U.S.-Canada Free Trade Agreement.

U.S.-Canada Free Trade Agreement

President Bush began his trip to Ottawa, Canada, in February 1989, by speaking of the U.S.-Canada Free Trade Agreement (FTA) - a historic accord representing the culmination of efforts covering more than 100 years - which went into effect on January 1, 1989. The FTA is a bilateral agreement designed primarily to eliminate trade barriers and open new avenues of trade between the United States and Canada. It strengthens an already extensive trading relationship and enhances economic opportunity on both sides of our common border.

The U.S.-Canadian trade relationship is the strongest in the world today. Each year the United States and Canada exchange more goods and services than any two countries in the world, with bilateral merchandise trade of about $154 billion in 1988, quadruple the 1974 level. Clearly, the elimination of tariffs and most other barriers to trade between the two countries under the FTA can only serve to further our economic progress.

While the FTA does not eliminate all trade problems between the United States and Canada, it does provide a consultative framework in which these issues can be managed before they create serious economic and political frictions. Industries in both the United States and Canada can expect ongoing structural readjustment in adapting to changing market conditions in the years ahead. However, the FTA will facilitate those changes and lead the two nations into a new century with the most productive and extensive trading relationship in the world.

BASIC FTA PRECEPTS

The FTA is an agreement designed with several key points in mind. Specifically, these objectives are to:

* Eliminate tariffs and substantially reduce other barriers to trade in goods and services between the two countries:

* Promote fair competition;

* Liberalize trade in several areas, including agriculture, autos, energy, and government procurement;

* Establish rules on investment and financial services;

* Establish effective administrative procedures and resolve disputes; and

* Lay the foundation for further bilateral and multilateral cooperation.

Although these objectives address a great many issues, the agreement is not intended to circumvent previously existing arrangements on trade and other bilateral relations. On the contrary, the FTA serves to further enhance our relationship. The FTA also is fully consistent with U.S. and Canadian obligations under the General Agreement on Tariffs and Trade (GATT). It does not lessen commitments to achieve multilateral trade liberalization. Rather it establishes useful precedents for the ongoing Uruguay Round of GATT negotiations.

The GATT has served trading nations well for more than 40 years. However, this global system traditionally has been restricted to trade in goods. There is a missing link - services and investment, which have become increasingly important international economic activities in which the United States and Canada have a very strong relationship. Therefore, the two countries are working together in the Uruguay Round to expand GATT coverage to include trade-related investment and service activities. The implementation of the FTA has provided needed impetus to these negotiations.

Enactment of the FTA was not easy. Many years of negotiations were involved in hammering out the agreement. In the United States, the Senate approved it on September 21, 1988. In Canada, the FTA became the center-piece of a bitter federal election campaign which tested the commitment of Prime Minister Mulroney's government to the FTA. The result was an endoresement of the FTA by the Canadian people, passage by the Canadian Parliament on December 30, 1988, and the agreement's entry into force on January 1, 1989.

SUMMARY OF KEY PROVISIONS

The agreement contains provisions covering virtually every trade sector. The following is a synopsis of these provisions.

General Provisions on Product Trade

Tariffs. Eliminates all tariffs on U.S. and Canadian goods by 1998. Some tariffs were removed on January 1, 1989, while the others will be phased out in 5 or 10 years.

Rules of Origin. Rules of origin define goods eligible for FTA treatment and prevent "free riding" by third countries. Goods produced only in the United States or Canada qualify for FTA treatment. Goods containing imported components qualify if sufficiently transformed to result in a specified change in tariff classification. In some cases, there is an additional requirement that 50% of the cost of manufacturing be in the United States or Canada.

Customs. Ends customs user fees for goods and most duty drawback programs (under which importers receive a duty rebate on exports) by 1994 for bilateral trade; ends duty waivers linked to performance requirements by 1998 (except for the …