Canada and NAFTA: a 10-year measure of success in Canadian-U.S. agricultural trade - North American Free Trade Agreement

AgExporter, Jan, 2004 by George C. Myles, Matthew Cahoon

It may not be obvious, but the United States and Canada have the world's largest bilateral trading relationship. In 2002, total trade between the two countries was $411 billion.

Merchandise trade alone was $370 billion, translating into more than $1 billion in goods crossing the border each day. When services are added, the daily total equals $1.1 billion.

Sizing Up Canadian-U.S. Trade

Canada ships 87 percent of its merchandise trade exports to the United States, and receives 63 percent of the goods it imports from the United States. On the flip side, 23 percent of U.S. merchandise exports go to Canada, and 18 percent of the goods the United States imports come from Canada.

The agricultural provisions of the CFTA (U.S.-Canada Free Trade Agreement), which began taking effect in 1989, were incorporated into NAFTA (the North American Free Trade Agreement). All tariffs affecting agricultural trade between the United States and Canada, except for a few items covered by tariff-rate quotas, were removed by Jan. 1, 1998.

Agricultural trade with Canada has continued to flourish under NAFTA. As noted elsewhere, Canada is the No. 1 market for U.S. agricultural exports, purchasing $8.7 billion worth in calendar 2002, and exports were forecast to reach $9.4 billion in 2003. Since 1994, U.S. agricultural products to Canada have accounted for almost half of total growth in U.S. agricultural exports worldwide, and the growth rate has significantly outpaced that of sales to the test of the world. The average annual growth rate of U.S. agricultural product exports to Canada since implementation of NAFTA was 5.1 percent, while that for the rest of the world was only 1 percent.

Two-way agricultural trade between the United States and Canada for 2003 was poised to reach $21 million, about double the 1994 figure, before the discovery of bovine spongiform encephalopathy in Canada last May. Subsequent emergency trade restrictions on U.S. imports of Canadian cattle and beef resulted in lower export values for two of Canada's leading agricultural exports.

A Sector-by-Sector Review

Although U.S. imports of Canadian agricultural products have grown under NAFTA, mostly of red meats, live animals and frozen potato fries, U.S. exports of a wide range of bulk, intermediate and consumer-oriented agricultural products to Canada registered significant gains. Without the trade agreements, the United States would have lost these expanded export opportunities.

Spurred by an increase in coarse grain exports, U.S. bulk commodity exports to Canada for 1994-2003 increased at an annual average of more than 10 percent, creating a $1.0 billion market. U.S. intermediate exports rose more than $500 million. U.S. high-value food exports grew at an annual average rate of 4.5 percent and have created a stable $6.0 billion market for U.S. manufactured consumer food products.

Besides the market opportunities created by zero tariffs, NAFTA has given Canadian consumers greater freedom to determine the demand for high-value agricultural products in a more competitive marketplace. Canada's wholesale, retail and food service industries are watching with acute interest developments in U.S. packaged and processed foods and service trends. Canadians learn about new and innovative U.S. food products about as soon as U.S. consumers do via the media and frequent business and personal travel to the United States. These information sources create an immediate demand that helps ensure the success of U.S. high-value food products.

As demand accelerates and two-way trade expands, food policy makers in Canada recognize the importance of working with the NAFTA partners toward harmonization in food packaging and nutrition labeling regulations. These developments promise further impetus for accelerated trade for the NAFTA partners in the coming years.

Good Produce Makes Good Neighbors: Under the tariff phase-out provisions of NAFTA, U.S. fresh vegetable exports to Canada enter duty-free; seasonal duties are no longer applicable. Although a tariff snapback provision remains in effect until 2008, it has been used sparingly by Canada, and not at all in recent years.

NAFTA has enabled U.S. fresh vegetable exporters to benefit from the expanding opportunities in the Canadian market, stemming from increased demand in the food service sector and higher fresh market sales to Canada's growing number of Asian immigrants, whose traditional diet includes large amounts of fresh vegetables. Canada has one of the world's highest consumption rates of fresh vegetables. In Canadian retail grocery stores, more space is devoted to fresh produce than to any other food sector.

U.S. fresh vegetable sales to Canada reached $964 million in 2002 and posted an annual average growth rate of 4.2 percent since NAFTA implementation. Sales were set to exceed $1.0 billion in 2003, making Canada the No. 1 market for U.S. exports in this product category. NAFTA border facilitation measures and modern transportation and wholesale dealer networks provide Canadian fresh vegetable buyers with prompt delivery.