Canada–US Economic Relations | The Canadian Encyclopedia
Canada is open to doing more business with China now that a trading if they engage in trade talks with any "non-market economies", including China. by the U.S. to thwart its trading relationships with Canada and Mexico. United States-Canada Trade and Economic Relationship: Prospects and In , China displaced Canada as the largest source for U.S. Economic relations between Canada and the US are of paramount The Canada–US two-way merchandise trade is the largest bilateral trading China has displaced Canada as the largest exporter to the US while Mexico.
Canada needed access to US industrial supplies and dollars to undertake its war effort. All Canadians were required to sell their holdings of foreign exchange to the Foreign Exchange Control Board and Canadians were not permitted to buy foreign exchange for pleasure travel.
Until the Second World War, Canada had regularly run trade deficits with the US but had offset these through its surpluses with Britain.
At the same time, to meet its industrial war and other needs, Canada found itself with a serious shortage of US dollars. Under the resulting Hyde Park agreement, Canada and the US agreed to co-ordinate production of war materials to reduce duplication and to enable each country to specialize.
Mackenzie King second from left and Franklin D. Roosevelt second from right courtesy NGC. The postwar economic recovery had led to a surge in imports as Canada experienced a sharp rise in domestic demand, along with conversion of its industrial base to peacetime production.
InCanada again introduced exchange controls to limit the purchase by Canadians of US dollars to essential purposes. The oil discoveries at LeducAlberta, and other discoveries in western Canada, meant that the US now had access to more secure oil supplies shipped overland rather than in ocean-going vessels. The US gave Canadian oil preferential treatment in what at the time was a highly protected market. This also marked the beginning of a network of North American oil and gas pipelines.
The economic crisis in the mids and the growing interdependence in trade and resource development led to new discussions between Canada and the US for a free trade agreement. But Prime Minister Mackenzie King in halted discussions out of fear of rejection by Canadians concerned about the threat of assimilation into the US.
Canada relied instead on successive rounds of the General Agreement on Tariffs and Trade now the World Trade Organization to progressively improve access to the US market. These agreements over several decades led to the elimination or significant reduction in most tariffs between Canada and the US.
Defence Industry Collaboration became more important in defence procurement during the Cold War. The two countries agreed to maintain trade in defence products in rough balance. Canada relied on the US for major military technology, while the US agreed to assist the development of a defence industry in Canada by eliminating tariffs on most Canadian military products and exempting Canada from Buy America provisions that required the US Defence Department to purchase US products.
While acknowledging that Canada had benefited in terms of capital, technology and management skills from US investment, the commission, chaired by Walter Gordonraised concerns about US domination in the oil and gas, mining and smelting, and various manufacturing industries.
Canada had relied on foreign capital for development since Confederation and without it, the economy would have been smaller and the standard of living lower.
But in the 19th century, most of that capital came from Great Britain, mostly in the form of debt that was paid back and concentrated in railways, construction of utilities and funding of governments. In contrast, US investment from the late 19th century and in the 20th was in the form of direct investment, allowing permanent ownership and control of enterprises. By the s, direct investment had become the most important form of foreign capital in Canadian industry, mainly in subsidiary companies or branch plants.
In85 per cent of foreign capital invested in Canada was owned in Great Britain and 14 per cent in the US. Bythe British share had fallen to 17 per cent while the US share was 77 per cent.
The concern of the Gordon commission was that US corporations controlled businesses in the fastest-growing sectors of the Canadian economy. It was also concerned that US subsidiaries would give preference to US suppliers of machinery and equipment, parts and components and professional services over competing Canadian suppliers, while good jobs in research and development, finance and corporate strategy would be held in US head offices. The report proposed that wherever possible, branch plants should employ Canadians in senior management and technical positions, retain Canadian engineering and other professional and service personnel, and whenever possible do their purchasing of supplies, materials and equipment in Canada.
The commission also called on foreign subsidiaries to publish full financial statements of their operations in Canada, include on their boards of directors a number of independent Canadians and sell an appreciable interest — 20—25 per cent — of their equity stock to Canadians.
China says it's 'always ready' to restart free trade talks with Canada
The commission also called for restrictions on foreign ownership in Canadian banks and life insurance companies. By the s, politicians were raising concerns about US ownership and control of Canadian industries, including the oil industry. Limiting US Ownership Inthe report of the Task Force on the Structure of Canadian Industry was published, recommending the creation of a development corporation to support the growth of Canadian-controlled companies, and the regulation of foreign takeovers of Canadian companies.
Inthe federal government created the Canada Development Corporation to support the development of Canadian-controlled companies in the private sector, but it was dismantled in Inthe federal government established Petro-Canada as a Crown Corporation to build a Canadian-owned presence in the oil industry it was privatized in and merged with Suncor Energy in This was followed, inby the National Energy Programwhich set the goal of 50 per cent Canadian ownership of the Canadian oil and gas industry by In14 foreign, mainly US oil companies accounted for 82 per cent of Canadian oil production.
A variety of measures were announced to favour Canadian-controlled oil companies, including Petro-Canada, initiatives strongly opposed by the US. The US strongly opposed the sale, and the Canadian subsidiary of a US company refused to sell the grain handling equipment to make the sale possible, citing US laws that made sales to China illegal.
After negotiations between the two countries, the grain-handling equipment was supplied.
Following the Cuban revolution ofthe US imposed a trade embargo on Cuba and tried to force Canadian subsidiaries of US corporations to abide by the embargo. However, Canada insisted that the subsidiaries were subject to Canadian, not US laws.China trade war may start to have a ‘very negative’ impact on US economy: Terry Miller
InCanada passed the Foreign Extraterritorial Measures Act, requiring companies in Canada to abide by Canadian laws rather than foreign laws. The law was amended inforbidding Canadian companies and Canadian subsidiaries of US corporations from complying with even harsher US restrictions on trade with Cuba that came into effect that year. Auto Pact InCanada took a transformative step in deepening cross-border economic integration with the signing of the Canada—US Automotive Products Agreementor Auto Pact, whose purpose was to establish a single continental market for the industry.
The agreement was negotiated to avert a serious trade conflict between the two countries, since the US had found Canadian auto industry policies to be in conflict with US trade laws. But the agreement was also seen as an efficient way to lower Canadian manufacturing costs through the gains from manufacturing fewer product models, but with longer production runs, for assemblers and parts manufacturers serving a single Canada—US market.
This was not a free trade agreement but a managed trade agreement. It did not include free trade for consumers but only for manufacturers, provided they met certain conditions the agreement was limited to US-brand auto assemblers and Volvo, which had a small operation in Halifax. For its part, Canada agreed not to pursue auto free trade with other countries. The Auto Pact led to a surge of investment and production in Canada by the major US auto and auto parts companies and byfor the first time, Canada had a trade surplus with the US in autos and auto parts.
The agreement soon became a source of friction: Inthe US came very close to abolishing the agreement. The pact was ended in after it was found to be contrary to World Trade Organization rules.
But by then, the North American auto industry, with a strong Canadian presence, was already well established, with autos and auto parts the most important Canadian manufacturing exports to the US. This was clearly apparent in the s as the US grappled with its own balance of payments problems, its long-standing global trade surpluses turning into deficits.
Canada argued that its relationship with the US was special, and thus should be exempted from US balance of payments measures. But the US viewed Canada as part of the problem, saying Canada should borrow less in the US and do more to develop its own capital markets. Inthe US introduced a tax on the interest and dividends earned by US citizens, and on foreign bonds, shares and commercial paper by corporations, in a bid to slow down the flow of US funds abroad.
Five days later, Canada obtained a conditional exemption: Canadian borrowing in the US could not increase above traditional levels and Canada was not allowed to increase its foreign exchange reserves through the proceeds of new US borrowing.
InCanada agreed to additional conditions following the introduction of mandatory US controls on foreign investment by American multinational corporations, which were ordered to increase repatriation of earnings from their foreign subsidiaries, including those in Canada. This led to a further crisis for the Canadian dollar and Canada was forced to negotiate an exemption for subsidiaries of US non-financial corporations in Canada.
Inthe US lifted its interest equalization tax and other balance of payments measures. Canadian paper dollar featuring a young Queen Elizabeth.
Faced with continuing balance of payments problems, however, the administration of US president Richard Nixon took drastic steps in with its New Economic Policy. It included a 10 per cent surcharge on all US imports, generous tax incentives for exports and a devaluation of the US dollar by ending the link between the dollar and gold, leading to the current system of floating exchange rates.
At the same time, in bilateral negotiations, each major trading partner, including Canada, was pressured to take additional steps to help the US improve its balance of payments. Canada, for example, was threatened with cancellation of the Auto Pact. A key lesson of the s, culminating in the New Economic Policy, was the vulnerability of Canada to unilateral US actions.
A government report, Canada—US Relations: Options for the Future, said Canada should reduce its vulnerability to US policies and pressures through trade diversification. Energy Conflict While Canada had long been viewed in the US as a secure source of oil and gas, access to the American market had not always been easy. InPresident Dwight Eisenhower established the Mandatory Oil Import Program, which imposed import quotas and licenses to stimulate domestic US production, which limited Canadian oil exports.
But as US needs rose, the quotas were phased out. With the sharp increase in world oil prices through the s, Canada imposed an export tax on oil from until under the Petroleum Administration Act. The purpose was to sustain an oil price in Canada below the world price by using revenues from the tax to subsidize more costly oil imports used by refiners in eastern Canada. This was followed in by the National Energy Programwhich included the goal of 50 per cent domestic ownership of the Canadian oil industry byassisted via a tax policy that favoured oil exploration by Canadian companies.
The National Energy Program also sought to increase the Canadian share of engineering services, technology and machinery in oil and gas projects.
Foreign multinationals in Canada, it was argued, tended to favour companies and technologies already used by their parent companies, thus depriving Canadian enterprises. The US vigorously protested these measures, and beginning in they were to a large extent unwound. The subsequent Canada—US free trade agreement see "Free Trade Agreement" below barred the future use of an oil export tax, and provided for equal treatment of Canadian and US companies in developing Canadian resources.
ByUS-controlled subsidiaries accounted for 9. In manufacturingfor example, they accounted for In the oil and gas sector they accounted for But in other sectors, such as finance and insurance and construction and utilities, US ownership and control accounted for a much smaller share of industry activity in finance and insurance, for example, just 4. Free Trade Agreement In the early s, following a severe recession, Canada again turned its eyes south in pursuit of ways to expand economic growth.
This renewed interest in relations with the US was also prompted by growing fears of a resurgence of US protectionism. Based on the success of the Auto Pact, Canada and the US attempted to identify other sectors where they could pursue sectorial free trade.
The exercise failed through lack of agreement on new sectors. As a consequence, Canada decided to seek a comprehensive free trade agreement and in the US agreed to begin negotiations. President Ronald Reagan was open to the idea. InReagan had called for a North American common market. This, it was argued, would encourage innovation and boost productivity, and hence increase employment and raise Canadian living standards.
An agreement was reached at the end ofcoming into effect on 1 January A key Canadian objective — an exemption from US trade remedy laws —was not, however, achieved.
Canada–China relations - Wikipedia
Canada was still faced with punitive actions, such as subsequent US efforts to restrict softwood lumber imports, or US unilateral actions, such as Buy America restrictions in public infrastructure projects.
Even before the heightened border rules that came after the terrorist attacks ofexports from Canada required extensive paperwork to comply with rules of origin in the agreement which set minimum North American content thresholds. Moreover, while proponents argued that the free trade agreement would narrow the productivity gap between the two countries, instead the productivity gap widened.
Softwood Lumber One of the most contentious and ongoing trade disputes — softwood lumber — predated the free trade agreement, was not resolved by it, subsequently became an important test of the agreement and has not gone away.
The basic dispute arose in the early s because Canadian softwood lumber producers were gaining market share in the US, with American producers seeking a protectionist solution.
The two countries had different systems of pricing. Most Canadian lumber production takes place on Crown landswith a stumpage fee being charged to collect a royalty, whereas in the US, much production comes from privately owned lands and a market-based auction system is used for pricing. In trade actions starting inUS producers charged that the Canadian stumpage system gave Canadian lumber producers an unfair advantage, and that this constituted a subsidy.
In what might be described as a fingers-crossed-behind-your-back reaction to the agreement, the Trudeau government is already signalling that it will not be restrained in pursuing deeper economic connections with China.
The ministers of Finance and Trade and Diversification will soon visit China. And the Prime Minister recently bucked pressure from the U. Even in advance of the USMCA, articulate voices were making the case that a full-fledged Canada-China FTA is neither feasible nor desirable, favouring instead a series of linked but discrete agreements on specific sectors including industry, agriculture, education, and co-operation on pressing global issues like climate change.
See for example the new report by the Public Policy Forum. It remains to be seen whether Beijing will be receptive to this novel idea of a sectoral approach and whether it will meet its specific economic objectives related to investment rules, energy, and particular sectors including artificial intelligence. It is not difficult for Ottawa to convey that Article Dan Ciuriak - Does the USMCA represent a setback for Canada in its relations with China and how can Canada effectively move forward with its trade diversification agenda and collaborate on trade issues with China?
Rules of origin are the gatekeepers to free trade market access for products. Accordingly, companies organize their supply chains to comply with the applicable requirements for their exported goods and collect and store the documentary evidence to demonstrate that when audited.
This will create uncertainty for businesses shipping to the United States and impose additional administrative costs to ensure they retain free trade market access. However, this affects transpacific trade in general given the deep and complex Asia Pacific production networks. Two specific bits of history are highly relevant today. Second, the original Trans-Pacific Partnership, which from the U. For Canada, having the equivalent of an Iron Curtain descend across the Pacific is decidedly against the national interest.
Canada has a long history with China as an honest broker and should draw on that diplomatic capital. Canada can help in three ways. First, Canada should engage China on the same terms it is engaging the U.
Second, Canada has now issued its own WTO reform discussion paper. It would make eminent sense to take this discussion to Beijing ASAP to identify points to which China could realistically move but that also address the concerns of the wider trading community.
This would create a forum that other countries could join as observers to contribute to dialogue that could broker a new trade peace. Phil Calvert - Does the USMCA represent a setback for Canada in its relations with China and how can Canada effectively move forward with its trade diversification agenda and collaborate on trade issues with China? This clause sets a worrying precedent in codifying an obligation to consult and share text about an FTA with a third country.
In essence, it formalizes what would have been an informal practice of discussing such an undertaking with our largest trading partner. Given the current U. Canadian companies are actively pursuing new opportunities in China, supported by federal and provincial trade representatives on the ground across China. The Chinese market presents a number of systemic challenges to Canadian companies that would be difficult to address even with an FTA in place.
These include lack of transparency and predictability in its regulatory system, provincial and local rules that discriminate against foreign sources, and ongoing issues with corruption. State intervention in certain sectors creates an uneven playing field for Canadian companies, and the lack of a fully convertible currency, along with restrictions on the outflow of foreign currency, put more restraints on doing business. Given these challenges and the current constraints on an FTA with China, Canada should consider a different approach to strengthening the architecture of our trade relations with China.
The two sides should establish a bilateral umbrella agreement — an Economic Partnership Framework EPF — incorporating a number of trade-related economic initiatives aimed at improving bilateral trade flows while respecting WTO rules on non-discrimination. The EPF could, for example, establish a robust engagement on regulatory issues, promoting finding ways to enhance transparency and predictability, and exploring initiatives like mutual recognition, certification, and customs facilitation agreements that would reduce the administrative burden associated with bilateral trade.
Better regulations in China would benefit both sides, and this regulatory engagement could also include working with Chinese companies and certification agencies to help reach more international standards in areas like product and food safety.
Such a framework could also include formal, high-level mechanisms for swiftly addressing bilateral trade disputes, rather than going through the slow and increasingly dysfunctional WTO process.
- Canada–US Economic Relations
- Canada–United States trade relations
These initiatives could be captured through focused, sectoral agreements that bring together key players from each country. Co-operation under an EPF need not be limited to bilateral issues, but could extend to global issues, like food security, trade, the environment, and supporting the rules-based system that have been identified as priorities by each country.