The following chapter contains:

	2008	Percentage change since 2007
Population	304.1 million	0.9%
GDP	$15.2 trillion	1.1%
Canadian Merchandise Exports	$375.5 billion	5.5%
Canadian Services Exports	$37.2 billion	3.2%
Canadian Merchandise Imports	$227.0 billion	2.9%
Canadian Services Imports	$51.7 billion	7.4%
CDIA	$310.7 billion	34.8%
FDI	$293.6 billion	0.3%

All GDP figures in the tables are quoted at current prices, whereas annual percentage changes of GDP are calculated at constant prices

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United States

Overview

Canada has a long-standing and multi-dimensional relationship with the United States. Because of its size, as well as its proximity and familiarity to Canadians, the U.S. market remains key to Canada's economic prosperity.

However, Canada cannot take its special position in the U.S. for granted. Globalization is making Canada's proximity advantage less significant, and bilateral and multilateral trade liberalization is reducing the margin of preference enjoyed by Canada as a result of NAFTA. Moreover, given the current downturn, currency fluctuations and volatile energy and commodity costs, Canadian manufacturers are finding it tough to maintain their market shares. To meet these challenges, Canada must redouble its efforts to retain and improve its trade position vis-à-vis the United States.

While the Canada U.S. relationship is for the most part very positive and functions smoothly, there are a number of complex bilateral issues at play in the relationship, some of which are currently garnering public attention.

For example, Canada is in WTO consultations with the United States because it continues to be concerned by the negative impacts of country-of-origin labelling (COOL) on the Canadian beef and swine industry. While the implementation of a potentially “workable” final rule on March 16, 2009, was a positive step, Canada is currently reviewing the final rule's market and trade impact, particularly in light of a letter from the U.S. Secretary of Agriculture encouraging industry to use very strict voluntary labelling practices. The stricter practices proposed by the U.S. Department of Agriculture appear to have reduced the flexibility originally envisioned in the final rule and are causing uncertainty for industry on both sides of the border. Canadian farmers say their business has declined as a result.

The U.S. American Recovery and Reinvestment Act of 2009 has created opportunities for Canadian exporters, but has also been a source of concern. Regarding the “Buy American” restrictions, Canada is still mindful of the commitments made by leaders of the G20 countries to keep our economic systems open and to resist pressure to increase barriers to international trade.

Additionally, administrative procedures by U.S. patent authorities, combined with judicial interpretations of U.S patent law in circuit courts, have created a situation that encourages litigation in the United States. Canadian companies that rely primarily on patents to carry out operations in the U.S. may have to devote significant resources to litigation, which in turn affects their ability to do business.

Certain U.S. pulp producers have discovered that they can collect a large U.S. tax credit under the Alternative Fuel Mixture Credit by adding small amounts of diesel to the black liquor that they already produce as a by-product of their pulp production. This unintended use of the credit for black liquor is creating significant distortions in the North American marketplace and placing Canadian pulp and paper producers at a significant disadvantage.

Canada has diverse energy resources and is the largest supplier to the U.S. for most energy commodities (i.e. oil, natural gas, and electricity). At the federal level, a number of bills related to climate change were proposed in the 110^th Congress that could have had an impact on Canadian energy, trade and climate change policies. These bills are likely to serve as the basis for legislative developments in 2009. Consequently, expected U.S. climate change legislation will need to be closely monitored with a view to active engagement, if necessary, to ensure that Canadian views and interests are taken into consideration. Opportunities do, however, exist for collaboration in developing existing energy resources in a sustainable manner, improving energy efficiency standards and developing alternative energy sources.

To search for specific trade and investment barriers to this market, please use our CIMAR Database on Foreign Commercial Barriers.

Market Access Achievements

Market Access Priorities

• Canada will continue to work with the U.S. with the goal of reforming the farm programs in the 2008 Farm Bill, in particular provisions on sugar, trade-distorting support and mandatory country-of-origin labelling rules. Canada recently initiated WTO consultations in the case of U.S. country-of-origin labelling rules.
• Canada will pursue a coordinated approach to food and product safety, and will actively engage on proposals introducing any new import safety measures, such as additional border inspection fees, that could have a significant impact on Canadian exports.
• Canada will seek to minimize the impact of new border procedures (e.g. those aimed at preventing illegal logging) on Canadian exports.
• Canada will continue its efforts to ensure that the new Buy American provisions in the American Recovery and Reinvestment Act of 2009 are applied in the least trade-restrictive manner possible.
• Canada will seek to end the ability of U.S. pulp producers to receive the Alternative Fuel Mixture Credit for black liquor.
• Canada is seeking a solution for Canadian companies that provide support to Department of National Defence and other Canadian government operations and are affected by the U.S. definition and treatment of dual nationals under the International Traffic in Arms Regulations.

Security and Prosperity Partnership

The Security and Prosperity Partnership (SPP) was one of the matters discussed at the 2008 North American Leaders' Summit held in New Orleans, Louisiana. The three leaders highlighted their commitment to the North American Free Trade Agreement and announced steps to continue work on the five priority areas for cooperation identified at their 2007 Montebello Summit: the global competitiveness of North America; safe food and products; sustainable energy and environment; smart and secure border; and emergency management and preparedness. Since New Orleans, the three countries continue to undertake initiatives to support North American cooperation.

North American Free Trade Agreement

The North American Free Trade Agreement—now in its 16th year—has contributed to significant increases in trade and foreign direct investment in North America between Canada, Mexico and the United States.

• NAFTA forms a market of 444 million people, with a combined GDP of $18 trillion in 2008.
• Since 1993, Canada's annual bilateral merchandise trade with its NAFTA partners has more than doubled to reach $626 billion in 2008. That year, approximately 80% of Canada's merchandise exports went to our NAFTA partners.
• Merchandise trade flows between Canada, the United States and Mexico reached $1 trillion in 2008.
• The U.S. and Canada have the largest two-way single-nation trading relationship in the world.

NAFTA covers a broad range of issues, including trade in goods, technical barriers to trade, government procurement, investment, services, intellectual property, and administrative procedures and institutions necessary to facilitate trade. With the challenges in today's global economy, it is important that we continue to benefit from our relationship with our NAFTA partners.

The NAFTA Work Plan

The dynamics of world trade have been transformed with the emergence of new economic players, coupled with the increasingly integrated network of global value and supply chains. To respond to these new challenges, the NAFTA partners agreed in 2007 to pursue a NAFTA Work Plan, which includes work on sectoral initiatives to enhance trade within North America, and to develop an economic research agenda to contribute to enhancing North American competitiveness.

Rules of Origin

Rules of origin are used by customs officials to determine which goods are entitled to preferential tariff treatment under NAFTA. Changes to the rules of origin are expected to be implemented in 2009. These changes could affect merchandise representing over US$140 billion in trilateral trade and will result in more Canadian goods qualifying for preferential treatment under NAFTA.

Changes to the Harmonized Commodity Description and Coding System (HS) require amendments to the NAFTA rules of origin (upon which the parties' tariff schedules are based) that are also expected to be implemented in 2009. These changes do not represent any substantive change to the intent of the rules of origin.

Dispute Settlement

NAFTA provides a dispute settlement process to resolve the disputes that inevitably arise in such a large trade and economic relationship. Under NAFTA, our businesses can trade and invest with the assurance that rules are provided to ensure fair treatment and that procedures are in place to settle disputes impartially, on the rare occasions when they occur.

NAFTA's Chapter 11 on investment includes dispute settlement provisions. The chapter focuses on investors' rights and protections when investing in the territory of one of the NAFTA parties. There are currently 15 cases in which Canada is the respondent, but arbitration proceedings have begun in only 7 cases. In all cases brought forward against Canada, the investors are allegedly American citizens or incorporated in the U.S. Canadian investors have also brought forward cases under the NAFTA Chapter 11 dispute settlement mechanism. There are currently three active cases involving Canadian investors and the U.S.: Glamis Gold, Grand River and Apotex.

NAFTA's Chapter 19 on anti-dumping and countervailing duties offers exporters an effective and direct route for making their case and appealing the results of trade remedy investigations before an independent and objective panel. In 2008, a Chapter 19 review of the final determination in the administrative review of a U.S. anti-dumping duty order on wire rod from Canada was requested. NAFTA's Chapter 20 on general dispute settlement can be used when the parties cannot, through informal discussions, resolve their differences regarding the implementation or interpretations of NAFTA provisions.

• Important Notices