U.S.-Canadian Business under the Free Trade Agreement: A Study in Contrasts
Abstract
The United States-Canada Free Trade Agreement (FTA), which went into
effect on the first day of 1989, has already greatly reduced tariffs between the two
countries and will continue to do so over the following ten years. In addition, many
non-tariff barriers will be reduced, if not eliminated, and cross-border investment
will be greatly liberalized.
In the long run, the gains for both the U.S. and Canada as a result of freer
trade should be significant, but can only be realized if companies are aware of the
changed environment and are reacting to it.
A survey of 4,530 firms, generally in the Great Lakes Region, was conducted
in order to calibrate awareness levels of the Agreement among firms on both sides
of the border and to see how they are responding to the changed environment. The
response rate from Canadian firms was 15%, while only 5% of the U.S. firms
responded.
The major conclusion that was drawn from the survey was that while U.S.
manufacturers generally see the Ff A as an opportunity, they are not very familiar
with it nor are they responding to it. In contrast, Canadian manufacturers see the
Agreement as both an opportunity and a threat. They have studied it much more
than their U.S. counterparts and are very aware of its implications. They are taking
specific action now, both in the U.S. and Canada, while their neighbors across the
border are standing still, oblivious to the Canadian threat to their U.S. markets.
Most of the companies (U.S. or Canadian) having specific action plans intend
to implement them within one year, regardless of their tariff phase-out period.
The most active firms are those that are truly Canadian (independent of
parents outside of Canada). One-third of those respondents plan on increasing U.S.
capacity.