611.429/915

The British Ambassador ( Geddes ) to the Secretary of State

No. 848

Sir: In the note which you were good enough to address to me on the 22nd of October last you quoted, for my information, the text of Senate Joint Resolution No. 36 of the 67th Congress which was approved on August 15th, 1921 and authorized the appointment of a Commission of five persons to negotiate with the Government of the Dominion of Canada and also with the Provincial Governments thereof in respect to the regulations now in force in the Provinces of Ontario, Quebec and New Brunswick governing the use in those Provinces of pulp wood cut from Canadian Crown lands. You requested me to ascertain whether direct negotiations of the nature contemplated by the Joint Resolution would be agreeable to the Dominion Government, and, if so, whether that Government would indicate a place and a time at which the negotiations might commence.

It will be recalled that a Joint Resolution similar in wording and effect was introduced into the United States Congress early in 192016 and, in my Note No. 352 of June 9, 192017 I had the honour to transmit to your predecessor a Memorandum prepared by the Canadian Government setting forth their own position and that of the Provincial Governments on the question with which the Resolution dealt. I venture to enclose a further copy of that Memorandum for your perusal and to acquaint you that the Dominion Government still adhere to the views therein expressed.

The regulations to which the Resolution relates do not, in fact, involve any discrimination against the United States as compared either with all other foreign countries, with the other parts of the British Empire, or even with the other Provinces of the Dominion. Indeed, the regulations cannot be accurately described as restrictions [Page 302] upon the export of pulpwood. All questions relating to export and import trade are within the exclusive jurisdiction of the Government of the Dominion. Moreover, that Government being responsible for the conduct of the external relations of the Dominion, could not consent to a foreign mission treating with the Provinces. The Government of the United States will readily appreciate the position of the Canadian Government in this matter in view of their own analogous relation to the several States of the American Union.

So far as negotiation with the Dominion Government itself is concerned, the Resolution raises a separate point of procedure. The Canadian Government would consider it inappropriate that such a matter as that with which the Resolution deals should be approached through the medium of a special commission, but if the Government of the United States desires to make any special representations respecting the Provincial regulations concerning the use of pulpwood cut on the Crown lands, His Majesty’s Canadian Government will be glad to give the most careful consideration to any communication you may desire to address to me on the subject.

I have [etc.]

A. C. Geddes
[Enclosure]

Memorandum by the Canadian Department of External Affairs

Memorandum on the Underwood Resolution respecting the use of the pulp wood on the Crown Lands of the Province of Ontario, Quebec and New Brunswick.

1. The Resolution relates to action taken by the Governments of the Provinces of Ontario, Quebec and New Brunswick, within their proper sphere of authority. However, as the Dominion Government is alone responsible for Canadian foreign relations and for their conduct, it is bound to examine the matter with the view of determining whether there are any representations which it would be justified in making to the Provinces.

2. The action complained of is found in the requirement of the provincial laws that pulp wood cut on the licensed Crown lands of the Provinces—that is to say, on the public domain—shall be manufactured in Canada into pulp. These laws have stood, in the case of Ontario, for more than 20 years, in Quebec and New Brunswick, for 10 years. The Resolution does not allege, nor is there, either in form or in effect, any discrimination against the United States as compared with other foreign countries. All countries stand alike in respect of the operation of the laws, including even the other parts of the British Empire. Nor is there any discrimination against [Page 303] American citizens or capital in respect of the issuance of licenses to exploit the Crown lands; although it is not unusual to limit the benefits of public lands to citizens of the country, as in the case of the homestead laws of the United States and Canada, (Cf. also United States “Act to promote the mining of coal, phosphate, oil, oil shale, gas and sodium on the public domain”, Public. No. 146, 66th. Congress18); or to prohibit their exploitation altogether, as for example, in the case of the Adirondack Forest Reserve of the State of New York. Timber licenses are issued as freely to Americans and other aliens as to British subjects, as may be gathered from the estimate made by reliable financial authorities that of the $260,000,000 capital employed in the Canadian pulp and paper industry from three-fifths to three-fourths, or approximately $180,000,000 is American.

Nor do the provincial laws constitute in any way a violation of the contractual rights or an impairment of the investment of licensees. This has been, expressly held by the Canadian courts, and the American interests who have urged the Resolution admit that they themselves have never contested the matter in the Courts. (See Smylie v. the Queen, 27 Ontario Appeal Reports 172—reprinted in Report of Hearings before Committee of Foreign Affairs of House of Representatives on Underwood Resolution, S.J. 152, pages 168–76.)

3. In this light the Resolution becomes nothing more than a demand to negotiate concerning the manner in which the use of the property of the Crown should be regulated. It is conceived that this is hardly a fit subject of negotiation with a foreign country, and that no Government could consent to such an impairment of its sovereignty.

4. It would be enough to rest the matter there. However, there has been so much misunderstanding and misconception in current public discussions of the subject that an indication of the underlying policy of the provincial laws, and of other factors bearing on the present critical condition of the pulp and paper market in North America, may be helpful in the interest of good feeling between the peoples of the two countries, which is perhaps in some danger of being disturbed.

5. It is apparently the principal assumption of those urging the Underwood Resolution that the pulp wood resources of Eastern Canada are inexhaustible, and that the Provinces are acting in an arbitrary manner in restricting their use so far as the Crown lands are concerned. In support of this assumption many statistics of impressive appearance have been arrayed; but unfortunately the [Page 304] more the position is analysed by experts the less encouraging it becomes. No thorough survey has yet been made; but preliminary estimates, based on the best available information, have recently been undertaken by the Commission of Conservation, an organ of the Dominion Government which has gathered and summarized the most authoritative opinion in Canada on the subject. The Commission estimates that at the present rate of consumption, and leaving aside the considerable expansions of Canadian pulp and paper plants now under construction or projected, Ontario may have 67 years’ supply of presently accessible and available pulp wood suitable for newsprint, Quebec 52 years and New Brunswick 21 years; the Commission will not take the responsibility of putting it higher and indeed is inclined to the view that this estimate is over sanguine. Beyond these periods the industry can only depend on the annual growth; and this in turn depends entirely upon the rigid practice of scientific forestry—a factor which cannot be relied on in the present discussion, since the application of the science of forestry is unfortunately only in its infancy in Canada. Owing to the peculiar nature of the pulp industry there should be, according to prudent opinion, a reasonably assured 100 years’ or perpetual supply under control (See statement of United States Secretary of Agriculture, cited below). The manufacture of paper from wood pulp on a large scale has developed only within the past 50 years; yet such have been the demands that this comparatively short period has seen the pulp resources of the Eastern States threatened with exhaustion, though they were far greater than those of Eastern Canada. So far therefore from being inexhaustible, the present state of the supplies of the raw material in Eastern Canada should be a matter of serious concern to all paper consumers. That this position is well recognised by those in the United States whose opinion is entitled to the most respect may be seen from a statement by the Secretary of Agriculture recently published (See Senate Document No. 234, 66th. Congress, 2nd. Session). Unquestionably any relaxation of the provincial timber laws would result in a greater inroad on the remaining supplies; indeed that is the sole object of the Resolution.

6. The conservation aspect of these laws is therefore of even greater national importance than their trade aspect. A more conservative age, a civilization less reckless than ours and more prone to listen to the disinterested advice of science, might well pause altogether; a decree of even stricter prohibition pending a stock-taking and the formulation of more reliable and prudent forestry methods, might well seem the true course of action. Government however in modern conditions, confronted with the temperamental forces of its constituency, must frequently pursue less ideal, more indirect, policies; [Page 305] and in many instances the most it can do is so to shape its course and laws that a balancing of psychological factors may produce in some degree the desired result where direct methods would be infeasible or inexpedient.

The provincial regulations are a case in point. It may reasonably be assumed that the Provinces, confronted with the insistent demands of the industry, but bound also to have prudent regard for the future state of their resources, have adopted this indirect device as the most expedient method of reconciling the conflicting demands. It does encourage industry and trade, but it does so in such a way as to promote sounder methods of conservation.

For what is the alternative? A policy which permitted unrestricted use of the raw material would doubtless result in great activity and some advantage to immediate revenues. But it would offer to such an industry encouragement of a nature for which next to nothing can be said from the viewpoint of sound economics or a prudent conservation of resources. The timber operator carrying on only the business of exploiting the raw wood has not been on this continent, relatively speaking, a great friend of conservation. His mill, his equipment and his labour, are mobile; his investment relative to the manufacturer’s is small. There have doubtless been far-sighted exceptions, but only too often he has found his chief economic advantage to lie in stripping the region of his operations for the moment and in then moving on to other fields. Unquestionably he has not the same economic incentive to support and practice sound methods of conservation as the operator of a manufacturing industry more elaborately and permanently placed.

On the other hand the pulp and paper manufacturer established in the midst of the region of his raw material is in a far different case. His investment is far greater; his plant is necessarily fixed in space—a pulp or paper mill cannot be loaded on a train and moved on to fresh fields; and his labour problem is different. A permanent supply of raw material readily accessible to his plant is one of his great desires; his incentive to pursue scientific forestry methods is immediate and direct; and he really perceives that it is to his interest to support the efforts of government in the same direction.

Again the importance of maintaining such a valuable industry in the country, of preserving its contribution to the national balance sheet, as well as the opportunities it affords for the employment of the population, enables government itself to exercise extensive forestry development and supervision on a scale otherwise impossible. Public opinion will sanction public expenditures and taxes for the sake of an industry of permanent value; it would not do so for an [Page 306] industry involving not only a relatively small financial benefit and employment of the population but also the possible destruction of a great natural asset.

The conservation aspect is therefore inseparable from the policy of these timber laws. From this point of view indeed it would be still sounder policy to require that the manufacture of the raw material should be carried a stage further, that is, to the manufacture of the finished paper itself.

7. In this connection it is proper to point out how great a drain is being made by the United States upon the Canadian reserves of raw material in spite of the existing laws and without furthering the wise object they have in view. In respect of the pulp wood on privately-owned lands there has been as yet no law to induce or require its manufacture in Canada. Shipments of raw pulp wood from these lands to the United States have for many years averaged about 1,000,000 cords annually, or 35% to 40% of the total Canadian cut, and 100% of Canadian exports of pulp wood to all countries. In 1918 the shipments had increased to over 1,300,000 cords. In that year 20% of the pulpwood cut of Ontario, 45% of that of Quebec, and 70% of that of New Brunswick was shipped in the raw form for manufacture in the pulp and paper plants of the United States. In 1919 the United States exported to foreign countries 110,000 tons of newsprint, an increase of 45% over their export tonnage of 1916. It may be added that during all the recent critical period in the paper market other parts of the British Empire have experienced the greatest difficulties, and have been anxious to secure supplies from Canada.

In this light it is impossible to appreciate the suggestion that the Provinces have acted in an arbitrary manner.

8. It has been urged that the provincial laws work to the detriment of the newspapers and other publishing interests of the United States, as being restrictive of the supply and as enhancing the price of newsprint paper. This impression can only be the result of misunderstanding. There is no restriction whatever on the flow of newsprint from Canada, nor of pulp. In 1917 about 80% of the Canadian production of newsprint went to the United States, as well as 32% of the production of pulp, this last representing 92% of the total exportation of Canadian pulp to all countries. So far as prices are concerned, the Canadian paper mills produce at considerably lower costs than the American, as the United States Federal Trade Commission recently reported; and this must obviously have a great tendency in the long run to keep prices down in the United States as well as in Canada. Again it is clearly more economical, other conditions being equal—or better than equal, as [Page 307] they are here—to carry on the process of manufacture near the source of supply of the raw material. An examination of freight tariffs and other transportation charges shows that it is cheaper to ship pulp than the equivalent in wood; and of course the advantage is still greater in the case of the finished paper. Nor can there reasonably be apprehensions of a monopoly of adverse effect. The total raw material of the United States, taking account of the West and Alaska, is several times greater than that of Canada. Moreover history has not shown Canada to be a fertile soil for monopolies, and public opinion is still quite as alert there as elsewhere.

9. As for the effect on prices of an additional exploitation of the raw pulp wood of the Canadian public forests, even if it were possible to incur the almost certain risk of endangering their integrity, it seems clear that the addition would at the utmost be so unimportant relatively to the present and prospective enormous demands for newsprint paper in the United States that it could have no real effect. It could have no immediate effect; for every paper mill in the United States as well as in Canada is working even beyond the normal capacity of its machines. It could only have an adverse effect in the future.

The causes of the present difficult conditions in the paper market are to be found elsewhere. The Secretary of Agriculture of the United States, in the statement already cited, attributes the position to more fundamental causes—to the over-centralization of the paper industry in the Eastern States and the under-development in the West, and to the rapidly increasing demands for newsprint paper during the past 20 years, accentuated during the past year or two by the abnormal increase in advertising. In 40 years the consumption in the United States has increased by more than ten times. Since 1899 it has increased almost regularly at the rate of 10% a year, or approximately 200% over the whole period; while during the same time the population has increased only 70%. Newspaper advertising in the United States, according to the figures given by the publishers at the Washington hearings, increased in volume during 1919 by more than 40% over the year 1918, and in the first three months of 1920 by more than 40% again over the rate of 1919. It is this demand that has affected prices.

10. Conceivably a further inroad on the Crown land raw timber, beyond the increasing consumption of the Canadian pulp and paper plants, might afford some temporary relief to a few plants in the Eastern States; but no impartial expert believes it would be other than a temporary expedient, and all agree that it would simply accelerate the exhaustion of the Canadian supply. On the other hand, as indicated in the preceding paragraph, it is impossible to believe that it could afford even temporary relief to the publishing [Page 308] interests, having regard to the great and increasing demands of the market; while in the long run it would certainly prejudice their position by threatening completely the chief remaining source of supply in the Eastern part of North America.

American Forestry, the official organ of the American Forestry Association, in its issue for February, 1920, has the following:—

“The Forest Service points out, however, that whether paper interests rely upon Canada, or upon increased use of our western resources, in either case these are temporary expedients. In the long run the country must solve the paper problem on the basis of a permanent wood supply. To this end it is urged that mill waste be utilized for paper making and that the forests of this country be regenerated and administered on a more productive basis.”

11. It is not out of place here to compare the rate of consumption of newsprint in Canada and the United States. Reliable estimates disclose that the United States is using about 40% more newsprint per capita than Canada. Illustrative of this is the statement recently published by a Chicago newspaper that in its Sunday edition alone it uses as much newsprint as all the newspapers of Canada combined use in two and a half days. It has also been estimated that the paper consumption of the papers of Chicago, with a population of approximately 2,500,000, is almost twice the total consumption of all the daily newspapers of Canada.

Yet Canadian newspapers have not been without difficulties as great as those with which American newspapers have had to contend in the newsprint paper market. Many old and important Canadian newspapers have been obliged to suspend publication or merge with others. There has been since the beginning of the war a mortality of 25% and the high prices due to abnormal demands elsewhere have been one of the main causes. It would be impossible for any Government to ignore such considerations in taking account of the possibilities of domestic supply.

12. The preamble to the Underwood Resolution indicates that the appropriate authorities in the United States are now formulating a comprehensive national forest conservation plan. The fundamental truth is that such a plan is as much needed in Canada as elsewhere. The United States Secretary of Agriculture has pointed out that “the use of wood pulp on a large scale for paper making is comparatively recent. Practically the entire development in the United States and elsewhere has taken place within the last fifty years.” Yet that short development has seen the supplies of the Eastern States, originally far greater than those of Eastern Canada, brought to the verge of exhaustion. This should be enough to give warning to a country later in the field that has no comprehensive [Page 309] knowledge of its own resources; for no thorough survey has yet been made of the Canadian forests. But the most authoritative estimates and opinion are not reassuring. Scientific forestry in Canada is unfortunately only in its infancy. Ideal methods may be hoped for, and efforts are being made but they move slowly. Meanwhile regulations such as the Provinces have adopted do have a very important influence in promoting such methods; though it seems undoubted that more ideal methods would impose a still greater restriction on the supply of raw material from these forests. The regulations at least serve as some check on the exhaustion pending the time when a thorough stock-taking may be had.

The Underwood Resolution contemplates a stock-taking in the United States; but in the light of what has been said its real effect seems to be that pending that survey it would be proper to encourage the present increasing and disproportionate consumption of paper in the United States, and at the same time attempt to stay the exhaustion of the American forests, all at the expense of the Canadian forests, and in especial at the expense of the Canadian public forests. To this summary it need only be added that according to the most reliable estimates available the total forest resources of the United States are from four to five times as great as those of Canada.

The position is surely of enough importance to both countries to warrant some more convincing proposal. The position as it concerns North America is broadly this. There were great resources in both countries—in the East and in the West. The Western supplies in both are largely still intact. The Eastern reserves in the United States are seriously depleted and need replenishment. The Eastern Canadian supply has not reached that stage, but there is good ground for apprehension. Neither country can look for any considerable supplies from Europe, some of whose great forests are already overcut. The conclusion seems obvious that in the interests of both, the larger Eastern supply should be maintained as far as possible and that any law designed to promote its conservation should be welcomed. The long years that are required for the production of a forest crop render forest management peculiarly a proper sphere of Government activity and supervision. Fortunately a large part of the Canadian supply remains in direct Government ownership.

13. The conclusion in short is that the Commission contemplated by the Underwood Resolution could not be expected to be successful in its object—primarily because the manner in which the use of the public property of the Crown is regulated is not itself a suitable matter for negotiation with another State, and also because on every economic principle the object is unwise and unsound. The [Page 310] administration in office in Ottawa in 1911 prior to the present one found itself unable to interfere with the Provinces in this matter; the reasons for adhering to this decision have become even stronger in the meantime.

The appointment of such a Commission would, therefore, be regrettable in so far as its non-success should disturb the present good feeling between the people of Canada and the United States.

14. It may be hoped that there will be no need for extended discussion of the second section of the Underwood Resolution. The language of the Resolution is unusual in public measures relating to dealings with a friendly country; but the suggestion of a threat which it is impossible to avoid, would in the circumstances of the present case be quite out of place and would offer a serious affront without cause. If it is contemplated that some economic action might be taken, in respect of the public lands of the United States or otherwise, affecting all other countries in form and effect equally with Canada, that would be a domestic matter to which no exception could be taken. But action affecting Canada alone either in form or effect would be clear discrimination without any justification whatever; for the Canadian measures here in question do not in any way discriminate against the United States. The suggestion is deplorable, and it is to be hoped for this reason as well that the Resolution will not become a formal public act.

15. So far as they are designed to encourage Canadian trade the measures in question do not differ in principle from protective laws in force in many countries throughout the world. These take many forms. There may be an export duty to encourage the manufacture of raw iron ore within the country, as in Sweden. There may be subsidies for similar objects. There may be outright prohibitions, as in the case of shipping laws. There may be State intervention in a particular trade, as in Brazil, with respect to coffee. The form chosen may be like that recently adopted in South Africa in respect of raw diamonds; the law now requires them to be cut there before export. Or an import duty may be so framed as to encourage imports of raw materials and develop the production of the finished product in the country. Thus in the timber and timber products schedules of the United States tariff of 191119 the scale of duties increases in proportion to the degree of completeness of the process of manufacture.

16. It is as well, in the interest of clear thinking, to correct an inaccuracy of terminology that has gained much currency in recent public discussions. The Provincial timber legislation is constantly spoken of as being an “embargo”. It is not an embargo. Under the [Page 311] Canadian federal system the Provinces have no jurisdiction over exports; nor did they in this case purport to exercise any such jurisdiction. The legislation nowhere mentions exportations. Rather the Provinces in licensing the use of their own property simply laid conditions upon its use—among others, the condition that one stage at least in the manufacturing process for which the property was intended should be carried on in Canada; and they provided penalties, including the cancellation of the license, to prevent violations of the conditions.

  1. Introduced on Feb. 2, 1920; S.J. Res. 152, Congressional Record, vol. 59, p. 2341.
  2. Not printed.
  3. Act of Feb. 25, 1920; 41 Stat. 437.
  4. An Act To promote reciprocal trade relations with the Dominion of Canada, and for other purposes; 37 Stat. 4.