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.
[Enclosure]
Memorandum by the Canadian Department of
External Affairs
[
Ottawa
,]
May 27,
1920
.
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.