in the sense that deliveries could not be anticipated prior to the middle or late 1980s. The issue areas This summer the Canadian government released an energy policy analysis that indicated that Canada could have the potential to supply up to 10 percent of U.S. oil requirements by 1985. (Ten percent of expected U.S. oil demand in 1985 would be about 2.5 million barrels per day, or about 2.5 times the level of Canadian oil exports in 1972.) Exports at this level would require a major commitment of real and financial capital and would imply considerable success in exploration activities and in the development of transportation technology. Canada could therefore be a significant factor in the longer-term oil outlook for the United States, provided the two countries decide that a major expansion of their qil trade is appropriate. Before such a decision can be reached, however, a number of major issues will have to be resolved, and we conclude this presentation with a brief review of some of the elements of these issue areas. From the U.S. standpoint, a determination must be made on the role it might wish to see Canada play in the program President Nixon has called "Project Independence." It is clear that in its search for increased self-sufficiency in energy supplies, the United States is going to be accelerating the development of its shale oil and of nuclear energy. (Canada, it might be noted, is still prevented from exporting uranium to the United States by U.S. trade restrictions.) In addition, the United States is likely to make greater use of its large coal reserves in the years ahead. Taken together, these energy sources provide potentially vast amounts of fuel for the United States, although at higher prices than Americans have been accustomed to paying for their energy supplies. Canadian energy from the tar sands and from the frontier areas is likely to compare quite favourably in terms of price with alternative energy sources in the United States, but this energy would not be as "secure" as domestic U.S. sources. Therefore, the United States will have to evaluate the trade-off between price and security in determining its approach to Canadian energy supply issues. We would note that the decision to build the pipeline to Montreal, while it will have short-run disruptive effects on exports to the United States, does make Canada a more secure location in terms of additional energy supplies discovered beyond those required for domestic consumption. In other words, Canada's efforts to make its own supply situation more secure will, in the longer term, make Canada a more secure source of energy exports to the United States. On the Canadian side, the issue areas centre on questions arising from a desire to ensure balanced economic development. Canada will have to make substantial investments on its own in order to get the oil it needs for domestic consumption out of the tar sands and the frontier. To push these developments even further for export markets could have major repercussions for other sectors of the Canadian economy. For example, Canada is likely to need up to five tar sands plants costing nearly $5 billion in current dollars to meet its own oil needs during the next decade. The tar sands will support many more plants than these five if export projects were to be approved, but the problems of mustering, say, another $5 billion plus the men and materials needed for these projects would put a severe strain on the economy-which is only one-tenth the size of the United States. Even if these problems were overcome by a joint Canada-U.S. development program, there would be further obstacles once the plants began operating. Large export-oriented energy projects in Canada would bring in substantial earnings of foreign exchange, and these earnings could cause problems for a country that is trying to run an economy composed of a balanced distribution between manufacturing and resource-based industries. Just as massive trade deficits can cause major economic dislocations, a large surplus can similarly disrupt a nation's economic activities. The net earnings from energy exports would tend to push up the exchange rate and make it more difficult for manufacturing and perhaps even mining companies to compete in world markets. Therefore, such export-oriented energy projects would be a mixed blessing in terms of Canada's desire for balanced economic growth. There are a number of ways that cooperative actions by Canada and the United States could ease the potential strains that have been mentioned. Furthermore, Canada has an interest in achieving such cooperative measures because of the necessity to have access to U.S. markets to achieve the economies of scale in its frontier activities to make commercial development for Canadian markets more efficient. We conclude on a cautious note. Canada is not likely to be an aggressive seller of its surplus oil in the longer term. The United States, in turn, especially if it has achieved the goals of "Project Independence." may not be an eager buyer of Canadian oil. Therefore, if our two countries wish to see a cooperative approach to North American energy problems in the longer-term outlook, they should recognize that the longer they wait to begin discussions towards this end, the greater the likelihood that their national energy policies will evolve along quite separate, although of necessity parallel, courses. TABLE 1.-A COMPARISON OF THE USE OF OIL IN CANADA AND THE UNITED STATES, 1970 Source: Department of Energy, Mines, and Resources, "An Energy Policy for Canada, Phase 1', vol. I (Ottawa: Information Canada, 1973), p. 33, table 3. The Chase Manhattan Bank, "Cutlook for Energy in the United States to 1985" (New York, June 1972) pp. 30,34. TABLE 2.-SOURCES OF OIL IMPORTS BY CANADA AND THE UNITED STATES Sources: Donald S. Macdonald, Canada, "House of Commons Debates," Nov. 26, 1973 (Ottawa: Information Canada 1973), p. 8138. Donaldson, Lufkin, & Jenrette Securities Corp., "Policy Bulletin," November 1973, p. 10. Note: Exports as percent of Canadian production, 68 percent; Canadian share of U.S. market, 6 percent. Sources: 1962 and 1972-Department of Energy, Mines, and Resources, "An Energy Policy for Canada, Phase 1," vol. I (Ottawa: Information Canada, 1973), pp. 38 and 127. 1973-Estimates by "Oilweek," Oct. 15, 1973, pp. 28, 30, 36. TABLE 5.-CANADA'S NATURAL GAS EXPORTS TO THE UNITED STATES, 1962, 1972 Source: Department of Energy, Mines, and Resources, "An Energy Policy for Canada, Phase 1," vol. I (Ottawa: Infor-mation Canada 1973), pp. 41, 128. TABLE 6.-CANADA'S TRADE IN ELECTRICITY WITH THE UNITED STATES, 1967, 1972 Source: Department of Energy, Mines, and Resources, "An Energy Policy for Canada, Phase 1," vol. I (Ottawa: Information Canada 1973), p. 129. 1. Athabasca tar sands $8,000,000 to $1,000,- 1 plant of 125,000 barrells per day in ad000,000 per plant. 2. Canadian arctic gas pipeline from Mac- 3. James Bay hydroelectric project-north- 4. Polar gas project pipeline from King vanced planning stage; a second one of Potential output 65,000,000,000 barrels by open pit mining; Possible export capacity Price range in 1972 As many as 5 plants needed to serve Cana- $5 per barrel to $6. 2,000,000,000 fts from Alaska and 2,000- 2,000,000,000 ft of Alaskan gas and part $1 per thousand cubic Construction underway but being chal- 8,300 MW. lenged in courts. 1st output expected in Feasibility studies underway. Technical Probably about 4,000,000,000 ft3 per day.. 5. East coast offshore-off Nova Scotia and Exploration results to date are not enNewfoundland. Cost not known. 6 Mackenzie Valley oil pipeline from Mackenzie Delta to southern Canada. Not known. Oil discoveries still not large enough to Probably about 2,000,000 barrels per day. feet delivered to south. Source: Judith Maxwell, "Energy From the Arctic: Facts and Issues" (Montreal and Washington: Canadian-American Committee, 1973). Department of Energy, op. cit. less than $1 $4 per barrel. Chairman REUSS. Thank you, Mr. Beigie. Mr. Gardner, please proceed. STATEMENT OF RICHARD N. GARDNER, PROFESSOR OF LAW AND INTERNATIONAL ORGANIZATION, COLUMBIA UNIVERSITY Mr. GARDNER. In accordance with your request, I shall concentrate on the implications of the Arab oil embargo for U.S. foreign economic policy. In August 1941, Franklin Roosevelt and Winston Churchill met on a destroyer off Newfoundland to draft the Atlantic Charter, a statement of postwar aims which could unite freedom-loving people everywhere in the fight against facism. The fourth paragraph of the charter proclaimed the principle of "access, on equal terms, to the trade and to the raw materials of the world." The motivation behind the fourth paragraph of the Atlantic Charter was simple. The leaders of the wartime alliance believed that peace could not be achieved unless it had a sound economic basis. The experience of the first four decades of this century suggested that if countries were denied access to raw materials and markets, they might be tempted to secure them by force or at least would seek to justify aggression on the grounds that they were denied the opportunity to meet their economic requirements through peaceful means. Cordell Hull, the father of the trade agreements program, was a believer in the theory that "if goods can't cross borders, armies will." This perception of the close relation between economic policies and peace had a profound influence not only on the Atlantic Charter but on other wartime statements and on postwar planning. Yet despite this background, international economic negotiations from the end of the Second World War to the present time have focused almost entirely on access to markets and have virtually ignored the problem of access to supplies. The reason for this one-sided emphasis is obvious for most of the postwar period the central problem seemed to be how to avoid depression and unemployment by selling goods to other countries. Now, however, we are moving into an era of resources scarcity and accelerating inflation-an era which requires a new approach to international economic policy, or perhaps we should say a return to the old and forgotten perceptions which lay behind the fourth paragraph of the Atlantic Charter. Raw material access has acquired a new importance for the United States. By 1985 our country, even if it achieves energy self-sufficiency, will be primarily dependent on imports for 9 of the 13 basic minerals required by a modern industrial economy. As Lester Brown has pointed out, within the relatively brief 15-year span of 1970–85: We will have made the transition from being an essentially self-sufficient country to at least in terms of raw materials—a have-not country. We do not yet appreciate the economic, social, and political consequences of this historically abrupt transition. The most dramatic and threatening development, of course, is the Arab oil embargo, which has the explicit purpose of forcing the United States and its allies in Europe and Japan to change their policies on the Middle East. But this is only the beginning. Other raw material |