What were the objectives of the U.S.-Canada Free Trade Agreement of 1989 on both sides, and how did the agreement affect economic trade?

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kipling2448 eNotes educator| Certified Educator

The purpose of the U.S.-Canada Free Trade Agreement, signed in 1987 but entered in force in 1989, was largely the same as that for all free trade agreements: eliminate or at least reduce barriers to the free flow of goods and services across borders.  The U.S. and Canada are each other’s largest trading partners, but outstanding issues like the export of Canadian lumber have remained festering sores on the bilateral relationship.  At the time of the agreement’s signing, $160 billion of goods and services crossed the border between the United States and Canada.  The agreement’s provisions reducing and eliminating tariffs has resulted in an increase in the volume and value of trade has increased to, according to the U.S. Department of State, $1.6 billion per day.  Data provided by the U.S. Census Bureau states that, during 2013, the United States exported $277 billion in goods to Canada while importing $305 billion.  The trade deficit can be accounted for by U.S. imports of Canadian petroleum.

Data on U.S.-Canada trade has to be analyzed less in terms of the specific provisions of the 1987 agreement than in the subsequent North American Free Trade Agreement (NAFTA) of 1994, which expanded the existing trade structure to include Mexico.  Consequently, the ten-year time-line during which the provisions of the U.S.-Canada agreement were scheduled to be into effect, while still valid, were nevertheless affected by the incorporation of Mexico into the mix. 

Trade agreements, especially involving countries with widely divergent economies and gross domestic products (GDP) always produce winners and losers.  The Canadian perspective of the implications of the free trade agreement with the United States is decidedly mixed.  While foreign direct investment in each other’s economy rose considerably – Canadian investment in the U.S. increased from $55 billion per year to $276 billion, while U.S. investment in Canada increased from $76 billion to $326 billion – many Canadians have lamented the loss of manufacturing jobs resulting from the agreement.  David Peterson, who was premier of Ontario province at the time the agreement was signed, was quoted in a Canadian newspaper complained about the closure of many American factories previously located in Canada that relocated following the elimination of tariffs:

“We lost 200,000 manufacturing jobs in the first two years. . . We were the province with the most to lose, and we predicted we’d lose it, and we did.” [“After 25 Years, Free-Trade Deal with U.S. has Helped Canada Grow Up,” The Globe and Mail, September 29, 2012]

From the U.S. perspective, the agreement has been a success.  American concerns are oriented much more towards the trading partner to the south, Mexico, as well towards the Asia-Pacific region, especially China.

Jamie Wheeler eNotes educator| Certified Educator

The U.S.-Canada Free Trade Agreement, or “FTA,” was the precursory agreement to the North American Free Trade Agreement, or “NAFTA.” The agreement was reached in 1989. The two largest trading powers in the world came to a bilateral agreement on trade, worth some $150 billion dollars of good per year.

The road to agreement began in 1985, when negotiations commence. On October 4, 1984, a pact was agreed to. It would still be four more years, however, until approval by the legislative bodies of both the United States and Canada came to pass. The pact was a historic event. For more than one hundred years, negotiations toward such an agreement started and sputtered. But finally, on January 1, 1989, the FTA was realized.

Canada was much more riled up about the agreement than its neighbor, the United States. While polls showed that forty percent of Americans did not even know that the FTA had passed, but just three percent of Canadians were in the dark about the pact. A likely cause for the disparity is the amount of media coverage in the two nations; while Canada featured stories nearly every day that the bill was being negotiated, coverage in the U.S. comparatively was just a fraction. The reason for the lopsided coverage is not difficult to understand. While the amount of trade the U.S. conducts with Canada is fairly robust, it amounts to just a small portion of the overall trade of the entire economy. But for Canada, trade with the U.S. amounts to a significant portion of their economy.

Here are the major points of the 1989 FTA:

1)      It eliminated barriers to trade

2)      It made fair competition with free trade regions easier

3)      It liberalized investments across borders

4)      Procedures regarding disputes were put in place

5)      Establish a foundation for further cooperation and enhancements

The last point has proven quite useful, as five years later, however, when the North American Free Trade Agreement was being hammered out and trade between the United States, Canada, and Mexico became easier and more streamlined (although there are many detractors of NAFTA. (On the last point, the FTA apparently has been successful, as it helped lay the foundation for NAFTA, although certain differences do exist between the two agreements.)

The basic terms of the agreement were implemented over a ten year period. The FTA did away with tariffs, duties, and import restrictions. The decade-long implementation was put in place so that industry could adapt to competition in the free market. Some of the industries given time to phase in were agricultural products, beef, appliances, and textiles.

Source: Encyclopedia of Business, ©2000 Gale Cengage. All Rights Reserved.

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