Canada & Usa Agreement

Order Code RL33087

United States-Canada Trade and Economic
Relationship: Prospects and Challenges

Updated January 29, 2008

Ian F. Fergusson
Specialist in International Trade and Finance
Foreign Affairs, Defense, and Trade Division

United States-Canada Trade and Economic
Relationship: Prospects and Challenges
Summary
The United States and Canada conduct the world’s largestbilateral trade
relationship, with total merchandise trade (exports and imports) exceeding $533.7
billion in 2006. The U.S.-Canadian relationship revolves around the themes of
integration and asymmetry: integration from successive trade liberalization from the
U.S.- Canada Auto Pact of 1965 leading to North American Free Trade Agreement
(NAFTA), and asymmetry resulting from Canadian dependence onthe U.S. market
and from the disparate size of the two economies.
The economies of the United States and Canada are highly integrated, a process
that has been accelerated by the bilateral U.S.-Canada free trade agreement (FTA) of
1988 and the NAFTA of 1994. Both are affluent industrialized economies, with
similar standards of living and industrial structure. However, the two economiesdiverge in size, per capita income, productivity and net savings.
Canada is the largest single country trading partner of the United States. In
2006, total merchandise trade with Canada consisted of $303.4 billion in imports and
$230.3 billion in exports. While Canada is an important trading partner for the
United States, the United States is the dominant trade partner for Canada, and trade
is adominant feature of the Canadian economy. Automobiles and auto parts, a sector
which has become highly integrated due to free trade, make up the largest sector of
traded products. Canada is also the largest exporter of energy to the United States.
Like the United States, the Canadian economy is affected by the transformation of
China into an economic superpower. The United States and Canada alsohave
significant stakes in each other’s economy through foreign direct investment.
Both countries are members of the World Trade Organization (WTO) and both
are partners with Mexico in the NAFTA. While most trade is conducted smoothly,
several disputes remain contentious. Disputes concerning the 2006 softwood lumber
agreement are under arbitration and agriculture subsidies are beingaddressed by
dispute settlement body at the WTO. In addition, U.S. regulatory proceedings
restricted the importation of Canadian beef (now lifted), and the United States has
placed Canada on its Special 301 watch list over intellectual property rights
enforcement.
The terrorist attacks of 2001 focused attention on the U.S.-Canadian border.
Several bilateral initiatives have been undertaken tominimize disruption to
commerce from added border security. The focus on the border has renewed interest
in some quarters in greater economic integration, either through incremental
measures such as greater regulatory cooperation or potentially larger goals such as
a customs or monetary union. Congressional interest has focused on these disputes,
and also on the ability of the two nations tocontinue their traditional volume of trade
with heightened security on the border. This report will be updated periodically.

Contents
The Economies of the United States and Canada . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Trade and Investment Relationship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Autos . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . 5
Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Trade Deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Services . . . . . ....