The Canada-United States Free Trade Agreement and Its Implications for Small Business

By Dana, Leo Paul | Journal of Small Business Management, April 1990 | Go to article overview

The Canada-United States Free Trade Agreement and Its Implications for Small Business


Dana, Leo Paul, Journal of Small Business Management


The Canada-United States Free Trade Agreement and Its Implications for Small Business

National policy necessarily affects small business policy directions. On October 4, 1987, national policy on trade for Canada and the U.S. embarked on a new path, triggering off changes in both countries, with major implications for all parties concerned. The Canada-United States Free Trade Agreement is the most comprehensive ever concluded between two nations, inevitably affecting small business; still, little academic literature has yet been published on the implications of free trade for the small business. The following pages include an examination of particular sections of the agreement which are especially relevant to those involved with this sector.

The Agreement: Objectives

The Canada-United States Free Trade Agreement is one of a long list of agreements intended to foster international trade cooperation. It is divided into eight parts, each of which is further subdivided into chapters. The first chapter sets the tone of the accord, its objectives emphasizing the extent to which this agreement moves beyond other free trade agreements. Specifically, the Canada-United States Free Trade Agreement is broader in scope than other free trade agreements negotiated under the General Agreements on Tariffs and Trade. Whereas the Canada-United States Agreement provides for liberalization in all sectors of the economy, even agriculture, none of the other trade agreements currently in force between countries includes binding commitments on trade in services, business, travel, or investment. Given the concentration of small business in service industries, and in consideration of the entrepreneur's need to travel, these provisions are of particular interest to small business.

The objectives of the Canada-United States Agreement are to:

* Eliminate barriers to trade in goods and services between the territories of the Parties;

* Facilitate conditions of fair competition within the free trade area;

* Liberalize significantly conditions for investment within this free trade area;

* Establish effective procedures for the joint administration of this Agreement and the resolution of disputes; and

* Lay the foundation for further bilateral and multilateral cooperation to expand and enhance the benefits of this agreement.

Whereas research has found that small business is burdened by government regulation and paperwork requirements (Dana 1987), it is expected that small business will flourish in an environment of lower levels of restrictions (Bulloch 1987). The Canada-United States Agreement will eliminate all tariffs on trade between Canadian and U. S. goods and services traded between these countries as of January 1, 1998. In addition, the agreement facilitates conditions of fair competition within the free trade area and expands liberalization of conditions for cross-border investment. The result should be an environment conducive to entrepreneurial activity; when the national economic policy environment is positive, consumers spend and the small business sector is healthy (Johnston 1983). Much literature is already available on the environment and entrepreneurship. (*1)

General Rules

The Canada-United States Free Trade Agreement eliminates tariffs on trade between the two parties involved, but does not affect existing tariffs on imports from other countries. In order to qualify for duty-free treatment within the scope of this agreement, goods must be of Canadian or U. S. origin. Chapter Three specifies that goods originate in a country if they are wholly obtained or produced in that country. Additionally, merchandise may be deemed to originate in a country after having been transformed there. This is of particular help to the small manufacturer which lacks the facilities to produce an item from new materials, and therefore assembles components, most of which may be imported from overseas. …

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