Canada's East-West Split

Historic economic tensions not unlike those that long separated the rural South from the urban North in the U.S. continue to trouble Canada, dividing its industrial East from the agricultural and mineral-rich West. The energy crisis has catalyzed these problems, threatening a constitutional conflict.

The British North America Act, Canada's constitution, allows provinces to retain control of their natural resources. People in Alberta and Saskatchewan commonly believe that they, not the federal government, should choose the markets and collect the taxes on oil pumped from the vast reserves within their borders. Easterners and Prime Minister Pierre Trudeau's government maintain that the oil is a national treasure and that its sale abroad should be controlled and taxed by the federal government. The U.S. is the third party with an interest in the dispute; last year an average 1.2 million bbl. of oil per day, around 7% of U.S. consumption, flowed through pipelines from the Canadian West to the U.S. Midwest.

Billions in tax revenues are at stake. After oil prices started leaping on the world market, Canada began increasing its own take on exports. In October it slapped on its first oil export tax--40-c- per bbl.--and by last week this levy had been stepped up to $6.40 per bbl.; the result is a current export price of $10.50 per bbl. While the Canadians are fighting over whether the provinces or the federal government should get the bulk of these taxes, the U.S. is arguing that the levies should be lowered.

Cheaper by Sea. The longer-term and more important issue is not who gets the taxes but who gets the oil. Because a pipeline from western Canada feeds the U.S. but no pipelines directly serve eastern Canada, it has been cheaper for the East to import oil by sea from Venezuela and the Middle East than overland from the West. But rising import costs are making western oil economical in the East, and by the end of 1975, a pipeline extension will supply the East directly. When it opens up, western leaders would like to continue selling to the U.S., if only because it would provide a guaranteed source of export-tax revenue. Easterners want most of the fuel for their own industries and homes, and of course they would not have to pay export taxes.

The opposing views clashed head-on late last month at a nationally televised conference of Trudeau and provincial premiers in Ottawa. Both sides voiced strong arguments. For its part, eastern Canada is suffering from shortages and high prices. A gallon of regular gasoline costs 69-c- in Montreal, compared with only 47-c- in much of the West. A temporary compromise on oil export taxes was hammered out at the Ottawa meeting. Half of the tax revenues will go to the oil-exporting provinces and half to the federal government, which will use its share to subsidize lower gas prices in the East. But that agreement will run only until April, by which time either a new deal will have to be worked out, or the squabbling will start again.

The outlook for the U.S. is even less promising. Last week a Canadian delegation led by Energy Minister Donald Macdonald went to Washington to confer with Energy Chief William Simon and other U.S. officials. Canada is the only Western nation that pumps more oil than it consumes, but the Canadians told their American counterparts that Canada will soon be burning all the oil that it can produce. In the meantime, there is little chance that the export tax will be significantly reduced.

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