent for future claims of this nature. In stating that a dangerous precedent would be created, regard is being had in particular to the fact that the levels of boundary waters are progressively being made subject more and more to the influence of artificial operations, thereby providing a much broader basis for making claims for alleged damages.
Denial of Liability and Refusal of a Special Forum. This alternative allows for consideration of the claims in the Canadian courts in the usual way. It guarantees that Canadian law would apply to any such proceedings both from a procedural and a substantive standpoint, in place of whatever alternative basis of law might be adopted were the claims to be heard and disposed of by an international tribunal. Moreover, the Minister of Justice has expressed the view that on the basis of Canadian law, Canada is under no liability in respect to these claims.

On the other hand, the adoption of this alternative would involve declining to take any step to meet the request of the United States Government. If these claims were to be considered in the Canadian courts in the usual way, it appears more than probable that they would be barred on procedural grounds without the claimants having the opportunity to obtain a hearing on their merits even according to Canadian law.

It is very difficult to assess what effect the adoption of this alternative would have on United States-Canadian relations generally. It cannot be assumed that the United States administration would be prepared simply to accept such a decision without doing something about it, having in mind in particular pressure that is likely to be brought to bear through Congressional channels. Also, the President would be faced with the problem of how to implement any recommendation from the Foreign Claims Settlement Commission which might at least in part support the Gut Dam claimants’ position. Furthermore, Canada would be embarrassed were it required to have to respond to any recommendation adverse to Canadian interests transmitted through the President of the United States.

Moreover, a decision of this kind could be interpreted as a flat refusal to arbitrate in any manner whatsoever a question which is in danger of being characterized as a dispute between the governments of the two nations. This in turn would certainly tend to reflect adversely the image that Canada has been at pains to create in its international relations that it stands for the settlement of all disputes through arbitration machinery appropriate for the occasion. Attention is particularly drawn in this connection to the recent Cabinet decision calling for Canada to file a new declaration with the Secretary General binding Canada to accept the compulsory jurisdiction of the International Court of Justice without reservations.^{Footnote 90}

It should be further noted that the adoption of this alternative is inconsistent with the previous position taken by the Government of Canada. In 1952 and 1953 the Government of Canada announced that it stood ready to compensate United States citizens for any damage directly attributable to the Gut Dam and that it was prepared to co-operate in the adjudication of these claims by an international tribunal.^{Footnote 91}

Agreement to Creation of an International Gut Dam Tribunal. The tribunal would have jurisdiction to hear and deal with all aspects of the claims on their merits including making an assessment as to the amount of damages payable, if any, in each case. This course would immediately relieve the pressure from the U.S., and would lead to suspension of the examination of the claims by the Foreign Claims Settlement Commission. It would demonstrate Canada’s willingness to settle international claims through arbitration machinery. On the other hand, it would involve surrender of part of Canada’s very strong procedural and substantive defences. In addition to granting a tribunal, it could be regarded as granting a cause of action where none exists under Canadian law.
Establish an International Tribunal Limited to Determining Purely Questions of Law. Such a tribunal would not be concerned with determining the causes nor the quantum of the damages, but only with the question whether the international agreements and other relevant documents place any unconditional obligation upon Canada to pay damages for the operation of Gut Dam. This course would go at least part way to satisfy the U.S. request.
Reference of the Questions of Law to the Supreme Court of Canada to determine whether the documents, when interpreted under the laws of Canada, impose an obligation upon Canada to pay damages for the operation of Gut Dam. This course might show Canada’s desire to respond to the U.S. request. On the other hand, it would not avert the serious dilemma that could arise if the Foreign Claims Settlement Commission should render an opinion that would be inconsistent with the judgment of the Supreme Court.

One position repeatedly advanced during the discussions in the Cabinet Committee was that the Government of Canada should not respond favourably to the United States Government’s representations in regard to the Gut Dam claims unless a failure to do so would work to the detriment of maintaining good Canada-United States relations.

H.C. Green

Chairman,
Cabinet Committee on Gut Dam Claims

309. PCO

Extract from Cabinet Conclusions

Secret

[Ottawa], February 14, 1963

Present

The Secretary of State for External Affairs (Mr. Green), in the Chair
The Minister of Justice (Mr. Fleming),
The Minister of National Defence (Mr. Churchill),
The Minister of Finance (Mr. Nowlan),
The Postmaster General (Mrs. Fairclough),
The Minister of Labour (Mr. Starr),
The Minister of National Health and Welfare (Mr. Monteith),
The Minister of Agriculture (Mr. Hamilton),
The Minister of Defence Production (Mr. O’Hurley),
The Minister of National Revenue (Mr. Flemming),
The Minister of Northern Affairs and National Resources (Mr. Dinsdale),
The Secretary of State (Mr. Halpenny),
The Minister of Mines and Technical Surveys (Mr. Martineau),
The Minister of Citizenship and Immigration (Mr. Bell),
The Minister of Trade and Commerce (Senator McCutcheon),
The Minister of Veterans Affairs (Mr. Lambert).
The Secretary to the Cabinet (Mr. Bryce),
The Assistant Secretaries to the Cabinet (Dr. Hodgson), (Mr. Watters).

…

Gut Dam Claims; Report of Cabinet Committee

The Minister of Justice said that Canada had constructed the Gut Dam on the St. Lawrence River at the beginning of this century. It had been alleged by property owners on the south shore of Lake Ontario that this dam was the cause of high water levels which had caused damage to their property. They had tried unsuccessfully to sue the Canadian government in the U.S. courts. They had also brought strong pressures to bear on the State Department in Washington with a view to having their claims settled.
Inter-governmental negotiations had been in progress since 1952. The claims had originally exceeded $50 million but the State Department indicated informally in 1959 that they might be settled for about $875,000.
In 1962 an Act of Congress was passed authorizing the U.S. Foreign Claims Settlement Commission to examine the claims and report on each of them to the President. The State Department had indicated that it would be to Canada’s advantage to arrange a settlement before the Commission proceeded very far with examination of these claims. The Chairman of the Canadian Section of the International Joint Commission also took the view that the claims could be settled quickly.
The Minister went on to say if the Canadian government were to admit responsibility for damage caused by these water levels, other claims would undoubtedly be lodged against the government. The view of the Department of Justice was that the claims are not justified. The dam was constructed under an agreement between the two governments. Provision was made for compensation to property owners on a particular island. One claim was made and this was duly settled. In the view of the Department of Justice, that was the end of the matter.
The Cabinet Committee had met from time to time to consider ways of removing this troublesome feature in the relations between Canada and the United States. The Committee had submitted the following alternatives but without making a recommendation,
1. Settlement on a lump sum basis.
2. Denial of liability and refusal of a special forum.
3. Agreement to creation of an international Gut Dam Tribunal.
4. Establish an international tribunal limited to determining purely questions of law.
5. Reference of the questions of law to the Supreme Court of Canada.
An explanatory memorandum had been circulated (Memorandum, Chairman, Cabinet Committee on Gut Dam Claims, Dec. 5, 1962 – Cab. Doc. 414-62).
Mr. Fleming said there was no reason why this government should give up a clear immunity which it now enjoys with respect to these claims.
During the discussion some said that since there was no court to which the claimants might appeal, a good compromise settlement could be provided by alternative C, an agreement to create an international Gut Dam tribunal. Others said this would be cumbersome technically and would create widespread and possibly undesirable publicity. Moreover, if the claims were admitted, other claims would shortly arise around the Great Lakes system. The western end of Lake Ontario, it was said, was sinking and the consequences of this might cause property damage.
The Cabinet agreed that no action be taken for the time being on the report of the Cabinet Committee on Gut Dam Claims.

…

Part 7

Chicago Diversion

310. CEW/Vol. 3176

Memorandum by Counsellor, Embassy in United States

Confidential

[Ottawa], February 19, 1963

Michigan Diversions

Peter Pfund called me this morning to confirm the points on which we would like information or views in connection with this question. He said that the United States Solicitor General would be opening his case before the Special Master on March 18, 1963. As to United States views on various questions we had raised informally with the State Department about Canadian tactics (on the basis of External telegram X-7 of January 18†) I confirmed that

We would like to know as much as possible about the position the United States intended to take before the Special Master, and that we hoped the United States would be able to endorse our position as much as possible and avoid any major conflict with our views.
Since the Canadian Parliament would not be in session prior to March 18, it would be unnecessary to assess the Special Master’s or the Supreme Court’s possible reaction to a statement in the House of Commons.
We would, however, wish to know about the possibility and desirability of a Canadian intervention amicus curiae before the Special Master or the Supreme Court.

Pfund said that State Department officials would be consulting with the Solicitor General’s office on February 21. He hoped to be able to phone us immediately afterwards to suggest a time for consultations between State Department officials and representatives of this Embassy. He hoped this would be on February 25 or 26. I agreed to try to reserve time on both afternoons for this purpose.
In the course of subsequent discussion Pfund outlined preliminary State Department thinking as follows:
1. The general United States objective would probably be to avoid a decision by the Special Master that would involve a determination of international legal issues arising out of treaties and agreements relating to boundary waters. Speaking frankly he said that, as we knew, the United States and Canadian interpretations of the legal effect of these agreements differed. He thought the Solicitor General would hope to skirt this question entirely.
2. The United States Solicitor General’s presentation would, therefore, probably be simply to place before the Special Master this Embassy’s Note of November 2, 1961, together with the State Department’s letter of transmission to the Special Master and copies of the international treaties and agreements cited in the Canadian Note. The basis for having these documents received in evidence (they had already been passed to the Special Master, but were, as he put it, “in limbo”) would be to draw attention to the importance of “maintenance of friendly relations with Canada.”
3. The Solicitor General would probably, however, take any necessary action to head off an assumption by the Special Master that the United States Government was putting in issue the legal implications of the treaties and agreements referred to.
4. It was not yet clear to Pfund, however, what the Solicitor General might do to prevent any such assumption. The Solicitor General could simply introduce the evidentiary material, refer to the maintenance of friendly relations with Canada and then let the documents speak for themselves. Alternatively the Solicitor General could state positively that he did not intend the Special Master to take into account the international legal implications of the treaties and agreements.
5. There was also the question of how to deal with the intention of the Attorneys-General of Minnesota, Wisconsin, Michigan and Ohio to submit voluminous material concerning the international interests involved in the diversions. Pfund thought that the first effort of the Administration would be to try to persuade these representatives not to submit the material in question. If these efforts were unsuccessful then it might become necessary for the Solicitor General to argue that the material proposed for inclusion was irrelevant to a determination of the issues before the Special Master, except insofar as they represented evidence related to the maintenance of friendly relations with Canada.
6. It was also possible that, anticipating the submission by the four attorneys-general, the Solicitor General might find it necessary at the time of making his own submission to argue against the relevance of his own evidentiary material or analogous material except to the question of maintenance of friendly relations with Canada.
7. In general, therefore, Pfund thought that there was a chance that the Special Master would determine the issues involved on the basis of a general theory of “equitable apportionment” among the United States riparian states and that this would effectively protect Canadian interests. He could not at the present stage give even an educated guess as to how great this prospect was. However, he thought it was in the common interest of our two governments to see whether the Special Master took his decision on this basis or on this basis plus consideration of maintenance of friendly relations with Canada; and to avoid disclosing our different positions in regard to the international legal questions posed by the various relevant treaties.
I asked Pfund whether the Special Master would be bound under his terms of reference to take judicial notice of the existence of these treaties and to take them into account in determining the outcome of the issues before him. Pfund was inclined to think that the Special Master could take judicial notice of the treaties. However, it was unclear whether he would be fully obliged to apply them as regards their legal effect (as opposed to their effect as evidence relating to maintenance of friendly relations with Canada), unless either the United States or the Canadian Government requested him to do so. It was also unclear whether any of the states could insist on his examining the legal implications of the treaties. There were some authorities that could be cited against the existence of any right in the parties (other than governments) to assert the legal effect of the treaties. He referred me in particular to Shiriotes v. Florida 313 US69 (1941) in which the state of Florida successfully challenged appellant’s argument that Florida regulations prohibiting sponge fishing could not be applied outside the territorial waters of the state of Florida because these were coincident with United States territorial waters and extraterritorial effect could not be given to these regulations. The Supreme Court apparently held that such an assertion would not lie in the mouth of private individuals but only third parties, being governments whose interest might be adversely affected if such regulations were applied against them or their nationals.
I also asked Pfund to explore whether the Canadian Government could be assured of an opportunity to intervene amicus before the Supreme Court in the event that the Special Master’s report were not satisfactory from the point of view of protecting Canadian interests. In other words, if we adopted the same attitude as the United States Government and decided to await the outcome of the Special Master’s findings before getting into the international legal implications of the various treaties, would we thereby be estopped from a later intervention amicus? Pfund said that at the moment his understanding was that the Canadian Government could intervene at either or both stages, but he hoped to obtain further enlightenment during the talks with the Solicitor General on February 21.

E. R[ettie]

Footnotes

Footnote 1

See Frank C. Waldrop, McCormick of Chicago: An Unconventional Portrait of a Controversial Figure (Englewood Cliffs, N.J.: Prentice-Hall, 1966), pp. 182-194.

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Footnote 2

See D.C. Watt, ed., Survey of International Affairs, 1962 (London: Oxford University Press, 1970), p. 163.

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Footnote 3

See Piers Dixon, Double Diploma : The Life of Sir Pierson Dixon, Don and Diplomat (London: Hutchison, 1968), pp. 293-314.

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Footnote 4

In October 1962, the Gaullists won the national elections and, following that, President de Gaulle won a referendum changing the French constitution to allow for direct election of the President.

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Footnote 5

See Ian M. Drummond, Imperial Economic Policy 1917-1939: Studies in Expansion and Protection (Toronto: University of Toronto Press, 1974), pp. 219-289.

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Footnote 6

Marginal note:

I think it is not [inconsistent?] – but should be checked against a) memos to the Minister on Swap Deal b) agreement itself c) what PM said in House [George Ignatieff?]

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Footnote 7

See Vol. 28, document 339.

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Footnote 8

For one article that Diefenbaker might have been thinking of, see Neal Stanford, “Defense Cutbacks Scored,” Christian Science Monitor, March 30, 1961, p. 13.

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Footnote 9

Marginal note:

Noted. [N.A.] R[obertson]

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Footnote 10

Marginal note:

Mr. Ignatieff: Could we discuss this. H.B. R[obinson]

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Footnote 11

Marginal notes:

Noted. [N.A.] R[obertson]

Mr. Ritchie to see. N. [A. Robertson]

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Footnote 12

See Canada Treaty Series, 1961, No. 5.

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Footnote 13

See Canada, House of Commons, Debates, 1960-61, Vol. 6, pp. 6179-6180.

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Footnote 14

Marginal note:

No further reply to Stuart needed. R. C[ampbell] 18/5

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Footnote 15

See document 221.

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Footnote 16

See “Text of Soviet Statement Protesting Canada’s Nuclear Weapons Policy,” Globe and Mail, June 15, 1962, p. 3.

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Footnote 17

Marginal note:

OK. H.C. G[reen] 20/6.

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Footnote 18

See James M. Minifie, Peacemaker or Powder-Monkey: ‪Canada’s Role in a Revolutionary World. Toronto: McClelland & Stewart, 1960.

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Footnote 19

See documents 216, 221.

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Footnote 20

Marginal note:

Seen. N.A. R[obertson] 18.7.62

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Footnote 21

Marginal note:

Orig[inal] sent by hand Aug. 20.

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Footnote 22

Marginal note:

CCOS has specifically declined to amend the Can. reply. [Author unknown]

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Footnote 23

See “Use Nuclear Arms if War Comes, PM Hints,” Globe and Mail, February 26, 1962, p. 1; “Aim of Democracy,” Vancouver Sun, May 31, 1962, p. 12.

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Footnote 24

See document 254.

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Footnote 25

Marginal note:

19.9. SSEA wants this brought fwd. on return to Ottawa. GB.

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Footnote 26

See Volume 28, documents 354, 355, 356.

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Footnote 27

See Volume 28, document 339.

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Footnote 28

See document 210.

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Footnote 29

See Vol. 28, documents 354, 355.

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Footnote 30

See North Atlantic Council, Texts of Final Communiqués, 1949-1974 (Brussels: NATO Information Service, n.d.), pp.108-120.

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Footnote 31

Marginal note:

See SHAPE 128/A/58 para 5f [Author unknown]

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Footnote 32

Marginal note:

Left by US negotiating team 21/11/62 [Ross Campbell]

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Footnote 33

Marginal note:

They would at all times be in USA custody [Howard C. Green]

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Footnote 34

Marginal note:

Explain [Howard C. Green]

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Footnote 35

Marginal note:

Depends on crews. [Howard C. Green]

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Footnote 36

Marginal note:

Only for first [word illegible] [Howard C. Green]

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Footnote 37

Marginal note:

Draft prepared by DND – not put to Cabinet. [Ross Campbell]

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Footnote 38

Not submitted to Cabinet.

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Footnote 39

Marginal note:

CADIN AGT. [Author unknown]

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Footnote 40

See Canada Treaty Series, 1961, No. 9.

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Footnote 41

Marginal note:

Note terms of reference of CINC NORAD. [Author unknown]

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Footnote 42

Marginal note:

Seen. R. C[ampbell]

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Footnote 43

Green, Harkness, Rusk and McNamara met in Paris on December 14, 1962. The Canadian ministers received the impression that the American government was willing to pursue the “missing part” idea. Subsequently, McNamara telephoned Harkness to say that the proposal was in fact considered unworkable. Green was not informed of this conversation at the time; the Canadian Embassy in Washington learned about it from the State Department on January 25, 1963. See H. Basil Robinson, Diefenbaker’s World: A Populist in Foreign Affairs (Toronto: University of Toronto Press, 1989), pp. 299, 334 n.3.

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Footnote 44

See “U.S. and Canadian Negotiations Regarding Nuclear Weapons,” Department of State Bulletin, Vol. 48, No. 1234 (February 18, 1963), pp. 243-244.

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Footnote 45

See Canada, House of Commons, Debates, 1962-1963, Vol. 3, pp. 3125-3137.

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Footnote 46

Marginal notes:

Mr. Ritchie to see. N.A. R[obertson]

Seen by Mr. Wilgress [Author unknown]

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Footnote 47

See Canada, House of Commons, Debates, 1962-1963, Vol. 3, p. 3440.

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Footnote 48

See “Secretary Rusk’s News Conference of February 1,” Department of State Bulletin, Vol. 48, No. 1234 (February 18, 1963), pp. 235-236.

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Footnote 49

See Marquis Childs, “New Isolationism After the Crisis,” Washington Post, February 13, 1963, p. A16.

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Footnote 50

See document 517.

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Footnote 51

See “Bomarcs Just Foot-in-Door for U.S. Nuclear Bases – Simonds,” Toronto Daily Star, February 20, 1963, p. 7.

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Footnote 52

See document 170.

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Footnote 53

See Chapter II, Part 2, especially documents 149, 156, 160, 174.

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Footnote 54

No report has been found of such a statement on February 25 by the President himself. For reports on the developments to which Drew may be referring, see “U.S. Seeking Two Types of A-Force,” Globe and Mail, February 26, 1963, p. 1; “U.S. Pressing for Nato Missile Fleet,” Times (London), February 27, 1963, p. 7.

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Footnote 55

On the McNamara directives for military procurement, see Lawrence S. Kaplan, Ronald D. Landa and Edward J. Drea, History of the Office of the Secretary of Defense, Vol. 5: The McNamara Ascendancy, 1961-1965 (Washington: Office of the Secretary of Defense, 2006), pp. 447-474. On the decision to send O’Hurley to Washington, see Cabinet Conclusions, August 22, 1962.

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Footnote 56

This meeting was held on 5-7 September 1962.

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Footnote 57

See document 761.

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Footnote 58

The matter was not discussed at the Cabinet meeting.

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Footnote 59

Marginal note:

Not used at meeting [Dana Wilgress?]

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Footnote 60

Fleming was in Paris in November 1961.

See Volume 28, documents 537-539.

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Footnote 61

See Volume 27, document 394; Volume 28, documents 510, 511, 522.

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Footnote 62

See Donald Fleming, “Canada, The United States and Developing Trade Blocs,” in Third Seminar on Canadian-American Relations at Assumption University of Windsor, November 9, 10, 11, 1961 (Windsor: Assumption University of Windsor, 1961), pp. 1-18.

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Footnote 63

See Public Papers of the Presidents: John F. Kennedy, 1962 (Washington: United States Government Printing Office, 1963), document 7.

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Footnote 64

See Volume 28, Chapter I, Part 1(a).

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Footnote 65

See “Canada-U.S. Economic Talks,” External Affairs, Vol. 14, No. 2 (February 1962), pp. 59-61.

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Footnote 66

See Vol. 28, document 413.

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Footnote 67

See Canada, House of Commons, Debates, 1962, Vol. 1, pp. 58-60.

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Footnote 68

See Canada Treaty Series, 1942, No. 2, and Canada Treaty Series, 1951, No. 22.

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Footnote 69

The Trade Expansion Act of October 11, 1962 granted the President of the United States authority to negotiate tariff reductions up to fifty per cent.

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Footnote 70

See document 766.

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Footnote 71

See A.G.L. McNaughton, “The Proposed Columbia River Treaty,” International Journal, Vol. 18, No. 2 (Spring 1963), pp. 148-165.

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Footnote 72

See “Electricity Export Licensed,” Canadian Weekly Bulletin, Vol. 17, No. 3 (January 17, 1962), p. 5.

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Footnote 73

Marginal notes:

Noted. N.A. R[obertson]

Seen by the Minister. 30/1 R[oss] C[ampbell]

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Footnote 74

See Volume 28, document 446.

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Footnote 75

See Volume 28, document 457.

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Footnote 76

See Volume 28, document 438.

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Footnote 77

See Canada, House of Commons, Debates, 1962, Vol. 2, p. 1867.

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Footnote 78

See “2 Agencies Make Peace Over Dams,” New York Times, April 5, 1962, pp. 1, 18.

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Footnote 79

See “U.S. Power Projects Planned in Northwest,” Globe and Mail, April 11, 1962, p. 3.

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Footnote 80

See “Text of Prime Minister Diefenbaker’s Announcement on Tariff Surcharges and Financial Measures,” Globe and Mail, June 25, 1962, p. 8.

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Footnote 81

On Fulton’s change of attitude, see Neil Swainson, Conflict Over the Columbia: The Canadian Background to an Historic Treaty (Montreal and Kingston: McGill-Queen’s University Press, 1979), pp. 227-228.

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Footnote 82

See Canada, House of Commons, Debates, 1962, Vol. 1, pp. 281-283.

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Footnote 83

E.D. Fulton had been approached by the editor of the magazine, James G. Ripley, for his comments, which were published at the end of the article. Ripley, not General McNaughton, was the author of the article. See Ripley, “The Columbia River Treaty,” and response by Fulton, Engineering and Contract Record, Vol. 75, No. 9 (September 1962), pp. 33-48.

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Footnote 84

See “Power Critics Called Enemies,” Vancouver Province, October 22, 1962, p. 23.

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Footnote 85

Marginal note:

No need for paper or for meetings you propose. We have rec’d instrs by which [we] are to be guided at meeting. No changes in [them]. If any change by Cab U [sic] will be duly inf’d.

Copy to P.M. [?]

Ditto [?] McNabb [Author unknown]

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Footnote 86

Identical to document 300.

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Footnote 87

Marginal note:

Left with USSEA by Willis Armstrong [Author unknown]

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Footnote 88

The agreement was concluded by an exchange of notes on December 28, 1962. See Canada Treaty Series, 1962, No. 21.

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Footnote 89

See Congressional Record, Vol. 108 (1962), pp. 3547-3548.

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Footnote 90

See Cabinet Conclusions, November 29, 1962.

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Footnote 91

See Volume 18, Chapter VII, Part 3 and Volume 19, Chapter VIII, Part 7(a).

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About

Table of Contents

Chapter III - United States

Part 1

Conversation Between the Prime Minister and Ambassador of United States, Ottawa, December 17, 1962

Part 2

Defence and Security Issues

Section A - Nuclear Weapons Negotioations

Section B - Defence Production Sharing

Part 3

Economic Issues

Section A - Meeting of Canada-United States Joint Ministerial Committee on Trade and Economic Issues, January 12, 1962

Section B - Magazines

Section C - Freer World Trade

Part 4

Columbia River Treaty

Part 5

Project Nimbus (Weather Satellites)

Part 6

Gut Dam

Part 7

Chicago Diversion

Footnotes