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US bilateral free trade accords: Why Canada should be cautious about going the same route

C.D. Howe Institute

No. 214, August 2005

U.S. Bilateral Free Trade Accords: Why Canada Should Be Cautious
About Going the Same Route

Danielle Goldfarb

The study in brief

Ottawa has expressed concern that the recent wave of U.S. bilateral free trade agreements dilutes Canada’s
tariff-free access to the U.S. market. This Commentary analyzes the effects of the U.S. bilateral free trade
agreement strategy on Canadian interests. The U.S. agreements establish precedents and new rules without
Canada at the table, and add to the “spaghetti bowl” of international trade rules. They may also undermine
multilateral free trade efforts in which Canada has a large stake, and share Canada’s duty-free access to the
U.S. more widely. However, partner countries have economies marginal to Canadian interests and U.S.
average duties are low to start with, so the overall effects of current U.S. free trade agreements on Canadian
interests are likely to be relatively minor.

The government’s strategy in this context is to complete already opened, but currently stalled, free
trade negotiations - mostly with minor economies - and to open new free trade negotiations with select
partners. While the political appeal of signing free trade agreements outside of North America is clear, this
strategy is unlikely to result in large economic gains for Canada. Such accords will make the trading system
more complicated, expending significant government resources for the prospect of a marginal benefit of
which businesses may not even take advantage.

A better strategy would overwhelmingly focus on attaining secure, predictable access to the U.S.
market, and providing continued support for the current WTO Round, including removing remaining
tariff and non-tariff barriers, rather than continuing to protect certain industries at the expense of other
industries’ market access.

If policymakers are determined to proceed with free trade accords, Canada should try to engage
large markets in comprehensive accords that reinforce multilateral efforts. Canada could use the negotiated
U.S. agreements as a basis for striking its own deals. Where Canadian and U.S. interests coincide, and if
countries with large economies are interested, Canada could carefully consider negotiating future agreements
with the U.S. Then traders would face only one set of rules for Canada and the U.S. and Canada would be
one of the few places where businesses can have free access to two large economies.

Full paper (24 pp, PDF)

 source: CD Howe Institute