International Trade and Finance: A North American Perspective

By Khosrow Fatemi | Go to book overview

20
NORTH AMERICAN COMMON MARKET: POTENTIALS AND PROBLEMS

M. REZA VAGHEFI


INTRODUCTION

In recent years Canadian dependence on the U.S. market has grown from 60 percent in 1980 to 80 percent at the present time of its total exports. Canada toted up a trade surplus of almost $13.7 billion in 1985 and $11.1 billion in 1986 with its neighbor to the south. Canada owes much of the success to two trade agreements. The 1965 auto pact with the United States assured Canada of duty-free unlimited access to the U.S. market for new cars and original parts.

The second arrangement is in defense, and provides unlimited access by Canadian firms to sell military hardware and supplies to the U.S. Department of Defense. By 1987, with full implementation of Tokyo Round cuts, 80 percent of Canadian exports to U.S. and two-thirds of U.S. exports to Canada were duty-free. But benefits are in danger. The problem is that there are deep-rooted vested interest groups that feel threatened by the free movement of goods with the United States. These pockets of disagreement with free trade belong to those segments of Canadian society that are most heavily subsidized and protected by the federal and provincial governments in Canada. By the same token, because they have most to lose, they are also the most ardent defenders of the status quo in Canada.

As Table 20.1 indicates, Canada is increasingly dependent on the U.S. market for an array of goods. While in 1970 Canada depended on the U.S. economy for about two-thirds of its exports, that dependency increased to 75 percent in 1986. Canada and the United States are each other's largest trade partners. The value of trade between the two nations reached $123 billion during 1986 and is expected to top that figure in years to come. The protectionist movement in the U.S. Congress of the late 1980s makes it an

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