US embassy cable - 05OTTAWA2640

C O N F I D E N T I A L SECTION 01 OF 03 OTTAWA 002640 
 
SIPDIS 
 
NOFORN 
 
FOR THE VICE PRESIDENT FROM AMBASSADOR WILKINS 
 
E.O. 12958: DECL: 08/25/2015 
TAGS: PREL, PGOV, CA 
SUBJECT: YOUR VISIT TO ALBERTA, SEPTEMBER 8-11, 2005 
 
 
Classified By: AMBASSADOR DAVID H. WILKINS.  REASON 1.4 (B) AND (D). 
 
SUMMARY 
 
1. (C) As you prepare to visit Alberta, I want to extend a 
warm welcome and reaffirm this Mission's strong commitment to 
making your visit a success.  Your meeting with Deputy Prime 
Minister Anne McLellan will underscore the importance we 
place on close collaboration with the Canadian government. 
There are three broad points you should make with Minister 
McLellan and convey to public audiences and other Canadian 
officials, as appropriate: 
 
-- Security: The U.S. appreciates Canada's support in 
strengthening our common security, at the border, in 
Afghanistan, and through NORAD.  Minister McLellan's personal 
oversight for Canada of the Security and Prosperity 
Partnership launched in Crawford, Texas, ensures Canadian 
commitment to enhance our intelligence sharing and 
operational cooperation in law enforcement and 
counter-terrorism. 
 
-- Prosperity: The U.S. is committed to furthering the 
benefits of free trade and wants to work closely with the 
government of Canada to resolve the softwood lumber dispute 
so it does not impact upon our long-term joint prosperity. 
We recognize Canada as our largest and most secure foreign 
supplier of oil; this makes our economies strong and 
individuals on both sides of the border prosperous. 
 
-- Friendship: Underscoring our appreciation for Canada's 
spontaneous, huge outpouring of support for the victims of 
Katrina, even in an atmosphere tarnished by the softwood 
lumber dispute, will remind Canadians of the enduring 
strength of the ties between our two countries. END SUMMARY 
 
IN CANADA, IT'S ALL ABOUT INTERNAL POLITICS UNTIL THE 
NATIONAL ELECTION IS HELD 
 
2. (C/NF) The governing Liberal Party of Canada has been 
struggling to regain its footing after being reduced to 
parliamentary "minority" status in the June 2004 election. 
It is focused almost exclusively on winning a clear majority 
the next election (within a year), a tough proposition given 
current poll results.  By the narrowest of margins Prime 
Minister Martin held off an electoral challenge last May, but 
agreed to call an election some time early in 2006.  In this 
situation, the government has been hyper-sensitive to any 
perception it is "too close" to the United States, played out 
in its posture toward us on each and every issue.  It 
dithered on missile defense cooperation for a year, allowing 
the anti-missile defense "left" to define the debate and 
forcing the government to give in to the ensuing domestic 
pressure.  On disagreements with the U.S. such as BSE, 
Devil's Lake, homicide deaths in Toronto or softwood lumber, 
government officials adopted tough, sometimes shrill, 
rhetoric in order to be seen as standing up to their powerful 
southern neighbor. 
 
THE HORNET'S NEST YOU ARE WALKING INTO - SOFTWOOD LUMBER 
 
3. (C/NF) During the course of the summer, we resolved BSE, 
took pressure off the controversy over the outlet at Devil's 
Lake, North Dakota, and deflated the trumped-up issue of 
American guns causing murders in Toronto.  Most recently, 
however, the softwood lumber dispute has dominated the 
agenda; it has permeated our agenda.  The USTR announcement 
that we would not implement the results of an August NAFTA 
ruling on softwood -- that would have required us to revoke 
the duties -- and our call to settle the dispute through 
negotiations, unleashed a firestorm of indignation on the 
part of Canadian officials; some of it political theatre and 
some of it sincere conviction that Canada is being bullied by 
a larger trading partner.  The issue was accentuated in the 
public eye by the previous controversies over the closure of 
the border to cattle during the BSE scare, and residual 
animosity over the Iraq war. I cannot emphasize enough how 
big this issue has become.  It is in the press every day and 
is talked about by officials in almost every conversation. 
 
4. (C/NF) It is my firm view that this issue is no longer 
about the trade specifics of softwood lumber - too dense, and 
even isolated within Canada - but about being treated fairly. 
 It will come up during your visit, and I recommend 
addressing it head-on, by reiterating U.S. commitment to 
NAFTA and our willingness to resolve this as quickly as 
possible. But more litigation will not resolve it; just 
extend the dispute, the friction and the poison on all our 
issues.  They keep saying we are not abiding by NAFTA and we 
are not living up to our agreement.  They prevailed in a 
NAFTA ruling in early August and we prevailed on a WTO ruling 
this week.  The only way to resolve softwood lumber over the 
long term is through a negotiated settlement.  We want Canada 
to come back to the negotiating table so we can bring 
finality to this issue.  The negotiators met in Washington in 
July and the U.S. made a new offer.  Canada has not 
responded.  The negotiators were scheduled to meet in Ottawa 
this week but Canada canceled the meeting. 
 
5. (C/NF) That said, Anne McLellan is about as solid a 
partner as we could get in this government.  Her work with 
former Secretaries Ridge and Ashcroft, and currently with 
Secretaries Chertoff and Gonzales, is key to the excellent 
 
SIPDIS 
cooperation we enjoy on security, no matter which way the 
political winds are blowing.  After the London bombings in 
July, she took a bold, strong stance on the need for Canada 
to prepare itself for the eventuality of just such an attack 
here.  Most recently, she has pushed hard to get Canada to 
approve a shiprider agreement so that US Coast Guard and RCMP 
(Mounties) boats can cross into each other's waters carrying 
both countries' law enforcement officers.  In addition, she 
heads a Cabinet committee on the pipeline issue, trying to 
push through regulatory decisions on new construction, for 
both the Mackenzie and Alaska pipelines. 
 
6. (C/NF) Canada showed its true colors in response to the 
unfolding tragedy in our southern states.  But even their 
genuine outpouring of support could not escape the "minority 
government" political dynamic.  Ann McLellan was the first to 
call, reaching Secretary Chertoff the day after the hurricane 
with an open-ended offer of support; but she did not make 
that offer publicly.  Concerned that offering support in the 
poisonous climate they had created would generate media 
criticism, the government waited ... until the Prime Minister 
was criticized for not offering support.  Martin decided not 
to discuss softwood lumber in his long-awaited phone call 
with President Bush, instead taking the time to express 
sorrow over the tragedy and extend Canada's support.  You 
should know that I have received offers directly from the 
Prime Minister's office, the Chief of Defense Staff, 
provincial premiers, mayors, the head of Air Canada -- each 
with a heartfelt, novel way to provide support.  Canada 
remembers we helped them during the ice storm, during SARS, 
during forest fires.  They know our cooperation on emergency 
management is solid and will trump, every time, whatever 
topical controversy is simmering. 
 
THE OTHER HORNET'S NEST - ALBERTA'S ROLE IN CANADA 
 
7. (C) The next election will be won or lost in Ontario and 
Quebec and the Liberals have written off any gains (Deputy PM 
McLellan's is the only seat) in Alberta.  But this province 
retains national significance because of its burgeoning oil 
wealth, which has enabled conservative Premier Ralph Klein to 
challenge Ottawa on provincial "rights" matters such as 
public health care funding, resource ownership, and gun 
control. 
 
8. (SBU) Premier Ralph Klein and his party, the Alberta 
Progressive Conservative Association (PC Alberta), were first 
elected in 1992; they have captured sizable majorities in the 
legislature in every provincial election since then, despite 
introducing dramatic budget cuts to health care and 
education.  Though PC Alberta cruised to a fourth majority 
victory in the November 2004 elections, its standings in the 
legislature fell to 61 seats, while the official opposition 
Alberta Liberal Party (not related to the federal Liberal 
Party of Canada) doubled its numbers to 17.  Analysts 
attribute the provincial Liberals' good fortune to voter 
perceptions that PC Alberta is not pressuring the federal 
government enough about western alienation, and "panders" to 
Ottawa.  Some have said that the "ease" of governing a 
province that reaps multi-billion dollar energy royalties 
caused the premier to "lose the fire in his belly."  There is 
increasing speculation that Premier Klein will step down as 
Premier later this year. 
 
9. (SBU) Not surprisingly, conservative Alberta and 
left-of-center Ottawa have a history of strained relations. 
Klein, who relishes his role as "dean" of the provincial 
Premiers, over the years has assumed the lead in challenging 
Ottawa on provincial rights issues, most notably in the 
domain of public health care (Alberta wants more control over 
decisions about federal funding allocations); resource 
ownership (Alberta and the energy industry want a voice at 
the federal energy negotiating level); the Kyoto Protocol 
(energy is Alberta's bread and butter, and 
oilpatch/provincial officials claim the agreement will have a 
dramatic negative impact on production); and gun control. 
10. (SBU) Considered the "most Americanized" province in 
Canada, attributable in part to the oil and gas boom that 
drew U.S. firms to the province in the early 1900s, Alberta 
maintains a relatively pro-American, free market sentiment. 
Provincial affection for the U.S., though, has also been 
sorely tested by the economic hardships resulting from the 
long-standing dispute over U.S. duties on softwood lumber 
exports and the 2003 BSE-related closure of the U.S. 
border to live cattle exports from Canada.  (The cattle 
industry reportedly lost up to seven billion dollars before 
the border was reopened to live cattle under 30 months of age 
in August 2005).   In March of this year, Alberta 
officially opened an office in Washington, D.C. (housed in 
the Canadian Embassy) that will focus largely on these 
trade issues. 
 
THE IMPORTANCE OF THE OIL SANDS TO CANADA AND TO US 
 
11. (SBU) We want to take every opportunity to recognize 
publicly how important Alberta oil is for the energy security 
of North America.  Treasury Secretary Snow and Finance 
Minister Ralph Goodale held a series of meetings in Calgary 
and visited the oil sands together in July 2005.  Output from 
the oil sands, currently over 1 million barrels per day, is 
expected to double by the end of the decade, with much of the 
oil destined for the U.S. market.  At the height of the 
emotional tirades over the August NAFTA ruling on softwood 
lumber, the notion of withholding oil shipments to the U.S., 
or placing export taxes on them until the U.S. agreed to 
resolve the softwood dispute to Canada's satisfaction, gained 
some traction in the press.  Linkage of this sort would run 
contrary to long-standing Canadian (and U.S.) policy, 
however, and is considered unlikely. 
 
12. (SBU) As Canada's energy capital, with unprecedented 
multi-billion dollar budget surpluses, Alberta has become 
one of Canada's fastest growing provinces and economic 
forces.  For the first time in 50 years, Alberta announced 
in spring 2005 its first debt-free budget and a projected 
$1.5 billion surplus (due primarily to more than $7 billion 
in resource revenues). 
 
13. (SBU) About 80 percent of Alberta exports, led by oil and 
natural gas, are destined for U.S. markets.  Alberta 
supplies more than one million barrels per day of crude oil 
to the U.S. supplying 11% of U.S. crude oil imports, or 
five percent of U.S. oil demand.  The province also exports 
more than 2.6 trillion cubic feet of natural gas to the 
U.S. supplying 62% of U.S. natural gas imports, and meeting 
about 12% of U.S. demand.   Major U.S. energy firms 
including BP, ConocoPhillips, Chevron, and ExxonMobil are 
present in Calgary, which has become a hub of hot topic 
activity on issues related to the Alaska Highway pipeline, 
the Mackenzie Valley pipeline in the Northwest Territories, 
oilsands investment and, most recently, Chinese investment in 
Alberta's oilpatch.  Chinese companies have already made some 
investments in production projects and may seek to expand 
their interests, although many Canadians are not entirely 
comfortable with prospect of a larger Chinese presence. 
 
14. (SBU) Agriculture is the third most important sector, 
with agri-food and forest product exports accounting for 
approximately $2 billion each.  As the largest cattle 
producer in the country, when the ban on trade in live 
cattle was introduced, Alberta was obliged to introduce 
diversification plans to increase its slaughter capacity. 
Some industry analysts believe the number of live Canadian 
cattle transported to the U.S. prior to the border closure 
will not again reach previous proportions.  Though softwood 
lumber remains an important part of the provincial economy, 
Alberta is a small player, with about 1.1 billion of the 14.7 
billion board feet covered under the agreement. 
 
Visit Canada's Classified Web Site at 
http://www.state.sgov.gov/p/wha/ottawa 
 
WILKINS