YOUR VISIT TO ALBERTA, SEPTEMBER 8-11, 2005

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

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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.

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WILKINS