This record is a partial extract of the original cable. The full text of the original cable is not available.

S E C R E T SECTION 01 OF 04 OTTAWA 003115

SIPDIS

NOFORN

NSC FOR NSA RICE

E.O. 12958: DECL: 11/17/2009
TAGS: CA PGOV PREL
SUBJECT: SCENESETTER FOR PRESIDENT BUSH,S VISIT TO CANADA,
NOVEMBER 30 - DECEMBER 1, 2004

Classified By: Ambassador Cellucci, reasons 1.4 (b) (d)

Summary and Key Themes
----------------------

¶1. (C/NF) The Canadian Government and the Embassy strongly
welcome your visit and the opportunities it will afford to
advance our broad bilateral relationship.  The two key themes
I would stress for your visit are partnership and
reassurance.  The Canadians need to be reassured that at the
end of the day, whatever tactical disagreements we may have
over Iraq and individual trade cases, we are firmly united
across the world,s longest undefended border by common
values, shared political heritage, and the largest bilateral
trading relationship in the planet,s history.  We need to
send the message that we value Canada with no strings
attached.  The early timing of this visit will help make this
point.

¶2. (C/NF) Specifically, it would be very helpful if you came
to Ottawa with three key public messages.  First, a positive
signal demonstrating movement on BSE, short of resolution but
beyond &we,re working on it.8  A firm date for completion
of the regulation would give PM Martin a huge political boost
and help beleaguered Canadian ranchers get through the
winter.  Second, appreciation for the positive role Canadians
play in the world as peacekeepers and in transmitting our
shared political and cultural values to failed and failing
states.  And third, personal thanks for our close cooperation
in defending the continent against terrorism, both in border
security, and in the larger fight to roll back the
availability of weapons of mass destruction, contain the
activities of terrorist groups, and support development that
will provide alternatives to terrorism.

¶3. (C/NF) Several themes about the future would also be
helpful for your private meetings.  You should note the
substantial Canadian support to date for Iraq reconstruction
and encourage Canada to play a larger role in the development
of political and security institutions there.  You should
promise continued close cooperation in places such as Sudan,
Afghanistan, and Haiti, and solicit PM Martin,s views on how
to best synergize our efforts.  And finally, you should
commit to focus on settling our trade and environmental
disputes.  End Summary

Martin,s Minority Government Stable, but Weak
---------------------------------------------

¶4. (C) After governing in majority for ten years, the Liberal
Party called elections June 28 to gain a mandate for PM
Martin, who succeeded Jean Chretien in December 2003.  The
Liberals were hurt by a scandal involving the disbursement of
public monies in Quebec, and the Martin government was
reduced to minority status, the first in Canada since 1979.
In the first week of Parliament, Martin was able to loosely
win over the New Democratic Party, putting him neck-and-neck
with the Conservatives and the separatist Bloc Quebecois.
Both the Liberal-NDP and the Conservative-Bloc alignments are
very tentative, however, and different issue-driven
coalitions are likely to emerge on an ad hoc basis.

¶5. (SBU) Predictions on how long the government will last
range from six months to two years.  Canadians do not want to
go to the polls soon and the Government and Opposition know
it.  But given the nature of Canada,s political system, the
Government,s fall is never more than one bad decision away.

¶6. (C/NF) The Liberal's thin margin leads Martin to exercise
extreme caution, which some observers are now touting as weak
leadership.  The PM has made it clear that he will not try to
carry out an aggressive agenda, and on issues such as missile
defense, would just as soon wait rather than try to tackle it
now and risk a negative vote.

Seeking Canada,s Place in the World
-----------------------------------

¶7. (SBU) All of this is taking place in the context of a
certain amount of soul-searching here on Canada,s decline
from &middle power8 status to that of an &active
observer8 of global affairs, a trend which some Canadians
believe should be reversed.  In the short term the country,s
priorities are improving the quality of life for Canadian
citizens and there is little support for increasing defense
spending (currently among the lowest per capita in NATO) or
the foreign affairs budget.  PM Martin has promised to focus
his government on policies to perpetuate the &Canadian
economic miracle,8 help cities, improve health care, and
provide easier access to child-care.  However, he has also
made modest increases in the defense budget and has announced
plans to add 5,000 troops to the armed forces.

Engagement on Homeland Security
-------------------------------

¶8. (SBU) Within the constraints of weak public support and
low funding, PM Martin has made his foreign affairs and
homeland security bureaucracies more capable and has kept
Canada selectively active in global issues.  In the wake of
the September 11 attacks, Canada has implemented a range of
practical measures that improve Canada,s homeland security
while facilitating the flow of people and commerce across our
common border.  Starting with the December 2001 Smart Border
Action Plan with the U.S., changes include enhancements to
aviation security, full compliance with UN and other
multilateral conventions, and strengthening of financial
controls.  In the fall of 2003 Canada undertook an aggressive
reorganization of its security and border agencies,
consolidating them into a structure similar to that of DHS,
and in April 2004 rolled out its first-ever national security
strategy.  Bilateral efforts have resulted in better
information sharing, joint targeting, and smoother flow of
low-risk traffic.

¶9. (S/NF) A potential irritant on the Canadian side that may
be raised has to do with sharing of intelligence regarding
Iraq operations.  The government is aware that we are
creating a separate US-UK-Australia channel for sharing
sensitive intelligence, including information that
trationally has been U.S. eyes only.  The GOC has expressed
concern at multiple levels that their exclusion from a
traditional "four-eyes" construct is "punishment" for
Canada,s non-participation in Iraq and they fear that the
Iraq-related channel may evolve into a more permanent
"three-eyes" only structure.  PM Martin may raise this with
you privately.

A Modest but Effective Agenda on Global Affairs
--------------------------------------------- --

¶10. (C) PM Martin has also kept Canada in the game
internationally.  In 2002 Ottawa sent 750 soldiers to
Afghanistan where they served with distinction in Khandahar,
and Canada led the maritime task force monitoring movement in
the Persian Gulf, a service that began with an eye on
Afghanistan but later was useful in the lead-up to Operation
Iraqi Freedom.  Ottawa continued to support democratization
in Afghanistan, leading the ISAF mission from February to
August 2004, and contributing 2,300 of 7,100 troops.  Canada
has been active in development and elections support for
Afghanistan, committing USD 500 million to a wide-variety of
programs through 2009.  Finally, Canada has pledged to deploy
a Provincial Reconstruction Team, possibly to Khandahar, in
the fall of 2005.

¶11. (C) In Haiti, Canada has provided civilian police
officers, a sizable aid budget, and positive involvement in
diplomatic efforts on the ground.  Canada has been largely in
synch with our efforts to seek a durable solution to Sudan,s
current and chronic crisis.  PM Martin, who met with
President al-Bashir in Sudan last week, supports the
&responsibility to protect8 as an obligation of each
government and a core function of the international community
through the United Nations.  Canada has allocated US$16
million to support the African Union in Sudan.
¶12. (SBU) Despite opposition to our invasion of Iraq, Canada
has offered strong support for Iraqi reconstruction, saying
"we can't afford to fail."  The GOC quickly committed funds,
pledging about US$ 240 million in Madrid, and made active
efforts to leverage contributions from countries that were
initially hesitant.  Over two-thirds of Canada's aid has been
allocated and over half has been disbursed on projects such
as police trainers in Jordan. Canada also supports Paris Club
efforts on debt reduction.

Trade and the Border: Vital Links for Canada
--------------------------------------------

¶13. (SBU) The U.S. and Canada have the largest bilateral
trade relationship in the history of the world and over 95%
of that trade is trouble-free.  The billion dollars a day in
trade with the U.S. generates about a third of Canada,s GDP,
with energy exports and the integrated North American auto
industry dominating the picture.
¶14. (SBU) Since implementation of NAFTA ten years ago,
US-Canada trade has doubled.  Most Canadians see NAFTA as a
success but are frustrated by its limits, thrown into relief
by U.S. trade remedy actions on softwood lumber and pork.
Expectations that NAFTA would give Canadians greater control
over US actions have largely been disappointed.  The softwood
case remains a long-running and intractable irritant; even
so, Canadian lumber exports boomed last year in response to
US housing demand.

¶15. (SBU) There are trade disputes and then there is beef.
Reopening the border to trade in live cattle is Canada's most
pressing bilateral concern and our top priority for this
visit.  Cut out of our highly integrated North American
market since 2003, Canadian ranchers have lost over $2
billion to date.  Canada has spent $400 million on relief for
the cattle industry, but many farmers and their suppliers may
not survive another winter. Indefinite delays and the
perceived unpredictability of the U.S. regulatory process
have soured views of the U.S. in some of the most
traditionally pro-American regions of Canada.  Issuance of
the new rule, or at least a firm commitment to a date for
completion, would help restore public confidence and give the
GoC some political room to respond to other U.S. priorities.
In the long term, failure to resolve the problem will result
in two North American beef industries, reducing efficiencies
and stiffening competition in traditional US export markets.
Significantly, movement on beef will give Martin political
space to cooperate more on security.

¶16. (U) Canada enjoys an enviable economic situation, with
steady budget surpluses and the most sharply-reduced debt
burden in the G-7.  Although the economic outlook is rosy,
the currency's rapid appreciation against the U.S dollar,
driven partly by rising commodity prices, could put a damper
on exports, and there are concerns here about global
imbalances and the sustainability of the U.S. economic
recovery.  Even with strong economic fundamentals, Canadian
GDP growth is projected to lag that of the U.S. in 2004.

¶17. (U) In addition to worries about exchange rate risk and
perennial trade disputes, Canadians feel increasingly
vulnerable to &border risk8.  Exporters worry about
lengthening border delays due to infrastructure overload and
to tighter security measures such as prior notice
requirements.  Application of USVISIT fingerprint and photo
requirements to Canadian non-citizen residents, and the
possibility that eventually Canadians will require passports
to enter the U.S., have sparked public anxiety among
Canadians.  Businesses fear that future terrorist incidents
could lead to catastrophic border closings and strongly
support the GoC,s efforts to strengthen bilateral security
cooperation.  Continued DHS engagement with Canada via the
Smart Border Action Plan, the Ridge-McLellan dialogue, and
regular working-level meetings, is a key element in managing
this anxiety and addressing underlying problems.  The GoC is
pushing to accelerate progress and add to the &Smart
Border8 agenda in its version of the North American
Initiative, &Beyond Smart Borders8.

Energy Inter-Dependency
-----------------------

¶18. (U) Canada is by far the United States' largest foreign
source of energy.  It is our largest supplier of petroleum,
as well as our leading external source of natural gas,
uranium, and electric power.  With Alberta,s oil sands now
classified as &proven reserves,8 Canada,s petroleum
resources of 180 billion barrels are second only to Saudi
Arabia,s.

¶19. (U) Canada,s northern territories contain large energy
resources, notably natural gas deposits in the delta of the
Mackenzie River, several hundred miles east of Alaska,s
Prudhoe Bay.  The energy industry expects that two gas
pipelines will be built, one from the Mackenzie Delta and the
other from Alaska,s North Slope.  As the regulatory
framework for the Alaska line develops, industry will have to
determine the pipeline,s exact route both in Alaska and as
it passes through Canada.

¶20. (U) Canada's electric power sector is interconnected at
numerous points with the U.S. grid and has for decades been a
large supplier of power to the U.S. market.  The U.S./Canada
Joint Task Force that investigated the August 2003 power
outage recommended the creation of a North American Electric
Reliability Organization, which would implement mandatory
standards for electricity transmission in both countries.
Canadian players in this industry are intensely interested in
the shape of proposed U.S. energy legislation, as it affects
their future strategies.

Environmental Issues
--------------------

¶21. (U) The U.S. and Canada cooperate closely on a broad
range of environmental issues. Together we have made
significant progress on key issues, including trans-boundary
air and water pollution, regulation of pesticides and
chemicals and protection of the Great Lakes.

¶22. (C) There are, however, a number of thorny cross-border
water issues still unresolved, including Canadian demands
that the U.S. move a derelict fishing vessel (Victoria M)
mistakenly scuttled in Canadian waters, controversy over the
proposed clean-up of pollution of the Columbia River from a
Canadian smelter in British Columbia and North Dakota,s
plans to mitigate flooding at Devils Lake by pumping water
through a canal system to the Red River.

¶23. (C) The Canadians have raised these issues before at
senior levels and are likely to do so again.  The most
pressing of these problems is Devils Lake, where Canada
believes that the state outlet from the lake to the Red River
would violate the Boundary Waters Treaty.  North Dakota has
almost completed its canal system and plans to start pumping
water in the spring of 2005.  Canada has asked for U.S.
agreement to &refer8 this issue to the International Joint
Commission for study and recommendations, but we have not yet
responded to that request.  The Embassy believes it would be
in our interest to agree to a &reference,8 tightly limited
in scope and time-frame.

¶24. (U) Canada formally ratified the Kyoto Accord at the end
of 2002, despite vocal opposition from some provincial
governments and industries.  While political approaches to
the climate change issue have differed between the U.S. and
Canada, practical cooperation has been close.  In 2002, we
signed agreements on Renewable Energy and Climate Science,
and formed a bilateral Working Group on Climate Change.  Few
Canadians understand just how much we do on climate change,
reducing U.S. efforts only to Kyoto.  Canada participates in
several U.S.-led multilateral initiatives, such as the Carbon
Sequestration Leadership Forum and the International
Partnership for the Hydrogen Economy.  We expect that they
will soon join the Methane to Markets Partnership.

Visit Canada's Classified Web Site at
http://www.state.sgov.gov/p/wha/ottawa

CELLUCCI