How The Canadian Economy Is Dependent On The U S Economy Term paper
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The Canadian economy is determined largely by the United States economy threw the North American Free Trade Agreement (NAFTA) and the Free Trade Agreement (FTA). The North American Free Trade Agreement was an agreement that came into effect on January 1,1995 which involves Mexico, Canada and the United States of America. This agreement is said to produce 1 billion to 3 billion dollar gains in each country. NAFTA ensures that a certain amount of goods produced and traded between the three countries has to have a minimum percentage of its parts produced in North America.
The Free Trade agreement is between the United States and Canada. The Free trade agreement came into effect in 1989 even though three fourths of trade between Canada and the United States was already free. This agreement to Canada is huge because it set up a free trade zone between the U.S and Canada, which is the largest free trade zone in the world. The Free Trade agreement is huge to Canada because 20 per cent of Canada s GDP comes from exports to the United States. This agreement eliminated all trade restrictions such as tariffs, quotas, and non tariff barriers. The Canadian economy gains access to the U.S economy that is ten times its size. While the U.S economy will gain the lower-priced Canadian goods.
These two agreements show how much the Canadian economy relies on the United States economy and threw these two agreements the Canadian producers can export and import U.S goods easily and at an affordable and profitable price. In this paper I will show you how the FTA and the NAFTA help the Canadian economy export and import into the U.S economy and will show you how much the Canadian economy needs the American economy to do business.
Why are the FTA and the NAFTA important to Canada? Considering that the United States is Canada s most important country to trade with it only seems logical that the Canadian economy would benefit from free trade that the FTA and the NAFTA give them. The FTA eliminated many things and one of those things was Tariffs. Under the FTA, one group of tariffs was eliminated on January 2, 1989 another group in 1994 and all the rest of the tariffs were removed in 1999. By eliminating the tariffs the goods that weren t being traded before between Canada and the U.S are now being traded. The goods that weren t being trade before between Canada and the U.S were petrochemicals and woven fabrics; these goods were not traded before because there was such a high tariff on them. Since Canada does a lot of exporting of raw material these materials use to have such a high tariff and were not being as traded to their potential now they are being traded frequently to the U.S because of the FTA.
The FTA has allowed Canada and the U.S to reduce trade obstacles by standardizing their product standards, testing and approval processes. The FTA now states that Canada can t restrict oil and natural gas exports to the United States therefore Canada can t charge Americans higher prices in Canada. The FTA has excluded some industries from the agreement these industries are Agricultural, Cultural Industries, Social Insurance programs and Regional development programs. Since there are so many rules and regulations under the FTA a binational panel will settle the disputes. The panel settles these disputes by determine whether each country s regulators are applying to their trade laws. Canada or the U.S can end the FTA by giving six months notice. Since U.S exports to Canada only account for a small 1.3 per cent of its GDP and Canadian exports to the U.S account for 20 per cent of its GDP, Canada can t afford to lose this agreement while the end of this agreement would hardly even effect the U.S.
The NAFTA set up free trade over North America. Since Canada already had free trade with the U.S the NAFTA set up free trade with Mexico. The NAFTA has been controversial both in Canada and in the U.S because people are afraid that Canadian business firms may leave Canada and take advantage of the lower wages and safety regulations in Mexico. The NAFTA agreement states that a certain percentage of goods have to be manufactured in North America. Canada s reasons for joining NAFTA were, because if Canada didn t join NAFTA, Canada wouldn t be allowed to be a part of future agreements between the U.S and Mexico. Canada would have been at a competitive disadvantage to Mexico. The NAFTA was also appealing to Canada because there have been talks that part of the Western Hemisphere would also become a part of NAFTA. Canada also joined because it would give Canada a lever in future trade negotiation with the European Union and Japan.
The main advantages of the FTA and the NAFTA are. Canada will gain free trade into the market that it relies on the most the U.S. These agreements are suppose to generate 3 billion dollars of annual gains. Canada will be able to obtain more total output from its scarce resources. The disappearance of tariffs will increase Canadian imports and exports into and from the U.S. That Canadian unemployment will decrease. That a percentage of parts will have to be made in North America.
The disadvantages to these agreements mostly concern the Mexico factor in NAFTA. People fear that Canadian business firms will move to Mexico and take advantage of lower wages. People also fear the American firms will move back to the U.S because the tariffs have been eliminated. Economists are also concerned that Japan and South Korea will begin to build plants in Mexico to ship goods tariff free through the U.S and into Canada, thus decreasing Canadian exports into the U.S.
The impact that the U.S economy has on the Canadian economy is huge every Canadian industry relies on the U.S in some way. From importing U.S goods to exporting Canadian goods to the U.S. When the U.S stocks are increasing so usually does the Canadian stocks, this is because Canada and the U.S are interconnected. Many of the successful United States chains have come up to Canada such as (McDonald s, Starbucks, and...
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