Canada–United States Free Trade Agreement
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The Canada–United States Free Trade Agreement (CUSFTA), official name as the Free Trade Agreement between Canada and the United States of America (), was a bilateral
trade agreement A trade agreement (also known as trade pact) is a wide-ranging taxes, tariff and trade treaty that often includes investment guarantees. It exists when two or more countries agree on terms that help them trade with each other. The most common tra ...
reached by negotiators for
Canada Canada is a country in North America. Its Provinces and territories of Canada, ten provinces and three territories extend from the Atlantic Ocean to the Pacific Ocean and northward into the Arctic Ocean, making it the world's List of coun ...
and the
United States The United States of America (USA), also known as the United States (U.S.) or America, is a country primarily located in North America. It is a federal republic of 50 U.S. state, states and a federal capital district, Washington, D.C. The 48 ...
on October 4, 1987, and signed by the leaders of both countries on January 2, 1988. The agreement phased out a wide range of trade restrictions in stages, over a ten-year period, and resulted in a substantial increase in cross-border trade as an improvement to the last replaced trade deal. With the addition of Mexico in 1994, CUSFTA was superseded by the
North American Free Trade Agreement The North American Free Trade Agreement (, TLCAN; , ALÉNA), referred to colloquially in the Anglosphere as NAFTA, ( ) was an agreement signed by Canada, Mexico, and the United States that created a trilateral trade bloc in North America. The ...
(NAFTA) (, ). As stated in the agreement, the main purposes of the Canada–United States Free Trade Agreement were: *Eliminate barriers to trade in goods and services between Canada and the United States *Facilitate conditions of fair competition within the free-trade area established by the Agreement *Significantly liberalize conditions for investment within that free-trade area *Establish effective procedures for the joint administration of the Agreement and the resolution of disputes *Lay the foundation for further bilateral and multilateral cooperation to expand and enhance the benefits of the Agreement


History


Background

Starting in 1855, while Canada was under British control, free trade was implemented between the colonies of
British North America British North America comprised the colonial territories of the British Empire in North America from 1783 onwards. English colonisation of North America began in the 16th century in Newfoundland, then further south at Roanoke and Jamestown, ...
and the United States under the Reciprocity Treaty. In 1866, a year before
Canadian Confederation Canadian Confederation () was the process by which three British North American provinces—the Province of Canada, Nova Scotia, and New Brunswick—were united into one federation, called the Name of Canada#Adoption of Dominion, Dominion of Ca ...
, the
United States Congress The United States Congress is the legislature, legislative branch of the federal government of the United States. It is a Bicameralism, bicameral legislature, including a Lower house, lower body, the United States House of Representatives, ...
voted to cancel the treaty. Canada's first Prime Minister, John A. Macdonald, attempted and failed to reinstate reciprocity, after which the government of Canada moved to a more protectionist policy, the
National Policy The National Policy was a Canadian economic program introduced by John A. Macdonald's Conservative Party in 1876. After Macdonald led the Conservatives to victory in the 1878 Canadian federal election, he began implementing his policy in 1879. ...
. Fears grew among many politicians that closer economic ties with the United States would lead to political
annexation Annexation, in international law, is the forcible acquisition and assertion of legal title over one state's territory by another state, usually following military occupation of the territory. In current international law, it is generally held t ...
. The
Liberal Party of Canada The Liberal Party of Canada (LPC; , ) is a federal political party in Canada. The party espouses the principles of liberalism,McCall, Christina; Stephen Clarkson"Liberal Party". ''The Canadian Encyclopedia''. and generally sits at the Centrism, ...
had traditionally supported free trade. Free trade in natural products was a central issue in the
1911 Canadian federal election The 1911 Canadian federal election was held on September 21, 1911, to elect members of the House of Commons of Canada of the 12th Canadian Parliament, 12th Parliament of History of Canada, Canada. The central issue was Liberal support for a prop ...
. The Conservative Party campaigned using anti-American rhetoric, and the Liberals lost the election. The issue of free trade did not rise to this level of national prominence in Canada again for many decades. From 1935 to 1980, the two nations entered a number of bilateral trade agreements that greatly reduced tariffs in both nations. The most significant of these agreements was the 1960s Automotive Products Trade Agreement (also known as the Auto Pact). After the signing of the Auto Pact, the Canadian Government considered proposing free-trade agreements in other sectors of the economy. However, the United States government was less receptive to this idea, and in fact, wanted to phase out some guarantees in the Pact. Canadian attention turned to the question of a broader free-trade agreement between the two countries. During the next two decades, a number of academic economists studied the effects of a free trade agreement between the two countries. Several of them— Ronald Wonnacott and Paul Wonnacott, and Richard G. Harris and David Cox—concluded that Canadian real GDP would be significantly increased if both U.S. and Canadian tariffs and other trade barriers were removed and Canadian industry could consequently produce at larger, more efficient scale. Other economists on the free-trade side included John Whalley of the University of Western Ontario and
Richard Lipsey Richard George Lipsey, (born August 28, 1928) is a Canadian academic and economist. He is best known for his work on the Theory of the Second Best, economics of the second-best, a theory that demonstrated that piecemeal establishing of individu ...
of the C. D. Howe Institute. Others were concerned that free trade would have negative effects, fearing capital flight and job insecurity because of international outsourcing, and also that closer economic ties with the "Giant to the South" might risk an erosion of Canadian sovereignty. Opponents included Mel Watkins of the University of Toronto and David Crane of the
Toronto Star The ''Toronto Star'' is a Canadian English-language broadsheet daily newspaper. It is owned by Toronto Star Newspapers Limited, a subsidiary of Torstar Corporation and part of Torstar's Daily News Brands (Torstar), Daily News Brands division. ...
, one of Canada's leading newspapers. A number of government studies drew increasing attention to the possibility of a bilateral free-trade negotiation: Looking Outward (1975), by the Economic Council of Canada; several reports of the Senate Standing Committee on Foreign Affairs (1975, 1978, and 1982); and the 1985 report of the Macdonald Commission (formally, the ''
Royal Commission A royal commission is a major ad-hoc formal public inquiry into a defined issue in some monarchies. They have been held in the United Kingdom, Australia, Canada, New Zealand, Norway, Malaysia, Mauritius and Saudi Arabia. In republics an equi ...
on the Economic Union and Development Prospects for Canada''), chaired by former Liberal politician Donald Stovel Macdonald. Macdonald declared that "Canadians should be prepared to take a leap of faith" and pursue more open trade with the United States. Although Macdonald was a former Liberal Minister of Finance, the commission's findings were embraced by Prime Minister
Brian Mulroney Martin Brian Mulroney (March 20, 1939 – February 29, 2024) was a Canadian lawyer, businessman, and politician who served as the 18th prime minister of Canada from 1984 to 1993. Born in the eastern Quebec city of Baie-Comeau, Mulroney studi ...
's Progressive Conservative Party, even though they had opposed a free-trade initiative in the 1984 Canadian election campaign. The stage was set for the beginning of free-trade negotiations.


Negotiations

US President
Ronald Reagan Ronald Wilson Reagan (February 6, 1911 – June 5, 2004) was an American politician and actor who served as the 40th president of the United States from 1981 to 1989. He was a member of the Republican Party (United States), Republican Party a ...
welcomed the Canadian initiative and the
United States Congress The United States Congress is the legislature, legislative branch of the federal government of the United States. It is a Bicameralism, bicameral legislature, including a Lower house, lower body, the United States House of Representatives, ...
gave the President the authority to sign a free trade agreement with Canada, subject to it being presented for Congressional review by October 5, 1987. In May 1986, Canadian and American negotiators began to work out a trade deal. The Canadian team was led by former deputy Minister of Finance Simon Reisman and the American side by Peter O. Murphy, the former deputy United States trade representative in
Geneva Geneva ( , ; ) ; ; . is the List of cities in Switzerland, second-most populous city in Switzerland and the most populous in French-speaking Romandy. Situated in the southwest of the country, where the Rhône exits Lake Geneva, it is the ca ...
. The agreement between the two countries ultimately created substantially liberalized trade between them, removing most remaining
tariff A tariff or import tax is a duty (tax), duty imposed by a national Government, government, customs territory, or supranational union on imports of goods and is paid by the importer. Exceptionally, an export tax may be levied on exports of goods ...
s, although tariffs were only a minor part of the FTA. Average tariffs on goods crossing the border were well below 1% by the 1980s. Instead, Canada desired unhindered access to the American economy. Americans, in turn, wished to have access to Canada's energy and cultural industries. In the negotiations, Canada retained the right to protect its cultural industries and such sectors as education and health care. As well, some resources such as water were meant to be left out of the agreement. The Canadians did not succeed in winning free competition for American government procurement contracts. Canadian negotiators also insisted on the inclusion of a dispute resolution mechanism.


Debate and implementation

The debate in Canada over whether to implement the negotiated agreement was very contentious. The opposition
Liberal Party The Liberal Party is any of many political parties around the world. The meaning of ''liberal'' varies around the world, ranging from liberal conservatism on the right to social liberalism on the left. For example, while the political systems ...
vociferously opposed the agreement, with Liberal leader John Turner saying that he would "tear it up" if he became prime minister, and the
New Democratic Party The New Democratic Party (NDP; , ) is a federal political party in Canada. Widely described as social democratic,The party is widely described as social democratic: * * * * * * * * * * * * * The Editors of ''Encyclopædia Britann ...
under leader
Ed Broadbent John Edward Broadbent (March 21, 1936 – January 11, 2024) was a Canadian social democracy, social-democratic politician and political scientist. He was leader of the New Democratic Party (NDP) from 1975 to 1989, and a Member of Parliament (Ca ...
also strongly opposed the agreement. Both parties contended that the agreement would erode Canadian
sovereignty Sovereignty can generally be defined as supreme authority. Sovereignty entails hierarchy within a state as well as external autonomy for states. In any state, sovereignty is assigned to the person, body or institution that has the ultimate au ...
, arguing that Canada would effectively become the "
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" of the US if the agreement was implemented. They also raised concerns about how Canada's
social program Welfare spending is a type of government support intended to ensure that members of a society can meet Basic needs, basic human needs such as food and shelter. Social security may either be synonymous with welfare, or refer specifically to social ...
s and other trade agreements such as the Auto Pact would be affected. The legislation to implement the agreement was delayed in the
Senate A senate is a deliberative assembly, often the upper house or chamber of a bicameral legislature. The name comes from the ancient Roman Senate (Latin: ''Senatus''), so-called as an assembly of the senior (Latin: ''senex'' meaning "the el ...
, which had a Liberal majority. Partly in response to these delays, Mulroney called an election in 1988. The Trade Agreement was by far the most prominent issue of the campaign, prompting some to call it the "Free Trade Election." It was the first Canadian election to feature large third-party campaign advertising, with supporters and opponents using lobbyists to buy television advertisements. It was also the first Canadian election to use much negative advertising; one anti-free-trade advertisement showed negotiators "removing a line" from the Free Trade Agreement, which at the end of the advertisement was revealed to be the Canada–US border. Although some opinion polls showed slightly more Canadians against the Agreement than in favour of it, Mulroney's Progressive Conservatives benefited from being the only party in favour of the agreement, while the Liberals and NDP split the anti-free trade vote. In addition, future Quebec Premiers Jacques Parizeau and
Bernard Landry Bernard Landry (; March 9, 1937 – November 6, 2018) was a Canadian politician who served as the 28th premier of Quebec from 2001 to 2003. A member of the Parti Québécois (PQ), he led the party from 2001 to 2005, also serving as the leader ...
backed the agreement which was seen as a factor for the PC party support in Quebec. Mulroney won a governing majority and the agreement was passed into law, even though a majority of the voters had voted for parties opposing free trade. The Free Trade Agreement faced much less opposition in the US. Polls showed that up to 40% of Americans were unaware that the agreement had been signed. The Agreement implementation act was given to the Congress for " fast-track" approval by President Reagan on July 26, 1988, meaning that it could be accepted or rejected but could not be amended. The United States–Canada Free-Trade Agreement Implementation Act of 1988 was passed by the House of Representatives by a vote of 366 - 40 on August 9, 1988 and by the Senate by a vote of 83–9 on September 19, 1988.Actions Overview H.R.5090 — 100th Congress (1987-1988)All Information (Except Text)
/ref> President Reagan signed the Act on September 28, 1988. It became Public Law No: 100–449.


Effects

The exact ramifications of the agreement are hard to measure. Trade between Canada and the U.S., which had already been on the rise, increased at an accelerated rate after the agreement was signed. While throughout the 20th century, exports fairly consistently made up about 25% of Canada's
gross domestic product Gross domestic product (GDP) is a monetary measure of the total market value of all the final goods and services produced and rendered in a specific time period by a country or countries. GDP is often used to measure the economic performanc ...
(GDP), since 1990 exports have been about 40% of GDP. After 2000, they reached nearly 50%. A 2016 paper estimates "that CUSFTA increased the yearly profits of Canadian manufacturing by 1.2%". A 2024 study found that Canadian workers adjusted smoothly to the effect of trade liberalization with the United States: workers in sectors that faced import competition with the US were likely to suffer modest negative economic outcomes in the short-run but they made up for this by switching to jobs in Canadian economic sectors that benefitted on easier access to the US market. Often, analyses of the free trade agreement find that its effects on the two countries depend on the difference in value between the
Canadian dollar The Canadian dollar (currency symbol, symbol: $; ISO 4217, code: CAD; ) is the currency of Canada. It is abbreviated with the dollar sign $. There is no standard disambiguating form, but the abbreviations Can$, CA$ and C$ are frequently used f ...
and the
US dollar The United States dollar (symbol: $; currency code: USD) is the official currency of the United States and several other countries. The Coinage Act of 1792 introduced the U.S. dollar at par with the Spanish silver dollar, divided it int ...
. In 1990–1991, the Canadian dollar rose sharply in value against the US dollar, making Canadian manufactured goods much more expensive for Americans to buy and making American manufactured goods much cheaper for Canadians, who no longer had to pay high duties on them. The phenomenon of "cross-border shopping", where Canadians would make shopping daytrips to US border towns to take advantage of tariff-free goods and a high Canadian dollar, provided a mini-boom for these towns. The loss of many Canadian jobs, particularly in the Ontario manufacturing sector during the
recession In economics, a recession is a business cycle contraction that occurs when there is a period of broad decline in economic activity. Recessions generally occur when there is a widespread drop in spending (an adverse demand shock). This may be tr ...
of the early 1990s, was attributed (fairly or not) to the Free Trade Agreement. In the mid-to-late 1990s, however, the Canadian dollar fell to record lows in value to against the US dollar. Cheaper Canadian primary products such as lumber and oil could be bought tariff-free by Americans, and Hollywood studios sent their crews to film many movies in Canada due to the cheap Canadian dollar (see " runaway production" and " Hollywood North"). The removal of protective tariffs meant that market forces, such as currency values, have a greater effect on the economies of both countries than they would have with tariffs. The agreement has failed to liberalize trade in some areas, most notably the ongoing dispute over softwood lumber. Issues such as mineral, fresh water, and softwood lumber trade still remain disputed. While the agreement remains decades later, it is no longer at the forefront of Canadian politics."Guest Editorial: Case for TPP must be made on Main Street"
''The Edmonton Journal'', 10.09.2015
It was superseded by the
North American Free Trade Agreement The North American Free Trade Agreement (, TLCAN; , ALÉNA), referred to colloquially in the Anglosphere as NAFTA, ( ) was an agreement signed by Canada, Mexico, and the United States that created a trilateral trade bloc in North America. The ...
(NAFTA) in 1994, which itself was replaced by the
United States–Mexico–Canada Agreement The Agreement between the United States of America, the United Mexican States, and Canada (USMCA)Each signatory has a different name for the agreement—in the United States, it is called the United States–Mexico–Canada Agreement (USMCA) ...
in 2020. The Liberals under
Jean Chrétien Joseph Jacques Jean Chrétien (; born January 11, 1934) is a retired Canadian politician, statesman, and lawyer who served as the 20th prime minister of Canada from 1993 to 2003. He served as Leader of the Liberal Party of Canada, leader of t ...
were elected to office in the 1993 election, partly on a promise to renegotiate key labor and environmental parts of NAFTA. An agreement was indeed struck with the Democrats under
Bill Clinton William Jefferson Clinton (né Blythe III; born August 19, 1946) is an American politician and lawyer who was the 42nd president of the United States from 1993 to 2001. A member of the Democratic Party (United States), Democratic Party, ...
that created separate side deals to address both of these concerns.


References

*Derek Burney, Getting it Done: A Memoir. McGill–Queens University Press, 2005. Includes details of the final stages of the free-trade negotiations, as told by the Chief of Staff to Prime Minister Mulroney. *Gordon Ritchie, Wrestling with the Elephant: The Inside Story of the Canadian–U.S. Trade Wars. Toronto: Macfarlane Walter & Ross, 1997. The Canadian Deputy Chief Negotiator's account of the free-trade negotiations. *Bruce Wilkinson.
Free Trade
" ''
The Canadian Encyclopedia ''The Canadian Encyclopedia'' (TCE; ) is the national encyclopedia of Canada, published online by the Toronto-based historical organization Historica Canada, with financial support by the federal Department of Canadian Heritage and Society of Com ...
''


See more

* Rules of Origin *
Market access In international trade, market access refers to a company's ability to enter a foreign market by selling its goods and services in another country. Market access is not the same as free trade, because market access is normally subject to condition ...
* Free-trade area *
Tariffs A tariff or import tax is a duty imposed by a national government, customs territory, or supranational union on imports of goods and is paid by the importer. Exceptionally, an export tax may be levied on exports of goods or raw materials and is ...


External links


CBC Digital Archives – Canada–U.S. Free Trade AgreementCanada–United States Free Trade Agreement Implementation Act
{{DEFAULTSORT:Canada-United States Free Trade Agreement 1988 in Canada 1988 in the United States United States Free History of Canada (1982–1992) Free trade agreements of the United States Presidency of Ronald Reagan Brian Mulroney Canada–United States trade relations Treaties concluded in 1988 Treaties entered into force in 1988 North American Free Trade Agreement