Providing coverage of Alaska and northern Canada's oil and gas industry
October 2005

Vol. 10, No. 42 Week of October 16, 2005

Energizing tensions

Prime minister drops ‘safe diplomacy,’ warns Canada could sell to Far East

Gary Park

Petroleum News Canadian Contributing Writer

First, Paul Martin tested the water, then he took a headlong plunge where few Canadian prime ministers ever go, effectively telling President George Bush and Washington that their access to Canada’s energy supplies should not be taken for granted.

Plainly angered by the Bush administration’s refusal to accept North American Free Trade Agreement panel rulings and drop punitive duties on Canadian softwood lumber, he told the Economic Club of New York Oct. 6 that the U.S. is putting an entire trading relationship — including energy — at risk.

In an appearance on CNN the same day, he reminded Americans that “we are your largest single outside supplier of (refined oil and crude at 16 percent and natural gas at 85 percent) and we are going to continue.

“We’re not going to let the Americans down, but we want to see (the NAFTA) partnership work in the widest possible way.”

Other opportunities for Canada

Without making a direct link to the softwood dispute, Martin said other opportunities are emerging for Canada’s petroleum products.

“There is no doubt that China and India represent an exciting new opportunity that we intend to exploit,” he said.

China has already established a foothold in Alberta’s oil sands, with three of its state-owned companies taking various interests in pipeline and production operations.

Apologizing for his departure from “the safe language of diplomacy,” he said Washington’s handling of the softwood dispute, with duties now tallying about C$5 billion, is “nonsense ... it’s a breach of faith.”

“Where rules are established and agreed upon, they should be followed … because of the example we can set in a world that needs the rule of law,” he said.

Dispute mechanism needs work

The blunt message came less than a week after Martin and Mexican President Vicente Fox argued that NAFTA’s dispute mechanism should be made to work more quickly and effectively.

Martin said then that NAFTA’s three partners should take urgent action to become a more integrated unit to compete against China and India, whose combined populations of 2 billion are engaged in a “fundamental reordering of the world’s economy.”

In that environment, it was “counterproductive when one nation decides to flout the rules,” he said.

Martin made a direct appeal to the business leaders in his New York audience to support the integrity of NAFTA, reminding them that Canada provides about one-third of U.S. softwood supply.

Removing the duties would lower the cost of each new U.S. home by an average $1,000 and make about 300,000 more moderate-income Americans eligible for mortgages, he said.

“In any business relationship, you’re going to have differences of opinion, but you establish a mechanism to settle these differences, you accept the verdict and move on,” he said. “NAFTA established such a mechanism and ignoring it hurts not just Canadians but Americans.”

Martin: U.S. undermining pact

Martin argued that the U.S. government, in refusing to abide by a series of NAFTA panel rulings on softwood, has undermined a pact that provides the framework for trading goods and services, investment and energy.

He said Canada will continue to enforce its legal rights under NAFTA and before U.S. courts, as well as taking its case to Congress, the business community, U.S. consumers and the Bush administration.

But his message got no coverage in the New York Times or the Wall Street Journal, although the Journal published a sympathetic editorial arguing that Bush’s “vision of a strong North America depends upon the integrated market being allowed to work. That’s as much in the interest of Americans as Canadians.”

Martin conceded on Oct. 7 that he “did a tough speech. But it had to be said; it had to be done. We (and the U.S.) are close friends and you’ve got to be able to tell your close friends the truth.”

However, it is more than a month since he promised British Columbia Premier Gordon Campbell that he would call Bush to press the U.S. to accept what he called a “final court of appeal” ruling on lumber.

That conversation has been delayed by two hurricanes and Martin’s efforts to consult with provincial governments and industry on a broader Canadian negotiating strategy.

Now there is disagreement in Canada over whether he explicitly linked softwood and energy and, if he did, whether that was the wisest approach.

Contradictory messages

Martin, by even invoking energy, appeared to contradict John McCallum, who has been temporarily named Canada’s energy minister.

The day after his Sept. 26 appointment, McCallum assured Alberta government and Canadian petroleum leaders in Calgary that energy would not be used as leverage in resolving the lumber dispute.

Following Martin’s speech, McCallum and Finance Minister Ralph Goodale were adamant that the prime minister did not make that link beyond raising a concern about the future of NAFTA when the trade pact’s rules were being ignored.

Deputy Conservative party leader Peter MacKay said the linkage was a “very dangerous thing to do,” urging the government to resume “diplomacy at the highest levels.”

Within the business community the reaction was sharp and negative.

Anne Golden, president of the Conference Board of Canada, said Canada, as the smaller NAFTA partner, would be the biggest loser in a trade war.

“We need NAFTA; we’ve done very well under NAFTA. It’s not in Canada’s best interest to abandon it.”

Joe Clark, a former prime minister and political opponent of Martin, told the British Columbia Oil and Gas Conference Oct. 6 that Canada’s efforts to broaden its international energy markets and potentially weaken U.S. access to those supplies is a growing source of cross-border tension.

He said the gathering power of China, India, Brazil and the European Union is making the world more aware of the limits of U.S. power and its vulnerability, which have already been eroded since the Cold War.

“I’m not speaking of terrorists and storms, I’m speaking of authority and reputation,” Clark said.

Although the U.S. will continue to play a powerful role globally that role will be steadily less dominant, with significant implications for Canada and its energy policies as well as the diplomatic and political decisions the country needs to take, Clark said.

ANWR drilling vs. enviro stewardship

While lambasting the United States over its trade policies, Prime Minister Paul Martin also took a swipe at the Bush administration’s support of drilling in the Arctic National Wildlife Refuge.

He said the 175 billion barrels of recoverable oil in Alberta’s oil sands, Canada’s “vast, unexploited hydroelectric sources” and its ongoing natural gas, refined oil and crude exports would easily offset “whatever potential output might otherwise have come from ANWR.

“Even by optimistic estimates, there is only enough oil under the refuge to meet America’s energy needs for 200 days,” he said.

“If you’re looking for a long-term solution, this isn’t it. And in Canada’s view, it simply is not worth the risk of permanent environmental damage.”

Expressing “great reservations” about the move to open a part of ANWR he argued that Canada and the United States have a “mutual obligation to the fragile ecosystem of the north.

“It must be protected and nurtured, not despoiled,” Martin said. “Drilling in the ANWR puts both wildlife and the culture of the Gwich’in people at risk. It’s our mutual obligation to ensure they are not.”

He said Canada and the United States jointly agreed 20 years ago to protect the Porcupine River caribou herd that migrates across the Alaska-Yukon border.

“We can argue the limits of that specific agreement but surely the underlying principle — that of shared stewardship — is one that we should recognize,” Martin said.

—Gary Park

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