The Canada-U.S. Trade and Economic Relationship

The Canada-U.S. Trade and Economic Relationship

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The Canada-U.S. Trade and Economic Relationship
The United States is Canada's largest trading partner and is the largest market for Canadian goods. The Canada-U.S. Free Trade Agreement (1989) and the North American Free Trade Agreement (1994) have both been crucial to increasing market opportunities for Canadian exporters in the U.S.

Ultimately, however, it is Canadian exporters – of all sizes and in all industries – that make this relationship as successful as it is. In 2003, Canada exported approximately C$365 billion worth of goods and services to the U.S., while it imported nearly C$280 billion from its southern neighbour. In fact, U.S. exporters sold more goods to Canada in 2003 than they did to the European Union.

When we look at just a few of the specifics of our trade with the U.S., we find that:

In 2003, the two-way trade in goods and services between our two countries reached C$1.8 billion a day.
Canada is the U.S.'s most important trading partner, taking in 19.2 percent of U.S. goods and services in 2003.
In 2003, Canada was the top export market for 37 U.S. states.
In 2002, Canadian business investment in the U.S. was valued at approximately C$202 billion. U.S. business investment in Canada was valued at just over C$224 billion.
We could add many more statistics, anecdotes and facts, but these numbers are enough to show how the economies of our two countries are intertwined, and to demonstrate the magnitude of the Canada-U.S. economic relationship
1.3 Understanding Canada-U.S. relations
Trade, of course, is only part of a larger network of relationships between our two countries. This network evolves in response to many complex influences, and exporters need to consider how our two countries' ever-expanding, ever-changing relationships will affect their activities. To take just a few examples:

The events of September 11, 2001 and the resulting security measures have affected border wait times, packing legislation, reporting requirements and many other export-related issues.
The Canada-U.S. trade relationship is not static. Political and business strategies and practices change on both sides of the border, and events occur – such as "mad cow disease" – that are beyond almost everyone's control.
Many Americans are not aware of the political and economic value of the Canada-U.S. relationship, and Canada is consequently not a priority for them.
The Government of Canada is very active in fostering relations with the United States, and has expanded its U.S. consular presence to help enlarge and secure the trade relationship.

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This "Enhanced Representation Initiative" increases Canada's representation in the U.S. to 22 such offices.

For more information, you can visit Foreign Affairs Canada's Canada-United States Relations Web site, which has links to many resources covering various aspects of the bilateral relationship, including visas and immigration, border cooperation and politics, as well as trade. The site also includes a handy link to a list of Government of Canada offices in the U.S.

1.4 Understanding the North American Free Trade Agreement (NAFTA)
The North American Free Trade Agreement provides comprehensive disciplines for trade in goods and services, investment, intellectual property and dispute settlement. One of its major achievements has been to eliminate the tariffs on most goods originating in the member nations. Another has been to liberalize regulations affecting matters such as investment and cross-border trade in services. These have provided many excellent business opportunities for Canadian exporters and continue to do so.

We'll examine NAFTA's impacts on Canadian exporters at various places in this guide, particularly in section 4.2. In the meantime, you can find useful information about NAFTA, including the full text of the NAFTA agreement.

1.5 Understanding the U.S. market
There's actually no single "U.S. market". What you'll actually find in the U.S. are markets – lots of them, segmented by race, religion, age, geography, nationality, citizenship status, income bracket, occupation, political persuasion, industry, profession, trade and so on.

This is hardly surprising: given the sheer size of the United States and the relative affluence of its 291 million people, the needs and desires of its population aren't likely to be the same across the country. For example, Oregonians probably won't have the same preferences for goods as North Carolinians; not all industries will operate in all states (there are no cotton plantations in Alaska); and products are altered for different climatic regions (different woods will be used for outdoor furniture in Florida and New Hampshire). This variety presents Canadian exporters with a myriad of opportunities.

To put the size of these markets into better perspective, we can think of each state as a nation, with a Gross State Product (GSP) equivalent to a country's Gross Domestic Product (GDP). In this framework, California's GSP is equivalent to the GDP of France, and Texas' GSP is equivalent to the GDP of Canada.

But looking at states as a whole, although it helps us understand market size, doesn't tell the entire story. Sometimes commonalities spread across state borders; conversely, sometimes people in one part of a state will have tastes that aren't shared by people elsewhere in the same state.

What this implies, for you as a Canadian exporter, is a strong need for careful market research and a well thought-out export strategy. To be successful, you'll have to be very focused.

1.6 Barriers to the U.S. market
Exporters should be aware of the impediments to trade presented by non-tariff barriers, security issues and "buy American" policies.

Generally, barriers to trade are described as tariff or non-tariff barriers. A tariff is a tax applied to merchandise imports and, less frequently, on exports. The tax may be levied either on an ad valorem basis (a fixed percentage of the value of an imported product) or on a specific basis (a fixed levy per unit of imported product). Following a final tariff reduction between Canada and Mexico, which took effect on January 1, 2003, virtually all trade in the NAFTA region has flowed tariff-free.

Non-tariff barriers (NTBs) are government measures or policies, other than tariffs, that restrict or distort international trade. As tariffs are lowered or eliminated, for example by a free trade agreement, it becomes more important to address non-tariff measures that can be used to frustrate trade. Examples of NTBs include import quotas, discriminatory government procurement practices and discriminatory measures to protect intellectual property. A further class of non-tariff barrier is that of technical barriers to trade (TBTs), such as government requirements for unnecessary duplicate testing and certification of an imported product.

It's important to find out as early as possible if there are any barriers that will affect your exports. If a barrier does exist, you should determine how it may affect your access to your U.S. market, your pricing of your product or service, and your costs of doing business in the United States.

Canada is committed to identifying unfair barriers to Canadian exports and to working with our trading partners to eliminate those barriers. Almost all our exports and imports cross the Canada-US border without incident, a remarkable achievement for a trading relationship worth over a billion dollars a day. Our two countries, however, do maintain key differences in economic policy, and respond in different ways to world economic conditions and the global free trade agenda. In cases where we have not been able to resolve our differences through consultation, we have relied on WTO and NAFTA dispute settlement procedures. Canada believes very strongly in a rules-based trading system with clear procedures for solving disputes.

A second major barrier to the smooth flow of U.S.-Canada trade is that of security. The 2001 terrorist attacks in the United States caused greatly increased concern about U.S. domestic security, and this has significantly affected how exports from Canada and around the world enter the U.S. Security measures continue to evolve and may complicate your export business, for example by slowing traffic across the border or by requiring more preparation and documentation. We'll examine U.S. security requirements and how to comply with them starting in Section 9.1, "U.S. Border Security".

"Buy American" policies can also present barriers to Canadian exporters. As an example, one of the largest markets in the U.S. is the public-sector procurement market. This includes the federal-level General Services Administration (GSA) and Department of Defence (DoD), as well as state procurement agencies. These organizations are mandated to "buy American" whenever possible.

To help Canadian firms compete with American companies in this market, the Canadian Commercial Corporation offers two business solutions. CCC's DoD Prime Contractor Solution gives exporters privileged access to the United States Department of Defense. The Canada-U.S. Defense Production Sharing Arrangement allows Canadian exporters to compete on an equal footing with U.S. companies for sales in defence markets. CCC is uniquely positioned to help you access opportunities in this complex arena, giving you unequalled access to one of the largest procurement markets in the world.

CCC's GSA Schedules Program Submission Service helps you pursue U.S. federal government business through the GSA Schedules Program. Being a GSA Schedule contractor allows you to compete on an equal footing with American companies. What do we do? Help you pre p a re your submission. Offer advice. Assist you with pricing and negotiations. And give you access to an established base of contacts in Washington, D.C. offering intelligence, marketing and networking support .

resources
Most are available in university and college libraries, or in the Canada Business Documentation Centres. Some are also available online, usually for a subscription fee.

American Wholesalers and Distributors Directory
Chain Store Guide
Consumer USA
Encylopedia of American Industries
Encyclopedia of Emerging Industries
Europa World Book
Manufacturers' Agents National Association Directory
Manufacturing and Distributing USA
Thomas Register
Tradeshow Week
U.S. Market Trends and Forecasts
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