January 3, 1958

BRITISH COLUMBIA

REFERENCE TO CELEBRATION OF CENTENNIAL

CCF

Thomas Speakman Barnett

Co-operative Commonwealth Federation (C.C.F.)

Mr. T. S. Barnett (Comox-Alberni):

Mr. Speaker, I rise on a question of privilege. This is the first sitting of the house in the year 1958, which is the year in which the province from which I come is celebrating its centenary.

It just so happens that it was in the year 1778 that the first member of the white race arrived on the shore of what is now called British Columbia at a place known as Friendly Cove, on Nootka island, which is now in the constituency of Comox-Alberni. Therefore I thought it might be appropriate if I were to draw the attention of the house at this, its first sitting of this year, to the fact that this is the year in which British Columbia is celebrating its centenary.

And if I might, Mr. Speaker, I would also call the attention of hon. members to the fact that some of the high school students in my constituency have sent seasonal greetings to hon. members representing British Columbia constituencies. They were supposed to have arrived in time for Christmas, but because of delay in the mail they did not do so. So from the student council of Texada island high school we have received a greeting at the beginning of our centennial year to all members from that province, which I am sure we will all be glad to share with the other members of this house.

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RESTRICTIONS ON IMPORTS INTO UNITED

PC

Donald Methuen Fleming (Minister of Finance and Receiver General)

Progressive Conservative

Hon. Donald M. Fleming (Minister of Finance):

Mr. Speaker, since parliament

recessed, the United States has extended its import restrictions on oil in such a way that Canadian exports of oil to the United States will be directly affected. I should like to report to the house on what has happened.

The history of these so-called voluntary oil import restrictions is brief and relatively simple. Oil producers in the United States, particularly those which do not own oil in fields outside the United States, have for

some years been campaigning for restrictions on the importation into the United States of foreign oils in competition with more costly domestic production. After the Suez crisis of last winter, when oil from abroad began to compete vigorously once again in United States markets, it became evident that the position of the domestic oil producers was strong enough to secure some form of restriction on imports.

The alternatives appeared to be restriction by special act of congress or by administrative action under section 7 of the trade agreements extension act of 1955, subsection (b) of section 7 of which reads as follows:

(b) In order to further the policy and purpose of this section, whenever the director of the office of defence mobilization has reason to believe that any article is being imported into the United States in such quantities as to threaten to impair the national security, he shall so advise the President, and if the President agrees that there is reason for such belief, the President shall cause an immediate investigation to be made to determine the facts. If, on the basis of such investigation, and the report to him of the findings and recommendations made in connection therewith, the President finds that the article is being imported into the United States in such quantities as to threaten to impair the national security, he shall take such action as he deems necessary to adjust the imports of such article to a level that will not threaten to impair the national security.

It appears that since restrictions by act of congress tend to be rigid and hard to amend, and since world oil supply and demand are characterized by rapid changes of pace and direction, the case for a flexible program of administrative restriction commended itself to the United States government. Certainly it was under strong pressure to act under the statutory provision I have just quoted.

On June 26, 1957, pursuant to section 7(b) of the trade agreements extension act of 1955, the President established a special committee to investigate crude oil imports. It consists of six cabinet secretaries, with the secretary of commerce as chairman. The first report of the committee was approved by the President on July 29, 1957. That report called for voluntary restrictions on imports into four of the five districts into which the United States is divided for purposes of oil administration; that is, to all the states except those bordering on the Pacific ocean, which together constitute district V.

I shall not go into the details of the July restrictive formula. We examined it very closely, and indeed our officials had been

Oil-U.S. Import Restrictions very carefully analysing all the steps leading up to it. The formula did no immediate harm to Canadian oil sales. The only market which might have been affected was that in the middle western states which had developed following the construction of the Interprovincial pipe line through northern Minnesota, Wisconsin and Michigan. In fact the formula made some allowance for expansion of imports by the half dozen refineries using Canadian oil in that area, and also made some provision for new importers. We felt that while the program might restrict expansion of our sales there at some future time, it gave no cause for objection on grounds of immediate hardship. Two of our customer refineries in the area applied for and received increases in their quotas for imports, and we saw reason to believe that the program was being so administered as to avoid restriction of Canadian oil sales.

In the absence of hardship we did not protest on the principles involved, especially because it appeared that the practical alternative to this program might have been rigid statutory restriction related to an attack in congress on renewal of the reciprocal trade agreements act, which expires in 1958 and in which Canada is much concerned.

Now I turn to district V, the United States west coast. I should perhaps explain that of the three states involved, namely Washington, Oregon and California, Washington is the only one in which we have a firmly established oil market, although we did ship large quantities to California during the Suez emergency last year. The July report of the President's special committee had recommended as follows in respect of this district:

Imports should be determined on a semi-annual basis. Pending a change in the deficit condition now pending in the area by, for example, the development of an economical means of interregional transportation, the level of imports must be such as to make up the difference between the demand and the quantity of domestic crude oil available to the area, as established by the Department of the Interior. The schedule of imports for the last half of 1957, as submitted by the companies to the director of defence mobilization appears to be slightly higher than would be called for by the foregoing formula.

However, there is reason to believe that the imports for this period will not exceed 275,000 barrels per day and, consequently, no voluntary import limitations are proposed for this district at the present time. This situation should be reviewed, however, during the latter part of 1957 from the point of view of the plans of importers for the first half of 1958, in view of the fact that additional pipe-line capacity to the west coast is scheduled to become available during the first half of 1958.

In accordance with this recommendation the special committee on November 8 ordered a hearing on district V imports. The hearing

was held by Captain Carson, the administrator of the voluntary oil import program, in Washington, D.C., on November 25 and 26. As the Prime Minister (Mr. Diefenbaker) mentioned in the house at the time, observers for this government and for the government of Alberta were present at that hearing. Also, informal talks were held with appropriate United States officials before and after the hearing. Although the figures of proposed imports filed at the hearing made it evident that some degree of restriction on imports into at least the southern part of district V was likely, the knowledge and understanding of the Canadian position which was shown by the United States authorities led us to hope that any such restrictions would exempt Canadian shipments.

On December 13 our representatives in Washington were informed that the special committee would recommend that so-called voluntary import restrictions be extended to district V, and that the formula to be recommended to the President was such that the three refineries in the state of Washington, along with the other major refineries of district V, would be required to reduce their imports in the first half of 1958 to a level 15 per cent below their average imports over the 1956-57 period. The three Washington refineries are of course the ones which use the great bulk of the Canadian oil normally sold in district V. The source of imports is not prescribed by the formula, but two of the three refineries have voluntarily announced their intention to continue to use Canadian oil, subject to price considerations.

The Canadian government was disappointed to learn that our sales to refineries in this area, for which Canada is the only source of supply by pipe line, were to be restricted. By contrast may I remind the house, sir, that the voluntary import restrictions in the middle west, where our oil is in direct competition with United States domestic oils, do not impede our sales there, at least for the present.

The Canadian government immediately asked that the President defer the announcement of this restrictive program for district V until we had time to put forward our point of view. The United States government did delay the announcement at our request.

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LIB
PC

Donald Methuen Fleming (Minister of Finance and Receiver General)

Progressive Conservative

Mr. Fleming:

It was immediately on receipt of the information, December 13, the date on which our representative at Washington received the information.

In the following week, as hon. members will recall, the Prime Minister and several members of the cabinet were in Paris for the NATO meetings, as were President Eisenhower and several members of his cabinet. Accordingly, we pressed our case in Paris. In particular I had two conversations with Mr. Anderson, the secretary of the treasury. During the second he was accompanied by Mr. Dillon, the deputy undersecretary of state for economic affairs, and other United States officials.

At that time I was able to learn in considerable detail the reasons lying behind the United States system of voluntary restrictions, and I was able to explain to them the harm that we had every reason to fear would follow if those proposed restrictions were applied to Canada. I pointed out the fact that in our trade relations with the United States at the present time there is a massive balance in favour of the United States, and that we had had other reasons to complain of the policy of the United States administration in marketing its agricultural surpluses. I expressed the hope that in the context of the NATO meeting, which was then proceeding in another building, and the emphasis there being laid on the elimination of economic conflict under article 2 of the North Atlantic treaty, the United States ministers would be able to accept our point of view.

In the discussions in Paris, which of course took place outside the NATO meetings, particular emphasis was laid on the difficulties already being experienced by Canadian oil producers. We pointed out that Alberta, like Texas but unlike California, has already been prorating its production so that no sudden flood of Canadian oil need be feared in the Pacific northwest of the United States. Those states were the natural and economic market for Canadian western oil and, in time of international emergency, those states would unquestionably depend to a very considerable degree on Canadian supplies of oil.

It seemed particularly appropriate, in the NATO context, to point out to the United States ministers the implications which seemed to us to flow from their decision to base their voluntary import program on grounds of national defence. We reminded them that in matters of defence the economic efforts of the two countries had been closely co-ordinated during world war II, and that such co-ordination had been confirmed as recently as October, 1950, at the time of the Korean incident, by a formal exchange of notes. These notes set forth certain "principles for economic co-operation", as they are called, in relation to defence; and it

Oil-U.S. Import Restrictions seemed, and still seems, to the Canadian government that the United States action in restricting imports of oil from Canada on grounds of defence runs counter to the whole tenor and purpose of these principles.

The United States ministers seemed to be impressed by the arguments we put forward. They promised to review the matter as soon as they returned to Washington later that week. However, they contended that under the plan proposed by the United States government the reduction of imports from Canada would be very small. At the same time the market situation on the Pacific coast was very precarious. They contended that prices might fall seriously at any time, and the effect would be to damage not only suppliers in the United States but suppliers in Canada and overseas. They argued that quick action might be in the interests of producers both at home and abroad.

On December 23 we learned that the United States administration was not prepared to depart from the recommendations of the special committee and felt it must announce the new import restrictions immediately. The announcement was in fact made from the White House on the morning of December 24. On behalf of the Canadian government I issued a simultaneous statement in which I said in part:

The Canadian government cannot accept the view that there is any justification for United States limitations on oil coming from Canada either on economic or defence grounds. The Canadian government will continue to press its objections.

May I ask at this point, Mr. Speaker, for leave to table a copy of the statement that was issued at that time.

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PC

Daniel Roland Michener (Speaker of the House of Commons)

Progressive Conservative

Mr. Speaker:

Has the minister leave to table the statement?

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?

Some hon. Members:

Agreed.

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PC

Donald Methuen Fleming (Minister of Finance and Receiver General)

Progressive Conservative

Mr. Fleming:

If it is the wish of hon. members it could be printed as part of the Hansard record.

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PC

Daniel Roland Michener (Speaker of the House of Commons)

Progressive Conservative

Mr. Speaker:

Yes. Will hon. members agree to the printing of the statement in Hansard?

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?

Some hon. Members:

Agreed.

[For text of statement referred to above, see appendix "A", page 2832.]

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CCF

Alistair McLeod Stewart

Co-operative Commonwealth Federation (C.C.F.)

Mr. Stewart (Winnipeg North):

Do I understand that this statement was a note of protest to the United States government?

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PC

Donald Methuen Fleming (Minister of Finance and Receiver General)

Progressive Conservative

Mr. Fleming:

No, it was not a note to

the United States government. It was a statement issued to the press and public following a similar press statement issued at

Oil-U.S. Import Restrictions Washington. We had warning the day oefore that the United States statement was to be issued and made public, and we had our statement prepared and ready to be issued immediately theirs was issued. It was a public statement, not a note to the government.

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CCF

Alistair McLeod Stewart

Co-operative Commonwealth Federation (C.C.F.)

Mr. Stewart (Winnipeg North):

Was there any note of protest sent to the government, or is this a new method of conducting diplomacy?

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PC

Donald Methuen Fleming (Minister of Finance and Receiver General)

Progressive Conservative

Mr. Fleming:

This was the proper form, in view of the fact that parliament was not at that moment in session, of acquainting the public with the fact that the Canadian government had been in constant communication through the normal diplomatic channels with the United States administration. Those exchanges had been going on almost continuously day by day from December 13 to December 24.

The Canadian government has not lost sight of the fact, which has been plain to all who have been involved in the discussions, that the United States authorities have sought at all times to understand the problems faced by the Canadian government and the Canadian oil industry. They themselves are faced with delicate internal problems related to oil, and they do not wish to discriminate against those other friendly nations in South America and in the Middle East which have sold and desire to continue to sell oil to the United States.

However, this recent action and, indeed, the whole basis upon which the President's special committee was established, are hinged upon the proposition that oil if not restricted would, in the words of the trade agreements extension act of 1955, be "imported into the United States in such quantities as to ... impair the national security." This, in relation to our sales of oil in the state of Washington, is in the view of the Canadian government a wholly untenable proposition. The refineries in the state of Washington were established with the actual encouragement of the United States defence authorities on the grounds that there is no local production of crude oil there, that water transportation of crude or other products in wartime is vulnerable, and that the availability of an assured supply of Canadian crude to this area by pipe line is desirable for the security of supply of the petroleum requirements of the Pacific northwestern area.

Not only does the United States action in respect of our oil make no sense, as we see it, in relation to their actual security interests, but also it appears to the Canadian government to offend, as I have already pointed out, against the tenor and purpose of the

principles for economic co-operation in defence matters that had been formally agreed in an exchange of notes between our two governments in 1950 and are recognized by both governments to be still valid and in effect. Here I quote from the notes:

It is agreed that our two governments shall cooperate in all respects practicable, and to the extent of their respective executive powers, to the end that the economic efforts of the two countries be co-ordinated for the common defence and that the production and resources of both countries be used for the best combined results.

While this exchange of notes and the principles therein set forth are drafted primarily in terms of actual scarcities rather than apprehended scarcities, the general intent is clear enough. I think it might be a convenience to hon. members, Mr. Speaker, if these notes were printed in full as an appendix to Hansard, if that were the wish of hon. members.

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PC

Daniel Roland Michener (Speaker of the House of Commons)

Progressive Conservative

Mr. Speaker:

Do hon. members agree to the printing of these notes in Hansard?

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?

Some hon. Members:

Agreed.

[For text of notes referred to above, see appendix "B", pages 2833-34.]

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PC

Donald Methuen Fleming (Minister of Finance and Receiver General)

Progressive Conservative

Mr. Fleming:

Further, it seems-

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LIB

Lester Bowles Pearson

Liberal

Mr. Pearson:

Mr. Speaker, would the minister explain again about these notes? This is a diplomatic exchange between the two governments on this matter?

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January 3, 1958